The Empowered Consumer

The story of the consumer driving value is as old as the world and probably won’t come as a surprise. Yet companies mainly controlled how consumers could shape their strategies by deciding on the design and components of the offer ,proposing take it or leave it offers to target audiences. Based on recent evidence from the retail payments market, we argue that new business models, consumer empowerment and increased personalisation intended for creating and capturing more value by companies backfired by giving consumers themselves more control. Consumers are now becoming marked orchestrators of value distribution. They and their decisions are now taken directly into account in making strategic managerial choices even in industries where the consumer is less involved in the co-creation of products and value, think Egor Krivosheya and Ekaterina Semerikova of Centre for Research in Financial Technologies and Digital Economy, SKOLKOVO-NES

Consumer-centricity has been a trend shaping corporate and product strategies for the past two decades. Its focus on a closed-end system enabling an all-in-one consumer experience and a marketing strategy to create an emotional connection with consumers has contributed to high brand equity for a company. Brand equity is a premium on the value a company generates by ensuring its brand and products are recognised by consumers. In essence, Apple created a love mark, a brand that consumers love so much that they are ready to buy the product despite some redundancies in performance or quality compared to competitors’ oerings. Apple is not alone: a similar strategy has been 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 recognisable catchphrases, and Google, whose name became a verb substitute for online queries.

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. Yet, this strategy became replicable. Brand equity could only exist if the consumer’s values corresponded to the values embedded in the company’s brand and product positioning. Corporate growth has created large markets with numerous consumers. More consumers means more diverse values. As a result, getting into everyone’s values with one brand or set of products has become impossible. On the one hand, this has created demand for replication of business models under different brands and positioning. On the other hand, this has opened up possibilities for personalisation and more activities related to customer involvement in the value chain.

As a result, we are currently facing markets so diverse and personalised that the world of products revolves around the customer, who must be satised. is starts to spread beyond hedonistic consumption and starts aecting 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. In addition, the Russian market, alongside those of India and China, is one of the top three markets in terms of FinTech adoption, according to EY, FinTech adoption index 2019. Currently, Russia is among the top cashless payments markets globally, especially in contactless payments. BCG has even named the tremendous contactless payment growth a ‘Russian miracle’. Even so, this increased adoption comes at a price for providers. Consumers know that they are being fought for. According to our research, consumers are aware they are at the centre of attention of banks and other nancial intermediaries. As a result, consumers get a real say in these companies’ strategies.

Market research has become the norm in any product management and general corporate marketing. Company managers would usually use the results of such research to develop products in response to the pain points and insights they can pinpoint from the data. What to do if market research starts to produce conicting results and clients cannot be segmented in a meaningful way? Banks in Russia started to respond to this by providing a exible card, where desired attributes, including loyalty programme characteristics, can be chosen by the consumer rather than imposed by the service provider. is has gained popularity since about half (47%) of Russian cardholders currently participate in loyalty programmes. About half of these loyalty programme participants (40%) will try to open a new payment card or switch to cash if these programmes are suspended or their terms seriously deteriorate.

Banks are aware of this and respond by providing loyalty programmes as a baseline option with any payment card. Tinko bank went even further by providing premium-style loyalty programmes to all its clients. e loyalty revolution launched by Tinko, which brought loyalty programmes to the mass market, sparked changes in all the other banks. Even socially-orientated cards and banks currently have a version of loyalty programmes in Russia and consumers are aware of these perks. Some of them start to use these oerings for their benet, becoming unprotable users for companies. For instance, some consumers seek nancial benets. is can take the form of satisfying minimal requirements to receive benets. In MTS Bank, a nancial services provider spun o from one of the biggest telecommunication companies in the country, this resulted in emergence of consumers who transact the minimum amount for gaining 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 on deposits.

Overall, 69.3% of Russian cardholders pursue a nancial benets strategy, i.e., use cashless payment instruments because of loyalty programmes and other rewards, while about 20% of cardholders (18.9%) use this strategy as a dominant one, constituting the main consistent reason for them to participate in the retail payments market. On the one hand, this means that nancial innovations and other marketing techniques do work for banks: they do attract more clients. On the other hand, the funding of such programmes requires s signicant funds. Our latest estimates of the loyalty programme market across all banks in Russia is about 20.8 billion rubles ($278.3 million) a month.

According to Kommersant, Sberbank, Russia’s biggest bank, paid 45.4 billion rubles ($613.5 million) in loyalty programmes in 2020. Tinko bank paid about 25 billion rubles ($337.9 million) during the same period. If clients respond by changing provider a  bank’s loyalty programme deteriorates, we can expect that future competition will likely increase these costs. Given that some clients sign up for some bank products just to qualify for loyalty programme perks, this creates a problem for existing bank strategies. In essence, it comes down to the fact the empowered consumer is strategic and proactive, and any arbitrage opportunity or loophole can cause huge losses for organisations. is trend spans beyond just the retail payments market. However, we chose this case since this industry aects 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 manufacturers provide customisable apparel to ignite the consumers’ creativity and help them tailor 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., experience add-ons or customisable taris and requests to drivers) to personalise even relatively rigid products and services, such as ats or rides. Now it is more essential than ever to acknowledge customer values.

Apart from the functional trend toward personalisation and exibility, customers also want to consume with a statement. Being an opportunity for some, 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, protable businesses. On the other hand, a mismatch in values or a choice of values associated with polarised views can destroy corporate value. One example is Nike’s choice of the Dream Crazy campaign in 2018 featuring former footballer and civil rights activist Colin Kaepernick. Kaepernick started kneeling during the national anthem to protest against racial injustice, which was met with controversy among fans, o cials and organisations. e featuring of Kaepernick as a key star in the ad campaign resulted in active boycotts of Nike, with some people burning shoes to protest against the company. In the end, it did produce positive nancial results but the controversy around the campaign aected a signicant portion of Nike’s customer audience.

Hence, the consumer became more than merely a stakeholder that companies need to take into account. Consumers as a group are now active co-creators of value and have a say in rms’ strategies. In the digital business, this may become even more evident, as some consumers also become providers of value. On YouTube, for instance, content production increases corporate value by attracting more ads and marketing. Acknowledging these changing values and managing consumer trends can make or break a company, if not done properly.

Trends change and companies need to engage in active trend watching and trend management more than ever now. Yet, we can already deciphe some trends that have persisted in consumer behaviour over the last few years. First, consumers are becoming more proactive. In the same case with retail payments, as of 2021, 66% of cardholders take out cards themselves rather than receiving them as a result of employers’ activities or social benet receipts. Only 22% of consumers make active use of the card issued by their employer. For comparison, in 2017, this gure was double, 44%. Consumers realised the benets and now want to be in control. In other industries, consumers follow trends and seek new oerings and ideas, especially if they are expressed via inuencers and other native channels they actively consume. Second, 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 the Edelman Trust Barometer, a global leader in research into public trust, 66% of consumers globally expect top managers to take the lead on global problems rather than wait for government or other instructions. Some 65% of global consumers also expect managers to be responsible not only before investors and the board of directors but also in before consumers and society. And this society wants business to address complex issues such as climate change, sustainability, social justice and others in their own interests rather than out of force or necessity.

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 BigTech companies, and they want to transition oine seamlessly. ey also value the convenience and speed of daily deliveries and the personalised approach of a  human employee. is means that yesterday’s best experience becomes today’s consumer expectation. Companies need to think beyond classic industry boundaries and seek the consumer experience by taking their role and trying to see the world in their shoes. is means constructing and trying to get the consumer experience and customer journey within the company and throughout the day. is also means that digital transformation and business model innovation is becoming a must for corporate strategy.

Classic management techniques do not always allow a full and eective response to trends. at is why we currently need a set of trend management techniques that would help companies manage trends consistently and gain a competitive advantage. We ourselves are trying to develop some of these techniques, and some of them include a strategic response and a choice of roles in relation to increasing trends. Yet, it is important to remember that managers need rst to become aware of the trends and actively monitor and nd them in order to design the best response for their company.

Egor Krivosheya is head of research, assistant professor at the Centre for Research in Financial Technologies and Digital Economy, SKOLKOVO-NES

Ekaterina Semerikova is head of research at the Centre for Research in Financial Technologies and Digital Economy, SKOLKOVO-NES

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