Retail is currently in a state of upheaval both globally and here in Australia. Facing weakening growth, changing customer expectations and increasing competition online brick-and-mortar retailers must explore customer experience (CX) strategies that will allow them to thrive, and, in some cases, survive.
The recently released CommBank Retail Insights report reveals that although 86 per cent of decision makers from small, medium and large retailers see differentiation as important, one fifth of them admit they aren't differentiated at all.
Differentiation as applied to retail CX is exactly what the name implies: a process through which a retailer can show itself to be different from the competition. Since the internet has physical shopping beat in most cases when it comes to price, speed and convenience, brick-and-mortar stores are struggling to compete. This is most clear in the US, where the dominance of Amazon, which has phenomenal buying power, has had a massive impact on brick-and-mortar retailing, ultimately leading to the closing of thousands of stores. For example, Bloomberg recently estimated that almost 1 billion square feet (around 300 million square metres) of US retail space could see closures in the near future.
Retail Apocalypse: 24 big retailers closing stores https://t.co/KBmldUPuFu— FOX Business (@FoxBusiness) June 26, 2018
But, fortunately for physical retailers, shopping is about more than just price and convenience. From a CX point of view, physical retailers must now look to experiential retail as a way to differentiate themselves. In many ways, shopping online is a fairly uniform experience. Whether you are buying books, clothes or fishing gear you are going to see pretty much the same thing – a visual representation and description of the product, the price and an "add to cart" system that has become fairly standardised. Until we see Virtual Reality (VR) and Augmented Reality (AR) become integrated into online shopping, for now the foundation is pretty much set. Take Amazon for example, you can buy almost anything on the site, but the actual experience of buying it is exactly the same (browse, click, purchase).
Walking into a real store and buying something is a much more varied experience, and, as a result, has greater scope for offering a differentiated experience. As Brad Arsenault noted in a recent Fifth Quadrant piece on experiential retail, big brands such as Nike understand that the physical store now must go out of its way to offer something that online shopping can't. For example, In 2016, Nike opened its Soho store, a sprawling five-storey building featuring basketball courts, an indoor soccer area and treadmills with screens that simulate different runs. Nike allows its customers to really try out its shoes and apparel by playing sport in them. This kind of experience is impossible to replicate online, at least for now.
Comcast debuts experiential Xfinity retail stores. The #cable provider is making a bold brick-and-mortar #play at a #time when legacy retailers are shuttering their doors. 🗝 https://t.co/mnnFX2VIFD #FACILITIES pic.twitter.com/2G5pgwOkTl— RSS Security Services (@RSSGuards) June 26, 2018
This is not to say that online retailers can't differentiate. Online shoe and clothing store Zappos is well-known for its exceptional customer service, specifically in its contact centre, which is run in a very unique way. Zappos famously has a thorough interview process for candidates which ends with them being offered money to quit after two weeks of training. Once hired, reps are allowed to decorate every inch of their cubicle any way they want and are empowered to achieve just one metric: make the customer happy. In one case, this resulted in a Zappos rep talking to a customer for over 10 hours.
Regional Head of Retail at Y&R ANZ Danny Lattouf said that consumers today expect every buying experience to be a great one. "Of course, a “great experience” is subjective and each individual has their own measure, but if a retailer isn’t building a proposition with original products, they’d better be delivering an experience in a highly differentiated way. Ideally, they’re delivering on both fronts," he says.
Lattouf notes that developing true differentiation begins by getting close to the customer. The CX tools to achieve this are well-known. Creating customer personas, journey mapping and empathy mapping allow retailers to understand the desires and needs of their customers and to rectify pain points that cause friction. The kind of "customer obsession" that Steve Jobs and Jeff Bezos are famous for is the mindset that all retailers should be trying to bring to their stores.
For physical stores, Lattouf believes in the power of storytelling to drive a curated experience. "Consumers are being presented with lovely, grand gestures from lots of different Australian retail brands (for example in Sydney alone, Wonderland by MYER, Supercheap Auto’s Penrith Superstore, the recently launched General Pants Co. Parramatta Experience Store and the largely unknown Ultra Football in Alexandria)," he says.
At the end of the day, the fundamentals still apply. CommBank's Retail Insights revealed that around two thirds of customers are still most swayed by basic things such as price (65%), place (68%) and product (58%) when choosing a retailer. The flipside of this is that these factors are tricky to differentiate on. Place and product is not something that can be changed easily, and, as discussed, it's tough to beat the internet when it comes to price.
While the rational factors such as price, quality, location and accessibility of stores and efficiency were rated more highly by consumers, scale and personalisation allows retailers to connect with consumers on an emotional level. "However, these factors present unique opportunities for retailers to create value through differentiation by engaging with customers and building a long-term relationship," as noted in the CommBank report. Successful retailers do not differentiate themselves across all factors, and must pick and choose the factors which best align with their sector and target market's needs.
ACA Research’s Account Director Agi Metcalfe says that only organisations that get the basics right will be able to successfully personalise their products and services. “A solid foundation means that they are able to respond to consumers’ needs around functionality through elements such as pricing and location, efficiency via seamless transactions, which covers loyalty programs and brand reputation,” she says.
Factors influencing consumer shopping behaviour
Source: CommBank Retail Insights Edition 6
Metcalfe adds that a high effort transaction will quickly derail any joy consumers may get from a personalised experience. “So no matter how personalised a product, service or marketing campaign is, if the customer needs to put in too much effort into the transaction, they will be more likely to remember the broken system,” she says.
While there is clearly room for retailers to innovate and differentiate, they still need to stay on top of the basics. And although online retail is threatening to destroy physical retail, differentiating through the creation of experiences is becoming an important method of survival.