This recently concuded Cyber Monday shopping event raised some interesting questions around the future of online retail. But there was one that was hinted at by interesting but not particularly revealing article “Death by a Billion Clicks” by Michael Copland on Best Buy in Wired Magazine that is perhaps the most important question to ask.
What are the digital edges available to incumbent retailers?
A digital edge is the combination of digital technology with the physical world to create new sources of customer value and company revenue. It is an answer for executives in today’s companies looking to find new ways in which technology can support tomorrow’s growth. An eBook, The Digital Edge, published last month by myself and Andrew Rowsell-Jones provides a summary of the ideas and approaches to answering that question.
Here are some thoughts as they apply to retail in general with Best Buy as an example. One caveat before we start: a blog post of around 1000 words is not a total digital retail strategy, but it should help illustrate what it means to create a digital edge.
A digital edge starts with an overall business goal or objective that guides how you bring the physical and digital world together to create revenue and value. In the case of digital retail a generic outcome might be:
Individuals use our global organisation to meet their particular wants and needs.
A good outcome identifies a contradiction that leads to value. In this case of retail the contradiction is a personal result from an impersonal supply chain. The contradiction does not need to be unique, but it should lead to a unique and differentiated digital solution. For example, Nordstrom’s uses a highly trained; customer oriented sales staff to create its personal results. That is great for them, but not necessarily for everyone.
The idea behind the contradiction is to remind you that the goal is to apply digital technologies in ways that create a digital difference. With the goal and contradiction in mind, the process moves toward identifying the different combinations of digital and physical resources to resolve the contradiction and achieve the overall goal.
The Digital Edge book identifies five different models for how digital and physical resources come together. The figure below summarises these models in terms of the relative role of digital and physical resources. The arrow indicates the resource primarily responsible for creating results and value.
Each model provides a different way to bring physical and digital resources together to create value and revenue. Rather than a ‘maturity model’ the different models represent colours in a palette that you combine to achieve the goal via digital technology in combination rather than simply substituting ‘clicks for bricks’. Such an approach may make you ‘feel digital’ without truly being digital.
A few thoughts, very few actually, appear below on how these different models create potential digital edges in retail. Remember that these are high-level statements to illustrate ideas rather than a well-defined strategy.
Automate is the model where the scale processing potential of digital technology changes business processes and operations. Two aspects of retail warrant greater degrees of automation in service of our retail goal. An enhanced catalogue based on new combinations of internal product descriptions and knowledge offers an information foundation to customers.
Applying this information by letting ‘customers know everything we know’ is the foundation for a digitally different shopper app that builds confidence and trust. Another idea is transforming payments across the supply chain so ‘you get paid when we get paid’ to accelerate cash and transparency between the retailer and supplier leading to micro fulfilment necessary for the velocity and diversity of products required to serve individual needs.
Apply model concentrates on individual use of digital technology that creates value in ways that lead to company revenue. In retail, the apply model would go beyond a simple ‘identify and offer’ digital mobile shopper app that copies the online website. Instead digital information in combination with location, offer, inventory, social/peer and catalogue information would put the individual at the centre of their needs and our ability to fulfil those needs. Combined with an augmented store, the common layout becomes a personalised path to their particular wants and needs.
Accompany based capabilities give company associates the tools and information they need to add value to the customer experience and company operations. In retail this may build on the advanced digital shopper, mentioned above, to provide associates on the floor or phone the additional information, context and confidence to create a specialised experience rather than continually asking ‘is someone helping you, identifying a need that someone else can meet, or following a predefined one size fits all script.
Augment uses digital technology and information to extend the capacity and capability of the physical environment and therefore the customer experience. This is critical in retail as each store represents a victory and challenge. It is a victory as it’s no small feat to get customers into the store with the challenge that their interest needs to turn into results. Using individual location and expressed interest to make suggestions, offer packages, apply past history all can make the impersonal store feel more personal. It can also give store managers better insight into traffic flow, interest and staffing requirements to have the right resources in the right place.
Abstract refers to the value created by ‘digital on digital’ that is often associated with big data analytics. Several digital edges exist in this area, from company focused business intelligence about product availability, assortment, price and promotion to customer-focused information about peers, preferences, packages and pricing. Abstraction creates transparency that builds trust when it is accessible across the value chain and particularly with customers to influence their behaviour.
Trust and confidence are reasons why people shop at a showroom a store like Best Buy and others. Abstract solutions require making connections across the other models to bring intelligence to life by creating accessible customer value in ways that lead to addressable company revenue.
The digital store of the future is not just an integrated mobile/web application that allows you to look up deals. That is a form of digital substitution that accelerates commoditisation and would lead to ‘death by a billion clicks’ as pointed out in the Wired article.
Instead, consider how digital technology can create an edge that brings out the best in digital and physical resources. In this case consider the connections between abstracted intelligence, an augmented environment where digitally accompanied associates interact with customers who apply the information to their individual need. All backed by a hyper efficient, automated and digitally disruptive supply chain platform. It is an environment where an individual would use our global organisation to meet their particular wants and needs. An experience that is digitally different and impossible for those without a physical presence to copy and commoditise.
What are your ideas on how to blend ‘clicks and bricks’? How should existing companies make the transformation from a world where physical and digital compete to one where they combine, create and innovate value and revenue?
Mark McDonald, Ph.D., is a group vice president and head of research in Gartner Executive Programs.