A new study written by Cognizant and featuring data from The Economist Intelligence Unit reveals both the expectations and the uncertainties enterprises are experiencing around the rapid rise of smart products. Whilst the data generated by a smart product is expected to bring many benefits from unprecedented customer insight, innovation and new efficiencies, opinion is mixed about the longer term impact on market structures and revenue opportunity.
The report entitled "The Rise of the Smart Product Economy" is based on interviews with over 200 R&D, product design and innovation executives from industries such as healthcare, retail and manufacturing. It shows that in many cases, a smart product strategy is led from the very top with 59% of CEOs owning their company's smart product strategy. This is about how product data will dramatically change the way products are designed, manufactured, sold and serviced. Right now, product innovation and improved customer understanding are the top objectives in a smart product strategy, with over half of the respondents (52%) planning to launch fresh product categories based on new, game-changing understanding of their customers.
Although current interest fixates on "smart things" such as wearables, washing machine sensors, virtual reality and the like, the study reveals that the market actually pivots around manufacturing process improvements, new waves of product innovation and using smart products to deliver enriched customer experiences. For example, smart product development currently focuses on streamlining manufacturing with data insights gained from embedding sensors and software into and around a production process. Product data also delivers innovation by making a product's packaging "smart", for example, highlighting the expiry status on perishable commodities such as food or medicine, and even reminding patients when to take their medication.
The data provided by a smart product unleashes in-depth understanding of customer needs, wants and desires and offers finer, more personalised segmentation for sales, marketing and product development. The cost of after-sales support can also be radically reduced by using smart products: 40% of respondents are using or aiming to use them to automate customer services. By automatically solving or diagnosing product queries without logging incidents or calling out an engineer, the cost of problem resolution is dramatically reduced. Moreover, analysing performance data once a product is installed at a customer location also helps predict service degradation and reduce the potential for future problems.
A very traditional object can be made smart – for example, a bottle of liquid – that exists not only in the physical but also in the digital world of connected supply chains and smart supermarket shelves. Building even a small level of intelligence into that bottle allows us to know more about where it is, the people who buy it, when they buy it, where they shop. Even that amount of intelligence can unlock a broad range of applications and insight.
However, survey data reveals that, although there is a lot of information and discussion surrounding the introduction of smart products, many companies are still unsure where to start. They enable new, subscription-style offerings and in many cases, direct access to customers, but these approaches will disrupt traditional sales channels and revenue streams. Both business models and industry structures are facing a huge shake-up, which feeds an uncertain future.
Almost half of respondents (48%) expect higher margins from smart products, while 35% expect them to be lower. Similarly, 49% expect more competition in their industry, while 38% expect less. This mixed response reveals the uncertainty that the introduction of smart products heralds.
"Smart products are undoubtedly a game-changer because they integrate an explosion of product data into a monolithic industrial model built for the 20th century", says Euan Davis, European lead for Cognizant's Center for the Future of Work and author of the report. "We predict a high level of market disruption for many industries over the next several years and those companies that can adapt quickly and can forge a new product model with data mastery at its core will benefit from significant rewards."
"While the economics of the short-term strategy may be hard to pin down, smart products have caught the attention of CEOs as a result of the shifting market dynamics created by the Internet of Things. However, as there is so much fluidity, all business leaders, not just CEOs, need to lay the groundwork for the huge opportunities presented by the simple process of making products smart."