1 Objective
In today’s industry consumer is a renewed king of the marketplace. Consumers have an array of tools to get more enlightened irrespective of social and global barriers, they are pampered by new possibilities matching their stated and perceived needs, and they are ever searching better value for money where brand loyalty is the last thing in their mind.
This free minded thinking and non-committal buying behavior keeps the organizations continuously innovating and enhancing their capabilities to be one step ahead of this ever evolving buying population. Then only the organizations can hope to survive by capture mindshare and wallet share of this ever
In this new normal staying ahead of the trend is existential initiative for the organizations not an option.
2 Scope of this point of view
In this document I would like to share how organizations can strategize their approach, tactically prioritize between competing initiatives and operationally use SAP tools to manage fuzzy buying behavior of potential customers to be successful and growing in this winner takes all situation.
We will concentrate our discussion on customer facing applications traditionally what we define as CRM. However the continuous propagation of value propositions across supply chain and hard reality of maintaining profitability will make our definition of CRM to an overarching customer centric business processes. That is what we refer as new normal of Customer Relationship Management
2.1 What customers are looking for – ‘pull factor’
Figure 1 - Pull factor |
Some of the major trends we see in the marketplace can be traced to two major origins – demographic shift and technological progression of the world. These two forces are generating new sets of expectations of the consumers. We can summarize this ‘pull factor’ as below
2.2 What organizations are facing – ‘friction factor’
In addition to the ever changing consumer demand organizations are facing a lowered entry barrier of players. This has been enabled by the level playing field created by online access to consumers.
2.3 What organizations are responding to match the ‘pull’ and ‘friction’ – ‘success factor’
Organizations are enabling their entire value chain with technological capabilities to create value proposition to customer in almost all organizational functions. This end to end enablement is summarized as below
Figure 2 - Success factor - value propositions
3 Strategic needs of the organizations translated to business capabilities to address value propositions – prioritize organizational initiatives
Every organization is facing a dilemma today. In severely constrained resource situation how to provide the value propositions above in the most cost effective manner.
We use following illustrative framework to determine which initiatives provide maximum enterprise wide value in the most cost effective way
Figure 3 - Framework
3.1 Strategic needs –
To provide the value proposition as mentioned above organizations have four strategic needs to address. These strategic needs if addressed do give rise to business capabilities. These capabilities in their turn help achieve the value propositions mentioned above.
The strategic needs are –
- Consumer data flow and value capture
- The experience economy
- Omni channel retail
- Digital operating model
Mapping these strategic needs and related business capabilities to the value propositions we find some important initiatives consumer goods organizations need to focus on.
We find that the emergence of technological progresses in this digital world have provided organizations with initiatives to achieve the business capabilities
In the following figures we have shown those relevant initiatives which would yield substantial benefits to the organization and time and effort expected from the organizations respectively
Figure 4 - Value at stake |
Figure 5 - Prioritized initiatives
Now let us focus on some of the obvious initiatives we think organizations should embark on based on above analysis. The selected initiatives are highlighted above and summarized in the following table –
Table 1 - Needs driven initiatives
Strategic needs | Initiatives | Priority |
Consumer data flow and value capture | Data to improve experience | Short term |
Data as an asset | Medium term | |
Experience economy | Hyper personalization | Short term |
From products to services and experience | Medium term | |
Omni channel retail | E-commerce | Short term |
Physical store transformation | Short term | |
Sharing economy | Short term | |
Digital operating model | Smarter supply chain | Short term |
We will start with short term initiatives, provide our experience of what are the leading practices for those initiatives and then share SAP centric solution landscape for those initiatives.
We will exclude in this document Smarter supply chain initiative and its implementation approaches as this initiative is primarily focused on manufacturing , procurement and logistics operations
3.2 Initiatives
3.2.1 Data to improve experience – builds the platform to use Data as an asset
If we analyze the following schematic it represents the supply chain and points where useful data of customer interactions are generated.
Figure 6 - Data gathering interaction points |
Above diagram explains while organizations (brand owners) sale and service end customers through traditional channels e.g. Wholesale Distribution Channel, Retail Channels and E-Commerce, in course of these demand fulfilment transactions organizations gather lot of statistical information on pricing, shipment, execution efficiency etc. Additionally, and that is where the paradigm shift has happened, consumers shop around, provide their feedback and share hidden expectations in social networking channels and also during maintenance interactions. Very often these searches, feedbacks are unstructured and spread out. Before buying a product customers are now shopping around and probably has 10 or more touch points before he ever decides to buy something. Those touch points can include tweets and Facebook posts.
That is where digital transformation initiative to gather data to improve experience comes into picture. Technically it needs Big Data integration and flexible analytics features in the IT operational solution of the organization.
3.2.1.1 How SAP solution enables to gather useful data to improve experience
Sentiment Analysis is one of the important SAP solution component to use captured data in course of interaction. For example SAP big data integration and sentiment analysis helps consumer companies’ sales and marketing operations in the following areas –
Big Data & Real-time Social Media Monitoring. By monitoring social media in real-time, consumer products companies can develop ongoing measures of consumer sentiment and leverage that to very quickly assess the effects of pricing, packaging or merchandising changes or marketing or promotion campaigns on consumer perceptions of brand image and brand value.
Using Big Data to Optimize Trade Promotions. Consumer Product companies can now also leverage real-time order and shipment data along with daily retailer point-of-sale data and weekly or monthly syndicated retail measurement data to develop increasingly targeted and tailored promotions, optimized to meet both the company’s and the retailer’s revenue, volume and profitability targets.
Leveraging Big Data to Monitor Promotion Performance. Through in-memory computing and real-time demand sensing, companies can also monitor promotion performance as it happens, quickly identifying exceptions and opportunities and further leveraging promotion optimization both to respond profitably to market dynamics and to improve the underlying models to ensure even more accurate, targeted promotions going forward.
Enabling the Perfect Store, Powered By Big Data. Targeted, accurate forecasts coupled with optimized promotions help to ensure availability to meet demand in stores at the shelf. Extending in-store execution to manufacturer sales reps further enables on shelf availability by ensuring adequate inventory availability on a store-by-store basis; price, promotion and merchandising compliance; and rapid resolution and settlement of claims and returns – all of which translates to more face time with store managers for strategy and relationship development.
SAP digital platform below provides the level 1 solution architecture to provide the big data integration and sentiment analysis capability. Additionally it provides the framework which we will be leveraging for all of our subsequent initiatives –
We need to transition to S/4 HANA business platform to
Figure 7 - SAP Digital platform |
gather useful data and start using it for improving experience of consumers, hence proving as an asset.
3.2.1.2 What type of analytics we should use to gain insight of business and improve experience of consumers
3.2.1.2.1 Text Analytics and Search
It identifies key sentiment related information by searching full unstructured text data which often becomes very large volume data. Developing and deploying text analytics and search involves following steps –
Figure 8 - SAP Text analytics
We recommend using this as a short term initiative as an extension of gathering useful data
3.2.1.2.2 Spatial data processing
Incorporate geographical information in the data model so that transactions capture geographical tagging. This additional data helps us to later process and review geography specific trends and activities
We recommend using this as a medium term initiative after stabilizing the transition to S/4 HANA
3.2.1.2.3 Predictive analytics and processing
SAP business objects predictive analytics provides following functional capabilities
- Automated analytics – Automated shaping up of data for analytical processing
- Expert analytics - Provide a drag and drop modeling environment for open-source R-based algorithms (for customized statistical analysis), SAP HANA PAL, and SAP Automated Predictive Library (APL)
- Predictive scoring
- Social and recommendation – Looking at social networking presence predicts which customer has more influence. Helps identifying churn, fraud and actual business potential
The solution architecture for predictive analysis and processing is as follows –
Figure 9- Predictive analytics architecture
We recommend using this as a medium term initiative after stabilizing the transition to S/4 HANA
3.2.1.2.4 Series data processing
Series data capability need to be built on HANA platform by SQL programming. Analysis of series data allows you to draw meaningful conclusions and predictions from the patterns and trends present in the values.
We recommend using this as a medium term initiative after stabilizing the transition to S/4 HANA
3.2.1.2.5 Streaming data processing
Online streaming of new data and comparison with historical data in HANA database provides immediate blips or anomalies.
We recommend using this as a medium term initiative after stabilizing the transition to S/4 HANA
3.2.1.2.6 Advanced graphics
Native graphing capability to provide infographics can be used as short term initiative. However, creating additional graphics capability using HANA SQL can be taken as medium term initiative.
3.2.2 ‘Hyper personalization’ and path to ‘From products to services and experience’
According to an analysis of the consumer economy, companies have to offer their customers unforgettable experiences to succeed. This experience needs to be personalized to the segment of consumer or sometimes high valued individual consumers also. This personalized experience may build brand loyalty or create a niche within a premium segment. For others, particularly e-commerce platforms where competition is fierce, offering personalized products can be a way to differentiate themselves from rivals. Personalization, for instance, helped Dutch retailer Wehkamp achieve a 271% increase in its sales-per-send ratio on marketing emails.
That is the concept of hyper personalization. The potential rewards for businesses could be substantial, with personalized products and memorable experiences translating to brand loyalty. Personalized products also allow brands to charge a premium.
Providing hyper personalization has now been made possible by the explosion in connectivity, the advances in analytics and artificial intelligence, and the growing availability of smart devices and sensors.
Hyper personalization can be in the following areas -
Personalization of product portfolios: Product manufacturing companies will leverage consumer data to create the right products for each market cluster and distribute the right portfolio for each channel, store format and market. Assuming adoption of the concept to increase from 0.5% in 2015 to 5% of the total market by 2025, the companies that do this better than others could capture $70 billion in additional operating profits from those that do not.
Personalization of retail experience: Retailers, in collaboration with shopping applications, are creating more targeted and contextual promotions and recommendations for consumers that are based on information gathered from past behavior, current shopping activity and location. Retailers that succeed at this could drive up to 8% improvement in revenues.
Product customization: Companies are also building a more intimate relationship with consumers by offering them the ability to customize products to their individual needs. As digitalization enables companies to deliver customization at scale, the number of consumers choosing customization could grow from 6% in 2015 to 25% in 2025 and the share of annual shopping baskets where customization is applied could grow from around 0.1% in 2015 to 5% in 2025. This drives around $50 billion of value migration from traditional non-customizable products to customized product offerings. Consumers are expected to pay around 20%48 higher prices for customized, made-to-order products as compared with traditional substitutes, leading to a value addition of about $30 billion.
Hyper-personalization will not benefit businesses alone. Customers and society stand to benefit from time savings, reduced spending on unused purchases, reduced wastage of unsold inventory and a decline in emissions from reduced production of unused goods, together aggregating to around $230 billion over the next decade.
3.2.2.1 How SAP solution enables Hyper personalization and beyond
To provide hyper personalization through SAP platform we will use SAP digital platform as mentioned above and will need to think beyond traditional customer relationship management processes.
We split the personalization required by customers in following touch points across customer journey –
Table 2- Personalization across customer journey
Stages | Research and Planning | Shopping | Booking | Delivery | Billing | Installation | Maintenance and Servicing |
Channels | |||||||
Website | Guided questionnaire to identify intent e.g North Face website – ‘Why are you shopping’ | Product and service bundle offering – real time offer management (RTOM). Ability to compare with competitive products | Customer specific pricing, channel partner rebate, availability date and pick up location |
| Convergent invoicing, Usage Based Billing (UBB), credit rating based financing, billing self-services (Biller direct) | Youtube video links if applicable | Self service capability, Personalized service time and qualification, service completion and satisfaction tracking |
Call Center | Segmented campaign with specific messaging | Consistent with web channel, mobile and retail channel experience |
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| Personalized knowledge management with specific questions with time bound redirection | |
Mobile | Segmented campaign with specific messaging | Quick select of product portfolio |
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Retail stores | In store customizing kiosks based on limited stable platforms | Shelf visibility, Ability to demonstrate personalized features |
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| Personalized service offering e.g. Best Buy Geek Squad | |
Customer relations |
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| Confirm personalized features | Confirm personalized delivery services of packaging, messaging etc |
| Installation instructions with personalized features |
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General web browsing | Search indexing for prime appearances |
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The above table highlights the personalization initiatives companies can take in short term and also it prepares for convergence of product and service offering to a unified experience in medium term.
In the following solution stack we will highlight what are the SAP product solutions we can implement in short term and medium term respectively as part of those initiatives. Some of the solution components will go beyond traditional customer relationship management processes and should be implemented in short term.
Figure 10 - SAP consumer product roadmap
In the following table we identified components of the solution stack as part of personalization and beyond initiative
Table 3 - Short term and medium term initiatives
Solution areas | Short term - Personalization | Medium term - From products to services and experience |
Agile Manufacturing | ||
Simplified production planning (PP) and detailed scheduling (DS) in SAP ERP powered by SAP HANA | ||
Real time supply chain | ||
Real-time inventory management | Available to promise (ATP): New product availability check on SAP S/4 HANA | |
Optionally - SAP APO, EWM | ||
Priority-driven and order-based planning in SAP Integrated Business Planning | ||
Sales and Marketing | ||
Full suite of SAP CRM with side-by-side deployment with SAP S/4HANA - Focus on contextual promotion of Hybris Commerce, Convergence billing and Usage Based Billing, if relevant | SAP Trade Promotion Management (CRM) with settlement in SAP S/4HANA | |
Integration of SAP Hybris Cloud for Customer with SAP S/4HANA | SAP Hybris Commerce and SAP Hybris Billing –end-to-end digital commerce and billing | |
SAP Hybris Customer Experience –content targeting and personalization | ||
Settlement management | ||
Sales order fulfillment cockpit | ||
SAP Hybris Customer Experience and SAP Hybris Merchandising | ||
SAP Hybris Billing in SAP S/4HANA | ||
SAP Hybris Marketing for business-to-business use | ||
Integration of SAP Hybris Cloud for Sales with SAP Hybris Marketing | ||
Integration of SAP Hybris Commerce with SAP Hybris Cloud for Customer and SAP CRM |
3.2.3 Physical store transformation, E-Commerce and Sharing economy
3.2.3.1 Physical store transformation
Many bricks-and-mortar retailers appear to be going through an existential struggle. In the United Kingdom, an average of 16 stores closed each day in 2014, while in the United States, high-profile retailers have shut down dozens, and in some cases hundreds, of stores in 2015, including RadioShack (1,784 closed), Office Depot (135) and Abercrombie & Fitch (60)
Physical stores are one of the biggest dilemmas of current domestic appliances industry sector. More and more E-Commerce penetration has a negative impact on the physical stores as pure play sales point. At the same time consumers want to touch and feel the product before buying. So companies are adopting two strategies. One is for retailers to invest in their stores so that they can offer a truly distinctive shopping experience, taking into account excellent customer relationship management and community activities that will attract consumers who might otherwise have opted to buy online. The second strategy is to transform physical stores into fulfillment centers for e-commerce, providing a convenient point for customers to pick up the products they have ordered.
Either of these strategies have minimum footprint on SAP centric solution transformation and hence will not be discussed. It is only recommended to look at these possibilities while building a holistic transformation business case of the organization. One point to note here the battle for shelf space and cost of store transformation for differentiating experience will tend to be shared between retailers and brand owners/manufacturers. So this needs to be budgeted as a cost to the transformation
3.2.3.2 E-Commerce
Following are some of the predictions of a study by World Economic Forum and Accenture on the prospects of E-Commerce -
“We expect e-commerce penetration to grow from around 6% in 2015 to 17% in 2025. This translates to around $450 billion of profit migration from offline channels to online. We estimate consumers would increase their purchasing volume by 5% when they shift toward purchasing online as the channel presents customers with more options and recommendations based on customer centricity. The current focus of online channels is on growth even if it means sacrificing margins. However, as the online industry matures and consolidates, we expect the average discount in online pricing to reduce to 1% in 2025 from the current 2% discount in pricing and also be able to achieve parity in margins with offline channels due to lower operating costs. The combined impact should add around $200 billion in cumulative operating profits up to 2025. The migration to e-commerce also has the potential to generate significant benefits for customers – contributing to more than 250 million hours in time savings over the next decade, assuming an average basket size of $50 across categories and an average travel time of 40 minutes for offline shopping. This translates to a potential value of $2.4 trillion in productivity gains. The combined value of time and cost savings from online platforms results in a total of $2.7 trillion of overall societal impact over the next decade.”
Obviously this is important beyond mentioning and we expect lot of consolidation and maturation in E-Commerce platforms to provide not only a demand generation point but also a promise and fulfillment window to the customers
3.2.3.2.1 How SAP solution enables E-Commerce
SAP had a genesis of their e-Commerce solution over the years. Originally they had an e-Commerce solution integrating with back end SAP ECC. That E-Commerce solution was Java based. It had B2B and B2C web shops with comprehensive order management, pricing and catalog integration capabilities.
After that as SAP CRM on premise product became more and more matured it had an advanced e-Commerce capability with the same flavors of B2B and B2C web shops. But both of these capabilities through were closely integrated to backend applications like ECC or CRM respectively for pricing, quoting, configuration and availability checks, did not have end to end integration with Invoicing and Billing.
Currently SAP has three major solutions to address E-Commerce needs. First two are traditional E-Commerce on ECC and E-Commerce on SAP CRM. They still are supported. Additionally SAP now has Hybris cloud based E-Commerce solution with backend integration to S/4 Hana.
The roadmap for Hybris E-commerce solution is as follows. It is implied that Hybris Commerce is integrated with S/4 Hana on premises or on cloud and this integration is going to be extended to all business areas more and more.
Figure 11- SAP hybris commerce roadmap
We recommend for clients already on SAP CRM E-Commerce to enhance capability at both ends of the E-Commerce value chain as below –
Figure 12 - E-Commerce approaches
3.2.3.3 Sharing economy
The sharing economy combines two key categories – rental economy and used goods economy– both driven by digital platforms and together driving around $350 billion in consumer industries. The rental economy allows consumers to give up ownership and save money on low utilization products. It is estimated that around 4% of the applicable product category sales (premium apparel, children’s products, home and garden equipment) to move to rental models by 2025. It is assumed that rental platforms could charge 20 to 30% of the rental fee as commissions. Retailers could lose approximately $50 billion in operating profits resulting from reduced demand from consumers shifting to rental models. For manufacturers, value migration from selling to traditional retail to serving new rental channels amounts to around $130 billion in operating profit.
The used goods economy refers to the facilitation of P2P and business-to-consumer sales of used goods by digital platforms. The digital marketplaces for used goods are estimated to grow from around 5% of new good sales in 2015 to 20% of new goods sales for applicable categories by 2025. We assume a vast majority of sellers in the used goods market would use the proceeds to replace the product with newer purchases in a much shorter replacement cycle as they are able to monetize the depreciated value of the goods they otherwise would have waited to consume fully. Facilitating replacement of used goods and bringing sellers back into being buyers of newer goods could drive about $150 billion in operating profits for retailers and manufacturers. Marketplaces facilitating the used goods economy could earn about $100 billion in operating profits, leading to a combined value exceeding $250 billion over the next 10 years.
3.2.3.3.1 How to use SAP solution in sharing economy initiative
Leasing and rental solution based on SAP CRM on premises for leasing is recommended to be the best place to start with for rental process management.
The architecture diagram and process flow diagram is as follows –
Figure 13 - Leasing solution
Sometimes usage based billing is sufficient for maintaining simple rental models and the correct solution needs to be decided at the time of implementation.
For used goods auction processes we need to use auctioning via Web shop (AVW) application to create and manage auctions in your Web shop, and to process payment and delivery.
Web auctions are an increasingly popular way to reach new audiences and to allow market demand to determine price. They are also a particularly useful way to sell new and excess inventory, used assets, and time-sensitive products, which reduces your sales and inventory costs.
The Auctioning via Web shop (AVW) application is integrated with SAP CRM. You can create auctions for all products or services in the SAP CRM product master.
4 Conclusion
In this document we have tried to prioritize SAP initiatives in line with their business values. Needless to say this is a framework and can be optimized based on client specific needs
5 Reference
- World Economic Forum White Paper Digital Transformation of Industries: In collaboration with Accenture
- Forbes presentations on SAP
- SAP documentation
- Project experiences
- SAP Managed Tags: