Unified Retailing — Breaking Multichannel Barriers - Hybris

GLOBAL RETAIL INSIGHTS EXECUTIVE
BRIEF
Unified Retailing —
Breaking Multichannel Barriers
September 2010
By Ivano Ortis, Research Director, EMEA, IDC Retail Insights
Sponsored by Hybris
Global Headquarters: 5 Speen Street Framingham, MA 01701 USA P.508.935.4400 F.508.988.7881
EXECUTIVE SUMMARY
The strategy for new retail applications is that a customer can shop in
any channel and not receive a different brand experience, as separate
channel management creates customer dissatisfaction. Online/mobile
sales will exhibit strong growth over the coming years, but what is
fundamental to consider is the value of cross-channel influence. For
example, store sales influenced by online research are three- to fivetimes
larger than total ecommerce sales. Customers demand
personalization, and retailers that deliver relevant offers to consumers
regardless of channel, coupled with accurate availability, shipment,
and product data are heading in the right direction. Blending sales
channels allows for more effective inventory efficiency (20%–60%
reductions of inventory losses as a percentage of sales), better
promotion leverage (increased returns, average transaction size and
customer profitability), and optimized future product planning. Further
expansion will come from attracting customers not familiar with the
brand or not close to stores to the secondary channels and by
improving multichannel profitability.
The target customer is the "omnichannel" shopper, an evolution of the
multichannel consumer who wants to use all channels — store, catalog
call center, Web, and mobile — simultaneously, not each channel in
parallel. Multichannel shoppers spend, on average, 15%–30% more
with a retailer than someone who uses only one channel. IDC Retail
Insights estimates that omnichannel shoppers will spend over 20%
more than multichannel consumers, will exhibit strong loyalty, and
will influence others to patronize the retailer.
As a result, we advise retailers to ensure a unified, converged channel
approach by supporting full technology and process integration
between all of the selling channels — meaning a single, logical view
of the shopper, the order, and the inventory regardless of the channel.
Unified retailing requires the adoption of real-time multichannel
management systems with embedded analytics that can integrate
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disparate customer selling front-end systems with back-end platforms
(supply chain, merchandise management). Mobile will be a key
enabler of unified retail consumer experiences. Retailers now have an
opportunity to differentiate the customer experience by capturing the
"first-mover advantage" as customers go mobile. We recommend that
retailers define a three- to five-year strategic plan on mobile.
From Multichannel Retail to Unified
Retailing
Why Should Retailers Break Down the Barriers Between
Channels?
The worldwide ecommerce market is becoming sizeable for
multichannel retailers and keeps growing at a faster pace than offline
sales, although the overall size of the ecommerce market remains
smaller. In Europe, 37% of the total population shopped online in
2009, up from 32% in 2008, with consumers in the U.K. and Germany
leading the group. Globally, we expect online sales to grow by over
20% in 2010, and by nearly 50% in 2010–2013.
One of the most common, traditional measures of a retailer's health are
same-store sales. Key measures of multichannel activity were
traditionally new customer acquisition and sales growth. The focus
now shifts to "same shopper" sales — using loyalty or payment
identifiers to calculate how shoppers are patronizing the brand across
stores and channels. For brick and mortar retailers, much of their
secondary channel (catalog, Web, mobile) commerce is with
consumers who are familiar with the brand and have likely shopped in
their physical stores. Expansion will come from attracting customers
not familiar with the brand or not close to stores to those secondary
channels and by improving multichannel profitability.
The target customer is the "omnichannel" shopper, an evolution of the
multichannel consumer who wants to use all channels — store, catalog
call center, Web, and mobile — simultaneously, not each channel in
parallel. An example is the shopper with an Android-based phone or
an iPhone who snaps a picture of the bar code of a product in the store
and immediately does price comparisons on the Web as well as
connecting to his/her social network for opinions. Perhaps one of those
friends bought the product and doesn't use it and offers to give it to the
friend. Can the retailer recognize this activity and at least offer
accessories? Are there services attached to the product that can be
offered?
In addition, multichanel retailers should consider the following key
facts:
● Store sales influenced by online research are three- to five-times
larger than total ecommerce sales. To illustrate my point, Terry
Lundgren, chairman, president, and CEO of Macy's, said Macy's
3.0, the latest rendition of the company's ecommerce platform,
provides a 360 degree view of the customer and is responsible for
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$1 billion in sales this year and a $5+ billion influence on in-store
sales improvement. Interestingly, Macy's CMO is now responsible
for marketing across channels. Another example comes from
consumer electronics retailers, where 10% to 15 % of in-store TV
sales come from online promotions.
● Online purchasing patterns are evolving: consumer research shows
that online sales of clothes, accessories, and footwear have become
increasingly popular. While travel, media and consumer
electronics continue to represent a larger share of the total B2C
ecommerce spending — it nonetheless signals the increasing
maturity of online commerce across product and service
categories.
Business Benefits Resulting From Multichannel Retail IT
Investments
Potential business value resulting from full process and technology
integration across channels includes:
● 15%–35% increase in average transaction size.
● 5%–10% increase in loyalty customers' profitability.
● 30%–45% increase in online conversion rates, thanks to reduced
Web site abandonment, recovery of lost sales and abandoned carts
via guided selling.
● 20%–60% reductions of inventory losses as a percentage of sales
— multichannel capabilities can lead to inventory optimization, via
a seamless integration of virtual and physical stores.
● Improved customer service leveraging on instant online support
and expert in-store support typically associated with rich media
(video communication and collaborative tools).
How to Drive a Unified, Converged
Approach to Retail Channels?
Drivers of retail cross-channel transparency will be the buying
behavior of new consumers — "channel choice"; the need for
complete inventory visibility; need for broader targeted marketing
opportunities.
We recommend multichannel retailers consider the following best
practice approach:
● Define a customer experience program based on the AISS model
for your enterprise (Attract, Influence, Service and Support, see
figure 1). Set measurable objectives around key customer metrics
and business KPIs.
● Ensure cross-channel transparency by supporting full technology
and process integration between all of the selling channels —
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meaning a single, logical view of the shopper, the order, and the
inventory regardless of the channel.
● Consolidate cross-channel supply chain management — both
planning and execution — allowing for total inventory visibility,
order management, and fulfillment across all channels. Consolidate
assortment planning across channels. Use inventory optimization
tools and analytics to balance stock-levels and purchasing
requirements regardless of channel. This means driving back-end
modernization and integration for supporting multiple sales
channels in a transparent fashion for the entire organization: key to
ensuring multichannel profitability beyond new customer
acquisition and sales growth objectives.
● Start delivering initial cross-channel services and targeted
promotions based on demography and customer segments (e.g.,
click & collect, order in-store deliver home, online Web shopping
list available on kiosks or mobile devices). The fun and surprise in
shopping needs to be restored so that shoppers are less compelled
by the lowest advertised prices and more by the emotion attached
to a brand and the shopping experience. Cross-channel loyalty
needs to improve.
● Improve cross-channel CRM/loyalty capabilities based on realtime
business decision support. Online consumers are indicating
that the possibility of using the same loyalty program both online
and offline is their second favorite feature for an ecommerce Web
site to develop. In profit margin improvement terms for the
retailer, we find that cross channel loyalty integration can drive
10% increases in loyal customers' profitability. This is an
important achievement if we consider that loyal clients are
typically a high share of the total customer base in selected
segments, such as food, with typically over 75% of customers
holding a loyalty card, and consumer electronics, where for
example Mediamarket in Italy have one million loyal clients that
generate 70% of its total online sales. Retailers have the fear of
seeing online loyalty as a way for customers to redeem points
without generating the multiplication effect and impulse buying of
new store visits. Thus retailers are looking into new ways of
combining online loyalty with store visits, for example by offering
online coupons that can be redeemed at the store. Mobile
represents perhaps the best way to create the required continuum
between online and store.
● Online customer support is a key consumer expectation that can
also result in 75% cost savings when moving call center to Webbased
support. Retailers also noted a direct correlation among
customer service enhancements and increases in average revenue
per user. As a result, cross-channel customer service investments
can pay off.
● Deliver advanced multichannel services (e.g., start an order from
any channel, complete it from any other channel). Integrate
transactional channels (e.g., store, online, call center, catalogue)
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with relational channels (e.g., social media, mobile) to drive
consumer influence and brand image.
● Convert relational into transactional channels with full exploitation
of the collaborative ecosystem and integration of search engine
marketing (SEM) tools that allow instant sync with the inventory.
Use social networking tools to empower customer intelligence and
customer marketing, enable targeted promotions, assortment and
new product developments. Customers' feedback can also be
gathered flawlessly via social networks when integrated with CRM
platforms. Using advanced analytics, retailers can now enable oneto-one
relations and contextually-relevant real-time interactions
with customers, while at the same time tracking shopping patterns
and customer feedback and therefore monitoring business KPIs
with more timeliness and accuracy. This again benefits the bottomline,
thanks to top-line growth, lower stock levels, and better
designed assortments that fit shoppers' expectations.
FIGURE 1
AISS Model for Multichannel Retail Strategies
Attract
Influence
Service&
Support
Precision
Marketing
Merchandising
Retail Demand
Intelligence
Cross-Channel Consumer Experience
Customer
Experience
CRM & Loyalty Management
Consumer
touch-points
Launching
New Services
Supply Chain
Insight
Information
Search,
Track
Interaction
Transaction
Anticipate
& Respond
Shopping
Lifecycle
Manage
Source: IDC Retail Insights, 2010
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Unified Retailing — Key IT Implications
Unified retailing requires the adoption of real-time multichannel
management systems with embedded order and fulfillment capabilities
and middleware-based application integration features. In other words,
the target architecture is to have centralized store systems fully
integrated with ecommerce, mobile sales, and catalogue/call center
sales on the front-end, as well as back-end integration with supply
chain, merchandise management, and other enterprise systems.
● Define a store-level integration framework based on SOA. The
definition of single, highly cohesive store systems architecture
across the many different technologies — including online — will
result in the harmonized execution of every process across all
customer touch points, private labels, and branded goods, as well
as selling channels. This will also enable the ability to drive
incremental rollouts of customer-facing technologies under a
common, unified, and cost-optimized program.
● Ensure tight integration to legacy retail transactional systems and
all the appropriate consumer, promotion, and inventory
optimization technologies. This integrated application landscape
will allow retail executives to orchestrate inventory,
merchandising, customer service, loyalty, marketing with
embedded order management and analytics.
● Social media requires investments in semantic/unstructured data
search tools to deliver customer sentiment analysis and support.
● Drive ecommerce modernization with Web 2.0 technologies such
as AJAX, on-demand managed services, video and product-rich
information capabilities to influence, guide, and enrich the
shopping experience with a more engaging and interactive
environment.
● Ensure multichannel and ecommerce platform scalability,
availability, and performance. Outsourced, service-oriented
provisions of ecommerce platforms emerge as the most relevant
sourcing option for retailers.
● Safeguard data privacy and payment security.
The Role of Mobile in Multichannel Retail
Consumer research suggests that young, trend-setting consumers and
high spenders will be the first demographics to move en masse to the
mobile channel. Retailers are responding to this trend by improving
their mobile interaction capabilities. In a 2010 survey of 150 U.S.
retailers, we found that nearly three out of four (73%) retailers now
have some type of mobile initiative in place, while 20% are in the
process of evaluating the mobile channel. European retailers are
unveiling a similar focus on mobile.
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Mobile can translate into several different opportunities for retailers.
Setting the mobile strategy agenda right is crucial to creating a
competitive advantage. Interestingly, consumers express stronger
requirements around interacting rather than just transacting with
retailers using their mobile device. For example, checking the status of
an order, searching for store locations, opening hours and product
availability and receiving alerts about promotions that are offered by
stores nearby the shopper location rank highest. Google launched its
mobile goggles app for Android, with which a user can simply frame a
shop or location and receive contextual messages about the store,
offers, user reviews, and the like. Similar applications are available on
Android, iPhone, Symbian, and Windows mobile devices to retrieve
product information, compare prices, and read user comments, via
barcode scanning and image and voice recognition.
Speed and readability are the major barriers to mobile commerce
adoption. Retailers are also struggling with how to support a multitude
of mobile platforms, screen sizes, input capabilities, and customer
segments. Real-time data flows, data privacy, strong authentication
and security are essential requirements to enable successful mobile
deployments.
While mobile use case scenarios, trials, and implementations are
proliferating, the essential fact is that mobile consumer interaction
blends payment, loyalty, customer service, and promotional offers to
the next level. Unique in this shopping experience are:
● Convenience — consumers are using their mobile phones or are
interacting with engaging mobile technologies. It is most likely to
be fun, easy, and highly accessible for customers. An all-digital
wallet that could be used for payments, loyalty programs, and
promotions could become a reality.
● Immediate interaction — mobile is a live, ubiquitous, always-on,
real-time interaction capability right in the hands of your
customers. It gives consumers full control (or an increased
perception of it) of their shopping experience, along with better instore
assistance (for example, quicker access to inventory
information to improve store staff effectiveness or mobile scanning
for rich product information, reviews, and comparisons).
● Relevance and personalization — perhaps the most distinguishing
factor for today's consumers, hence the most differentiating
opportunity for retailers. Mobile can enable instant customer
identification and interaction, so that targeted promotions/loyalty
and personalized communications are a natural choice. Adding
relevancy into the picture — think of adaptable interactions
depending on consumers' location, context, and lifestyle — can
make the difference between "dressed" personalization and truly
individualized service. Among the retailer benefits, personalized
coupons via mobile phones are achieving average redemption rates
of over 30%. Paper-based coupons today typically produce a
0.5%–1% redemption rate.
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In conclusion, we find strong consensus about the fact that mobile is
not just a third or fourth sales channel. Mobile is an enabler of the
other channels as well and can increase basket size, conversions, and
retention rates, while driving new customer acquisitions. Creating
interaction among consumers' owned mobile devices, online
commerce sites, digital signage and other in-store technologies, will
therefore be a key success factor going forward.
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