Ever since Steve Jobs revealed the first iPhone, people have come to associate big tech launches with physical products. So at SAPPHIRE NOW, when SAP CEO Bill McDermott unveiled the new SAP digital innovation system, SAP Leonardo, many people in the audience reflexively looked around for a nonexistent device.

The fact is, value and differentiation are migrating away from physical products like devices and toward data-based services that fundamentally change the way consumers interact with those products. For consumer products (CP) companies, adapting to this change is imperative because today, even new and highly sought-after products become commoditized more quickly than ever before.

This means consumer products (CP) companies need to:

  • Innovate ways to be more efficient using IoT and analytics across lines of business (for example, in manufacturing and supply chain operations to increase efficiency as a way to lower costs)
  • Create innovative data services around products—for example, by building sensors into products. In this case, the data is what allows for differentiation. It’s what makes the product more valuable to the customer. And it’s how CP companies can increase market share, customer retention, and margins.

So where does a digital innovation system come in? Mala Anand, executive vice president and president of SAP Leonardo, Data, and Insights at SAP,  explains it as a “digital innovation system that enables customers to rapidly innovate and scale that innovation to redefine their business for the digital world.” You might think of it as a digital services innovation platform that brings together the power of machine learning, IoT, analytics, and Big Data in ways that were previously not possible.

Consumer Products Companies and Digital Innovation Systems

With all of these technologies unified, it’s much easier to harness data to drive process, value, and customer experience transformation. Consider this: When customers—both business-to-business (B2B) and business-to-consumer (B2C)—purchase and use connected, self-aware products, they can passively send product and usage data in the course of daily activities and work (like usage levels, wear and tear rates, maintenance information, and functionality used and not used).

This data can be used to inform every aspect of the product value chain. For example, when a customer purchases a smart refrigerator, they agree to passively stream product and usage data from that refrigerator on a continuous basis. Sensors can be built into it to capture and send performance and operations data useful to every player in the product value chain. As an interactive product, the refrigerator can send data (or alerts) when compressors are overheating, vibrations or temperatures are exceeding desired maximums, or Freon levels are low.

The value of this data can extended to a CP manufacturer’s entire extended value chain. For example, a refrigeration manufacturer with commercial and consumer product lines could include B2B traditional suppliers that enable the manufacturer to make better products, as well as involve other providers of data-based services around the product to expand the customer value proposition, as shown in the illustration below.

Transformation of the refrigeration value chain

Where Are Consumer Products Companies Heading?

So from this perspective, the future of CP lies in harnessing new kinds of data—and IDC appears to agree. In a May 2017 Analyst Connection, Simon Ellis, program vice president at IDC, forecasted that 90% of the growth in the CP industry over the next decade will go to companies that successfully engage directly with consumers. “While this may mean direct-to-consumer selling, it is most likely to be about a ‘brand relationship.’ The successful engagement will be one that turns data and information from consumers into product and service offerings that meet or even exceed consumers’ expectations. The 90% is a projection, of course, and the actual results may be higher or lower, but the point is that to succeed in the future, CP companies will need to engage with their consumers in a new way.”

I invite you to read Ellis’ paper, “Using Data to Digitally Transform Consumer Products.” He provides valuable insights into how untapped digital technologies have the potential to harness data in order to drive new capabilities and data-driven services, deliver totally new insights into the changing behaviors and needs of customers, and more.

This article originally appeared in the D!gitalist Magazine by SAP and has been republished with permission.

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