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Catching up with Online RetailersHow Brick and Mortar Retailers can Compete in Today’s Marketplace

Nagaraja SrivatsanEVP & Chief Growth Officer, EXL

Ankor RaiSVP, EXL

Namit SurekaVice President & Analytics Practice Leader, EXL

Gaurav LalSenior Assistant Vice President, EXL [email protected]

Written by:

Contributor:

Sales from traditional retailers have gone

down drastically, leading to the demise of

a significant number of brick and mortar

stores. By August 2017, approximately

6,300 stores announced that they were

shutting shop. However, some retailers

have their own set of characteristics and

specialties that are still alluring to today’s

customers. As shown in Exhibit A , there

are off-price and extreme value retailers

who have remained stable given their

business models that cater specifically to

certain tranches of the population.

However, a large part of the growth of

mega online retailers has come at the cost

of traditional retailers, especially those

in the department and discount stores

segments.

For traditional retailers, there is a lack

of coherence in customer engagement

across online and offline platforms, which

makes it difficult to strive for a meaningful

experience across all channels of

engagement. The major pain points faced

by the traditional retailers in adapting to

the digital ecosystem are:

1. Integration of legacy systems with the

digital ecosystem

2. Addressing the proliferation of

customer channels and touch points

3. Consistent and unified channel focus

strategy

4. Leveraging customer moments and

journeys

Until recently, the only way for customers to achieve instant shopping gratification was to enter a

brick-and-mortar store. The Internet has changed all of that. It has allowed online retailers such as

Amazon to successfully engage with customers and create a shopping experience that has driven foot

traffic away from stores and on to computers, tablets and phones. These online retailers have a leg

up because they often offer a wider product selection, lower prices and customer interactions that

promote product reviews and ratings.


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To successfully win over a customer’s

heart and wallet, it is important to provide a

seamless customer experience. However,

this can only be done by understanding

customers well, playing to one’s core

strengths, and developing a game

plan attuned to the customer lifecycle.

Successful retailers will tailor their strategies

around their main stakeholders—their

customers—and the most important asset—

data. Only by developing a data-driven,

customer-centric approach can traditional

retailers achieve success in the present day

marketplace.

Creating an effective and consistent

customer experience is both a challenge

and an opportunity because the rapidly

evolving customers are more demanding

and tech savvy than ever before. With

today’s customers always on the move,

technology holds the key for the brick and

mortar retailers to adapt their customer

experience according the needs of the

new breed of empowered consumers.

Technologies like augmented reality,

virtual reality and A-GPS bring the retail

experience closer to the customer while

enabling higher engagement levels and

customer satisfaction. To be competitive,

retailers must embrace the technology to

enable comprehensive integration of front-

end and back-end channels that create the

omni-channel focus to not only meet, but

also beat competition.

To build a successful retail strategy, players

can follow these guidelines:

1. Incorporate a customer centric view

and derive insights that add value to a

customer’s journey

2. Build upon their core business strengths

3. Leverage cutting-edge analytics across

the board

4. Use cross channel integration for a

seamless customer experience

Three key attributes to build a successful retail strategy

Customer Experience

Analytics Data


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A customer centric viewThe first step in understanding a customer’s

buying behavior and preferences entails

building a 360-degree customer-centric

view. This includes:

• Identification and collection of

customer information from a variety

of sources like online interactions, in-

store experiences and customer flow

captured using beacons or Wi-Fi pings.

This has been made possible because

of the developments in many areas

of technology. In just the past few

years alone, there has been a massive

development in the customer database

collection technologies, which allow

for better and more valuable insights.

Additionally, the developments in big data

technologies have enabled combined

processing of structured and unstructured

data from disparate data sources for

data enrichment operations which are a

precursor to efficient data analysis. These

rapidly developing tools and technologies

are a natural progression of data collection

for retailers who have been relying for

a long time on just transaction data for

trends and insights.

• Building a master 360-degree view of a

customer that integrates all data across

all channels, including product, order,

inventory, purchasing, and vendors

to ensure that everyone in a retail

organization, from in-store associates to

warehouse pickers, has access to the

same real-time data needed to deliver

total customer satisfaction. Integrating the

interaction and transaction data from the

POS, web, contact centre, mobile apps,

and social channels create a seamless

experience the customers expect.

• Leveraging the master view of the customer

to derive insights such as uncovering the

drivers of loyalty using customer response

and behavior. This includes tracking

response to loyalty offers delivered online

and offline in both same channel and

cross-channel purchases and segmenting

multi-channel behavior of customers to


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identify differentiated patterns of purchase

and customer journeys. A 360-degree

view of the customers helps in the channel

selection for targeting customers and helps

retailers to optimize their marketing mix to

get the highest conversion rate and sales

performance.

• Measuring the constant feedback loop in

terms of customer response and loyalty

to ensure the efficacy of the data-driven

strategies implemented as a result of the

insights derived from this 360-degree

view of customers.

The purpose of creating a customer-centric

view is to establish a relevant customer

context. This context is further enhanced

by information on customer’s buying

behavior and preferences providing inputs

for improvising the individual customer

experience. This requires collation,

management, and analysis of customer

data from different sources to arrive at an

analytical model aimed at enhancing the

numerous journeys customers undertake to

complete their respective purchase cycles.

It also involves predictive modeling based

on the collated data to design and market

offers based on shopping behavior thus

achieving better ROI. Advanced analytical

approaches such as machine learning, deep

learning, natural language processing and

network analytics are the enablers to these

analytical models which are complex to

implement manually.

Customer

Natural Language ProcessingMachine LearningDeep LearningNetwork Analytics

Data Sources

ENABLERS

Creating customer context

Data Management • Structured and

Unstructured data • Big Data • Cloud

Analytical Insights • Descriptive Analytics • Predictive Analytics • Prescriptive Analytics

Data Enrichment • In-store • Web • POS • Social


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Building upon core business strengths Once the customer context is clear, the

business strategy of any retailer should focus

on leveraging their core business strengths.

These strengths are identified in several

ways, but most certainly take into account

the retailer’s industry expertise, competitor

research, as well as knowledge of the latest

trends in their category.

Some retailers build on their strength of

providing exclusive offerings or service

delivery. For example, the core strength

of Best Buy is its highly trained sales

associates, who are available to educate

customers, assist them in making an

informed decision, and provide technical

support. In order to keep up with the

growing digital consumers, Best Buy

launched a new service called the Geek

Squad. The service augments Best Buy’s

core competency by combining online

and offline customer touch points in sync

with the digitally savvy consumer’s journey.

Consumers can reach Best Buy for repairs

through a variety of touch points which

includes web, mobile app, and in-store. This

helps Best Buy to extend their services in

Geek Squad’s core strengths and its multiple touch points

Web Mobile In-Store On-site Phone

Master Data Set

Product Installation &

Setup

24/7/365 Customer Support

Purchase Protection &

Warranty

Product Repair &

Maintenance

GEEK SQUAD’S CORE STRENGTHS


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the form of in-home repairs/assistance,

in-store repairs/assistance and remote

assistance.

Likewise, Walmart uses analytics from in-

store and online sources to not only provide

customers a seamless experience, but also

to make better decisions for managing

large volumes of inventory. WalmartLabs,

the retailer’s digital innovation constituent,

utilizes visualization techniques to study

social activity to capture insights that may

indicate variations in product demand.

Walmart uses these insights to stock the

extra inventory at locations where higher

demand is expected and to reduce the

surplus inventory at locations where lower

demand is expected.

Additionally, the retail giant has also

introduced technologies like RFID in its

supply chain process. This has enabled

Walmart to predict the demand patterns

for uncommon products such as cake-

pop makers and electric juicers by

understanding their correlations with

other products which have an impact on

their demand. As per a research estimate

from Capgemini, Walmart has been able

to reduce its out-of-stock inventory by 16

percent through the application of such

digital innovations.

Because customers still shop at physical

locations, it becomes important to have an

integrated multi-channel strategy. Local

retailers seeking to increase sales activity

can make use of geo-targeting by using

location based apps send out promotional

messages to customers within the vicinity

or even to people in a competitor’s store.

Retailer can also leverage the presence of

customers searching through price scan

apps in the store by devising and offering

more focused promotions. Another approach

common in use is to make the best use of

store location by using the store as a show

room and offering alternative methods for

buying and offering same day pick-up.

To take this further, consider Amazon, a pure-

play online retailer in the home improvement

category, and Lowe’s, a traditional home

improvement retailer. Lowe’s, unlike Amazon,

Because customers still shop at physical locations, it becomes important to have an integrated multi-channel strategy.


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provides solutions to help customers

along their home improvement journey.

The customer journey in this case includes

online, point of sale, phone calls to customer

service, and professional services in a

customer’s home. To accomplish this, Lowe

involves mixing of digital and physical worlds.

If a customer is shopping for a single item,

the Lowe’s experience might be comparable

to one at Amazon. However, when that item

is part of a project, then Lowe’s differentiated

service experience comes into play. This

project-centric, omnichannel strategy is

central to Lowe’s competitive positioning

against Amazon and other retailers outside

the home improvement segment of the

market. The secret of Lowe’s success lies in

its ability to guide customers and quality of

sales services.

Omnichannel retailing should aim at

providing a uniform brand experience like

Lowe, but at the same time be cognizant of

differing service level expectations across

channels – as the same individuals won’t

shop in the same manner across different

channels.

Leverage cutting edge analytics across the boardThe customer’s shopping journey, which

once followed a simple sales pattern,

has now been replaced by a complex

relationship that stretches across

several touch-points. This has resulted

in large volumes of data and has made

understanding customers and reaching out

to them more complicated. There is a need

to employ analytics in all domains and make

data-driven decisions. A few dimensions are

discussed below.

Understanding customers

As retailers compete to drive traffic to their

stores and website what varies is how well

each retailer understands its customers’

buying preferences, likes and dislikes, and

how each retailer uses this knowledge to

influence shopping behavior. Customer

The customer’s shopping journey, which once followed a simple sales pattern, has now been replaced by a complex relationship that stretches across several touch-points.


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segmentation helps omnichannel retailers

gather insights to pinpoint effective

marketing strategies and deepen customer

loyalty. With the number of marketing

channels available to retailers today, careful

segmentation has become a mandate for

those who want to remain relevant, and has

been shown to grow sales, reduce attrition

and increase profitability.

A customer segmentation plan can help

leverage the customer segment data to

implement the following activities: creative

messaging, revamping experiential benefits

or reward structures, differentiation of

offers, proactive retention, and deciding the

frequency and cadence of customer contacts,

customer service, and channel strategy.

Reaching customers effectively

To be dominant in the marketplace,

data-driven analytics techniques help

omnichannel retailers boost sales, develop

a competitive advantage, cut costs, and

most importantly, create a comprehensive

view of the ideal customer. It can help

accomplish otherwise tedious tasks like

managing marketing campaigns where

key performance indicators are specific to

channels and visualizing profitability/ROI

metrics that are segmented by channels,

customer segments, content type, and

other factors to ensure efficient use of

marketing dollars.

Omnichannel retailers typically use both

online and offline channels in tandem.

Data analytics forms the backbone of list

selection in all marketing campaigns run

by the retailers. Multiple channels such as

text, email, direct mail can then be used to

create coherent messaging and matching

offers across campaigns. The end result is

a focused customer experience that avoids

over-contacting premium customers while

ensuring customized content and timing.

Data analytics also plays a role after the

campaign rollout. It supports the evolution

of campaign strategy through performance

measurement, defining of KPIs specific to

channel and campaign objectives, such as

influencer reach for general social media

campaigns, or repeat purchase behavior

for discount campaigns. In addition, it aids

in the development of clear profitability/

ROI metrics across various dimensions,

including overall, by channel, by customer

segment, or by content type to ensure

efficient use of marketing dollars


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Maximizing revenue

Another aspect where analytics can help

omnichannel retailers is pricing. To keep

customers coming back, many of the big

retailers offer a price match guarantee.

Walmart, eBay, Best Buy and others all

offer a minimum price match guarantee.

This is where most retailers struggle most

because retention across the lifecycle is

made more difficult by the lack of even

knowing what is going on with competitors.

An omnichannel strategy includes having

access to product price and availability

information, so the best price is the one

customers see. Earlier retailers used to

rely on barriers such as geography and

customer ignorance to markup their prices

and advance their positions in traditional

markets. However, technology has removed

these barriers. To embrace the competitive

pricing model, retailers should consider

implementing a dynamic price optimization

of different customer segments based on

real-time analytics of competitor prices and

demand-altering macro factors such as

holidays, seasonal events or trending fads.

Cross-channel integration for a seamless experienceAlthough traditional retailers have moved

online, they haven’t integrated their online

and offline channels, keeping each channel

in isolation. This has resulted in the failure

of online initiatives of many brick-and-

mortar businesses. Take, for example, a

retailer like Target. Almost 98 percent2

of their customers shop online, with 75

percent3 of the sales starting on a smart

phone or tablet. In terms of omnichannel

performance, almost 25 percent4 of all

Target.com orders are either picked up

in store or shipped from a store, which

doubles to 50 percent5 during the year-end

peak season. So, what does this mean when

you look at how the shopper behaves when

they enter the store for a pickup? Because

each channel as a separate category,

traditional retailers are limited to using the

insights they can derive from one channel

towards providing better experiences for

others and don’t leverage the best of the

possibilities.

An omnichannel setup can help customers

by providing information about stock

levels, delivery times and shipping options

regardless of where within the retailer’s

network they are situated. Whether the

customers are in a physical store, on a

computer or on a mobile device, the service

levels offered are similar. For instance, the

high street fashion store Oasis enables

the customer to browse online, pay online

and place orders through iPads online

while in the store. Customers can choose


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to try an item on in store, and then order it

online and have it delivered. The in-store

staff can order out of stock items online for

customers and help secure a potentially

missed sale on the part of the retailer.

Through iPads, shoppers can also search

different stores for the out of stock item

and get it delivered to their homes from the

stores where it is available.

Oasis demonstrates a good example

of how to integrate processes related

to both customer-facing functions and

back office functions such as supply

chain management. However, to truly

become integrated, logistics, supply chain,

marketing, branding, payment options and

the overall customer journey needs to be

synced. The steps in offering a seamless

personalized experience in the purchase

process starts right from the stage of

order processing. The key to enduring

Multichannel integration in practice—a scenario

STARTCustomer

researches online store – reviews

website – finalizes product

VISITS STOREDoes not find desired item

VISITS KIOSKSearches for product

– kiosk links to retailers website

allowing her/him to find and buy product

online

ORDERPlaces order online for home delivery/store pick-up at a

later date

RETURNTries it at home – doesn’t fit – opts

for return at home/store

STOPIf alternate size is available, gets it

replaced – if return done online, gets alternate product recommendation

based on feedback

SEAMLESS EXPERIENCE


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engagement here is to deliver a great

user experience and give the customer

reasons to move online. Once the customer

is online, the ability to control access,

manage an order, track order status and

make changes on the fly eliminates phone

calls and provides sales staff time for more

productive purposes.

Back-end supply chain integration is equally

important to increase business efficiency

and provide a seamless experience. It

starts with optimizing network design

which includes connecting the locations

and integration of various facilities used

to meet different channels’ demands.

This entails operational challenges

such as the integration of inventory and

transport, assortment management, the

balance of the capacity of operations, the

interconnection of picking operations and

sales returns processing. A unified view of

the supply chain from end-to-end, as well

as inventory sharing across channels, is

bound to improve efficiencies by optimizing

fulfillment based on business rules such as

inventory, service, markdowns, and revenue.

Segmentation and predictive modeling can

help to minimize the cost, improve user

experience, and reduce return policy misuse.

Such an approach will help the retailer in

their inventory optimization journey, as well

as in anticipating inventory needs. Retailers

will also be able to avoid ordering too large a

quantity of certain inventory items, ensuring

that their cash flow is preserved and that

they aren’t weighed down by excess

inventory.

ConclusionWhile the hyper growth of online

commerce has created many challenges

for traditional offline retailers, emerging

technologies and evolving customer

preferences have also opened up new

areas of opportunity. Thus, by leveraging

their core strengths, becoming laser

focused on the customer and mastering

the full value chain of data analytics,

traditional retailers have the potential

to establish themselves as leaders in

the omnichannel environment that will

characterize commerce of the future.

The way forward is to match the experience

of the local stores, where the storekeepers

used to have a detailed understanding

of their every customer’s proclivities and

preferences, allowing them to provide a

very personalized service, and make it

available across the breadth of interactions

spread geographically and across channels

becoming a “local global store”.


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References1. https://etaileast.wbresearch.com/customer-

centricity-model-best-buy

2. https://www.smartinsights.com/online-brand-strategy/multichannel-strategies/omni-channel-reshaping-commerce/

3. https://www.businessinsider.in/More-than-6300-stores-are-shutting-down-heres-the-full-list/articleshow/59867729.cms

4. http://ebooks.capgemini-consulting.com/dm/Walmart.pdf

Endnotes1. Quoted from “Business Insider” article published

on August 1, 2017

2. Exhibit A: Characteristics of General Merchandise retailers

2-5 All these figures are based on an article published in MultichannelMerchant (Paul Mandeville, 2015)

Exhibit A: Characteristics of general merchandise retailers

Type

Examples

Description

DifferentiatorsTarget

SegmentBig Online

Retail Effect

Department Stores

Macy’s, Bloomingdales, Neiman Marcus, JC Penney, Nordstrom

Broad assortment with service – primarily soft goods (clothing, cosmetics, bedding) – also focus on exclusive merchandise, private label merchandize

Brand loyalty, breadth of collection within select categories

Lifestyle driven, brand conscious

Heavy losses

Discount Stores

Walmart, Target Broad variety of merchandise with limited service and low prices (private labels, national brands)

Discounts, breadth of collection across most categories

Value seekers Losses/limited gains

Category Specialists

Best Buy, PetSmart, Staples, Bed Bath & Beyond, Sephora, Victoria’s Secret

Narrow but deep assortment of merchandise – Targets specific market segment with high level of service

Competitiveness in category, leadership in category achieved through consolidation

Specialty/customization seekers Loyalty driven

Varied based on adaptation

Warehouse Clubs

Costco, Sam’s Club, BJ’s

Irregular assortment of general merchandise with little service at low prices in large stores

Bulk discounts, competitively priced private label brands

Businesses & bulk purchasers

Largely unaffected as service expectation is low

Off-price Retailers

TJ Maxx, Ross stores, Burlington stores, Nordstrom Rack

Inconsistent assortment of brand-name merchandise at steep discounts

Steep discounts on branded goods

Value seekers Emerging threats from similar models being replicated online

Extreme Value Retailers

Dollar General, 99 Cents, Dollar Tree, Family Dollar

Compete on price and convenience on low value but shallow assortment of goods

Very low prices Lower income consumers

Immune as digital hasn’t posed any challenge

**Adapted from a report “Type of retailer” by Debbie Ferrie & Chief Merchant

Appendix


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