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October 6, 2015

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The Art of the Possible: Digital Masters

by Ravi Kalakota

Evolution of USA Retail

Amazon.com is the leading private label supplier of batteries (beating Duracell) and 3rd largest supplier of baby wipes (almost catching up with Huggies and Pampers).  Mary Meeker, Internet Report 2017

E-commerce is growing at 15% YoY.  We are right now in the middle of one of the biggest, most profound digital disintermediation in business especially retail.  What makes it challenging to execute is that there is no “one size fits all strategy.” if anyone claims they have the answers, they are probably exaggerating.

Seismic shifts are putting customers in control. As a result, there are many variants of digital:

  • Digital add-ons to existing analog business
  • Pure-play digital – Digital First
  • Seamless consumer experience across web, mobile, physical channels
  • Subscription stores with deeply personalized digital relationships
  • Mass-customization of content and products
  • Augmented Reality Experiences to complement retail experiences (e.g., Lowes)

CONVENIENCE and VALUE matter most to customers.  Digital is all about enabling corporations to leverage the power of new technologies to create new sources of value. However, most organizations are still grappling with digital basics or addressing technical debt that has accumulated.  But some leading edge firms (or digital masters) have figured out how to adapt to the fast arriving digital future.

So, who are these digital leaders and what are they doing to attract and retain customer attention?

  • In content… National Geographic is considered a digital pioneer.  Others like New York Times, Financial Times, Time are innovating with metered paywall technology across many of their properties. Their objective is to drive anonymous visitors to become registered users and convert into brand product purchasers.
  • In retail… Amazon.com, Walmart, Target, Apple and Starbucks  are often cited as digital masters, due to the significant investments they are seen to have already made both financially and in dedicated resources.
  • In pharmacy… Walgreens is a digital master across different properties – Walgreens.com, Drugstore.com, Beauty.com, SkinStore.com (Cosmeceuticals), VisionDirect (Optical).
  • In CPG manufacturing…. P&G, Pepsico, Coca-Cola, Nestle and Unilever and are often cited as digital center of excellence leaders,  allocating only shared resources to social marketing and e-commerce.
  • In industrial… firms like GE, Caterpillar, John Deere are also considered digital leaders.  They are leveraging Internet of Things (IoT) to create novel experiences.

But, how are some other companies approaching digital customer experience and engagement? This is a very critical strategic issue as the average consumer spends more time on technology than sleep or eat. How firms grab this consumer attention will be key for future growth.

Retail Digital

Source: Wal-mart Labs

Let’s look at Nike, Home Depot, Starbucks, AT&T. These companies are building the digital infrastructure that integrates social, mobile, analytics, cloud and sensor technologies used to power digital initiatives.

How Nike Attacks Digital

@ Nike,  digital teams unlock seamless access to products, services and tools to make athletes better.  Athletes constantly chase their potential. They seek information, motivation and the gear to give them an edge over the competition.

Digital teams build platforms such as Nike+, a global community 30 million members strong. They power Nike’s entire digital presence, including nike.com and NIKEiD, Nike+ products and mobile applications, digital brand experiences and consumer interactions.

Nike has long recognized the need to have focused resources for digital initiatives, and it established a direct-to-consumer division that oversees both in-store and online activities. That function then created a dedicated e-commerce group with its own leadership structure, which has worked to deepen and expand its digital expertise, drive greater commerce for Nike online, and connect across the Nike organization to create market-beating consumer experiences, from the “SNKRS” app to the Nike+ community, which has tens of millions of users.

Personalize the audience experience. Thanks to sensors (and Internet of Things), Nike is focusing on tailoring every customers’ experience. Those efforts have paid off with double-digit e-commerce revenue growth rates and annual web sales topping $1 billion in 2015.

The trend is clear: Nike is moving towards being a more data-driven organization by investing in platform technologies and data science competency. Nike Digital teams use a broad variety of skills: consumer analytics, statistics, digital marketing, software development, social media engagement and much more to deliver the optimal digital experience for Nike consumers.

Nike has to constantly innovate and keep the consumer experience fresh and novel.  Consumer facing e-commerce, fashion and digital business models tend to evolve rapidly.  Examples of this  trend include Groupon and Gilt Groupe.  Gilt, the flash sale business model pioneer, sold itself to Saks Fifth Avenue’s parent company for $250 million. The buyer, Hudson’s Bay Company, also owns department store chains Hudson’s Bay, Lord & Taylor and discount seller Saks Off Fifth.  Gilt pioneered the “flash sale” e-commerce model in the U.S., selling heavily discounted fashion apparel in limited-time sales that produced a craze of impulse buying. But over the past couple of years, flash sales on the whole have faded in popularity as retailers saturated customer email inboxes with promotions and less high-end excess inventory became available. [http://recode.net/2016/01/06/]

Nike Digital has found staying power but it is just one tactic within a huge company.

How Home Depot is Approaching Digital?

Customers want cheaper prices and a more convenient shopping experience. Every retailer is creating a converged digital strategy that covers multiple channels and business models and developing a new set of capabilities to compete with their emerging competitors, the emerging disruptors – principally online retailers.

Home Depot’s omni-channel strategy is a playbook that many Fortune 500 firms are following. One thing that gets lost in the popular narrative is the continued relevance of stores. A lot of people still shop in stores and a lot of transactions get concluded there.  However, the analog-to-digital shift will affect all aspects of store —including:

  • Employee training
  • Supply chain and merchandising
  • Product placement, promotion and pricing
  • Consumer and shopper interactions

The focus has been on consumer and shopper interactions. According to Shawn Coombs, Director, Product Management: “We’re very much into a digital experience that is interconnected with in-store, because a large portion of our online customers eventually goes to the store to make their purchases. So what we do online is help them narrow that research funnel so they go into the store more prepared to make a purchasing decision.”

To do that, Home Depot uses a lot of personalized messaging to help customers become more prepared before they get to the store. What Home Depot is aiming for is a continuous experience. So from a customer standpoint, the experience that they see on one device should be similar to that on another device, and it should be a symbiotic movement to and from the store. Customers don’t even think that there should be any distinction: they just see one company.

Home Depot has been working on alerts, messaging in cases where a customer hasn’t defined yet the specific products that they’re looking for. For those people, Home Depot can personalize using product categories or even projects that they are working on (such as renovating a bathroom or creating an outdoor living space). As trends and themes are identified, Home Depot can message at the category or project level.

The business results have been positive. Home Depot has apparently seen positive returns through improved messaging. Customers are more engaged and return to the website based on messaging promoting a category of products, service information, or how-to information.

Digital @ Starbucks

The retailers that are succeeding are the ones that are making the customer journey a lot more seamless regardless of where they begin or end. Starbucks is a great example.

Starbucks’ ambitions are greater than caffeinating and feeding people.  Starbucks has continuously innovated to attract and retain the millennial consumer who is spending more time online.

Starbucks wants to capitalize on the “three or four hours a day” some knowledge workers spend working alone or meeting with colleagues in the company’s 23,000 plus global stores, which provide free Wi-Fi and, in some locations, wireless charging.

Convenience, simplicity and a better experience at a coffee shop is making a huge bottomline impact. Starbucks has benefited from digital disruption, as more than 20% of its transactions now flow through its mobile application, which allows consumers to pay for beverages and food from their iOS and Android phones.

Millenials1

How AT&T Attacks Digital Innovation

AT&T opened three AT&T Foundry innovation centers, in Dallas, Silicon Valley, and Tel Aviv, to serve as mobile-app and software incubators.

Today, projects at these innovation centers are apparently completed three times faster than elsewhere within the company. And having tested that innovation model externally through its incubator, AT&T established a technology innovation council and a crowdsourcing engine to infuse best practices and innovation across the rest of the organization.

Verizon is doing something similar but external facing.  They are working with organizations to define, design, deploy and manage new technology solutions that advance the digital business models of their customers.

Many companies have set up incubators or centers of excellence during the early stages of a digital transformation to cultivate capabilities and showcase the art of the possible. To be successful, however, these capabilities need to be integrated into the main business.

Summary: Business Value Creation from Digital

Seeing your business through your customer’s eyes requires in-depth understanding of how and where data is generated and how to make meaning from that data to understand customers’ behaviors, interests and desires.

To be  “Best in Class” companies are typically focusing on the following area of business value creation:

  • Multichannel Strategy – Develop a strategic roadmap that informs the corporate and business unit strategy. Digital is an integral part of the processes of the company.
  • Omni-Shopper Path to Purchase – Become experts in behavioral segmentation (rather than just demographic and psychographic segmentation) by identifying and demystifying omni-shoppers’ multichannel path to purchase.
  • Multichannel Category Leadership – Develop innovative approaches to multichannel by using the real-time store and site point-of-sale (POS) data that digital allows to test and improve ideas.
  • Integrated Campaigns – Create fully integrated merchandising and marketing strategies with a shopper-centric view of the item, brand and category.
  • Optimized E-commerce and Supply Chains – Optimize e-commerce packaging, logistics, and fulfillment centers to same levels as bricks-and-mortar systems and networks.   Stores are also increasingly becoming distribution centers for goods and services ordered online. Target partnered with Instacart, a grocery delivery service to deliver groceries within an hour.  Amazon’s same-day delivery is forcing major retailers to overhaul operations and offer faster delivery.

In summary, digital transformation programs enable simpler, more convenient and faster business processes, all of which contribute to enhancing the customer experience while improving risk management and optimizing operational costs.

Additional Notes and References

  1. Digital 101
  2. Digital Personas and “A Day in the Life Of” — disruptivedigital.wordpress.com
  3. Mobile Marketing Engagement – Path to Purchase – disruptivedigital.wordpress.com
  4. Digital Transformation
  5. Big Data Use Cases
  6. See Mobile Marketing Automation for more insights into Mobile Geo-Fencing and Targeting. Mobile ads are rapidly overtaking desktop ad spending in all categories—display ads, search, social media and video
  7. The key to cross-channel marketing is knowing who you’re engaging when. See Digital Marketing Architecture for the changes taking place in marketing and the CMO playbook.
  8. Retailers are using beacon technology to get you to buy more products, a trend that will intensify in the future. Beacons are $5 hardware devices that use Bluetooth technology to send shoppers relevant information.  An example of beacon technology would be a store sending a customer a “welcome” message when they visit through a mobile app.
  9. Many stores will have free WiFi to enable the digital experience.  Offering WiFi will also come into play when it comes to the cash register, as mobile payments take over. Apple and Android pay help enhance loyalty programs and provide better data to retailers.
  10. Novel experiences…. Starbucks has implemented Powermat wireless technology, where they offer a convenient way to charge your phone..

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