Worksheets: Connected Strategy
Worksheets: Connected Strategy
Worksheets: Connected Strategy
from
Siggelkow & Terwiesch
Connected Strategy
(HBR Press, 2019)
About the Pet Industry: The US pet industry is worth $72billion1 and has been growing over the past seven years
at a rate of 5.1% p.a. The pet food segment and supplies/OTC Medicine represent a $46billion (64% of total) and
has grown at a rate of 5.3%. The average consumer spent $713 on pets in 2017 in the US. Online penetration is
increasing at an alarming rate, according to Nielsen, 21% of pet sales were online, up from 12% in 2017.
Grooming & Boarding Live Animal Purchases Vet Care Supplies/OTC Medicine Food
+5.1% 72
67 70
56 59 60 6 2 6 2
51 53 6 2
5 2 5 2 5 2 17 18
2 4 2 4 15 15
16
13 14 14 15 16
14 15
12 13 13 14
20 20 21 23 23 28 29 30
How often do you currently connect to your - Approximate 1-2x per month when they come in to buy
customers? food, with an occasional ad hoc connection whenever there
is a vet emergency
- A traditional sell-what-we-have retailer
What kind of information do you receive - We receive very limited information about our customer via
about your customers’ needs? our rewards program that grants discounts
- We have preferred payment method, e-mail address,
and history of product purchases
How does information flow from the - Information flow relies almost exclusively on the customer’s
customer to you? For instance, does the initiative
information flow rely on the customer - We do send out occasional promotional e-mails and get a
taking the initiative, or does the few replies every now and then, but that isn’t
information flow happen in more a systematically tracked
continuous and autonomous manner
How long does it take for a customer need - As long as it takes for the customer to discover his need
to reach you? and come to the store
How long does it take for you to react once - React quite quickly, as long as I am carrying the
you have a customer need? product/service, if not, can take up to a week from ordering
from wholesalers and distributing it to customer
What do you learn each time a customer - With current systems in place, we only learn about the
connects to your firm? How are you fidelity program customers and what they purchased plus
integrating these episodic interactions into what payment method they used
a single connected experience for your
customers?
© Siggelkow & Terwiesch (2019)
Step 2: Brainstorm the effects of a Connected Strategy could have
for your organization
Imagine a world in which customers could instantaneously communicate their needs to you. You
are by their side as they go through life, anytime and anywhere. How would this increase in
connectivity allow you to improve how you serve your customers? More specifically:
Questions Answers
How could you use this information to With unlimited information on customers I could instantly send out
increase the willingness-to-pay of your for deliver their pet food to their home whenever they request it,
customers? Curate offerings based on their pet’s preference of food and treats
I could send veterinary products to their pet in an emergency or
schedule a veterinary visit to their home
How could you use this information to With more communication to my clients – I don’t need such a large
decrease your fulfilment costs? store to carry so much inventory, reducing inventory and real-
estate costs
Leaner inventory also leads to less breakage (pet food is perishable)
Next, imagine a world in which you know a customer need even before the customer knows this
need itself.
Questions Answers
How could you use this information to We would be able to have recurring products sent over to
increase the willingness-to-pay of your customers before they run out (pet food and medication)
customers? We could also schedule a vet to visit and examine the pet if any
abnormality in his vital signs were perceived
How could you use this information to Would carry minimal inventory levels and would no longer need
decrease your fulfilment costs? stores, could coordinate with producers to ship direct to consumer
as well and reduce logistic costs
Willingness to Pay
Consumption Utility: How happy is Accessibility: How easy is it for the Cost of Ownership: How much does
the customer with the product or customer to get the product or service? it cost for the customer to use and
service? maintain the product?
Comment on willingness to pay: we believe people are willing to pay more in our stores than in other places due
to (i) our convenience, most of our customers live within a few miles of the store and (ii) our sales-people are
knowledgeable and help customers pick the right products for them. However, with subscription services and online
delivery, I feel that we no longer have the best convenience offering out there.
High
Chewy.com Unleashed
by PetCo
Willingness Amazon
to pay
Pet
Walmart
Friends
Low
High Low
Fulfillment costs
Comment on fulfillment costs: while we maintain a close relationship with all major
pet suppliers, our order sizes simply don’t allow us to have the same prices as larger
players. Also, we need to build into our prices our store occupancy expenses which
online and big-box players don’t worry as much about.
Where are you relative to the efficiency We are below the frontier given that we don’t have the same
frontier? purchasing scale as the large chains (e.g. PetCo) and the online
players (e.g. Amazon & Chewy), so our fulfillment costs are lower
– also our stores offer convenience (+) but not the same breadth
(-) as the online players
If you are not on the efficiency frontier, We can develop a more connected relationship wherein we can
what efficiency improvements do you plan curate offerings, reduce SKUs, thereby increasing our purchasing
to pursue in order to reduce your fulfilment scale, offer subscriptions and an automated purchasing of dog food
costs? and medicine, thereby reducing real estate and inventory costs.
Assuming you are on the efficiency frontier, Despite not being on the frontier, we believe we should take a
do you feel that you are in the right spot on connected approach wherein we can monitor the pet’s health and
the frontier? curate offerings, and automatically execute some functions – our
main value driver will be a higher willing to pay than our
competitors.
What are the trends in your industry? Is We expect competition to be driven much more by providing
there pressure on lowering costs or do you products and services with higher willingness to pay than strictly
see your firm win over its rivals by lowering costs. Retailers are aiming at increased pet services and
providing products and services with a higher convenience, subscription with automated sale and delivery,
and suppliers are focusing on creating products with unique recipes
higher willingness-to-pay?
and organic ingredients
Are there new technologies that have Yes advancement in online payments have made subscription models
allowed some of the firms already in the where the client receives his pet food delivered weekly/monthly (as
industry or potentially new entrants to a Dollar Shave Club) possible. Further, and more interestingly,
push out the frontier? Do you see new advances in micro batteries have now made possible to add chips to
your pet’s collar with GPS capabilities, as well as other monitoring
business models breaking the trade-off
activities.
between willingness-to-pay and fulfillment
costs?
Customer Journey
Why does the customer engage How does the customer go about identifying, ordering, What products and services are
in the interaction? and paying for the desired product? provided to the customer?
Latent need Awareness Search for Decide on Order & pay Receive Experience Post-
of need options options good/ purchase
Leaves store service experience
Dog food is Serves one of Looks up Decides for Brings with 20lb Will use the Limited, will
ending, will the last delivery time pet store products to bag of food bag to feed see if the
need to refill bowls of dog for an online given time cashier and (to purchase pet(s) for pet enjoys
food of purchase constraint, pays with at lower the next few eating it, and
current bag Searches local searches store card price / weeks the food’s
pet stores for pet’s pound) effect on the
Pet Food brand pet
After the full Owner Hopefully the Depending on
Vet Emergency Owner needs After diagnosis and receives pet recovers, gravity, may
to decide if deciding to treatment is service at meaning the involve other
Dog contracts Dog loses this behavior go to vet, he done, he will vet, procedures visits to vet,
some disease appetite, warrants a must pick receive a bill sometimes worked may involve
or infection throws up, vet visit, if one that is with all will need to having to go
and has low so, which vet open & near procedures leave pet purchase
disposition to take the to him performed there for a medication
dog? few days
Depending if the product is pet food or a veterinary service, pain points differ
significantly, but both could greatly benefit from better awareness of the latent need!
Latent need Awareness Search for Decide on Order & pay Receive Experience Post-
of need options options good/ purchase
If need was service experience
Hard for If a system Options are If owner is Usually simple discovered Dosing
owners to could numerous, trying to in both a ahead of time, If pet does
correctly food
predict automate the however most change store and an can be not enjoy, or
portions
precisely need- owners are brands, online delivered to reacts badly
could be a
when the identification repeat-buyers finding a environment home. If not, to, the new
service to
food will run part, WTP of a specific similar-style – not a product is food there is
improve the
out would brand brand can be significant heavy and little the
good’s
increase hard WTP driver receiving it is a owner can do
experience
major pain and drive
point WTP
These two steps are probably some of the biggest We need technological
pain points for our customers, automating this advancements to help with
should increase their loyalty and preference for us this pain point that is
measuring the performance
of dog diets / products
© Siggelkow & Terwiesch (2019)
Step 3: Capture the information flows for this customer experience
Information Flows
Why does the customer How does the customer go about identifying, What products and services
engage in the interaction? ordering, and paying for the desired product? are provided to the
customer?
Latent Awareness Search for Decide on Order & Receive Experience Post-
need of need options options pay good/ purchase
service experience
Pet eats Food levels Deciding Picking what Payment Address, Address, Pet’s fur,
food at a are low where to brand, type, type, credit preferred preferred stool health,
Description of given purchase and flavor card product size product size appetite,
Information portion (Pet Friends to purchase information mood
online)
Pet eating Serve pet Low food Presented Selecting Purchase Pet is Pet’s health
Trigger food hungry
level with options option completion & mood
Frequency 1-4x per day 1-2x/month 1-2x/month 1-2x/month 1-2x/month 1-2x/month 1-4x per day 1x per day
Customer effort None Low Medium Medium Medium High Low Low
Standardize Can With pet Tracking pet With stored With proper With built- Source of
serving, w/ automate information health can credit card information in scale, can richest
Improvement information re-orders - can curate lead to a information can be adjust food information;
Ideas on food can w/ product offering data-driven can delivered portions to can be
also create & portion ahead of decision automate before food pet diet collected w/
pet diet size time making this process runs out chip
information
In the eyes of the customer, the purpose of the relationship with our firm is to…
Provide
products and
services for
my pet
How do you identify the customer and connect him or Will create profiles for every customer with pet details
her to prior customer experiences? such as: age, weight, breed, current brand, & last food
purchase. Ideally would also implant a chip in the pet’s
collar to track vitals, GPS location,
Is this identification requiring time and effort form the Yes initial onboarding will require some time and effort
customer? from client. Could also be recommended done with the
aid of a veterinary doctor
Is this identification costly to your firm? Yes, will need to invest in an onboarding team that
includes vets for initial checkup/ check-in
Will also need to invest in chips with long-term battery
capabilities and accurate sensors
What organizational incentives are in place (or what No incentives in place yet, will require setting up a team
disincentives need to be removed) so that various parts of analysts that will program the food replenishment
of your organization share the information they have algorithm and vets for the veterinary emergency
about a particular customer? warnings. We may potentially face channel conflict as
more sales are via online subscription model
B) Customization
Questions Answers
How do we improve customization for a particular Will track his pet’s estimate food consumption, or, with
customer based on information that we have gathered a bowl with built-in scale can precisely re-order food for
about this customer? him. Curate offerings based on pet age, breed, and eating
pattern
What feedback do we gather from the customer to Pet’s consumption of food and pet vitals as measured by
understand whether a particular solution worked well? the collar chip. Can also survey owners for their input
Can the customer make direct suggestions to us of how Yes we will allow customer’s to overwrite any datapoints
to improve our product or service? from collar chip and pet bowl scale
Questions Answers
How do we currently use population (or market- Currently we don’t (only anecdotally), with customer
segment) level data to improve our product and pet profiles we will be able to drop inferior
assortment? products and recommend best-performing and best-value
options
How do we currently use population (or market- With enough information we will be able to tailor which
segment level data to refine features of existing products are best suited for each breed (currently only
products? categorize by weight/size/age)
How do we currently use population (or market- We can find gaps in products that serve a particular
segment level data to create entirely new products? breed, size/age well – and liaise with producers to
design new products
Questions Answers
At what level in the Why-How ladder are most of our With the systemized food refill/subscription we are
transactions currently taking place? mostly serving customers in the “how” end of the
ladder. With a vet-emergency identifying and acting
system we would serving the “why” end
What would be alternative value propositions to the We could offer a simpler service, without the collar chip
customer that are either more focused (HOW) or for vet purposes and simply be a subscription food
broader (WHY)? delivery service like chewy.com, which would be more
focused, or instead selling a pet insurance with the
collar chip
Coach
Behavior Curated Offering
Respond-to-Desire
Latent need Awareness Search for Decide on Order & pay Receive Experience Post-
of need options options good/ purchase
Standardize Monitor each Can offer Owner can Once profile is Given enough service experience
portion sizes serving size similar select created, can lead-time to
to adhere to and last food products, blend brand/product enable a 1-click need can ship Standardize Monitor pet
pet diet and purchase to of products, online ahead of pay or directly to portion sizes health with
correctly feed estimate cheaper time at a automated door at low to adhere to new
pet with when food medication fulfillment cost ordering / cost pet diet. product/diet
lower costs will run out based on pet payment
needs & pref.
Customization Improvements
Fulfillment of deeper
Will adjust marketing spend on product categories that our clients are most customer needs
interested in. Can also adjust the website and mobile store to show the products
for the type of pet the owner has We will move from a
simple pet retailer to
Optimization of Product and Service Offering be essentially the
caretaker of the pet’s
Will filter out the products from offering that the pet does not eat, or that has health and nutrition. By
a negative impact on the pet’s vitals and digestive system. Can also suggest more blending products,
appropriate bag sizes and cheaper (generic) versions of medication that pet might suggesting generic
take medication we are also
Creation of New Products and Services lowering our (client’s)
fulfillment costs and
Can create blends of foods from different producers based on the pet’s preferences gaining customer loyalty.
that can lower costs to clients. Can also create a report on their feeding habits to The historic information
coach behavior and assist owners that want to put their pets on diets of trial and error with
pet food makes our
suggestions more
Efficiency Improvements
accurate and sets us
With more precise pet-eating habits we can coordinate shipments and inventory and apart from our
minimize costs (e.g. direct to consumer shipping). We can also start creating competitors
blends of pet food that are nutritious and cheaper than current pure-branded
options for both us and the pet-owner
© Siggelkow & Terwiesch (2019)
Step 8: Assess your data-protection policies to maintain trust with
your customers
Questions Answers
What procedures do we have in place to Will need to include standard anti-hacking software, especially
stay informed about data protection and with payment and GPS information.
privacy regulations in all the geographies in Fortunately, data privacy and security for pets isn’t as big as an
which we are active? issue as it is for people.
How do we keep up with how public Pet data privacy shouldn’t be at the core of the discussion.
opinion is changing with respect to these However, monitoring owners’ spending habits should be kept
issues? confidential and safe.
How do we currently obtain customer During the onboarding service for new clients, we will collect their
consent? How transparent is it to our consent to monitor their pet and save their credit card information.
customers what happens to their data? We will disclose how and where we intend to use their data
What do we do to keep the data current The collar chip will keep some of the data updated in real time.
and accurate? However we will recommend a more comprehensive update
whenever visiting a vet.
What are our activities to keep the data We will have top-notch cloud based infrastructure and processing
safe and under what conditions do we providers that have best-in-class security measures. We will always
notify customers of any breaches? notify via e-mail and text any data breach as soon as possible.
Automatic Chewy.com*
Pet Friends
Execution
Note: * Chewy’s automated execution is totally dependent on pet owner establishing new order cycles, in
essence it is an autopay function that every so days orders more food, not a connected model.
Amazon can also be a market maker when they don’t have the product’s inventory and do their fulfillment
by Amazon
© Siggelkow & Terwiesch (2019) 20
Step 2: Use the empty cells in the Connected Strategy Matrix to
create new ideas
Probably very
hard to monetize
These might
already exist in
the kickstarter /
prototype phase!
© Siggelkow & Terwiesch (2019) 21
Step 3: Understand your existing revenue model, identify its main Still not sure if pay per
limitations and consider alternatives for your current activities as product or subscription
model is the best
well as for the ideas created above revenue model…
Questions Answers
What does the customer pay for? Currently for products and services bought in my store
What are your different revenue streams? Single revenue stream, with sales of pet products and services
Questions Answers
Next, look for inefficiencies in your revenue This revenue model is a product of a constrained information flow.
model. Do you use this revenue model We are simply charging for a markup on a product, but there is
because you believe it is the right one, or little value we can create for our customers beyond product
are you constrained by connectivity to the availability. We don’t learn much from clients and their pets with
each transaction. We believe there could be better models.
customer?
Now that you understand the current With a connected strategies we could (i) charge membership fees
revenue model, consider ways for and sell products at no economic profit, therefore we don’t have
considering these inefficiencies an incentive to push more expensive products onto owners. (ii)
Offer pet insurance for a fixed fee if we have enough customers to
dilute actuarial risk
Analyze Remaining Relative Guarantee If current Optimize Compare to Compare pet To central If there is Suggestions
food levels prices of that client’s payment route historic health with system short-term for savings
and lead previous preference is methods are density patterns this type of where each risk or if it and more
time of a order with available functional while and food / meal pet profile just performance
new order similar maintaining veterinary size to is held warrants a w/ dog diet
products on-time recommenda previous and check-up
status tions benchmark
React
Decide it is Send Place order Execute Ship Serving size Adjust next Curate Notify Send
time to product and provide payment product to to cellphone order offering veterinary if curated
start suggestions shipping address product further, emergency, proposals of
Request to pet address suggestion blending only pet how to
module owner asking and next products for owner if he lower his
for serving size higher should do a cost while
permission performance check-up increasing
to purchase pet health
React
Send an Will decide if Sends out Confirms Can quickly
automated situation is an ambulance perform
report to a an ambulance or decides tests and
veterinary emergency to meet dog to drive procedures
professional or if a based on himself once pet
check-up is microchips arrives
in order GPS location
This enables us to move up in the hierarchy of needs of our customers in keeping their pet safe!