Marketing in the age of Human Obsolescence

Image is sourced from an online source -I was unable to identify the owner of this image as it appears on multiple sites. 

As Artificial Intelligence and Robotics (AIR) encroach on traditionally human work, the discussion has centered on the fear of job loss. The conversation needs to move beyond fear and towards harnessing these technologies without compromising on what it means to be human. This article questions the assumption of human obsolescence and offers views on the possibilities for Marketing in the age of AIR.

A recent McKinsey paper suggests that AIR is likely to have the greatest impact on activities that involve predictable physical work, on data gathering and on data processing. According to this paper, the five industries that will be significantly impacted by AIR are Manufacturing, Food Services, Healthcare, Retail and the Finance and Insurance industries.

Industries have thus far delivered value by improving productivity to maintain affordable prices. This has sacrificed customer choice by confining real customization to the point of sale and beyond. As robots increasingly take on predictable labor, it is time to ask if one could extract the human (unpredictable) work from the central production hive and place it at the point of sale to offer customized products that deliver better value to customers. Similarly, as raw computing power takes over data gathering and processing, humans could be used to sharpen the analytics with context and with better questions. With this background, let’s re-examine the five industries from a Marketer’s perspective.

Manufacturing has evolved by improving productivity and lowering costs. But, this has gradually drained the uniqueness from most industrial products, nudging them towards commoditization. Could industries enhance value by engaging customers at the point of sale to deliver a unique product, customized with human skills? This could mean the emergence of human skill-oriented teams that work closely with sales teams at all points of sale. Chatbots and human salespersons could elicit customer preferences which would be acted on by the human skill teams to deliver exactly what the customer wants. Could this deliver customized products, at reasonable prices? For instance, consumers might order appliances in custom dimensions and finishes at reasonable prices. Customization that is relevant to the customer could generate more satisfaction and greater brand loyalty. Who needs a perpetual sale!

Food Service has its own version of centralized production at scale with minimal customization at the point of sale/service. The predictability of the process seeps into the taste of the food, making it undifferentiated and often uninteresting. Customers have been voting against this sameness by seeking out ‘fresh’ options. Further, there is a concentration of outlets in population centers, due to transient labor and urban concentration of customers. The availability of AIR in Food Service will reduce human staffing requirements per location but that will allow much more geographically distributed locations. It could enable smaller outlets running regular hours with a mix of humans and AIR and after hours with just AIR. Humans in this revised setup would add personalized service and more customization in food offerings. Consider baristas and their contributions to personalized coffee. Satisfied customers pay a premium for customized coffee, would they not pay more for customized meals?

Healthcare has struggled with cost containment and data management limitations in improving patient health outcomes. Despite the improved efficacy, there are gaps in the patient experience especially in service availability and the information gaps that keep patients and often medical practitioners in the dark about all treatment options. Moreover, there are discrepancies in the quality of care due to an urban concentration of skills. Application of AI will improve data gathering and management, helping to reduce errors, unnecessary procedures, and billing snafus. It might even free up medical professionals in rural areas, allowing them to focus on patient care. This will improve patient interactions in urban areas and better utilize skilled healthcare workers especially in rural areas. It will also make smaller hospitals more viable, facilitating health services far from urban centers. The use of chatbots in healthcare could make a big difference in responding to patient questions and in informing doctors and nurses of the best treatment options. From a marketer’s perspective, the payoff could come from changing negative perceptions that keep patients from procrastinating on preventative care. This could increase usage while actually lowering costs and might improve results and ultimately customer satisfaction.

Retail is the customer facing service end of manufacturing. It should, therefore, be extremely service-oriented. However, retail has gone astray, de-emphasizing customer service and driving its customers to online competitors. While the predictable work of stocking/re-stocking shelves might be delegated to robots, stores should seize the opportunity to enhance service through a dynamic collaboration between humans and AI and in some cases, unpredictable human work to deliver better value. Currently, physical stores are typically understaffed and often confusing to navigate. What they could really use are humans aided by chatbots to anticipate, understand and better serve the customer’s needs. What also needs to be done is to bring in a greater level of customization into the retail store. For instance, off-the-rack clothing rarely flatters the wearer in terms of fit. Perhaps we could have in-store fitting services that give customers exactly what they want and encourage prolonged shopping.

Finance and Insurance are data-centric and likely to be dominated by AI at the back end. However, they could use real human skills to provide context and to identify products that better meet the customer's needs. AI tools along with skilled money management professionals could deliver products that more closely meet customer needs without expensive service fees. Similarly, AI could facilitate the creation of products/services based on smaller data pools. Rather than slotting customer’s into existing ill-fitting products, we could create products that fit each customer. This points to more geographically dispersed service providers offering better and cheaper services.

My analysis started with an acknowledgment of the compromises forced upon customers in return for lower prices. That could change with the introduction of AIR allowing smaller but more geographically distributed operations, customized products without price premiums and more customer-centric retail operations. The use of AI and related tools (chatbots) could enhance understanding of customers at an individual level and usher smaller data pools allowing engagement of individual customers. All of this could lead to more satisfying consumer experiences, better profits and stronger customer loyalty towards manufacturers and retailers. Just free up Marketers to enlist human skills that can deliver custom experiences that are relevant to the paying customer.

The Price is Right - Not!

Last year, Forbes magazine profiled Vextec, a company that has developed a very accurate approach to predicting how materials behave under operational conditions. This company's product promises to revolutionize the economics of design, reducing barriers to entry in several capital intensive industries. What struck me most about the article was the price charged for the services. It seems that the company charges customers based on their own costs (plus a markup) rather than the value their product brings to the customer. I suspect that most manufacturers of engineered products follow a cost-plus approach to pricing. This might be partly due to competitive pressures and partly to the simplicity of the cost-plus approach. However companies that rely on the cost plus approach are limiting their growth and their profits to a fixed multiple of their assets. Such companies might be better served by using value-based pricing. For instance the subject of this article offers a service that allows manufacturers to circumvent several expensive iterations significantly reducing the cost of development. By using cost-plus pricing the company is limited to the amount of work it can handle by leveraging its existing man-power. Value-based pricing would allow Vextec to pick projects where its services bring the greatest value and therefore the highest return to the company.   Value-based pricing trains a company to better understand its customers. Such understanding inevitably results in products and services that offer customers what they value most. Following the value approach enables companies to charge a fair price (based on the value they offer) and  improve the efficiency of their own operations.              .

draf

We don't need any Marketing !!!

Last year I met a successful Infrastructure entrepreneur who consulted me on an alternate revenue model for infrastructure projects. This entrepreneur's company had won contracts for construction of portions of India's Golden Quadrilateral (GQ) highway network and were looking to change the model for revenue generation.  Currently, projects in this region are offered on what is known as Build, Operate and Transfer (BOT) basis. The winning bidder completes the project with their own funds, collects payments from users during the Operate phase, then transfers operational ownership to the government.

I energetically applied all my learning from Business school to the entrepreneur's question. But I felt that there was more to it and so I kept digging. Over the next few months I realized gaps in the entrepreneur's business model. The primary issue was a lack of the marketing effort by the company. This omission had not affected revenues in the early years when the economy was going strong at 6-7%. However as the economy deteriorated in the global downturn of 2009, revenues declined. The entrepreneur fixated on the unpredictability of revenues in the only manner he thought possible. I proposed a detailed list of specific actions that the company might take to stimulate demand for the corridor operated by the company. I also advised the company on a schedule that they could follow to ensure steady and increasing revenues from various projects including airports and other highways that were still under construction.  

Time bound revenue models require that a company stimulate demand during the period when they stand to benefit. This requires an investment in a formal marketing department and a focused plan of action. Companies that are blinded to this reality tend to look to fix external variables. My customer, wanted to fix the revenue model not realizing that changes were required to their own organization. This is a classic pattern with businesses that traditionally shy away from formal marketing or strategy. Early success, blinds these companies to the need for organic evolution. When they see a problem their first response is to try to change external factors. Even successful companies need to be continuously alert to the need to evolve in order to stay relevant to their industry.
  

New aircraft or aftermarket?

I was recently talking with someone who works for a manufacturer of aerospace waste water recycling systems. Out of curiosity, I researched the company and found that they offer a product that is lighter and more reliable than existing alternatives. The product is also modular and therefore easier to replace. My research on this company also indicated that they have just won contracts for supplier furnished equipment on various new business jet programs. To me this suggested a traditional mindset behind the company’s product strategy. It has long been a tradition in the aerospace industry for companies to invest heavily in development for new aircraft to monopolize the aftermarket. But the times, they are a changing, and companies can no longer count on holding on to monopolies for as long as they traditionally have.

There are trends underlying this shortened duration of aerospace monopolies. Perhaps the most important is the proliferation of PMA parts in the after-market. Besides making for an extremely competitive after-market, this signals a willingness on the part of companies to challenge monopolies. It also underlines customer's willingness to try cheaper alternatives. Airlines themselves face tremendous pressures to manage costs and are therefore more amenable to cheaper ways to operate. Another trend is the casting off of airline MRO’s as independent entities allowing them to aggressively pursue business beyond their captive airline customer. These MRO's already possess the technical capabilities required to perform repairs. When this capability is coupled with an investment in supply chain management and improved logistics, these MROs are able to offer better reliability along with technical competence matching the OEMs. Ironically, building volumes allows these MRO companies to negotiate better terms with the very OEM companies they supplant.  Together these trends make for an extremely competitive marketplace that challenges the traditional mindset.  

In the new market there are compelling reasons for companies with technically superior components to pursue the aftermarket.  For one companies whose products contribute to much bigger systems such as in an aircraft, tend to be treated as just another part of the bigger system. Typically the focus is on managing the overall cost of the system and each component manufacturer is competing with manufacturers of other components in the system for a better price. This limits opportunities to command a premium for what may be genuine improvements over existing alternatives. The aftermarket is an altogether different game in that each sub-system is evaluated in terms of its lifetime costs. This throws up opportunities to differentiate and to command better prices for features that will make a real difference to the customer. 

Coming back to the manufacturer of aerospace waste water recycling systems, I would question a strategy that exclusively focuses on new aircraft programs. I think this company, ought to pursue aftermarket work in parallel with new aircraft programs. Moreover, I think they should offer products with their best features in the after-market rather than on new aircraft programs.