MIT_Sloan_Management_Review_-_Spring_2020

(WallPaper) #1

30 MIT SLOAN MANAGEMENT REVIEW SPRING 2020 SLOANREVIEW.MIT.EDU


DISRUPTION 2020: COMPETING ON QUALITY


powerful digital technologies to offer products or
services that are cheaper, more convenient, and every
bit as good as existing offerings. The combination of
“just as good” with new digital technologies creates a
massive inflection point, putting more pressure on
incumbents than ever.
The traditional assumption underpinning most
retail businesses was that the gatekeeper for product
sales would be large distributors like Walmart,
Target, or Carrefour. Vendors had to demonstrate
large enough demand for a big enough customer
segment to earn space on a distributor’s shelves. This
gatekeeping function created several side effects. The
first was that products themselves needed to be fairly
standardized to offer consistency across the many
distributor locations. The second was that the man-
ufacturers had relatively crude information about
who the buyers were, how the products were stocked
and displayed, and how they performed relative to
competitors sold by the same vendor. The producer
had relatively little control over the buying experi-
ence. For many producers, the most important
“customer” was the retailer, not the end user.
The 2010s saw an explosion of consumer-
products companies that dispensed with the gate-
keepers to offer their products directly to consumers,
hence the moniker D2C, or direct to consumer.
Companies such as Warby Parker (founded in 2010),
Dollar Shave Club (2011), Glossier (2010), Away
(2015), Casper (2014), and Bonobos (2007) are up-
ending categories as varied as eyeglasses, men’s
grooming, skin care, travel, mattresses, and clothing.
Their value proposition to customers almost always
features a comparable product at a lower price. More
important, it always offers a shopping experience
that eliminates many of the frictions and irritants of
conventional retail.
Dollar Shave Club (acquired by Unilever for $1 bil-
lion in 2016) made a point of criticizing flaws in the
existing business model of conventional men’s shav-
ing products. In a hilarious video that went viral on
social channels, cofounder Michael Dubin mocked
the incumbent’s practices. “Do you like spending $20
a month on brand-name razors?” he asks his mostly
youthful audience. “Nineteen goes to Roger Federer!
... Stop paying for shave tech you don’t need.” Gillette,
the incumbent, was forced to react by reducing prices,
launching a shave club of its own, and even venturing

into edgy advertising (to mixed reviews). Still, its mar-
ket share has suffered, both from the competition
with D2C companies like Dollar Shave Club and
Harry’s and from the trend among men, particularly
younger ones, to wear beards.
In a short period of time, new competitors have
radically changed customer behavior in three sig-
nificant ways:


  • Consumers are now happy to purchase hard
    goods like mattresses, furniture, and even cars
    online. Previous generations found it unthinkable
    to do so. Making a wrong choice could involve
    expensive returns, lots of wasted time, ongoing
    quality and safety worries, and potentially even
    financial losses. Since making a wrong choice was
    seen as risky, the assumption was that consumers
    would always want to touch and feel such goods
    before making a big-commitment purchase.
    The new disrupters have eliminated that risk and
    complexity. Don’t like your Casper mattress after
    99 days? No problem — the company will come pick
    it up from you, free of charge. Casper has reduced
    the risk of making what once was a high-stakes
    decision. In 2019, the company’s revenues topped
    $500 million, taking a chunk out of an industry
    whose sales were reportedly $27 billion the same year.

  • Almost everything can be sold as a service. While
    the idea started with software (the famous software-
    as-a-service, or SaaS, model), you can now utilize
    clothing, furniture, cars, trucks, heavy equipment,
    and even pets on a subscription or limited-trial
    basis. Why bother to own products when you can
    get the same benefits only as needed, with flexible
    spending?

  • Excess capacity is a consumer asset. The poster
    child for this trend is Airbnb, which created a mar-
    ketplace in which ordinary people with underutilized
    real estate could make money by renting their space
    to strangers. As of 2019, Americans reportedly spent
    more money with Airbnb than they did with Hilton,
    accounting for some 20% of consumer money spent
    on lodging. The model is now extending to other
    asset classes, with startups like Neighbor.com,
    which connects homeowners with excess room at
    home to people who need storage space.


The new
disrupters
have elimi-
nated risk
and complex-
ity. Don’t like
your Casper
mattress
after 99
days? No
problem —
the company
will come
pick it up
from you,
free of
charge.
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