By Kyle Murray
New technologies continue to disrupt the marketplace, making predictions about the future of omnichannel retailing precarious. Nevertheless, components of a retail value proposition provide a systematic approach to thinking about the impact of new technology and the nature of the strategies likely to be most effective.
1. How urgent the need for a full-blown interactive electronic sales channel is depends on the customer segments the retailer targets. For example, older customer segments are less likely to demand an electronic interface. Yet even among senior citizens, a growing number of customers want to buy online in some product categories. Similarly, retailers that have developed strong personal relationships with their customers and designed a shopping experience around service and an inviting in-store environment are better positioned to defend sales against online competition.
2. Are there powerful competitors within the industry that serve key segments through electronic channels? Take groceries as an example. Many different business models for online grocery stores have been attempted. Some, such as Peapod, Streamline, and Webvan, have failed spectacularly and destroyed billions of dollars in invested capital. Other niche players in categories such as organic food have carved out small businesses that continue to struggle to have a substantial impact on grocery buying. More recently Amazon Fresh has made a major push into online grocery retailing with same-day delivery in some centers. Many pundits are skeptical after the high-profile failures of the past, but outside the United States there have been some major successes.
In other product categories, retailers are under immediate pressure from competitors that sell primarily through electronic channels. In deciding to invest in interactive electronic shopping, retailers need to keep a close eye on current and emerging competition within their own industries.
3. Does an online presence have the potential to substantially improve the comfort and convenience of the shopping experience? Macy’s, a leader in the transition to omnichannel shopping, explains: “Research has shown that about two-thirds of all shopping trips today start online with customers researching the options at their desktops or on smartphones or tablets. Then, the customers often come into the store to touch, feel and try-on the merchandise they saw. Maybe they buy in the store. Or maybe they buy the item later while sitting at home in the evening. We are now operating the company with a single view of our customer, inventory and business – no matter how, when or where the customer is shopping.”
Over time this is likely the approach that many retailers will take. As a result, it will become increasingly difficult for a retailer to create a competitive consumption experience without a compelling omnichannel shopping experience.
4. How does omnichannel shopping affect product selection? A retailer’s in-store selection is constrained by the physical space available to display products. This limitation can be alleviated, and possibly even eliminated, when products are sold through an electronic interface. The customer segment targeted by a particular physical store can be more precisely defined without surrendering the ability to serve consumers looking for unique products, unusual sizes, or customized offers.
This is the model adopted by companies like Apple and Restoration Hardware. Staff can help shoppers decide what they need and then re-direct those looking for customized products, or less common configurations, to an online store to finalize the purchase. In the world of apparel, retailers struggle to keep the full range of their products stocked in every store at all times yet can offer customers online access to these otherwise unavailable items. As a result, electronic channels can increase sales, profitability, and the number of customers served.
5. Does adding electronic channels substantially improve customer engagement? One of the benefits of omnichannel retailing is the ease with which retailers can collect data about customers’ attitudes and behaviors. For example, a retailer may decide to record how consumers navigate through an electronic store, which products they look at, as well as how often they consider them and for how long, which product reviews they read, and what purchases they make. Even surveys and focus groups seem to appeal more to consumers when conducted through an electronic interface.
Many retailers create panels of their best customers from whom they elicit real-time feedback on everything from logo designs to new product innovations to sales promotions. Companies such as Amazon and Netflix are leaders in using the data they collect about their customers’ preferences to make product recommendations. Even retailers who do not see an immediate opportunity for a positive return on investment in electronic commerce must think seriously about how new media can enhance market research and improve customer relationships.
One of the lingering fears retailers have about selling in an omnichannel world is the ease with which customers can compare prices and the potential for competition to become entirely price-based.
The problem is that staying offline does not protect you from electronic channel price competition. Omnichannel shoppers are in your stores whether you offer electronic channels or not. The question is: Can they get product information and customer reviews, check prices, and browse alternatives with you or will they be standing in your store shopping with Amazon?
The reality is that the value added by trusted brands, a high level of customer service, efficient delivery, and a familiar shopping environment is even more important in omnichannel shopping.
The leading omnichannel retailers are not competing primarily on price. Even Walmart, the world’s most successful low-price retailer, has used its online store to sell higher-priced merchandise. Macy’s and Nordstrom’s online success is not driven by price. In a virtual world, consumers value retailers they can trust to complete the transaction in a fair and responsible manner. That knowledge derives primarily from the retailer’s brand reputation and consumers’ prior shopping experiences. As a result, many organizations have found that they have equal, or even greater, pricing power when selling online.
Adapted from Kyle Murray’s The American Retail Value Proposition: Crafting Unique Experiences at Compelling Prices. Copyright (c) 2016 by University of Toronto Press. All rights reserved. Murray is a professor of marketing and the Director of the School of Retailing at the Alberta School of Business in Alberta, Canada. Murray received his BSc in psychology and a PhD in marketing and psychology from the University of Alberta. His work uses the tools of experimental psychology and behavioral economics to better understand the choices that consumers make. Murray’s new book is now available on Amazon, Barnes & Noble, and at bookstores nationwide.