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Digital Transformation for Retailers (Part 2 of 5): Why?

Perficient has been covering broad digital transformation trends for a while, and the Consumer Markets team here at Perficient wanted to highlight how the principles of digital transformation apply specifically to brands and retailers. In our opener of our “Digital Transformation in Retail” series, we urged these companies to become particularly deliberate about their own digital transformations – especially retailers who feel that their digital transformations are complete, or worse yet, not needed.
In this second edition, we will go into more depth on the underlying drivers to explain why digital transformation is important for all brands and retailers.
The Connected Consumer
If I could leave you with just one reason (or you didn’t have time to keep scrolling through this blog), it is the fact that we are living in a time where we are digitally connected to the rest of the world. By now you’ve probably seen all the statistics on connected devices (98.8% of people own at least one connected device), time spent online (about 4 hours per day), and time spent shopping online (about 225 minutes per week.) The result of all of this connectivity is a highly informed consumer who is now in control of their shopping experience. Consumers have access to more brands and retailers than ever, and all of the product details, competitive prices, and reviews they could ask for, including what their friends think. The options are limitless, the choices are highly informed, and the switching costs between brand, retailer, and channel are practically zero. To reach the connected consumer, retailers need to connect in the ways that their consumers want to be reached. When those ways are dominated by digital connectivity, retailers need to transform their digital capabilities.
 Everyone Else is Doing it
An admittedly flimsy reason for doing anything but it does hold water in the face of rapid competitive innovations and threats. 50 years ago, color TV was a big deal, and was a selling point and product differentiator for decades. Flat screen TVs were a big deal 15 years ago and quickly became a meaningless differentiator. Same-day-shipping is a valuable differentiator for many today, but how long until it simply becomes the de facto standard and customers simply expect it? What is the minimum order size to qualify for free shipping today? It will be lower tomorrow. The internet has left behind a trail of broken and beaten retailers who failed to envision how they could better connect with their customers: Blockbuster, Circuit City, Radio Shack, Border’s, and many others. “Keeping up with the Joneses” can be a realistic strategy when you are selective about what works and what won’t for your customers and your business. Keeping tabs on innovations and best practices is in itself a best practice. But I like what Rex Lee, Vice President – Digital Technology & eCommerce at Canadian Tire, has to say. Canadian Tire is not interested in best practices. For Rex, best practices are by-definition what everyone else is doing. The future is next digital practices.
 Loyalty is Dead
“Loyalty owned and ruled by points and discounts is dead,” says Emily Collins at Forrester Research.  “Long live elevated loyalty strategies that focus on creating great relationships with customers through things like recognition, relevancy, emotion, and engagement.” In other words, brands and retailers are building loyal customers the way real people are building loyal relationships with each other through all kinds of interactions – digital among them. The true measure of loyalty is not how many points my customers have racked up, but how often they come back to me and how excited they are to share that experience with their friends, family, and acquaintances. As I mentioned above, the connected consumer is highly informed, in control of their shopping experience, and can turn on a dime. Appealing to the consumer at all points along the shopper’s journey is fundamental to building the right customer experiences and engender true loyalty.
 Fragmentation of…Everything
It used to be pretty easy to buy a bag of Lay’s potato chips when they came in one flavor: potato.  Today, you might have to weigh your options with Southern Biscuits and Gravy, West Coast Truffle Fries, or New York Reuben. And it used to be relatively easy for Frito-Lay to advertise for those chips in print and broadcast, and to sell them to grocery stores alone.  The recent explosion of channels, mediums, and formats have a created a degree of fragmentation that is exciting for consumers but far more complex for brands and retailers. Media has fragmented across television, radio, satellite radio, streaming radio, email, web, apps, social, gaming, and even smart digital signage.  Buying channels are going well beyond stores and web to mobile, social and to each of the media outlets I just mentioned. Store formats are also changing and specializing from big box, to small urban formats and pop-ups. Even the once-simple potato chip is fragmenting beyond user-generated flavors to be fat-free, organic, non-GMO, gluten-free, and fair trade. All of these challenges make it difficult to understand the consumer, design relevant and personalized offers, and deliver them consistently and seamlessly. Digital transformation takes advantage of these challenges by leveraging the inherent value of the data generated and enabling an omni-channel experience.
 Driving Store Traffic
Arguably the most used term in retail over the last few years, omni-channel retailing (the notion that customers can traverse the same shopping experience between two or more channels) is the logical evolution from siloed store and .com multi-channel retailing. The emergence of eCommerce, and the ultimate convergence of mobile and omni-channel, are not a threat to traditional retailers but instead a new set of tools that, when combined with the assets of physical stores, enable far more compelling customer experiences.  And these tools are paying off. Walmart recently reported its first quarterly increase in store visits in more than two years, with traffic rising 1.4%. At Target, store traffic rose 3.2%  Home Depot told Fortune that 25% of customers who come into a store to pick up online order then buy some more. Nordstrom said that enabling its Rack discount stores to handle returns of online orders had led to a million more shopping trips to its stores in 2014. It’s not about store or digital. It’s about stores and digital.
I hope this triggers a few thoughts on what is driving your own digital transformation. In the next few entries we will highlight which elements and components make up a digitally transformed retailer and what steps retailers can take to get started or push their transformation forward.

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Jim Hertzfeld, Area Vice President, Strategy

Jim Hertzfeld leads Strategy for Perficient, and works with clients to make their customers and shareholders happy with real world strategies that build their digital depth.

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