Wednesday, June 21, 2017

Principle 5: Consumer/Buyer Participation Determines Product Value

Consumer Value Creates Sustainable Profits
Consumer/Buyer Participation Determines Product Value Direct integration with the consumer/buyer sales offer creates value through participation in product selection and individualization.  Consumers can individualize product and buyers can create/test exclusive and private label apparel without inventory risk.

Product Value

Product value can have a number of different connotations, for instance, product value to a consumer could refer to price, fit, durability, peer aceptance or all of these and more.  Product value to a retailer or a brand often is more related to profits or corporate identity and to a manufacturer the term often refers to profit through ease of production and productivity.  If value relates to all these different propositions then how does consumer/buyer participation impact all these diverse definitions at each level of the supply path. 

Consumer Value

For the consumer the ability to select and customize a product represents the highest level of personal relevance.  That personal attachment translates into a willingness to pay more for the product because the personal value is based on more than price. Even more important, the participation of the consumer indicates exactly what he or she wants to buy and therefore the probability of a final transaction becomes much more reliable.  This ability to shape the product replaces much of the desire to shape the deal in the mind of the consumer creating a much higher attachment to the content of the product rather than just the price.  This identification with the personalized product has both a positive value in the desire to complete the transaction and a negative impact if the product is not readily available.  This need for instant gratification is the weakness of the online sales experience and the strength of the retail experience however, online merchants are way ahead in mitigating this gratification delay by providing instant downloading of products like aps, books and financial services and heavy investment in developing technology to provide quicker physical product delivery.  The ever present downside for both online and retail is; that in order to satisfy this important consumer value proposition the seller must hold greater volumes of inventory in anticipation of the consumer’s desired product features.  The only practical solution to this conundrum is to invest in Purchase Activated Manufacturing (PAM) with it’s integrated virtual inventory.  A virtual inventory is an endless aisle of customizable product held in the digital state and converted to a custom physical product on demand in a Purchase Activated Manufacturing facility.  This facility can be the paint counter at ACE or a direct-to-garment digital printer in a retail store or a production line in the corner of the regional distribution center.

Retailer Value

For the retailer and indirectly the brand the value of consumer participation is simply sustainable profits.  Consumer participation creates higher sell-through of product, which directly raises profits.  Selling higher percentage of on-hand inventory helps produce higher profits for the entire supply chain because, it reduces unsold inventory the single greatest profit killer in retailing.
Based on 6000 units, Landed Duty Paid cost $18, Retail price $45, Sell through and markdowns based on current U.S. women's retail apparel averages.
Retailers and brands need to remember that the funds they leveraged and paid  for unsold product is by far the most expensive funds they risk whether the funds are borrowed or advanced, selling one to pay for three is an unsustainable proposition.  When sell through averages only 28.5% of on-hand inventory (according to Accelerated Analytics, Inc. POS data), discounts to clear inventory wreck profits.  The search for lower labor prices and the adoption of time-to-market design software create more inventory and only make this problem more expensive and more of a death sentence.  

Summary: Participation = Value = Profits

Focusing product decisions on the consumer with active cunsumer participation allows a retailer, e-tailer or brand to work from realtime trend data instead of forecasts that hope to predict trends a year in advance.  Using real time sales data and demand replenisment, retailers can tweak product and designers can use today’s 3D design platforms to feed a virtual inventory and PAM production with time-to-purchase restocking of 10 days or less.  This strategy reduces unsold product losses and creates customer loyalty while insuring sustainable profits.

The New Era of Searchers vs. Shoppers

What is the difference between today’s consumer and buyer and the consumers and buyers of the past.  The quick answer, assumed by the pundits and today’s failing retailers, is that every consumer and B2B buyer is shopping on line.  Yet by far the bulk of apparel actual sales still occur in a retail store.  The origin of this misconception/excuse is rooted in two key facts about the consumer purchasing experience.  First, according to Forrester Research, Inc. well over half of the retail  apparel purchases are influenced by online information and second the “social” traffic that used to be automatic at the mall has been replaced by social interactions online.  In short visiting with your friends is a lot easier online in a virtual world of social media than the real world of crusing the mall.

Based on this data and the reality of hundreds of specialty apparel retailers circling the drain, it’s time to redefine the apparel consumer.  We are no longer dealing with a shopper but rather today’s consumer is a searcher.  The ineffecient “mall crawl” has been replace by meta data and cookies the help explore the vast inventory of the internet.  These searchers are no longer limited by location or local culture they can explore product from all over the world while floating down an “amazonian” river or trekking through “googleland”.

Today’s retail store buyer has an even more complex reencarnation.  With the advent of the UPC code and more recently the RFID tag, stores are capable of mapping their floorspace and tracking product purchases in real time.  Today’s buyer can get daily reports from store operations and know product successes failures in as they happen.  Even though, buyers may get the data to know what’s happening, there is little they can do except reducing price to drive sales.  Reducing prices drives “deal” shopping and ultimatley kills profits needed for store operations leading to layoffs and closings.  For buyers and merchandisers the dream state is, “never out of stock, never over stock”.  Getting to that state requires unique product and flexable contracts that are tied to actual sales.  The ability to create custom product with supply fexibility and weekly varible shipping that can support retail searchers and safe product availability sustaining product value and profits.

What’s Next?

How valuable would your smartphone be if you couldn’t choose the apps you wanted?  Would you want paint that wasn’t exactly the color you chose?  What if you could always be sure that the apparel look you wanted was always a perfect fit for your body!

Those three questions represent the three levels of apparel buying consumer participation online or on retail store kiosk.

Level One Virtual Inventory Catalog

Level one is the VI Catalog Level.  Just like the app catalog on your smart phone provides almost unlimited choice of product, an online catalog of apparel choices allows the searching consumer to find their look without hours of shopping.  Pictures of finished apparel usually shown on models and often used to offer unsold or discounted merchandise out of season characterize current catalog page layouts. Catalog level online is a digital version of the old mail order catalog with an online search and purchase twist. These product displays are the easiest to design and update.  This picture or object based format is the most compatible with multiplatform and omni-channel applications.  Catalog page layouts can get highly sophisticated with 3D/360° views, product comparison and magnification flash screens.

Catalog layouts represent product already in inventory and therefore depend on price and features selected by the seller.  Because the inventory is already purchased and in stock the risk of profit loss from further clearance discounts and unsold product is still very real.  This application of digital display technology can create a discount platform and if properly synchronized with social media can drive additional sales volume.  The down side is that since the product represents the seller’s vision to the consumer/buyer the price often becomes the key value criteria.  This price-based value can force discounting of on hand inventory to increase sell-through and in turn drive down profits.

Level One Objectives:

·      Develop a template for the search experience and test consumer use and reaction in store and online.
·      Build a direct HD link to 3D/360° between your design software and the catalog template.
·      Build a direct link to 2D print and piece nests between your design software and the Virtual Inventory server.
·      Build, sample and produce your products in process color.

Level Two Mass Customization

Level Two adds a consumer/buyer Mass Customization features to the catalog.  This user driven configurator software allows the consumer/buyer to change colors and/or prints as well as adding certain embellishments like lettering, edge treatments and embroidery. Although these additions are limited to digitally manufactured choices already prepared and tested they still represent significant customization choices to the consumer/buyer.  The configurator level product offering level can usually be identified by a menu of user driven choices shown in a side panel of the display screen.  This menu can be as simple as “Choose Your Color” or a complex set of colors, fonts and objects.

Click the link below to experience EMBODEE's "state-of-the-art" online product customizing.

Many companies at all levels of the sourcing chain (retail, brand and manufacturing) resist configurator level offerings because their enterprise management software (ERP, PLM, POS etc.) is not agile enough to handle this multi faceted data stream.  Manufacturers are also faced with creating agility in technologies previously dedicated to the efficiency of common product volume.  Because of this resistance many online displays that look like configurators are actually level one search plugins that help the consumer/buyer navigate a large on hand inventory. While this solution provides more choices it may not allow for future upgrades to additional merchandising opportunities.

Level Two Objectives:

·      Find a configurator that places objects in a format compatible with catalog and printer outputs.
·      Produce a HD 3D/360° rendering of the customized garment.
·      Build a search and retrieval system for consumer/buyer designed SKU’s.
·      Create consumer specific personal collections for individuals to reorder or redecorate.

Level Three Contour Fitting

Level three; consumer participation is based on the most important historical value in apparel sales, the individual ultimate value of personal fit.  The ability to tailor clothing to a customer’s body shape has always represented the ultimate value in a personal wardrobe.  The digital capability of creating and grading a garment in real time to the body shape of an individual consumer is the key to insuring sale of apparel at full profit.  A number of technologies in scanning, measurement algorithms and 3D photographic interpretation have been able to produce holographic visually functional models of consumers.  However, creating an accurate 3D measurable and drape ready hologram is only one third of the solution.  The second piece of the solution is a 3D/360° display version of individually fitted apparel that is of sufficient resolution and detail to place in the personal catalog of the customer with the ability to rotate and magnify as well as customize. The last third of the solution is the ability to produce a 2D production pattern, and nested RIP compatible color print file including printable placement of embellishments and accurate working sewing instructions. 
 This early Microsoft Retail scenario demonstrates the ability to capture shapes and visualize products in an Omni-channel experience.

Level Three Objectives:

·      Create individual fitted catalogs for “loyalty premium” consumers.
·      Gather fitting data for specialty micro-sizing of new products.
·      Identify a test market base for future product releases and embellishment choices.
After extensive testing our team has concluded that two companies are at least two-thirds of the way to a full solution but as of mid 2017 no seamless complete software is on the market.  Unfortunately although the current software allows PAM demand manufacturing and mass customization it does not yet support seamless, integrated Level Three, Fitted Purchase Activated Manufacturing.

There is however current technology available that creates the ultimate level of consumer satisfaction and engagement and will support a level of productivity and profit that sustains jobs and domestic manufacturing in this important segment of our economy.

The misguided reluctance and delayed action of the current apparel industry to transition from “supply and demand” to “demand and supply” and to directly link the individual consumer to the final product is the primary cause of today's collapse in apparel and retail jobs.