The story of a consumer who drives value is as old as the world and might not come as a surprise. However, so far, the companies were mainly in control of how consumers can shape their strategies by deciding on the offer’s design and components proposing to take it or leave it offers to target audiences. Based on the recent evidence from the retail payments market, we argue that new business models, consumer empowerment, and increased personalization that intended to create and capture more value by companies backfired by giving more control to the consumers. The latter ones are now becoming the notable orchestrators of value distribution. The consumers and their decisions are now directly taken into account when it comes to managerial strategic choices even in the industries where the consumer is less involved in the co-creation of products and value.
Egor Krivosheya is head of research, assistant professor at Centre for Research in Financial Technologies and Digital Economy, SKOLKOVO-NES
Ekaterina Semerikova is head of research at Centre for Research in Financial Technologies and Digital Economy, SKOLKOVO-NES
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Consumer-centricity has been the trend that shapes corporate and product strategies for the past two decades. Its orientation on a closed-end system that enables an all-in-one consumer experience and marketing strategy aimed to create emotional connection with consumers contributed to the high brand equity for the company. Brand equity is the premium to value a company generates from making its brand and products recognized by consumers. In essence, Apple created a lovemark, a brand that consumers love so much that they are ready to buy the product despite some redundancies in performance or qualities compared to the competitors’ offerings. Apple is not alone: a similar strategy was pursued by companies in many B2C industries from Nike, whose landmark Just Do It campaign created value gains for them, to Mastercard, whose priceless campaigns and branding created recognizable catchphrases, and Google, whose name became the verb substitute for online queries.
Brand equity and lovemarks provided valuable differentiation for a few decades. Coupled with functional performance, unique resources, and capabilities of the companies’ workforce, this created market leaders and one of the most valuable companies nowadays. However, this strategy became replicable. Brand equity could only exist if the consumer’s values correspond to the values embedded in the company’s brand and product positioning. Corporate growth created large markets with numerous consumers. More consumers mean more diverse values. As a result, getting into everyone’s values with one brand or set of products became impossible. On the one hand, this created demand for replication of the business models under different brands and positioning. On the other hand, this opened up possibilities for personalization and more activities related to customer involvement in the value chain.
As a result, we currently face the markets so diverse and personalized that the world of products revolves around the customer, who is to be satisfied. This starts to span beyond hedonistic consumption and starts affecting more functional products as well. According to our recent research, as of 2021, 87% of consumers in Russia hold payment cards. Russians are used to cashless payments.
Besides, the Russian market, alongside Indian and Chinese ones, is in the top 3 markets in terms of FinTech adoption, according to EY, FinTech adoption index 2019. Currently Russia is among the top cashless payments market globally, especially in contactless payments. BCG has even named tremendous contactless payments growth ‘Russian miracle’. However, this increased adoption comes at a price to providers. Consumers know that they are battled for. According to our research, consumers are aware they are at the center of banks’ and other financial intermediaries’ attention. As a result, consumers get a real say in these companies’ strategies.
Market research has become a norm in any product management and general corporate marketing. Managers of a company would usually use the results of such research to develop products in response to the painpoints and insights they can pinpoint from the data. What to do if market research starts to produce conflicting results and clients cannot be segmented in a meaningful way?
Banks in Russia started to respond to this by providing a flexible card, where desired attributes, including loyalty programs characteristics, can be chosen by the consumer rather than imposed by the services provider. This gained popularity since about half (47%) of Russian cardholders currently participate in the loyalty programs. About half of these loyalty program participants (40%) will try to open a new payment card or switch to cash if these programs are suspended or seriously worsened.
Banks are aware of this and respond by providing loyalty programs as a baseline option with any payment card. Tinkoff bank went even further by providing premium-style loyalty programs to all of its clients.
The loyalty revolution started by Tinkoff, which brought loyalty programs to mass market, sparked changes in all the other banks. Even socially-oriented cards and banks currently have a version of loyalty programs in Russia, and consumers are aware of these perks. Some of them start to use these offerings for their good, becoming unprofitable users for the companies. For instance, some of the consumers hunt for financial benefits. This can take the form of satisfying minimal requirements to receive benefits. In MTS Bank, a financial services provider spun off from one of the largest telecommunication companies in the country, this resulted in the emergence of consumers, who transact minimal amount to gain a free of charge telecommunications subscription. In banks, this takes the form of transacting just enough to get a discounted interest rate on loans or additional interest to deposits. Overall, 69.3% of Russian cardholders pursue financial benefits strategy, i.e., use cashless payment instruments because of loyalty programs and other rewards, while about 20% of cardholders (18.9%) use this strategy as a dominant one, it is the main consistent reason for participating in retail payments market for them.
Brand equity and love marks have provided valuable differentiation for a few decades. Coupled with functional performance, unique resources and the capabilities of the companies’ workforce, this has created market leaders and one of the most valuable companies nowadays. However, brand equity can only exist if consumer’s values correspond to the values embedded in the company’s brand and product positioning. Getting into everyone’s values with one brand or set of products has become impossible
On the one hand, this means that financial innovations and other marketing techniques work for banks: they do attract more clients. On the other hand, the funding of such programs requires significant amounts. Our latest estimations of the loyalty program market across all banks in Russia are about 20.8 billion rubles ($278.3 million) a month.
According to the Kommersant, Sberbank, the largest bank in Russia, paid 45.4 billion rubles in loyalty programs in 2020. Tinkoff bank paid about 25 billion rubles throughout the same period. If the clients’ response is to change the provider in case the bank worsens loyalty programs, we can expect that future competition will likely increase these costs. Given that some of the clients sign up for some of the bank products just to satisfy for the loyalty program perks, this creates a problem for existing bank strategies. In essence, it boils down to the fact the empowered consumer is strategic and proactive, and any arbitrage opportunity or loophole can create huge losses for organizations.
This trend spans beyond just the retail payments market. However, we chose this case since this industry affects all areas of consumer life and was usually considered utilitarian and functional. Other industries are even more dependent on consumers in their value chain. Sportswear producers provide customizable apparel to ignite the consumers’ creativity and help them personalize the products to their needs and wants.
Platforms such as gig economy ones (e.g., Uber, Didi, TaskRabbit, Yandex.Toloka, Yandex.Lavka and Yandex.Taxi, Citymobil) or sharing economy services (e.g., AirBnB) provide users with a range of additional options (e.g., experiential add-ons or customizable tariffs and requests to drivers) to personalize even relatively rigid products and services such as flats or rides.
And it is now more than ever essential to acknowledge customer values. Apart from the functional trend on personalization and flexibility, customers also want to consume with a statement. Being an opportunity for one, this can become a challenge for others. Companies like Vkusvill in Russia leverage consumer values of a healthy lifestyle, trust, and local producers’ support to grow successful, profitable businesses. On the other hand, a mismatch in values or a choice of values associated with polarized views can destroy corporate value. One example is Nike’s choice of Dream Crazy campaign in 2018 featuring a former football athlete and a civil rights activist Colin Kaepernick. Kaepernick started kneeling during the national anthem to protest racial injustice, which was met with controversy across fans, officials, and organizations. The feature of Kaepernick as a key star in the ad campaign resulted in active boycotts of Nike, with some people burning shoes to protest the company. In the end, it did produce positive financial results, however, the controversy around the campaign affected a significant portion of Nike’s customer audience.
Hence, the consumer became more than merely a stakeholder, who companies need to account for. Consumers as a group are now active co-creators of value that have a say in the firms’ strategy. In digital business, this may become even more evident, where some consumers also become the providers of the value. In YouTube, for instance, content production increases corporate value by attracting more ads and marketing. Acknowledging these changing values and managing consumer trends can be a thing that makes a company or breaks it if done improperly.
Trend is friend
Trends change and companies need to engage in active trend watching and trend management more than ever now. However, we can already decipher some trends that persist in consumer behavior for the past few years.
Firstly, consumers become more proactive. In the same case with retail payments, as of 2021, 66% of cardholders issue cards themselves rather than due to employers’ activities or social benefits receipts. Only 22% of consumers actively use the card issued by the employer. For comparison, in 2017, this figure was twice as large, 44%. Consumers realized the benefits and now want to be in control. In other industries, consumers follow trends and try to search for new offerings and ideas, especially if they are expressed via influencers and other native channels they actively consume.
Secondly, consumers want business and corporate managers to respond and take the lead in grand challenges and other industrial and socially important issues and trends. According to the 2021 edition of Edelman Trust Barometer, a global leader on research in public trust, 66% of consumers globally expect top managers to take the lead in global problems rather than wait for government or other instructions. Some 65% of global consumers also expect managers to be responsible not only in front of investors and the board of directors but also in front of the consumers and society. And this society wants business to address complex issues such as climate change, sustainability, social justice, and others while doing it out of own interest rather than force and need.
Finally, consumers expect the best experience to be transferred across all channels and industries. Consumers are used to the top-notch experience provided online by the BigTech companies, and they want to transition offline seamlessly. They also value the convenience and speed of a daily delivery and the personalized approach of a human employee. This means that the best experience of yesterday becomes consumer expectation today. Companies need to think beyond classic industry boundaries and search for the consumer experience by taking their role and trying to see the world in their shoes. This means constructing and trying to get consumer experience and customer journey within the company and throughout their day. This also means that digital transformation and business model innovation becomes a must in corporate strategy.
Classic management techniques do not always allow responding to trends fully and efficiently. That is why we currently need a set of trend management techniques, which would help companies consistently manage the trends and gain a competitive advantage. We ourselves try to develop some of these techniques, and some of them include strategic response and the choice of roles with respect to increasing trends. However, it is important to remember that managers need first to become aware of the trends and actively monitor and find them to design the best response for their company.