DIGITAL ADVANCE AND GLOBALIZATION

DIGITAL ADVANCE AND GLOBALIZATION by Ernst and Young

‘Digital’ Digitization at its simplest means the conversion of analogue information into digital information. As digitization capabilities extend, virtually every aspect of life is captured and stored in some digital form, and we move closer towards the networked interconnection of everyday objects.

We have already identified the future trend of consumers choosing to invest their total acquisition with a smaller set of brands. This trend is emerging as a result of two forces coming together: Consumers want choice, without the cost of developing and maintaining multiple relationships; and companies are continually seeking ways to retain and develop increased share of wallet through deeper customer relationships. These two forces are made possible by digital advance and globalization. Digital channels lower barriers to entry and increase globalisation, leading to a spiral of intensifying competition and commoditisation. Innovative organisations are taking the opportunity to diversify, bringing cross-industry convergence and blurring of the boundaries between industries. Previously physically distinct products and sectors now compete with one another, over less clearly defined customer bases. In this way, there is an extension of ‘super brands’, such as Tesco, Google or Virgin. Already, supermarkets compete with insurance providers, energy companies offer credit cards and retailers offer energy discounts. Google, is today in direct competition with social networking sites, they have also moved into the mobile handset market, and even the online fashion market, leaving organisations in other industries wondering, or perhaps fearing, what Google will do next. The battle to ‘own’ the digital customer has been thrown wide open.

As a consequence, all industries are facing commoditisation, some sooner than others, as figure shows. This threat arises because as more and more information becomes available to customers and competitors, and non-traditional players enter the market, prices, values and product characteristics all tend to converge. Price comparison, and unbundling of products, means that the margin play is becoming more and more transparent, and less and less acceptable to consumers.

To reduce the impact, many organisations are successfully shifting their focus from products to services as a way of differentiating themselves and also increasing margins. Companies should look to create new information asymmetries, which make it more difficult for customers to directly compare providers, and focus on innovation that can truly revolutionise and disrupt the market. Successful responses to the commoditisation threat include increased personalization; wrapping a service around a product; and a re-bundling of products to realise price advantages. Nike allow customers to personalize large aspects of their product range through Nike ID; Apple and Amazon have successfully integrated their products with service propositions; and publishing houses such as Random House and BBC Books are partnering to create a set of re-bundled eBook and television series products. It is through differentiation and innovation that organisations can create the shift in mindset necessary to win in the digital game.

In conclusion Companies should look to create new information asymmetries, which make it more difficult for customers to directly compare providers, and focus on innovation that can truly revolutionise and disrupt the market.

By: ULAYA SIJALI A. (BAPRM 42681)