The digital channel shift represents one of the greatest opportunities—and challenges—the retail industry has ever faced. As digital influence on the retail experience increases, retailer influence declines. Retailers must effectively navigate this paradox in order to survive and thrive in the digital economy.
Across the retail landscape, online sales are continuing to increase, while store-based retail sales have stagnated. Consumers are paying more attention than ever to online shopping, and digital has evolved into playing a major role within the shopping value chain.
Because of the rise of digital, the retail industry is at the forefront of one of the greatest tectonic shifts of all time—that which is taking place within the retailer and consumer relationship. As digital influence on the consumer experience increases, the retailer’s ability to orchestrate and influence the overall customer experience is declining—a paradox that retailers must effectively navigate in order to survive and thrive in the digital economy.
If not addressed, the digital experience paradox, which is defined by the increase in digital touchpoints and decrease in retailer influence, could have a serious impact on a retailer’s ability to stay competitive in this new evolving market.
For centuries, the retail value chain was simple. It centered almost exclusively around the store, where customers came to explore, shop, try and buy goods they desired from someone they trusted. This seemingly perfect ecosystem remained unchanged for centuries—from ancient village markets to the multipurpose shopping malls of today. Traditionally, the store represented a singular opportunity to manage the customer experience in a fully controlled environment. In this environment, the retail customer experience was defined and measured almost exclusively within the four walls of the store, where the retailer controlled every aspect of the experience—from merchandising and customer service to lighting, layout and even the music playing overhead. The digital revolution turned this model on its head.
In just a few short decades, the consumer has been introduced to multiple waves of digital disruption. Consumers can now shop online, on their mobile phones and even on their social networks. Emerging technologies and approaches like augmented reality and the Internet of Things are changing the model even further. With each wave of digital disruption, the consumer’s retail experience is flooded with an increasingly wide array of digital touchpoints—many of which are no longer under the direct control of the retailer.
As digital evolves, it brings with it a corresponding change in consumer behaviors. For example, approximately 44% of consumers now use Amazon— more than even Google—as their primary starting point for a product search, according to BloomReach. Social media ratings and reviews alone currently influence nearly half (45%) of all digital shopping behavior, according to a recent article by eMarketer, and digital overall is forecast to influence nearly two-thirds (60%) of retail sales in the next few years.
From Amazon and mobile wallets to Facebook, Pinterest and Snapchat, new third-party digital domains are impacting the customer experience. Because of this, retailers have a diminishing ability to orchestrate or influence the customer experience across a set of channels that are largely out of their direct control. As a result, while digital represents a unique opportunity for customers to engage with retailers in a more meaningful and personal way than ever before, unless retailers transform their digital practices, their customers’ experience is likely going to be disconnected and impersonal.
The exponential growth in digital touchpoints represents an unparalleled opportunity to engage customers in a more seamless and personal way, yet the retailer’s ability to orchestrate or influence the customer experience is declining. We call this the digital experience paradox.
DIGITAL TRANSFORMATION IS LAGGING THE PACE OF DISRUPTION
Many retailers have been at the forefront of the initial waves of online and mobile commerce adoption, yet the ever-increasing pace of digital disruption has made it difficult for even the most forward-thinking organizations to keep up.
While many retailers point to digital commerce as the metric for digital proficiency, it actually generates only 10% of total e-commerce revenues, according to eMarketer. These numbers pale in comparison, however, to the estimated 60% of retail sales that soon will be influenced by digital, and many retailers are falling further behind in a rapidly evolving digital ecosystem.
And while digital is hugely important, the retail customer experience is not keeping pace with expectations, as 60% of in-store digital experiences are perceived as average or below average by the customer, according to a survey done by InReality. Furthermore, research from nChannel shows that the great majority of consumers (84%) believe that retailers should be doing more to integrate their online and offline channels.
According to Kurt Salmon research, the reasons for the decline in influence and orchestration are numerous and include:
- Digital Experience Leadership: More than two-thirds (68%) of retailers have no single owner of the customer experience across channels and functions, leading to a lack of organization around implementing new ideas.
- Digital Experience Discipline: Many companies do not clearly define “digital experience”—in fact, half (52%) of companies don't have a definition across the organization of "customer experience.” As such, organizations cannot come to a consensus on how to enhance the experience.
- Innovation Process: Fifty-six percent of companies have no formal process for innovating within the in-store experience, causing stagnant research and development.
- Digital Investments: On average, traditional retailers invest less than 2% of their revenue on information technology. Amazon, in contrast, spends over 10% of net sales on technology and content, ensuring it is continuously innovating in its solutions and offerings.
- Integration Complexities: The volume and complexity of new digital capabilities being introduced each year—coupled with aging technology infrastructures—have made it difficult for retailers to effectively integrate these new capabilities into a seamless customer experience.
As a result of these factors, retailers are faced with a growing digital engagement gap which, if not addressed, will leave retailers exposed to potential market share loss and customer loyalty erosion.
THE RETAIL CALL TO ACTION
We anticipate that the digital experience paradox will ignite an epic battle for influence over the consumer relationship. As digital touchpoints and technologies continue to expand at an exponential pace, so does the opportunity for competitors to disrupt the retailer-to-consumer relationship.
Amidst the rampant digital transformation that is forever changing the retailer-to-consumer relationship, retailers must build and orchestrate a broad portfolio of new digital capabilities—or expose themselves to an unfettered battle for influence over their consumers’ hearts, minds and wallets.
As digital continues to break down the once-exclusive retailer-to-consumer relationship, new competitive battlegrounds are being drawn to win the battle for influence. We expect that retailers will increasingly compete across multiple digital domains—and against new digital competitors— to gain influence over the customer experience. As a result, retailers will need to reevaluate their competitive positioning and alliance strategies to expand their influence beyond the store to encompass online, mobile, marketing, social and other emerging digital domains.
In order to remain relevant and compete in this new environment, retailers need to transform the way that they approach the digital customer experience. In order to design, innovate, integrate and adapt to new fast-changing digital capabilities and ever-changing consumer preferences, retailers should focus on these ideas.
- Retailers must reinvent the digital customer experience: In order to capitalize on digital’s potential, retailers need to design and develop a seamless digital experience that is as simple as a single click. Many current digital offerings require multiple steps, are disconnected and have gaps in the customer experience. Future capabilities should enable customer experiences that seamlessly incorporate all channels and touchpoints. This not only enhances the customer experience, but also brings control back to the retailer.
- Retailers must innovate in order to influence: Emerging technologies such as artificial intelligence, chatbots and the Internet of Things are becoming increasingly common in consumers’ lives. Retailers need to develop strategies that incorporate new approaches, such as integrating virtual assistants such as Apple’s Siri, Amazon’s Alexa or Google’s Assistant.
- Retailers must keep in mind that integration is the new black: With the explosion of digital capabilities and touchpoints, the ability to integrate these technologies into a connected and seamless experience will become the new competitive advantage for successful companies. Retailers must reinvent the way they approach systems integration and increasingly embrace cloud, web services, wireless, and near-field-communication- and Bluetooth-based integration solutions.
- Retailers must remember that this is channel and ecosystem warfare: To remain competitive and relevant, retailers need to boost their digital capabilities on a channel-by-channel basis. In addition, they will need to align and assemble a portfolio of capabilities into an ecosystem of digital solutions to help their customers track, manage and achieve their personal goals.
- Retailers must leverage digital consumer insights: Retailers will need to reinvent their customer insights capabilities so that they incorporate all digital channels. This will enable them to more rapidly identify and react to changing consumer perceptions and behaviors.
26 September 2016