5. Name on fitting room door: Anthropologie, Banana Republic
6. Fitting room with space for groups: Anthropologie
7. In-room camera with 360-degree views: Jeanswest (Australia)
8.Mobile checkout: Sephora, Apple
9. Electronic receipt: Sears, Kmart, Patagonia
Omnichannel retailers can devise different ways of wowing each target segment. Some segments can be served much the way they were in the past. Oth- ers will require more imagination and innovation. Disney, for example, is reimagining its retail stores as entertainment hubs with a variety of interactive displays that will entice all segments of the family to visit more often and stay longer. But retailers will have to devote resources to this search for innova- tions along the customer’s pathways. The trick will be to identify each segment’s unique paths and pain points and create tailored solutions rather than the one-size-its-all approach that has characterized much retailing in the past.
Bringing Digital and Physical Retailing Together
Omnichannel retailing is the way forward for retailers seeking to satisfy customers who increasingly want everything. They want the advantages of digital—such as nearly limitless selection, price transparency at the click of a mouse, and personalized recommendations from friends and experts. They also want the advantages of physical stores—such as face-to-face interaction with store personnel, products available for trying on or trying out, and the social experience of shopping as an event. Different customers will value parts of the shopping experience differently, but all are likely to want perfect integration of the digital and the physical.
Advantages of Digital
- Rich Product Information
- Customer Reviews and Tips
- Editorial Content and Advice
- Social Engagement and Two-way Dialogue
- Broadest Selection
- Convenient and Fast Checkout
- Price Comparison and Special Deals
- Convenience of Anything, Anytime, Anywhere Access
Advantages of Physical
- Edited Assortment
- Shopping as an Event and an Experience
- Ability to Test, Try on and Experience Products
- Personal Help from Caring Associates
- Convenient Returns
- Instant Access to Products
- Help with Initial Setup or Ongoing Repairs
- Instant Gratification of all Senses
The experience of shopping. Traditional retailers have suffered more than they probably realize at the hands of Amazon and other online companies. As volume trickles from the stores and sales per square foot decline, the response of most retailers is almost automatic: Cut labor, reduce costs, and sacrifice service. But that only exacerbates the problem. With even less service to differentiate the stores, customers focus increasingly on price and convenience, which strengthens the advantages of online retailers. If traditional retailers hope to survive, they have to turn the one big feature that internet retailers lack—stores—from a liability into an asset. Stores will continue to exist in any foreseeable future— and they can be an effective competitive weapon. Research shows that physical stores boost online purchases: One European retailer, for instance, reports that it captures nearly 5% of online sales in areas near its physical stores, but only 3% outside those areas. Online and offline experiences can be complementary.
The traditional store, however, won’t be sufficient. For too many people, shopping in a store is simply a chore to be endured: If they can find ways to avoid it, they will. But what if visiting a store were exciting, entertaining, emotionally engaging? What if it were as much fun as going to the movies or going out to dinner—and what if you could get the kind of experience with products that is simply unavailable online?
This is hardly beyond the realm of possibility. Jordan’s Furniture, a New England chain, achieves some of the highest furniture sales productivity in the country by using themed “streets” within its stores, a Mardi Gras show, an IMAX 3-D theater, a laser light show, food courts, a city constructed of jellybeans, a motion-simulation ride, a water show, a trapeze school, and special charity events. Cabela’s and Bass Pro Shops not only have some of the highest- rated websites; they also have some of the most engaging physical stores. These kinds of store experiences are expensive to create. Might digital technology improve the customer experience in stores more cost-effectively?
In fact, it is already doing so. Digital technology can replace lifeless storefront windows with vibrant interactive screens that change with the weather or time of day and are capable of generating recommendations or taking orders when the store is closed. It can allow customers to design products or assemble outfits and display their creations in high- visibility locations like Times Square. It can create engaging games that attract customers, encourage them to stay longer, and reward them for cocreating innovative ideas.
Digital technology—in the form of tablets, for example—can also give sales associates nearly infinite information about customers, describing the way they like to be treated and creating precise models of their homes or body types that enable perfect choices. It can change pricing and promotions accurately and instantaneously. It can provide customized recommendations. Virtual mirrors accelerate and enliven the dressing room experience by connecting customers with trusted friends. Technology can eliminate checkout lines, capture transaction receipts, file rebate claims, and speed returns. It can give a call center operator full access to a customer’s purchase and complaint history.
My objective here is not to enumerate every possible innovation. Rather, it’s to illustrate how the opportunities for digital technology in stores, mobile devices, call centers, and other channels are just as abundant and viable as they are for websites. Moreover—and this is key—retailers in many categories can link these channels and technologies to create an omnichannel experience with stores that is superior to a purely digital retail strategy.
One task is to apply these innovations early enough, frequently enough, and broadly enough to change customer perceptions and behaviors. Adopting successful innovations three years after competitors do is unlikely to generate much buzz or traffic. Of course, many digital innovations will fail, and the effects of others will be hard to quantify. So a second task is to upgrade testing and learning skills to 21st- century levels. It was hard enough to gauge the ef- fects of pricing changes, store-format upgrades, or newspaper versus TV ads in the old world. (Remember John Wanamaker’s famous lament that he knew he was wasting half his advertising budget but didn’t know which half?) An omnichannel world makes those test-and-learn challenges look like child’s play.
Leading-edge retailers are testing digital and physical innovations using clinical-trial-style methodology.
The Omnichannel Organization
How can retailing companies organize themselves around an omnichannel strategy? Historically, mobilizing an organization to develop and integrate breakthroughs that threaten the base business has been one of management’s greatest challenges. Disruptive innovation requires a separate team that has autonomy, a distinctive set of talents, different knowledge bases, and a willingness to take bold risks.
Integrating innovative ideas with the base business, in contrast, requires collaboration, compromise, and detailed planning. It’s a bit like putting a satellite into orbit. Send it too far from the core and it will drift aimlessly into outer space, wasting money and squandering opportunity. Launch it too close to the core and gravitational forces will overwhelm it, causing it to crash and burn. So mobilizing an organization to both develop and integrate omnichannel innovations is challenging. But it can be done.
One approach is to create separate formal organizational structures but coordinate key decisions—something most retailers failed to do the first time around. Apple launched its online store in 1997, midway through the dot-com bubble. When it began opening retail stores in 2001, the company established its online and offline channels as wholly separate organizations, each challenged to maximize sales without worrying about potential conflicts. At first, collaboration between the units was limited largely to coordinating merchandise assortments, new product release dates, and pricing policies. Fortunately for Apple, its innovative products and unparalleled service trumped its lackluster channel integration. Over time, however, customers began to expect more from a preeminent technology company. Apple increased the level of collaboration, enabling cross-channel returns and using its often frenzied product releases to experiment with new systems for checking a store’s inventory or reserving items online for purchase in the stores. When Apple revamped its physical stores in 2011, it replaced information cards near demo products with iPads, which provide extensive information and product comparisons in much the way the online site does. The iPads also give customers information on omnichannel support options, and they can page an instore specialist for further assistance.
Innovative organizations also need to attract and retain innovative people—imaginative, tech-savvy, often young individuals who spin out new ideas every day. Retailers haven’t appealed to many of these innovators in recent years. Now that they must compete with the likes of Amazon and Google, they will have to upgrade their recruitment efforts. They may find some of the people they need buried deep within their own organizations. Others they will find in creative centers such as New York and San Francisco, or around college campuses.
In the past, big retailers have had difficulty hiring innovative people and luring them to headquarters operations in Arkansas or Minnesota or Ohio. And they have had little success creating autonomous disruptive groups and linking those groups to their core operations. But the same technologies that are driving omnichannel strategies can help solve both problems. Desktop videoconferencing, mobile applications, social networks, collaborative groupware, shared knowledge bases, instant messaging, and crowdsourcing not only help Amy shop; they also help Sheldon and Rajesh work together—wherever they may live—and integrate their ideas with their employer’s existing capabilities.
The department-store company Macy’s may be showing the way here. In February 2009, when Macy’s consolidated its U.S. divisions into New York, it conspicuously left a digital team in the heart of Silicon Valley. Since then Macys.com has started to add 400 people to its existing team of 300. To attract and retain talented technologists, the division launched its own recruiting microsite touting its enviable location, fashion glitz, and unique blend of entrepreneurial ingenuity and business acumen. It rapidly expanded its participation in the social media most favored by desirable recruits. It studied the characteristics of its most successful executives and then developed professional training programs in communication skills, time management, effective negotiations, and financial expertise so that recruits had opportunities for advancement. It capitalized on the local network of technology entrepreneurs, venture capitalists, and leading-edge software and hardware providers not only to identify talent but also to catalyze collaboration and new ways of think- ing. These organizational strategies have helped Macy’s woo and energize technology stars, increase its e-commerce revenue growth to more than 30% a year over the past two years, and attain the top spot on the 2011 L2 Digital IQ Index for specialty retailers. For most companies, making changes like these is a tall organizational order. Move too slowly and you’re in danger of sacrificing leadership and scale, just at a time when market share is shifting rapidly. Move too quickly, however, and you may not have adequate time for testing and learning. The time-honored rule of the judicial system sets the best course: with all deliberate speed. Retailers need to test and learn quickly but refrain from major moves until they know exactly what they hope to gain.
Is it all Worth it? A successful omnichannel strategy should not only guarantee a retailer’s survival—no small matter in today’s environment. It should deliver the kind of revolution in customer expectations and experiences that comes along every 50 years or so. Retailers will find that the digital and physical arenas complement each other instead of competing, thereby increasing sales and lowering costs. Ultimately, we are likely to see more new ideas being implemented as customers and employees propose innovations of their own. In today’s environment, information and ideas can flow freely. Retailers that learn to take advantage of both will be well positioned for success.
Challenges and Opportunities
Interview with John Rossi, Global Head of Consumer Goods Consulting, Wipro
What are the biggest challenges in retail and ecommerce for consumer goods manufacturers?
For many years, the consumer goods manufacturer, whether the company sold soda or cereal or sporting goods, has not known the actual shopper or consumer; their retail partner did. They might know generally that their typical consumer was a 50-year-old man, who prefers salty snacks over sweet candy. But they did not know the individual or the household. The retailers do know that, since most have been gathering the information for years via loyalty cards or other ways of accumulating data. But the retailer, who is dealing with many different manufacturers, doesn’t always share that information.
So manufacturers must play catch-up on the one-on-one level with the consumer. They must create a better business proposition for the retailer so they will share the information. Retailers are not accustomed to doing that because, until now, their collaboration has been mainly focused on the manufacturer providing advertising and promotion dollars to reach a mass audience.
But we need a better model. There is no reason these manufacturers shouldn’t be marketing to the shopper and final consumer, or at least their household. Using enhanced marketing techniques, including direct-to-consumer marketing, they will start to gain data that allows them to eventually sell via ecommerce. The apparel industry has been doing it for years via the web and their own stores; the rest of the consumer goods (CG) industry can learn and follow this lead.
The challenge is, how far does a consumer goods manufacturer try to go? Should I go direct-to-consumer? Should I focus just in marketing, or do I want to go all the way to ecommerce? If I go to ecommerce, should I use a company like Amazon, sell via my retail partner’s website, or build my own branded ecommerce capa- bility? Companies have to decide where they want to be on the continuum and how fast they want to go.
There is already proven direct-to-consumer and ecommerce in the apparel and footwear industries. For instance, if I am selling jeans, I may have my own stores, but I also sell those jeans through other retail channels, including online. We are starting to see luxury goods companies take a similar approach. The personal care companies and the food and beverage companies are selling online via retail partners (e.g., Amazon, Drugstore.com, Walmart.com to name a few), but very few are selling online via their own websites or mobile apps.
How can manufacturers balance virtual shopping with their retailer’s desires for in-store experiences?
The retailers are already moving down the road to the harmonious, all-channel experience. Of course, it is easier for them; they have thousands of stores. So if I buy something at Macy’s in Chicago or online, but need to take it back at Macy’s in Orlando, they can easily make the exchange. It’s more difficult for consumer goods companies that don’t have that opportunity, since they sell through multiple retail channels and would need to determine who has ownership of their returned goods. Is it the CG company, the retailer who sold the product, the retailer accepting the exchange or return? It’s cumbersome, but will be figured out over the next few years.
Today, the manufacturers have to start to understand how to interlock all these various experiences. On the front end, if a manufacturer is going to do direct-to-consumer marketing, should they have a collaborative relationship with the retailer and develop programs with them, or should they do it on their own? Or should they do both? The best answer depends on the manufacturer’s business strategy.
It is very hard for a manufacturer to get to a seamless experience, since today, the consumer can’t buy from one chain and return to another. But what if the manufacturer could allow the consumer to buy at one place and then, with the proper receipt, return it directly to the manufacturer? The manufacturer could also work with an aggregator, which might make this seamless. Amazon and Drugstore.com have figured out a model, for instance, so that a tube of toothpaste can be cost-effectively delivered to my house. So a consumer goods manufacturer could collaborate with the aggregator, provide some margin, and use this model to create a more seamless environment. However, this may not reduce the manufacturer’s cost, since these aggregators are really just an additional channel requiring their own margins to remain in business. Many CG manufacturers will be creating an additional channel—their own. It’s worked for apparel, footwear, and luxury brands; it’ll work for beverages, food, and personal care. But first, they want to better understand the individual shoppers and consumers.
Manufacturers should look at different approaches. For instance, the CG company might create their own loyalty program, using a phone app, so that no matter where a consumer buys a product, the company can know what was bought and by whom. The CG company would learn if the shopper is buying multiple products from their company in different places—for instance, shampoo at one store, toothpaste from another, and makeup from a different channel. With that kind of information, a CG manufacturer could begin to market products like that directly to the household. This becomes more interesting.
It appears from our experience, if the CG manufacturers start with helping their retailers’ programs on the marketing end, that gives them access to data, and it puts them on a quicker path for direct-to-consumer. There are some segments with quicker opportunities. Nike owns their own stores, but you can also buy their similar—if not identical—products at a department store or a sporting goods store. Nike has a nicer ecosystem that enables them to create a seamless experience faster. For them, it is prob- ably more of a business decision about how far and how fast to push that seamless experience.
Among those CG companies that own their own stores—and there are plenty of them—too often they treat online and retail as separate entities. Maybe they need to treat their own stores as test-and-learn centers for consumer behavior and new product introductions. It’s common to spend more than $1 billion on new product introductions. Why not introduce it first into their own channel, then test acceptance of the items before a nationwide rollout? Many are missing out on opportunities to better under- stand their shoppers, their consumers, and increasing the likeli- hood of new product successes. With an industry average of new product failures between 60 and 80%, using your own stores and ecommerce for test-and-learn seems like a no-brainer.
Where should CG companies start in developing—and investing in—their strategies?
The big question for many companies: Are we going to go into marketing to consumers at an individual brand level or a company level? Obviously, companies like P&G, Nestlé, and Unilever own many brands under one umbrella. So far, many of the “multi-brands under one roof” companies have gone brand by brand, product by product, to the consumer. Many agencies are involved, many channels of information are created, and there are a lot of inefficiencies.
We need to create a holistic platform for all our brands so we can know more about the consumer. When companies have a common technology and common platform, they can give a 360-degree view of shoppers for the entire company. This is a big hurdle, but an important step forward. Getting alignment is difficult since so many CG companies allow brands to make autonomous decisions best for their brand even if counter to the overall company goals. But soon they will have to start looking at this from across the organization if they want to best understand their shoppers and consumers at an individual level.
Technology will play a key role in understanding the shopper and consumer. Today, when you have dozens of agencies helping with brand marketing, each uses technologies that they are comfortable with and know. They are not taking advantage of the CG manufacturer’s power. The CMO should be pushing the envelope to harmonize technologies so we get better data that can be used holistically to gain a 360-degree view of their shoppers and consumers. In many companies, the IT department may not be informed or involved in these consumer-facing areas, but we have to be better at this. We need to have marketing and IT taking this on together from day one. [Making] proper consumer and shopper information readily available to the entire enterprise will be the largest strategic investments over the next few years. What ERP was to business transformation in the 90s, consumer information “hubs” will be for the mid-10s.
An important adjacency for CG manufacturer’s consideration is building their own loyalty programs. To date, companies that have done this are seeing decent internal results on increasing sales thanks to understanding the individual shoppers and consumers. As they get this data, companies also have to ask if they want to focus on the individual or the household. For some, it might be a shorter jump to get to the household. For instance, if you have hundreds of brands and you are able to understand where house- holds are already buying some of your products, you have the opportunity to convert them to buy more of your brands on a regu- lar basis. You can also identify the household that might be buying your paper towels but not your facial tissues, or your shampoo but not your conditioner. Households use a lot of both; by having this information, cross-selling becomes much easier.
Those first movers are gaining market share and getting a better chance to gain consumers’ loyalty. Taking it a step further, if I can deliver to the consumer’s door, I can convert a household to a regular subscription service. A subscription service that is direct from the manufacturer to the consumer’s doorstep is a logical next step for purchases like toothpaste or dog food. If you tie it into their usage patterns, it becomes a predictive replenishment, and that becomes almost guaranteed income.
Other CG companies with fewer brands also may have to get out there to survive. Stores aren’t getting larger, but aisles are getting wider. Retailers are almost real-estate agents as it relates to the use of shelf space. So if you are a smaller company, it is becoming more difficult to get shelf space unless you are providing very high margins, so it is crucial to spend more on promotions and market- ing to gain new shoppers. Promotional spending is now above 20%, up from the low teens where it was just a few years ago, and we know of a few companies admitting that their trade spend is now over 30% of gross revenues.
Direct-to-consumer makes a lot of sense in better understanding your exact shoppers and consumers; having better visibility into your promotional spend and its effectiveness; and providing better balance in the CG manufacturer/retail partner relationship. Some CG companies are investing heavily in figuring it out— they’ll be tomorrow’s winners. Wipro is helping many companies figure it out.