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Guest Comment: Are you outsourcing for the right reasons?

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Today, online retail channels are not an option, they’re a necessity — a ‘hygiene factor’ that all consumers expect.

Competition for the consumer wallet is fiercer than ever, and online retailers now compete not only against one another and against their physical peers, but against the recession-driven consumer mindset itself.

There’s no silver bullet to beating the recession, but it’s a reasonable assumption that the retailers who will come out of it with flying colours will all have re-evaluated the way they do business, and not simply cut hard costs. Just take a look at the slick online operations of Tesco, Asos and Ocado for living, thriving proof of that.

The key to winning and retaining customers is to ensure that they are always at the heart of everything the retailer does — whether on- or off-line. Of course, some activities are conceived for the web channel specifically, and some customer behaviour can only be analysed online. For example, which search engine or campaign brought a customer to the retailer web site in the first place?

Web analytics technology can give retailers an insight that traditional channels just cannot offer. They can also be used to examine trends of interest to both online and traditional retailers, such as basket abandonment, and insights gained here can be fed back to improve customer experience.

Abandonment could indicate navigation or the whole checkout process needs improvement, or maybe that payment options are too restrictive.

Survival might well be possible purely through belt-tightening, but if the credit crisis signals danger, it also offers opportunities for innovation, from new go-to-market strategies to investing in entirely new channels. These will enable the requisite process streamlining but also re-invention and change of the business for the better.

Where the value lies

In this era of price comparison websites competitive differentiation in online retailing no longer comes from product range or price; instead, it comes from making the whole customer proposition work seamlessly from the first click to the last. From landing on the homepage, to browsing, through to checkout and delivery or collection, the most successful retailers are those who make the process most appealing and intuitive for their customers.

But doing this is more complicated than it might initially seem. The customer proposition needs to evolve in step with customer expectations and must be able to change in real-time with changing consumer behaviour.

For this kind of business agility, retailers need to focus on any and all customer insights they can get. And because they can (and are therefore expected by customers to) react in real time, retailers need the information, analysis, insight and action as quickly as possible. However, the retailer’s core strength is in acting on insights — where the information comes from is of little importance.

Web analytics is surely the quickest way to obtain information on consumer behaviour and preference, but also a very specialised discipline for which few retailers retain expertise. In many ways, it’s similar to logistics in this respect. And just like logistics, web analytics is an area which can be — and increasingly is — outsourced.

If retailer and outsourcing partner can develop the right level of trust in their relationship, web analytics can be outsourced with the retailer retaining insight and actions in-house. Where five years ago it was enough that off-shoring boosted agility and cut costs, today it means finding ways to go the extra mile, and customer service via web analytics is a great illustration of how this can work. The deep pools of customer data already exist, but very few have been able to make use of it in a way that makes a significant impact on the bottom line; often only incremental changes are made on an as-required basis.

Focusing on what they do best

Web analytics delivers the insights a retailer can use to make the right merchandising, advertising, and other crucial business decisions. But to avoid wasting time that could be spent acting on information, analytics has to be a plug-in to the whole online engine.

This is where outsourcing can help retailers build a more holistic view of its business, allowing it to measure and address the areas that really matter — whether new marketing and merchandising programmes work or not; what real influence ratings and reviews in consumer communities have.

Currently, the majority of retail employees in an organisation who interact with this data don’t understand web analytics, which implies working with a company that already has this expertise would save training time and expense and allow retailers to focus on using insights rather than gaining and analysing them.

Of course, partnering is not the only route. There are tools available that can help retailers do this — for example, Google’s free web analytics tool can measure the performance of search marketing campaigns. The point is that retailers have options available outside of their industry to help with processes like web analytics, and exploring these areas may breed competitive advantage.

Partners bring value by examining how information gleaned from analytics applies to a particular retailer. How does this information integrate with the online marketing engine and how is it being fed back to the marketing department? Off the shelf tools can be easily purchased, but a partner who knows how to integrate them properly for the particular needs of the retailer, and how to easily extract relevant information for the retailer to draw the insights it needs, can add real value.

When viewed as a purely cost-cutting exercise, outsourcing can’t really help. But, if retailers invest in long-term partnerships they can harness the capabilities of an analytics platform to get the information they need quickly and easily, obtaining immediately-actionable outputs, and with no management, maintenance and tweaking headaches with respect to the underlying system.

In the case of the purely online retailer, this is critical: Web analytics is the only way it can get customer insights, whereas traditional retailers can learn from many additional customer touch points.

A move to this sort of relationship is not an easy transition for retailers who have for years considered customer data proprietary, but we shouldn’t forget that it is the outcome the retailer is interested in, not the process that leads to it. Many outsourcing companies can further bring to bear experience of similar relationships with clients in other industries, so that any other synergies can be exploited.

What is needed is a fundamental shift in mindset regarding the nature of the retailer-outsourcer relationship — the same thing is needed in evaluating all business processes if advantage is to be gained.

Time to act

By working together closely with outsourcing partners, online retailers can create analytics dashboards to map key business processes across the value chain, starting with marketing, pricing and promotions, inventory, and loyalty management. The dashboard brings together key matrices across these business processes and is therefore an invaluable asset. The alternative, searching for ways to reduce overheads and effectively wash their hands of them, might look good in the short term, but its ongoing value today is questionable at best.

A number of retailers have tried creating dashboards in different ways, and it’s crucial to recognise that there’s no ‘one-size-fits-all’ solution, that each case is unique. Paradoxically, it’s also because of this uniqueness that the dashboard is such an incredible tool. TCS has worked with customers in almost every industry over the years to develop many such dashboards; several even allow delivery of information to all concerned, through media like smartphones and internal wikis, quickly and easily. They allow retailers to drill down into the statistics that interest individual business units in as much detail as needed.

Properly exploited, the customer information retailers possess has many lessons to teach and can even model future trends with surprising accuracy. In an increasingly competitive market, online retailers especially must use their data not only to rationalise why customers behave the way they do, but also to predict how they will in future, in order to react quickly to and even anticipate changing demand. Agility is the key, and understanding the door to be unlocked: Imagine a net profit dashboard for different categories and how useful an understanding of why certain product lines are successful would be in transporting success to other areas. Combined, this leads to innovation in strategy and competitive advantage, ensuring retailers will come out of the recession fighting.

Beating the recession is not simple. It’s not just about lowering costs, but about doing things better. Online retailers need to look for new and sustainable ways of doing business successfully. Reducing overhead is necessary, but should be incidental and not the sole focus of any new strategy; cost cutting is a good reason to outsource, but it is not and should not be the main one.

• Bhuwan Agrawal is the head of retail for the UK & Ireland for Tata Consultancy Services, the IT services, business solutions, and outsourcing specialist.

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