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CONSUMERCURRENTS

Issue 19 www.kpmg/consumercurrents

Issues driving consumer organizations

INTERVIEW

United PetroleumCEO TomO’Brienon knowing your

customers

06

CYBER SECURITY

It’s not about thetechnology, it’s

about trust

10CHANGEMANAGEMENT

How to spot trendsand stay ahead ofthe competition

22

MILLENNIALMYSTERYWill this new generation disruptevery consumer goods sector?

“THE CONSUMERGOODSINDUSTRY HAS SELDOMCHANGED SO FAST ORIN SOMANYDIFFERENTWAYSAT ONCE”

WILLYKRUHGlobal Chair, Consumer MarketsKPMG International

@WillyKruh_KPMG

As Warren Buffett once said: “It takes 20 years to build a reputation and fiveminutes to ruin it.” For companies in the consumer goods industry – whetherthey be brands or retailers – trust is the foundation of customer loyalty. Andtwo distinct trends are making trust more critical than ever.

The first is demographic: the rise of the Millennial generation, an issue we explorein this edition of ConsumerCurrents on p14. People may disagree about the exact agerange for this generation but everybody agrees that they are already having a profoundlydisruptive impact on the consumer goods industry. The disruption is caused, in part, bytheir sheer spending power – one brand expert predicts that, by 2017, they will spendUS$200bn in the US alone – but also by the way they buy. A recent Forbesmagazinestudy found that 1% of them are influenced by advertising, but a third consult a blog orpeer review before making a purchase. There is conflicting evidence about how loyalMillennials are but the message that consistently comes through in research is that theywant to relate to a brand – not just on social networks – and are curious about the storybehind a brand. So, for example, the chocolate maker TCHO, who we profile on p20,has a story to tell about the way it uses science and technology to improve the qualityof the cacao it buys from its farmers. On the flipside, Millennials can be volatile and arelikely to shun brands with bad stories. It would only take a calamity in the supply chain, abad review on social media or a cyber attack that leaks shoppers’ credit card details andtrust could be lost even faster than Buffett suggests.

The second trend is technological. In an age of e-commerce, contactless paymentsand the Internet of Things, brands and retailers need to think hard about how they protectthe data customers share with them. According to Trustwave’s 2014 Global SecurityReport, retailers were the target of 35% of the cyber attacks they monitored, while foodand drink companies were victims of 18% of breaches.

The real damage caused by these incidents goes far beyond the investment neededto rebuild systems, the potential financial cost of compensation and the size of any fineslevied by the authorities. What’s really at stake comes down to one brutal question: canyour customers – and, indeed, your potential customers – still trust you? Cyber crimecannot simply be dealt with by building the biggest, most sophisticated, state-of-the-artfirewall. This is a risk to every part of your business and so, as we discuss on p10, everymember of staff needs to understand how to protect the organization.

The world’s consumer goods industry has seldom changed so fast or in so manydifferent ways at once. And many aspects of that disruption are reflected in this edition.

I hope you find this ConsumerCurrents insightful – and useful.

ConsumerCurrents is published by Haymarket Network,Teddington Studios, Broom Road,Teddington, Middlesex,TW11 9BE, UKon behalf of KPMG International. Editor Paul Simpson Contributing Editor Sophie-Marie Odum Production Editors StephWilkinson,Sarah Dyson Designer RichardWalker Contributors Ian Cranna, Chris Daniels, Helen Morgan, SueTabbitt Picture Editor DominiqueCampbell Group Editor Robert Jeffery Account DirectorAlison Nesbitt Managing Director, Haymarket NetworkAndrewTaplinCover images Image Source/REX/Shutterstock Photography and illustration Masatoshi Okauchi; Image Broker; c.FXNetwork-Everett/REXShutterstock, Bruno Barbey; Martin Parr; Ian Berry/Magnum, AAP/Press Association Images, Jonathan Ernst/Reuters/Corbis, JonathanWiggs/The Boston Globe/Getty Images, D.Hurst; B.Christopher; Photos 12; Steve Murray;Viktor Fischer; B.Christopher; Fredrick Kippe/Alamy, Mokaccino, Berkeley-TCHO, Rideleap.com, tworoadsbrewing.com, Gamma Nine Photography, Clinton Botha, Martin Scali/TwentiethCenturyFox/Berlinale. No part of this publication may be copied or reproduced without the prior permission of KPMGInternational and the publisher. Every care has been taken in the preparation of this magazine but Haymarket Network cannot be heldresponsible for the accuracy of the information herein or any consequence arising from it. Views expressed by contributors may notreflect the views of Haymarket Network or KPMG International or KPMG member firms.

© 2015 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.

2

CONSUMERCURRENTS

www.KPMG.com/consumercurrents

https://twitter.com/willykruh_kpmg

4 Off the shelfInnovation labs;nanotechnology;RFID; and thethree-second rule

6 InterviewTom O’Brien of UnitedPetroleum talks toConsumerCurrents

10 Key issuesCyber security:how best to protectyour businessfrom cyber crime

14 MillennialsVital know-howfor tapping into thebuying power of theselfie generation

20 Case studyInnovative USchocolate makerTCHOmay havestarted small butis now starting tothink big

22 Weak signalsHow to spot the

next trends andstay ahead ofyour competitors

26 Lessons fromother industriesTapping into thecustomer servicesecrets of theboutique hotel trade

27 InsightsKPMG provides a widerange of studies andanalysis – find thelatest reports here

06

Tom O’BrienUnited Petroleum CEOon price cutting to gainthe competitive edge


3

ConsumerCurrents June 2015 CONTENTS

“WEARE AGGRESSIVE ON PRICE.UNTIL THEYWORKOUT HOWTODELIVER FUEL ON THE INTERNET,WE’RE IN GOOD SHAPE”

10 Shore up your cyber security

26 Hotels with personality

20 TCHO’s sweet ambition

14 Capturing the Millennials

KPMG CONSUMERCURRENTSmagazine

4

High-end department storeNordstrom has bucked the trend. It setup a lab four years ago, but now retainsonly a core team, preferring to fosterinnovation throughout the company.

For some, open innovation is theanswer. Food and drinks giant Strausshas been chosen by the Israeligovernment to set up an ‘incubator’ forpromising food technology start-ups,which will share its knowledge ofconsumer needs and support R&D.

In similar vein, high-end outdoorclothing company Patagonia partneredwithYulex, a latex-free rubber supplier, tocreate an eco-conscious wetsuit that is60% bio-rubber and retails at US$500.The clothing firm is also investing inSwiss company Beyond SurfaceTechnologies (BST) to reduce textilechemicals’ environmental impact.

Such alliances can help solve oneissue: the war for talent. Persuading thebest engineers and developers to workin the consumer industry, rather thanfor tech giants in SiliconValley, can betough. Visa recently opened an innovationcenter in San Francisco, to help hiring andimmerse itself in high-tech culture.

“Innovation is partly about listening tothe market, sensing the changes andtaking the appropriate action,” saysMarkLarson, KPMG’s Global Head of Retail.“Manufacturers and retailers need tomake sure they have the structures –or relationships – in place to do that.”

It can be hard to define the return oninvestment for such projects but manybrands and retailers are convinced thatinnovation is the key to their prosperity.

INCUBATE TO INNOVATEManufacturers and retailers are founding their own labs and teaming upwith start-ups as they seek to kick-start creativity

As the late co-founder and CEO ofApple, Steve Jobs, once said:“Innovation distinguishesbetween a leader and a follower”.

The company proved his point byrevolutionizing IT and the music industry.

To avoid getting left behind by thetech giants, many brands and retailers areinvesting in, acquiring or partnering withstart-ups or creating innovation labs,many inspired by Jobs’ approach, which

biographer Brent Schlender describedas “hiring talented people, having themwork in small groups on specific projectsand giving them a lot of latitude.”

Office supplies group Staples hasopened three labs, with 170 staff, to rampup its e-commerce drive and recentlydeployed a new app using Apple Pay.Labs have been founded by the likes ofAmazon, Deckers Outdoor Corporation,Sears, Visa andWestfield Group.

What can brandsand retailers learn

from the passion forinnovation that made

Jobs – andApple –so successful?

DATA DRIVENNumber-crunching

innovation

40,000ft2

US$1m

AreaWestfield Labsdevotes to high-techretail experiments

Amount Patagoniahas invested inSwiss firm BST

13.2%

Percentage ofrevenue Googleinvests in R&D

US$9.1bn

Amount Amazon issaid to have spenton R&D last year

Prevents staining, repelsodors and kills bacteria:this may sound like acommercial for laundry

detergent, but nanotechnology isgaining attention from clothingmanufacturers and could soonrevolutionize the industry.

Changing the definitionof “wearable technology”,nanoparticles can be woven into

or sprayed onto fabrics, enhancingtheir characteristics. Silvernanoparticles release positivelycharged ions that kill bacteria andcombat odors, while silicananoparticles create a waterproofsurface and prevent stains. Calledthe ‘lotus effect’– because theleaves of a lotus plant repel water –liquid forms into beads that roll offfabric rather than soaking into it.

Titanium dioxide and zinc oxidenanoparticles – already used insunscreens – protect the skin fromdamage by blocking ultraviolet rays.

“The commercialization ofnanomaterials and nanoparticlesis a radical concept for the retailindustry,” says Edge Zarella,KPMG in China. “Yet, compared towearable devices such as smartwatches and Google Glass, it has

been largely ignored by the media”.Nanofibers will also create‘intelligent fabrics’ that will respondto the body and its environment,warming or cooling it down.

There are safety concerns –further research is needed into theeffects of silver nanoparticles in theenvironment – but nano-enhancedclothing looks set to become partof our everyday lives.

Nexttech Nanotechnology


OFF THE SHELF

Sources:Adweek, Patagonia,Fortune, Amazon


5

THREE SECONDS TOFIND THE SWEET SPOT

Consumers are exposed to morethan 3,000 in-store marketingmessages, yet the averageshopper spends just three

seconds deciding whether they will buy aconfectionery brand. As many as 82% ofpurchase decisions are made at the shelf,according to research by shoppermarketing agency Saatchi & Saatchi X.

In 2014, the global retail value ofconfectionery sales reached a recordUS$198bn, up US$4bn from 2013. Salesare growing, yet so is competition.With30,000 new confectionery SKUs launchedeach year, how can brands maximizeevery second to catch a shopper’s eye?

Standing out from the competition iskey for all brands. Merchandising is thefirst step. Innovative, eye-catching andbrightly colored packaging will enhancethe shopper’s sensory experience.

As confectionery is a top impulse buy,outlandish promotions can help captureattention. Print Cates,Vice-Presidentof Development at US candy supplierJ. Sosnick & Son, said: “Merchandisingdoesn’t start at the ground floor, it starts atthe ceiling and drips.” Some brands havegone further, with Cadbury creating aWillyWonka-style factory in a mall.

New formats – sharing bags or tabletsof chocolate – can help.Yet sometimes,the brands themselves need to stand out.Dina Howell, Chief Executive Officer ofSaatchi & Saatchi X, advises brands toappeal to shoppers’ emotions, noting that

Twinkies had made a strong comeback inthe US by reviving memories of childhood.

Fabien Lussu, Partner and Head ofConsumer Markets of KPMG inSwitzerland, says: “The key to successcan be making a product’s purpose clear.For example, Barry Callebaut isdeveloping a dark chocolate that is goodfor the heart.The cocoa flavanols helpmaintain the elasticity of blood vesselsand helps with blood flow.”

Positioning and availability are key.Brands must work with retailers to ensurestock is in-store and displayed at eye level.If shoppers can find a product easily, theyare less likely to buy a rival brand.

Traditionally, checkout lanes were theideal spot for impulse purchases such asconfectionery.Yet this positioning is underscrutiny in the UK. Many supermarketshave banned sweet treats from checkoutsin response to concern about levels ofobesity. Some US supermarkets havedone the same and New Zealand couldfollow – 34% of Kiwi shoppers have calledfor confectionery-free checkouts.

Confectionery sales tread a fineline between customer loyalty andimpulse buys. “The battle amongconfectionery brands to be noticedin store can only get more intense,”says Trent Duvall, KPMG in Australia.“The winners will get the basics rightwhile experimenting with new brands,limited-release flavor varietals, pack sizesand pricing strategies.”

With shoppers deciding what confectionery to buy in an instant,how do brands ensure they break through the in-store clutter?

Radio frequency identification (RFID) will revolutionize theavailability of stock and reinvent the shopping experience.Offering complete visibility of inventory, stock can belocated anywhere in the supply chain, helping customers

find products faster, eliminating shrinkage and reducing theft.Although RFID has long been used by the consumer industry totrack inventory and shipments, the application of this technologyto individual products is what will really make the difference.

RFID is made up of a smart electronic tag, which contains aunique number that describes the product; a reader, which sendsa radio signal to the tag; and a central database.The reader sendsthe tag’s location, and a date and time stamp to the database and,based on this knowledge, inventory is tracked.

Stores around the world have deployed RFID. Footwearretailer Deckers Outdoor Corporation, through its UGG Australiastores, and athletic retailer lululemon are using the technologyto give customers access to online inventory.

RFID is even helping e-tailers into bricks-and-mortar stores.In NewYork and San Francisco, eBay has collaborated withfashion company Rebecca Minkoff, providing the technology for‘magic mirrors’ which use RFID to identify items in changingrooms.These mirrors can then show alternative sizes andcolors, and offer intelligent recommendations.This opportunity tocross-sell and up-sell to consumers helped eBay report profits ofUS$622m between March and June 2014.

In the future, consumers will be able to instantly buy theseitems, reducing wait times at checkouts and enhancing the retailexperience. RFID can also be linked to loyalty cards and apps,but RFID alone cannot transform the customer experience.Thereis more value when it is underpinned by data analytics.

Andy Robson, GS1 UK Supply Chain Solutions Manager,says standardization is imperative: “It allows retailers to talk totheir suppliers wherever they are in the world.They can asksuppliers to fit electronic product code (EPC) tags, confident thatit can be read wherever they are in the supply chain.

“Auburn University, which runs an RFID lab in Atlanta, US,estimates that RFID’s return on investment is one to four years.Marks and Spencer, which has been using RFID for 12 years forgeneral merchandise, has evidenced that there is a clear ROI.

“General merchandise is the key driver for RFID, but assustainability becomes more important there will be applicationsin the grocery industry too. RFID could be used for expiry datemanagement, cutting the need to manually check stock.”

“RFID HAS AMUCHMORE PROFOUNDIMPACTWHENCOMBINEDWITHDATA ANALYTICS”

➽TRENDSPOTTINGWhy RFID mattersWith the boom in omnichannel andonline shopping,it’smore important than ever to knowwhere yourstock is, saysJulioHernandez, Global CustomerLead for KPMG’sCustomerCenter of Excellence



FIRST PERSON

“UNTIL THEY

WORKOUT A

WAY TO DELIVER

FUEL ON THE

INTERNET,WE’RE

IN GOOD SHAPE”

6 www.KPMG.com/consumercurrents

TomO’Brien, CEOofUnitedPetroleum, explains howits unusual businessmodel and aggressive pricinghavemade it such a successwithAustralia’s shoppers


7KPMG CONSUMERCURRENTSmagazine

Know your customer. It’s a mantra that seems absurdly simplistic,yet it’s all too easily forgotten amid the turmoil of the rapidlyshifting oil and gas marketplace. For Tom O’Brien, however,customer focus remains the key determinant of growth. Even

as global prices have taken a downturn, the CEO of United Petroleumremains unflappable, probably because its vertically integrated supplychain and focus on shifting merchandise have distanced the businessfrom relying on unpredictable income from fuel alone.

United’s business model is unorthodox, but so far it seems to beworking. Founded in 1993 as an independent chain of service stations andconvenience stores in South Australia, it now operates right across thecountry. Crucially, it also owns fuel import terminals which allow it tocontrol the majority of its oil supply chain and sell fuel to rivals.

But United – which has been valued by analysts at about AUS$1 billion(US$775m) – is no longer alone. 7-Eleven andWoolworth’s are gainingtraction in the same space, and Australia’s subdued economic growthis causing concern for some. Price, O’Brien tells ConsumerCurrents,will become the key battleground. Four times a day each of UnitedPetroleum’s stations, all of which are franchises, sends someone tocheck prices at local competitors. These are entered into a centralmanagement system, which applies an algorithm and sends guidanceback to the station.Will it be enough to help United win the price wars?

It has been a turbulent period, both for Australia and forthe oil industry. What matters most in your business atthe moment?GDP growth and retail sales growth are important, but our business isslightly skewed because we deal in a commodity. Revenue is very muchdictated by the value of that commodity, which is fluctuating quitedramatically on the international market, and has an impact in Australia, too.

Over the past 12 months, for example, the value of that commodityhas fallen by more than 50% at times. United Petroleum’s revenueis somewhat misleading: 25% of our business is more or lessmerchandise. The products that we sell in our stores are very mucha revenue-driven business. Generally speaking, increased growth insales is good for the bottom line – and in terms of the fuel, which is75% of my business, this is a volume issue.

I’m constantly looking at trying to grow our volumes and I’mlooking at around 10% growth per annum. But our business is still far

from mature.We’re getting growth not just through like-for-like sales, butthrough organically growing the size and scale of the business, too.

You’ve picked up numerous awards from your customers.How do you keep them satisfied?We know our customer base, and we’re at the price-conscious endof the market. Outside a service station, we are obliged, as are ourcompetitors, to inform the public of what price we’re selling each gradeof our fuel for. This is what entices our customers into the store.

We are generally very aggressive on price.We have a very leanoperating model. All our stores are on a franchise basis, and we haveabout 250 employees nationwide, which is pretty lean for a nationalnetwork.We obtain most of our fuel, at least two-thirds, from some ofthe most competitively priced refineries in the Asia Pacific. Hopefully,soon it will be closer to four-fifths.

What drives customers into the stores?We’re appealing to the price-conscious consumer who compares localprices. If you drive in any neighborhood here and you compare the pricesat the various sites, you will find that we are typically equal to the lowest– or we are the lowest – in terms of fuel prices.

We don’t necessarily have a better range inside the store, but we aretrying to compete on the merchandise front too.We’re always trying toimprove our offering.

7-Eleven is an expert convenience store operator. We aspire to itsconvenience offering. But in terms of the fuel, and in terms of pricing,we absolutely nail it. That’s what our customers like.

How would you describe your pricing strategies?We pride ourselves on our model of monitoring competitor prices, whichwe do on a very localized basis. Every single one of our store operatorsliterally goes out to check the prices in their neighborhood.We givethem a specific set of service stations to monitor.

We have certain protocols for changing the prices accordingly.Nationally, we’re monitoring the price at all of our competitor sitesfour times a day and reacting to it accordingly. This is different to thesystem that our competitors use.

The other national networks have come into some trouble with themarket regulator, the ACCC (Australian Competition and Consumer


FIRST PERSON

8

Commission), because a company conducting its own nationalmonitoring has been feeding those prices to our competitors, who areall using this central system. The ACCC says this could be potentiallydescribed as price collusion.

From our inception, we have used our own mechanism becausewe want to compete not just on a regional or a state basis, or evenon a national basis.We want to compete literally in the localneighborhood where our customers have a choice between a specificset of service stations.

In many ways, our business is old school. We could allude to electriccars and hybrids but until they work out a way to deliver fuel on theinternet, we’re in good shape.

How do you see the outlook for the market in thelonger term?Certainly on the fuel side, there’s not much escape from it, as peopleuse it either domestically for social or recreational, or for commercialpurposes. There really isn’t a lot of alternative at this stage, andespecially in a country such as Australia, where people are more orless tied to their vehicles.

We’ve just been through a price cycle where the fuel price was veryhigh last year and has now come down quite significantly, and we don’tsee a major impact on fuel volumes as a consequence. But we find thatdiscretionary spending power – this means our merchandise in theconvenience store – increases when the price of fuel is lower.

What are the challenges on your horizon as an organization?We’re looking at the general economic conditions, just as every otherretailer is. There are inputs into consumer spending that do impactour sales revenue.

Although there’s a bit of doom and gloom, the economy here isstill growing. Our fuel station business is still relatively young and nota mature business. Equally, the country is not a mature country yet. It’sstill growing. There’s population growth, there’s infrastructure growthand there’s a huge commodity base.

The media, in particular, are very heavily focused on commodityprices and iron ore, which is one of the biggest exports from thiscountry. The relative value of the Australian dollar versus the US dollar isa key metric the media uses to decide the status of the economy. I’mnot sure if it’s absolutely correct, because commodities only contributeapproximately 10 or 12% of the economy.

The tax space is a concern, certainly. Australia is a relatively heavy taxspace and compared to some of the problems the European economies arehaving, the deficit here is very modest – I believe it’s 15% of GDP.

What sort of changes are you planning to your ownbusiness model?One is the restructuring of the fuel business itself. We have, in the pastfive years, followed what has happened in Europe and to a certainextent in the US, whereby the marketer and distributor of fuel is beingreplaced by specialist retailers. Traditionally, major integrated oilcompanies had control of the entire supply chain right from exploration,digging it out of the ground, refining it, delivering it, distributing it andthen retailing it in service stations.

When Mobil exited [Australia], it was replaced by 7-Eleven. And that’sprobably a great example, as it is a specialist convenience retailer. Shellrecently left the country, so BP is the one major oil company left herefollowing the old integrated model. Over the past decade, it’s lostmarket share from 20% to 13%. Frankly, there’s a big question markover how long BP will remain in this marketplace.


Tom O’Brien became CEOof United Petroleum in 2013.The group is the official fuelsupplier to the V8 SupercarsChampionship and has arange of own-brand products


We can really enhance our revenue stream by upping ourperformance in that merchandise category. I think electronic media,for example, or connectivity with your consumer is a critical part of that.Currently we have an initiative where a consumer can log on to ourwebsite from a mobile device and can find out where the nearest Unitedstation is, just by pressing a button. That type of information is one ofthe first ways to get consumers to our stores.

How do you see the regulatory landscape?This country is really tightly regulated. Health and safety and food safetyissues are industry-wide, heavily monitored and are front and center toevery retailer’s strategy.

Environmental safety is very much an issue for us. Indeed, since weare handling dangerous goods, we need to pay particular attention to it,but we have an excellent track record in that respect.We have everysingle site audited on a monthly basis and scored. Health and safety isvery important. This is a business control mechanism, especially sincewe are having these stores operated by non-company employees.

In terms of sustainability, we are the only fuel retailer in Australia thatowns and operates an ethanol refinery. There are only three ethanolrefineries in the country and in two of these, the ethanol is produced asa byproduct of other processes.

We retail fuel with a 10% ethanol component, and all of that isproduced from grains that are grown in Queensland, in the area aroundthe refinery itself. So, we believe that that is a step in the right directionfrom a sustainability perspective. New SouthWales Government doeshave an ethanol mandate in place so all retailers have to abide by that.

It’s an economic strategy, but it’s also an environmental strategyand I’m surprised that it’s not more heavily part of the political agendahere, as it is in Europe.

9

Once they depart – and my prediction is that they will – the wholeindustry will have been transformed from a major oil company model toso-called specialist retailers. This is a fundamental change that will bepositive for us because we do put ourselves in a lean, specialist,consumer-focused retail model.

The other fundamental change is the retail changes that arehappening. The marketplace is becoming more consolidated into threemajor categories.

One is your ‘big box’ multi-outlet that has every retailer you canimagine in one single location. A consumer might go there to meeta whole variety of their shopping needs. This is very big in the US andin Europe. Increasingly, supermarket groups like Coles andWoolworth’sare playing in our marketplace and following that model.

Then there’s internet shopping, which is growing here significantly,and that will continue. I don’t see any reason why that would change.

The third major one is the convenience element. This is increasinglywhere fuel retailing is moving to, where consumers can shop tosupplement with convenience items. For example, we have a line at themoment of pet food and pet accessories. It’s amazing how many peoplewill buy that in a convenience environment. Because we have the fuelwhich people are tied to, we have an immediate magnet to attracta potential convenience shopper.

7-Eleven is getting adept at digital and mobile marketingand using that to drive people into their stores. Where doyou stand on that?Currently, I think we feel deficient in that area but we’re rapidlylearning and playing catch up. It’s something that we haven’t focusedon previously but now it’s becoming our biggest challenge and partof our major strategy.

“WE PRIDE OURSELVES ON

OURMODEL OFMONITORING

COMPETITOR PRICES. OUR

STORE OPERATORS CHECK THE

PRICES IN THEIR NEIGHBORHOOD”



The way manufacturers and retailers thinkabout cyber security is changing – and itneeded to. It is becoming increasingly clearin boardrooms across the globe that cyber

protection isn’t just a matter of controllingbusiness/financial risk. Breaches could haveserious long-term implications for customertrust, with reverberations that could be feltlong after the initial fallout and financial clear-uphave been dealt with.

A single but devastating incident in whichcustomer details, payment information, qualityor continuity of service are compromised, couldprove a traumatic test of customer confidence.

Cyber attacks used to be something thatbanks and sensitive government organizationsworried about.Yet, as more retailers andconsumer brands move their activities online,

and connect up their IT systems and otherinfrastructure over networks, the opportunity forattackers has multiplied – gone viral, if you will.The more difficult financial and national defenseorganizations make it for cyber criminals, thegreater the temptation for hackers to look forweaknesses elsewhere.

Customer loyalty programs, detailedmarketing databases, online paymentinformation – all are highly prized assets in thewrong hands.Tales of costly breaches are ingenerous supply. One of the most expensive inthe last decade was the attack on a major USretail group which, in 2007, revealed that morethan 45 million of its customers’ credit anddebit card numbers had been stolen over an18-month period.The fallout from this eventcost the business US$250m. Only two years

There are twotypes of big

companies – thosewho’ve been

hacked, and thosewho don’t know

they’ve been hacked

ago another major American retailer suffered anattack of similar magnitude and cost.

In its 2014 publication, data security providerTrustwave reported that retailers were thetarget of 35% of the cyber attacks theymonitored, while food and drinks companieswere victims of 18% of breaches.

Size doesn’t matterThat such vast breaches are still happeningindicates how sophisticated the attackers are.As quickly as new tools and techniques havebeen brought out, threats have morphed intosomething else and found a new way in.

Indeed, despite the security industry’s bestefforts, the number of breaches is increasingexponentially year on year. Attempts can takemany forms, fromTrojan attacks to distributed

Protecting anorganization fromcyber attacks ismore than just atechnological challenge. Commitment from the top, instilling the right

culture and identifying yourweak spots are all essential

STRATEGIC ISSUE



CYBER SECURITY IN NUMBERS

A conservative estimate of the annual losses tothe global economy caused by cyber crime

The sum reportedly lost by UKretailers to cyber criminals in 2013

Cost to a hacked majorUS retail chain for

reimbursement, reissuingmillions of cards, legal feesand credit monitoring for

customers

payment cards in US compromisedby point-of-sale malware

in 2013 and 2014

100M

computers at a large oil producer that hadall their data erased in a cyber attack in 2012

The sum lost by a leading European budgetairline in April when hackers gained accessto the company’s system and transferredthe money to a Chinese bank account.Some form of insider compromise is

thought to have been likely

of US shoppers saidthey would probablyavoid one of their

regular stores over aholiday season if thatretailer had suffered a

data breach

45%organized cyber crime groups in the former

Soviet Union that have ’nation-state’capacity, i.e. they can overcome almost

any cyber defense

20-30

social network users say they havefallen for a scam or fake link

1 IN10


Sources: KPMG; Center for Strategic and International Studies, June 2014;Verizon’s 2014 Data Breach Investigations Report; HP survey 2014; GoGulf; Symantec

policyholders and potential customersaffected when hackers stole names, socialsecurity numbers, driver’s license numbers

and dates of birth in a major securitybreach of a US insurer in 2012

SOCIAL

CONSUMERS

NATIONAL SECURITY

THREAT BREAKDOWNMain categories of security breaches

sales intrusions insider misuse

web app attacks card skimmers

denial-of-service attacks

cyber espionage miscellaneous errors

crimewarephysical theft

MONEYPERSON SURNAME

US

USUS

US


STRATEGIC ISSUE

denial-of-service (DDoS) events – and the moresystems and information that travel acrossdigital networks, the more ‘treasure’ there isto lure the criminally minded.

The size and wealth of a company seem tohave little bearing on how secure its defenses are.In 2013, a US retailer was attacked using malwarethat hacked into a server where payment detailswere stored, despite its use of security systemsthat met PCI (Payment Card Industry) standards.A well known online payment company was alsocompromised recently, with 233 million personalrecords affected. Beyond the immediate impactwas a fear customers would lose confidence inbuying online; having to contact millions of themto re-set passwords was a logistical headache.

Moving targets demand big gunsIf it’s becoming increasingly impossible to stayahead of attackers, how can organizations protectthemselves from the impact of cyber breaches?

The first step in developing a new approachto the problem is to understand that it is morethan just a technology issue, despite the digitalnature of these attacks. “Cyber security is abusiness issue and a conversation that hasmade its way to the boardroom,” says TonyBuffomante, Advisory Principal at KPMG inthe US.

That’s because the stakes are now so high– and because the best measures in the worldwon’t automatically guard against negligentinternal processes or shortcuts/workaroundsby impatient employees.The direct costs ofwebsite downtime and lost revenues, added to


of respondents in India to KPMG’s 2014cyber crime survey reported that they

had suffered disruption of their businessprocesses and reputation damage as

a result of a cyber attack

6.48%

of the respondents to KPMG’s 2014cyber crime survey who believed thataccess to a company’s confidentialinformation is the foremost value

gained by an attack

71%

the need to contact and reassure customers,the costs of lawsuits, any drop in shareholdervalue and reputational damage all providemotivation for the C-suite to make cybersecurity a priority.

Another driver of board-level involvement arethe hefty fines which could soon be issued toorganizations succumbing to security breaches.In the interest of building consumer confidence– and making companies more accountable fortheir cyber defenses – the EU is currentlyfinalizing plans to introduce eye-wateringpenalties for organizations whose customeror employee data has been compromised.

“Companies may find they have to pay a fineof between two and five per cent of its affectedglobal turnover,” says Ken Hall, Partner atKPMG in the UK.

Less obvious threatsDoes all this mean that the Board should writea blank check for new cyber security measures?Buffomante suggests not, warning that there isno such thing as 100% guaranteed protection.“If organizations try to go down that road, itwill be too costly. Instead, they should try tounderstand what’s the most sensitive data thatthey’re trying to protect, and what strategiesand objectives may need reviewing.”

Hall echoes that view. “The key is to prioritize.Decision-support methodologies and tools canhelp quantify and rank cyber risks.This is whatinsurers use, and they can help assess the risksso companies can focus spending wisely.”

Hackers are continually active in their

cyber crime as a percentage of GDP in theEU. In the US it’s 0.64% and China 0.63%

0.41%Sources: KPMG; Center for Strategic and

International Studies, June 2014

PERCENTAGE GAME

“CYBERSECURITYNEEDSTOBEASINSTINCTIVEASLOCKINGTHEOFFICEDOORSATTHEENDOFTHEDAY”



Ken HallPartner, KPMG in the [email protected]

1. Effective cyber security needs a holisticapproach so that investment in protectingone area isn’t undermined by complacencyin another. Remember: hackers and attackerswill always look for points of vulnerability.

2. Board-level buy-in is a no-brainer.If security practices aren’t driven fromthe top and don’t permeate the entirecompany culture, the best measures inthe world can be breached.

3. Budgets need to be prioritized, but takeprofessional advice to find out where yoursensitive assets and potential weak spotsmight be, in case some are not on your radar.

4. Draw on the help available. Be preparedto exchange concerns, experiences andlearnings with industry peers so everyone isin a stronger position.

5. Use experts. Security threats changeand need the attention of someone who’sat the forefront of the latest techniques.Targeted protection and readiness torespond are the best insurance.

KEY LEARNINGS

scanning of organizations’ systems and thereare many different areas of vulnerability thatcompanies may be exposed to.Third-partysuppliers or vendors are a big risk – dataprocessors or marketing support, for example.

Other areas are less obvious. Overlookedweak links may include: remotely accessibleservices that are often unneeded for businessactivities but which provide an avenue of attackto compromise an organization; wireless accesspoints to gain entry into an organization’sinternal network and steal sensitive information;and inactive user accounts left by temporaryworkers, contractors, and former employees(who may include the actual attackers).

Choosing your battlesOnce the organization has a clearer idea ofwhere its main areas of vulnerability lie, it canbegin to look not only at how to protect itself asmuch as possible, but also how to be ready torespond if the worst happens.

“Achieving a state of readiness means thatcompanies can minimize any damage in theevent of an unforeseen attack,” Hall says. “If a‘black swan’ [extraordinary/left-field attack] doescome along and do significant damage, at leastcompanies can show the insurer or regulatorhow vigilant they’ve been, and that they didtheir best to protect the business and its data.”

Assuming data is the only target for criminalsis a mistake.There may be other vulnerabilitiesthat brands and retailers are less aware of.

“For example, a retailer may manage a lot ofits appliances digitally, such as the refrigerators

and freezers storing food products,” Hall says.“If a hacker took control via the network –turning the temperature up overnight then backdown again before morning, so that productsthaw and then refreeze – the result could be afood poisoning crisis.”

Sealing the leaksAttacks can also happen because of gaps insecurity at different links in the supply chain.When 2,240 emails and passwords were stolenfrom a leading UK supermarket chain’s loyaltycard scheme website in 2014, the damagewas exponentially greater than such modestnumbers suggested.The loyalty scheme hadmany different participating players, sharing alot of data. One breach in the supply chain wasenough to put each of these parties (and theircustomers) at serious risk.

Dangers are not only external; internalthreats are also rife. Current and formeremployees are often to blame for securitybreaches. Although not all incidents areintentional, the issue highlights the need fororganizations to consider weaknesses insideas well as beyond company boundaries.

Assigning accountabilityAs cyber security comes into the boardroom, itceases to be an IT-only problem and becomes theresponsibility of every member of staff. Creating ashared responsibility culture, where each individualunderstands the part they play, is the foundationfor any effective modern cyber strategy.

This doesn’t mean the IT team are the onlyones who need to be vigilant. Organizationsincreasingly realize that chief informationofficers and chief information security officershave a crucial role in developing strategies thatare tightly linked to business drivers andinnovation strategies.

One increasingly popular strategy is to setup ‘hunting teams’ of experts who build up aproactive, network-centric view of the business,which they can then monitor for unusual activity.Having access to filtered, relevant and timelythreat intelligence information can help guideteams like this in terms of what to look out for.

‘First response’ plansWhere rogue activity is identified, organizationsshould establish a ‘first response’ approach andplan, mirroring what happens when an accidentoccurs and urgent, early intervention is required.This first response might be outsourced,managed internally, or a combination of the two.

Remaining vigilant also means keepingconnected to peers and expert sources, whomay have detected new threats on the way.

In the UK, the Government Cyber SecurityInformation Sharing Partnership (CISP) – partof CERT-UK – is a joint industry-governmentinitiative set up to share information about cyberthreats and vulnerability. Equivalent groups existin most developed countries. “Groups oflike-minded organizations need to shareintelligence about the issues affecting theirindustry, and threats they have detected,” Hallsays. “There’s no competitive compromise bysharing what you’ve learned, and you could gaina lot in return.”

The first virus, Creeper, was createdas an experiment. It spread quickly.And a new program, Reaper, was

created to kill it

1971

The first worm was created by aCornell University student. It crippled10% of the 88,000 computers on the

precursor to the Internet

1988

Empowering employees and customersAs well as being vigilant at a network level,organizations need to embed security into theircultures and everyday practices. “Cyber securityneeds to be behavior that’s as instinctive aslocking the office doors at the end of the day– it needs to be part of business as usual,”Buffomante says.

Maintaining a pan-organization awareness ofcyber security threats will pay dividends asemployees seek more freedom in the devicesthey use for work.The last thing employerswant to do is clamp down on productivity anddemotivate staff by taking away devices andtools that help people do their jobs, so the bestsolution is to educate them.

The same goes for extending new channelsand means of payment to digital-savvyconsumers.The need to innovate should notclash with the need to maintain optimum levelsof security. Achieving a pragmatic balance ispreferable. “The best approach here may be tocontrol the risk such as placing a limit on thevalue of transactions,” Hall says. “By focusingon what people should be able to do ratherthan what they shouldn’t, organizations willretain the ability to be ambitious and creative,which is critical to their competitive edgeand to maintaining the customer – andemployee – experience.”

For more information on KPMG’s Cyber Security practice see p27

ILOVEYOUworm affects over 45m computers,causing damage worth US$5.58bn

2000Sources: GoGulf; Computer Economics

CRITICAL YEARS


HOWTOMILLENNIALSWOO THE

They’re the biggest generation in history and they haveenormousbuyingpower.Yet they lead very different lifestyles from their parents andhavedistinctive skills, goals andexpectations.Whoare theMillennials, andhoware they radically transforming the consumer goods industry?


CONSUMERTRENDS



114 minsAverage time Millennials spendtext messaging each day in the US

33%of Millennials in the US consulta blog before making a purchase

Sources: emarketer; Elite Daily Survey

WHO ARE THEMILLENNIALS?


CONSUMERTRENDS

Experienced executives in the consumergoods industry could be forgiven forgreeting the topic of the Millennialgeneration with a certain skepticism.

Do today’s consumers between the ages of18 and 34, dubbed the “Me Me Me Generation”by Timemagazine, really differ from theirpredecessors?The 1970s were dubbed the “Medecade”, while as long ago as 1907, The Atlanticmagazine complained about the “worship of thebrazen calf of the Self” that was afflictingsociety.Yet each generation reaches maturity atits own point in time, in its own context. Andthe distinguishing characteristics of the currentgeneration of prime spenders – those bornbetween the early 1980s and the turn of themillennium – are that they are, as the marketingterm goes, ‘digital natives’, who have grown upwith digital technology and whose priorities andvalues have been shaped by the most severeeconomic crisis since the 1930s.There issomething markedly different about Millennials,even if analysts differ as to exactly what that is.

As a result of the interplay between thateconomic trough and consumers’ worldlyawareness – facilitated by greater access toinformation, commentary and communication –there can be no doubt that a new kind ofconsumer has been created.

Their opinions have been influenced not justby their immediate family and peers, but by aglobal pool of ‘infotainment’ and viral message-sharing.They may be gadget-hungry, but theyaren’t necessarily consumers in the way someolder, more materialistic generations were. Justlook at the way this age group enjoys music,books and films – it’s downloads andsubscriptions rather than physical purchases.

Saddled with student debt, struggling to geton the housing ladder and often living at homewith their parents, they find fulfilment indifferent ways – through experiences, sharingand feeding the mind.They’re more likely to rentthan to own, more likely to share than hire.

These are sweeping generalizations but theyare identifiable qualities that brands can turn into


1.12%of USMillennials arefaithful vegetarians

16.6%of Millennials in theUS snack for dinner

51%of Chinese Millennials say theyfeel bad about themselves ifno one comments on theirsocial media posts

• Born between 1980 and 2000• More likely to be highly educated• Less likely to watchTV or have traditionalreading habits

• Lovers of technology• Highly social online• Lovers of bite-sized information,particularly anything about themselves

•Time and quality of life (including health)seen as more important than a big salary;experience valued over product ownership

•Willing to rent, share or recycle as analternative to buying new

• Entrepreneurial/open to new ideas• Highly influenced by peer opinion• Likely to research online before makinga substantial purchasing decision

• Expect to be listened to by brands

Millennial consumerswant purchases to bepersonalized and liketo share experiences

with their peers


MILLENNIAL PROFILE


opportunities with some personalization hereand there – because, let’s not forget, thisis a generation that likes to feel that a product orservice has been designed, created orreconfigured to suit them.

“The Millennial generation consumesdifferently,” says Vera Nieuwland, Senior ProjectAnalyst at KPMG’s Innovation Lab. “There is a bigshift from acquiring traditional assets – cars andhouses, for example – to consuming services asand when they need them in a trend known asthe ‘collaborative economy’. The rise of serviceslike Uber and Zipcar confirm this trend. It’s lessabout owning the asset than having access tothe facility when you need it and in a way thatsuits your individual needs.Technology and a newlabor market are also encouraging some of themto collaborate in start-ups.”

‘Digital connectedness’, now pervasivelymobile, is a major facilitator and perpetuator ofall of this, she says: “Millennials are usingtechnology to outsource their lives: they canhave instant access to services that can findthem a taxi, do their laundry, post their letters,cook their dinner and pack their suitcase.”

Misunderstood MillennialsCertainly this is a generation that likes to beserved.There should be no wish not catered for,no information not forthcoming. One aspect ofthis trait is a trend called the ‘quantified self’which captures and shares information abouthow well an individual is performing (miles run,calories burned, etc.) – albeit these tools oftenmasquerade as health and fitness orperformance improvement apps.

One of the more intriguing trends is theirgrowing desire to shape the products they buy.This is more than a need for personalization.Millennials feel so connected to the market, and

so influential in their feedback, that they can’tsee any reason why brands wouldn’t heed whatthey are saying and respond in the form of newproduct releases and feature enhancements.

“Millennials are seen as having a sense ofentitlement but we think this is amisunderstanding.They like to use technologyto do things ‘smart’ and what’s changed is thatthis is now available, encouraging them to tryout new things.They like things to bepersonalized and cool, and that can pose achallenge for those brands whose business isbuilt on economies of scale,” notes TomHerbert, a Business Innovation Manager atKPMG’s Innovation Lab. “Digital technology, andthe rise of the Millennial, is accelerating thepace of change, and increasing the complexityof change. A brand could face changes to theway it develops products, how it markets them,the channels it uses to distribute them, and thesupply chain it uses to create and deliver them.”

According to a Millennial ConsumerTrend2015 Study by Elite Daily, an online news site,42% of Millennials are interested in helpingcompanies to develop products and services.Social media can help foster the closercommunication that might enable this.

These shifts are being reflected in companies’fortunes. More health-conscious fast food brandssuch as Chipotle are on the up.Whole Foods islooking to launch a chain of supermarkets to wooMillennials. Sales of children’s cereals in the UShave, Euromonitor estimates, fallen 10.7% over adecade, whereas organic snack producer HainCelestial – which explicitly targets Millennials –has become a stock market darling.

The phenomenon of the Millennial generationhas been thoroughly analyzed and extensivelydocumented, so brands can spot and adapt tothe changing needs of their target audience.

52%of upscale Millennialsin India are saving for

their first home…

37%…comparedto the US

“MILLENNIALS ARE USINGTECHNOLOGY TO OUTSOURCETHEIR LIVES, ACCESSING SERVICESTHAT FIND THEMA TAXI, DO THEIRLAUNDRY, POST THEIR LETTERSAND PACK THEIR SUITCASES”

Sources: Hartman Group; JWT; euromonitor; Nielsen; MTV

Vera NieuwlandSenior Project Analyst,KPMG Innovation [email protected]

Tom HerbertBusiness InnovationManager,KPMG Innovation [email protected]

1.There has never been an audience soconnected and freely giving of informationonline. Use analytics tools and servicesto filter this information. This will help youunderstand and reach your targets withtimely and context-appropriate messaging.

2. Millennials love finding and connectingwith ‘people like them’ online, so fosterand engage in digital communities byadding value that will be appreciated.

3. Show you’re listening. Millennials canbe very loyal if they feel a brand is tryingto give them something that adds valuefor them, which they will pay a premiumfor. For a retailer this could be as simpleas providing reviews in-store; for a brand itcould mean involving consumers in productdecisions. Innovation should be a priority.

4. Have a global plan. Millennials make upeven more of the population in emergingeconomies: 28% in China and 30% inBrazil and India. However, their wealth,habits, values, interests and preferenceswill vary, so each target market will needits own strategy and delivery plan.

5. Becomemore agile.Untether thebusiness from fixed working ways.Millennials are open to new ideas but nottuned in to conventional marketing, so newcompetitors can swoop in. In a digital-socialworld, with fewer barriers to entry, it’s muchharder for brands to defend their territory.

6. Speed of response is everything –whether it’s consumers’ comments,suggestions and (especially) complaints,or a shift in market mood. Brands need tomonitor social behavior closely (using dataanalytics) for early signs of change, and beagile enough to take advantage (see 5).


KEY LEARNINGS


CONSUMERTRENDS

GENERATIONGAME

Channels are important. This is a generationthat watches much lessTV, and reads far less.Millennials (typically) like their content inbite-sized form, often recommended byrespected peers, set in an interest-group-specific context, and right up to the moment.This makes them hard to reach with traditionalmarketing techniques. Only 1% pay heed toadvertising, yet 33% consult a blog beforepurchasing, according to the Elite Daily study.

Power of peersOf these, peer reviews have become verypowerful. In recognition of their impact onAmazon’s sales, UK high-street book store chainWaterstones has for the last few years placedmini-reviews on its product shelves tohelp customers choose a book. Other brandshave achieved a similar effect using mobile appsso customers in bricks and mortar storescan check how items compare and are ratedonline as they browse the aisles.

Millennials are certainly worth engaging with.Despite an apparent preference for sharing andrecycling instead of ownership, they havesubstantial spending power – US$200 billiona year in America alone by 2017. It is a hugemarket too: in the US there are more 23-year-olds today (a whopping 4.7 million) than anyother age, according to US Census Bureau data.By 2020, Millennials will account for one-third ofthe adult population in America.

Getting their attention means catching themat the right moment in the right place with theright message about the right product. As hardas that might sound, this generation likes togive feedback, so there are plenty of clues onsocial media about what they want, need andwill spend money on. If brands respond withthe right offer, word-of-mouth will carry thema long way, as happy customers’ freely givenreviews are shared widely.Win the Millennialsover and the prize is powerful brandambassadors passing on the message for free.

Anyone doubting the power of social mediawith this generation need only look at thefinding from the Elite Daily study that 62% ofMillennials are more likely to become a loyalcustomer of a brand if it engages with them onsocial networks. It’s partly why brands aregenerally more responsive to customer servicerequests or complaints if approached viaFacebook orTwitter. (That and the fact that badfeedback spreads frighteningly quickly online.)

Brand loyaltyReaching this audience with something relevantand different is not easy. Preferences canappear to change overnight, and marketdisruptors can appear from nowhere – as in thecase of ride-share service Uber – suddenlychanging the way this generation thinks aboutand buys into a product or service.

A brand’s corporate social responsibility (CSR)agenda matters to Millennials too. Growingsocial awareness and peer pressure not to

200-399 calDefinition of a low-calorie mealaccording to Americans aged18 to 34

80%of USMillennials tuneinto Internet radio…

89%…but still listen toover-the-air radio

Source: KPMG 2015 Consumer ExecutiveTop of Mind Survey

A recent KPMG survey asked 539 consumer company executives to identify their top priority in the comingyear. The Millennial executives were much less likely to be focused on top-line growth, and much more likely

to be focused on building consumer trust, data analytics and supply chain issues than their older peers.

42%

13%

12%

8%

7%

5%

4%

3%

3%

2%

1%

Expansion ortop line growth

Consumer trust

Omnichannel strategyand technology

Consumer healthandwellness

Food andproduct safety

Data securityand privacy

Supply chainand operations

Data analytics

Talentmanagement/HR

Social and environmentalresponsibility

Regulatorycompliance

27%

40%

49%

19% 16%11%

8% 11% 13%

4% 7% 5%

4% 4%8%

8% 8%4%

11%

3% 4%

15%

3% 1%

4% 3% 3%

0%

3% 1%0%

2% 1%

Millennial respondents Generation X respondents Baby Boomer respondents



associate with brands who waste food/pay staffa pittance can be very powerful. In the US, fastfood chain Firehouse Subs is making inroadspartly because it has a rich back story: foundedby firefighters, it donates some of its sales tohelp the emergency service. It’s vital that FMCGcompanies think very carefully about how theirbusiness will be perceived by Millennials.

Another challenge is how to cater for thesechanging preferences while keeping existingolder customers happy.What’s right for theMillennials may not resonate with their parents,or older siblings, so a balance has to be struck.

One positive finding is that despite a profusionof choice, Millennials can be loyal to brands.Thisbond is based on something greater thanconvenience, so brands need to work harder todifferentiate themselves – by genuinely beingbetter and going that extra mile.They can’t affordto take loyalty for granted; if they becomecomplacent or stop innovating, the affiliationcould soon wane – especially as, with

technological barriers to entry coming down –and social media spreading the word instantly – itis easier for new contenders to step into the gap.

Much of the hype relating to the Millennialgeneration has focused on the US, but this isa global phenomenon.The Internet is aninternational utility and a unifying force –disseminating similar information in Brazil, Chinaand Africa as in the US and UK.

Global phenomenon“The Millennial trend may be more advanced inwestern economies like the US,” Herbert says,“but in terms of a shift in demographics, use oftechnology, and attitude, it is a globalphenomenon. It may just play out in differentways in different countries. In China, forexample, Millennials may be just astechnologically driven as in theWest but,because the family is such a strong institutionin Chinese society, this too will have a bearingon how these consumers behave.”

15%of French Millennials think theirchildren will be better off thantheir parents were

43%USMillennials are morelikely than other consumersto buy Mexican foods

Whichever way the FMCG industry segmentsthe Millennial generation, the important thing isthat companies don’t ignore the evidence thatsomething significant has changed.

Whether or not you accept that Millennialsrepresent a milestone in the evolution of theconsumer, some common denominators do setthis generation apart. “The digital age, and itseconomics, challenge many of the establishednorms in the consumer goods industry,” saysHerbert, at KPMG’s Innovation Lab. “Brands andretailers, no matter how well established theymay be, ignore this at their peril.”

Even if you feel your organization is alreadymoving in the right direction in terms of businessagility and customer-centricity, it is worthanalyzing your entire proposition from a Millennialperspective – from product development andbusiness models to brand values and methods ofengaging consumers. Millennials can still be soldto but, more than anything, they want to beheard. If they’re not, they will look elsewhere.

Sources: Edison Research; Mintel; Pew Research; Symphonyiri

Capturing Millennials’attention means getting

them at the right momentwith the right messageabout the right product

70%of 14-24 year olds in theUS say they would like tobecome a star onYouTube


CASE STUDY


The last thing the world needs is anotherchocolate company.That was entrepreneurTimothy Childs’ first thought when, 12years ago, a former colleague suggested

they form a business to create the perfect darkchocolate. As an outsider who had made his namein real-time 3D web graphics, he regarded thechocolate industry as a small, crowded market.Yet, after another project fell through, Childs didsome research and was intrigued enough to visitInterpack, the food processing and packingexhibition, in 2005.What he saw blew his mind.As he toldWiredmagazine: “I had no idea howlarge an industry chocolate was. A light bulb wentoff. And I said, ‘OK, we are making chocolate.’”

The company Childs set up with chocolateexpert Karl Bittong, and with the interest ofWired founder Louis Rossetto, was calledTCHO,a name that would help distinguish their brand,capturing the mix of technology and chocolate.

Chocolate is a deceptively simple product.The basic ingredients are straightforwardenough – cocoa fat and solids; sugar; somevanilla to accentuate the flavor and sometimeslecithin, which acts as an emulsifier and stopsthe fats and solids separating.Yet the productionprocess that creates the perfect chocolate isvaried and elaborate.The hundreds ofinterrelated chemical reactions that create flavorare imperfectly understood and depend onincredibly minute changes made duringfermentation, roasting and conching (in whichthe chocolate is warmed and ground).

The supply chain makes the process evenmore variable. Fermentation, arguably the mostcritical stage of the journey from bean to bar, isthoroughly unpredictable. After harvesting, thebeans are piled together for several days andheat – created by a reaction between the sugargloop that surrounds them and the yeasts on

RAISING THE BARtheir surface – raises the temperature and helpscreate the sugars and acids that define flavor.Even at this stage, when the beans have notbeen roasted, they will have a crude chocolateytaste.The trouble with this process is that somefermented beans are packed with flavor whileothers can just taste flat.

The flavor factorWith chocolate for the mass market, theindustry’s usualmodus operandi is to mask suchvariations in taste by blending in other beans.Yetat the more luxurious end of the market, whereTCHO wanted to be, chocolate comes from onesource. So they either had to control thefermentation process more effectively or acceptthat each harvest would produce a slightlydifferent flavor, like grapes in winemaking.

As men of science and technology,TCHO’sfounders were perplexed by the industry’s

ChocolatemakerTCHOhas used technology and fresh thinking to reach out to farmers and shoppers and build a cool brand

Name TCHO Founded 2005 Headquarters Berkeley, California CEO Andrew Burke Website tcho.com

TCHO’s Chief ChocolateMaker Brad Kintzer (left)checks beans in Peru.Thecompany also compares

tasting notes withfarmers via the cloud


www.tcho.com


traditional practices and they, like manyexecutives at some of the industry’s establishedplayers, felt it was necessary to change them.

They started with taste. ForTCHO, this hadbecome a subjective, even capricious, businesswhich the industry had obscured by adoptingthe descriptive jargon popularized bywinemakers.The company’s founders wantedto replace this with transparency – it still hoststours of its premises for keen tourists andintrigued rivals – and scientific precision.

In place of jargon and percentages, TCHOdeveloped a flavor wheel consisting of sixsegments – chocolatey, nutty, fruity, citrus,floral and earthy – so the company could talkabout taste in a way consumers instinctivelyunderstood. Such information, illustrated asa pie chart on bar wrappers, helps alertconsumers to the range of flavors they canexpect from good chocolate.

That transparency was built into the firm’sR&D. In 2007, with versions of its chocolate readyto market, and Rossetto on board as CEO,TCHOeschewed market research, instead selling betaversions of its bars on its website for US$5 a barand asking for consumer feedback.The first batchof 4,000 soon sold out and, responding tofeedback from eager beta testers, new barswere issued within days. By the end of 2008,after 1,026 iterations, the company launchedversion 1.0 of its product,TCHO Chocolatey.

To deliver that product, the company didn’tjust change the way it interacted with shoppers,it had to redefine its relationship with cocoafarmers. As Rossetto noted: “Cacao farming isa commodity business, with no incentive forfarmers to focus on quality, as most chocolatemade is milk chocolate. And milk chocolate wassold on the basis of the flavors of milk andcaramelized sugar, not the chocolate.”

TCHO has justmoved to a biggerfacility in Berkeley

A taste of the futureTo ensure that its suppliers use the most flavorfulraw material, the company launched a programcalledTCHOSource, under which it partners withfarmers in Ecuador, Ghana, Madagascar, andPeru, to improve the way they ferment and drybeans. Digital technology has rendered distanceand time zones irrelevant, withTCHO launching‘Flavor Labs’, using cloud-based software andlaptops to share and discuss data with farmers.By discussing a sample of beans,TCHO and itspartners can ensure the harvest meets thecompany’s specifications and reduce the risk thatan order would not be placed. As Rossetto said:“For the first time, these farmers can taste thechocolate made from their own beans andunderstand how their efforts affect the result.”

In tasting sessions via Skype, chocolatemakers atTCHO can evaluate the unsweetenedground cocoa beans with farmers across theworld, analyzing such characteristics as acidity,bitterness and nuttiness and compare their scores.

The first Flavor Lab –TCHO now has nine– was set up in Peru in 2009. It was a hastyimprovisation using hair dryers, a modifiedcoffee roaster, Indian spice grinders and customtemperature control boxes.The labs havebecome more sophisticated since – though theystill use a fair amount of retrofitted off-the-shelfappliances to keep the cost of each installationdown to US$10,000 – embracing the cloud anddrawing on data from local weather stations, sothat such variables as ambient temperature andhumidity can be monitored.

This collaboration with the cooperativeshas enabled farmers to taste their products,calibrate their palate withTCHO’s and makethe appropriate corrections.The feedback isvery specific but the aim is clear, for example,“Leave that batch of beans for another day” or“Consider adding orange peel to the mix.”WhatTCHO is trying to do is find ways to quantifysubjective experience and replace thesubjectivity with replicable systems.

Consumer behavior expert and retail veteranTodd Hale has said that chocolate makers needto look at other consumer brands and learn howto “win with cool”. With its Silicon Valley savvy,TCHO has done precisely that.

In 10 years, TCHO has established itself asa high-end yet large-scale chocolate maker.The famous flavor wheel remains at the heart

of the company’s product range, although ithas launched milk, coffee and strawberryrhubarb pie products – and it still runs aprogram in which consumers beta test newbars at its head office.

Invention and innovationThe approach seems to be working.TCHOoutgrew its 29,000 ft2 space on Pier 17 in SanFrancisco and has just moved to 49,000 ft2

premises in Berkeley. New CEO Andrew Burkesays this will give them scope for expansion, roomto experiment and raise awareness of what thecompany does: “We always felt likeWillyWonkaand nowwe can do that well. People can come tothe store, interact better and see how thechocolate is being made.”

Burke’s appointment reflects another stage inthe company’s growth. Childs and Rossetto havestepped back (the former is still a shareholder,while the latter remains on the board ofdirectors) butTCHO is well on track.

Revenues have soared from US$4.5m toUS$6m in the past year. Burke has considerableexperience in the food and drink industry withKraft, GalloWines and, most recently, asExecutiveVice-President, Chief Marketing Officerand General Manager of Diamond Foods.

TCHO remains, in the words of oneexecutive, “a young, scrappy company”andhas succeeded in not being another me-toochocolate maker through its relentless focuson innovation and inventing the future.

1. TCHO has married Silicon Valleyinnovation to San Francisco food smartsto create a distinctive company culture.2. By applying technology tofermentation,TCHO has improved theprocess and kept flavors consistent.3. Collaboration with suppliers throughtheTCHOSource program and innovationlabs has encouraged farmers to reinvest.4. Using a flavor wheel (above)TCHOcommunicates clearly with consumers,helping them understand its taste range.5.Transparency is one ofTCHO’s corevalues – it has given rivals tours of itspremises and it encourages consumersto help it test and develop new products.

Source:TCHO

THE TAO OF TCHO


STRATEGIC INNOVATION

The pace of change in today’smarketplace often takes retailers andbrands by surprise. Bymonitoring signals of change – andmakingsense of them – companies can develop the right strategies tosurvive and thrive in an increasingly disruptive environment

The consumer goods marketplace cansometimes appear to be in a constantstate of change. Millennials, whorepresent about a third of the world’s

population, are coming into young adulthoodwith a consumer mindset and behaviorsthat are very different from those of pastgenerations. Meanwhile, venture capitalistsare investing in start-ups hoping to remakeold industries. And tech giants are ploughingsignificant sums into technology platformsand applications that create new marketplacesfor goods and services.

The cumulative effect?“The pace of change is unrelenting and nowoutrunning the company strategy,” says ColleenDrummond, Head of KPMG in the US’sInnovation Lab atWeWork in NewYork. “Thetraditional planning cycle is failing to keep pacewith technological and digital disruptions.Theirrate of growth is in many cases exponential.”

The dangerous thing about an exponentialgrowth curve is that they feel gradual, andthen change feels like it happens suddenlyand rapidly, leaving little time for companiesto react. “The threat can feel gradual and eveninsignificant at the start and yet very quicklybecome a game changer,” says Drummond.“Uber is a good example in the taxi industry,but there are examples of this kind of

disruption taking place in almost everyconsumer category, from movies (Netflix) tohotels (Airbnb).”

A recent round of financing for Ubereffectively valued it at US$41 billion. Deliverystart-up Shyp has raised US$10m to finance itsexpansion andTPG Capital, whose advisersinclude the actor Ashton Kutcher and Bono,are helping to fund Airbnb and laundry serviceWashio. All this activity begs the question:which sector will next be surprised by achallenge to its business model?

How to tune inIn an environment where change is the newnormal, and success favors agility, flexibilityand preparation, how can companies stay

ahead of disruptive implications that challengeinvestment and operational priorities? Andhow can they profit from them by developingstrategies that turn those disruptions intonew opportunities?

Drummond says companies must firstdedicate time and resources to picking up onthe “weak signals”, or subtle signs of potentialdisruptions or marketplace game changers.“Our approach includes scanning themarketplace, from an outside-in perspective,to identify changing customer demographicsand behaviors, technology innovation, VCinvestments and start-up activity, plus techgiant innovation investments. Then applyingsense-making techniques to understand thereal implications,” Drummond says.

“Weak signals help you adjust yourstrategic planning before you hit that thresholdof change. At that point it becomes much moredifficult to reposition.”

Jeanne Johnson, Principal at KPMGAdvisory with a focus on omnichannel andchanging operating models, says that weaksignals help formalize “a critical set ofcapabilities and insights” into potentialdisruptions to their business, sooner and withmore focus.Weak signals can complementtraditional trend and market intelligence methodsby highlighting “unknown” or “unexpected”factors influencing consumer behavior. In many


“WEAK SIGNALS HELPYOU ADJUST YOURSTRATEGIC PLANNINGBEFORE YOU HIT THATTHRESHOLDOFCHANGE”

Turningweaksignals intostronggrowth


cases, these signals give companies insightsinto emerging business models being deployedby would-be competitors.

“The pace of change isn’t just quicker,but also more disruptive to operating models.This isn’t about tapping into insights that willhelp companies tune-up merchandising orsupply chain management capabilities,” shesays. “Instead, they might realize they needto integrate and collaborate with somebodyelse’s supply chain. Or it may be realizingthey need to interact with suppliers andmanufacturers in a different way thandistribution models of the past.”

At KPMG’s Innovation Lab, a team bringingtogether backgrounds in trends research,customer experience and motivation,technology innovation and start-up scanning,offers an “outside-in perspective” to helpclients identify signals of change within thecontext of their businesses.

“It is about identifying the weak signalsyou can know, but don’t,” says Johnson.“Then it is about putting those signals intocontext: what are they actually telling you sothat you can do something about it?”

People firstAt KPMG’s Innovation Lab, the methodologystarts with consumers. That is why it is madeup of a cross-generational team of Millennials,


KEY LEARNINGS

Colleen DrummondHead of KPMG’sInnovation [email protected]

Customer demographicsMillennials are the largest generation inhistory, and a key accelerator of technologydisruption.They spend more time online thanprevious generations, and expect digital to beintegrated into their customer journey.Theyare fueling Collaborative Economy businesses,which seek to match independent supplyand demand in real-time. Diving into thegeneration’s behaviors and expectations canyield valuable under-the-radar insights.

Technology innovationTech giants have already proven a gamechanger in commerce, communications,payment systems and health.What are theyinvesting in now? How could that acceleratechange? Look at Apple, which couldrevolutionize healthcare with the iWatch,

challengeTesla with exploratory investmentsin electric cars and is looking to place AppleTV at the heart of a home automation system.

Start-up activityVenture capitalists get up every morningthinking about which business model theycan disrupt next. Companies need to scan thelandscape to identify relevant start-ups andthe venture capitalists who are funding them.KPMG’s Innovation Lab also goes ‘divergent’in its scan of start-ups; adjacent possibilitiescould represent threats and opportunities(for partnership, for instance).

Political and regulatory trendsCompanies like Airbnb have met with someresistance from local and national governmentsaround their business models. How successfulhave they been in forcing governments tochange the rules? How could those regulatorytrends accelerate change to other businessmodels? Governments worldwide havealso shifted towards programs that supportentrepreneurship, a trend that has implicationsfor big business and mass-produced goods.


LeapTransitSan Francisco’s Leap– a start-up busservice aimed atMillennial connectedcommuters –provides a smart-phone operatedalternative to localmass transportation

Source: KPMG Innovation Lab

Social& people

Drivers and disruptive forces of change

IndustryLevel

People trends:customer &employeeWhat are changingdemographics andbehaviors? How arethey acceleratingtechnologydisruption?

Digital disruptorsWhat are keytechnologyinnovations?

How is technologychanging howpeople behave?

Technology

Start-ups &VCsWhat are start-upsworking on?

Who is fundingthem andwhatbusiness modelsare they intent ondisrupting?

Regulatory trendsWhat are keyregulatorydevelopments?

Tech giantsWhat are techgiants investing in?How could it be agame changer?

Economic&Markets

Political &regulatory

Gen Xers and Boomers of varied expertise whoput their desires, behaviors and expectationsunder the microscope. Field research is alsodone through a customer lens.

Given they’re digital natives and two timesmore likely to be early adopters of newtechnology, Millennials are perhaps having themost impact on consumer changes, makingthem a key area for gleaning weak signals.

Recently, the Innovation Lab completed atwo-day session for a major beer company onthe rising popularity of craft beers in the US.According to the Brewers Association, thetrade association representing small andindependent brewers, craft brewers had 11%of the total beer market in 2014, the first timethey’ve claimed double-digit market share.(The trade association defines craft brewers ascompanies that produce less than six millionbarrels annually that are not owned orcontrolled by a large conglomerate).

Craft beer volume increased 18% last yearin the US. Growth for the overall beer category,however, was only 0.5%.

“What we started with was: how are peoplechanging and what is causing them to prefercraft beer?We put a lot of work into seeing ifthere is a correlation between food and alcohol


STRATEGIC INNOVATION

preferences,” she says. “We absolutely did seeMillennials making different food purchasesthan past generations.That in turn has shiftedbeverage choices.We also saw that Millennialshave a strong preference for authentic and local.There is a pervasive rejection of massproduction. It is a huge challenge for a lot ofmajor companies,” Drummond notes.

But insights into demographic shiftsalone don’t tell the whole story of a potentialbusiness disruption.

Accelerating innovationKPMG’s Innovation Lab also maps technologyinnovation to provide a snapshot of how newstart-ups and companies could accelerateconsumer adoption of certain behaviors.

To help facilitate this process, KPMGpartnered with software company Owlin tocreate the KPMGTechnologyTrends Index,the first index in the world to provide adynamic, real-time view of technology trends ineight large industry sectors. Consumermarkets is one of the sectors.

Every day, over 500,000 online sources(such as tweets, press releases, annualreports, magazines, forums, etc) are filteredthrough an algorithm designed by Owlin,

“START-UPS SUCCEEDBECAUSE THEYDEVELOP SOLUTIONSTO UNMETNEEDS ANDCHANGES IN BEHAVIOR”


Disruptive start-ups(Clockwise from left)Airbnb challenges thehotel model; Netflixhas changed howaudiences watchmovies andTV;Connecticut brewerTwo Roads providesfacilities for craftbrewers to make theirown products; Uber’staxi service is nowavailable in 58countries


The client’s challengeThe session looked at changing customerdemographics, innovations in technology andstart-up/venture capital activity particularlyin the home renovation sector. The insightsrevealed that disruptions to the sectorinclude start-ups introducing a technology-enabled layer between consumers andcontractors (who offer painting as a service).

How KPMG helped“We first looked at behavior changes asit relates to design, and Millennials wantto go from idea to execution througha mobile-enabled experience,” says ColleenDrummond of KPMG’s Innovation Lab.“They start online with idea board appslike Houzz and Pinterest.”

“Boomers would tend to start with paintand build from that, but now the processhas changed and paint is just one source ofinspiration,” she adds.

While Millennials are willing to createidea boards, generally speaking they’renot interested in going to the hardwarestore, picking up the paint and actually

doing the job themselves. During theirchildhood, Millennials typically spent moretime on extracurricular activities thanhousehold chores.

Their lack of home improvement know-how, along with a preference for spendingtime on other experiences, has givenway to what Drummond calls the DIFM(Do-It-For-Me) phenomenon, in whichseemingly every consumer good is beingturned into a service.

This is in stark contrast to the Do-It-Yourself model popularized by baby boomers.

A scan of start-ups in the paint/paintingindustry revealed disrupters to the homeimprovement market.

A range of them, such as Porch, Pro.comand Handy, enable mobile engagement ofcontractors to get work done.

“We found they will send you samples ofthe paint color, and that the contractor willshow up at the door with the paint to do thejob,” says Drummond.

One e-commerce start-up that enablesindividuals to book, schedule and pay forhome and office painters, recently secured

investments from a number of venturecapitalists, squarely putting a new light onthe business of paint manufacturing.

The bottom lineBy putting the market signals together,the company now has actionable insightsby which to move forward and protect itsrelevance, says Drummond.

“We identified a lot of operating modelimplications for the company, from changemanagement in terms of how the paintgets delivered to how it interacts withcontractors,” she says. “It has to do twothings: focus on meeting the expectationsof changing customer behaviors andsimultaneously calibrate its operatingmodel across channels.”

CASE STUDY

KPMG’s Innovation Lab recently completed an ‘outside-inperspective’ for one of theworld’s leading paintmanufacturersto identify signals of change in context and to help them adapt

Don’t paint the home improvementbusiness model into a corner

which measures articles for timeliness,weight and relevance. “It helps you determinewhat is trending and what needs yourattention,” says Drummond. “Within thosetrending areas, you can also get a bettersense of whether people are just talkingabout it or actually acting on those trends.”

Start-ups with big ideasThe Lab also scans the landscape to identifyrelevant start-ups and the venture capitalistswho are funding them, as well as tracks techgiant activity.

“Start-ups are real companies with realproducts and customers. They’re agile andsucceeding because they are developingsolutions to unmet customer needs andchanges in behavior,” says Drummond. “Andit is not just the start-ups but also the venturecapitalists who are backing them.What doyou think venture capitalists do?They get upevery morning and think: ‘What industry canI disrupt today?’”

Drummond says they will also “develop avalue chain from the customer lens, and thenlayer the start-ups across it to see where theyare trying to innovate. And what we’re seeingis start-ups even changing the definition of

what it means to be fast and convenient. Todayyou can have virtually anything delivered toyour door with a few clicks on your mobile.”

Deep dives into new business models andthe companies that compete in them can alsohelp identify insights. One of the mostimportant points of research for the Lab hasbeen Collaborative Economy businesses,which enable consumers to get what theywant from each other rather than fromestablished brands that used to be the onlyoptions in the marketplace.

Start-ups founded on the principles ofthis model, such as Airbnb, Zipcar andJustPark (in which, yes, you share parkingspaces), number more than 9,000. They arefunded by more than US$7 billion in venturecapital with the express goal of disruptingexisting business models.

The growth of these start-ups is beingaccelerated by a range of factors. These rangefrom technological (mobile devices, socialnetworks, payment systems) to demographics(Millennials – especially during the economicdownturn where their financial prospects havebeen limited – support sustainability andsharing) and to political/regulatory shifts (bywhich government programs such as the

US’s Patient Protection and Affordable Care Act– commonly known as ObamaCare – are beingcreated for a growing number of freelancersand small entrepreneurs).

The start-ups cover a vast range, fromservices, food, goods transportation, spaceand money. This increasingly popular businessmodel is even being applied to the contractormarketplace, which has major implicationsfor businesses, such as leading paintmanufacturers. (See panel below.)

Evolve or dieThere is no shortage of accelerating trends,new technologies and breakthroughinnovations. But by tuning into weak signals,companies can start creating organizationalawareness and capabilities that allow them toproactively address disruptive forces of changeand take corrective action.

“Companies constantly have newcompetitors coming at them with completelydifferent business models,” says Drummond.“Their ability to adapt and pivot is critical, butthey can’t do that if they don’t recognize thedrivers and disruptive forces of change.”

For more information on KPMG’s Innovation Lab see p27


LESSONS FROMOTHER INDUSTRIES

PERSONAL TOUCH

Martin

Scali/Tw

entie

thCen

turyFo

x/Berlinale


engenders no customer loyalty.With the bigchains, reservation and enquiries services areoften centralized, standardized and heavilyscripted – some insist on a set list of phrases togreet guests. One group even stipulates thatguests’ pets can weigh no more than 75lb (34kg).This may be efficient, but it doesn’t makecustomers feel so individually valued that theywant to return.This approach may already bealienating richer guests: only a third of the top100 hotels ranked by readers of Condé NastTravelermagazine last year belonged to chains.

Small is beautifulThe advent of the boutique hotel in the 1980smarked a return to some of the old values –particularly the idea of offering a differentiatedexperience. In place of piped elevator music,each establishment creates its own ambiencetargeted at a particular kind of customer.

By creating strong customer connections,facilitating feedback, they inspire word-of-mouthrecommendations, while reducing the cost offuture sales, market research and productdevelopment. A recent Gallup study found thatthe more engaged guests were, the less theyworried about the price of their room.

Boutique hotels are well placed to meetthe growing demand for personalization.Aimed at niche markets, they are closer totheir customers, who are distilled into evermore discrete ‘tribes,’ such as ‘bar crowdsof 20-35-year-olds seeking social bonds’.

As the sector matures, this deep customerknowledge – boosted by social media anddiscrete analytics – is helping owners do moregood things.These smaller, more nimbleorganizations can react quickly to new market

Keeping customers loyal in a competitive,constantly changing marketplace is thetoughest challenge for any brand. Forboutique and luxury hotels, getting closer

to customers – for example, through socialmedia, mobile media, deep data mining andadvanced analytics – is essential, as they seekto offer a truly personalized experience.

The hotel industry has long looked to thepersonal touch to retain customers.The five-starchain Four Seasons are famed for their customerservice and understated helpfulness of theirstaff.This has been emulated in the retailindustry – putting experts, consultants andpersonal shoppers in place of sales people.Theholy grail is to keep good customers comingback.To do that, hotels need to know who theseguests are, how they behave, and treat eachcustomer as a valued individual. In times goneby, long-serving staff were key.Today, thosestalwarts’ encyclopedic memories and attentionto detail can be recreated by data analytics andcustomer relationship management systems.

The original ‘grand’ hotels attracted guestswith a distinctive grandeur that was hard toreplicate.Their guests chose to stay not in anytop-class hotel, but specifically at theWaldorfAstoria in NewYork, or Raffles when in Singapore.

Other hoteliers globalized their brand, so thatwherever travelers went they would find, say, aHilton or Marriott offering a reassuringly similarexperience.The industrialization of the hotelchain met a previously unanswered need forpredictable facilities from business travelers andsatisfied less adventurous voyagers seeking ahome-from-home in a strange city.

The danger with this approach is that it candegenerate into a ‘vanilla’ experience that

developments, such as the internet-driven risein private rent-a-room/apartment services.These hotels may not have worked outdefinitively what their customers want but theyare constantly monitoring evolving preferences.

The larger hotel chains are waking up tosocial media. Four Seasons Hotels & Resortsencourages guests to share vacation photos onsocial networks (using the hashtag #FSFotog),using satisfied customers to present a positivestory to potential customers. Such proactivesocial media activity can have a huge impact:TripAdvisor’s research found that 93% of peoplevalue peer feedback when selecting a hotel.

The new trends on the boutique hotelindustry’s agenda are being driven by guests’ever more intricate needs.These range frommore sophisticated customer segmentation tomobile check-in facilities to reduce front-desktraffic and replacing standard rate cards withmore personalized, adaptable pricing.

Technological advances can help – the latestofferings include in-room facilities that canpre-set a room’s temperature to a guest’spreferences – but innovations need to offer atangible benefit, and all businesses have to getthe basics right. In the case of hotels, that’s agood night’s sleep in a comfortable room.

Can the luxurious eleganceof times past help brandsand retailers differentiatetheir customer service?


1. Know your customers. Don’t tryto second-guess them: get feedback viasocial media so you can track changingneeds and preferences. And remember:rules alone don’t guarantee good service.

2. Use data analytics. Microsegmentyour target market to identify whatparticular ‘tribes’ of customers really want.

3.Adapt your pricing. Be flexible, withpersonalized and seasonal special offers.

Have luxurious hotels discovered the secret of customer loyalty?

KEY LEARNINGS

Other publications

Global ConsumerExecutiveTop ofMind SurveyBased on a survey of 539of the world’s largestconsumer companies,this report reveals howindustry executives arefocused on top linegrowth, new technologyand consumer trust.


INSIGHTS

2015 editioncoming in July

For more information or to request a proposal,contact us at [email protected]

KPMG member firms provide a wide range of studies, analysesand insights for the Retail and Food, Drink and ConsumerGoods (FDCG) industries. For more information, please visitwww.kpmg.com/retail or www.kpmg.com/FDCG.

Global Reach ofChina LuxuryAn annual report onChina’s luxury market,based on a survey of1,200+ Chinese middle-class consumers on theirluxury spending patterns.Interviews with CEOs andother senior executivesalso shed light on currentopportunities andchallenges for theluxury sector.

China’s ConnectedConsumersThis report, based on asurvey of over 10,000Chinese consumers and10 company interviews,looks at online spendingpatterns of Chineseconsumers, and howcompanies are adaptingto serve them.

Nutraceuticals:Thefuture of intelligent foodA report which delvesinto some of thechallenges andopportunities facing bothfood and pharmaceuticalcompanies. It alsoexplores the six mainareas companies mustexcel in if they wantto succeed in thisgrowing market.

kpmg.com/app

Cyber SecurityKPMG’s cyber security professionalswork with companies to help themsafeguard their entire organization.By addressing people, privacy,information governance andbusiness resilience, we help ourclients to implement a firm-wideapproach to doing business in thedigital world.We give leadershipa new perspective to help them totake control of cyber risk in a uniqueand positive way, and empowerthem to grow, transform andinnovate their business.

KPMG Innovation LabWith our people-first approachto innovation, KPMG in the US’sInnovation Lab can help youidentify signals of change that mayimpact the growth and relevance ofyour organization. Based on a decadeof research and our knowledgein neuroscience and human creativity– as well as leadership in technologyinnovation, trends analysis, and start-up scanning – our team of cross-generational Millennials, Gen Xersand Boomers has the ability to takeyour business to the next level.

SERVICEAREAS

2015 editioncoming in June

2015 editioncoming in June


www.kpmg.com/app

https://itunes.apple.com/app/kpmg-thought-leadership/id391375421?mt=8

Global contacts

Willy KruhGlobal Chair, Consumer Markets+1 416 777 [email protected] International

Mark LarsonGlobal Head of Retail+1 502 562 [email protected] International

Dan CoonanGlobal Executive, Consumer Markets+44 20 7694 [email protected] International

Elaine PrattGlobal Marketing, Consumer Markets+1 416 777 [email protected] International

PatrickW. DolanAmericas+1 312 665 [email protected] in the US

Nick DebnamAsia Pacific –Consumer Markets+852 2978 [email protected] in China

George SvinosAsia Pacific –Retail+61 (3) 9288 [email protected] in Australia

The information contained herein is of a general nature and is not intended to address the circumstances ofany particular individual or entity. Although we endeavor to provide accurate and timely information, therecan be no guarantee that such information is accurate as of the date it is received or that it will continue to beaccurate in the future. No one should act on such information without appropriate professional advice after athorough examination of the particular situation.

© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMGnetwork of independent firms are affiliated with KPMG International. KPMG International provides no clientservices. No member firm has any authority to obligate or bind KPMG International or any other memberfirm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind anymember firm. All rights reserved.The KPMG name, logo and “cutting through complexity” are registeredtrademarks or trademarks of KPMG International.

Publication name ConsumerCurrentsPublished by Haymarket Network Ltd

Publication no 132422-GPublication date June 2015

Pre-press by Haymarket Pre-pressPrinted by Ricoh UK Ltd

Missed anissue ofConsumerCurrents?

Back issuesare available todownload from:www.kpmg.com/consumercurrents

Trent Duvall+61 (2) 9335 [email protected] in Australia

Carlos Pires+55 11 2183 [email protected] in Brazil

Jessie Qian+862 1 2212 [email protected] in China

Danny Golan+45 52 15 02 [email protected] in Denmark

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Liz Claydon+44 20 7694 [email protected] in the UK

Regional contacts

Country contacts

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kpmg.comCONTACTS

ConsumerCurrents

Issue 16


Matt Shay, Presidentof the US NationalRetail Federationon innovation

Why the Gulf isthe go-to emergingeconomy for

brands and stores

How Procter &Gamble’s greendrive delivered aUS$2bn dividend

p14 Marketsp20 Case studyp6 Interview

Reinventing

retailThe profit behind data analytics

Why the Gulf is

brands and stores

How Procter & Gamble’s greendrive delivered a US$2bn dividend

p14 Case study

ConsumerCurrents

Issue 15


CEO Dirk Van de Puton transforming thecompany’s globalpotato business

Why the StraussGroup has

such a tastefor alliances

When 60 is the new40: the growingpower of thegray consumer

p18 Joint venturesp14 Trendsp6 McCain Foods

China’s luxury-goods boom: howtheir brands will woo the world

Fashionstatement

Group hasWhen 60 is the new

John Lewis ChairmanSir Charlie Mayfield onemployee ownershipin a changing market

How their newbusiness modelis revolutionizingthe beauty sector

p20 Birchboxp10 Pricingp6 InterviewTime to stopdiscounting andstart thinkingstrategically

ASEANWhat does Asia’s new economiccommunitymean for brands and retailers?

dawn

ConsumerCurrents

Issue 18


John Lewis Chairman Sir Charlie Mayfield on

employee ownershipin a changing market

p10 Pricingp6 Interview Time to stop

discounting and start thinking

strategically

www.kpmg.com

www.kpmg.com/consumercurrents

www.kpmg.com/socialmedia

www.kpmg.com/socialmedia

millennial mystery - kpmg global...next trends and stay ahead of your competitors 26 lessons from...

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