Transforming retail as we know it
Retail success has become inextricably bound with an understanding of customer centricity. Cross-channel strategy, where retailers place customers at the heart of every decision made, has been increasingly adopted in recent years, with much made of its ability to transform retail. Qusai Sarraf, CEO of IVIS Group, shares his thoughts on the customer power shift.
In the past, retailers were generally inward-looking and traditional in their thinking as business was predominantly viewed from a buyer’s perspective. As a result, the natural temptation for retailers when shifting to cross-channel is to segment, market and merchandise goods along similar lines. The customer-centric approach challenges existing business models, contests the buyers’ view of things and adopts customer intuitive ways of displaying products online - for example, products have rich descriptions and appear in multiple categories.
In order for retailers to succeed in cross-channel, a department, or one person as a minimum whose sole focus is the customer journey, is needed to ensure consistency across channels. So, if a customer were to volunteer personal information via one channel, the same information would be shared and visible across all trading points, preventing customers from having to repeatedly enter the same information.
Most retailers say they are customer-centric but, in reality, very few are. The rapid changes of the past 10-15 years, which have been highly sophisticated in terms of customer expectation and complicated in terms of channels and devices, have resulted in many retailers being unsuccessful in adopting a cross-channel strategy. There is a need for multiplicity and diversification within the industry. More than one business model is crucial for a business to succeed in the current climate. Associated with multiplicity is innovation. Business is not just about cool technology; it’s about being able to effectively foster innovation in commercial models and creative thinking. When retailers are faced with competition from brands, telcos, media, travel companies and so on, the challenge of developing various business models is fundamental to success.
Tesco [irdx RTSC] is a prime example of a retailer that is implementing new business models well. They were early adopters of the multi-channel strategy - in fact, as early as 1996, the year Tesco.com launched, it offered offline ordering. Tesco went from a white-label company in 1996 to trading internationally in 2007. Amazon [irdx RAZC] is another company that has successfully introduced new business models, being pioneers of affiliate marketing. Those retailers who still believe that online is about cannibalisation and that retail is just about a transaction are undoubtedly failing and subsequently unsuccessfully adopting and implementing the models necessary to succeed today. Another likely trap for retailers is underestimating the impact that technology can have on their business, so they segment online from their physical store activities.
The increasing focus on customer convenience within retail has brought about the expansion of click and collect services and with it, new procedures, processes and roles. Systems have to adapt. For some, next day delivery isn’t sufficient. The success of Collect Plus is an indication of how sophisticated customers expect retailers to be. Such expectations are only heightened as the majority of customers are ‘connected’ at all times and can track their order.
There are plenty of examples showing how power has shifted from retailers into the hands of the customer. The Tesco price promise, for instance, instils the customer with knowledge of how much they’ve saved in comparison to shopping at other supermarkets, and if they haven’t saved, the customer receives a voucher for the difference. Retailers are showing they are aware of their competitors and are aligned with the best interests of the customer.
The strategy should be to place the customer at the centre of every decision made. In some markets retailers have been able to jump the website stage and move straight onto marketing and selling via the mobile channel. In China, for example, there are so many apps linking mobiles to bank accounts that the credit card is on the way out. Customers become comfortable with using mobile payments via trusted brands like Alipay, part of the Alibaba Group . The approach of a business will inevitably differ according to the availability of smart devices in each market.
Cultural differences will also affect whether UK retailers should follow the same process for both domestic and international operations. In many countries people are far more connected than we are in the UK. On a train in South Korea for instance, it’s likely that all commuters will be using their smartphone. So, the immediacy of customer requirements can be challenging.
The most important practice underpinning the current state of online retail is securing consistency and alignment within an organisation. If the values of the proposition are not reflected by people’s KPIs, goals and responsibilities, it is likely to flounder. Leadership, innovation and a willingness to change go together and processes are secondary.
People, process and technology are integral to one another, but few businesses successfully put this into place. Tesco’s simple model of Better, Simpler and Cheaper intelligently puts this holistic view into practice. They evaluate if it will be Better for customers – this relates to values, Simpler for staff – this relates to processes as there is no point implementing something that can’t be easily and consistently delivered, and Cheaper for Tesco – creating common practices and procedures.
In the UK, cross-channel strategy has seen a trend of fewer stores. Those physical stores that remain will have to transform and become an experience for customers, presenting a lifestyle related to the brand. Burberry is currently doing this very well. Loss of revenue from the physical channel will be compensated by income from new business models. Last Christmas it was surprising to see how many businesses’ offerings became marketplaces – this model really erupted.
Over the course of the next year there will be smarter launches of different business models that will cause non-retailers in particular - specifically brands with a B2B mentality - to face a steep learning curve. Some will excel, others sadly won’t.