In our book and on this blog we bang on about order winners (OWs). Just to remind you an OW is a “characteristic which directly contributes to winning business from customers”. And we go on to say OWs “are unlikely to remain the same over time in any particular industry sector as customers’ requirements change, competition increases, and technologies improve”. My recent blog about McDonalds UK introducing table service was a very good example of this.
Hence it is insightful to see in the latest MITSloan Management Review an article by Acimovic et al. that explains in some detail how OWs are evolving in the online retail sector. In the article they identify that the original online business model of Amazon and other such retailers was to compete on cost but not speed. Cost was minimised by having a few large-scale warehouses.
But today, customers expect same day delivery and as a result are redesigning their distribution networks in order to achieve this. The issue is whether they can do so without significantly increasing cost. Acimovic et al. argue that they are able to do so because “Real-time sales and inventory information, coupled with advanced analytics (such as recently developed network-wide fulfillment algorithms), enable networks to accommodate fluctuations and changes in the business environment quickly”.
The article goes on to identify a three step model that enables the retailers to introduce agility, and hence speed, into their distribution systems without driving up costs.
Insight into how 3D printing is evolving towards mass manufacturing.
I ended my last blog by mentioning that McDonalds UK was offering table service from February this year and right now is running an advertising campaign about it. I cannot let this pass with just a mention, it deserves a blog all to itself…..
This is what their website has to say about it: “Hands full? Feet Tired? Why not have your meal delivered to your table? Simply order it via the front counter, an ordering screen or the McDonald’s app and select Table Service. Then choose your table (and let us know you’re here if you ordered via the app) and enjoy the moment.”
Apparently this was trialled in 14 stores, and was so successful it is being rolled out across the chain to coincide with store refurbishments. Right now about 300 stores offer this service. Not so much a happy meal, as an appy meal.
We’ve blogged about budget airlines, hotels and restaurant chains, but not about retail chains. Right now in the U.K. such low cost retailers are really struggling. Poundworld has gone into administration, and 99p, Poundstretcher and Poundland are struggling. This item from BBC Business News suggests four main reasons for this:
- fall in the value of the pound (nearly all products sold in these chains is imported from China).
- too much competition (Poundworld closing will help the remaining chains).
- changing retail environment (the article mentions Amazon, but at this price point online sites selling secondhand items are likely to be more significant).
- constrained by £1 price point (when costs rise and sales volume falls, margins are squeezed even thinner than they already are).
It is this last point that I would emphasise. These chains have almost only one order winner – the low price. This means customers are unlikely to have any brand loyalty, so as these chains have grown their market has been spread more thinly across the stores. It is a very short term strategy – as we have seen in the other industry sectors. Even McDonalds is now offering table service!
There are many operations in which there are different classes of customer – such as hotels, hairdressers, and airlines. This is based usually on how much the customer pays for different levels of service. In many cases it is not a major problem, except for those operators who have adopted a low cost business model. This is particularly true of low cost airlines.
Originally the low cost carrier (LLC) business model based price solely on the level of demand for a seat on any given flight. Although passengers would be paying different prices for their seats, they all got the same level of service. But the success of the LLCs has lead them to realise that there were opportunities to generate more revenue by offering “premium” services to those customers willing to pay more. In particular they have enabled passengers to reserve specific seats on planes or to have so-called priority boarding.
But this can lead to dissatisfaction – not just amongst regular customers but also the premium ones too. For instance, with regards priority boarding there are instances where paying the premium price has not lead to premium service. This can occur when a very high proportion of the passengers on a flight have paid for this, so there is little or no perceived advantage in doing so. Or it can occur when there is a bus service between the terminal and the plane – premium passengers are allowed onto the bus first, but this does not mean they get on the plane first.
Seat reservations can also cause problems for LCCs, as the recent decision by Ryanair illustrates. It has just cut the online check in window for passengers without reserved seats from four days to two days. It has done because although passengers with reserved seats could check in for up to 60 days before their flight, many only do so at the last minute. They were finding that they could not reserve the seats they wanted because these had already been taken by other passengers. So now regular customers will have a reduced opportunity to check in online. We wait to see what they think about this…
This is an interesting example of how new technology enables the business model to be modified and as a result be very much more profitable. All of the above are operators of dockless hire bikes, in countries all around the world. It is this type app driven operation that has lead to 18 million bikes being available in 1,608 cities. The customer uses their smart phone to find a bike, unlock it and then pay for it. This means they can use it for as long as they want and leave it wherever they want. The electronics on the bike that lock and unlock it are powered by a dynamo which generates power when being ridden.
Bike hire that depended on the bikes being docked in a docking station cost more than $3,000 per bike. The new dockless approach has reduced the cost to around $100 per bike. It is not without problems. Bikes may often be left in places where there is no demand for them, but operators are using AI to address this issue.
Leiden has a new car park. Both in its construction and design it is highly innovative – as this video explains.
Interesting article on the Fortune website discussing how airlines are innovating to make long haul travel more attractive and less stressful. It focuses on seat manufacturer Recaro, who are designing a seat that will assure passengers that their seat is germ free. But it also identifies other ways that airlines are adapting the seating and design of their cabins.
This article from the McKinsey Global Institute reviews 400 case studies of AI in order to identify how it is being used and the potential benefits of doing so. It begins by explaining what AI is – a challenging proposition since the technology is changing all the time. It then identifies what kind of AI is being used across 19 different industries, before identifying which industries benefit most from its adoption.
“Not another car manufacturer video” I hear you cry… but this is Tesla…and it is “beautiful”.