You know what’s hard?

Customers say they want a more seamless experience across all channels and touch-points. “Sure” you say, “but it’s very expensive and complicated to implement that level of integration.”

Silo-ed data, systems, organizations and metrics are keeping your brand from being more customer-centric and relevant. “I know” is your response, “but greater centralization would be very jarring to our culture.”

In an increasingly noisy world, mass marketing and one-size-fits-all approaches fail to gain share of attention, becoming less effective by the day. You respond, “you’re right, but treating different customers differently is difficult to scale.”

Relentless price promotions and layering of discounts and reward points deteriorate profit margins, teach customers to only buy on sale and accelerate an inevitable race to the bottom. Your defense is to say “well that’s what moves the top line” and to point out how hard it is to justify full price.

In the inevitable battle between denial, defending the status quo and rationalization vs. acceptance, leaping and innovation, we tend to choose the former. And our fate is sealed.

Many of the things we avoid as too risky are, in fact, often just the opposite. The risk is in the failure to change, in the lack of passion to become intensely relevant, in being stuck in “me too” instead of choosing to become remarkably different.

What’s hard is to move where the customer is headed after the competition has already established a beach head.

What’s hard is to break through the clutter with undifferentiated products and tired messaging.

What’s hard is to acquire, grow and retain the right customers with average products for average people.

What’s hard is to catch up when you’ve fallen behind.

Mass or built for me?

All about price, or all about unique value?

Average or remarkable?

My guess is that every brand that’s gone through the work of closing stores, firing people and liquidating inventory might have a different view of what’s hard.

Why go to the store?

There are some who think that most brick & mortar stores are eventually going away and that e-commerce can have a compound annual growth rate of 15% until the end of time. To which I answer, “don’t be silly” and “of course not.”

There are many powerful reasons for physical retail locations to exist. In fact, we are already witnessing the limits of pure-play models as online only players are opening more traditional store-fronts (Warby Parker, Bonobos, Amazon and many others). Well established direct-to-consumer brands like LL Bean are doubling down on a commitment to retail store expansion. And even with the explosion of online shopping, close to 95% of transactions still take place in a traditional store.

When you take out products that can be delivered digitally (books, movies, games and the like) in most cases, for most consumers, there is value in being able to go see, try on, or touch the actual product. Having a live conversation with a well-trained sales associate can be extremely helpful. Physical stores offer a social experience that can’t be readily duplicated via the web or smart phone. And, typically, you can take the product with you, rather than having to wait.

Having said this, digitally enabled business models ARE disrupting every category and chipping away at many historical advantages of bricks & mortar. Websites often have better information than in-store sales people. Assortments can be much wider and prices are often sharper. Next day delivery may be either good enough or simply more convenient than having to drive to a mall and deal with the crowds. And we can be certain that future innovation will further eat away at traditional store advantages.

The fact is, in most instances, the future winners will be retailers that blend digital and physical offerings. They will deeply understand customers wants and desires and build a tightly integrated, highly flexible hybrid model rooted in treating different customers differently. That means a transformation, but not the elimination, of physical stores.

By contrast, the losers will be those that blindly adopt all things omni-channel.

The losers will be those traditional retailers that continue to run a bolted on and siloed e-commerce channel.

The losers will be those who fail to see the interplay between digital and physical stores and close too many doors–and turn the remaining ones into boring museums of best-sellers and “me too” products.

The losers will be those who hold on to one-size-fits-all customer and marketing strategies.

Consumers will continue going to stores for many, many years to come. Whether they will come to your store is a different question.

Some customers

One of the more amusing moments of my time at Sears was when our newish CEO insisted that we stop referring to our customers as “him” and instead say “her.” This was meant to underscore the need to reinvigorate our apparel business and identify women as the most frequent decision-makers for our softline categories.

While there was merit to this strategy–and Sears testosterone-driven, male dominated culture absolutely deserved a swift kick in the, uh, pants–it ignored the complexity of Sears myriad businesses and the attendant diverse consumer segments we needed to attract, grow and retain.

Of course, Sears wasn’t alone. It’s common for business leaders and analysts to make global pronouncements about what “she wants” or how “our customer” is responding. While these statements may have an air of profundity, they’re just glib soundbites.

Today there is no everyone. There is no monolithic him or her or them.

Today the idea of being a little bit of everything to everybody is irrelevant. The era of mass is giving way to the era of us.

Today one-size-fits all strategies are running out of gas. We must treat different customers differently.

Today it’s not about “the customer” or any notion of all customers.

It’s about some customers; the right customers, carefully selected, deeply understood and served in unique and remarkable ways.

Epic battles of history: customer vs. channel

Because virtually all retailers have historically organized themselves around their sales channels, there is major conflict.

Because customer data typically resides in silos, a mighty struggle exists to provide a holistic, customer-centric view.

Because systems are not integrated, attempts to provide a seamless customer experience are fraught with friction.

Because companies most often employ metrics and incentives that are aligned against internal dynamics, rather than the way customers shop, tensions abound.

As the channels evaporate in consumer’s minds, the battle between what your customer wants, needs and expects, and that which your various silo chieftains and defenders of the status quo try to hold onto, is intensifying.

To be sure, the shift from a channel-centric culture to a customer-centric one is incredibly difficult. The investments to integrate data, inventory, point of sale systems and supply chains can be enormous. The complexities in reworking incentive structures and performance tracking are undoubtedly time-consuming and challenging. And re-mapping processes and re-training an entire organization is hardly trivial.

But in the battle between customer and channel is there any question which side will ultimately win?

Living in an A/B world

It’s a common practice for e-commerce sites to engage in so-called “A/B testing.” A typical A/B test randomly presents a brand’s current website design against an alternative which might improve results (most often conversion rates).

A variant of this approach has been employed by direct mail practitioners for years. To improve campaign response rates a “challenger” mailing is pitted against the current best performing offer (“the champion”). Database analysis is then used to help evolve the marketing strategy.

For years, structured test and control experiments have been narrowly employed and, for the most part, the province of relatively sophisticated marketing organizations.

Yet in a world where the battle for share of attention is fierce, where relevance is increasingly hard to come by and where whoever gets closest to the customer wins, every organization, big and small, needs to embrace a test and learn mentality.

Sure, it’s desirable to have beautifully designed experiments and statistically relevant sample sizes. But don’t estimate the power of continually presenting your customers with a stream of alternatives and seeing how they react.  “Here’s A, here’s B, what do you think?” is sometimes all the protocol you need.

You don’t need Ph.D statisticians. You don’t need complex campaign management software. You don’t need expensive consultants.

What you do need is a willingness to try. And to fail. And to try again.

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/

“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.