Investing in the future

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Jon Ingram, Portfolio Manager, International Equity Group at J.P. Morgan Asset Management looks at the huge potential for voice technology to disrupt brands.

Does voice technology really yield enough disruptive power to make the consumer giants quiver with fear about the impact of voice technology to their current business models?

Last year Graeme Pitkethly, chief financial officer of Unilever, told the Wall Street Journal that “of all the disruptions that are taking place in all the things technology is bringing into our space, voice is among the most disruptive.”[1]

At the time, many investors struggled to see the obvious link between voice technology and disruption for a company the scale of Unilever. After all, ask any parent who owns a voice technology device what that device is mainly used for and they’re likely to say that its primary use is answering ridiculous questions posed by their children.

Research from Bain Consulting[2] gives an insight into the longer term threats facing consumer brand companies. Over the last fifty years consumer companies have been the single best performing sector in US stock markets[3], outperforming all other sectors including more heralded areas such as technology. Given this unbelievable success, is it any surprise they’re wary of disruption?

To try and understand the long term success of consumer brand companies, it’s crucial to understand the concept of brand loyalty. Ask yourself, how often do you change your washing up liquid brand? Maybe you have a preferred choice of AA battery you look to purchase? That brand loyalty is a huge part of the success consumer facing companies have enjoyed. They have, by and large, been able to rely on stable market shares with customers who remain loyal to the brand, despite consistently above inflation price rises.

Why do so many consumers remain loyal to a brand?

In short, behavioural finance teaches us most people are irrational buyers. Many customers rarely compare their favoured brand to other offerings nor compare the quality of the product. After all, how many individuals will have experimented with different washing up liquids, at the same time, when washing the dishes at home? Overwhelmingly we stick to a brand we know and trust. If it ain’t broke don’t fix it, so the saying goes. Brand inertia has been a boon to consumer companies.

How much of a threat is voice technology?

Consider current buying habits. If we take the battery example again, most people will recognise the packaging of their preferred brand amongst three or four others and most likely put those in the shopping trolley. If they buy on the internet, they likely type “AA battery” into the search bar, and the screen will show a dozen or so options. Consumers can click on their preferred brand, whether it is first or sixth on the list, and the company behind that brand still registers the sale. Voice ordering, however, works very differently.

“The voice technology device will provide just one option, seek the user’s approval and order it”

With voice ordering, a customer requests an order directly to the voice technology device. There’s no browsing. As opposed to the many choices that an internet search provides a customer on screen, the voice technology device will provide just one option, seek the user’s approval and order it. Having that one and only option thus becomes the single most important thing for consumer companies.

How does a voice technology device choose which option to provide?

Well, this remains a closely guarded secret. In the case of Alexa, the research from Bain Consulting showed that more than half of the time the “Amazon choice” option was the first option given. This choice turns the current (irrational) buyer, into a supremely data focussed and rational buyer. It takes account of price, availability and reviews from other users and is not directly influenced by marketing campaigns in the way many humans are.

The ability of consumer companies to navigate this ongoing transition, and stand any chance of replicating their long term successes into the future, will be absolutely essential if they want to avoid being disrupted by technology, to the point of atrophy, as witnessed across a range of other sectors.


[1] wsj.com – “The Next Big Threat to Consumer Brands (Yes, Amazon’s Behind It)” 27th February 2018

[2] bainconsulting.com – “Dreaming of an Amazon Christmas?” 9 November 2017

[3] Consumer non-durables sector, Fama-French data library 2019

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