Retailers need to think about doing more than selling the product. They also should be selling the services that make the Internet of Things useful.

Jed Stillman, Partner, Sprosty Network

Jed Stillman, Partner, Sprosty Network

Another year of CES wrapped up earlier this month, with aisle after aisle of the latest technology advancements in consumer products jockeying for attention. If CES 2018 did one thing, it was to hammer home how “connected” the world has become, with devices driven either by an application or some other type of service. It has become startlingly clear how connected the home—and everything in it—has the potential to be. Everything from smart toilets to smart security to roll-up TVs, and so much more, was on display—it was truly a connected consumer nirvana.

It was also, however, an opportunity to look at retail strategies surrounding the Internet of Things (IoT), and connected products in general, and that’s when things start to fall apart for retail companies. There’s a gaping hole in many retailers’ approach to selling consumer IoT. With so much focus on the shiny new products debuting at CES, it’s easy to lose sight of the bigger picture—and the bigger piece of the pie. The growth of the IoT ecosystem is leading to an explosion of products that all have downstream revenue associated with them in the form of recurring monthly or annual services contracts. This downstream revenue is a huge long-term growth opportunity for retailers, and it’s being largely ignored.

The customer flow for IoT is dependent upon several things: one or more hardware devices, an educational component (how do I use this device or application?), and the actual use of the application. It’s that actual usage of the product that creates downstream value. Some organization is already capturing that, and it’s most likely NOT the retailer that sold the products.

The problem is that most retailers don’t spend time or have the expertise to calculate the downstream value in the products they’re selling.

However, if a retailer does things right—if they’re able to connect all of these parts into a solutions offering through some sort of partnership—they are creating not only a bigger bundle, but also a better customer experience by providing the customers everything they need to get started, all in one place. Many retailers are seeing just one piece of the sale—the device—and leaving it to customers to figure out how to get the most out of that product. That’s a huge missed opportunity that could have led to more revenue and a better relationship with the customer.

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The problem is that most merchant organizations and retailers don’t spend time or have the expertise to calculate the downstream value in the products they’re selling, and what that specifically means in terms of driving new revenue streams. Most don’t have the internal know-how or the infrastructure in place to create these partnerships or bundle these types of services to their offerings and execute complex sales. Outside of the mobile phone experience, which was tame in comparison because of the small number of wireless carriers from which they had to partner, retailers are challenged in marketing and selling anything other than the box, and perhaps a few accessories and some basic warranty service.

The process to change this is complicated, but not impossible. Online retailers, especially, have the biggest opportunity to create an end-to-end solution set for customers. The e-commerce experience is usually geared around selling a product, and in some cases, maybe even a warranty. How can online retailers digitize the rights to the services needed to connect and support that device, provide the online education and support needed, and allow customers to buy all of those services when they purchase that product online?

If retailers play their cards right and are proactive, their piece of the pie is bigger and customer satisfaction is higher. An excellent example of what’s possible is LG’s debut of its roll-up TV at CES. How could a retailer work with streaming service vendors to package not only the product, but the streaming subscription services to create an all-in-one purchase experience for the customer? Doing so would not only generate an ongoing revenue stream, but also create a tighter bond with the customer that is not always inherent on having the lowest price.

This “services” and “solution” thinking easily translates to other product areas, too. If companies are selling smart home routers today online, they also could be bundling some form of security monitoring service, for example a Norton-type software, or an identity theft solution, or other type of value-added service that helps protect the data transmitted over the router. If they’re selling cameras or other photography devices, are they selling online storage for photos and backup, so that customers don’t lose them?

The IoT vendors themselves are starting to figure out they can step in and make a play in the services arena. For example, Nest debuted its security services last fall, as did SmartThings with its ADT partnership. Both were front and center with both their product and services offerings at CES.

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Since so much of the value of IoT is in ongoing services, retailers need to make the mental and strategic shift from selling simply a product to selling a solution set, much like the way they learned how to profit from the sale of mobile phones. To avoid being left behind, retailers need to think about how they can partner with the vendors and services providers to get a slice of this type of ongoing revenue. If online retailers don’t learn how to play in this arena, they’ll continue to be limited to one-and-done opportunities with their customers.

Sprosty Network is a retail technology consulting firm.

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