Experiences matter more than transactions

Posted by Mike Walsh

5/11/20 4:55 AM

 

COVID-19 transformed retail overnight. As the vast majority of stores closed around the world, the only way to buy or sell anything was online. The results? Mixed, at best. Supply chains struggled, sites went down, and getting a grocery delivery window was like winning the lottery. It took a crisis to reveal the gaps in digital investment and infrastructure needed for business continuity. Much more will be required if retailers are to reinvent themselves for what comes next.

 

Retail has become relentlessly technology-centric. Sophisticated algorithms pinpoint consumers with relevant offers, data-driven supply chain systems let financial controllers cut costs to the bone, and greater automation in distribution allows for dramatically shorter delivery times. There is just one problem - we have been focusing on the wrong opportunity. 

 

For the last decade, the primary goal of retail technology has been to optimize transactions and costs, rather than support new experiences or novel business models. After a quarter-century of e-commerce, most retailers were adept at retargeting consumers with offers and pushing them through sales funnels to maximize revenue. But how many retailers had taken the opportunity to look beyond the transaction, and reimagine their relationship with customers?

 

The current crisis has shifted consumer behavior permanently. There is now a new momentum around buying online - even amongst older consumers who were previously reluctant to change their purchasing habits. However, this is just the beginning of a much bigger transformation. Rather than a struggle for transactional market share, the retail wars of the future will be fought over who is best capable of delivering innovative AI-powered experiences to their customers. 

 

Technology will be a factor in future success, but not the only one. The retailers that thrive in this new era will have a very different approach to how they deliver value. In particular, they will need to make three new promises to their customers.

 

(1) Make my transactions disappear

 

Contactless and digital payment adoption accelerated during the COVID-19 crisis. Many retailers even stopped accepting cash altogether. China is already trialling a national digital currency, the e-RMB in four major cities. But what if payments were not only digital but invisible? According to Juniper Research, invisible payment systems like those used at the Amazon Go concept outlets or China's Bingobox automated convenience stores will process $78 billion in transactions a year by 2022. 

 

Think about it. Already today, there are countless transactions to which you don't even pay attention. How much did your last Uber ride cost? How about last night's food delivery or your coffee when you tapped to pay? How much do you spend on apps for your smartphone each week? Do you calculate the average cost of the movies you watch each month on Netflix or the songs you listen to on Spotify? All of these brands have learned a valuable lesson that transaction-focused retailers are yet to discover. Rather than winning a sale at a time, it is better to build a billing relationship of trust so that individual transactions become irrelevant. 

 

Part of the shift to invisible payments is being driven by the ubiquitous growth in digital wallets like Apple Pay, Google Pay, and WeChat Pay. In this respect, the US market still lags adoption in Asia. However, in the absence of integrated ecosystems in China like those owned by Alibaba and Tencent, in the West, it is retailers that have the best opportunity to leverage their own apps and platforms to transform experiences both online and in-store with recurring billing, queueless checkouts, and stores without cashiers. 

 

(2) Tell me better brand stories than anyone else

 

Manufacturers build brands through storytelling, but it is retailers that can truly bring those stories to life by adding context, curation, and community. Take a walk through some of the most beautiful department stores in the world, like Harrods in London - and what strikes you is how they have successfully created pocket universes of brands, ideas, and moments of delight. Taking that concept into the digital world is what hybrid content and commerce platforms like the Spirits Network are doing - combining high impact digital content, with direct delivery and subscription-based membership models. 

 

Live-streaming is also a huge opportunity for retailers to communicate brand stories. In China, when the crisis hit, many stores that were closed to customers started operating as studios, with staff directly engaging with customers with mobile live streams. Retail sales via China's live streaming platforms like Taobao Live are projected to reach about 916 billion yuan (US$130 billion) this year, or 8.7 percent of total online retail in that country. Even Fashion Week in Shanghai this year took place virtually, shot on green screen and broadcast in partnership with Alibaba's Tmall - allowing consumers to immediately purchase what they saw walking down the 'cloud catwalk.' 

 

(3) Organize my life for me

 

It might sound strange that a retailer might take a more active role in organizing or simplifying aspects of your life. But as more retailers develop their own smartphone apps, connect to voice AI platforms, and empower their store staff with detailed customer profiles - there is an opportunity to build much deeper relationships that go beyond simply making a sale. Think of it as lifestyle design

 

We are moving to a world where it will be routine for a trusted retailer to send your usual brand of washing liquid or coffee when your smart appliances know they are about to run out, without you having to make an order. The activewear retailer that sells you your training clothes will interact with you daily: helping you monitor your fitness levels and the quality of your sleep, adjusting your personalized digital training program, and nutrition plans.

 

In the first phase of the digital retail revolution, we figured out how to ship boxes to people that placed orders online. In the second phase, we took the data from all of those interactions and used it to build closed marketing loops to drive transaction volume and margin. Now we face the third age of retail - and it has little to do with transactions, and everything to do with creating new kinds of algorithmic experiences. Competing in that world will not only demand an investment in sophisticated systems and infrastructure, it will also require an entirely new set of leadership capabilities

 

What if the retailer of tomorrow was not a store at all but rather an integral part of an operating system for daily life?

 

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Subscribe to my YouTube channel to watch New Rules For A New World, a video series on how leaders and organizations are reinventing themselves in this time of crisis. New episode every Monday.

Topics: Retail

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