By Anand Medepalli, VP of Solution Strategy, JDA Software Group Inc.
There will be more changes in retail the next 10 years than what has been seen in the last 50 years. Maybe that’s why omnichannel retailing is a hot topic. Omnichannel retailing centers on providing a seamless shopping experience regardless of channel to deliver a unified and customized shopping experience.
Breaking this definition down implies retailers now need to understand their customers better than ever. This means taking a smarter approach to deciphering customer needs and optimizing their entire shopping journey. To do this well, retailers need to evolve quickly to optimize every aspect of customer interaction – space & category management, merchandise planning, pricing, supply chain planning, sourcing, fulfillment and in-store processes.
With speed as the new competitive differentiator, retailers are focusing on omnichannel fulfillment through efficient, prompt and seamless processes to fulfill customer orders regardless of which channel they originate from. Amazon.com is opening super distribution centers and is now offering same day delivery. Walmart and Macy’s are consciously upping the ante by using their stores as fulfillment centers for online orders. Click-and-collect processes are being enhanced with smart in-store picking technologies. Fulfillment is central to omnichannel operations and directly addresses customer satisfaction; after all you need to deliver what you sold however you sold it, so focusing on this as the first step in the omnichannel journey makes sense.
But customer satisfaction is not the same as being customer-centric, and if retailers are not careful they might miss the whole point of omnichannel retailing. Today’s shoppers know what they want, how they want it delivered, and expect retailers to know the same. Retailers have to anticipate, customize and personalize that shopper’s experience, and not just optimize the fulfillment processes. This “customer centricity” is the true imperative of omnichannel retailing; everything else is a supporting process. So how can retailers embark upon this journey to customer centricity?
The answer lies with predictive analytics, which uses statistical modeling to analyze past and current data sets to predict future outcomes at the most granular level. These data sets would typically comprise of internal data such as sales history, customer transactions, website traffic, prices, consumer research and external data such as competitive assortments and prices, trade publications, and social media ratings. The following five steps are typical of such an approach:
1. Segment your customers. Segmentation in retail today is predominantly based on store clustering and product offers, where store sales act as proxy of customer needs. Retailers now need to understand the specific needs of specific consumers driven purely by data. Segmentation analytics allows a retailer to segment their customers to the necessary granular levels using past purchase history and patterns. “Gut feel” or traditional demographics or store-based approaches must be jettisoned.
2. Create targeted offers. Offers in retail today are predominantly product-based focusing on the average customer that visits a store or a website. Retailers must change to create targeted and personalized offers that would increase basket size based on preferences of the customer segments and on the individual consumer purchase history rather than take average approaches.
3. Forecast customer response. Forecasts in retail today are mostly focused on inventory management or for promotions to ensure excess inventory is cleared. Forecasting must now become a front-line process where customer response to potential offers is well understood before deciding on merchandising and inventory plans. Retailers will have to know how to predict specific customer response to the offers and plan for only those offers that are likely to generate most interest from customers. Forecasting models must be tuned to estimate response based on price and product on offer at the most granular level of detail.
4. Optimize offers. Based on expected customer response, offers to specific segments must be optimized based on expected returns. Retailers must determine tailored localized assortments, the best price for a specific offer, right inventory levels by channel, right promotions to consider, and optimal markdown plans. Retailers have traditionally reacted or used average historical levels to manage these processes; optimization science can help them move to a proactive world where they are planning and managing these downstream processes upfront.
5. Measure effectiveness. As the old adage “you can only improve what you measure” suggests, every plan, every action and every response should be recorded and measured. Lessons learned must be used in the next round of planning and offer generation, thus creating a virtuous cycle of continuous improvement.
Some retailers have embarked upon this journey, but predominantly today’s retailers are still product-centric. Products are designed to meet the needs of an average consumer and the goal is to reach the maximum number of shoppers. Omnichannel has turned this notion on its head: retailers now have to think of meeting the many needs of a specific customer – whether via different products sold through a variety of channels and/or different ways to fulfill those orders. Technology is no longer a barrier – sophisticated algorithms and analytical models that analyze reams of customer transaction data to determine personalized offers are already in use, and the industry at large can benefit from adopting those best practices and becoming truly customer-centric.
Collecting the data required for this transition is a big task for any retailer. They can start by organizing their internal data. Equally important would be to break down organizational silos and create an end-to-end business where merchandising, marketing, supply chain and store operations seamlessly work together using the same business plan based on the customer. Much like Netflix and Amazon, when a customer is on the website or in the store, retailers must learn how to engage them with information and personalized recommendations. Customer-centricity must become the organizational philosophy and maximizing customer lifetime value must become the heart of the business.
Retailers have made an excellent start toward this goal with their focus with back-end order fulfillment and supply chain processes to drive efficiencies, and now should start thinking about the front-end processes of customer-centricity and adapt their merchandising and marketing processes. Otherwise they risk ending up like the individual who owns the best race car on earth but does not have access to a race track.
What do you think?