tomstudent

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On November 20, 2016, tomstudent commented on Data-Driven Dress Dealing :

Great post!
I agree this is a natural next step for fast fashion retailers such as Zara and H&M and potentially other fashion retailers to incorporate in their operating model and compete more effectively going forward. Adoption of this technology will impact the operating model of fashion brands and retilers in several ways:
♣ Less labor investment in designers and ideally less variability in the hit/miss of styles selected to go to production, given the machine-learning algorithm will analyse trends and what items people are searching for currently
♣ Faster idea generation time and overall shorter throughput time from idea generation to sale of product to end consumer through higher levels of automation in the operational design, testing and sale process
♣ Minimize inventory markdowns and waste from unpopular designs

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Nancy Laws, ‘Can this new industry disrupt fast fashion?’, Huffington Post, March 2, 2016, http://www.huffingtonpost.com/nancy-laws/can-this-new-industry-dis_b_9362344.html, accessed on November 20, 2016.

On November 20, 2016, tomstudent commented on Sephora’s Digital Makeover :

Great post. The beauty retail sector is an interesting one as Sephora and competitors like Ulta Beauty have been relatively resilient to the threat of ecommerce, with increasing physical store counts and growing sales at offline, physical stores.

I am skeptical that Sephora should implement a subscription box service. I think the customer value proposition for Sephora and Ulta Beauty is the convenience of where the many stores are located, that these are one-stop shops with a very wide variety of beauty products (in terms of both products and brands) that make comparison shopping easy, the ability to try the products on your own skin and see whether it suits you as these products have a significant emotional connection, the free make-up consultations and expert make-up applications in-store as well as salon services and competitive prices. I struggle to see what value a subscription box business could add to Sephora, as the critical threat posed to the operating and business model of beauty retailers is the prevalence of beauty products availability (department stores, drugstores, beauty stores, etc.) to try on and the ability to google and buy online the product you want at the lowest possible price irrespective of retailer. What is critical for Sephora to address is the growing threat posed by online digital technology to customer loyalty and attracting new customers. Why Sephora? Why Sephora.com? Even if a customer tried a sample that they loved in the box service, this doesn’t complement and reinforce sales through Sephora.com given the nature of the ecommerce competitive dynamics. Additionally, Sephora provides several free samples with each purchase which enables customers to try new products that way.

I think there are a couple of other ideas the company could use to augment its operating model and enhance the success of its business model going forward:
♣ The explosive growth in social networks and social media, online user-generated content and time spent online provides multiple opportunities for Sephora to build brand equity and emotional connections/engagement with its target customers outside of the traditional beauty product retail store context, reinforcing the connection to Sephora and encouraging consumers to shop at Sephora or Sephora.com instead of a competitor.
♣ Enhance the customer loyalty and rewards program and ensure repeat purchases of beauty products are made at Sephora or Sephora.com and not at a competing retailer. Perhaps these programs could be enhanced by partnerships: for example, (i) with a credit card or other online payments system to increase the ability to earn rewards points, encouraging customers to shop at Sephora (similarly to how some credit cards partner with airlines to reward you with airline points for purchases using Visa); or (ii) with non-beauty products that target the same consumer as Sephora like a magazine, so that Sephora loyalty points could be used to purchase subscriptions to Vogue at a discounted price.

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Bibliography

David Franklin, ‘Ulta, Overall Beauty Industry Will Grow in 2012’, Blueshift Research, February 28, 2012, http://blueshiftideas.com/reports/021213UltaOverallBeautyIndustryWillGrowin2012.pdf, accessed on November 20, 2016.

Issie Lapowsky, ‘How Cosmetics Giant Sephora Plans to Survive Retail in a Digital Age’, wired.com, August 1, 2014, https://www.wired.com/2014/08/sephora/, accessed on November 20, 2016.

On November 20, 2016, tomstudent commented on In a digital universe full of Marvel :

Great post, Jeremy!
I agree that Marvel Comics has probably benefited overall from the innovations in digital technology and how it has incorporated these in its operating model to create higher value for the business. It is the value of the intellectual property in various characters and brands that creates value for Marvel Comics. What digital technology innovation has enabled is a broader range of ways to reinforce the personalities and stories of the various Marvel characters and strengthen the emotional attachment of customers to those characters, reinforcing and stimulating higher readership and engagement with Marvel products. In the Marvel app a customer is able to scan a physical comic book when a certain symbol is on the page with their smartphone, which reveals exclusive content, behind the scenes footage, and helpful context that fills in relevant backstory on the Marvel characters (who have ‘a long and complicated history’) for any new reader [1]. A couple of other ways Marvel Comics could further grow and strengthen its customer base and the spend per customer is to customize certain brands or characters to suit a new target audience and build an online presence for those characters on appropriate online social networks that are targeted at certain non-traditional comic book customer segments, for example on Pinterest.com which has a predominately female audience interested in style and design. Another key operational model change would be to build in appropriate technology so that the characters are compatible with Oculus virtual reality technology, further strengthening the connection of customers to the characters and brand of Marvel and hopefully enabling higher sales per customer as a result.

[1] Christopher Ratcliff, ‘How Marvel is Revolutionising Comic Books with Digital, EcoConsultancy.com, October 21, 2013, https://econsultancy.com/blog/63626-how-marvel-is-revolutionising-comic-books-with-digital/, accessed November 20, 2016

On November 20, 2016, tomstudent commented on Instacart – How to Leverage Technology in the Pursuit of Value Creation :

Instacart has attracted a lot of buzz and is certainly a business whose customer value proposition and operating model are underpinned by digital technology. Some additional thoughts on challenges going forward are below:

♣ Optimizing the supply chain? While Uber radically optimized the value chain in the taxi industry, disintermediating and shortening it using software, Instacart has actually increased the steps in the grocery sales process: a grocery product is manufactured > purchased by a supermarket retailer > purchased by an Instacart shopper > purchased by the end consumer. Online digital innovation has successfully transformed industries and businesses by cutting the middleman and reducing the touchpoints of different businesses on a product that add to the total cost for the end consumer [1]. Many online businesses have succeeded because they enable direct business to consumer sales, and physical store distributors have suffered as a consequence (e.g. department stores)
♣ Labor in the digital, sharing economy: Instacart does not have the same labor advantage from its digitally enabled operating model as Uber. Instacart has to train its labor force in how to pick ripe fruit, vegetables, and provide supervision and training for grocery shopping. This has mitigated some of the labor force benefits as the company has to treat some amount of its workforce as employees instead of independent contractors [2]
♣ Cost competitive? It costs much more to deliver an item than the $5.99 Instacart charges shoppers, but customers are unwilling to pay more [3]. In all, Instacart’s total cost is up to 44% higher than the cost of shopping for the same basket of grocery items at a supermarket without using an Instacart shopper [4]. This is the premium paid for convenience, a critical component of the customer value proposition.

So as Instacart tries to find other revenue streams to offset the generally unprofitable unit economics, a key challenge and question is how will the digital technology Instacart has built actually create a successful, self-sustaining, profitable business model? Is there a better way for digital technology to be used to create an operating model and profitable business model that eliminates physical stores entirely?

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[1] ‘Consumers pay up for Instacart’s expensive business model’, Grocery.com, January 28, 2015, http://www.grocery.com/consumers-pay-up-for-instacarts-expensive-business-model/, accessed November 20, 2016.
[2] Alison Griswold, ‘Inside Instacart’s fraught and misguided quest to become the Uber of groceries’, Quartz.com, March 10, 2016, http://qz.com/627605/inside-instacarts-fraught-and-misguided-quest-to-become-the-uber-of-groceries/, accessed November 20, 2016.
[3] SCDigest Editorial Staff, ‘Supply chain news: Delivery wars push comes to shove at Instacart’, SupplyChainDigest, http://www.scdigest.com/ontarget/16-03-16-1.php?cid=10420, accessed November 20, 2016.
[4] ‘Consumers pay up for Instacart’s expensive business model’, Grocery.com, January 28, 2015, http://www.grocery.com/consumers-pay-up-for-instacarts-expensive-business-model/, accessed November 20, 2016.