The last few years have witnessed the massive digital disruption of traditional business sectors. To succeed in the digital age, businesses must be adaptable, flexible and agile. So can they embrace change, or will they be replaced by their more modern counterparts?
The demise of the high street retail sector is largely attributed to its failure to innovate and adapt to the threat of online alternatives. Online shopping offers instant convenience and choice. With physical retail it’s more difficult to personalise the in-store proposition and iterate experimentally due to high CAPEX investment in moving space and OPEX in designing new ranges. Retailers need to focus on understanding customer intent and opportunities to differentiate the physical retail experience.
Historically, retailers could build more and bigger stores and revenue would follow. However, with such severe competition from online, retailers need to rely on aggregation of marginal gains by ensuring that range has as much innovation as possible and is exactly tailored to local demand. To do this, retailers must ensure that their stores are spaced correctly, which often requires significant CAPEX investment. Data analytics is now essential, says Adam Hadley, founder and managing director of Quantspark, which works with many large retailers, helping them improve their space and range to precisely match local demand.
He says: “Supermarkets in particular benefit from centralised economies of scale, large order volume driving down costs, shared CAPEX, and operational synergies, at the cost of understanding the local market. This is where enhanced location intelligence can ensure that the in-store experience is as optimal as possible.” The survival of physical retail businesses may depend on them making their proposition more relevant for consumers. Hadley says there are two sources of insight in which retailers should be investing: understanding existing buying patterns of customers, and location intelligence relating to demographics in the vicinity of stores.
He says: “Using techniques from big data and machine learning it’s now possible to identify specific ‘need states’ in stores and ensure that stores are catering adequately to the needs of every customer entering. We’re able to build sophisticated models that can be used to understand customer missions and needs.”
Digital transformation has hit the advertising industry hard; the impact of on-demand TV providers such as Netflix on conventional small screen advertising is a case in point. The most significant change is the greater level of control that advertisers now have over user behaviour and their ability to target them with a broader range of sponsored placement opportunities. “On-demand TV services have access to a range of customer data that has not previously been available to advertisers,” says Tim Emkes, paid social manager at social ad tech company Mighty Social.
“The success of Netflix’s algorithm, which suggests shows users may be interested in watching, is a testament to the ability that the platform has to better understand user preference based on their viewing habits.” With myriad ways to personalise content, from re-cutting video based on users’ consumption habits, to considered storytelling, traditional advertisers are under pressure to get up to speed and make themselves futureproof. “Brands and agencies will have to work harder to involve users in sponsored content, personalise it to their taste and viewing habits and allow users choice over what and where they are seeing it, to continue the expansion of digital,” says Emkes.
The pressure to adapt will increase with even greater personalisation of content, going beyond simply knowing which brands or products people are interested in, to understanding how individuals consume content and how this differs at different times of the day or depending on their mood. Fierce competition and shorter attention spans will force brands to work harder and more efficiently to be heard. Innovation will drive new formats and new ways to deliver ads, for example, using augmented reality (AR) and virtual reality (VR), to enhance engagement, personalisation and overall user experience.
Before the dawn of the internet, estate agents had complete control over the process of buying, selling and renting property, and maintained that control with little in the way of transparency or speed. Huge growth in the digital space which has provided consumers with information and ease of access to all aspects of the property market has all but eliminated the need for a bricksand-mortar estate agent. According to Tom Mundy, COO and co-founder of property tech platform Goodlord, digital doesn’t have to mean the demise of this very traditional business sector, but it does mean change.
He says: “In our on-demand economy, consumers want personalised added value and they want it delivered in the most convenient way possible. Estate agents who don’t adapt their business models to accommodate these shifting customer expectations will be vulnerable, and the route to offering this is through technology.” Although industry headlines may suggest otherwise, many property market incumbents have already begun setting benchmarks in this space by experimenting with modern business models and putting digital at the heart of their strategies.
“They have created a slipstream that the rest of the market would be well advised to follow in,” says Mundy. “While technology is certainly changing the market, there is still a lot of scope to benefit from it rather than be made obsolete.”
The travel industry has been famously disrupted by the likes of booking.com and Airbnb, digital start-ups that have become the major players, posing a considerable threat to SMEs in the sector. It could be argued that consumers no longer need the high street travel agency for the business of booking simple itineraries, as online travel agencies and even airline websites can fulfil that requirement. Nevertheless, Mikoláš Belec, CEO of online travel ecosystem Siesta Cloud, believes that travel agents still have an important role to play in the traveller’s decision-making.
“Their knowledge of the local environment and added values of particular attractions are hardly replaceable,” he says. “To keep up with the tempo of Airbnb etc, small travel businesses must adapt and provide the same level of online tools and access to instantly purchasable offers.” He also suggests that travel inventory distribution via blockchain and apps that can generate travel portals on top of that will offer further solutions for travel agents. “With these tools, they will be able to highlight unique features of selected inventory and focus on their added value instead of the expensive development of technologies,” says Belec.
Farming and agriculture
Traditional farming and agriculture businesses are also under threat from huge changes to their sector, largely driven by technology, which has placed them in what Aloysia Daros, partner at Smith & Williamson and chair of ICAEW’s Farming and Rural Business Community, describes as a ‘pushpull’ relationship between the farming sector and technology.
She says: “On the one hand they are being pushed by government, via online BPS (Basic Payment Scheme) and CSS (Countryside Stewardship Scheme) forms, self-assessment and Making VAT Digital, and by suppliers, as each new generation of machinery has more inbuilt technology. On the other hand, farmers are seeing their neighbours enjoying the advantages that technology can bring in terms of financial savings, better management information, easier compliance, and some tasks just being made quicker and easier, all of which pulls them down the technology route.”
A study by Defra issued in April showed that 54% of farmers had already introduced innovation on their farms over the last year, while a further 33% were planning to do so within the next 12 months. One way or another technology is being embraced, however it requires a lot of investment, so where does this leave smaller farms?
“Smaller businesses are reacting to change in different ways, and many of the fundamental changes are not actually that expensive; mobile phones and laptops, for example, are making a far bigger day-to-day impact than the high profile innovations,” says Daros. “Much of the change is one of attitude, and those who cannot adapt are finding other ways of managing. Grant aid can help to meet some of the cost of these changes and take up of two Small Farm Business Grants has been enthusiastic.”
Undoubtedly the agricultural landscape will look very different a few years from now, yet it is unclear how much of the current technological developments will eventually become embedded. For example, the banning of some insecticides is likely to lead to significantly reduced acreages of oilseed rape, at least until such time as alternative treatments can be developed. More generally, the push towards the reduction of direct subsidies and the emphasis on sustainable farming will have a huge impact. Daros says: “Technology will enable farmers to identify the land which can best be put into such schemes, but the actual management of the environmental areas is likely to be rather more low tech, perhaps as simple as more grazing livestock.”
One traditional sector threatened by the emergence of streaming services, but which has successfully fought back, is cinema. In 2002, when Tom Cruise and Minority Report were exploding on to the big screen, Netflix had fewer than one million subscribers. Today it has over 151 million worldwide, and it’s not alone. Brands such as Amazon Prime Video, Hulu and HBO have been joined by the BBC and BT, which now all offer content at the click of a button, so cinema has gone from facing one foe to dealing with a range of threats looking to steal its audience by persuading them to switch the movie theatre for their living room.
James Delves, head of external engagement, marketing, at the Chartered Institute of Marketing (CIM), says: “Streaming services have been a massively disruptive force for cinema, forcing brands like Odeon and Vue to heavily invest in the experience consumers receive. In July, Netflix reported that it had lost subscribers for only the second time in its 20-year history, triggering a share drop of 12%. At the same time in cinemas, Marvel’s Avengers: Endgame surpassed Avatar to become the highest-grossing film of all time, earning Disney more than $2.9bn.”
Streaming services are responding to cinema’s renaissance by investing millions in new TV content and films. Cinema has countered through a range of upgrades to theatres and advertising opportunities, to the extent that the medium is set to overtake digital to become the fastestgrowing advertising channel. The cinema experience is different from watching small screens; an escape from the hustle and bustle of modern life, a quiet space without phones or noise, so the impact of marketing can be much bigger than on TV, phone or tablet. When people watch a streaming service, it’s highly likely they are ‘second screening’, checking their phones for emails, messaging on social media or surfing the internet. “Cinema is a place where consumers are receptive to advertising or content and in an age of brand bombardment that’s rare,” says Delves. “People will always need affordable and enjoyable entertainment options and cinema delivers. Whether it’s Black Panther or La La Land, advertisers know they can match their message or brand to how an audience is feeling due to the cinema experience, making it seamless and non-intrusive.”
It is working. Cinema advertiser DCM reports that 95% of ads shown in cinemas are also shown on TV, but 85% of cinema-goers think the average cinema ad is unique, underlining the fact that for most cinema-goers, a trip to the cinema is still something special that sticks in the memory.