Why Technology is More Relevant now than Ever in Retail?
Posted in Operations & IT Articles, Total Reads: 814
, Published on 05 February 2016
There is a lot of talk about digital and its impact on various industries. Many enterprises are grappling with this new wave in order to beat the competition and advance into the new future. This article highlights the relevance of technology int he world of retail in the present scenario.
To put things in the right perspective and understand the drivers for change, let us start by analysing the evolution of retail.
Figure 1: The evolution of retail (Source: McKinsey & Company)
Till 1990s, retail comprised of mom-and-pop stores offering locally sourced goods to customers without any visible technological involvement. Over the course of the last three decades several developments such as refrigeration, affordable domestic automobiles have shaped the industry in phenomenal ways as depicted in the figure above.
The biggest disruption came about with the adoption of Internet. Business moved from offline to online. People bought whatever they needed from their computer and with internet, lowest price didn’t remain a promise but had to be delivered as the comparison across online retailers didn’t take much effort, especially with the emergence of price comparison sites. With online commerce becoming mainstream, all big players of the offline world also moved online. To put things in perspective, of the Top 10 e-retailers in the world by revenue (depicted in the figure below), 8 of them were erstwhile pure-offline retailers. And the largest online retailer, Amazon.com has opened its brick-and-mortar operations in Indiana this year and this is just the beginning.
Omni-channel retail refers to the emergence of omnipresent and omniscient retailing across channels dedicated to offer the customer seamless experience of shopping with the retailer. The customer views an Omni-channel retailer as a brand rather than an online or offline store. The following figure depicts this phenomenon.
Figure 2: Concept of Omni-channel Retail
Omni-channel commerce requires the retailers to maintain highly integrated systems of inventory management, merchandising, and fulfilment, sourcing and content management. And this integration across channels opens up new vistas of opportunities for hybrid models of retail such as click-and-collect etc. The following figure depicts the hybrid models:
Figure 3: Hybrid Retailing Models (Source: MIT Sloan Management Review)
Merchandise can be divided into two broad categories, the ones that primarily possess digital attributes and the ones that possess non-digital attributes. Digital attributes refer to the ones that can be compared across products and are standardised, in terms of measurements such as processing power, memory, storage space, weight etc. and their non-digital counterparts include those which cannot be compared across products and is difficult to be quantified such as colour, texture, shine, freshness etc. Hence, merchandise with digital attributes can be sold via impersonal channels such as online stores and mobile apps where as those with non-digital attributes need to be served via channels offering high-touch service such as traditional retail. But, however, with many retailers operating both online and offline channels, they can deliver hybrid experiences to customers leveraging advantages in each channel. For e.g. as shown in the figure above, Shopping and Delivery model (also called click-and-collect) delivers content online for merchandise which are high on digital attributes, where in the customer can perform search and discovery much efficiently and pick it up from the nearest retail store. This way, the online store delivers the infinite shelf space for the long tail products and both the retailer and the customer save on delivery costs and time. On the other hand, for products with high non-digital content, such as Warby Parker in quadrant 3, the customer heads to the store to get his eye checked and try out several frames before deciding on the “feel” on the product and then the final prescription lens is delivered to the customer via own/ logistics partner. These hybrid models require tight integration of the channels and the integration forms the crux of successful omni-channel implementation.
One more challenge that lies in the way of a retailer achieving the Omni-channel promise is the single view of the customer or otherwise called 360-degree view of the customer. This is the vantage point that needs to be captured by the retailer in order to track the customer irrespective of the channel of interaction and across various media. SoMoLo has truly become the mantra (SoLoMo refers to Social Local and Mobile technologies. Several apps nowadays are being shipped to deliver highly relevant services to the customer using hyper-local search on their mobile devices). In order to achieve this, the retailer has to create a unified view by mining the transactional records, Master data and social media interaction of the customer. This enables the retailer to deliver consistent experience and also to understand the psyche of the customer by using advanced text analytics and sentiment analysis from the user’s interactions on social media and review sites. This also enables the retailer to use location-based services to target customers for specific promotions. Targeted marketing will become much more granular with a greater degree of conversion.
However, all is not lost for pure play brick-and-mortar stores. They are also able to leverage technology to list their inventory online. Several traditional retailers to make their merchandise visible to online buyers in the vicinity of their store are using Google’s “Local Inventory Ads” now renamed as “Merchant Center”. This enables customers to discover local services from the convenience of their Smartphone. Google is also planning on introducing a “buy” button for these listings to provide an alternate purchasing channel. In addition to this, there are several apps with offer product discovery services. “ShopKick” is a product discovery app that lists a particular product in several stores nearby for the customer to walk into a purchase. And, “AisleFinder” is another app that acts like an indoor GPS listing the aisle numbers where a particular product can be found and also provides the facility to aggregation of shopping lists across multiple stores in order to have a detailed stopover plan for regular weekly/ bi-weekly purchases.
The technology landscape is also changing at an unforeseen pace with the increased adoption of Cloud, Mobile and Social. Cloud has made the deployment of online retail systems and their integration with existing offline retail systems easier. Cloud has also given way to the emergence of Big Data analytics. With Big Data huge data sets are being mined for insights not to achieve marginal increase in revenues, but to gain competitive advantage in the market place and to streamline internal processes in a more agile fashion. Social has made integration of customers’ social profiles with internal master and transactional data. Mobile has given retailers the power to deliver hyper-local services, targeted and relevant promotions to the customers exactly when and where they need them.
The next wave is that of Internet of Things (IoT). This opens up an entirely new set of challenges and opportunities. Wearables are becoming mainstream. Users will be able to make a purchase from more number of devices and most of the purchases can be highly automated. A simple tap is what might be needed to refill most of the groceries. Amazon has introduced Amazon Dash to auto-order by a simple press of a button.
Retailers such as Amazon are using robots for fulfilment of orders; they acquired Kiva, a robotics company for the same purpose. Hence, the already streamlined process in their fulfilment centres is going to see another steep increase in efficiency, resulting in lower costs and lead times.
Drone delivery technology is still in development and the challenges include wind turbulence, link-loss, urban GPS canyons etc. (Not to mention potential pilferage due to vandalism). Also, FAA is not making the job anymore easier with their regulations for unmanned aerial vehicles; the current ruling requires the drone to be in the line-of-sight of the controller, defeating its purpose head-on. A more fitting regulation for unmanned drones for commercial use is hence still due in the US. Right now, Amazon is testing is Prime Air service Canada.
Multi-modal analytics is the current trend where in data about the customer is extracted from many sources such as beacons from Smartphone/ tablet us, video cameras in stores, web activity and transaction history are used to analyse the customer behaviour to generate insights into consumer behaviour.
And the recent PE/ VC activity in the industry only corroborates the importance of retail technology. This can be validated by the Venture Scanner listing of segment-wise investments in whopping 900+ ventures, some of which are full-scale providers while the others being point solutions offering a niche service.
Hence, retailers need to look at these technologies (Cloud, Mobile, Social, Big Data and IoT) not one at a time, but as a whole because, it’s the synergy between these that is going to have the biggest potential for disruption rather than any one single technology. And capitalising on them will be the single largest determinant of competitive advantage in the future.
This article has been authored by Sandeep Sathyanarayana from IIM Indore
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