According to a McKinsey analysis, Amazon has put intense pressure on retailers’ top and bottom lines by maintaining prices that are 13% to 20% lower than those of an average retailer, an assortment 17 times larger, and a cost base that is three to four percent lower. Retailers such as Macy’s and Bloomingdales are counter-attacking by investing in new and innovative engagement and delivery mechanisms.
As a result, the traditional lines between offline and online are blurring, bringing the two worlds together like never before. Innovative use of technology and new delivery models are expected to accelerate the pace of convergence. As a marketer, what are you doing to increase your customer engagement and build loyalty?
Retail Redefines Itself
Smart brick and mortar retailers are rapidly redefining themselves in response to threats from online-only stores. They are seeking new ways to engage customers, creating better in-store purchasing experiences and offering new delivery models for online purchases. Some are even taking on the low pricing advantage that online retailers have—for example, Walmart tested a program to match online prices from rivals like Amazon over the holidays.
Similarly, online only retailers are setting up physical stores to compete against the advantage that brick and mortal stores hold – hundreds of physical locations around the country that can get an online purchase in customer’s hands quickly. For example, Amazon is building physical outposts of its own. It recently announced that it will soon open a physical store in New York City where customers can pick up and exchange online orders and eventually may be able to purchase Amazon e-readers, tablets and phones. The space will also double as a mini warehouse from which couriers will deliver online orders to Amazon customers who live in the city.
Similarly, former online pure plays such as Sofa.com and Oak Furniture Land have opened physical stores that now generate as much as 60 % of sales.
Such significant changes, that blur the line between physical and online retail, have the potential to transform the entire retail industry. By placing such significant shifts into a framework, we can understand these changes, as well as appreciate their applicability to retail and non-retail segments.
An Online/Offline Framework
Macy’s CEO, Terry Lundgren, recently stated that the company’s goal remains to help their customers shop whenever, wherever and however they prefer, and to use the entire inventory of the company to satisfy demand. “We are a multi-faceted retailer with stores, technology, internet capability and mobile access that come together for our customers. They are at the center of all our decisions, and our ongoing research and development will continue to help us understand how to personally engage with them.”
Seeking new ways to engage customers, forward thinking retailers are creating purchasing avenues beyond the physical store, blurring the lines between online and offline. Such companies realize that in order to be successful, they have to offer a compelling customer experience. Price, assortment and convenience will simply no longer be enough.
Shoppers expect to be entertained when they are evaluating products, while online or in the store. They anticipate spending the minimum amount of time purchasing the products and want flexible delivery models that enable instant gratification for their online purchases. As a result, innovative retailers are blurring the offline and online channels in three ways:
- Creating a compelling engagement experience during the evaluation process
Retailers and consumer product companies across the world are investing in innovative technology and practices to interest, involve, and connect with customers at an emotional level to make meaningful connections and build loyalty.
For example, Macy’s recently launched an iPhone app containing Image Search technology, where a customer can take a picture of a clothing or an accessory item and the app finds similar items for purchase online at macys.com. The idea is that when you are walking down Times Square and see someone wearing a hat or a dress you absolutely love, you can snap a picture using your mobile phone and instantly search for that dress or the hat on Macys.com before you look for it anywhere else.
Some online marketers use features in devices such as cameras and touch screens to help consumers see what apparel and accessories may actually look like when worn. Web retailer Warby Parker, for example, offers hundreds of customized views of eyeglasses overlaid on a Webcam picture of the consumer.
To support the launch of Panamera, Porsche launched an augmented reality iPad app that gives potential customers a chance to explore the car’s capabilities through a highly interactive experience. The app enables Porsche to bring the vehicle’s features to life in a more meaningful and impactful way than a simple brochure description could ever hope to achieve. Online and offline are connected through data capture, with additional information revealed to users who supply their email address via the app. This data is then used by local Porsche dealers to follow up on leads.
- New ways for customers to shop for products:
Many multichannel merchants believe that they have a good understanding of what their customers do with them online and on mobile. They know who their top online buyers are and what they like, and can use these insights to serve them a customized home page based on their interest and past history. But when the same customers walks into their stores, they are not able to engage them in the same manner they can in the online world. Retailers are using innovative technology to address this issue.
For example, John Lewis, a UK-based retailer, is testing tablets in a number of their stores, allowing staff to scan customers’ loyalty card, so they can view their purchase history to make the right product recommendations and help them shop. With this technology, they can engage them as they walk through the store, rather than wait until they have reached the check-out lane. Bloomingdale’s stores in five locations now have “smart fitting rooms,” in which customers can use wall-mounted tablets to hail sales associates, see other sizes and colors, read product reviews and view suggestions to complete a look.
Many customers find it daunting to purchase a piece of clothing online because it is difficult get a feel for the fabric or quality of stitching online. The problem compounds when one is buying a high-priced item such as a business suit. Indochino, a provider of custom-tailored suits to men online, has addressed this issue by offering a program called Traveling Tailor. Customers are able to visit a location in a major city while travelling, to get measurements taken, experience fabrics and discuss other customizations with a professional, while still being able to complete their transaction online.
- Creating new delivery models:
Leading retailers are striving to provide their customers the fastest possible service for online purchases. Same day delivery for online purchases on a large scale is the current Holy Grail of retail. For example Macy’s is running same-day delivery pilot programs in eight Macy’s markets and four Bloomingdale’s markets. The pilot program will use Deliv, offering same-day delivery for the price of three-day shipping. Such programs will leverage an important advantage that Amazon and other online-only retailers lack: hundreds of physical locations around the country. They are also meant to combat the increasing speed at which Amazon is getting packages to customer doors, but without needing to create the logistics network that Amazon has created.
Ahold, the Dutch grocery chain, developed home delivery but soon realized the limitations, such as the fact that customers had to be home to receive the delivery. In order to further improve the customer experience, the company piloted three stand-alone pickup points near highway exits in the Netherlands. Customers place their order online or via the mobile phone. When the order is ready for pickup, they receive a message, along with a code. When they arrive at the pickup point, they punch in the code and the system tells them which parking space to park their car in. An employee comes to the car with their groceries. They are done with the entire transaction in two or three minutes.
Target is piloting a program where online shoppers can receive next day delivery for certain items at no additional charge. This is being accomplished by using some Target stores as mini shipment centers. These next-day deliveries will be free for customers who use Target’s Redcard or for non-cardholders who spend more than $50 per order. That will provide serious competition to Amazon Prime’s $99 membership program, which offers free two-day on all eligible items.
By seamlessly linking offline and online channels, brick and mortar stores are not only successfully fighting online-only retailers, they are designing programs that use their network to their advantage. This has forced online retailers to defend themselves by setting up a physical presence. Similarly online and brick and mortar stores alike are investing in technology to engage with customers in new ways and build emotional connections. With consumers in control, the blurring between the online and offline marketplace has accelerated. If you are a marketing executive in a consumer-facing industry, how are you innovating to improve the customer experience and increase customer engagement?
Siddharth Taparia is vice president of marketing at SAP.
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