Welcome To The Replenishment Economy
By Doug Stephens
In 2009 Procter & Gamble began briefing its agencies on, what was at the time, a completely different and somewhat radical marketing strategy. They called it “store-back”. Put simply, store-back was the belief that if a marketing idea of any kind couldn’t translate to, and be effective in the store, it simply wasn’t worth pursuing. Effective marketing budgets, P&G maintained, needed to be spent not on broadcasting to nebulous consumer segments but instead focused keenly on shoppers as they travelled along the path to purchase.
The shift in strategy was a clear sign to the marketing world that P&G regarded the store shelf – not mass media – as the only retail battleground that truly mattered. It was also the move that initiated our modern concept of shopper marketing.
Now, however, it seems clear that we’re embarking on a new era of shopping in which technology could render much of the store-back strategy an anachronism. Because if we accept, for example, Unilever’s definition of shopper marketing, which is to “focus on the process that takes place between that first thought the consumer has about purchasing an item, all the way through the selection of that item” we have to ask the questions; what if the consumer no longer has to think about or select the item at all? What if that selection is largely done for them by technology?
Shopping On The Internet of Everything
There are currently about 15 billion connected devices on the planet. These are mostly the sorts things we’re very familiar with and use every day – our laptops, smartphones, security systems etc. Within 10 years, however, that number is expected to exceed 50 billion and will comprise a host of devices that are capable of providing us with information we never imagined, such as pills we ingest that can communicate medical information to our health care providers, athletic clothing fabrics that are able to monitor our body’s vital statistics and a universe of micro-sensors that are able to track everything from the inventory in our refrigerator to the tread depth of our tires.
Each of these connected devices will, in essence, become a new consumer, capable of formulating recommendations about what needs to be purchased, when, from whom and even for how much. In other words, these devices will form a layer of artificial intelligence that will manage our routine, daily product needs.
The End Of Commodity Shopping
Amazon’s recent introduction of what it calls Dash Buttons hints at this inevitable future. Dash Buttons are small, branded bluetooth-enabled devices, preset to order a particular product from Amazon when activated. Place a Tide detergent button in your laundry room, for example, and when you need more Tide, simply push the button and it’s ordered, billed to a Prime account and shipped.
While some are quick to criticize certain functional aspects of Dash Buttons, they may be missing the more salient point; that most of the items we purchase and consume on a day-to-day basis require no shopper consideration or inspection whatsoever. In fact, it’s conservative to say that at least 50 percent of the items in the center aisles of a grocery store are products purchased almost entirely on a replenishment basis; items like sugar, flour, frozen vegetables, detergent, tissue paper etc. Unlike meat or produce, there’s no meaningful consideration or inspection required each time these items are purchased. This makes them entirely suited to auto-replenishment.
Skeptics of this notion, need only look at a company like Dollar Shave Club, which in four short years has reached over $120 million in replenishment sales of razor blades.
Amazon has clearly identified this fact. Dash Buttons are merely their early iteration toward capitalizing on it. In fact, Amazon appears so confident in the future of replenishment retail, in 2014 it applied for a patent for what it described as predictive shipping. That is to say, Amazon believes it will soon gather reliable enough data on its customer’s consumption habits, to be able to ship replenishment products before they’re actually ordered – potentially before customers even realize they need them!
Home Replenishment Networks
But to fully appreciate the future we’re heading toward, imagine the scenario I mentioned earlier (reordering Tide with a Dash Button) but now eliminate the button. Imagine that the stock-tracking and reordering capability is embedded in the washing machine itself. In fact, imagine a world where most of the devices, products and even surfaces around us are imbued with intelligence that allows them to determine and act on our day-to-day product requirements. When we reach that point, we will have fully embarked on what I call, the replenishment economy and it’s going to encompass a vast percentage of the products we consume.
In the replenishment economy, the refrigerator becomes responsible for ordering more margarine, milk and eggs. The dishwasher is responsible for replenishing detergent . Our automobile becomes responsible for ordering new tires once tread depth falls below a safe level. The grunt work of shopping for routine items will done by our devices. We will need only to approve, reject or modify the order before it’s sent off and fulfilled. In the same way we take air conditioning, running water and indoor plumbing for granted, so too will we take automated replenishment of commodity items as a simple fact of everyday life.
Sensors Don’t Watch Television
All this matters tremendously for brands and retailers because the growth of the replenishment economy will inevitably bring a steady decline in our need, as consumers, to go the store shelf. And without a consumer at the shelf, shopper-marketing becomes like the proverbial tree falling in the forest, with no one there to hear it. Messaging along the presumed path to purchase will be of little value if the consumer becomes a sensor, buried in the workings of a washing machine or refrigerator. In-store merchandising, impulse buys and other conventional enticements will do little to appeal to the artificial intelligence tasked with managing our routine consumption.
The questions facing marketers therefore are daunting and many. How will they reach consumers who are, on the one hand, steadily more recalcitrant toward mass media but who will also become increasingly less inclined to shop in-store for commodity items? How will brands succeed in becoming the default product choice for machine-initiated replenishment? And perhaps most importantly, how will marketers appeal to the emotional and often irrational side of consumer behavior, when the consumer is now a string of bluetooth activated programming code?
About the author: Doug Stephens is one of the world’s foremost retail industry futurists. His intellectual work and thinking have influenced many of the world’s best-known retailers, agencies and brands including Walmart, Home Depot, Disney, BMW, Citibank, eBay, Intel and WestJet. Doug is also listed as one of retail’s top global influencers by Vend.com.