Personalized Supply Chains: The next generation of shopper marketing

July 28, 2014 

While many retailers are focused on delivering personalized promotions and products as a way to break through the clutter, shoppers have been quietly using the growing range of options to create what we call personalized supply chains. Heads up folks, this could be the next generation of shopper marketing. Business that used to go to traditional retail is being unbundled, and shoppers are shifting portions of their spending to channels (and retailers) where they can get their highly individualized needs met.

These personalized supply chains are growing out of the space where the what (aka the product) and the how (aka services like purchase and delivery options) intersect. For shoppers, it’s another way to simplify getting what they want. For retailers, it represents further market and channel fragmentation that will be hard to address with business-as-usual practices.

The key to moving forward fast and early is recognizing and responding to shoppers’ creation and use of personalized supply chains. Here’s a start.

The nuts & bolts

Today, shoppers have almost unlimited opportunities to make choices to satisfy their needs and wants – whether that’s the peace of mind of knowing they won’t run out of a needed item, the confidence that comes with purchasing from a known and trusted producer, or the convenience of driving through to pick up a click-and-collect order – and in many cases they are willing to pay a little more because they get a valued service that they could never get before. Shoppers also have every expectation they will find someone willing to offer them exactly what they are looking for.

Meanwhile, technology and the internet are making it possible for retailers/marketers to identify, attract, and aggregate shoppers with similar unsatisfied needs into groups that are large enough to serve profitably. This capability – of identifying more finely detailed market segments that are dispersed over a wider geographic area – is becoming increasingly important, even critical, since it can allow the retailer to get greater credit for certain non-price benefits, and with this comes the ability to earn a little more margin. This is one of the drivers behind the growth of online retailers who specialize in organic and locally produced products; others are leveraging it as well.

Driving down costs

On the business side, retailers are rebalancing the major cost elements in their own supply chains and it’s giving them the ability to lower the delivered cost of products to a range that shoppers are willing to pay for. Inventory, for example, is a big cost, but we’re now seeing a variety of strategies used to manage that cost.

• Some retailers bypass inventory cost by having customers commit to buy the product before they procure it. InstaCart and Google Shopping Express, for example, are avoiding inventory and warehouse costs by being responsible only for receiving orders and arranging delivery transportation.
• At the other end of the spectrum, Amazon invests heavily in warehouse systems to make its fulfillment operations financially efficient.

When retailer supply chains can operate without a lot of the normal costs (or extremely efficiently), they can find ways to minimize the remaining costs in a way to be competitive, if not cheaper. Amazon Fresh’s strategy is to reduce delivery costs to each home by spreading them over more products and deliveries.

The opportunities

Embracing and participating in shoppers’ use of personalized supply chains also offers retailers a couple of new tools.

First, I think it makes it easier for consumers and producers to engage in a “test and learn” process that allows for continuous improvement in products and services. Progressive use of social media can help this collaboration, but dialog is only the front end of the process. Ongoing value creation depends on producers and consumers working together to test new products and services to find out quickly which ones work. When this is in place, producer organizations get clear guidance on how to deliver greater value to customers and clear direction for aligning the organization to make positive change.

Second, it gives retailers nearly instant access to information about whether the demand for a product or service is growing or shrinking, and how fast. This information is particularly valuable when there’s so much disruptive change taking place in the market. Organizations with the ability to track both “the forest and the trees” can more quickly decide where to invest and how best and where to grow.

A new space in the marketplace

I hope I’ve got you thinking about the emergence of the personalized supply chain. It’s still a developing and evolving phenomenon, and how you define and describe it will be influenced by your vantage point, but this new space in the marketplace deserves attention. It represents both an opportunity for dialogue between retailers and shoppers and a hotbed for innovation and sources of growth.