How the world of communications has changed. Many of us can remember our first travels abroad before the days of the internet and mobile technology. Contact with family and loved ones back home was sporadic and limited mainly to letters, including the famous “aerogramme” which was an ingenious way of sending a letter – compact, cheap and relatively quick.
As we know, the story today could not be more different. Travellers now can provide instant updates on where they are, how they are feeling and photos of what they are doing, and can provide all this to a limited number of people or often to a much wider community of friends. Transparency in communications is now a big factor in the way that people interact. Communications that are instant, global and transparent are now taken for granted.
Businesses are also the beneficiaries of these profound changes in the way that communications occur. For instance, contact with suppliers of raw materials located in foreign countries has been simplified and transformed in so many ways. Product design changes or changes to orders can now be facilitated easily and often in real-time. As we look back, it is amazing to think how world trade was able to develop so much without all the modern technology we now take for granted.
But the customer side is where the biggest impact is being felt across supply chains in local and global markets. It is very positive to see how customers can interact with businesses and government in ways that could not be imagined just a few years ago. For example, many retailers are now reaching out their customers via social media, and engaging in conversations regarding product development and other improvements. Transport organisations are now offering real-time updates on the arrival status of trains, planes and so on.
There is no doubt that transparency brings great benefits, but it also comes with a major downside, namely the risk of substitution – either product substitution in its traditional sense or the use of a different source of the same product or service. Transparency of customer experiences or service levels can drive customers to seek other providers of products or services or indeed different offerings.
For instance, this is one of the big challenges in retail today where substitution is not only occurring between retailers in the same market, but is also occurring across borders where consumers are increasingly shifting more purchases to the global online channel. Of course, price and convenience are major factors, but the underlying change that has enabled this to happen is the transparency now offered to consumers thanks to modern technology.
The substitution factor is now a much greater consideration in product and service management that ever before. The level and nature of transparency has changed the game. To avoid the substitution trap, organisations are tackling these challenges by focusing on four key questions:
- Why would customers substitute products and services for different offers or for those of a competitor? Is it a once only event or is it a more permanent shift?
- How robust (or else flimsy) is the value proposition that should drive customer loyalty? Do the assumptions around customer loyalty need to be re-visited?
- What is the organisation strategy and roadmap to tackle product and service substitution?
- How can transparency be used as a positive factor? How can organisations use transparent customer sentiment (eg from social media) to shape better offerings?
How well is your organisation focussed on the substitution trap?