Industries in beta

How digital affects banking, media, hotels and the retail sector

PwC insights

Banks are changing.
You can bet money on it

What will the banking industry look like in the future? Will customer loyalty be a thing of the past? What are the digital opportunities?

Banking has been in a perfect storm for the best part of a decade now. The excesses that led to the financial crisis, the burden of greater regulation and the steady stream of revelations about illegal or unethical behaviour have all but obliterated customer trust. And now, the digital revolution is fundamentally challenging the financial services business model.

Margins are under pressure, customers are more informed and more demanding, and innovations like peer-to-peer lending are bypassing the banking industry altogether. New entrants to the market are offering payments services online, unhampered by the baggage borne by the banks, whether that’s under-invested IT systems or customer scepticism.

On the other hand, in some respects banking is ahead of the digital wave. Unlike many consumer goods this is a product that can be wholly digitised. A vast number of people now bank electronically, especially the younger generation. In fact, many of these consumers choose their bank solely on the basis of the quality of its online and mobile offering, and associated benefits like text updates. It’s now all the more imperative that these services are efficient, easy-to-use, and absolutely secure.

But mobile and internet banking services are only the start. Digital makes it possible to tap into completely new sources of value, both for the bank and its customers. In some cases this might require new strategic partnerships with other players, though banks in general have traditionally been wary of taking such an approach in case it dilutes the relationships with their customers. In some respects they’re right: research shows that consumers are far more likely to buy additional services from their primary banking provider, though there is now a greater willingness to switch providers than there has been in the past.

The challenge for the banks is to exploit the potential of digital to develop deeper relationships with their customers, and to use the wealth of data available to them to offer far more targeted and personalised services. Indeed, there is probably no other industry where the need is so great – or the opportunity so significant – to put the customer at the heart of the business.

Today’s more demanding customer...

PwC insights

The entertainment revolution: when disruptors become disrupted

What will the entertainment and media industry look like in the future? How will our viewing become even more personalised? What are the digital opportunities?

It’s hard to think of a sector more directly or drastically affected by digital technology than media. The industry operates at the ‘speeding edge’ of the digital revolution, where some of the most disruptive and dynamic new services are transforming the way we watch, shop, share, connect, and are entertained. To take just one example, more than 500 million photos were uploaded on Facebook, Instagram and Snapchat in 2013, and that’s forecast to double year on year.

So it’s no surprise that the battle for territory, competitive advantage and the customer relationship is becoming ever more intense. Companies that were once disruptors, like iTunes, are now being disrupted in their turn by new entrants like Spotify. Consumer goods businesses like Burberry and brands like MrPorter.com are creating and disseminating their own media content. TV and film companies are finding new ways to monetise their archives online. The supremacy of TV advertising is being redefined as customers view more and more content on smartphones and tablets. Even the enormously successful subscription TV model is being innovated and unbundled by the incumbents and new operators like BlinkBox allow customers to pay as they view.

The leaders in this increasingly crowded space are those who are moving beyond an approach organised around TV, print or online platforms, to one organised around their customers. We call it a MyMedia company. This can mean a number of things: stronger distribution of content (across multiple devices, and platforms), better targeting and enabling more outcomes that matter to customers. A MyMedia company is one that has the complete trust of the consumer; one that delivers the seamless, interconnected and personalised service that customers really want. Forbes, for example, had the insight to realise its traditional print model was disappearing and the courage to transform itself into an online operation. Their new business model was inspired by the blogosphere and as a result, the site now has over 1,000 contributors and more than 30 million users.

Netflix, by contrast, is making maximum use of the emerging possibilities of personalisation. In most cases personalisation hasn’t moved much beyond the ‘if you liked this, you might like this’ model pioneered by Amazon, but Netflix is developing a much more dynamic approach. Over 75% of their traffic is now being driven by an in-depth analysis of its users’ personal recommendations, which captures dozens of individual attributes for every film or TV show it offers. This gives Netflix a huge advantage as they begin to create their own content, like the drama series House of Cards.

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Why book a hotel on your computer, when you can book it on the bus?

Mobile and tablet bookings are overtaking PC bookings. And it’s mostly being done through third parties. How can hotels fight back? How can they differentiate themselves and increase customer loyalty?

A changing landscape

In 2012, there were over 1 billion international business and leisure travellers. Changes in global demographics and rapid technological change mean these consumers have different expectations, greater freedom of choice and a high degree of familiarity with digital technology.

The travel consumer is leading the way in driving technological change.

By 2017, 88% of people in the UK will have mobile internet access. At the same time, mobile and tablet hotel bookings are already beginning to overtake ‘traditional’ web-based booking. The travel consumer is leading the way in driving technological change.

Travel consumers want mobility, flexibility and easy real-time access to information and to shop and pay safely and easily on the go. They expect seamless connectivity allowing them to access the content they want, when they want it, across all platforms. They also expect seamless transitions between different platforms. Connectivity in terms of Wi-Fi access has become an essential part of the hotel offering, on a par with electricity and water.

The digital opportunities

While these trends present opportunities for hotel companies, they also present a complex dilemma. As hotels try to differentiate themselves – from each other and from online intermediaries – the issue is how can they evaluate the optimal channel distribution mix as well as win and keep customers, and do it profitably?

It means conventional hotel business models are being challenged by the emergence of well-established as well as new online entrants mediating between hotelier and guest, and disrupting the traditional patterns of planning and reservations. These players are diluting hotels’ brand visibility, threatening their margins and weakening customer loyalty by eroding the direct relationship between the hotel operator and even its most regular loyal customers.

Mobile is playing its part here too. In the first quarter of 2013, the hotels.com iPhone and iPad app topped the most popular travel app charts in both the UK and US*, something that the brand has used to its advantage by encouraging repeated use through loyalty points. PhoCusWright has estimated that online travel agencies made up about 64% of gross mobile hotel bookings in 2012, compared with 36% for hotels own mobile sites.

If free Wi-Fi is not a component of a broader digital strategy, then it can become part of the threat of commoditisation in which the hotel becomes just ‘a room and a router’.

  • Hoteliers’ toolkit for fighting commoditisation should include:
  • developing a business strategy for the digital age (as opposed to a digital strategy)
  • using social media effectively
  • recognising the rise of the Digital Native segment
  • using digital to take loyalty and personalisation further
  • understanding ‘big data’ by thinking small.

Digital technology can transform the end-to-end guest experience

* App chart source

PwC insights

Total retail. A new mindset for the digital world

The basics – product, price and brand – are as important for retailers as ever, but what does the future hold for the industry? What are the digital opportunities?

Digital technology has revolutionised the way business works over the last decade and nowhere more so than in retailing. It began with e-commerce as the High Street rushed to clicks not bricks. Then the smart operators realised that the physical store still had an important part to play and responded by shifting to a multi-channel model.

But this is challenging, complicated and costly to do well. Worse of all, it isn’t even the right long-term solution, because ‘channel’ means nothing to the consumer. They just think in terms of what they’re buying, not how they’re buying it.

You need systems that can talk to one another

The players who really understand the way business is changing reorganise their companies around the customer. They define a strategy that puts the customer at the heart of every business process – physical, functional and financial.

The basic idea here is breathtakingly simple: whatever the customer wants to buy and however that enquiry is made, you need systems that can talk to one another.

In other words, wherever that particular product is, you can find it, deliver it, and (if necessary) take it back, without any loss of product visibility. From here, everything else follows, from people, to processes, to technology. From the brand experience at the front end, to supply chain management at the back. And you can only do all that – and do it profitably – with digital.

Some things about great retail execution will never change: brand, product, price and delivery are as important now as they’ve ever been. What is changing is the need to apply a ‘total retail’ mindset, not a multi-channel one, and we’ve developed seven key principles to help retailers do that, ranging from collective intelligence to a new concept of CRM which stands for Connected, Real-time and Mobile.

PwC insights

mHealth

When Healthcare goes digital

Pharmaceuticals are on the cusp of a revolution, the likes of which have not been seen since their industrial inception in the 19th century. Digital technology is fundamentally changing the way we consume products and data, but for the healthcare and life sciences industry it may have come just in the nick of time, as the increasing burden of chronic disease and ageing populations threaten to overwhelm already overstretched healthcare systems. Digital could help deliver the efficiencies and cost savings that would make healthcare viable again. Not only that, it offers the prospect of a complete transformation in the way pharma companies research, produce and market their products, and how patients receive many of them.

mHealth has the ability to transform access to healthcare across the developing world. As unique subscriber penetration rises 1 (in Sub-Saharan Africa, for example, unique subscriber penetration has been predicted to reach 42.2% by 2020) the accessibility of apps such as Med Africa, which gives users in Kenya access to health information, will increase the level of patient education and improve disease outcomes. It’s also streamlining healthcare provision in more developed markets, as basics like appointment bookings go online, and people take more control of their own health through fitness and nutrition apps. This new trend towards mobile health – or ‘mHealth’ - has the potential to change almost every aspect of the ‘patient journey’, improving both the efficiency of healthcare provision, and the outcomes for those who receive it:

Let’s look at just one example – how digital can improve the lives of patients with chronic diseases like diabetes. It’s already possible for someone with this condition to upload their blood glucose reading automatically from their monitoring device to their phone and share it with their physician, using apps such as Glooko, WaveSense Diabetes Manager or GSK’s Diabetes HealthMate to help with disease management and diet. Patients can also connect with fellow patients via tools like Diabetic Connect or PatientsLikeMe, and monitor the early warning signs of complications such as diabetic foot-ulcers via home-based diagnostic systems like Podimetrics.

So what does this mean for Pharma?

The digital revolution is clearly presenting pharma companies with a host of opportunities to improve outcomes for patients, efficiency for payors, and profitability for themselves. But they need to move quickly to seize these opportunities, ahead of newer and nimbler entrants to the market.  

For example, digital allows the collection and real-time analysis of vast volumes of data about the performance and potential side effects of specific drugs, which could not only help fulfil regulatory requirements in areas like pharmacovigilance, but enable pharma companies to prove the real value of the products they sell, and thereby support more evidence-based pricing models. But thus far it’s tended to be other innovative players who have exploited the potential here, by finding ways to monetise this data and sell it back to the pharma industry, as PatientsLikeMe has demonstrated.

Moreover, some of the new competitors are not smart start-ups but big established tech players, like Google, Apple and Samsung, who have the skills and the trusted brands to develop and scale digital health apps quickly. Our own PwC research has shown that consumers are willing to take healthcare services from these non-traditional providers if they offer a price advantage, which shows how vulnerable the conventional healthcare business model could prove to be 2.

Healthcare has always been a complex sector, given the nature of what is being sold, the multiplicity of stakeholders that have to be managed, and the regulatory and reimbursement challenges that have to be addressed. Digital may help resolve some of these issues, but to take full advantage of the opportunities digital offers, pharma companies need to take a hard look at the industry’s value chain and identify where to play and – critically - who to collaborate with. We’ll be using future posts to look at how pharma businesses can capitalise on mHealth, and ensure they have the flexible revenue and operating models they need to make a success of it, and a well thought-out strategy to maximise the value of the data they collect. And looking further ahead, we’ll examine how pharma can move into the third digital wave, and make the shift from selling products to selling outcomes – how they can develop a new and more profitable business model by taking on more of the risk of healthcare provision from the payors. The tools exist to do that now, if the courage can be found to use them. In fact, pharma has a unique opportunity to improve the prognosis for its own industry by becoming not just a pill provider but a health and disease manager, and taking ownership of the whole patient journey, end to end.

Reference 1: GSMA: The mobile economy 2014
www.gsmamobileeconomy.com/GSMA_ME_Report_2014_R2_WEB.pdf
Reference 2: New Health Economy Vision for the Future
www.pwc.com/us/en/health-industries/healthcare-new-entrants/index.jhtml

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