CUSTOMER-CENTERED OMNICHANNEL STRATEGY

Retail strategy in the post ‘apocalypse’ and COVID era

Photo by Heidi Fin on Unsplash

The ‘Retail Apocalypse’

Retail store closures in the US — 2016–2020 — more than 250k stores closed operations momentarily in 2020 & 2021 due to the impact of COVID-19
Retail store closures in the US — 2016–2020 — more than 250k stores closed operations momentarily in 2020 & 2021 due to the impact of COVID-19

The impact of COVID-19 on shopper behavior

  • Consumers are much more likely to buy online than in the past. People who were used to buying online shopped more, and those who hadn’t adapted started to make online purchases for the first time. Data indicates that post-COVID, we will experience at least a 10% higher inclination to purchase online than in the past.
Source: Statista — projected growth of online retail sales — various sources indication higher percentages ranging from 25–40% at times
Source: Statista — projected growth of online retail sales — various sources indicate higher percentages ranging from 25–40% at times
  • The state of Consumer Behavior 2021 report indicates that nearly 50% of consumers will maintain their current levels of online purchases, which is a dramatic increase compared to 2019, and 16% will increase their online purchase levels compared to 2020. However, 25% of consumers are indicating that they will reduce online shopping and move back to physical retail due to several reasons including wanting to touch and feel items, the joy of shopping as an experience, and/or not wanting to wait and/or pay for delivery.
  • Payment processes are becoming more frictionless. While this trend had already started, COVID will further accelerate this transition.
  • Consumers have different expectations for physical retail environments. Consumers expect retailers to exercise good hygiene practices, wear masks, have hand sanitizers accessible, enforce social distancing rules, provide gloves for employees, and have disinfection in-store. In short, consumers expect a low-touch environment.
  • Flexible working patterns — with more people working from home.
  • Retailers are focused on improving offline experiences. 30% of respondents reported that in-store customer service improved in 2020. The report also indicated that 60% of customers believe if they get a great in-store experience, they are more likely to shop offline than online.
  • Lacking brand loyalty. 48% of respondents said they have replaced products they typically purchase at physical stores with competitors’ online alternatives. Now, this could be due to lack of availability also. Among those who switched in 2020, 18% said their old brand was unavailable and 16% said a new brand offered a better discount or price than other options
  • Omnichannel experience will be key to success. 65% of customers show that a good offline experience will result in more online purchases from the same store/brand and vice versa.
  • When asked what drives the customer experience in-store, shoppers indicated product range and variety, quality of customer service, interaction with staff, and convenience factors such as the location and layout or ease of checking out as the main drivers of their experience.
  • After reopenings, as shoppers return to purchase in-store, they will tend to spend more time, which results in larger basket sizes.
  • Despite the impact of COVID-19 which has caused brand switching, customers still want to remain loyal. 57% of consumers remained loyal to a brand during a chaotic 2020, 45% say they wanted to feel like the brand appreciates them, 14% said they wanted to feel like a brand knows me, and 14% want to feel connected with the brand on a common cause or set of values.

Lasting trends

Pre-Covid trends exacerbated by the pandemic

  • Pricing transparency. Customers who shop at everyday low price retailers such as Walmart will not appreciate tier discounting or constant promotions due to their adaption to online retailers' transparent pricing.
  • Enhanced customer experience. Retailers that have a product-centric sales approach (e.g. cross-sell, upsell) will be at a disadvantage, and those stores whose salespeople serve as a guide or help and provide a shopping experience will be the emerging winners.
  • Digital. Is a major force of change at play, with Amazon as the front runner in this revolution.

Post-COVID changes

  • ‘A’ malls, or luxury malls that are more experiential in nature, will perform better. While ‘B’ and ‘C’ malls were hurt by the COVID with shoppers tending to buy their products online.
  • Strip malls or community centers did better than ‘B’ and ‘C’ malls. This is a change as to where people are shopping and shops will most likely move toward strip malls and community centers as business reopens.
  • General stores such as Walmart, Amazon, and Target have grown in power. With shoppers increasing their purchases potentially due to convenience and wider assortments.
  • New digital native brands such as Dollar Shave Club will be beating established brands such as Gillette. This is due to two underlying drives — first, they have strong brands because they are listening to customers and offering messages that resonate with their communities; second, they are direct-to-consumer which gives them the power to collect first-party (end customer) data to make insightful decisions; and third, they have a subscription pricing model which maximizes value for the customer and increases their lifetime value while traditional brands remain transactional in nature.
Dollar Shave Club founder Michael Dubin on a razor-sharp idea | iConic Conference 2017 | CNBC

Strategic post-COVID-19 changes to retail

  • Move to customer-centered omnichannel retailing. This is an integrated and seamless multi-channel experience online and offline which will require the integration of supply chain and employee management models on the retailer side of operations and a deep understanding of customer needs and desires.
  • Importance of creating an in-store experience that builds trust. Due to the impact of the COVID, customers need to trust stores to deliver their loyalty, which will mean a major shift from discount and product-focused messaging towards a relationship-building one.
Photo by Tristan Colangelo on Unsplash

Leading in the new retail environment

  • Brand
  • Customer experience
  • Frictionless
  • Low price
Kahn’s retail success matrix — four strategies for winning in a new retail environment
Kahn’s retail success matrix — four strategies for winning in a new retail environment
  1. Establish the minimum requirements for winning in each of the four quadrants above in its marketplace
  2. Use the winning capabilities it has in a quadrant of focus and decide which quadrant it wants to establish leadership in
  3. Pick a second quadrant that it wants to build an advantage in
  4. Deliver at least the minimum deliverables in the other two quadrants

Case example of a retail leader: Amazon

Amazon’s virtuous growth cycle
Amazon’s virtuous growth cycle

Priority 1: frictionless strategy

Amazon CEO: Focus on the customer is key — CNN

Priority 2: low pricing

Priority 3: reducing the power of brands

Priority 4: enhancing customer experience through an omnichannel presence

Kahn’s retail success matrix — Amazon’s retail strategy
Kahn’s retail success matrix — Amazon’s retail strategy

Case examples of other retail leaders

Everyday low price retail: Walmart

Kahn’s retail success matrix — Walmart’s retail strategy
Kahn’s retail success matrix — Walmart’s retail strategy

Everyday low price retail: Target

Kahn’s retail success matrix — Target’s retail strategy
Kahn’s retail success matrix — Target’s retail strategy

Everyday low price retail: Costco

Kahn’s retail success matrix — Costco’s retail strategy
Kahn’s retail success matrix — Costco’s retail strategy

The case of luxury retail

Kahn’s retail success matrix — Luxury’s retail strategy
  • Amazing online experience
  • Amazing offline exprieince
  • Connecting these experiences through customer data which can be gathered either online (e.g. mobile app) or offline (e.g. sales associates)
Photo by Korie Cull on Unsplash

Technology as enabler of success

Kahn’s retail success matrix — Technology enablers of success
Photo by Artificial Photography on Unsplash

Post-COVID online/offline integration

Amazon is going offline and Walmart has gone online

Digital native vs. legacy retail players: bridging weaknesses

Kahn’s retail success matrix — Digital native vs. Legacy players
Kahn’s retail success matrix — Digital native vs. Legacy players
Photo by Annie Spratt on Unsplash

The case of China: a forefront in new retail

  • The culture in China is more of a collective society than individualistic, and they enjoy being part of a group, even when shopping. Therefore Chinese consumers rely heavily on product reviews and group discussions to make a purchase decision. In China, 75% of internet users post online feedback about purchases at least once a month while this is around 20% in the US (~1/3)
  • Trust between consumers and retailers needs to start way before they go into the store. While in the US, the trust is provided upfront unless something goes wrong. Therefore it’s quite difficult to establish trust in China and this is where the Key Opinion Leaders or Social Influencers become important for retail. These influencers have shaped what is coined Social Commerce in China
  • Alibaba has shaped the online shopping culture of China which is quite different from Amazon. While Amazon’s focus is to reduce frictions and make purchase decisions easy for customers, Alibaba takes customers down a treasure hunt rabbit hole with the elements of surprise and impulse purchase. This is what is called Shoptainment (i.e. Shopping Entertainment) which many new marketplaces are picking up across the globe
  • Chinese shoppers also share their purchase experiences with others on social media, for example showing their recent purchase of a luxury brand or innovative item to their communities. Which is very different from what one would see in the West
  • China has experienced a retail technology leapfrog whereby 98% of retail purchases are made on mobile phones. And therefore, online channels are optimized for social purchases which through the ease of changing apps, sharing content on social platforms is very easy
  • While the West has maybe too much retail space per capita, China lacks this infrastructure, especially in 3rd, 4th, and 5th tier cities. And therefore online and mobile retail has grown tremendously
  • Payments in China is quite frictionless, with mobile tap and QR code scans, making checkouts and final impulse decision of customer seamless

Retailer’s strategies in China: Alibaba

  • Taobao — has a product assortment scale and was created to connect customers to customers (C2C), similar to eBay, where small merchants sell products to customers
  • Tmall — is about developing and delivering brands to Chinese consumers with many Chinese and international brands wanting to connect to the lucrative Chinese consumer
Kahn’s retail success matrix — Alibaba’s retail strategy — Alibaba has a diversified portfolio approach through Taobao and Tmal and hence there are more combinations of positioning in its retail strategy matrix
Kahn’s retail success matrix — Alibaba’s retail strategy — Alibaba has a diversified portfolio approach through Taobao and Tmal and hence there are more combinations of positioning in its retail strategy matrix

Retailer’s strategies in China: JD.com

Kahn’s retail success matrix — JD.com’s retail strategy
Kahn’s retail success matrix — JD.com’s retail strategy

Retailer’s strategies in China: PinDuoDuo

What is Pinduoduo? | KrASIA
Kahn’s retail success matrix — PinDuoDuo’s retail strategy which makes it a market leader on three strategic fronts, propelling to fast growth and profits — a unique market position to be in
Kahn’s retail success matrix — PinDuoDuo’s retail strategy which makes it a market leader on three strategic fronts, propelling to fast growth and profits — a unique market position to be in
Photo by Alexey Mak on Unsplash

Brand strategy and retail

  • The target segment
  • The point of differentiation relative to the competition
  • The frame of reference or the context from which consumers view it
  • The reasons to believe the promise

Brands as a force for ‘good’

Brand Citizenship — from ME to WE —the ‘ Me-to-we ‘continuum to help businesses gain lasting credit for sustainability and social responsibility initiatives
Business as a Force For Good — Sarah Wleklinski — Director of Retail Strategy, WE, Nike
How Nike Turns Controversy Into Dollars | CNBC
Photo by Sangga Rima Roman Selia on Unsplash

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Nima Torabi

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