S+B: For a typical consumer packaged goods company, is this true? Don’t the majority of customers go to the store, pick up a bottle of cola or bleach, and never become website users at all?
SHAPIRO: There is certainly a large segment of that type of customer; TV is not going away. But the percentage is declining over time. In 2011, according to Forrester Research, 50 percent of all consumer sales involved an Internet experience. The big change is the number of people who use digital as their primary point of reference for making decisions and learning about brands. They research a product online before they buy it, or buy it online directly. There is no such thing as an offline business anymore.
Think about your own behavior: How many things outside of impulse purchases have you bought that you haven’t researched online first? If you’re typical, that’s a smaller and smaller number.
S+B: In many cases, I start to look online until I discover there are too many choices and it’s too confusing. So I go to a store.
SHAPIRO: I’m not suggesting that stores are going away. But note if you had found a site with the requisite simplicity and selection, a site that really understood how to make the decision simple and yet appropriate for you, you would have stayed there. If you look at the behavior of the digital generation, those under 25 — and we’ve done a lot of research on this at Huge — you see that digital is far and away the preferred way of doing everything. Having to go offline is viewed as an annoyance. Now fast-forward five years to when those people are in their late 20s and early 30s, starting families, a target demographic. The movement online will be a larger tectonic shift than anything we’ve seen so far.
S+B: What implications does this have for marketers?
SHAPIRO: Today, a company effectively needs two businesses to succeed: the core business it’s always been in, and a digital wrapper that meets user needs online. This means companies have to think of themselves as software businesses, competing in the digital sphere with Google and Amazon. They have to create a software layer around their whole company, where all their constituents and stakeholders will interact with them.
The best strategy is to be a filter. Since there is an overload of information everywhere, users tend to rely on trusted sources of knowledge. The filter is the first place you go for a specific interest: Amazon for books, electronics, and e-commerce; CNN for headline news; Kayak for travel searches; and eBay for used products, for example. These are the new intermediaries; consumers trust these entities to curate the massive amount of information down to just what is relevant. Facebook and peer recommendations represent another very effective kind of filter to narrow things down.
Your thinking must shift in a lot of ways. For example, in a world of one-on-one salespeople, with lots of different stores, it was easy to have different price points. But now, pricing is transparent everywhere. You can’t differentiate as easily among customers or geographic regions. We have one customer that sold essentially the same product for years to consumers and businesses at different price points. The two variants were manufactured and warehoused at different locations. Now everyone knows how similar they are, and the company has to fix it, which means overhauling its entire supply chain.
S+B: Can’t you differentiate prices in other ways? For instance, can’t you emulate the airlines, which price seats on the basis of demand?
SHAPIRO: Certainly, for that specific business. But services are emerging that predict whether prices will go up or down, based on historical data. It’s only a matter of time before most time-sensitive pricing differentiation will go away.