Viewpoint paper
Create a
strong,
dynamic
customer
experience
Table of contents
1 Use new options
1 Embrace change
1 Understand economic and retail challenges
2 Raise the bar
3 Use an integrated approach
3 Engage in the omni-channel imperative
3 Work with experts
4 Consider an external service
4 Work together, integrate services
4 Review e-commerce options
5 Adapt to change
Figure 1. The state of retailing online 2009 $157 11% 8% 11% 13% 8% 11% 12% 9% 12% 10% 10% 13% 10% 10% 14% 8% 11% 15% 8% 11% 15% $176 $197 $218 $240 $259 $279 2010 2011 2012 2013 2014 2015 (in billions) % change % of total retail % of total retail (excluding grocery)
Source: Forrester Research Online Retail Forecast, 2009 to 2015 (US)
1
Use new options
Consumers are well versed on the range of e-commerce services available from retailers. For retailers seeking to distinguish themselves from their competitors, innovation, execution, and consistency are key. Using new tools and strategies offered—omni-channel strategies—retailers have new options and challenges for the forward-thinking business. Retailers can gain a competitive advantage by adopting an approach that integrates various toolsets such as mobility and business intelligence across channels, creating a clear, single view of the consumer, and enabling retailers’ interaction between all business channels.
By leveraging better customer information, delivering consistent quality of service, and personalizing the customer experience, leading multichannel retailers can evolve their customer-centric business strategies and extend their reach to enable all of their channels. To be successful, this direct-to-consumer capability must be balanced by the total cost of ownership throughout the retail environment. Today, many forward-looking retailers are working to provide omni-channel marketing and operations support services that lower costs, improve service, and enable them to focus on core competencies, such as sourcing, merchandising, and marketing.
Embrace change
Catalog retail has been around for more than 200 years. In 1744, when Ben Franklin sent out his first catalog, he promised, “Those persons who live remote, by sending their orders and money to B. Franklin, may depend on the same justice as if present.” Much has obviously changed since the oldest remaining catalog retailer still active today, Hammacher Schlemmer, was established in New York City in 1848. Over the last decade alone, Internet, broadband, mobile devices, and overnight shipping have permanently changed the way we look at retail—and at commerce in general.
Traditional catalog mail-order businesses, brick-and-mortar stores, and today’s e-commerce channels are converging to become an integrated omni-channel retail ecosystem, generating over US$1 trillion in direct-to-consumer retail sales. Traditional retailers are exploring optimal ways to modernize and expand their direct channels, investing in new or enhancing existing, online, or self-service capabilities. Increasingly, retailers are challenged by changing regulations, for example, changing transaction standards such as Europay, Mastercard, and Visa, near field communications, or enhanced payment card industry scrutiny, postal changes, new e-commerce options, social media integration, and mobile commerce (m-commerce).
These changes add complexity and increase the costs required to meet demands and manage supply chains. The majority of retailers are working to cost-effectively create cross-channel, integrated order entry, customer service, and fulfillment capabilities that improve customer insight and service.
Today, there is little distinction between pure mail-order retailers and the newer variants of online retailers. These organizations are now competing with retail giants who have their own direct channels to consumer offerings. Now, large, efficient supply chains can compete with the same speed and agility as more virtual retailers specializing in the direct arena, and offer greater levels of client service through an omni-channel approach.
Understand economic and retail challenges
The direct-to-consumer industry has been fueled by a number of significant economic and retail developments. In 2008, slower U.S. gross domestic product growth and a slumping housing market posed significant challenges to retailers. Reduced consumer discretionary spending impacted direct sales generally, while rising fuel costs increased delivery costs and prices. All this happened at a time when retailers were struggling against downward pressures onmargins. These challenges forced retailers to become leaner, more agile, and take a focused look at new channels to the consumer. This, entwined with the consumers’ acceptance of new technology, delivered a significant growth in the number of multichannel offerings in the retail space.
Forrester’s report entitled “The State of Retailing Online 2011: Marketing, Social and Mobile” points toward continued, strong growth in the online sales arena over the next few years (see Figure 1). Much of the recent growth in online retail has been driven by innovative, revenue-creating initiatives that look at using each channel to the consumer as part of a cohesive multichannel strategy. This has moved retailers toward a concept where each channel is designed to operate harmoniously to deliver a true omni-channel strategy. Omni-channel retailers must ensure consistency across each customer touch point to deliver a range of channels that are fit-for-purpose and offer the best experience possible. This expanding demand is challenging time-tested supply chain operations, order-management systems, and customer service capabilities. Traditional retail operations are experiencing a rapid shift as their customers increasingly prefer online orders, expecting delivery within days, not weeks. Many also want the option of picking up merchandise ordered online at their local store. Contact centers must handle an increasing number of emails, web chats, and calls to change, check on, or place new orders across any of the available channels. Simply put: Consumers today want more flexibility and options.
Customers demanding greater options can increasingly order over a number of transaction touch points, pick up or return in a nearby store, or have items shipped to family and friends across the country or around the world. Loyalty programs are becoming more creative, and customers are expecting a more immediate response in exchange for this loyalty. Yet, in the end, customers expect that no matter how it works or how many channels the retailer offers, they can still get what they want, when they want it, and where they want to get it.
Raise the bar
Ideally, customers of any business should expect the same level of service, whether walking into a store, mailing a catalog order, browsing on an m-commerce enabled site, responding to an infomercial, or ordering a product online. Gift cards should work no matter where a customer orders a product. Loyalty programs should extend across all channels. If customers want to order online and then pick up at a neighborhood store, they should have that option. If customers need to return a purchase or have it repaired, there should be multiple ways for them to do so. At the same time, all back-end activities should be seamless and invisible to the customer. When a consumer experiences a superior level of integration and service with one retailer, that consumer’s expectation of other retailers is set to similar levels of service. So, in retail, the lesson is clear: Omni-channel integration is an imperative because, like it or not, someone else is setting the bar for you. Leading retailers are responding to this imperative, delivering new consumer interaction points and adapting to marketing changes through their ability to dynamically alter merchandising tactics in their e-commerce storefronts. They are using the many direct channels available as a means for driving store traffic or vice versa, and for key promotions. Mobile environments have fundamentally altered the way that retailers engage with their client base.
The ability to influence the consumer’s purchasing strategy with a well-targeted promotion or advert is incredibly powerful. However, this channel must be approached with great care as the consumer regards the mobile device as personal domain. Using the modern smartphone to aid with the in-store shopping experience is a key differentiator for many retailers, and will continue to develop and expand the range of interactions that retailers have with their client base. In a report published by RIS News in December 2011 entitled ”Shoppers Trigger IT Strategy,” the case was clear that customers’ Figure 2. Online/store pricing discrepancies Social media engagement Slow cashiers Waiting in checkout lines Associates with poor product knowledge Dynamic store displays of product info
Up-to-date tech in place Updating now Will update first half 2012 Will update by the end of 2012
Coupon on mobile phones
For the following customer likes/dislikes, what
is the status of the organization‘s technology?
48.6% 20% 2.9% 5.7% 22.9% 8.6% 2.9% 22.9% 5.7% 5.7% 34.3% 8.6% 20% 8.6% 14.3% 17.1% 17.1% 5.7% 22.9% 42.9% 8.6% 45.7% 40% 40% 28.6% 20% 14.3%
Figure 3. Boston Retail Partners’ 13th Annual POS survey, Jan. 2012 Customer service Multichannel integration Associate training Store network Labor management Associate mobile in-store functionality Customer mobile in-store functionality Systems management Customer relationship marketing
Layaway 60% 27% 13% 52% 21% 10% 17% 37% 37% 23% 3% 32% 36% 25% 7% 24% 24% 3% 17% 17% 30% 55% 17% 73% 48% 31% 47% 17% 7% 10% 28% 38% 20% 72% 7% 7% 3% 3%
Top priority Medium priority Low priority No priority
3
Use an integrated approach
Providing new sales, marketing, and delivery channels require an integrated approach. Retailers face the growing challenge of ensuring the availability of end-to-end, direct-to-consumer solutions across multiple channels with seamless delivery and support. Many retailers will continue to build their technology and adapt their supply chains, while an increasing number now seek third-party services that offer multichannel order management, integrated customer care, business-to-consumer fulfillment, and an efficient/scalable distribution network. This set of requirements needs to expand to include the need for each channel to work in lock step with the other in a sympathetic format that ensures consumers can leverage the contact points in the manner they demand. Boston Retail Partners’ “13th Annual POS” survey of January 2012 found that the number two priority for North American retailers was their multichannel integration (see Figure 3).
A scalable, end-to-end, integrated omni-channel solution is the key to success for retailers who must adapt to changing market conditions, rapidly changing technology, and difficult operating environments. Many retailers and product manufacturers choose to retain control of these facets of the direct channel, relying on a strong legacy of supply chain management and technology development. Others choose to retain control over their merchandising and store operations, and welcome third-party services as a means to manage scale and changing complexity. While competitive retail strategies focus on personalization, differentiated merchandising, and innovative brand positioning, expanding the direct channel requires flexible, scalable, multi-contact operations. An improved direct response channel further empowers consumers with options to engage in e-commerce and create personalized brand experiences directly with the retailer or manufacturer.
Engage in the omni-channel imperative
Understanding what is happening in the retail space today can be as simple as considering one’s own shopping experiences over the last decade. The convergence of digital commerce with more traditional forms of direct-to-consumer retail, such as catalog and direct response marketing, has been accelerating. Integrating that trend with conventional store operations has a momentum all its own, as reported widely in the press by industry analysts—and retailers themselves.While most retailers and online businesses have made one or more forays into the world of e-commerce, few have perfected their strategy within this evolving market toward a unified omni-channel experience. They know the expected benefits—sales growth, customer loyalty, and expanded marketplace—are worth the efforts for those who do it right.
Currently, online growth is beating conventional retail growth many times over, and there is proof that a well-executed, omni-channel capability has a dramatically stimulating effect on in-store sales and improving customer loyalty. With stakes like these, further evolving the direct, multichannel capabilities of leading retailers has never been more important. This evolution, however, cannot occur without careful consideration of the risks, costs, and business challenges.
Work with experts
Companies supporting direct-to-consumer channels want to drive growth rather than simply respond to it. Researchers say consumers buy up to five times more items from a single source when influenced through multiple channels. Handling everything from merchandising to delivery across multiple channels through in-house means can severely strain resources and limit flexibility. The key to success is having enough of the right support—flexibly balanced with the need to meet any level of customer demand.
To gain needed support when internal sources are unavailable or ineffective, integrated services are a preferred strategy for securing critical functions. Integrated services imply integrating a typical external business operation, such as order management or fulfillment, with a company’s internal point of sale (POS), store distribution, or CRM capabilities. Integrated services are attractive for many reasons, but largely because:
• Increasing time-to-market is critical since the product, promotion, and segmentation mix changes rapidly in the direct-to-consumer channel.
• Gaining significant mindshare with consumers is becoming more difficult because competition over mindshare is relentless. Retailers already selling direct—either via pure-play “web stores” or as part of an overall multichannel strategy—must modernize technology and operations to increase efficiency and integrate with in-store systems and information such as customer data or inventory. This is no trivial task.
Direct-to-consumer marketing requires operational experience, scale, and core capabilities such as customer interaction centers, e-commerce web stores, order management, and pick-pack-ship. For branded manufacturers and traditional, store-based retailers without these capabilities, third-party services are the only viable option to consider when speed to market is critical.
Consider an external service
While there are many advantages to finding an IT services partner that can scale and integrate with traditional and direct retailer operations, there are some important considerations to weigh when engaging an IT services partner. This is essential when that partner will perform a core service, and that service will directly touch customers.
Current revenue-sharing partnership models have a significant shortcoming when they extend beyond the core direct-to-consumer operations and absorb two key retailer functions—merchandising and brand management. This essentially removes retailers and branded manufacturers (those who know their customers best) from immediate control of their day-to-day merchandising and customer relationship activities. Both are critical in promoting product brand value and differentiating a company from its competitors. Because retailers increasingly use the direct channel to differentiate themselves and further connect with their customers, it simply makes no sense to outsource brand identity and merchandising control.
Based on its pioneering experience in working with retail industry clients and direct-to-consumer services for more than 15 years, HP strongly recommends that retailers not relinquish control of their business functions mentioned below, which are the basis for decisions that deliver competitive advantage:
• How brand positioning and value proposition are communicated • How products and services are presented and their relationship to
other products and services offered
• When and how promotional offers are made—and to whom
Work together, integrate services
Using integrated services, retailers can establish a tailored, direct-to-consumer operation that leaves them in control of merchandising and brand management. Taking this first step toward improving their multichannel contact and delivery capability, retailers can assess the value of integrated services by asking the following questions: • What activities are core to my business?
• Where can I add the most value, differentiation, and efficiency? • What portion of my operations and noncore competencies can be delivered by third parties to increase my speed to market, scalability, and adaptability to achieve the following:
− Change product mix and services based on market demands − React quickly to competitive pressures
− Access leading operational practices
− Leverage technologies, such as e-commerce solutions, omni-channel order management, and integrated warehouse operations to improve productivity and obtain cost savings Retailers and direct marketers now understand that, even if return on investment is difficult to quantify, this is the direction they should take. More and more companies are looking at how they can keep control over their core marketing while outsourcing some of the more mundane operational tasks. This is true integrated services.
Review e-commerce options
When working with a third-party service provider, you can integrate existing capabilities or deploy an integrated omni-channel solution. The web channel has become the prime mechanism for supporting merchandising and brand management in the consumer direct channel. New channels such as mobility and external portal integration offer the forward-looking retailer many opportunities to engage the consumer further. Providers can help you achieve your goals in a number of ways:
• Enable growth strategies—Gain flexible support for omni-channel initiatives, increase responsiveness to changing market needs around mix, messaging, and distribution, and gain speed when first to market is critical
• Manage brand and customer experience—Maintain control while enjoying ongoing innovation, differentiate from the competition, and improve brand loyalty through creative and responsive direct sales operations
• Reduce risk—Use a proven solution for e-commerce and direct-to-consumer operations that provides a secure online and physical environment and reliable architecture and processes to meet service-level agreements and provide scalability to meet changing demand and mix
• Improve total cost of ownership—Move from fixed to variable costs, improve productivity by leveraging existing resources more effectively, and focus on core competencies of business strategy, marketing, promotional mix, brand(s), and product development and management, and accelerate revenue growth
5 Although traditional and pure-play retailers should implement
direct and omni-channel solutions without relinquishing control over brand management and merchandising, there remain several operational areas where third-party services make sense:
• Storefront/customer contact center services, including e-commerce setup and operations, call center/customer interaction center management, letter shop, and catalog operations
• Functional operations, including order management, direct inventory management, fulfillment and distribution, payment processing, and business intelligence/data warehouse support • IT, including application integration for multichannel operations,
application maintenance and support, networking, infrastructure support, and data center operations
Adapt to change
Dealing with the velocity and growing magnitude of omni-channel retail requires scalable and adaptable operations and technologies that exceed what retailers and manufacturers within the consumer industry are able to achieve today.
As the direct channel continues to proliferate and becomes even more mainstream, the in-house, small-scale operations are challenged by the need to scale and adapt to more extensible models. Retailers must focus on what they do best—merchandise. Meanwhile, operations providers who deliver scalable and adaptable logistics, order management, and customer-care operations will play an increasingly important role. With so much rapid change in retail, companies must look long and hard at how they will fully develop their omni-channel and direct strategies to ensure true end-to-end integration and the best customer experience possible. The range of omni-channel solutions offered in the marketplace enable retailers to achieve growth objectives, manage their brand, and enhance customer experience. Retailers can leverage these proven solutions to reduce risk and improve total cost of ownership, all while retaining ownership of their most critical core functions.
About the author
Saif Rivers
Saif Rivers is a client principal and industry subject-matter expert in the HP retail industry practice. In this position, Rivers acts as a strategic advisor to various clients where customer interaction is key. Before joining the U.S. organization, he was responsible for defining the retail solutions and engagement strategy for EMEA. In addition to business development activities, Rivers has lead delivery projects such as acquisition integration for Kraft, retail business strategy at Vodafone and Lloyds Pharmacy, and application modernization at Thorntons. His retail remit has seen engagements with multinational retailers such as H&M, Valentino, Benetton, Nokia, Ahold, and Celesio across the globe. Rivers graduated from Manchester Metropolitan in 1998.
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