A friend recently quipped the only way to get served in department store David Jones was to pretend to shoplift. After years of waning service, she’s given up on DJs and Myer, and even speciality retailers whose service standards are slipping. Instead, she's buying more goods online.
Before we beat up on retailers again, consider how the online threat will affect other industries – and create opportunities for nimble entrepreneurs.
Universities are a good example. The Australian Financial Review this week reported on growth in massive, open online courses (MOOCs), with prestigious universities providing free high-quality, user-friendly online course notes and lectures – and even exams and some accreditation.
Although it’s early days, these courses have the potential to disrupt established university business models and dramatically reshape the sector, especially around the cash cow of teaching international students.
Will there come a time when students choose between higher-cost university courses with classroom lectures and personalised teaching, and low-cost courses mostly taught online with little or no face-to-face contact? Will universities stuck in the middle (low service, high price) go the same way as department stores?
Will the emerging winners be universities offering low-priced courses and using technology to replicate – or vastly improve – teaching standards? Or established universities able to attract large numbers of students to low-priced online courses, and upsell them into postgraduate courses?
I’m not saying this is necessarily a good trend. As a part-time university lecturer, I see great value in teaching students face to face, hopefully inspiring them, and creating energy in the classroom. No online course can ever help open student minds in the same way as personalised teaching. Nor can online courses replicate the “life experience” of attending university in your early years.
But some students pay too much for university courses, and get poor service because of high classroom numbers. The very notion that students are “customers” who should be served complicates the online threat for universities more than most industries.
How many other industries can charge $40,000 for a product, “fail” their customers, and expect them to keep buying, to get the degree? It’s a great business while it lasts.
The trend seems little different in the media. Expect a widening gap between high-quality/high-priced content, and low-quality/low-priced or free content. Again, it seems the emerging winners are those with low-price models that can use technology to lift quality and service, and smash high-priced content offerings that have a heavier cost structure and less flexible organisational culture.
What about tourism? Not so long ago, we only booked cheap flights and hotel rooms online, and visited travel agents for advice on dearer trips. How long until more consumers book expensive overseas coach tours online, by themselves or with limited online service from a travel agent? This trend, already well underway, surely has much further to run.
Wealth management is another obvious example. Online discount brokers have long made life tough for full-service brokers, but what happens when other wealth-management decisions, such as starting a superannuation fund, are increasingly made online, with very limited, or no advice?
Again, the outcome seems an even bigger gap between high-priced/high-service wealth-management offerings, and low-priced/low- or limited-service offerings. And more wealth-management firms stuck in the middle (high prices with average service) going bust.
What happens when more people buy and sell houses online without property agents? I look forward to the day when property agents who tout the “expected price range” for a house at about 30 per cent less than it sells for, go out of business.
What happens when even more people shop at discount chemists or online pharmacies, and avoid higher-priced pharmacies, or only use them for products where expert advice is needed?
I could go on with other examples, none especially new, but I doubt enough thought has been given to how industries will be reshaped when the full force of online distribution/service is felt.
It’s hard to know which business models will survive and flourish, such is the speed of change.
Some trends, however, are clear for small business owners:
- Businesses charging a high price for average service will be gutted by online retailing. Those that got away with it for years because of less competition are quickly being exposed by emerging online retailers.
- Businesses charging a high price for commoditised service face a similar threat. Expert service is needed to justify a premium price. It can’t just replicate what people can already do for themselves. For example, in my view, a travel agent with genuine expertise about holiday destinations will always be in demand. Those that can only “organise” holidays will not.
- Businesses charging excessive prices will be found out faster than ever. Think shoe retailing, cosmetics and premium fashion, where there are huge, unjustified mark-ups on products. Who can blame people for buying these products online and overseas?
- The answer is business-model reinvention, not just cost cutting. Too many companies under financial pressure only respond by cutting costs, and inevitably put themselves in a “death cycle” of lower service and waning product quality, in a race to the bottom.
- Low-end business models might have more appeal for entrepreneurs. Successful ones typically found a niche, charged a higher price and loved their customers more. These days, entrepreneurs are achieving great success through lower-end/mass-market products, and loving their customers by using technology to improve service, and through lower prices.