From partnerships to experience ecosystems

As customers, inundated with choice, are increasingly open to shifting from products to experiences, FMCG firms are left with a conundrum: How should they go beyond their traditional boundaries? Also, as competition is making it increasingly difficult for companies to reach consumers and attract their attention, how can such moves reinvigorate not only customer experience but also brand perception? Winning brands are in the lookout of how they can improve the experience of interacting with them, and it is becoming clear they are increasingly partnering with other brands in order to do so. The question becomes, what choices do firms have?

Through our research and engagement with practice through project with Evolution Ltd, we have identified three strategies that companies can use to improve their customer experience and shape their brand perception: creating value alone within the realm of their existing industry; collaborating with other companies across industry boundaries; and co-developing value with ecosystem partners while redefining industries. Each of them serves a particular function, has its own pros and cons, and understanding them is the first step in invigorating brand and customer proposition alike. Mapping what a company does along these lines, as we propose in the figure below, helps get a handle of the opportunity space – and on what could be the next frontier.

So what are the three columns about? Let’s look at each one of them in turn.

1. Playing within the realm of the current industry

The first option, which is the “traditional” approach, is to do something new – but, do so within the existing sectoral boundaries. Firms innovate but within limits. This focus encompasses most traditional marketing and commercial activities, as well as new product development. An individual company creates value without straying beyond the boundaries of its industry. For example, a brand such as KitKat or Oreo launches a new flavour. This is the most popular strategy, and numerous FMCG companies employ it on a regular basis. Yet, it isn’t the only possible option, which is why it’s worth considering the next two sets of opportunities.

1. Expanding the boundaries of what the company does by collaborating with others

What we have seen is that firms increasingly add value by engaging in collaborations to create and capture value for the customer, and the brand alike. Here, the company collaborates with another brand in a co-branding marketing activity or to develop a unique multi-product bundle to enhance customer value.

For instance, two iconic Italian brands, Smeg and Dolce & Gabbana, collaborated to create a unique home appliance collection that brought Sicilian aesthetics to their customers’ homes. Both companies transcended the boundaries of their traditional industries, with D&G playing in the home appliances arena and Smeg in fashion.

Some collaborations are created at the intersection of digital and physical. Traditionally, physical brands partner with digital natives to reach new audiences with Metaverse providing ample opportunities in this space. Gucci partnered with Roblox to create a virtual complement to Gucci’s Florence-based real-life exhibition. Gamers took the form of digital avatars which transformed into digital artworks as they moved through a series of rooms inspired by iconic Gucci campaigns. Virtual visitors were also able to shop for limited-edition digital Gucci items with a digital Dionysus bag sold for 350,000 Robux ($4,115). 

In another campaign, digital experience was created to complement traditionally physical service of air travel. Peloton partnered with Delta Airlines and brought its classes to the airline’s in-flight entertainment systems – the first time Peloton’s content became available to stream outside of its app or hardware.  

1. Creating or participating in new, collaborative ecosystems

Beyond such one-off collaborations, which can both improve customer experience and help invigorate the brand a firm has and its perception, we see firms increasingly focus on shaping entire collaborative structures as business ecosystems: collaborative structures that deliver an integrated customer value proposition in which customers themselves are the decision-makers. Complementary and modular solutions co-create significant value for the customer, with industry boundaries shifting and dissolving as a result. 

Business ecosystems are most often mentioned in relation to the tech world, but there are examples from FMCGs, too. Consider Nespresso, a coffee company that redefined the way coffee is delivered and consumed. Nespresso built an ecosystem with machine manufacturers (e.g. Krups, Delonghi) on the one side, and coffee producers providing standardised capsules (e.g. Lavazza, Starbucks) on the other. Nespresso itself sets the standards and “rules of the game,” and importantly promotes the ecosystem to ensure demand for Nespresso-compatible products. The ecosystem proved so successful that other coffee brands such as Illy, Lavazza, and Keurig followed suit and attempted to build their own coffee ecosystems.

Ecosystems can be created not only by engaging external partners, but also within a company by combining products from different business units. Apple does this well in the tech world, but Nike is another strong example from FMCGs. Nike managed to build an experience ecosystem around its brand and the sports and activities its users enjoyed, using an app to forge new connections between products, such as running shoes and wearable devices, as well as venturing into live experiences with Nike Run Club events.

Ecosystems generally deliver more value to customers and provide ample value-capture opportunities for the companies that participate in them.

Succeeding through multi-product (experience) and multi-actor ecosystems

Success, then, comes from both generating income and generating brand excitement through ecosystem design. Such ecosystems are multi-product in the sense that they relate to a set of products that reinforce the value of each other, and that can collectively form an experience which can be appealing to the customer. Precisely because it covers an interesting combination of needs. This multi-product or experience ecosystem is also valuable because it helps refresh the brand – not only elevating it through association, but also by helping it move into a new perceptual space.

Such ecosystems often integrate physical and virtual experiences. Consider for instance what Majid Al Futtaim has done in the Gulf, where it has provided a web of services to the customers that visit its malls (like Dubai Mall) and its stores (like Carrefour in the UAE), which provide convenience to the shopper. MAF combines customers’ physical experiences as they shop with convenience and geolocation services. It rewards customers with points that aim to engage them and provide MAF with a more granular understanding of customer habits in real time, yielding an asset that can motivate its tenants' retail stores.

With the excitement with Metaverse running high, we also expect gamification – the use of computer and immersive games (drawing on artificial reality (AR) and virtual reality (VR)) to become an additional feature of these experience ecosystems, and their success will hinge on the ability to provide a solid unified experience for the customer.

In addition, ecosystems have a multi-actor perspective – that is, whatever scope we decide to set, they need to engage many different complementors to be able to deliver value-added services. A firm does not need to orchestrate the ecosystem it is active in, and for most firms partner or complementor strategy is preferred. Defining customer and partner value proposition, identifying key pain points and rewards to use, setting KPIs to track are important components of any ecosystem strategy. In addition, orchestrators must define partner selection and onboarding processes and form a view on ecosystem governance. 

In setting up ecosystems strategy, knowing what we are after is critical: Is it new revenue streams or additional margin? Is it a brand reinvigoration or is it experimentation with new directions? Ecosystems allow us to explore, but exploration should be coupled with a sense of purpose and direction, to be able to leave a mark.

There’s no such thing as a free lunch – even in the world of ecosystems and collaborations

Ecosystems allow us to experiment and learn, draw on partners’ capabilities and extend our own, in ways that will take us well beyond the simpler set of activities that transgress traditional boundaries. Yet they require time and attention – and the homework to define the right scope of the experience ecosystem and the right approach in setting up the role in the multi-actor context. Choices such as whether to be an orchestrator vs a partner, and how to motivate others around you are crucial to your success. And this is where good intentions do not suffice: Orchestration takes time, resources, and position. For many companies, that role will be out of reach – but they can still begin their journey by learning how to collaborate with partners through ad hoc collaborations that deliver fresh customer experiences. Alternatively, they can adopt a complementor strategy by participating in established ecosystems and piggybacking on their success.

Michael G Jacobides is the Sir Donald Gordon Professor of Entrepreneurship & Innovation and Professor of Strategy at London Business School. This report was first published as a White Paper for Evolution Ltd, where MGJ is Lead Advisor, Rene Langen and Yuri Romanenkov are Senior Advisors and Nikita Pusnakovs is Engagement Manager, and draws on work for Lavazza done jointly with Spring Studios;