Chapter 5 - Marketing Is Commerce, Commerce Is Marketing
Retail’s Challenges
Deloitte ends up with the key insight that it’s mobile influence, not mobile commerce, that retailers should be focused on. Customers have a long list of expectations and at the top is a large amount of information before they make a purchasing decision. This information-gathering process looks a lot different today than it might have just five years ago. Back then, there might have been a bit of online price shopping and surfing through some product reviews, and maybe a quick phone call to a friend or two if the purchase was large enough. Back then, retailers decided what messages would be in-store and felt safe in assuming that what they told a consumer about a product was the only thing the consumer would ever know about the product. Their signage, advertising, and point-of-purchase materials made up just about 100 percent of content a consumer would be on path to purchase.
Now the customer has access to all kinds of information, the least trusted of which may be that which the brand manager or the manufacturer decides to give him. Initial reviews research is just the beginning. The growth of mobile and social have meant that a tremendous amount of information is now at the shopper’s fingertips throughout the entire purchasing process, from the time the research begins to the in-store experience. The smartphone has been the big disruptor here.
Now the customer has access to all kinds of information.
The proliferation of Apple and Android devices that can be loaded with any number of shopping apps means that consumers can compare prices, see product reviews, and check on what their social networks know about a particular product right up until the moment of purchase. This transparency has wrought havoc on the retail world, long accustomed to having its way.
Pricing practices, especially, have been shaken up. The venerable practice of regional pricing, in which prices are adjusted based on pressures in individual markets, is made more difficult. The Internet, after all, knows no borders. The same is true of offering different prices to different customer segments. In the past, retailers could create one promotion for customers who didn’t have strong buying intent without the risk of loyal or likely customers not catching wind of it. Those promotions could essentially be kept secret. Not anymore.
The consumer also expects more information from third-party sources—that’s a new challenge for any retailer trying to drive unplanned purchases. They want social proof, that is, what friends and family or category experts think about product, and that’s not something that most retailers are set to deliver at scale of 30,000 stock-keeping units (SKUs). Some, however, have tried. One retailer we’ve worked with overhauled their in-store product fact tags, adding reviews, making the product description easier to read, with bullet-pointed key product features and including the average store rating. Putting raw consumers’ reviews that aren’t wildly positive testimonials on the store shelf is a major step for any retailer. Surely a few sales will be lost because of a low average rating, but the payoff is a deepened relationship with the consumer in-store.
Other forward-thinking retailers are turning to their sales associates to supply shoppers with information. Nordstrom excels on its integrated front-end strategy, making plenty of digital content available to sales associates in the stores. The mobile point-of-sale (POS) system allows associates to use past purchases as well as new recommendations to get a better picture of what the customer wants. Nordstrom, too, is big on social proof. Its e-mails will use subject lines such as “Customer Faves” and feature testimonials from consumers.
And of course each new generation of mobile apps adds functionality. As we write, the 2012 holiday shopping season is upon us and retailers are rolling out their apps. Walmart’s app provides maps of stores and a virtual Black Friday circular, as well as location-aware services to help navigate the aisles. Target’s offered discounts on popular toys and price matching. eBay’s Red Laser, acquired in 2010, is a shopping research tool that allows you to buy items at retailers such as Toys ‘R’ Us and pick them up at the store. Google, although not a retailer, also got into the game by providing maps and floor plans of some department stores and malls. This is the future—and if the stores don’t provide peer feedback and information that customers want and are accustomed to getting, then they’ll simply get it on their own. After all, it’s just a click or two away.
Toward a Single View of the Customer
We’ve just seen how giving consumers more product information has become an essential part of commerce. Now we’re going to see how using the information that retailers already have about consumers creates better commerce experiences. This is something that retailers are still struggling with on an enterprise level. Put simply, retailers need record systems capable of delivering consistent experiences to all touchpoints. So instead of 10 promotion engines, they need a single one capable of offering discounts in social, at the cash register, online, and on mobile. There needs to be a single point of truth for pricing information and product information and unstructured content.
Enterprises have historically struggled with capturing information that the customer is sharing and then leveraging that information to create a better customer experience. Thanks to an understanding of where the retail experience is often lacking and new, constantly improving technology solutions, this challenge is improving. But there’s still a lot of work to be done.
Last year, Retail Systems Research (RSR) released a benchmark report on how retailers were measuring up to the goal of omnichannel commerce.
RSR found:
Although all the retailers it surveyed believe that the shopping experience should be consistent across all channels, only 32 percent have achieved that goal.
Retail winners, RSR’s term for top performers, demonstrate a relentless focus on the customer. All of them said they plan to consolidate the shopping experience, loyalty programs, and social and digital marketing across all channels.
The top inhibitor for more than half of surveyed retailers is not having a single view of customers across all channels. RSR’s retail winners feel more strongly than other retailers that consolidating customer data across all channels is a prerequisite to prioritizing integrated cross-channel capabilities.
These findings show how far brands have to go in really cashing in on the opportunities in omnichannel commerce. But this would come as no surprise to the many, many shoppers who are routinely frustrated by gaps in the contemporary retail experience. These manifest in many different common situations. Why, if something is sold out of the store, can’t the store associate order for me online or get it from another location? Conversely, why, if something is sold out online, can’t it be shipped to me from off the store shelves? Why does the website know I’m a return shopper but the sales associate doesn’t? Why can’t I return something I buy online in the store and vice versa?
A lot of the problems stem from back-end integration issues that have popped up over the past 10 to 15 years since the rise of e-commerce. When integration is lacking, it leads to inconsistency. If a store wants to make a holiday promotion, it has to make a new business rule 10 times for the POS system, e-commerce engine, and mobile site. The likelihood of delivering the same experience across channels is low. There’s lots of friction based on dissatisfaction on the part of the consumer who expects the store to be acting out of a single repository of knowledge and insight.
Systems integration is one of the biggest challenges facing retailers today, but it’s likely that your IT department isn’t going to be up to taking on the challenges. Per the RSR survey we mentioned above, a majority of retail winners indicated a greater willingness to work with outside integration partners than in the past, a reflection of their belief that the internal IT organization either doesn’t have the know-how or is too burdened to take on more projects. This number shot up between 2011 (25 percent) and 2012 (56 percent). Another interesting data point from that survey follows: 37 percent more retail winners believe that the marketing function should drive the cross-channel strategy forward than do other retailers. That’s a clear indication of how important that intersection of brand and commerce is for top performers. It’s not enough to have the right technology in place. It has to be part of an overall strategy so that, as we’ve mentioned before, commerce is marketing and marketing is commerce.
Here’s how enterprises are attacking these challenges:
Macy’s, having decided it can’t afford to have its inventory segregated between online and in-store, has announced plans to equip 292 of its more than 800 stores with backroom distribution centers, blurring the once bright line between store and warehouse and allowing the retailer to apply inventory against demand at any touchpoint. Why? Greater flexibility in managing inventory means fewer out-of-stock items on the websites. It could lead to faster, cheaper shipping, perhaps fewer markdowns, and faster turnover of inventory. The trade-off is having employees rummaging through store shelves looking for items—there are costs in time and labor.
Nordstrom, with an experience that is heavily assisted by salespeople, is replacing cash registers and wrap desks with iPads as mobile POS systems, giving its sales associates much more computing power to help them interact with consumers. Putting a customer’s purchasing history in the hands of an associate while on the floor allows for a more personalized experience filled with recommendations based on the customer’s personal tastes.
Less obvious to the average consumer is how enterprises are dealing with organizational challenges posed by omnichannel commerce. When e-commerce operations started sprouting up in the 1990s, they were often separated from the stores’ team, creating a bifurcated commerce setup that was necessary at first but that now hampers the move toward omnichannel commerce. In many organizations, e-commerce was based far away from the headquarters, often in California, and had a very different culture. Often that e-commerce culture issued from a moment 15 years back when the intern was asked to dummy up the e-commerce site. That might have been the best way to build things initially, but it isn’t the right way to move forward. We now see large retailers suffering from disjointedness.
E-commerce is no different from any other touchpoint. When it was new, the incubator model made sense. Now online is core to a retailer: While 5 to 7 percent of sales happen on the e-commerce engine, 50 percent of sales in the retail store started in the e-commerce engine. Having e-commerce as a separate silo with separate success criteria doesn’t make sense anymore. Vice presidents of e-commerce have more influence on how much activity they drive to the store than they do on how much revenue they collect. The days of digital merchants and brick-and-mortar merchants failing to cooperate needs to come to an end. Enterprises need a single merchant and an infrastructure that properly deploys all the right consumer data and pushes the right messages and experience to shoppers at any touchpoint they want to use.
Nordstrom is a good example of a journey that all retailers will have to make. At Shop.org’s annual conference last year, Jamie Nordstrom, president of Nordstrom Direct and great-grandson of Nordstrom’s founder John Nordstrom, gave an illuminating talk about the company’s move toward integration. The retailer was an early mover online, but that didn’t mean it figured the experience out. The website, basically, was just a Web version of the store’s catalogs and there were plenty of “disconnects,” to use Nordstrom’s word. The retailer then invested heavily in systems integration over the several years to get the online and in-store experience on the same page. By 2009, Nordstrom said, the company had arrived. Customers could finally shop, access inventory, and pick up from anywhere they wanted.
Throughout this process, one challenge was figuring out how to bridge the cultural gap between e-commerce’s “fast, cool, smart kids” and the store team’s “old dumb dinosaurs.” In addition to struggling with the culture clash, the integration of the channels—focused on providing a single view of inventory and of the customer, and allowing the salesperson and the customer to access any piece of merchandise any time of day from anywhere—created a challenge pertinent to who gets credit for the sale.
Attribution is a major issue for retailers as they moved from siloed organizations to seamless experiences because they often have separate P&L for e-commerce and physical stores, essentially putting the two in competition for the same consumer dollar. This is, of course, wholly antithetical to the way the consumer experiences—or wants to experience—any retailer. The consumer won’t compartmentalize online experience from in-store. It’s all part of one continuum. It’s either there or isn’t.
The fix here is both better integration of e-commerce as well as fixing key performance indicators (KPIs). If the e-commerce VP is only incentivized by online sales and there are no KPIs for sending people to the stores, there needs to be a business transformation conversation around the creation metrics to help them measure and quantify impact on stores. How to establish these KPIs is not easy, and there are problems with any solution that currently exists. There are models that give the sales channel all the credit. Thus, for an online purchase that gets picked up in the store, online gets credit. In those environments, the in-store pick-up is likely to be less than optimal. The sales associates have no incentive to give you a good customer experience, and we’ve even seen examples where sales associates will process a return and then sell the product out of the cash register to get credit.
Then there are retailers that use point of delivery as attribution—whoever delivers the product gets credit. In this case, if the store doesn’t have the product but the website does, the associate won’t make the online order for the customer because then e-commerce will get credit. Instead the associate might push a less profitable product. When it comes down to it, first-touch attribution makes no sense and neither does last-touch attribution. Clever retailers have blended attribution models where all the touchpoints that influence the sale get some credit.
Roads to Innovation
So how can large retailers, with their massive legacy infrastructure and organizational challenges, innovate? It typically won’t come from huge, enterprise-level transformations. Retail is one space where the lab setup has worked well.
Nordstrom’s Innovation Lab, described by its team as a “lean startup inside a Fortune 500 company,” uses human-centered design thinking and Agile and lean processes to rapid prototype potential solutions that might improve the customer experience. The preferred time frame the lab works in is one-week units. A video on the lab’s website depicts the building of an app that aids customers as they buy sunglasses. The features weren’t known to the team going in, so the process began with a user story map that charted out how people buy sunglasses. It quickly became clear that a central function to be included on the app was a side-by-side look at photos of the customer in different glasses to see which one looks best. Using actual shoppers at the Seattle flagship store, the team was able to work out the bugs and sniff out additional functionality in real time.
Walmart’s version of this, known as @WalmartLabs, is based in San Bruno, California, exactly 1,849 miles from Bentonville, Arkansas, as a sign posted there reminds the staff of West Coast techie types. The Silicon Valley lab was built over the past few years as a way to ramp up innovation and is thus far responsible for a new semantically driven search engine called Polaris; Shopycat, a Facebook gifting app; and Goodies, a subscription service for gourmet food. In its San Jose store, Walmart is testing a service that allows shoppers to search for the exact location of a particular item, which could be a real improvement of the shopping experience in a 100,000-square-foot store.
Another interesting model is Starbucks’ Digital Ventures Group, which isn’t a lab per se but has some characteristics of one in that it’s meant to be nimble and entrepreneurial. The group, overseen by the company’s chief digital officer, is responsible for all things digital, from the Web platform, to mobile app development, to the in-house e-commerce platform and business, to its branded Wi-Fi strategy, not to mention social media and loyalty programs. As such it’s a combination of IT, commerce, and marketing that touches both the back-end and the front-end, the physical and the virtual worlds.
The lesson from all of these organizations is to move fast, test and learn, and fail forward. Take winners and try to integrate them into a more holistic experience. It’s not all about epochal organizational shifts, but rather smaller, continuous iterative ones. Take Starbucks’ mobile in-store strategy as an example.
At one point, Starbucks had two mobile apps, one for the store card and another for a store locator. It eventually combined them into a single app that became the Starbucks mobile experience—for a time. Then came Starbucks’ investment in the mobile payments startup Square, and the agreement that Square would provide debit and payment processing in several thousand Starbucks locations. This meant that customers could now pay with Square’s wallet app, once again complicating the experience and essentially putting two Starbucks apps on the market. Could this cause some confusion among consumers? There’s no doubt. But to not do it risked losing first-mover status. It’s clear that the Starbucks strategy is to move fast, see what works, and not necessarily wait for enterprise-level shifts. By the time you read this, the strategy might well have changed again. It’s okay if the first version isn’t perfect or long lasting. Plus, it’s clear that Starbucks mobile is paying off. In its first year of offering mobile payments, it did 26 million such payments.
The Moosejaw Model
If you don’t live in Michigan or you’re not into outdoor culture, then you’d be forgiven for not having heard of Moosejaw. The company started out about 20 years ago with a shop in Keego Harbor, Michigan, and since then, it’s expanded its footprint modestly to places like Kansas City, Missouri, and Natick, Massachusetts. Its online growth has been less modest, however, and as an example of a multichannel retailer that gets how to integrate experience, Moosejaw’s size is not representative of its reputation.
The first thing you notice about the Moosejaw experience is the irreverent attitude toward branding. On the company website, there’s a section called Madness that contains customer-submitted photos, a blog, illustrations of weeping tomatoes and customer dreams, contests, giveaways, and links to social media presence. This branding approach has even been expanded to offering dating advice and a breakup service in which Moosejaw would call it quits for a boyfriend or girlfriend for you.
The fun and games, however, can distract from how seriously Moosejaw takes the customer experience. Benefitting from being a newer, smaller player, Moosejaw didn’t have the big integration problems that came from hooking up separate POS, customer service, and e-commerce systems. It’s built one commerce engine to serve a customer whether he’s on the phone, in-store, or visiting the website. Registers are Web terminals pointed at commerce engines. Customer service reps are looking at websites pointed at commerce engine, just as in-store associates are using iPod touches. The consumer-facing website is a version of the same thing. The taxonomy and features are different for each, but they all have the same systems of record. The platform, deployed five years ago, gets call centers, POS, and online commerce to a single view of products, pricing, inventory, marketing, promotions, and customers.
Moosejaw subscribes to the increasingly popular concept of the endless aisle, the notion that not all the products a company sells need to be available in the store but they do need to be accessible from the store or through a kiosk or terminal. A Moosejaw location can hold just 4,000 to 5,000 SKUs, whereas a warehouse might have 80,000. If a customer in one store wants a product that isn’t available, all he or she has to do is get one of a few associates equipped with an iPod touch to order one. It’ll be shipped to the customer’s home, free of charge. This sort of thing would be impossible—or at least complicated—in a siloed organization. As of last year, orders placed on Moosejaw.com are responsible for 10 percent of store sales.
The iPods carried by associates keep them out on the floor, allowing them to float among the customers and products. Moosejaw clerks are empowered to price-match from competitors, but this is less of an issue when they’re constantly communicating with the customers. Not only is it harder for them to reach for their phones, but customers also come to view the clerks as a source of knowledge. Newer Moosejaw locations have half the number of payment terminals that the old ones do, and 60 percent of transactions there are done on mobile devices. Moosejaw associates are quite taken with the new technology. “The employees love the mobile POS and have dubbed it ‘The Future Toaster,’” Moosejaw CEO Eoin Comerford told Apparel. “I’m not sure why—probably something to do with the credit card swipe slot. They like that it enables them to engage directly with customers without a bulky cash wrap getting in the way.” In place of the checkout counters, Moosejaw has been considering customer engagement areas at the front of stores that are more like mini-living rooms, with easy chairs and a TV. These are places where consumers can interact and more products can be shown.
Thanks to the investment in technology and integration, Moosejaw associates know what they need to know to improve the shopping experience: prior to purchases with sizing information, wish lists, and abandoned shopping carts. They understand the lifetime customer value in real time and can do a return that’s slightly beyond policy. Its loyalty program is about engagement, not just about getting you to buy more stuff. There might be a text message asking the customer to send in a photo in return for Moosejaw Madness points. On the smartly designed website, an important function is granular control of the product reviews, sorting for age and experience levels. There’s also a human presence. An 800 number is front and center, not buried as on other websites, and you’re greeted with the opportunity to chat with an actual person. It’s a reminder that to be technologically inclined doesn’t mean you have to sacrifice the humanity that made you worth engaging with in the first place. Moosejaw’s twice-weekly e-mail blasts offer a tool where you can push snooze as though it were an alarm clock, giving the consumer a temporary opt-out when he or she isn’t interested in receiving communications.
What we’ve just described is, in many ways, the coming full circle of the commerce experience that began way back in history with one-to-one relationships. Think of the sole proprietor who knew customers intimately, and when they changed behavior he had a conversation with them. Then he reflected change in buying patterns. Of course, that model didn’t scale well, so retailers adopted a single-to-many concurrent approach. Ads became prominent and one-size-fits-all messaging appeared in stores. Economies of scale took hold and the customer experience, by and large, fell by the wayside. Now technology, where deployed effectively, is finally becoming an enabler of that one-to-one experience on a mass scale.
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