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The CMO’s Guide to Omni-channel & Retail Transformation

Strategy

The CMO’s Guide to Omni-channel & Retail Transformation outlines how unprecedented change is looming for physical retail stores, and this has The CMO’s Guide to Omni channel & Retail Transformation image cmo guideelevated threats and opportunities for retail CMOs.

Retail transformation is imminent to retailers in general because, for an ever larger portion of product categories, customers are comfortable with shopping and buying online; however, I’ll show how CMOs can actually succeed more in this environment—by thinking differently about empowered customers, by partnering with the CIO in omni-channel and by completely changing the concept of the store.

The CMO’s Guide to Omni-channel & Retail Transformation is the companion to the CMO’s Guide to the Disruption of Products and Brands, which outlined how trends among makers, hackerspaces, and mass customization will make many categories of mass-produced product and service brands extinct over the next five to fifteen years.

In many categories, physical retail is in critical condition, but CMOs can still move ahead of the market by reimagining what a “store” should be. Here’s how.

Empowered Retail Customers Are Beyond CMOs

Although most executives have yet to fully appreciate it, customers are changing the “currency of value.” They are transforming entire industries, and change is accelerating. Stores used to compete on product, mix, merchandising, promotion, etc. (old currency), but customers now differentiate by discussing the outcomes of using products/services (new currency). By creating and using social networks and forums, customers are enabling each other to focus on the personal or professional impact of using products and services. This “personalizes” the use of products and services and raises the bar for stores and brands, which still ground communications in product features. This development has exposed a truth that had been hidden for decades:

Customers/clients/users have never been as interested in products and services as producers/providers: customers’ interest has always been in using products/services to create personally meaningful outcomes. Now digital social enables customers to bring outcomes to the forefront, often putting product features in the back seat.

A second development is that customers themselves have disintermediated retailers and wholesalers in most parts of their “customer decision journeys.” The retailer or wholesaler has a shrinking role and is increasingly restricted to a purveyor of the product or service. As IBM’s global research makes plain, customers inform each other about product/service features, outcomes, contracts, warranties, and service policies without brands’ direct participation. IBM found customers now give loyalty to few firms that interact more personally, that serve them in stores and don’t try to “sell” them (because they’ve already decided what they want) and that provide authentic “store experience” (for more insights in IBM’s research, see How Social Changed Retail.

Brands that don’t respond in time will be relegated to “generic” status, i.e. commodities. On the flip side, CMOs can use these trends to their advantage by using social technologies and innovation to move past products, where customers are.

In practice, the post-product shift for retailers is a question of emphasis. Product features still matter, of course, but mostly when the discussion ties them to individual customer outcomes. This doesn’t mean demographics; it means individual customers’ outcomes. Since these are discussed in public digital social venues, they are highly scalable annuities (can be found/reused by others now or any time in the future). Therefore, retailers’ raison d’être shifts to tying product features to customer outcomes and to serving people online, where everyone can see it. As we’ll see, this carries over to reimagining “stores.”

Omni-channel’s Opportunity for CMOs

CMOs can add rare value to firms by helping them to transform how customers interact with the firm. Digital technologies have enabled leaders to make omni-channel a reality, but too many omni-channel initiatives invite large risk by focusing too heavily on technology. As I’ll explain, savvy CMOs can use social business to optimize omni-channel and improve returns. Those who don’t are likely headed straight into The Big Omni-channel Trap.

Omni-channel refers to firms’ providing a pervasive unified “experience” to customers that transcends current “islands of interaction,” i.e. physical store/digital store/mobile store, ecommerce data/mobile data/store data, geographical theaters, multimodal customer service, retail fulfillment/delivery/returns, etc. It generally calls for enabling customers to interact with firms using any interface: store, mobile site, ecommerce, kiosk, digital advertising, etc., and to change interface one or more times during the customer decision journey, so the enterprise maintains unified data and transaction state. Digital technologies and processes can make it feasible. Firms with established islands of interaction will require tens or hundreds of millions of dollars in investment and many years to provide omni-channel.

Lest anyone dismiss omni-channel as a pipe dream, recall that it’s not all-or-nothing and firms that provide “pieces” of omni-channel with high customer relevance will significantly weaken competitors.

CMOs can secure their leadership or place at the omni-channel table by beginning with two things: grounding their customer interactions in customer outcomes and using customer interaction data from as many sources as feasible to reinvent interactions. In short, CMOs can create the conceptual “requirements” for omni-channel, which includes “stores.” The CIO will certainly have a major role in the firm’s huge I.T. investments, or the board may bring in a CDO to make it happen.

For most firms, social business is the fastest and least costly means to dial into customer outcomes. Thrice a chief marketer myself, I realize that thinking beyond product and service features, promotion, place, etc., is revolutionary thinking for most firms, but the faster you get there the more viable you’ll be because that’s where your customers increasingly make buying decisions. Whether you sell cars, computers, apparel, food, professional services, or entertainment experiences, start by focusing on the personal and emotional outcomes of your most profitable customers, and actively interact with customers online around outcomes as much as or more than product features.

Once you have created and tested several customer outcome models, you have the context for analyzing customer data, which map to their attempts to attain desired outcomes. Outcomes also enable you to optimize the data you work with and how you use data from various sources (ecommerce/web, customer service, purchase/mobile, physical store/return, etc.). If your firm doesn’t bring in a CDO, you’ll be in excellent position to collaborate with the CIO with omni-channel investments.

How CMOs Can Reimagine “Stores”

The core concept of a “store” has changed relatively little during the past few decades and even centuries: it is a defined location that offers inventory and related services for purchase. Consequently, the management of stores is often focused on physical product distribution, inventory turns, product line profit, product returns, etc. Notice that product is currently central to stores’ existence, which is why physical stores are increasingly threatened.

Mobile commerce is outstripping ecommerce growth (i.e. Web) while physical stores’ shrink, even in U.S. markets (see Gian Fulgoni remarks). CMOs need to lead profound transformation of stores because they are fast becoming irrelevant in many categories. Mobile is accelerating even faster than ecommerce did. Delivery services have tipped in many categories, as Amazon and other ecommerce offer same-day delivery, threatening stores’ advantage in immediate gratification.

Keep in mind that, compared to physical retailers, ecommerce giants like Amazon are relatively omni-channel because their inventory is much less fragmented, where stores is a distribution mess. Stores often don’t have the size/color/ model I saw online; Amazon almost always has it. Now Amazon’s inventory is also now (same day).

Moreover, an increasing portion of customers is comfortable with researching and ordering online, so they are more likely to use new technologies like Embodee to order “high-touch” product categories online, like apparel.

Offering the product assortment and promotions is no longer a valid differentiator for most stores, which also feature relatively high operating costs.

Many retailers have reacted to the online challenge by racing to the bottom: price-cutting to match online, which has meant cutting operations costs and sacrificing the “store experience.” Retailers need to reverse this death spiral fast by changing the entire rationale of the store: in many situations, people feel most natural in three dimensions but most stores are not organized to provide rich experiences. Although the experience will vary widely based on the firm and the products it offers, savvy CMOs will start shifting store emphasis and design so that it complements ecommerce and mcommerce.

For one example, most retail executives are aghast at showrooming, but a quick flip of imagination reveals that they can go with the market and redesign themselves around it. Digital commerce trends are irreversible and accelerating.

As you might suspect, customer outcomes are the DNA of store experience redesign. CMOs and store executives need to ask themselves, “Given our [new] knowledge of customer outcomes, how can we provide a high-touch, unique experience that leverages the advantages of the five senses?” This means giving the “store” a complete rethink. The inventory no longer carries the value to the customer; it’s increasingly cheaper, more convenient, and virtually as fast to get the goods via online interface.

As I suggest in The Future of the Retail Store in the Omni-channel Age, there are many ways to provide exceptional high touch experiences that enable customers to explore ways to use products to attain their outcomes. In many categories, I predict a healthy dollop of entertainment will make sense. Consider these:

  • A bank that provides coworking facilities for customers and prospects at select bank branches.
  • A men’s clothier that organizes invitation only networking events that enable participants to dress for defined work and personal use cases (i.e. job interview, board meeting, first date) and where participants and experts discuss each other’s outfits and strategies for dressing for impact.
  • A mobile phone maker that organizes customer and prospect events focused on using smartphones for defined use cases (i.e. mom night featuring how to manage babysitter schedules, preschool shopping; college night emphasizing cool apps for high performance auto maintenance).
  • By the way, all these “stores” are organized to enable customers to use products to have those experiences in store; they are also backed by digital communities that enable participants to keep in touch when they want.

Insights

  • There has never been a better time to be in retail—for CMOs who thrive in high-risk, high-reward environments. I predict profound change of the “retail” landscape over the next ten to twenty years. What happened to bookstores will happen in many other categories. This trend is accelerating, and mobile will put it into hyperdrive.
  • Social business provides the low-risk, high-return foundation for redesigning the concept of the “store.” As I asserted in The Social Channel, brands and stores have entered a post-product world, and stores need to resonate with this shift by focusing beyond product features and assortments to customer outcomes of using products. They can create unique “stores” that empower and entertain people.
  • This will entail rethinking financial and operational models from the ground up. It goes far beyond most previous “store reconcepting” initiatives.
  • CMOs can lead by discovering and using the new currency of customer outcomes to interact with customers, in stores and everywhere.
  • CMOs have a rare opportunity to redefine “industry” by aggressively creating, validating, and using customer outcomes to add unique value at physical locations.
  • Popular musicians offer a useful example for retail transformation: they used concerts as a way to drive music sales; this has now reversed, and many give away music and make profits at concerts. Similarly, some stores will develop “showrooms extraordinaire” with completely new revenue and operating models.

In most cases, a critical part of the concept is enabling participants to create experiences “in-store” and to save and share them digitally. It is easy to imagine revenue sharing models between physical stores and whoever ships the product; digital makes this feasible, too.

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