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Innovation in the Retail Experience
The rules of nature have always been quite simple, “Adapt or die!”
The retail industry as we know it has undergone a series of seismic changes, with not only the methods of distribution and delivery but also the spending patterns of consumers. What worked 5 years or even 1 year ago may not be so successful today. How can today’s retailers hear the signals and take advantage of emerging trends, without falling victim to noise and investing in strategies that fail to deliver?
This book seeks to review some of the landmark innovations that may be the biggest factors to have changed the face of retail, perhaps forever.
The evolution of retail… While many will see recent changes as “cup half full”, some others will argue from the perspective of “cup half empty”. The only common ground either audience will agree to, is that retail most certainly is no longer what it used to be. The only thing that is constant is change. Below are 3 stand-out scenarios that reveal that the past and present retail eras are as different as night and day.
- The power of reviews
Past: A couple of decades ago, word of mouth amongst peers had the ability to change an item’s demand from ordinary to exceptional. Shoppers were in the habit of consulting with friends and colleagues prior to making a purchase. The implication of this meant that a good or bad review would take its time to impact the overall demand for a product.
Present: With social media taking center stage in our lives, good or bad reviews reach the entire world instead of just a few friends. One disgruntled consumer can cause an entire product line to collapse. Social media platforms like Twitter, YouTube and Facebook have the ability to filter out trending news or hashtags (#). Think United Airlines!
- Mobile devices vs billboards
Past: Not so long ago billboards were an ingenious way of drawing the attention of drivers, but they were also expensive and ineffective given that the ads never reached a specific target market. Besides that, someone would have to recall the ad and contact information from memory, should the information on the billboard be needed. Very rarely can someone recall specific directions or contact info from billboards.
Present: Today’s heavy reliance on mobile devices means that retailers have migrated their advertising to mobile platforms. Strategic retailers have invested significantly in mobile ads to drive foot traffic to their physical stores. With advanced innovations in utilizing consumer search history and locations, consumers receive more ads that are relevant to their interests and locations. Links are embedded with GPS directions to the location of the store. Not only does this provide better turnover than billboard advertising, it is cost effective because in most cases retailers only pay for ads that have actually resulted in an engagement from a consumer (tap, click, et. al.). According to xAd’s annual report titled, “Mobile’s Big Impact on Retail,” mobile contributed to over $200 billion in offline and online sales in 2013. xAd found that 77% of smartphone-related transactions are actually happening within the store.
- Virtual = Reality
Past: Back when the Internet was mostly used by large organizations or the affluent, its functionalities were limited to information and communication. Once Internet use was linked to online shopping by stores like AOL Shopping and eBay, many skeptics argued that the need to touch and test drive an item before purchasing would greatly hinder the online shopping experience.
Present: Fast forward to 2017 and the former problem is one of old. Prior to a purchase, many companies have addressed this issue by enabling prospective buyers to see a 360 degrees image of the product. Tech savvy eyeglass retailers like Warby Parker have taken virtual reality a step further. Prospective customers can try potential frames with a personal photo to get a better idea of how they would look with each particular frame. As such, an in-store experience may not necessarily be needed to secure a purchase.
Role of big data
Digital migration in retail followed a logical path pertaining to retail data. First, hard copy data was converted to digital data. This meant that more data could be stored safely and for longer periods of time. With all this data came the need to better analyze and derive insights on which wholesale purchasing, site selection, store design, advertising buying, and other decisions can be based. From computing of complex predictive models to machine learning, retail has become a game of numbers, and big data continues to have an enormous impact on the retail industry.
While data and analytics are important, it cannot be stressed enough that you need to make sure to know your customers personally. Talk to them, engage them, get to know them better and constantly let them know you care.
Retail competition has become so stiff that providing quality products, outstanding service, and discounts no longer guarantee an edge. Today, retailers aim to get in front of prospective shoppers way before the decision to purchase is even made. Retail chains, with the help of loyalty programs and shopping history data, are able to predict what consumer segments, and in some cases individual consumers, are most likely to purchase in a given period of time. Such data can make advertising more efficient, as it can be personalized and served to the right consumer at the right time. Furthermore, predictive analysis plays an instrumental role in deciding which products should be placed on promotion, based on past data crunched by complex predictive algorithms.
Retail giants like Walmart have invested heavily in cloud computing to collect and analyze data on consumer spending habits and their propensity to spend. The data collected is often used to determine product pricing and promotions. Before these capabilities, retailers would basically reduce prices after a peak season or test pricing in different markets, but research has shown that gradually reducing prices based on market preferences yields more effective results.
Consumer demand forecast
To be overwhelmed with demand for a product is every retailer’s perfect problem. What better wish than to have everyone struggling to give you their money? The downside is that other stores may sell similar products, so to run out of stock only means that the next store earns all of your missed business. Yet to overstock in anticipation means that store capital gets tied up in potentially slow-moving stock.
The key is in predicting demand trends as accurately as possible. Collecting and analyzing data based on trends, social media, weather forecasts, holidays, local news, and past shopping behavior has enabled many retailers to predict the demand for their products. This has enabled the reduction of lead time when ordering products and the estimate of just how much to order.
The retailer’s dilemma
As a result of competition, retailers are finding that they need to do more to earn the same (and sometimes less). Normally the potential to earn more than the wholesale cost is what drives retailers to do more. However, retailers sometimes incur heavier production costs for a less than proportional increase in revenue. This is what is being referred to as the “Retailer’s Dilemma”. Typical components of this dilemma include:
- Free delivery
Not so long ago a customer who preferred delivery to their doorstep would incur an extra cost, but this trend has undergone significant revisions. Competition is so stiff that customers prefer a retailer who is willing to deliver at no extra cost. A crystal clear example is how many retailers on platforms like Amazon or eBay, are offering free delivery to areas as far as Africa, without a surcharge on the product. This decision takes a major cut into margins but is necessary to make any margins at all. Amazon and EBay count on making smaller margins off a larger number of customers to break even.
- Faster delivery for smaller or no additional costs
Free delivery may not be an incentive enough to spur a purchasing decision but it’s still part of the “Retailer’s Dilemma” and has to be considered to be competitive. Often a consumer will prefer a retailer who can make a faster delivery — sometimes on the same day. In a recent survey conducted by McKinsey in Germany, France, Sweden, and the UK, 50% of respondents indicated that they would be willing to pay same-day delivery costs of EUR 6 to 7 for a EUR 59 purchase.
Amazon, arguably the world’s largest ecommerce company, has already heavily invested in same-day delivery. The same-day delivery project is already operational in major cities in the United States and bound to grow in the coming years. Amazon’s Prime Air drone delivery is expected to reduce delivery costs on Amazon significantly, to about $1 for the majority of parcels. Amazon founder and CEO Jeff Bezos has said that 86 percent of Amazon deliveries are under the 5-pound weight limit that a commercial drone could reasonably carry. It is no surprise that other big players like Walmart and Alibaba have same-day delivery plans high up on their agendas.
- Virtual everything
Technologies like virtual reality (VR), augmented reality (AR), and artificial intelligence (AI) are also part of the “Retailer’s Dilemma” and will all also dramatically change the retail shopping experience — both on and offline.
Many scoffed at the idea that one day the “virtual” experience would one day play a pivotal role in our daily lives. They dismissed the rise of VR applications as a “gamer’s” fantasy. VR still is very much a gamer’s fantasy but AR, which blends elements of virtual or non-real images with real objects and locations, is a far cry from that. Whereas VR completely immerses the user into a different world and surroundings, AR blends elements of an imaginary world with that of the real world, thereby giving a “what if” vision. The latter is easier to apply to existing sectors other than games, and its applications are already in use in the educational, military, health and retail sectors.
Major advantages of augmented reality (AR) in the retail industry include:
- AR reduces product returns, since customers interact with product in 3D prior to making purchases. This can greatly improve conversion rates in clothing, home goods, toy, and even home improvement stores.
- AR better combines the brick and mortar shopping experience with online shopping.
- AR improves brand recognition for shoppers.
- AR engenders trust and confidence in the retailer by the shopper.