The arrival of Amazon’s direct operations into the local Australian market has whipped up a media frenzy with hardly a day going by without coverage. The consensus of analysts and commentators seems to be clear – the entire brand-manufacturing, retail and consumer value chain will experience significant disruption at some stage. As with Hemingway’s comment on bankruptcy – the timing of impacts will likely mirror other markets – happening gradually and then suddenly.
The response from incumbents has been mixed. Some retailers have tried to downplay the impacts or claim that their category is immune. Others have gone on the offensive claiming that Amazon’s business practices are unethical and potentially illegal. Refreshingly, some have had the courage to highlight their efforts to transform their business into high-touch customer centric operations where they can provide a robust level of service and experience across web and in-store to differentiate.
Some retailers like Appliances Online have pointed out that they have been anticipating the Amazon arrival for over a decade and are already delivering a service that will take Amazon a long time to match.
It is great to see the leaders who are grabbing the bull by the horns so to speak. The time is now – consumers in Australia have clearly shown that they are willing to divert spend towards great new offers – and FY19 needs to be the year that CX gets real focus across the board – building on some the great examples of domestic CX innovation to date like Appliances Online, Shoes of Prey, Kogan, Afterpay, Service NSW and many others.
Why you ask? A look at USA retailers market cap changes over a 10-year period is rather sobering. Virtually every top retailer across major categories has seen declining shareholder value whist Amazon has seen explosive growth:
Arguably this puts every retail board on notice that they are facing material risk of shareholder value decline without effective CX countermeasures. Compounding the impact of new competitors like Amazon is the blurring of the line across the brand-manufacturer, retailer and consumer value chain. To a certain extent – a retailer’s ‘right to exist’ has been predicated on filling the distribution gap between people who make stuff and people of buy stuff. This model goes back well over a hundred years and has been sustainable as the complexity to design, source and manufacture great product was enough for firms to deal with – whilst retailers had their hands full with the complexity of finding attractive sites and building or fitting out stores, staffing the stores with a low wage workforce, getting the localised range and demand signals right and managing supply relationships and distribution. In short this has been rewarding and symbiotic relationship between brands and retailers.
Going Direct to Consumer
Then the internet changed everything. Brands started to see the potential of the internet-enabled lower distribution cost and that the ability to connect directly with the end consumer meant that they could explore going direct. The benefit of directly capturing customer data and taking control of the brand messaging is compelling. Digital and automation enables a simplification of running the business. ‘Vertical’ retailing is not new, but a tipping point of major established brands going direct to consumer will be a game changer. If Unilever is willing to invest a billion dollars in Dollar Shave Club there must be something there. In other cases, major brands like P&G are teaming up with Amazon to incorporate collaborative logistics within the plant itself – simply manufacture to yesterday’s orders to accelerate the pace of fulfillment.
Whilst there is an obvious channel conflict that holds many brands from fully leveraging the direct-to-consumer model – alternative routes to market continue to evolve including the significant uptake of opening stores on digital marketplaces like Amazon, eBay, T-Mall, Catch and others. In some categories, the pressure faced from retailer private label offerings is accelerating the quest to go direct. As digital innovation creates new solutions for brands and last-mile fulfillment remains a focus, further disintermediation of the retailer share of the value chain is likely. The points is simple – the traditional value chain is being disrupted and will continue to change putting more pressure than ever on retailers to stake their claim with value-added CX – simply competing on price is simply not good enough in a world where the web can connect up disparate supply and disparate demand in an optimised way.
4 Dimensions of CX Transformation
So, what to do if you are a retailer with a traditional brick & mortar footprint at risk of significant loss of share to Amazon and others? I would like to offer a point-of-view on key considerations across four dimensions of the customer experience transformation journey:
Many retailers have been investing in ecommerce platforms and other digital capabilities. Whilst this is a positive step forward, in many cases the folks driving the agenda sit on the edges of the traditional retail firm power base – typically either merchandising or store operations. Comments such as “we only get 4 per cent of our sales from ecommerce” illustrate the lack of understanding that web-influenced sales are the real prize – not just direct ship-to-home ecommerce.
Sadly, in a lot of major retail organisations the digital ninjas are just that – highly skilled professionals with a huge passion for innovation operating from the shadows. Retail leaders need to elevate the innovation agenda and shine a spot light on those who have embraced new tech and new ways of working such as agile test and learn. This is important for two reasons – keep those folks happy and feeling valued in an environment where job mobility is greater than ever, and more importantly to inspire executives and key stakeholders across the business to ‘be digital’ and get laser focused on how their pieces of the retail jigsaw puzzle can integrate more seamlessly to support winning customer experience.
When you consider the kaleidoscope of skills and capabilities that companies like Amazon, Alibaba and others have assembled to innovate the customer experience and ignite explosive growth, it makes for an interesting comparison point relative the typical retail organisation. Alibaba’s huge year-on-year growth with Singles Day was attributed to their use of elastic cloud computing capabilities to handle the enormous transaction volumes and artificial intelligence processing. This allowed Alibaba to optimise customer journeys based of personalised data – ranging from product recommendations to fulfillment options most likely to resonate with the customer thus addressing major friction points.
For a typical Australian retailer, what percentage of the IT team is mainly focused on cloud, AI, machine learning, blockchain and other exponential technologies that have already changed the game – vs. maintaining outmoded databases, data centres and trying to negotiate agreeable business process work arounds for packaged software applications that have not delivered on the promise? To what degree do merchants truly embrace data and customer insights to optimise pricing, assortments and campaigns vs. go with the old gut? In my view, this is a critical issue not just at the detailed ‘doing level’ but also within the realm of the GM’s, C-Suite and Board. Who will deliver the mandate to hire entirely new talent profiles from top to bottom or partner with 3rd parties to fill these critical skill gaps?
Let’s face it, few retail businesses have truly made the pivot to customer-centric operating models organised around delivering a compelling and differentiated offering to address the unique needs and ‘customer missions’ for key segments. A good example of doing this well is Amazon’s approach to addressing the shopping mission associated with keeping the pantry full of household essentials vs. catering for the needs of high income professionals who want to eat high quality fresh food – either prepared at home or delivered from top restaurants.
Amazon has organised their resources around these different shopping missions to bring together cross- functional and multi-skilled talent to devise and deliver breakthrough solutions for each specific mission. The shopping mission associated with keeping the pantry full is simple – as a consumer “I just don’t want to run out of stuff and am keen to do that with as little time and hassle as possible”. Enter Amazon Prime Pantry – a service that leverages IoT devices such as dash buttons, the Amazon Echo device using a natural language interface, and data driven re-order suggestions to simply have the stuff come to you with a reasonable delivery fee.
On the other hand, Amazon fresh focuses on visually rich user interfaces that evangelise both the product and provenance – telling the story in a way that the butcher or deli merchant down the road would – and with greater choice, simplicity and time savings. Yes, you can get all of these offers within the four walls of a typical supermarket – however the customer experience becomes very blurred between the various shopper missions leaving a lot to be desired. Where the power of a one-stop-shop has allowed ground-breaking new concepts like Service NSW to win with citizens who are fed up with Government bureaucracy and convoluted access to services; for other consumer shopping missions one size fits all is a real problem.
This item probably warrants a blog of its own given the explosion of tech innovations resulting from 30 years compounding of Moore’s Law. We are truly at the point where yesterday’s science fiction is becoming today’s reality. And arguably we have not seen anything yet as computing power is only getting more affordable, more portable and more accessible each day – and major advances in user interfaces such as mobile, voice and whatever comes next help esoteric topics like machine learning become real solutions. Empathy and intuitiveness are now table stakes. Paradoxically despite these major advances in tech many large retailers are struggling to delivery on Board-level mandates and major capital programs.
The promise of many major tier one solutions remains unrealised, with numerous underlying causes. In other cases, the complex ‘heart and lung’ transplant associated with these solutions is on the pathway of successful implementation, however, the benefits will come too late. Major advances in cloud-based computing, micro-services combined with new paradigms related to agile development and the data imperative are allowing leaders to rapidly address critical gaps, test innovative new ideas and accelerate the pace of change – even if the heavy lifting with back-end infrastructure takes place in parallel.
The bottom line is that speed is critical – think about hot topics like distributed order management – can you afford to wait three years for a solution that allows your stores to tap into the full breadth of your network inventory as well as the full catalogues from your suppliers? When Amazon goes after your category this is precisely how they will operate – endless aisle was proven within their leadership team years ago – this is now fully baked into their modus operandi.
So, where to start?
As you would expect there is no ‘one size fits all’ answer to this question, but what is very clear is that inertia and denial are formulas for disaster – it is better to get moving on something rather than waiting for the perfect solution. By identifying the folks within your business who are inherently passionate about innovation and giving them a clear mandate and space to test and learn, organisations can provide a great springboard for broader innovation. The key is to unleash this powerful resource – moving from hobby jobs to a dedicated focus with resources and regular top-level interaction. I recently heard the story of how a 100+ year old life insurance company has established a dedicated team completely seconded from their day jobs. They have no steering committee or other multilayered governance model – they simply meet with the CEO once a quarter and report on how they have either proven or disproven key hypotheses related to new tech themes such as chat bots, AI, blockchain and others.
Success is measured not just in the wins, but also in the velocity with which ideas are successfully disproven – a powerful way to filter the noise and get the organisation focused on implementing the solutions that will drive concrete value. This may not be the right answer for your organisation, but hopefully good food for thought as we contemplate how to change the game for your business for FY19. Time to take CX to the next level.