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Insight

New Rules of Engagement in the Age of Voice-powered Ecosystems

Artificial intelligence (AI) has become a pervasive part of everyday life

When coupled with the consumer expectation of zero friction and the power of predictive personalization, AI has the potential to not only create entirely new shopping experiences for consumers, but to also drive fundamental change throughout the consumer products value chain.

In this new business landscape powered by digitally driven ecosystems, consumer products firms must consider a wide range of competitors including established market leaders, fast-moving category upstarts, platform-enabled tech giants and a whole host of new non-competitive actors driving disruptive models of value creation.¹ Here, we discuss the key elements of this new landscape, how new leaders are driving change, and the role that voice-activated interfaces and automation are playing in shaping consumer behaviors and expectations. We will also shed light on the new rules of the consumer market in the age of AI and how consumer products companies, in particular, can leverage these trends to realize future value.

Pascoe Craig

Senior Account Director

Ramiro Amaral

Strategy Director

It’s probably hard to overstate how big of an impact (AI) is going to have on society over the next 20 years. It has been a dream since the early days of science fiction to have a computer that you can talk to in a natural way and actually ask it to have a conversation with you and ask it to do things for you. And that is coming true.

Jeff Bezos, CEO, Amazon²

Consumer products changing landscape: The beginning of an AI-powered world

Once a novelty item, voice assistants are slowly becoming an accepted and valued part of more consumers’ lives. Gartner forecasts that, by the end of 2020, the voice assistant speaker market will reach $2.1 billion.⁴ This rate of adoption demonstrates how AI is being integrated into virtually every facet of consumers’ lives—from shopping and commuting to entertainment and communication.

Perhaps more important, this new wave of products helps deliver on the promise of a more intuitive and human-centered way of interacting with technology. Voice- and gesture-based user interfaces (UI), powered by AI platforms and cloud-based infrastructures, will reinvent the way people carry out many of their everyday tasks and activities. For example, smart mirrors can project tips and tricks based on your beauty preferences, while smartwatches can generate healthy meal suggestions based on daily caloric intake.

This evolution of technology will also drive profound transformation and new business opportunities in the marketplace. This may come in the form of small, agile entrants or even the emergence of new tech players whose value and influence surpasses current industry leaders. The new opportunities created by AI will also be available to those established companies that find ways to reinvent their business models and reimagine their business from the inside out.

AI: Creating opportunities for innovation

Recent history has proven that whenever a new user interface reaches mainstream adoption, it creates enormous opportunity for new companies to become market leaders. We have seen this time and again with desktop computers (Microsoft/Windows), web browsers (Google/Search) and mobile (Apple/iOS). In each case, the key to success lies in the company’s ability to own consumers’ interactions, capture their attention and create a point of leverage that could then be used to dominate other areas of the value chain.⁵ This premise is the reason why the battle to become the market leader in home-based, voice AI products is being so keenly fought by today’s tech giants.

Further, it’s no coincidence that when we look at different markets and categories, we see players like Google, Amazon and Apple continue to cross category borders and compete orthogonally in totally new industries such as retail, media, and entertainment. Amazon, for instance, began as an e-tailer specializing in books. Today, however, it is a retail empire—selling everything from appliances to socks and launching complementary services such as Amazon Fresh, which seeks to capture the $20 billion dollar online grocery market.⁶

What these companies understand is that—in the age of technology, innovation, and business transformation—a defensive strategy is not enough to protect market positions. At a high level, these ecosystem companies aim to systematically take their offer to new markets, disrupting legacy business models by using a superior consumer experience as their differentiator.

Critically, because this model is predicated on providing consumers with differentiated experiences, these companies are compelled to embrace and leverage new technologies. AI and the services that are built on it, such as voice AI and the connected home, are seen as an opportunity to create new business value and meet customers’ needs…or risk being disrupted by competitors that do.

AI and Amazon: A glimpse into the power of ecosystem companies

Amazon is one of the most striking, and relevant, examples of business growth in the modern era. The company has successfully utilized the early days of the internet and cloud computing to create a new model known as a platform or ecosystem.

By owning the relationship with the consumer, Amazon redefines the terms of competition as it continues to understand what consumers want, anticipate and adapt to demand flows, and mostly dictate the rules to suppliers.

Amazon’s power and strategy stems from its sustainable creation of reasons for consumers to stay connected and loyal to the brand, thereby enabling the business to maintain a virtuous cycle—one that is typical of new ecosystem players.

What is the ecosystem business model?

A platform company successfully positions itself at the demand end of the traditional product value chain between the consumers, manufacturers and distributors. In assuming this strategic position, the company gains leverage over other players in the chain by either weakening their positions or commoditizing them entirely. The result is the creation of an ecosystem of suppliers and consumers that orbit the consumer access point (e.g., Amazon.com or Google search) and are pulled in by a network-effects-powered gravitational force generated by a combination of supply, demand and the means of transaction.⁷

Virtuous cycle of ecosystem companies

AI-powered shopping: A future of effortless shopping and automation

For consumers, the history of purchasing and accessing products and services can be viewed through the lens of friction—or, more specifically, through the business’ ability to reduce or leverage points of friction, either throughout the purchase journey or at the point of consumption.

Like many trends, this one is cyclical. For example, consider the purchase of an everyday staple like milk. Decades ago, milk was delivered by a person who not only fulfilled your order, but knew your favorite type, understood your consumption habits and had the ability to occasionally suggest other products. Then came supermarkets. Consumers were willing to endure the “friction” of physically going to the shop in exchange for cheaper prices and an increased level of choice. Now, through home delivery and predictive AI, the pendulum has swung back. Products are not only being delivered to your door based on your unique needs and preferences, but they also come with the added value of low prices and almost infinite choice.

Products will flow to the household like a utility, as electricity and water do. For many products, the shopper will be a bot, leaving customers with the sole task of consumption.

Niraj Dawar, Professor of Marketing, Ivey Business School, Canada⁸

For products and services that are based around meeting basic or routine needs—which is, of course, where consumer products companies typically operate—the implications of these trends are significant. Some experts point to a future in which recurring purchases become fully automated, sparking massive changes not just in where and when people shop, but also how much mindfulness and awareness they apply to the task itself.⁹ In this future world, consumer products purchases will be more like a low-to-zero-consideration, “always on” utility than a trip to the store.

AI is further accelerating this trend. We have already reached a point where consumers can simply announce their need for a product and a home-based, virtual assistant will add the item to a shopping list. Looking to the future, predictive modeling and advanced analytics will be able to anticipate the needs of the customer and proactively purchase products with the required frequency and quantity.

The evolution of shopping UI. From location and effort to engagement and cadence, this is how the UI of shopping has changed from offline to online and, now. to connected experiences.

AI and Ecosystem Companies: Competing for the Future of Shopping

As the future of shopping becomes connected and omnipresent, new market conditions are prompting companies with relatively little in common to battle for the same customer. These blurred lines create a play between different ecosystem owners, whose ability to leverage the pillars of consumer relationship, data-driven personalization and AI-powered interactions will be the driving force for success.

Creating a competitive edge is the motivation of tech giants such as Amazon, Google, Apple, and Samsung to invest in the next UI and AI battleground. The company that wins the battle to become the operating system (OS) of the home, will be uniquely placed at the center of the radical change in how consumers access products and services, thereby influencing everything from shopping behaviors to entertainment habits.

This will forever transform the entire relationship between retailers, consumers, and consumer products brands. As people come to expect new, more convenient and totally personalized shopping experiences, the mental models and expectations for purchasing will continue to shift. In many cases, the ecosystem players or new entrants are best equipped to respond successfully to this challenge and pace of change. Being digital natives, they are built from the ground up to operate in this new paradigm.

For those that don’t own an ecosystem, what is the alternative? Should they try to find a position on the “Smiling Curve” between high-volume, commoditized products and premium, differentiated offerings?¹⁰ Or is there another way to find value in different positions of the market and become a relevant player within different ecosystems? Consumer products brands will have to quickly embrace novel strategies in order to differentiate themselves and disrupt newly established terms of competition. The ultimate question for consumer products companies will be answered by how they deal with radical change—how they embrace the new rules of their industry.

The impact of AI on consumer products: Defining the new rules

Voice conversational UI is at the heart of the massive adoption of personal assistants and will give power to our AI-enabled assistants to manage requests, automate preferences and determine the flow of products in the home. This disruptive shopping system (and new consumer mental model) is predicated on zero purchase effort, leveraging implicit personal preferences and shifting the role of the consumer to that of almost entirely passive consumption.

As such, all businesses will need to transform to meet the evolving needs and preferences of the customer. Below we discuss the five new imperatives facing consumer products companies.

1. Shoppers and consumers will be different species


In today’s digital world, consumer products companies must deal with two very different audiences: humans and machines. In the not-too-distant future, devices in the connected home and their bespoke operating systems will be doing the shopping, forever changing the way humans buy. Under this model, machines will be making a vast majority of purchase decisions. The consumer’s role will simply be to say “yes” or “no” to the options proposed by the personal assistant. People will become consumers in the fullest sense: passively consuming a flow of low consideration products and expecting more of the higher consideration products.

As AI assistants become less of a passive filter and more of an active household manager, consumer products companies will effectively be marketing to two different species: the consumer and the shopper. Consumer products marketing will be reimagined as its environment (and multiple audiences) demands new strategies and operational structures.

2. The classic marketing mix will be organized around the consumer experience

Consumer products companies will have to find new ways of marketing to these two different species as personal assistants bring an entirely new way of shopping. These artificial shoppers will no longer go through classic shopping journeys, nor will they be susceptible to emotional brand narratives. They will care and respond to hard data, the kind that enables them to find the right product at the right price for their households or human counterparts. Place and promotion simply become a way of getting the product there.

On the consumer side, this is the definitive era beyond brand image for consumer products, where brand perceptions and preference will be led by the experience of the consumer. The right product aligned to specific consumer needs and cultural trends is fundamental and will be pivotal in expanding how a product or brand experience can further benefit the consumer. More and more, we will see the creation of value in the form of services, utilities, and automation added on top of classical offers.

Traditional forms of promotion and brand building will lose relevance as consumers become less tolerant of interruption—in this new mental model, there is simply no interruption in a voice-controlled interaction. There will be, however, space for introducing useful services within the conversational experience, a craft that’s quickly becoming the new norm for brand advertising. Likewise, consumers become less tolerant of products that don’t deliver on the expectation brought on by the right value proposition. The actual product experience will be the one leading the overall consumer/brand experience, which in turn will drive brand affinity and justify a higher price point.

3. Machines will facilitate constant auction trading for consumer products

With machines managing purchase cycles, the battle for relevance will increasingly move behind the scenes to the digital realm of ultra-high-speed marketplaces. This dynamic becomes very similar to an auction market, like the AI-powered, high-frequency trading that has already transformed stock markets. An example of this can be found by again looking at Amazon and, in particular, their Marketplace Web Service API, which has created its own ecosystem of third-party optimization tools used by suppliers to automatically respond to price changes in order to remain competitive.¹¹

This hyper-competitive, accelerated market setting will likely lead to unprecedented pressure on pricing and margins, and will favor those who effectively meet the specific needs of select groups of customers, as opposed to the traditional mass-market model of meeting the needs of most people. Rather than appealing directly to consumers through branding, advertising, and other traditional forms of promotion, consumer products firms will have to pass the test of the machines first, addressing the barrier of algorithmically powered trading. Critical to this will be understanding the complex mix of data points (e.g., purchase history), preferences, social graph, and product meta-tags that algorithms will leverage to ensure they meet the expectations of their consumers.

From a cultural and organizational point of view, the key step change and transformational imperative is that companies will have to learn how to influence machines’ algorithms rather than the human brain.

4. Products becoming services—becoming platforms—powered by user data

More options and immediate access to cheaper products will challenge the market position of traditional brands. In order to give consumers a reason to stay with them, consumer products companies must learn two things from ecosystem companies: 1) how to become an integral, irreplaceable part of consumers’ lives, and 2) how to solve the direct-to-consumer relationship equation.

In this new landscape, brands must create a complete consumer solution. This will come in different shapes and sizes depending on whether the category in question is low or high interest and if it draws more or less consumer engagement. The key will be offering a value proposition that stems from putting consumer data at the heart of the experience, creating services that do something helpful and add value to expectations in the category and merging connected products or additional digital layers with classic, physical products.

By architecting these valuable consumer platforms, consumer products companies can create a stronger and more independent position in relation to the dominant and incumbent retailers connected to the in-home OS. They can plug these propositions into different operating systems while keeping their core consumer offering and charging a fair price for the added value generated.

5. Consumer products companies becoming responsive networks of value

Today’s landscape necessitates all companies to compete in fundamentally different market conditions. As such, they must explore which assets and levers represent their biggest strengths. Some might choose to win on cost leadership and, therefore, massively streamline their operations to drive maximum operational efficiency. Others might decide that their main source of revenue will come from being private label suppliers and will, therefore, focus on their manufacturing expertise.

However, as part of the transition towards consolidating different business models, big traditional companies will need to fight to leverage the assets they’ve built over time. These players will need to rethink the shape and focus of their internal and external value networks. To thrive rather than survive, consumer products firms will need to look at what new core competencies (agility, responsiveness) and capabilities (automation, big data processing) are needed to successfully “co-evolve” with disruptive ecosystem companies, technologies and other competitive and non-competitive players that make up today’s business landscape.¹²

Consumer products brands must evolve their value networks to focus on establishing key strategic partnerships and joint offerings around various consumer needs and wants. The key will be to scope out opportunities for introducing their own integrations and modularizing existing elements within incumbent systems. Only then will these brands be able to commodify key competitors and capture new value in the market.¹³