E-Commerce, M-Commerce, Omnichannel Commerce Regardless of the Spelling,
Its All About the C-u-s-t-o-m-e-r
Customer-centered omnichannel commerce can help you increase revenues and lower costs by offering better value to your most-profitable customer segments. However, doing this right is a lot of work. We explore the good, the bad and the ugly of customer-centered commerce.
- E-Commerce, M-Commerce, Omnichannel Commerce Regardless of the Spelling, Its All About the C-u-s-t-o-m-e-r
- Awareness dont call us, well call you
- Retail innovations Whats in store for consumers?
- Ownership experience Do your customers want to continue the relationship as much as you do?
- The good, the bad and the ugly of customer-centered commerce
Last holiday season, Amazon tried to play Grinch to keep Christmas from coming to its brick-and-mortar rivals by offering consumers a cash incentive to buy online. What was particularly grinchy of the online-retail monoliths holiday promotion was the fact that it took place right in the aisles of its competitors stores. In exchange for a discount of up to $5, Amazon urged consumers to use its mobile app to scan UPC codes of items on rival shelves to compare prices, and then buy the same items from Amazon.com on the spot. As sneakily as the Grinch, Amazon was able to poach customers from the homes of its competitors before they even realized it, illuminating a significant challenge for retailers.
Many merchants have a simplistic view of their relationship with their customers: they only consider their own communications, and are blind to the ways that customers flirt with competitors, gather research from third-parties (including product reviews, online publications and other search engine results) and interact with their social networks both online and off. Meanwhile, merchants continue to add to the alphabet soup m-commerce (mobile), s-commerce (social) and k-commerce (such as Redbox kiosks) in order to offer multi-channel commerce, which greatly enhances their value to consumers. Even more progressive are those who now use the term omnichannel, with the understanding that consumers dont care about the minor operational distinctions that merchants multi-channel organizations cling to they just want one seamless experience that allows them to make their purchases and get on with their lives. But Amazons tactics show that, from the customers perspective, "omni" belongs to everyone. Truly relating to customers in this new world will require businesses to look at purchasing options through the eyes of the customer what we at Razorfish refer to as customer-centered commerce. To develop breakthrough customer experiences, merchants will need to amass facts about their customers with the persistence of an investigative reporter:
- Who is the customer a regular? A first-timer?
- What are they doing right now watching TV? Waiting for a plane?
- Where are they in your competitors store? On their couch?
- When are they shopping before they go to sleep? During their lunch hour?
- Why are they shopping for fun? For necessities?
- How are they shopping on their iPads? Sharing advice on Facebook?
- In which stage of the customer lifecycle are they awareness? Shopping? Purchasing? Ownership? Service? And will the lifecycle take days, months or years?
Aggregating all of this information is valuable enough on its own, but when gathered at the customer level, the merchant possesses virtual gold abundant opportunities for incremental sales through their owned properties and partners properties (more on this in How to Make the Most of Your Owned Digital Assets, another of this years R5 articles). The merchant can then also target and even retarget advertisements and email. In fact, with the advent of real-time targeting and GPS, these opportunities can grow exponentially (for further explanation, check out Marketing in the Age of Big Data, one of last years R5 articles). However, its surprising how limited the use of these opportunities has been. As recently as January, even Internet darling and Groupon CEO Andrew Mason admitted to 60 Minutes that the deal-of-the-day Web site had just begun to tailor offers by age and gender: It turns out that guys don't like deals on laser hair removal or pole dancing lessons. Indeed.
Many promising innovations have emerged over the years, but in commerce the most important technology now may be the application and linkage of existing, individual technologies to the customer and their situation. This begins with the omnichannel environment that the merchant controls and extends beyond those digital and physical borders.
Try to build awareness of a product, and you realize that you have a lot more invested in your relationship with consumers than they do with you. Forty-four percent of TV viewers now use time-shifting technologies (such as DVRs) and display a complete lack of manners in letting you tell your stories. Only one in four bother to open your emails, and only 5 percent click through. Less than half trust your TV ads and only a third trust your Facebook ads. To what might be your dismay, customers might actually value their friends and family relationships a lot more than they like you. Those who do like you are undoubtedly some of your best customers, and might buy from you anyway, without promotion. With the power they now have, consumers dont want to be sold. Instead theyre saying, Dont call us, well call you. Given their multiple suitors, they want reasons for not only why to buy, but why to buy from you.
Digital technologies have enabled consumers to build awareness of products at an unprecedented pace. Whereas word-of-mouth once took place in person with a few friends over days, Facebook enables instant word-of-mouth among hundreds. Where finding products and reviews once took hours of discovery, Google provides results instantly, anywhere. While serendipity used to happen with a stroll through the mall, it now happens through a swipe on a tablet.
The newest catalyst of serendipity is the inspiration board social media site Pinterest, which recently became a sensation by enabling its users to easily create and manage collections of their own and other peoples visual inspirations. Users are also encouraged to Repin appealing images on the Pinterest site, and content and commerce sites have started to incorporate Pin it buttons next to pictures, akin to Facebook Like buttons. Pinterest has tapped into a consumer longing to visually share interests and co-create experiences. From a commercial perspective, consumers are merchandizing their interests, offering a customer-centric alternative to designing a Macys store window or Target planogram.
At the very least, the potential of Pinterest for merchants is that referrals have become a new revenue stream as consumers contribute to commerce without thinking of it as commerce. Those referrals can also add consumer-level information to databases for future targeting and personalization, and may include individuals who can be leveraged as influencers for campaigns and market research. If sites like Pinterest begin to aggregate data on individual consumers and package it for merchants, this data will become especially robust. There could also be opportunities for Pinterest-like sites to tap into merchants APIs, which may allow those sites to pull standardized product information onto their sites, indirectly helping with merchandising and sales. (See Open Digital ServicesSM in this years R5 for our perspective on open APIs.)
It remains to be seen whether Pinterest itself will be a short-lived fad or become material for large-scale commerce. Some merchants have learned the hard way that social media users arent always hospitable to their innovations. Last year, Gap, GameStop and Nordstrom all opened and closed Facebook storefronts due to lack of consumer interest. But merchants can continue trying to find ways to discover value for the massive number of consumers who have integrated social media into their lives.
Pinterests technology isnt new its a camera app, its a Web site, its yet another simple social media site. But its also a potential way to add commerce to an existing customer-centered experience.
Shopping at home shes got the whole world, on her couch
For most of ecommerces history, shopping has shifted from big box stores to big boxes on desks. Now its headed to the couch. ComScore reports that in a given month, more than half of tablet owners use their devices to look up product information at specific stores and to read customer ratings and reviews. Nearly half have made purchases with their tablets. Nielsen reports that 88 percent of tablet owners use their devices while watching TV, and more than half of those do so every day. EMarketer forecasts that one in three U.S. online consumers will use a tablet by 2014. And with connected TV barely in its infancy, the opportunities for couch-commerce are enormous.
Innovative companies are using this to their advantage. HSN created its iPad app with the goal of providing consumers with a second screen to interact with the networks shopping broadcasts. The app enables consumers to find additional product details, see customer ratings, chat and play games with other shoppers. It not only allows consumers to buy the current product featured on TV, but also the last 15 items that aired and even featured celebrities favorite items. If one day HSN chooses to offer open APIs, geeks who are brand enthusiasts could write additional apps that serve the same purpose.
Tablets at home are old news, as are technologies to synch additional screens to the TV (Wi-Fi, Shazam, etc.). But they also bring another potential commerce opportunity to the consumers sphere.
Commerce in the home continues to make great strides Goldman Sachs forecasts that ecommerce will reach $963 billion globally by 2013. But lets all lower our tablets for a moment, breathe and see the full landscape that big building in the middle of the panorama is Walmart. According to last years annual reports, the worlds largest retailer had revenues of $447 billion more than nine times that of Amazon, the largest online retailer. Consumers are hardly giving up on physical stores, where they can see, feel, smell, hear and even taste products, and enjoy the instant gratification of bringing them home.
Brick-and-mortar merchants are finding that digital experiences can not only bring shopping into the home, but that they can also bring digital experiences onto the sales floor. Razorfish recently announced its Retail Experience Platform, which can be used to create in-store experiences for kiosks, large-screen displays and even personal devices. Consumers will be able to virtually try on outfits through augmented reality, lessening the need to lug clothes into a dressing room. This technology, developed by Bodymetrics in partnership with Razorfish and using Microsoft Kinect, promises to both increase merchant revenues and decrease costs. Bodymetrics says that 30-40 percent of clothes sold in the U.S. are returned, and that the major reason is fit. Reversing that is a great opportunity to reduce staffing, stocking and damaged goods costs. In the future, consumers may even be able to use this technology at home to avoid going to the store a perk that men may find especially appealing.
The in-store experience will also employ Microsoft Surface, which is a large screen that responds to touch and physical objects. This experience will enable consumers to mix-and-match looks and accessories on the device, and later, swipe the best from the surface onto their smartphone screens. This gives BYOD (bring your own device) a whole new meaning beyond having to buy your own cellphone for your job.
At a simpler, lower-tech level, merchants have innovated by using QR codes on store shelves to provide consumers with additional product information. But all is not fair in love and in-store. That same scanning technology is what enabled Amazon to set up shop in their competitors aisles. Amazons app was the most shameless example of how Best Buy stores have become what many news reports describe as showrooms. According to comScore, not only do half of shoppers perform retail research while in stores, but one in five also actually scan product barcodes, and nearly as many call or text their friends and families about products from the retail aisles. It remains to be fully studied how much of a price difference will cause a consumer to choose the inconvenience of waiting for product fulfillment through the mail, but it certainly makes it harder for merchants to remain competitive. Meanwhile, Amazon continues to try everything it can to be the low-priced option, with free shipping and Amazon Prime ($79 fixed annual rate for two-day shipping), in addition to its huge advantage of not having to collect sales tax.
Near-field communications (NFC) and GPS location-based targeting capabilities have also been touted as potential money makers, but their impact remains to be seen. Many marketers imagine a world where they can send offers to nearby consumers. However, given their stuffed email inboxes and the constant media competition for their attention, do harried consumers really want merchants interrupting them while theyre on a quick trip to pick up milk? Marketers and technologists must honestly ask themselves how important their brands are in consumers minds, and in what times and locations this is the definition of customer-centered commerce.
One of the most innovative uses of physical spaces for virtual sales originated not from a fashionable category consumers love to shop, but from a mundane category that consumers have to shop: groceries. In Korea, consumers can buy groceries without going shopping. Last April, Home Plus, a discount retailer jointly owned by Samsung and U.K. retailer Tesco, hung photos of 500 of its most popular grocery products on walls and pillars of Seoul subway stations and time-starved consumers could scan the products QR codes with the Home Plus Smartphone App on their way to work. [ Watch video ] If they did so before 1 p.m., their order would be delivered to their homes that same evening. By February, Home Plus was the top shopping app in Korea, with 900,000 downloads, and it had opened new stores at 20 bus stops a demonstration of little relative incremental financial investment for Home Plus, and less incremental shopping time for the customer.
EBay doesnt even have a physical presence at least not until it opened a pop-up Christmas Boutique in Londons West End for a week last December. [ Watch video ] There was no inventory and no cash register just a showroom of 350 of eBays best-selling products that could be purchased by scanning QR codes. It reversed the buy online/pick up in-store experience by offering a buy in-store/wait for delivery by post experience. Companies are even improving the delivery experience: DHL has 2,500 Packstations in Germany, where consumers can pick up packages 24/7. Amazon is testing a similar service in the U.S. called Amazon Locker, which is being piloted in a number of 7-Eleven stores.
Posters on subway walls, pop-up stores and QR codes are nothing new, but bringing a physical store to an idle consumer is a new type of customer-centered commerce.
Your customer has given you their money. You hope theyre content or, even better, ecstatic. Theyve pinned a photo of their new outfit on Pinterest. Theyre cooking with their just-delivered groceries. You, the merchant, want to continue a relationship with them but do they want the same? Would they prefer a one-night shopping stand?
Nike is one company that has given consumers a reason for a long-term relationship. Customers can track their workouts with the GPS sensor in their phones, set goals, see recommended workouts, share results and challenge friends all on Nikes Web site. The company is now beta testing a more advanced technology, the FuelBand, which is both a product (a wristband that communicates with smartphones) and a service (fitness-tracker). Its first featured use (at a music hackathon at SXSW) is innovative enabling developers to match music with characteristics of its user (play songs relevant to their exercise speed). But what is particularly innovative is that Nike is offering an open API to access the data. There will likely be a wealth of creativity among developers for individual and social applications that could also fuel profits.
Even low-involvement product categories are innovating new ways to improve their ownership experiences. Progressive led the property and casualty insurance industry in using existing technologies (motion sensors and the cars under-dashboard diagnostics port) to create new segments of high-value customers safe drivers with less than average mileage. These customers get discounts, while they get lower risk (and higher margins) and create a new, verifiable-with-measurement customer segment with fewer claims. In some states, State Farm offers policies for safe drivers that make use of Hughes Telematics In-Drive, which tracks mileage, time driven, sudden acceleration and braking, turns and speeds over 80 mph. The policyholder can even subscribe to a Co-Pilot that lets them monitor others who use their car, such as teens or elderly drivers.
While Best Buy has struggled against showrooming, it has found an innovative way to rekindle one type of customer relationship. Mobile phone sales are a longer-lifecycle category, with carriers offering discounted phones every two years in the U.S. and every three in Canada. The Best Buy Mobile Upgrade Checker provides consumers who dont remember their contract dates a way to determine whether they qualify for a new phone. They can log in to their carriers Web site right from Best Buys site, which then accesses their upgrade information. This is particularly innovative, because carriers have little incentive to remind subscribers of their eligibility (which means paying another subsidy to the manufacturer). But through the innovative use of technology, both Best Buy and the consumer win.
Service experience What have you done for me lately?
No matter how happy your customer, stuff happens whether planned or not. A new, would-be proud television owner doesnt know their HDMI from their USB from their RGB. Or their laptop just died and it needs resuscitation. Helping customers by fielding most of these queries can be a thankless job for merchants there is rarely a revenue upside. However, new technologies can help increase customer satisfaction while decreasing the cost to serve. Best Buys renowned Twelpforce program, through which the retailers blue shirts take customers questions and complaints over Twitter, does both. Consumers get answers from the most knowledgeable agents, and Best Buy saves on staffing and training by making its whole workforce the contact center.
For companies that are able to charge for service, innovative technologies are helping to ring the cash register. Sonic Automotive is the third-largest auto retailer in the U.S., with more than 100 dealer locations and annual revenues of $8 billion. At more than 30 of their dealers, service advisers carry an iPad while greeting customers, reading information, taking notes and suggesting additional maintenance and repairs as they survey the car. The $24 million investment Sonic will make to equip their remaining locations with iPads is a large investment at first blush. But from another perspective, it seems small: it only takes one or two major incremental repair sales to recoup the cost of each iPad. Sonic has seen its gross revenue per repair order increase by 11 percent at their Toyota dealerships where theyve implemented the iPads, and their average closing ratio for adding a maintenance item to a repair order has grown to 41 percent, up from 10 percent. Repair service databases and iPads are nothing new, but combining them into a customer-focused experience is clearly paying off.
The good? The upside of customer-centered commerce is clear the opportunity to increase revenues and lower costs by offering better value to your most-profitable customer segments. The development of new, elaborate technologies, while notable, is unnecessary and may not yield the greatest business results. Understanding who your customers are, along with the whats, wheres, whens and whys of their customer lifecycles in your category, can reap huge rewards. And for businesses that can harness customer advocates, those advocates can start a virtuous cycle of increased revenue streams.
The bad? This is going to be a lot of work. As time goes on, consumers will expect all but the lowest-price merchants to deliver seamless, holistic, omnichannel experiences. Just tying together a merchants front- and back-end technologies across its multiple channels is a huge undertaking in itself. This entails designing customer experiences that anticipate virtually any type of customer situation, as well as back-end systems that integrate and support those designs with SKU information, inventory, price and discount lists, cost information, customer information, transaction histories, communication logs, loyalty points, supply chains, fulfillment channels… the list goes on. And every time a consumer discovers a better experience in one place commerce or elsewhere they will expect to find it everywhere. (See Ubiquitous Computing in this issue of R5 for a more detailed discussion of the expectation epidemic.)
Developing an omnichannel customer experience is hard enough at any given point in time, but it must also be flexible enough to withstand the constant evolution of technologies. And even more difficult than these technical hurdles may be aligning the organization for omnichannel operations, which includes:
- Processes. Standard operating procedures and training must go hand-in-hand with the integrated technologies cited above. Staff must be knowledgeable about holistic customer experiences (in-store sales associates must be knowledgeable about the online experience and product assortment, for example).
- People. Organizational structures, reporting relationships and performance incentives (alignment so ecommerce and retail organizations are not in competition for sales) must reflect the omnichannel offering.
- Pricing. Consistent communication across channels is a must for pricing strategies. They need not be identical across channels, but higher prices must transparently reflect the greater value of that channel (perhaps a slight premium for the instant gratification of buying in-store, and a wider range of price points online) and consider competitive disruption (like Amazons app).
- Cost accounting. Revenue recognition, cost allocation and the resulting profit and contribution margins must support managerial decisions that not only impact investment and cost-reduction initiatives, but also drive performance incentives. Accounting is especially difficult when multiple channels are involved in a single transaction (where should revenues and costs be allocated for consumers that shop online and pick-up in store?) and when costs arent shared (ecommerce technology and retail real estate, for example).
- Analytics and KPIs. Holistic analytical approaches can identify opportunities for greater revenues and lower costs across channels, including the optimization of customer loyalty programs. Non-financial key performance indicators will be necessary when accounting measures alone cant drive incentives.
- Change management. Successfully transitioning from the old organization to the new is a huge undertaking in itself.
But those who succeed at omnichannel commerce may stand alone with a compelling point of difference that competitors wont be able to match for a long time.
And the ugly? It will be especially hard to develop and execute strategies that take advantage of your customers perspective of one omni experience you and all of your competitors, third-party information sources and all of the people in the customers social networks. It will take innovative thinking, and a solid grasp of how to use data to design experiences that are truly customer-centered. But the rewards could be enormous and even more sustainable. As Clint Eastwoods character said about searching for the buried gold in The Good, the Bad and the Ugly, Were going to have to earn it.
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