Episode 1 the New Normal – 6 rules for a New Lower Cost Business Model

In our recent thought-piece on the New Normal, we highlighted that retailers and brands with Direct to Consumer (D2C) businesses, need to adopt a new model. All aspects need to be viewed in conjunction with each other as the change process needs to be holistic. This goes some way beyond the obvious sanitation and distancing measures that you will need to accommodate.

Today, we dive deeper into how this emerging model needs to be different from anything previously, together with the key elements that will help drive costs down

6 key thoughts to achieve a lower-cost model:

  1. Think like a Start-Up
    Start afresh with a blank P&L, re-design from the bottom up how your business should look, as if you were starting today.

A large slug of your costs will be product creation, marketing, and merchandising where often huge overlaps exist between teams; ask yourself ‘are the traditional business silos fit for the future?’ During shut down, you may have networked colleagues remotely in different teams – what were the results? – did this work better than before?

Be honest about the cost of stores in a post-CV19 world, this will fundamentally change your view of the dynamics of your business.

Understand your customers and deliver for them better than your competitors – this will allow you to reduce the amount of promotion you give away. Push less stock into stores initially but allow customers to order from any channel.- never forget customers don’t care where the stock is, as long as they can get hold of it quickly.

  1. Think carefully about your core capabilities
    Understand the core things you do better than others, and focus on them, relentlessly. Consider how many stores you need to own and run. Unless you are brilliant at it, consider outsourcing warehouse, distribution, PP&D costs where it is eminently possible. If you do outsource, constantly review the service levels vs costs.

Make sure your core fundamentals are built to allow for shocks to the system and conduct scenario-planning to ensure you can cope next time.

  1. Adopt more flexible, off-the-shelf technology
    Wherever possible, with an emphasis on getting stuff done and delivering small packages of incremental change. This lowers costs and reduces operational complexity. Insist on technology solutions that can be linked (e.g. via an API) and do not require massive upfront investment or a raft of developers to customise.

Avoid the “shiny baubles” of new expensive solutions that you won’t be able to use sufficiently to justify the expense. Think ‘buy the tech today with a credit card’ and make it work over the next fortnight. Think vanilla.

Make sure the whole tech stack makes sense and elements can be replaced easily without disruption.

Don’t be put off by low-cost solutions, look at the impact Facebook shops will have, along with Shopify Plus, Big Commerce, and others. Notably, Facebook has enabled shops to work with a raft of low-cost eCom vendors.

Own your own tech, use staff not agencies for digital wherever possible. This should be core to your business and will lower costs as you don’t need to pay for agency rates. Develop a network of specialists you can call on for particularly knotty problems.

  1. Craft your own story
    You know your products and services better than others. Create digital-led, not store-first narratives. Embed stories from the genesis of your product, the whole way through your lifecycle.

Assess your marketing options, invest less in traditional marketing and more in social and content to create stories about your products or service. Reassess the amount you spend on paid media as all your previous metrics will have changed during Covid-19 and review your attribution model.

  1. Flexibility of staff
    Understand the skills capability of your people and align these with what you want to excel at. This will give you the ability to pivot quickly in a crisis and means you have to build-in flexibility within teams. Retail store staff with digital knowledge could be switched to working in the digital team remotely or project managers alternate with product managers. You will likely need more subject matter experts, and fewer generalists in the areas you wish to excel – this will cost less in the long run!
  2. Make data vital

Data must be core to effective decision-making, but don’t sink a disproportionate sum of money into it. Gather the data you need to make decisions (without going overboard) which map to a new set of KPIs reviewed regularly. If you aren’t going to treat customers individually, will you get results from a personalisation engine? CRM is a mindset and a process, enabled by tech – not a technology in itself. Consider how appropriate AI is to your business and look at the potential ROI.

Optimise your acquisition and retention operations by always be testing new ideas – controlled failure is ok and reduces the size of risks you take.

Summary

The new customer-focused, digitally-led model is now upon us. Covid-19 has accelerated digitisation by 2-3 years in a space of a couple of months. You must enact radical changes now or you may not have a business tomorrow…

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