Omni-channel’s migration dilemma

The shift in retail to a more omni-channel world is dramatic and profound. And since the term “omni-channel” gets thrown around a lot–often vaguely or carelessly–let me be clear about what I mean: more and more customers are becoming engaged in utilizing multiple channels–stores, mobile, online, social networks and the like–to explore, research and transact.

One important implication of this phenomenon is that many consumers are becoming what I call “blended channel” customers; sometimes choosing to transact in physical stores, sometimes buying online. And they commonly use multiple sources to aid in the decision journey, regardless of where their ultimate transaction may be recorded.

Their loyalty is to the brand, not a channel.The pressure, therefore, is on retailers to become more channel-agnostic, break down their operational silos and create a frictionless experience across channels if they hope to win over this growing cohort.

So, at one level, it’s easy to understand the retail industry’s frantic quest for so-called omni-channel excellence. But the success from omni-channel will not be evenly distributed–and for reasons that go beyond a given company’s willingness to invest or their capability to execute well.

What many leaders and analysts fail to appreciate is that as customers migrate even a small portion of their purchasing from physical stores to digital channels, a number of important dynamics come into play, and a huge dilemma may emerge.

It’s important to understand that the transaction economics of physical stores and direct-to-consumer (D2C) are quite different. Brick and mortar is mostly a fixed cost business characterized by lots of capital tied up in real estate and the supply chain, married with some relatively high costs just to stay open and staff the store during typical open hours. By contrast, above a basic scale, D2C is highly variable. In most cases, it costs more or less the same to take an order, process it, pick it out of central inventory, pack it up and ship it, regardless of whether the item is priced at $15 or $150. Generally speaking, the higher the average order size, the greater the profitability. If you sell cheap stuff on-line–particularly if you can’t recover your shipping costs from the consumer–good luck making any money.

So if the variable economics of the digital channel are superior to brick and mortar–everything else being equal–the more customers become omni-channel in their behavior, the better a brand’s economics become. This is one of the reasons you’ve seen brands with higher average order sizes (e.g. Nordstrom, Neiman Marcus) investing aggressively in building out their e-commerce capabilities for over a decade.

If the marginal economics of the digital channel are worse than bricks & mortar AND the brand is growing slowly or not all, a real dilemma emerges. On the one hand, changing consumer preferences essentially demand investments in omni-channel capabilities. And this is no cheap date. Yet as customers migrate from stores to online, the overall economics deteriorate in the aggregate. Worse still, a dramatic shift away from physical stores to e-commerce will make many stores questionable economic propositions. Yet, closing those stores may cause the loss of some or all of a blended channel customer’s business. It’s easy to see this as the start of a downward spiral (I’m looking at you RadioShack).

From a consumer’s point of view, the deployment and improvement of omni-channel capabilities is a bonanza. From a retailer’s point of view, the rush to all things omni-channel–without a clear understanding of the underlying economics, the different behaviors by different customer segments and how physical channels interact with digital channels to deliver a remarkable total customer experience –can lead to some very serious mistakes.

 

Note: For an insightful and data rich discussion of many of these issues, I wholeheartedly recommend Kevin Hillstrom’s blog: http://blog.minethatdata.com/

The big stall and your angle of attack

Many brands, particularly in retail, seem stuck in a persistent malaise. Earnings report after earning report detail tepid sales and mostly flat-lined profits. The accompanying press releases describe the consumer as “on the side-lines.” Others opine that shoppers have adopted a wait-and-see attitude toward spending. The CEO of The Container Store recently concluded that we are experiencing a “retail funk.”

I freely admit I don’t know a lot about aerodynamics. But what I do remember about why planes stall mainly has to do with their speed and the “angle of attack” of the wings. The reasons we are seeing a big stall in retail are similar.

The lack of speed comes from little to no growth in discretionary income. Combine that with a consumer wariness toward spending after a brutal recession–and an uneven recovery–and we have little forward thrust. There is little reason to believe that this will change markedly anytime soon. And, of course, no brand can do anything to change these macro-economic factors.

The angle of attack is how you approach the market–and this is entirely within your control. Confronted with a lack of acceleration you can choose to follow the herd, taking a one-size fits all approach, making average products for average people, engaging in a race-to-the-bottom price war and so forth. Best case: you hold your ground and your results are in line with your industry segment–which is to say strikingly mediocre. Worst case: inadequate speed and an insufficient angle of attack cause you to plunge to the ground. Not very appealing.

Perhaps you’ve noticed that even in the worst of times there are still some clear winners. Perhaps you’ve noticed that somehow, even when the stock market goes through its gyrations or consumer confidence wanes or weather conditions are not conducive to seasonal apparel sales, somehow or other, a few brands manage to shine.

Maybe these brands are less concerned with the speed of the market and more focused on their angle or attack?

Maybe if you are losing lift, you might want to stop doing the same things over and over that got you there in the first place?

 

Just because you killed Jesse James . . .

“Just because you killed Jesse James, don’t make you Jesse James.”

- Mike Ehrmantraut to Walter White, Episode 3, Season 5 of Breaking Bad.

Just because you’ve shot down my idea doesn’t mean yours is better. Defending the status quo can be necessary, but mostly it’s an excuse to stay trapped in our fear.

Just because you sit in judgment of all the “idiot” drivers and “slothful” welfare recipients and “feckless” politicians, doesn’t actually do anything. Though your fragile ego may get a hit for a few seconds, putting others down isn’t a solution. And it certainly adds nothing to the level of discourse.

Tearing down something else isn’t the same as your building something worthy or interesting. So instead of complaining, let’s see your plan.

Being the critic is mostly a place to hide from the hard work of leading us to something new and meaningful. So instead of judging, let’s hear your ideas.

Eliminating the competition may make life easier for a bit, but eventually our art, our projects, our passions have to stand on their own merits.

The universe is listening. And waiting.

 

The obsessive core

Every great brand has an obsessive core. The person who camps out for hours before the next iPhone is released. The Harley Davidson fanatic who sports the logo tattoo and is dressed head to toe in Harley gear. The frequent shopper who willingly pays full price and is an incredible source of great word of mouth. The raving fan. You get the picture.

The great thing about most obsessive core customers is that they are highly profitable and help acquire new customers at a low-cost. If you lack such a passionate group, chances are you are making average products for average people. Good luck with that.

Yet brands blessed with an obsessive core–or even a bit less enthusiastic but significant group of “heavy-users”–are often led astray.

Many luxury brands–including my former employer Neiman Marcus–tilted too heavily towards their obsessive core shopper and neglected other important, profitable customer segments. When the recession hit, the day of reckoning was harsh indeed.

Most high-flying e-commerce companies gain their initial traction with an obsessive core. By focusing on an underserved niche that loves to shop online, these brands can often quickly and cost effectively acquire thousands of profitable customers. Alas, as we’re starting to see with many companies that have attracted millions in venture capital funding, growing profitably beyond that initial core is not so easy.

Unfortunately, the factors that create the obsessive core, the raving fan, the incredibly passionate brand advocate, often cannot be scaled.

Unfortunately, in our quest to exploit the seductive virtues of the obsessive core, we can lose sight of the big picture.

The key, I think, is to not let ourselves become obsessed with this group, but to place them in the appropriate context.

 

“Chief Silo-busting Officer”

We’ve all heard the term “customer-centric” ad nauseam. And “omni-channel” is quickly reaching similar status.

My inbox and RSS reader are chock-a-block with articles, white-papers and sales pitches, all promising the keys to omni-channel success. Some extol “a single view of the customer.” Others opine on cross-channel inventory visibility or similar elements of a supposed seamless customer experience.

By now, the building blocks of what I like to call “frictionless commerce” are well-known. By now, if you’ve been paying attention, you know what to do. Yet it’s not getting done. We all know it and the customer data proves it.

The simple fact–the blindingly harsh reality–is that a bottoms-up strategy takes too long. The business world is not short on well-intentioned VP’s and Directors each pushing their particular agendas to act on behalf of the customer. Yet despite their passion and clever PowerPoint presentations, they all hit the wall at similar points.

Time and time again, over and over, the barrier to customer-centricity, omni-channel success–or whatever the heck you want to call it–starts and ends with organizational silos: silo-ed systems, silo-ed customer data, silo-ed inventory, silo-ed metrics, silo-ed incentives and on and on. When customers don’t care about channels, yet brands remained anchored in channel-centric thinking and structures, the gap between expectations and reality remains stubbornly large.

Some more forward-thinking companies have put senior executives in charge of “omni-channel.” Others have named Chief Customer Officers.  Good for them. Necessary perhaps, but not sufficient.

The hard, essential work of moving towards remarkable customer-centricity and true frictionless commerce requires an all-in, top-down strategy. And that, my friends, means it must be owned and driven by the CEO, supported by the Board of Directors.

Until the Chief Executive Officer becomes the Chief Silo-busting Officer all the talk about omni-channel this and omni-channel that is really just that. Talk.

 

HT to Suzanne Smith at Social Impact Architects. She addresses this issue for the social sector in a recent post.

Customer service: Are you a ninja or a nincompoop?

Having divorced and moved earlier this year, I’ve had quite a few occasions to interact with companies’ customer service functions. In most cases, I’ve merely been updating my personal information. In others, my request was a bit more complicated. I’ve also bought a fair amount of new stuff, so I’ve had to deal with delivery issues and the like.

Most requests have gone smoothly. A handful were remarkable. Others were noteworthy for their sheer incompetence.

Addressing customers’ problems can be the proverbial moment of truth for a brand. The commitment to owning the customer’s issue can truly illuminate the difference between those that view customer service as a necessary evil and those that understand it as a key competitive advantage. Reflecting on my recent experiences, I’ve come up with a few simple guidelines to separate the ninjas from the nincompoops.

Seek first to understand. Before you shoot off the canned response or solve a problem I’m not having, make sure you actually know what my desired outcome is. I’m still trying to get an account issue resolved with a major upscale home furnishings retailer–I won’t say their name, but it rhymes with Festoration Lardware–because their CSR’s keep suggesting fixes to a problem that’s different then the one I’m experiencing.

Start where we left off. If I’m already into my third conversation or umpteenth email, don’t make me start all over again with my story. Pay attention to the chain of interactions.

Respect my communication requests. If I say I prefer to be contacted by email, don’t call me. Seems simple, but two companies specifically asked for my preference and then promptly ignored it.

Do what you said you we’re going to do. The folks at Regus told me they’d get back to me in 1 or 2 business days. 3 weeks later I’m still waiting. And they haven’t responded to my follow-up requests.

Anticipate. You can merely do what the customer requested, or you can act as an advocate or trusted agent and look at the bigger picture. I asked Hilton to update my account information and reset my password. They handled that request very efficiently but also noticed that I had not gotten credit for a recent stay. So they went ahead and took care of that without my asking. Nice.

Add a dose of wow. Offer to waive a delivery charge because I’ve made multiple purchases? Upgrade my shipment to next day delivery? Expedite my order because I’ve had a problem? Yes, please.

Avoid ironic messages. “Your call is really important to us.” Really?  Then why am I in a 10 minute queue?

Treat different customers differently. Yes, every customer deserves good and respectful service, but some needs must be prioritized above others. If you know–or can reasonably surmise–that some customers have greater lifetime value and/or significant brand influence potential–you might want to show a bit more care and attention.

It’s worth remembering that every customer interaction with your organization is an opportunity to enhance or detract from your brand’s value. Every interaction has the potential to increase the odds of positive word-of-mouth or turn someone into a detractor–and, worst case, a vocal and influential one.

You don’t have to call your customer service staff ninjas to get this right, though maybe that helps. Mostly, you just have to care.

Let’s get physical

Amidst all the breathless pronouncements about the inexorable decline of brick and mortar retail emerges an interesting phenomenon: some of the fastest growing and most exciting internet-only brands are opening stores.

Recently, Bonobos raised $55MM largely to accelerate its foray into “Guideshops.” Other e-commerce innovators such as Warby Parker, Trunk Club, Nasty Gal and Bauble Bar are all expanding into physical store fronts. Expect more announcements soon, not only from earlier stage companies, but from larger direct-to-consumer brands as well. This seemingly counter-intuitive trend reflects a few realities.

First, most of these venture capital funded darlings have thrived in their first few years by exploiting a highly specific customer niche and leveraging the heck out of the advantages of a direct-to-consumer model. Alas, the number of customers who are willing to buy product sight unseen, without working directly with a sales person and lacking the instant gratification that physical stores provide, is comparatively small when it comes to product categories where fit, material quality and fabrication are important. For these brands to continue to grow–and have a chance for material profitability–physical locations aren’t a nice-to-do, they are a necessity.

Second, brick and mortar retail is different, not dead. In most product categories, for many, many years to come, the overwhelming majority of sales and profits will continue to come from, or be influenced directly by, physical locations. Regardless of whether a brand started as an actual store or as a virtual entity, the ones that will ultimately win will offer a tightly integrated experience across their various channels and touch-points. They will eschew traditional mass, one-size fits all strategies and embrace more personalized missions. There remains plenty of business to be done in brick and mortar locations–if you have something remarkable and meaningfully customer relevant.

Finally, when we think about the market or the customer we inevitably get it wrong. Global pronouncements about industry dynamics or the “typical” consumer are rarely particularly illuminating and almost never sufficiently actionable. The brands that are winning–the ones that are stealing share from you–go beyond the averages and the mega-trends. They understand how to apply technology to create frictionless commerce. They delve into data and apply customer insights that inform stronger acquisition, growth and retention tactics. They are committed to experimentation. They treat different customers differently. And on and on. None of this is fundamentally rooted in how a brand started or whether trends tend to favor its success.

Of course it’s far from certain that these previously web-only brands will successfully transition to an omni-channel world. Some will stumble mightily. A few will fail completely. Others will see their growth stall at only a handful of profitable locations.

The one thing for certain is that for quite a lot of customers, the benefits of physical shopping are here to stay. For traditional players the rush to close and down-size their store base may have some merit. But it’s equally likely the problem isn’t just the real estate portfolio.