AI in B2C Mental models to imagine a new world order

Article 2 of 3: Channel creation and great shopping experiences

In the last article we looked at why new brands rejoice when new channels are created. I also magically (and conveniently) worked under the presumption that AI will end up creating new channels. In this article I have the tough job of backing that claim up. :)

Let me start with my usual “Jon Snow” disclaimers. I’ll add to it, my own bias (and excitement) towards wanting to see a new AI first shopping channel. So, with that ‘confirmation bias alert’, we come to question 2.

1. What’s the correlation between brand outcomes and the introduction of new channels? (covered in Article 1)

2. Can AI create a new channel, and if so, where will it come from?

3. What does this new channel look like? (Article 3)

4. Where can monetizable value be created by AI in B2C? (Article 3)

What’s (in) a channel?

I’ve been taking the liberty of referring to both communication and distribution channels as “channel” in this series. Now it’s time to split the two.  

TV/Radio/Meta are communication channels whereas Modern-trade/marketplaces etc are considered distribution channels. In an oversimplified world, the shopping journey is divided into Awareness/Discovery ->Consideration -> Purchase. Communication channels primarily address awareness/discovery and guide the customer along the consideration funnel, while distribution channels enable the actual purchase.

Success of a Communication channel depends on, broadly, 2 factors – Traffic and Communication-effectiveness

Success of a Distribution channel revolves around 3 factors – Price, Convenience and Assortment. It’s a misnomer to put them on equal footing though. In my point of view, “Price > Convenience = Assortment” for a distribution channel to capture maximal value. There is a reason why Walmart, Costco, DMart and Amazon have been built on “lowest price always” framework.

As a thumb-rule – higher the number of boxes unlocked by the new teach/infra, greater the value of the business. As an example, the internet has led to merging of Communication and Distribution channels. TV/Radio (Comm) was separate from the Walmart/Modern trade (Dist) experience – but potentially both those functions are merged directly (Amazon) or indirectly (Meta+Shopify). The value a channel captures is proportional to how tightly coupled the Awareness to Purchase journey is.

AI ticks 3 of the 5 boxes in my view and hence there is reasonable likelihood that a new channel can emerge. If it ticked “Price”, I would have rated it even higher – and maybe there is a version where AI helps unlock prices by as well comparing across multiple distribution channels.

The crux of my argument is as follows:  

1. Offline shopping scores higher in a few parameters vis-à-vis Online

2. AI can help bridge the gap due to hyper-personalization and ambiguity resolution capabilities.

Allowing us to add P=personalization to the 4P (now 5P) framework – I’m sure others may have thought of it, but thanks to Avnish for switching on the light bulb for me.

Mental Model 2: Offline mimicry as inspiration for great shopping

Offline shopping scores higher in a few parameters vis-à-vis Online
Case for Personalization: Shopkeepers are “sales” personified

My experience with offline retail – both as a customer and behind the scenes – has resulted in deep respect for a shopkeeper/salesman’s capabilities. As soon as a customer has walked in, they have an intuitive sense on “demographics, profile and cohort” as well as “propensity to buy”. They tailor your shopping experience basis that read. (Most disagreements in a retail store also stem from a ‘wrong-read’ and hence ‘disrespect’.)

This ‘read’ of you (as a customer) determines…

1. … how much time they spend with you ->“good cohort, bad CAC or bounce rate?”

2. … what products they show and in what order -> “search, filter and sort products”

3. … how much they engage on special requests -> “LTV/CAC, Personalization cost”

4. … how much discount to give you (think bargaining at Sarojini market) -> “Real time pricing, Discount”

5. … their comfort with credit/receivables -> “OG BNPL :), lower RTO risk”

(I’ve put some digital marketing jargons that capture the same emotion in an online world)

Discovery (in some categories) is easier offline (Case for ambiguity resolution)

Consider the 2 images below – you can see 8 products at a glance in the online world versus way more offline. Not only are you able to process more, but you can also easily sort/shop by your preferences (colour, touch & feel, fit etc). Both discovery and relevance can use a 10X in the online world and AI can help.

One-on-one services - Case for personalization and ambiguity resolution

Tailors, travel agents, real estate brokers and auto-salesmen have so far been relatively safe from disruption by online commerce. In my mind their edge comes from bespoke solutioning and personalized ambiguity resolution (answer multitude of rational and emotional questions satisfactorily).  

Let's look at travel for inspiration - Booking of flights and hotels have become standard online, but creating an itinerary, travel plan, submitting visa docs, ticketing etc is not “click and filter” UI/UX friendly. Travel agents have been (questionably in some cases) instrumental in resolving multiple queries to design a custom trip for their customers. The answer lies in ambiguity resolution through conversations – considering multiple possibilities basis available information and providing few sharp answers specifically matching customer requirements.  

Sounds like a job for… AI.

AI can help bridge the offline<>online experience gap

AI (apart from creating Balenciaga YT videos and “stealing your friend’s job”) can do 2 things really well

1. It can hyper-personalize experience: N=1

2. It can churn vast amounts of information to narrow down to a short and sharp answer to an ambiguous question

In other words, it can be your “shopkeeper” maximizing revenue for each customer while optimizing for costs. I find this a fascinating way to look at how AI can affect B2C commerce – relying on offline for inspiration. Conversational commerce, AI travel agent, Personal AI shopping assistant etc come to mind immediately.  

But does this mean AI will create a new channel or better enable “existing channels”. Both are inevitable in my opinion. Where could a new AI channel come from and what does it look like?

Mental model 3: Where this new AI channel could come from

In my view, the new AI channel could come about in one of 4 ways

1. Incumbent support tech -> Unbundling of tech -> New channel

The argument is that the actual, “10X-for-customer”, AI use case will be figured out by an existing incumbent. Others will build the capability outside by unbundling the tech/infra – this then sows the seeds for a new business model. Don’t take my word, take a look at the following table.

Maybe Amazon realizes that search by image is a game changer – the tech will get built. An engineer quits and builds the tech outside of Amazon – now you can shop across the web from any platform. The same could happen for “search by conversation” or “create videos from existing products”. I’ll be keeping a sharp eye on what the incumbents are building and testing.  

Note: the “10X-for-Customer” use case will likely come out of some mimicry of offline behaviour we explored previously.

2. AI drives online adoption for a currently “offline-friendly” category.  

Hyper-personalization and ambiguity resolution allows for previously offline first services to now have a 10X digital plumbing. Think our ‘friendly’ offline travel agent. Conversational commerce, digital assistant, shopping assistant etc could be real unlocks that disrupt existing value chains.

3. AI solves a 10X problem for existing large markets

I’d use the ‘Offline as North star’ and ‘Shopkeeper’ analogy (covered earlier) to think of outcomes here. Some samples below

- Replace the mirror in the offline shop - Imagine a world in which the PDP page features yourself (and not the model).  

- There is also a significant conversion rate and CAC problem that needs to be solved for D2C brands – only possible through right targeting and consumer first solutioning.  

- There is no reason for the landing page to look the same for new and existing customers across TG and use-cases.

4. AI tag-teams with another technology to create new distribution.  

This requires a bit of imagination but that’s never stopped us before J. Internet + Mobile created magic and opened up new distribution.

a. You’re watching a movie and then suddenly see the perfect sofa. Imagine being able to search and buy this through your friendly AI engine

b. Virtual / Augmented reality + AI. Enough said.  

c.Voice commerce is broken – AI can fix it.

d. WhatsApp commerce is low hanging fruit

What does this new channel look like? And what about AI enabling existing businesses? Show me the money!!!

That’s what Article 3 is going to be about. We’re going to go out on a limb and make some ridiculous claims and assumptions. The silver lining is that I’ll be able to look back in a few years (weeks?) and laugh at how wrong I was. :)

See you soon.

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