Key takeaways

  • Industries have succeeded for decades using traditional business models, but it’s time to change.
  • Companies that are thriving in the digital economy are linking customer behaviour with advances in technology.
  • New business models allow organisations to provide personalised, higher quality and less expensive options to consumers.

Some of us still remember with fondness the early morning milk delivery: generations of kids leaving empty bottles on the doorstep at night before collecting full ones in the morning.

Once upon a time, this was the only way to get fresh milk, short of owning your own cow. The refrigeration age contributed to the slow demise of the milk delivery business model, but there was another fundamental reason.

The milk run was a cost effective business when every house on the street got milk delivered. As availability in local shops increased and cars made householders more mobile, the demand for personal delivery waned. When the number of deliveries fell to one house in every second street, it was no longer a viable business.

Technology and consumer preferences upended its business model. Sound familiar?

Distribution
disrupted

Today, many companies face similar challenges when it comes to their own business models.

The rise of the internet and an increasingly sophisticated and demanding customer base has transformed countless industries. The way companies create value has been disrupted, be it for the customer, the way the business or supply chain is organised or the pricing mechanisms used.

One only has to look at where they now purchase goods and services for evidence of this. In an age of mega-companies, it’s those that have embraced new models that are thriving.

Amazon is a prime, if you’ll pardon the pun, example of this. It has parlayed its beginnings as an online bookseller into a business that any milkman would be envious of. Central to its model is its ability to deliver to a massive customer base more quickly, and at a lower cost, than its competitors.

It has done this by democratising the delivery process. Building sorting, delivery and fulfillment centres¹, as well as expedited delivery hubs which deliver in one to two hours (Prime Now), its strategy has been “to create a lean, cost-efficient logistics network that rivals anything its competitors can offer.”²

In essence, Amazon did away with the milk and bought access to the street instead.

One
of many

New technology and changing customer market preferences can lead to disruptive new business models. Amazon is one, but there are many others.

Alibaba is often quoted alongside Amazon as one of the world’s largest retailers, yet its operating model is much different. It too, found a way to use technology to satisfy retailers and customers. While it has many different business models for its brands, its main innovation was in the promotion of e-commerce in China³.

Its Alipay platform enabled Chinese consumers, who weren’t readily using credit cards, to trust internet shopping by allowing them to receive purchases before funds were released to retailers. The main platform, alibaba.com focused on business-to-business commerce, essentially positioned the company as the middleman between buyers and sellers, encouraging bricks-and-mortar stores to get online.

TaoBao, Alibaba’s business-to-consumer marketplace, a similar concept to eBay, encourages entrepreneurs to sell online, giving them a platform to in turn to make profits. Coupled with Tmall, another online bazaar which sells higher-value branded products, the company has an estimated 5% of the Chinese retail market4. Alibaba then generates revenue from advertising on these platforms and by charging subscription fees to merchants5.

As The Australian puts it, “the success of Alibaba is an encouraging sign that the old unsustainable model is gradually giving way to a new model based on innovation and private entrepreneurship.”

How consumers and technology
change business models

Technology doesn’t in and of itself disrupt an industry. When its advances coincide with consumer preferences and market need, however, it can enable business models that will displace incumbents.

As the internet has broadened customer horizons and companies have become global, there has been an increase in the desire for personalisation. While customers want the scale of product and ease of online shopping, they also want their retail experience to be unique to their wants, not those of the masses. With 3D printing technology and platforms such as eBay, TaoBao and Etsy, users have more choices than ever when it comes to unique but affordable products.

Importantly, many of the companies utilising these new online business models are also becoming data organisations. The analytics that they will be able to apply to this data, to personalise offerings as well as in behind the scenes logistics and services, will allow them to retain their spots at the top of the food chain in a way that will be hard to compete with.

Asset sharing and the platform economy have been successful in part because of the need they fulfill in their respective markets. Users seeking higher quality but lower cost options have flocked to the likes of Airbnb and Uber  which have increased pricing transparency and allow greater user choice than traditional transport and accommodation players.

By using the assets of home and car owners to accomplish this, these companies and others like them have benefited from a business model that scales easily without the need for infrastructure or owned assets, allowing them to provide far less costly services than their competitors.

The way
ahead

To survive in a digitally transformed world, businesses need to be across what is happening in the field of technology and its potential intersection with the desires of their consumers. This isn’t something that can be left to marketing or IT and must be addressed with a whole-of-business approach.

If technology and consumer preferences align there will be opportunities to transform an industry’s preferred way of doing business. Those companies that are alert to such changes will be in a good position to do the disrupting.

Ironically, it’s customers and technology that’s heralding the return of the milkman, albeit delivered in a completely different ecosystem6. A desire for convenience is leading to disruption in the grocery business, with consumers now expecting to be able to buy all their products online, including fruit and vegetables.

With them, milk will end up back on the doorstep once more.

Contributor

John Riccio

John is PwC’s ASEANZ Digital Services lead partner.

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