Surviving in the Omni-channel World
October 10, 2013
Erik Brynjolfsson, Yu Jeffrey Hu, and Mohammad S. Rahman believe that mobile technology is forever changing the face of retailing. They write, “Recent technology advances in mobile computing and augmented reality are blurring the boundaries between traditional and Internet retailing.” [“Competing in the Age of Omnichannel Retailing,” MIT Sloan Management Review, 21 May 2013] As a result, they assert that “retailers [can] interact with consumers through multiple touch points and expose them to a rich blend of offline sensory information and online content.” The editorial staff at SupplyChainBrain agrees that mobile technology has changed the retail landscape, and the staff insists that interactions with consumers are just as critical after the sale as before the sale if they are to remain happy and loyal. “With more customers shopping online and on their mobile devices,” it writes, “it seems imperative that retailers offer different channels for fulfillment to not only keep prices low, but to remain competitive and foster customer loyalty.” [“Multichannel Fulfillment Is The New Normal,” 11 March 2013]
Brynjolfsson, Hu, and Rahman believe that technology has finally reached the tipping point in the retail arena. They describe the new business landscape this way:
“In the United States today, more than 50% of cell phone owners have smartphones, and more than 70% of these have used their devices for comparison shopping, a habit that is becoming increasingly common worldwide. In the past, brick-and-mortar retail stores were unique in allowing consumers to touch and feel merchandise and provide instant gratification; Internet retailers, meanwhile, tried to woo shoppers with wide product selection, low prices and content such as product reviews and ratings. As the retailing industry evolves toward a seamless ‘omnichannel retailing’ experience, the distinctions between physical and online will vanish, turning the world into a showroom without walls. The retail industry is shifting toward a concierge model geared toward helping consumers, rather than focusing only on transactions and deliveries.”
It doesn’t take much imagination to envision the challenges and complications created by this new retail landscape. Although analysts seem to be in agreement that retailers must adapt to this omnichannel world or risk extinction, “some of the largest U.S. and U.K. retailers [have been] slow to adapt their store operations to changing consumer buying habits, according to a study by SD Retail Consulting, a retail advisory firm and unit of Hilco Trading, LLC.” [“Largest Retailers Slow to Adapt to Needs of Omni-Channel Shopping Environment, Study Finds,” by SD Retail Consulting, SupplyChainBrain, 7 June 2013] Antony Karabus, president of SD Retail Consulting, stated, “The largest retailers must examine every customer touch point and how they play their part in creating that seamless customer experience. For the minority of retailers who are successfully transforming their store environments, the rewards will be substantial.”
Charles Hunt, owner of Duvet and Pillow Warehouse, a fast-growing online retailer, told reporters from The Economist, “‘Multichannel’ (or even better, ‘omnichannel’) is something almost every self-respecting retailer wants to be. It means letting customers shop with smartphones, tablets, laptops and even in stores as if waited upon by a single salesman with an unfailing memory and uncanny intuition about their preferences. Pure-play internet vendors are good at this. But most resist the idea that actual stores, with their rents, payrolls and security cameras, ought to be one of those channels. The thought of having the same costs as bricks-and-mortar competitors ‘scares the living daylights out of me’.” [“Mixing bricks with clicks,” 23 March 2013] Hunt clearly spots the sorest point in omnichannel operations — the differential costs between online and brick-and-mortar operations.
Another sore spot, however, is omnichannel alignment. McKinsey & Company analysts Duarte Braga, Paul-Louis Caylar, and Pascal Griede, note, “At many companies, … channel conflict or poor coordination gets in the way of true multichannel harmony. Successful multichannel leaders understand the importance of flexibility – helping customers shift between channels at the different steps of their decision journey to achieve the experience they want.” [“A symphony of separate instruments: Cross-channel and online sales,” Telecom, Media, and High Tech Extranet, 24 October 2012] Braga and colleagues note companies that began as brick-and-mortar stores are sometimes as reluctant to enter the online market as Hunt indicates he is to enter the brick-and-mortar arena. This kind of reluctance can result in the disharmonies noted by the McKinsey analysts. They conclude:
“No company today would neglect digital sales altogether. Yet many still view these efforts as sideshows to their ‘real’ business in stores. By taking smart advantage of the range of digital platforms currently available, retailers can delight customers both inside and outside their stores, while harvesting valuable consumer insights. Going a step further to integrate these digital channels within a truly multichannel strategy can boost performance across all channels – whether online or offline.”
Brynjolfsson, Hu, and Rahman report how “the availability of product price and availability information, the ability of consumers to shop online and pick up products in local stores, and the aggregation of offline information and online content have combined to make the retailing landscape increasingly competitive.” They note that “retailers used to rely on barriers such as geography and customer ignorance to advance their positions in traditional markets. However, technology removes these barriers.” For brick-and-mortar stores location still matters in two ways. The most obvious way that location matters is, of course, ensuring that a store is located in an area easily accessible and desirable to shoppers. In the mobile age, Brynjolfsson, Hu, and Rahman point out that location also provides an advantage when shoppers are nearby. They explain:
“The growing prevalence of location-based applications on mobile devices is a critical enabler of these changes. According to the Pew Research Center, 74% of U.S. smartphone users used their phones to obtain location-based information in 2012. Retailers are taking advantage of opportunities created by location-based applications. Walgreens, for example, has teamed up with Foursquare, a location-based social networking website, to offer customers electronic coupons on their phones the moment they enter a Walgreens store. Saks Fifth Avenue has also worked with Foursquare to steer consumers toward physical locations by offering goodies (such as high-end brand Nars lipstick). Macy’s offers free Wi-Fi in its stores; consumers can scan QR codes on products to see online product reviews, prices and exclusive video content on fashion trends, advice and tips. In some cases, the location-based applications aren’t managed by the retailers but by third parties. For instance, RedLaser, an eBay company, allows consumers to scan UPC codes to determine whether specific products are available nearby and at what price. Mobile applications themselves are becoming increasingly advanced. For example, Loopt, of Mountain View, California, provides real-time location-based services aimed at specific users and popular locations. Retailers can use Loopt as a virtual loyalty card, allowing them to connect directly with consumers based on their location. Loopt users can find friends nearby and receive coupons and rewards for checking into specific locations. Another app called Doot enables users to leave public or private messages for friends or family members at restaurants or stores; the messages are activated when the designated people reach the sites.”
Brynjolfsson, Hu, and Rahman offer seven strategies for achieving successful omnichannel retail operations. They are:
1. Provide attractive pricing and curated content.
2. Harness the power of data and analytics.
3. Avoid direct price comparisons.
4. Learn to sell niche products.
5. Emphasize product knowledge.
6. Establish switching costs.
7. Embrace competition.
“Technology is making omnichannel retailing inevitable and is reducing the ability of geography and ignorance to shield retailers from competition. It is breaking down the barriers between different retail channels as well as the divisions that separate retailers and their suppliers. At the same time, omnichannel retailing expands the overall pie by extending market reach and introducing consumers to products they may not have known about. Supply chains that generate increased consumer value are likely to win in the long run. More transparency is likely to speed up this process, leading to more of a ‘winner-take-all’ effect. As a result, retailers and manufacturers will need to find an area where they are truly the world’s best, as opposed to just working harder to hide from competition. With omnichannel retailing, competition will increase on many fronts, but so will the opportunities for savvy retailers and supply-chain partners to gain competitive advantage.”
Omnichannel operations for many companies will result in smaller retail stores and larger distribution centers. I will discuss the backend impacts of omnichannel operations on the supply chain in a future post.