When Amazon recently announced its Dash replenishment service, which uses sensors and buttons on physical products to automatically order products when you start to run out of them, manufacturers and retailers took notice. The service has started with only a few common consumable products, like printer toner, water filters and glucose monitoring strips, but the implications for the future of commerce are vast. Dash is only the most visible manifestation of what we’ve called the “Commerce of Things” — the way connected physical objects are starting to mediate the ways we make purchases.
By now we all know how the Internet of Things creates opportunities for objects to talk with each other: the classic example is a heart monitor sewn into the material of your shirt that alerts your doctor if your heart rate unaccountably spikes. Now, the Commerce of Things uses smart products that know when to re-order themselves or associated consumables, using a payment system pre-approved by you, but relieving you of the obligation to take action to make an individual purchase. This new world of commercial transactions mediated by objects represents a potential sea change for retailers and manufacturers, to explore new revenue opportunities, leverage new distribution systems, and build lasting brand loyalty.
New Revenue Models
Subscription replenishment models have been around for a long time. For example, I have a subscription to have specialty coffees sent to my house. We used to have coffee delivered every month, but we recently changed it to every six weeks — due to our busy travel schedules, we found ourselves with an overabundance of coffee. There’s nothing smart about that kind of system. Consider how the Commerce of Things could improve my interaction with my coffee supplier. Soon, my coffee maker will have sensors in it, quietly taking note of my coffee consumption, and waiting until I’m actually getting low on coffee to order the next shipment. As the physical environment gets smarter and more connected, we’ll be able to use products the way they’re designed to be used — without the cognitive overhead of making frequent, tiny purchases.
With deeper insights into consumers’ real-time behaviors and intentions, manufacturers have powerful opportunities to cross-sell, upsell or provide added value. For example, there are companies that offer smart sprinkler systems that sense precipitation, so if it’s raining, the sprinkler won’t turn on. But in the future, I can envision building sensors into the ground that could profile the health of your lawn and add on services — fertilizer or aeration, for example — based on what the lawn needs right now. Any product that has ancillary services associated with it could leverage the Commerce of Things to provide added value for customers in the most immediate, practical and useful ways.
Opportunity to Create Customer Loyalty
At first glance, it might seem as though an automated replenishment service removes valuable opportunities to interact with customers. However, for traditional commerce models that dominate supermarket and consumer packaged goods industries, more direct modes of customer interaction aren’t actually that useful in building customer loyalty. For example, if you’re shopping for razors at a grocery store, you might just pick up whatever razor is on sale that week. But if you have an ongoing relationship with a shaving products manufacturer through a replenishment program — the lifetime value of the relationship is worth much more than a few extra customer interactions here and there. In the past, I casually interacted with many razor manufacturers at the grocery store, without really investing in any of them. Now, a single manufacturer is using the power of subscriptions to cultivate an ongoing relationship with me, every single month.
But the power of subscriptions goes deeper than that. Consider how Netflix builds enviable loyalty: thanks to its intelligent predictions, Netflix knows that customers who like this often also will like that. Through rating products and services, each subsequent offering is even better suited to a customer’s individual tastes and needs. The Commerce of Things offers new opportunities for forward-looking companies to build that feedback model into their replenishment system, building ever-increasing value into the customer relationship. Consider how a smart printer could learn over time that you like printing photos — and then send you a free sample of a new deluxe photo paper that might make your pictures look even better. Your smart running shoes might observe your training patterns, and then offer you a training app custom-tailored to your specific running goals, from a 5K race to a marathon — without your having to ask. Upselling and cross-selling are good, but developing a relationship that adds real value to a customer’s life — that’s the true promise of the Commerce of Things.
The Future is Things
We’ve just begun to glimpse the potential of the Commerce of Things. For branded manufacturers — who already have a love-hate relationship with channel partners who place pressure on margins — commerce mediated by objects provides a huge opportunity to take back control of the customer relationship. Retail is important, and it’s not going away anytime soon — which is good news for manufacturers of products that rely more on impulse and whimsy than planning and foresight. But having a direct relationship with customers is important. Once the product shows up at the customer’s doorstep, the Commerce of Things offers branded manufacturers an invaluable opportunity to own that relationship on an ongoing basis without a dominating retail intermediary.
Digital River provides e-commerce technology and online payment services.
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