Creating the
Customer Experience
Introduction
The future of retail is being driven by the evolving customer experience. In order to succeed, retailers must anticipate and address customer wants and needs.
Transformation pays off: companies that manage their customer experiences effectively are seeing measurable gains in operational performance and financial results.
Customers are not interested in distinctions between e-commerce and in-store shopping; they expect the items they pick out and purchase online to be available at the location they prefer, at their convenience and with a consistent approach to pricing and promotions. Shoppers want a full range of options, delivered in ways that suit their expectations in a given moment. From the customer’s perspective, the retail experience should be seamless and easy, with no ramifications from the complexity behind it. From the retailer’s perspective, however, these transactions require a radical transformation of the back-end processes that fulfill and deliver orders—and even the production processes that create products in the first place.
It may seem that online retailers have the advantage here—without physical locations to tend to, their focus can be solely on order fulfillment. But while a handful of born- digital companies are largely responsible for the change in customer expectations, brick-and-mortar stores have an opportunity to thrive in this environment—and may even have a competitive edge over online-only retailers.
Retailers understand that the changing customer experience hinges on technology.
This is supported by an Oxford Economics survey showing that 55% of retailers have either completed a business transformation or are in the process of transforming their business around new technology. But meeting changing customer demands requires successful integration of systems, processes, and data, along with reconfiguration of organizational structure—with a focus on creating a true omnicommerce solution.
Fig. 1: Technology drives business transformation across industries 60%
50%
30%
20%
10%
0% Total Discrete
manufacturing 50%
17%
60% 58%
17%
49%
18% 15%
34%
17%
40%
17%
Professional
services Consumer
products Retail Wholesale Completed Planning or undergoing
40%
While a handful of born- digital companies are largely responsible for the change in customer expectations, brick and mortar stores have an opportunity to thrive in this environment—and may even have a competitive advantage over online-only retailers.
Source: Oxford Economics, 2013
Technologies like Big Data (structured and unstructured), analytics, kiosks, and mobile tools allow retailers to personalize the shopping experience and provide value that online sellers cannot match on price and convenience alone.
Big Data can be leveraged to improve supply-chain processes, allowing companies to optimize inventory, increase efficiency, and reduce errors along the way—
ultimately creating a better experience for customers and bottom-line results for companies. The impact can be far-reaching. Texas-based retailer Fossil Group, for example, has several projects under way to improve back-end processes, including how its watches and other fashion accessories are created. “We want to reduce the cycle time from sketch to factory to delivery,” says Ed Robben, CIO. “Designers are really great at making things beautiful. We need to be more nimble in how we take that and turn it into common materials that are buildable, traceable, and can be produced at the end of the day,” says Mr. Robben.
Another critical technological transformation for retailers involves mobility. Mobile technologies allow the insights gained from Big Data and analytics to be applied across all stages of the supply chain. Orders can be tracked and located with ease by retailer and customer alike; apps and mobile websites allow customers to shop anywhere at any time; in-store kiosks and tablets allow customers and employees to personalize the shopping experience.
Ultimately, the successful integration of these technologies leads to omnichannel commerce—the seamless integration of systems that allows shoppers to browse, buy, and take possession of goods more flexibly and conveniently, leading to more sales. Research from IDC shows that “omnichannel shoppers spend 3.5 times more than single-channel shoppers.”
Modernizing the supply chain
The supply chain is a growing priority among retailers. “More informed, conscientious, and demanding consumers are driving the need for increased transparency and speed throughout the supply chain,” according to KPMG’s Global Consumer Executive Top of Mind Survey. And companies recognize that transforming the supply chain requires dedicating more resources to its development; supply chain ranked first in terms of biggest areas for planned investment.
The investments required to create a flexible, efficient, and customer-focused supply chain also bring challenges, as expansion, new business models, and new technologies change the way companies optimize their processes. According to H.
Donald Ratliff, Executive Director at at The Georgia Tech Supply Chain and Logistics Institute, “Supply-chain and logistics optimization is neither easy nor cheap, but it is the biggest opportunity for most companies to significantly reduce their cost and improve their performance.” While supply-chain investment may be top of mind, a study from Forrester found that only one-third of retailers have undertaken supply- chain initiatives.
“Designers are really great at making things beautiful. We need to be more nimble in how we take that and turn it into common materials that are buildable, traceable, and can be produced at the end of the day.”
Ed Robben, CIO, Fossil
At diversified retailer Spar Austria, the goal is “real-time retail,” says Thomas Thalhammer, head of business solutions at the company’s Information and Communication Services (ICS) subsidiary. This requires a rethinking of traditional inventory management, supported by copious data from both customers and stores, all processed and pushed back out to local outlets in real time.
“Supply-chain and logistics optimization is neither easy nor cheap, but it is the biggest opportunity for most companies to
significantly reduce their cost and improve their performance.”
H. Donald Ratliff, Executive Director, Georgia Institute of Technology Supply Chain and Logistics Institute
0% 10% 20%
37%
36%
33%
25%
30% 40% 50% 60%
Food/beverage retailers
Non-food manufacturers
Food/beverage retailers/
manufacturers Non-food retailers/
manufacturers All respondents
Non-food retailers
Food/beverage manufacturers
40%
51%
38%
Retailers Manufacturers
Source: KPMG Global Consumer Executive Top of Mind Survey, 2014
Source: KPMG Global Consumer Executive Top of Mind Survey, 2014
42%
Supply chain
32%
International expansion
28%
Data analytics
28%
Digital strategy
23%
Consumer health and wellness
19%
External risk mitigation
21%
CSR and sustainability
22%
Regulatory and tax compliance
22%
Data security and privacy
22%
Human resources
Fig. 3: Supply-chain transformation is a key challenge for retailers Fig. 2: Supply chain tops investment areas
“We made a decision that spending on the back end is more important than some flashier customer- facing technologies.”
Richard van Rensburg, deputy CEO, Pick n Pay
CASE STUDY: Pick n Pay picks supply-chain innovation
South African retailer Pick n Pay is seeing measurable results from its ongoing supply-chain transformation. Centralized distribution centers, supply-chain optimization, and data analytics have led to practical insights and measurable savings. “We made a decision that spending on the back end is more important than some flashier customer-facing technologies,” says deputy CEO Richard van Rensburg.
Even though the investment may not be visible to shoppers, they have felt the impact on their customer experience. The company’s goal is to increase efficiency within stores by leveraging Big Data insights. Pick n Pay aims to integrate its supply chain by centralizing distribution centers that can ramp up and down according to demand. The benefits of centralizing distribution are already apparent: the cost per case delivered to stores dropped 6.5% in the last fiscal year.
Big Data is also creating actionable insights for the retailer. With a more central view of operations, Pick n Pay can make a careful analysis of what customers buy, allowing staff to experiment with product line-ups. A streamlined supply chain has tightened the company’s already-smooth delivery service; customers can also order items from a particular store to pick up themselves. In 2014, online sales are up 27%.
Analysis of online sales trends lets Pick n Pay cater to customer segments it did not even know it had. When the company’s e-commerce site opened, sales of milk, sugar, and tea surged. It turns out that offices were buying in bulk to stock break rooms. Now Pick n Pay has specific programs to appeal to commercial customers.
Pick n Pay is taking a project-by-project approach; each comes with its own hard and soft payback. As a project is completed, employees apply lessons learned and metrics to the next one. The philosophy, says Mr. van Rensburg: “You adapt as you deliver.”
The rewards from supply-chain transformation can be great, and retailers in the process of transformation are seeing measurable benefits. Pick n Pay, South Africa’s second-largest retailer, is leveraging supply-chain innovation with Big Data insights (see case study). Supply-chain efficiencies have led to a reduction in the cost-per- case deliveries to their stores and increased online sales.
Big Data and analytics is key to this supply-chain success. Advanced analytics, including predictive analytics, can fine-tune supply-chain systems, allowing for scalability or anticipation of future sales. This allows retailers to stock up when sales of a particular product are expected to increase.
One key advantage brick-and-mortar stores have over e-commerce is immediacy—
customers are accustomed to walking in and picking up the item they are looking for. One study found that nearly half of customers research an item online before even entering the store. With the rise of mobile technology and apps, they now expect to be able to purchase any item they see online. The ability to anticipate customer needs, identify sales opportunities, and limit or eliminate out-of-stocks or backorders is contingent on a nimble supply chain.
The omnichannel revolution
All transformation efforts taking place in retail point toward omnichannel. Customers do not want differentiated experiences between the online and physical worlds.
They want more options, more flexibility, and more convenience in their shopping, as well as consistency in pricing and promotions. The omnichannel experience should meet all of these customer expectations.
As companies realize customers are looking for a seamless purchasing experience, they are focusing efforts on developing their omnichannel capabilities. According to the MIT Sloan Management Review, “As the multichannel retailing experience breaks down old barriers such as geography and consumer ignorance, it will become critical for retailers and their supply-chain partners in other industries to rethink their competitive strategies.”
Fig. 4: Omnichannel looms on the horizon
In fact, a recent study by KPMG found that over half of companies say that omnichannel is critical to their strategy this year. Even more say they are focusing on data analytics. “The reality we are facing is that it’s all about the touch-points and the customer experience,” says Werner Kraus, enterprise architecture lead at Spar Austria ICS.
“The reality we are facing is that it’s all about the touch-points and the customer experience.”
Werner Kraus, enterprise architecture lead, Spar Austria
50%
40%
30%
20%
46%
37%
7%
4%
10%
0% Likely to invest
a great deal Likely to
invest some Not likely to
invest much Not at all likely to invest
7%
Not at all sure 83%
Source: Winterberry Group LLC, 2013
Fig. 5: Analytics and omnichannel are important to strategy
“We struggle with sending a promotion to you based on your specific [shopping]
basket precisely because we don’t want to be seen as monitoring your behavior…We don’t want to be aggressive.”
Richard van Rensburg, deputy CEO, Pick n Pay
This focus on technology is essential to omnicommerce, but retailers struggle to integrate IT across operations to provide a new retail experience in a way that that is largely invisible to customers. Fossil Group has had to contend with these issues for years, running a complex retail operation that combines standalone stores, franchised stores, kiosks, “pop-ups” in shopping malls, as well as branded counters inside other retail stores (see case study). E-commerce at Fossil includes its own website as well as outlets at other sites, such as Amazon. The company is working on processes and systems to streamline order management “to get [orders] to flow to the right place,” says Mr. Robben. In the future, the shipping options Fossil presents to customers must balance customer preferences against cost-effective options for Fossil.
Skills gaps also threaten omnichannel transformation, particularly at the local and regional level. Retailers who lack the technology and management skills to execute sophisticated customer-experience strategies will see slower progress toward those goals. And with data leaks happening seemingly every week, companies must balance personalization with privacy. This is the case for Pick n Pay; according to Mr. van Rensburg, the company does not want to seem aggressive in sending targeted promotions.
Creating a better customer experience via integrated IT strategy creates measurable business value for retailers, as quantified by metrics such as growth in revenues, profitability, and market share. While this transformation will require significant technology investments upfront, they are essential for companies looking to survive in the newly transformed retail industry.
Source: KPMG Global Consumer Executive Top of Mind Survey, 2014
Data analytics
Omnichannel/
digital strategy
Regulatory compliance
Human resources
Data security and privacy
Supply chain
Growth and international expansion
Consumer health and wellness
Risk mitigation
Corporate responsibility
56% 54% 54% 52% 47%
47% 46% 46% 45% 40%
CASE STUDY: Harnessing the power of omnichannel
The Fossil Group is a complex business. The $3.3 billion Texas-based company produces several brands of high-end jewelry, watches, sunglasses, and other accessories, which it sells through a variety of means: wholesalers and retailers, standalone stores, mall kiosks, and its website. The company produces some of its products in-house while outsourcing others.
Combined with an ever-changing fashion industry, Fossil’s supply web is complicated.
Fossil’s CIO Ed Robben says some of those interactions can be simplified to improve the customer experience. The company is working to tighten processes like order fulfillment and product design, streamline the design process, and build new products faster.
The new process requires designers to think of the practicality of their ideas early on in the design process. Software breaks apart their initial designs into components and construction steps, and the program checks against data on materials that are available and compliant with government standards. This eliminates any complications further along the design and production process.
“The challenge is how not to destroy creativity with the efficiencies of the supply chain,”
Mr. Robben says. To that end, the change management component is crucial to allowing the designers to interact with the system in a manner that not only preserves the creativity but also enables a seamless and more efficient product development process.
The ultimate goal of this back-end work is to support Fossil’s omnichannel strategy. Ideally, omnichannel results in knowing the customer so well a company can anticipate buying behavior. Then the retailer can create supply-chain and order-fulfillment systems that are nimble enough to provide products wherever sales opportunities are most promising.
To get there, Fossil is also revamping its order management processes to better understand where specific products are in the manufacturing and logistics cycle so customer orders flow to the right place. Ultimately, Mr. Robben envisions an analytics system that can calculate where Fossil can best fulfill an order at the lowest cost.
“The challenge is how not to destroy creativity with the efficiencies of the supply chain.”
Ed Robben, CIO, Fossil
Conclusion
Customer demands and expectations of a seamless combination of their in-store and online experiences are driving transformative change at all levels of retail companies—from the warehouse to the point of purchase. This transformation is reliant on new technologies, which retailers must leverage to create the new customer experience.
The goal is supply-chain optimization and the creation of the omnichannel experience.
The combination of new technologies such as analytics, kiosks, and mobile devices allows retailers to better track supply-chain processes and personalize the shopping experience for each customer.
But this transformation requires significant investment and skills development—
capabilities that some companies lack. These challenges are a major barrier to omnichannel adoption and the development of the new customer experience. On the other hand, companies that take the plunge will reap the rewards. The most important part of this transformation is a willingness to adapt to the changing nature of retail.
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