The never-ending retail red carpet

Retail is doing its best to spoil customers rotten. Data spills from customers, but where it gets tricky is how to refine and use it – all in pursuit of the golden 'return on relationship'.

The irony of the contemporary consumer is that they have never been so easy to reach – and yet never so hard to please. While digital technology has given retailers new ways to connect with customers, the global marketplace has also broadened their horizons and lifted their expectations. The result is a seemingly unwinnable game of consumer kiss-chasey in which retailers are being forced to go to ever-greater lengths to capture the attention of increasingly high-maintenance customers.

These were the not insignificant challenges outlined by retail experts from across the globe at this year’s Westfield breakfast seminar series: “The future is coming, ready or not”.

But while the consumer may rule the roost for the time being, as retailers follow them into the digital world the tools they use to connect with them are also advancing and opening up new opportunities for doing business.

David Roth, chief executive at WPP’s retail services firm The Store, says successful retailers will be those who offer a fully digitally integrated proposition that seamlessly accommodates customers’ desire to move from one touch point to another – be it in the physical store, mobile, online or otherwise. But he says while delivering a seamless multi-channel offering may be easy to say, it is “unbelievably difficult” to do well.

It’s also only part of the story. Following customers wherever they go is one thing, but the customer increasingly wants different things once they get there, too.

Jamie Gutfreund, chief strategy officer at LA-based The Intelligence Group, says consumers increasingly want tailored, personalised experiences – and traditional brand relationships are eroding as younger consumers opt for customised products to build their own “brand me”.

A survey by JWT intelligence found 72 per cent of Gen Y consumers – those aged 18 to 35 –  “crave” sensory experiences – more so than previous generations, with only 45 per cent of baby boomers (those aged 49 ) and 61 per cent of Gen X-ers (those aged 35 to 48) ticking this box. These trends are influencing where consumers put their wallets, with 72 per cent of Gen Y-ers saying they would rather buy an experience than a product – also significantly higher than boomers, at 59 per cent, and Gen X, at 65 per cent.

Retailers who are ahead of the curve in this area have responded by injecting elements of ‘play’ into the shopping experience. Lego’s ‘augmented reality’ concept stores allow customers to hold a product up to a screen, which then treats them to a digital demonstration of the product within the box. Then there’s Burberry’s digital tags, which are embedded in items of clothing and trigger in-store digital mirrors to regale a visual ‘story’ about the product.

In the age of ‘selfies’ and social media, Gutfreund says retailers must rethink their branding to incorporate ‘return on relationship’ (ROR), as opposed to the traditional metric of ‘return on investment’ (ROI). It’s something that social marketers have recognised for some time (Weaving social media into the sales pitchMay 10), and in practical terms, it will require thinking outside the square and investing in ‘experiential’ offerings to build customer relationships in new ways.

This is where customers’ increasing presence across digital platforms has the potential to shift from a challenge into a lucrative opportunity, by using data from online activities to strengthen customer-brand relationship and deliver personalised experiences. And as technology for data mining becomes more accessible, retailers will find many new tools at their fingertips to chase the new paradigm of ROR.

“Data is the new oil,” says David Roth. “There’s plenty of it – but the trick is to know how to refine it into something valuable. My advice is hire as many mathematicians as you can get a hold of, because they are the powerhouse that will drive business in the future.”

Electronics retailer Kogan has been a local trailblazer in this space, seeing phenomenal growth since the appointment of actuarial expert David Shafer as executive director in 2010. Shafer has driven the business’s rapid international expansion and grown the company into one of Australia’s largest online retailers, with projected revenues in the 2012 financial year of $150 million.

Retailers such as Myer and Woolworths are also recognising the value of data-driven ROR by investing in sophisticated customer loyalty programs.

Earlier this year Woolworths forked out $20 million for a 50 per cent stake in data analytics company Quantium to better leverage data from its Everyday Rewards loyalty program. It has used this data for targeted marketing and has seen the program grow 11 per cent to seven million members after it introduced personalised offers.

Myer’s customer loyalty program, MYER one, is also heavily integrated into its business model. The program now accounts for 70 per cent of sales, with membership increasing 9 per cent in fiscal 2013 to five million. The department store spent $50 million distributing reward cards to customers in the year – an investment that has clearly paid off, with the average spend on redemption of a reward card coming in at 3.8 times the size of the reward.

At Myer’s full-year results presentation in September, chief executive Bernie Brookes flagged further enhancements for the MYER one program, saying it gave “a key competitive advantage providing incredible insights through sophisticated data analysis”. And at its annual general meeting last month, Woolworths also said there was more work to do on data analytic capabilities in order to drive new avenues for growth.

But Intel’s “chief evangelist and futurist” Steve Brown, also speaking at the event, says retailers who go beyond targeted marketing campaigns and use data to build personalised experiences will have a competitive advantage.

This is where innovation will become more important than ever before, as new tools that have fundamental functions for both consumers and retailers have the potential to take ROR to a whole new level.

For instance, ‘intelligent’ supermarket shelves are being prototyped at this very moment that will not only provide detailed information about products but recognise customers’ shopping preferences – such as the need to avoid certain ingredients because of food allergies – and then recommend which products the customer should choose or avoid.

David Roth also says brand owners must reposition themselves as curators rather than merchants – and recommends visiting as many museums as possible to get a sense of the tailored, curated user experience.

“You are going to need that childlike creativity to navigate your way through the future of retail,” says Roth.

“The future of retail is not what it used to be.”

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles