The on-demand economy (ODE) revolutionized how individuals manage their lives. It provided easy and convenient access to products or services to instantly satiate daily needs. The emergence of on-demand services was built on mobile technologies that dramatically changed the definition of convenience. By simplifying complex supply chains, brands were able to automate consumers’ lives. The success of the ODE was catalyzed by three key factors – heightened consumer expectations, rapid digitization, and millennials’ increasing purchasing power.
The new normal
The initial growth of the ODE was because consumers fell in love with the “convenience of delivery”. Since ODE 1.0, consumer’s appetite for improved speed and ease has increased. Subsequently, on-demand convenience in its traditional form has begun to reach saturation and consumers expect more.
Consumers are seeking better delivery options and are more than willing to pay for it. A report by McKinsey stated that 1 out of 4 consumers is willing to pay significant premiums for the privilege of instant delivery. This share is further expected to increase because the rising younger consumers are even more inclined (just over 30%) to use same-day deliveries over regular delivery.
Riding on the power of the Millennials
Millennials have been the catalyst for change in the last 15 years. They are adaptive and tech-savvy and their opinions affect the rest of the population. As per McKinsey, by 2030 India’s working-age population would reach 270 million people, making Millennials the largest generational slice of on-demand consumers. Millennials are quickly becoming the most important consumers encountered by most types of business, with a spending power that is estimated to be worth $10 trillion over their lifetimes (Forbes).
Whilst millennials are open to change and experimentation, they consume in a values-first manner and leverage their social media channels to influence others purchase behaviors. As the ODE reaches its maturation, brands need to continue to leverage millennials’ social posting behavior to build stronger brand presence and perception. However, they remain under significant pressure where one wrong move may find them hanging out to dry.
Where the people are
With the help of technology, ODE businesses have been able to instantaneously and conveniently deliver products and services to consumers. Digitization brought consumers from desktop to smartphones and the initial wave of on-demand companies normalized the idea of effortlessly transacting using phones. Mobile-friendly websites and user-friendly apps helped a larger group of users cross the chasm and further increased e-commerce and ODE adoption.
ODE 1.0 also facilitated the adoption of effortless ordering and cashless transactions. Adjacent business (such as financial services, geolocation services) improved their offerings to allow for simple and secure purchase flows for any product or service. But ODE 1.0 also introduced millennials to catalog-shopping and these same consumers are getting restless and want their on-demand solutions to further represent them rather than the businesses that the ODE list.
Are we there yet?
ODE 1.0 can be considered the inception of ODE that was driven by a single-minded focus on customer convenience. Though consumers have embraced the change, they have now identified issues and pain areas that didn’t previously exist. The ‘Uberization of everything’ led to everything on-demand – from food, to home cleaning, to furniture, groceries, and anything that can be consumed. Since then, non-digitized, traditional industries have been falling like dominos.
But convenience isn’t easy. Despite so many new players jumping into the ODE, many have lost steam. The availability of capital and low barriers to entry created fairly undifferentiated offerings where supply and demand fail to develop brand loyalty. Furthermore, it created a race to the bottom of freebies and deep discounting introducing price-sensitive purchase behaviors in consumer segments that previously didn’t exist (or weren’t target segments).
The road ahead is simple – create irrational brand loyalty and make unit economics work. Whether they love what you offer will depend on how you bring in product synergies, create exceptional experiences to build loyalty, and how you redesign your business plan to create sustainable unit economics.
One brand to rule them all
As consumers get more options to automate their life, they seek a brand they can trust, a value proposition that stands above the clutter. The opportunity here is to provide a central point (for services) that can help the consumer with all their needs. Instead of going to 10 different specialists, ODE 2.0 will encourage consumers to pursue one specialist. If Uberization was the standard of ODE 1.0 businesses, ODE 2.0 companies are better served drawing inspiration from stalwarts such as Apple or Google.
For their consumers, these companies are synonymous with ‘domain trust’ i.e. seeking Apple for all personal electronics and Google for any internet service. These companies have been built in a customer-centric manner. BrandMatters’ Paul Nelson shared with BBC once “The reason you get to a trillion dollars is that you create in your business model built-in barriers for customers to move elsewhere. And Apple is just that – it’s a complete ecosystem.” These built-in barriers are actually quite straightforward – give consumers what they need, and don’t give them a reason to switch.
Bid goodbye to gigs
Over 1.5 Cr people in India are working in gig economy sectors (inc42). As defined by Forbes, the Gig Economy refers to the increased tendency for businesses to hire freelancers. Your ride-hailing driver or food-delivery executive is not an employee of the company but rather a technology-enabled freelancer with a vehicle and a phone.
The On-Demand Economy (1.0) added substantial convenience to our standard of living. However, as availability has become normalized, consumers increasingly notice the inconsistent service standards. The differentiating factor for ODE 2.0 will be on combining convenience with an exceptional yet standardized experience provided through on-roll employees – and not gig workers.
Hiring full-time employees yields further benefits for businesses as well. The predictability and dependability of supply can create greater efficiencies and solve the unit economics problem as well. By providing regular training, skill development, and fostering an investment in the brand through reward, respect, and recognition, businesses won’t need to worry about the high churn and availability rates that currently plague gig-enabled brands.
Reengineer your business design
Admittedly, the ODE 1.0 businesses deserve plaudits for harnessing nascent technologies in a manner that has created ease for consumers around the world. Today, more than 280 companies provide on-demand goods and services across 16 industries; this number has grown by more than 300% in the last 5 years. However, as businesses create more of the same, they run into the same problems.
Macro trends and recent investor sentiment has moved towards a mindset of unit economic profitability and an increased focus on lifetime value creation. ‘Evolving’ and ‘new-age’ business models are actually taking inspiration from the pre-internet age in understanding how to effectively manage assets for efficiency and profitability.
The On-Demand Economy is now part of our way of life – not a flash in the pan. However, in order to remain viable and meaningful to end-consumers, brands must create business models that allow them to provide exceptional service in a sustainable manner. Brand growth and development should focus on efficiency-development, but not lose sight of growing in a consumer-synergistic manner in order to grow lifetime values and build lasting loyalty.