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Transcript of Decision Intelligence: Omnichannel 101
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8/10/2019 Decision Intelligence: Omnichannel 101
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Issue 9
The end of the channel 04
The drivers of change 07
The impact of omni-channel: 09Products, customers, orders
Omni-tech 21
Contents
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Mobilebrowsers
Mobilewallet
Cost of service
versus customer value
Cross-channelshoppers areworth more
Endlessaisle=savethesale!!!
Social mediadrives
engagement
Customer segments personalisation
Get iPads for shopassistants improve
customer service Customer
Product Profit
Getbacktobasicsandleapahead
Omni-channel 101Back to basics
Decision
IntelligenceThe journal of global commerce
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Decision Intelligence. Omni-channel 101. Back to basicseCommera is a cloud-deliveredsoftware company that combines bigdata predictive analytics, enhancedorder management and a commerce
platform to reduce friction, createseamless customer experiences andallow the worlds most innovativeretailers to leap ahead of competition.
With eCommera, retailers acrossthe globe are able to sell across any
channel, fulfil from any location anddo so profitably. The company servesover 70 retailers and global brandsacross 34 countries.
To find out how we can helpgrow your eCommerce businesscontact us at [email protected] call us on +44 (0)203 530 5800www.ecommera.com
eCommera
The Trading Intelligence Quarterly
is now called Decision Intelligence.To subscribe, visit www.ecommera.com
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03
www.ecommera.com
Andrew McGregor CEO and Co-founder, eCommera
Omni-channel retail success requires
a return to the basics
Retail used to be simple: unite a customer with aproduct to make a profit.
Over the last decade the focus on this premise has
become blurred. New technologies, new channels,and new ways of acquiring and engaging consumershave distracted retailers. Profit has becomesecondary to driving revenue.
How did things end up this way?
Customers changedConsumers today have more control than inthe past. Technology facilitated the creation of
new channels, providing consumers with moreconvenient ways to shop; new pure play retailersemerged, providing more choice; while mobileand social media enabled transparency.
And then retailers changedIn contrast, retailers have less control and morecomplexity. All of the new channels, from online tomobile to social, have resulted in new technologies,new processes, new KPIs and new strategies.
Retailers need to navigate a new retail reality:1.Everything is connected. Focus on the most
important element in the equation the customer.Too often decisions are made by channel. In aworld where everything is connected this simplydoes not work. Make customer decisions, notchannel decisions.
2.Small decisions add up to big success.Understand that success will come down tothe small decisions that you make every day.When to contact a lapsed customer? What tooffer newly-acquired customers to drive loyalty?What programmes to put in place to deepenengagement with VIPs?
3.The economics have changed. Re-examine allof your processes and models. Making money inomni-channel retail requires balancing the costof service against customer lifetime value.
This edition of Decision Intelligence aims to helpretailers navigate the complexity of omni-channelretail. In a series of articles by Michael Ross,Co-founder and Chief Scientist at eCommera, weexamine the customer, the product and the order to
understand how the economics have changed andhow strategy should be adapted.
With strategy considered, we close this issue bylooking at the technology required to make omni-channel work. With integration of cross- channelsystems and data central to success, we providea guide of what new technologies should beconsidered, why they are needed and what to lookout for when selecting solutions.
We hope that you find this issue enlightening.We would be delighted to have the opportunity todiscuss how we can help grow your business withthe right products, services and insight.
Welcome to the ninth editionof Decision Intelligence
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Big Wigs (dont wear wigs anymore). Carphone Warehouse(no longer sells car phones from warehouses). cc emails (are notabout carbon copies). The floppy disk save icon (most users willhave never encountered one).
Similarly we talk about omni-channel but it essentially describesa post-channel world. A world in which customer behaviour hasrendered the channel as old-fashioned.
Retailers like to think and organise themselves interms of channels. When the Internet launchedwe first saw retailers using multiple channels; then
retailers saw the power of combining channels(offering click and collect or iPads in store).
Today we talk about omni-channel a customer-centric approach and philosophy that recognisesthe profound change in customer behaviour. As
John Lewis describes it, Omni-channel is allabout the customer what they want, when theywant it, where they want it.
While retailers may have kept their channelsseparate, often managed by separate teams,customers have not. Shoppers now seamlesslyswitch between different forms of productinformation, purchasing, collection and returns.It is a complex interconnected web of behaviourthat renders many decisions made by channeldangerous. Customers are increasingly ResearchingOnline and Purchasing Offline (ROPOs); BrowsingOffline and Buying Online (BOBOs); Browsing
In-store on Mobiles and Buying Offline (BIMBOs)amongst their many options.
There are many drivers of this transformation.Critically, the influence of the digital channel willincrease further as smart mobile devices proliferate,
mobile speeds improve, and stores increasinglybecome mobile ready (with payment via virtualcredit card, store check-in, and product scanning),Location, location, location will become customer,customer, customer.
Cross-channel dysfunction
Any retailer still optimising individual channelprofitability risks being sub-optimal, and at worst,
is likely to make completely incorrect decisions.Fixating on the channel often drives the wrongretailer behaviour for its customers across marketing,products and store activities. See table 1.
The end of the channelOmni-channel. Cross-channel. Multi-channel.By Michael Ross Co-founder and Chief Scientist, eCommera
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Decision Intelligence. Omni-channel 101. Back to basics
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0405
Cross channel behaviour
Research Online, PurchaseOffline (ROPO)
Buy online, return to store
Buy on mobile, in store
Buy and collect
High-value offline customers
who occasionally shop online
Online order shipped fromstore
Out-of-stock-in-storecustomers directed online orto other products
The retailers issue
Do you give credit to online for anoffline-influenced sale?
Do stores get penalised for onlinereturns?
Is this an online or offline sale?
Is this a cost for the store OR a cheapway to drive footfall?
Are high value offline customers being
targeted with online offers/discounts?
Do stores get credit for sale?
Are store staff incentivised to drivecustomers to the website or do anassisted sale in store versus attemptingto sell the customer something
unsuitable?
What can happen
Online marketing that isnt justifiedby online value is cut, even though it isjustified by overall business impact
Encourages antagonism betweenchannel teams
Store sales/profitability decreases butstore is clearly critical part of journey
Under-investment in click and collectexperience
Easy to send online offers to what
appears to be a lapsed online customerrather than focusing on them as anoffline customer
Encourages antagonism betweenchannel teams
Offers poor customer experienceunless staff are properly incentivisedand equipped
Table 1: Cross-channel dysfunction
* * *
This is already the new reality. Unfortunately, weare in a dark period of partial visibility, whereretailers increasingly need to make omni-channeldecisions but with messy and incomplete data.
Navigating this transition requires a new way tothink about decisions, measurement and profit:execute in the channel, but optimise the whole.Retailers need to differentiate between what can be
locally optimised (either online and in store) versusthose decisions that need to consider the wideromni-channel impact. They need a heightenedawareness of how reversible a decision can be while opening or closing a store is a decision that
needs full certainty, bids on Google can be changedevery few minutes. Underlying it all, be carefulwhat you measure: the right metrics are critical tomaking sense of the omni-channel world.
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Retail has always been dynamic but the speed of change is set to accelerate. New businessescan succeed much faster, while the failure of long-lived businesses can be both rapid anddramatic. The customer-centric focus of omni-channel retailing is being driven by four
factors that are relentlessly tearing at the fabric of retail.
Technology is creating a digital exhaust of datafor retailers to access
Consumer technology:Mobile devices are improving
in quality and mobile/broadband speeds are rapidlyimproving
Retail technology:Near-field communicationtechnologies (NFC) offer seamless scanning, RFIDoffer seamless stock visibility, contactless payment(combined with emailed receipts), virtual loyaltydevices, and big data processing
Competitors are more efficient, lean andprofitable
Amazon is the benchmark for efficient management
lean operations marching towards automation;replacing variable with fixed costs; and with evergreater economies of scale
Retailers with scale can continually invest in thecustomer experience with increasing barriers forsmaller retailers to compete
Consumer behaviour is increasingly complexand informed
The more retailer touch points proliferate, the more
complex a customers behaviour will become Customers will have an ever-increasing expectation
of informed staff, access to stock, faultless service andjoined-up marketing messages
Investors and shareholders expecthigher rewards
Shareholders will demand a pathway to a profitable
future and emulate the success of the likes of Amazonand Asos
Shareholders will recognise that its possible togenerate more cash with less inventory, and willpressurise retailers to make money on their omni-channel investments
NOTE: NUMBERS REFERENCE EACH PART OF GRAPHIC
3
4
1
2
Battleground
2 Consumers
3 Competitors
Devices
DigitalExhaust
0011010011100011110100101110
RETAILER
1 Technology
4 Shareholders
DRIVERS
Retailer visibility
of customer behaviour even more data
Customer behaviour even more complex
Intensifyingcompetition fighting for customers
Impatient shareholders
waiting for profits
The drivers of change
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0607
www.ecommera.com
To succeed long-term, retailers coreoperating models will need to adapt.Focus on the endgame: all productswill be available to all customers fromall locations; customers will shopanywhere and everywhere, from a
proliferation of devices and locations;and orders will be shipped, collectedand returned in any location.
This is a terrifying vision for many retailers.While the endpoint may be appealing, gettingfrom here to there is not obvious. As the oldIrish joke goes a traveller lost in Ireland asksfor directions to Dublin: If youre trying to get
to Dublin, I wouldnt start from here. Mostretailers are asking the same questions:
When?This is a game of chess do we movenow or wait?
How?What do we do about our agingtechnology? Too often its back of house anddoesnt touch customers, is not very good,and is point-to-point integrated
Who?Where do I find the skills, organisationand resources for the complex, process-heavy,analytical omni-channel world?
How much?How can I ensure myinvestments and the increased cost ofomni-channel reap profits?
This article tries to offer some of the answers.
We explore what omni-channel means for thethree core elements of retail: the product, thecustomerand the order, looking at how eachwill be affected by omni-channel and the neweconomics of making a profit.
The impact of omni-channel:products, customers and orders
A warning:Many retailers look at spend by number of channels and conclude that multi-channel customers aremore valuable. They then wrongly conclude that encouraging single-channel customers to shop inmore channels will increase their value. Maybe, but not necessarily.
Multi-channel customers may well be more valuable, but they are likely to be the more loyal andengaged customers. It is their love of the brand that that drives their behaviour, rather than theirbehaviour driving the love of the brand. Giving an offline customer an alluring incentive to purchaseonline may simply give away margin, not change behaviour.
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Product is at the heart of every retailer. Omni-channel gives huge opportunities to rethink the stock modeland should in theory really deliver real benefits allowing retailers to widen their range, operate with lessstock and deliver higher sell-through. Table 2, below, illustrates the new opportunities for product inomni-channel retail.
Proposition
Own brandversus 3rdparty
Width
HoldingLocation
Ownership
Pricing
Promotion
From
Propositions evolved over decadesto suit physical locations andretail store sizes
Own brand seen as one option todrive margin
Well established minimum salesrate per SKU and SKU densitiesper square foot.
Product is managed on a store bystore basis. Many retailers dontknow exactly what inventory is ineach store the cost of countingoften outweighs the benefit
Stock in store owned by retailers(exceptions include supermarketswith vendor-managed inventory)
Broadcast prices Low variable cost of sale
(cost to serve)
Simple trading Promotional calendar and fixeddiscount schedule for sales
To
Propositions constrained by brand,not store walls
Unique product critical for all
categories to give a point of differenceand avoid being Amazoned
Opportunity to sell long-tailproducts not available in store new categories, new brands, newproducts, and new fringe sizes
A single view of all inventory acrossthe organisation
All stock available to all customers;each store acts as a mini-warehouse
Products shipped to consumer fromcountry of manufacture
New stock ownership models(e.g., stock on consignment, brand/manufacturer ships just-in-time toconsumer)
Revenue management whichbetter aligns revenues and costs
More dynamic prices (maybepersonalised)
Dynamic offers based on customer/product status Product next best action a more
dynamic and nuanced approachto trading
RANGE
INVENTORY
TRADING
1. ProductHow will product change?
Table 2: The product in omni-channel retail
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The new economics of product
The profit challengeTurning inventory into cash is the key to successin retail as the saying goes revenue is vanity,profit is sanity, cash is reality. In physicalretail, once a format is established, the rhythmof revenue/profit/cash generation turn out to be
relatively simple.
However, establishing that rhythm withbusinesses transitioning to omni-channel canbe extremely painful. Omni-channel breaksthe stock in store model, requiring retailersto navigate a new cash cycle. All eCommercepure-plays have had to work this out from firstprinciples Amazon consumed over $3bn beforeit became cashflow positive. Bezos was notably
obsessed about not running out of cash, ratherthan making a profit.
The question to ask
The critical question for retailers to answeris: What breadth, depth and store inventoryallocation achieves the optimal balance of sales/profit/cash and return on capital?
To help answer this question, retailers should
know: How different is the omni-channel sell-through
curve? What stock should be held in store
(for immediate sale) versus a centralwarehouse (for ship to home)?
What pricing and promotional strategywill maximise cash generation?
How much stock should be held locallyversus point of manufacture?
The new economics of product
All eCommerce pure-plays havehad to work this out from firstprinciples Amazon consumedover $3bn before they becamecashflow positive. Bezos wasnotably obsessed about not
running out of cash, rather thanmaking a profit.
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Decision Intelligence. Omni-channel 101. Back to basics
An example:Product cash-cycle model
MODEL CONCEPTThe key to generating cash in retail is themanagement of working capital. Morespecifically, understanding how to make theright trade-offs between cash and margin. The
transition to omni-channel can cause a shockand it is critical to understand how the differentsell-through dynamics of online play throughinto cash generation. Our model below showsthe degree of sensitivity between generating andconsuming cash.
ASSUMPTIONSPurchase price: 40Full retail price: 115 (equivalent to an in-take
margin of 65%)Markdown schedule: 50 days (30%), 85 days
(50%), 100 days (70%)Total sell-through: 90% (remaining units
written off)Payment terms: 30 days after inventory is
delivered
BASE CASETime from goods arriving to start selling:
6 daysTime from 1stsale to payment of invoice:
24 daysTime to sell half units: 30 days
BASE CASE CHARTS1.The retail price over time (following the
markdown schedule)2.The cumulative sales curve3.The cumulative cash curve (the spike is when
the supplier invoice gets paid)
0 50 100 150
0
20
40
60
80
100
R
etailprice
Day number
0 50
Write off
Day number
Markdown
Full price
100 150
0
20
40
60
80
100
Percentageunitssold
1. Retail price over time
3. Cumulative cash
2. Cumulative sales
0 5030 100 150
0
1000020000
300004000050000
$
Day number
Invoice paid
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IMPLICATIONS
There are many implications for retailers.
It is critical to invest in the people, processand technologyto get product selling quickly,and establish the right trajectory for onlinesell through.
It is important to avoid masking flaws in
the cash cycleand blend them into overalloperational losses. Always distinguish between(i) cash requirements caused by losses due tolack of scale versus (ii) working capital driven bya fundamental failure in the cash cycle.
SCENARIOS: WORKING CAPITAL REQUIRED versus GENERATEDIn the base case of 30 days, this product generates negative working capital of 10,334
Time from first sale to payment of stock invoice
Timetosell
halftheunits
24 days
-
39 days
Positive value cash cycle has
negative working capital
Negative value cash cycle requires
working capital
30 days
24 days
20 days
-
15 days
- 19.11212,0936.694
- 1346,13210,334
7,78113,37016.985
Driver of cash cycle
When productstarts selling
Sales trajectory infirst 2/3 weeks
Sell-through ofbroken ranges
Physical retail only
Start selling as soon asproducts arrive in store
New products immediatelyvisible in store
Visible to store staff movedto clearance rail
Omni-channel retail
Start selling once product isphotographed, booked into webwarehouse, coded and uploaded to site
New products can languish if notactively managed or promoted on site
Easy to send traffic to brokenproducts (customer journey is
more difficult to control)
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How will customer strategy change?
Retail has always been about the customer.However, for the last several decades thecustomer has become anonymous to mostretailers. Only a handful of retailers such asTesco and Nordstrom have made full use ofcustomer data and many retailers including
Walmart have done very well by focusing onother areas such as supply chain optimisation.Even where retailers do have customer data, itis often not obvious what to do with it beyonddirect marketing, and certainly not how to use itto rethink the business.
For the last two hundred years of modernretail, location = footfall, and footfall = sales.Omni-channel unshackles consumers from their
physical location, requiring retailers to rethinktheir relationship with customers. See table 3.
The new economics of customers
The profit challengeRetailers have built very successful businesseswithout needing to understand or modelcustomer behaviour. They have relied on aconceptually simple model of profit per store
and category, and growth driven by like-for-likesand new stores.
Omni-channel has changed everything. Retailersnow need to embrace profit per customer.The new growth model is driven by customeracquisition and retention. It is already wellunderstood in other industries with a customercontract from mobile phones and insurance,to utilities and traditional mail order. Retailers
will need to join them by thinking in terms ofcustomer acquisition costs, lifetime value andretention economics.
The question to ask
The critical question for retailers to answer is:What investment in customer acquisition andretention maximises long-term profitability?
To help answer this question, retailers should know: What is the profit per customer? What is the role of the store in influencing
customer profitability? How much should we spend acquiring a
customer? What is the appropriate payback for a new
customer? What is a customers lifetime value?
2. Customers
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Planning
Insight
Measurement
Focus
Cost
Personalisation
Targets
Timeline
Approach
From
Location has been a proxy forcustomers, and growth has beenplanned based on like-for-likes and
new stores
Customers are typically anonymous Customer insight comes from gut
experience or expensive ad hocmarket research
Customers not measured Outcomes such as like-for-likes are
good enough customer proxies
Customers not part of theconversation
Fixed rent = footfall Fixed costs of store staff
Broadcast Segment-driven for insight and
action
Channel targets: both store andonline
Transaction focused
Customers are anonymous Service is uniform
To
Customer-centric planning growth is basedon customer acquisition and retention targets
Single view of all customers/transactionsacross all channels
Decisions are based on customer data
Customer-centric input metrics critical tounderstanding whats going on
Focus on most profitable customers,and highest potential customers
Understand business in terms of whosmaking money
Variable costs of online marketing Optimal investment in acquisition versus
retention
Next-best action based on every customerinteraction, what is the next best thing to do:
nothing, promotion, email, event invitation,call from local store etc.
Personalised (segment for execution,not insight)
Customer targets Store managers focused on acquiring/
retaining customers
Lifetime value/relationship focused
Service is differentiated based on a customersvalue and potential
Store staff are informed and incentivisedaccordingly
MANAGEMENT
MARKETING
SELLING
Table 3: The customer in omni-channel
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Decision Intelligence. Omni-channel 101. Back to basics
An example: Customer growth model
MODEL CONCEPTWe have developed a simple customer simulationmodel to highlight the sensitivity of sales to acustomers transition from being new to loyal.The model shows how overall sales are built
up from customer cohorts, where each cohortrepresents the customers acquired in a particularyear. The transition from being a new to loyalcustomer is the key how long does it take, howmany customers do you lose along the way andhow much do your loyal customers spend?
ASSUMPTIONS New customers acquired in a week: 1000 Loyal customers annual purchases: 5
Probability of making next purchase in a week:probability increases with frequency (i.e., the morepurchases you make, the more likely you are tomake the next one), and decreases with recency(i.e., the longer it is since you made your lastpurchase, the less likely it is you will make yournext one).
BASE CASE CHARTS1.The acquisition curveshows a flat acquisition
rate of 1000 new customers per week2.The transition curveshow the evolution from
new to loyal customer each line represents adifferent frequency cohort and the chart givesthe probability of a customer purchasing in a
particular week. The base case indicates: 9 purchases to become loyal 55% of customers move from 1stto 2nd
purchase3.The loyal curveshows flat purchasing of 5
times per annum4.The growth chartshows how the cohorts
translate into an overall sales curve playedout over time.
10 2 3 4 5
Years
6 7 8 9 10800
1000
Aquisition
140
50 10
Weeks
15 20 25
0
2
4
6
810
Percentagebuying
1. Acquisition curve (Growth rate = 0)
2. Transition curve
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Years
10 2 3 4 5 6 7 8 9 10
Loyalpurchases
0
1
2
3
4
5
3. Loyal curve
Key statistics
1 Percentage customers retained2 Annual loyal spend as a % of 1st year spend3 Expected 3 year orders for a new customer4 CAGR Year 7-105 CAGR Year 3-66 Year 10 revenue vs. Year 17 Week when revenue > costs (i.e. in profit)
5.6%23.7%
2%8.7%
13.2%3.2%
5%
4. Growth (C = cohort)
0
5000
10000
Ordervalue
15000
2000
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10
C1C2C3C4C5C6C7C8
C9C10
SCENARIOS: EXPECTED NUMBER OFPURCHASES OVER 3 YEARSWe are then interested in understanding theexpected 3-year purchases from customers. As youcan see from the table below, the retailers evolutionis extremely sensitive to these assumptions.
IMPLICATIONSThis highlights the sensitivity of growth and profitto these basic drivers:Taking a high number of purchases to get to
loyalty is typically a service issue erratic servicedrives attrition from potentially loyal customers.
A low number of purchases to get to loyaltyis good, but a low first-to-second purchaserate is bad; this is often driven by a poor CRM
A retailer with expected 3-year customer
purchases of 1.6 needs to focus on fixing thebasics. A retailer with expected 3-year customerpurchases of 6.6 can put its foot to the floor andfocus on customer acquisition.
These dynamics are critical to understandingand prioritising relative investment in customeracquisition, service improvement, retentionpromotions and range expansion. It is easy forretailers to observe similar revenue growth but with
very different underlying drivers of performance.
Expected 3 year purchases
Long term transition from 1st to 2nd purchaseNumber ofpurchases tobe deemedloyal
25%(bad)
35% 45% 55%(good)
3.2
2.2
1.8
1.6
4.3
3.0
2.3
2.1
6.6
34.8
3.9
3.3
5.4
3.8
3.0
2.6
3 (good)
5
7
9 (bad)
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The new economics of orders
The profit challengeThere are two elements to the new economicsof orders:i. The cost to serve:The variable cost of
handling each order as more orders become
omni-channelii. The economics of service:How much does
it cost to deliver different service levels, andwhat is it worth (in terms of impact oncustomer retention)?
Many service industries have evolved to offerdifferent qualities of service at different pricepoints (think Direct Line versus Hiscox; RyanAirversus BA; Travelodge versus Four Seasons). Inaddition, businesses with a high variable cost
of sale have evolved their business models toalign revenue and costs.
How will the ordering process change?
The order isthe retail transaction the exchange of goods for money. Omni-channel decouples thecustomer contract from the physical exchange with profound implications. Transactions in store are quick,simple and have a very low marginal cost. Decoupled transactions introduce delays, new costs, and processcomplexity. A transaction now becomes a series of touch points. While this is a very standard challenge inevery service business (think hotels, airlines, insurance and pay TV), it is a new set of skills, processes andeconomics for retailers (See table 4).
From
Simple Store staff incentivised/focused
on closing sales in store
Immediate: Transactionsinitiated/completed in store
Low marginal cost: Shoppingbag, credit card charge
To
Complex Transactions can touch many parts of the
business
Delayed: Separation of order from delivery Longer gestation: Interaction with all channels
(particularly for high value purchases)
High cost to serve: Home delivery, returnshandling, email/phone customer service
OWNERSHIP
TIMELINE
COST
3. Orders
Table 4: The order in omni-channel
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The question to ask
The critical question for retailers to answer is:How do we make the trade-off between costand service?
To help answer this question, retailersshould know:
Whats the cost of delivering differentservice levels?
Whats the impact on customer loyaltyof different service levels?
Whats the cost of managing volatility?
An example: Cost to serve model
MODEL CONCEPTAll retailers have processes that require human
involvement or intervention such as: emails, fraudreviews, order issues, picking, packing, shippingand returns processing. Omni-channel retail meansrequests arrive 24/7, so retailers have to align shiftsto get the right balance of cost versus service. Fewretailers work 24/7 and our model below highlightsthe impact on the customer experience of themisalignment between requests arriving and thenbeing handled.
ASSUMPTIONS Requests per hour (24/7): 100 Shifts planned: 5 days per week (Mon Fri) Shifts start: 8am
BASE CASE CHARTS1.Staffing patternshows the hours worked
5 days per week, 8am-8pm2.Service request pattern:Shows requests per hour
over the week
3.Distribution of waiting times:We examine herethe average and longest customer waiting time,and percentage of customers waiting more than24 hours.
Mon Tue Wed Thu Fri Sat Sun
0
50
100
150
Numberof
requestsperhour
Mon Tue Wed Thu Fri Sat Sun
0
2
4
6
810
Numberofservers
2. Service request pattern
3. Waiting times
1. Staffing pattern (8am-8pm)
0
500
1000
1500
2000
0 10 20 30 40 50 60
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Decision Intelligence. Omni-channel 101. Back to basics
Shift worked
8am 8pm
8am 10pm8am midnight
8am 2am
8am 4am
30 (hours)
29 (hours)28 (hours)
27 (hours)
26 (hours)
60 (hours)
58 (hours)56 (hours)
54 (hours)
52 (hours)
61%
60%57%
54%
52%
Average waiting time Maximum waiting time % waiting >24 hours
SCENARIOSWe can see that in all scenarios, the lack of weekend working has a dramatic impact on the customerexperience.
IMPLICATIONSMany retailers experience (and have become
inured to) the Monday backlog. Unfortunately,this can have a ripple effect for the rest of the weekand create a systemically poor experience forcustomers.
Human processes are typically not visible andmeasurement of average outcomes obfuscate thereal issues. It is critical for retailers to understandthe value of service and instrument the business toget visibility of service failures.
***
The economics of omni-channel are different andcomplicated whats got us here wont get usthere. It is very easy not to make money, and it isvery easy to not understand how to make money.
While many things improve with scale (negotiableand with fixed costs); other things get worse
(customers get more expensive to acquire thefurther you get from home and heartland). Tried
and tested formulas for retail success will need tobe rethought. However it is not all doom there is
significant money to be made for many retailers inthis new era. Especially for those who can:
(i) Understand profitability: Where do we make/lose money
(ii) Optimise profitability: Where can we makethings better
(iii)Prioritise investments: Where to spend next$/
This requires new skills beyond the simplercounting or assessing profits by store orcategory. There is a new level of analyticaland statistical complexity to untanglingomni-channel profitability.
Finally, its important to have a mind-set that willevolve as new data becomes available, and asomni-channel customer behaviour becomes easierto track. In the words of John Maynard Keynes:
When the facts change, I change my mind. Whatdo you do, sir?
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Once youve done the heavy liftingof setting your omni-channelstrategy, you need to consider whattechnology will make it a reality.
While omni-channel does require an investment
in new systems, the most critical consideration ishow everything fits together. Solid integration of allsystems is key for two reasons:
Firstly, it enables you to deliver on all of thepromises of omni-channel: an end-to-end, morepersonalised, consistent customer experience.
Secondly, solid integration will help you tomanage the complexity of omni-channel. With
all of the data from all systems from websiteanalytics, to order management to CRM youwill be able to drive integrated, efficient businessprocesses. Not only will this ensure operationalefficiency, but you will be able to balance theoperational costs of service against the value ofany given customer or segment.
This article examines three critical technologyinvestments for aspiring omni-channel retailers.
For each, we explore what the technology willenable you to do, why it is important, and whatto look out for when selecting the best systems foryour business:1. Integrated inventory data2. Omni-channel order management3. In-store digital systems.
We wrap up the article by looking at how retailerscan then use their new found data to drive greater
profitability.
1. Integrated inventory data
Why is it needed?When making their purchasing decision customersexpect information to be accurate. Key to thisdecision is product availability, so visibility into thesupply chain is critical. Channels need to be joined
up and seamless: when customers are researchingonline, or when staff in a store or contact centreplace a customer order or direct customers to analternative source for a product the informationneeds to be up to date and correct.
This is difficult because the inventory data needs tobe available wherever it is needed, when it is needed in store, online or in the contact centre. Retailershave traditionally used PoS systems for managing
local product inventory as well as handling in-storetransactions. Unfortunately, these systems are notdesigned for an omni-channel environment andlack a lot of the now requisite functionality. It is aclassic example of a system designed for a singlechannel. Equally, the online store can typically seethe warehouse inventory but has no visibility of thephysical stores.
This leaves the customer risking a wasted trip to
their local store as the online system cannot tell themwhether the store is holding stock of the item theywish to purchase. However, when faced with anenquiry about an out of stock item, retail staff canavoid a potential lost sale if they can access a view ofthe inventory available in nearby stores or elsewherein the retail supply chain; or are able to place anorder for fulfilment from the distribution centre.
Barcode and RFID scanners can help capture
inventory movements from manufacturer towarehouse, warehouse to store, from store to shopfloor, from returns back into stock. However theyare not enough without integration.
Omni-TechNick McLean, Director of Products, eCommera
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Decision Intelligence. Omni-channel 101. Back to basics 24-25
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3. In-store digital systems
Why is it needed?With the fundamental enablers of an integratedview of inventory and cross-channel ordermanagement in place, the stage is set for creating aricher and more satisfactory end-to-end customer
experience.
The vast majority of digital investment to date hasbeen in the online experience. While the web ishugely influential in most retail sales, the majorityof purchases are still completed in a store. Despitethis, there is a major imbalance between the retailer/customer relationship online and in store:
The online experience is information- rich,
personalised and offers rapid check-out
The in-store experience reduces customers toanonymous wallets, inflicts upon them under-informed shop assistants and does little to mitigatedata charges for in-store research via mobile. Toadd to the pain, they are then made to queue tomake a purchase.
The advent of new and cost-effective technology
now allows the benefits of digital to be part of thephysical store and to empower the retail staff tobecome a valued part of the customer engagement.
Arming store staff with tablets, clienteling softwareand mobile PoS ensures they are able to accessnecessary information, serve the customer betterand improve the checkout experience.
Furthermore, there are a host of technologies such
as augmented reality, virtual fitting rooms, digitaldisplays and kiosks that all add to the customersexperience of discovery, persuasion and purchaseof a product (see page 26).
Retail order management systems need to haveopen interfaces to interact with payment processingand fraud engines as part of the order approvalprocess. They also need flexible data interfaces toabsorb inventory information from the PoS system,the distribution centre and the manufacturers. Plusthe capability to drive the pick, pack and ship
from a wide variety of locations the store, thewarehouse and the drop ship vendor along with thedecision engine that can route the order based on awide variety of real-time input parameters.
Selecting a retail OMSWhen evaluating potential solutions look out forthe following:
Ensure the system you select is built for
purpose. Solutions built for a single channelor even multi-channel retail will disappointyour customers and in the end providedisappointing results for your business
Choose a solution that has a long list of pre-integrated systems. This will cut down thecost, length and risk of your project
Pick a solution that you can grow into. SaaS
solutions are a good option; with automatic andseamless upgrades you can benefit from newfunctionality without the headache of upgradeprojects
Make sure intelligent routing is on the feature list.This feature will help you to reduce operationalcosts and is a must-have
Be flexible. Ensure that the solution you
choose has configurable workflow rules. Youllwant to adapt and change as you go technologyneeds to enable not limit.
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Free Wifi: A simple way of helping your customers to get more information on your products. Whilethere was initial concern over enabling showrooming, leading retailers like House of Fraser andDebenhams are now offering in-store wifi as standard.
QR codes:With plenty of free applications to support them, QR codes are an easy way of helpingcustomers to get more information on a particular product. Small and easy to create, these can be puton product tags or shelf labels. US Retailer Best Buy includes a QR code reader in its mobile app toensure customers do not need to download anything extra to benefit.
IBeacons:An Apple technology, iBeacons allow mobile apps to recognise when an iPhone is withinrange of a beacon. The beacon can interact with a smartphone to identify customer locations andtransmit personalised promotions to customers in the store.
In-store mapping:Using their phone and a mobile app customers can use a store map to navigatetheir way around the store.
Information kiosks:Already deployed by retailers including Marks and Spencer and Asda, kiosksare an easy way of helping customers to navigate product information while in store
Mobile POS:Often enabled through tablet devices or smart phones, mobile POS systems allowretail staff to check-out customers anywhere and potentially avoid queues.
Customer feedback software: Customer feedback can be captured in store or post-purchase viatelephone, email, ratings tools or social media. Analysis software can mine this data to influenceanything from strategy to product descriptions.
In-store technology
These additional technologies benefit both thecustomer and the retailer. The customer perceivesthem as enhancing their shopping experience.The retailer gains a rich range of additional dataabout which customers are in the store, what theyare looking at, what additional information theyare seeking and what they buy. Whereas retailerspreviously knew very little about the customers
visiting their store or their browse and buybehaviour, now a range of offline shopping datacan be captured and correlated.
Selecting in-store technologyHere are some tips for selecting which in-storetechnology is right for your business:
Choose the technology that helps your customersto make purchasing decisions. Consider what isimportant to them while in store. Is it the ability toget more product information? To read reviews?
To consult a friend? To visualise themselves withthe product? Avoid implementing technology justbecause it seems innovative and cool.
Aim for integration. Ensure that any new systemscan be integrated to your middleware layer toenable data capture and automation.
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The advent of new and cost effective technology
now allows the benefits of digital to be part ofthe physical store and empower the retail staff tobecome a valued part of the customer engagement.
Let your customers decide. Ask your customerswhat they expect of your in-store experience andtake their advice.
Use your integrated data to driveprofitability
With a fuller picture of the customers omni-channelbehaviour, a retailer can adapt product range andcustomer segments to drive personalised marketing.
But there are also significant and entirely newopportunities for profit improvement. Omni-channel retail is considerably more complex thansingle or multi-channel retail. However it is here tostay and the winners will be those that invest and
re-organise to capitalise on the rewards available.So where are the big profit gains to be found?
Firstly, pricing and promotions. New approachesare suddenly possible with a holistic picture ofa customers in store and online activity, and acomplete view of inventory and stock velocity ineach location:
Customers with a history of high-value
orders and a low level of returns may beoffered a more attractive proposition in termsof product pricing and fulfilment options
Customers with a lower lifetime value maybe offered longer delivery times to help clear long-tail stock from regional locations where stockvelocity is low.
Secondly operational improvements.New dataallows operations teams to allocate stock optimally,
to plan the staffing and shift planning in store better,and to ensure the warehousing and fulfilmentfunctions can flex with the rise and fall in orders.This will result in fewer abandoned orders fromout of stock products; higher customer loyalty andgreater merchandising potential.
Finally, lower costs and improved operationalmargins from the buy side.Driven mainly bymanaging return on inventory and dynamically
adjusting supply to demand. Reliable trackingand fast, responsive processes with integrated dataviews drive productivity through automation. Thishelps scalability through the avoidance of manualintervention to connect processes. In addition,improved inventory allocation minimises the costsof moving that inventory around the business,while improved visibility and replenishment reducesmarkdown and write-offs from carrying pockets ofsuperfluous and long-tail stock.
In conclusion, omni-channel needs to be seen ashaving omni-potential.
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