OMNICHANNEL RETAILING: A PRACTICAL GUIDE

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1 OMNICHANNEL RETAILING: A PRACTICAL GUIDE Discover essential omnichannel capabilities, create an omnichannel strategy and learn how to implement your omnichannel roadmap

2 INTRODUCTION What does Omnichannel mean? Historically, the interaction with customers was one way. But with the arrival of e-commerce, social media and mobile, that has all changed. Customers now expect a much more interactive, intimate and connected experience. Today, there are many more steps along the purchase journey. Each of these additional touchpoints gives brands many more opportunities to interact with customers. While the customer journey seems more complex there are still three main functions: discover, engage, transact. But they can happen anytime and anywhere. That s the big difference. So omnichannel is all about facilitating transactions and engaging customers throughout their journey independently of which channel or channels they choose to use. Industry studies find that most, if not all retailers, have a long way to go to become true omnichannel champions. This is probably due to the fact that a truly omnichannel transformation encompasses nearly every technology, system and process in the retail enterprise, making this process seem a daunting task. But retailers that do not embrace the omnichannel trend will likely struggle to remain competitive in an industry where, like it or not, customers increasingly expect retailers to offer key omnichannel capabilities such as buy online, pickup in store (BOPIS), for example. This e-book aims to help retailers achieve omnichannel success by explaining key omnichannel capabilities and helping them create a strategy for embracing omnichannel that can then be implemented step by step using a roadmap approach.

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4 The opportunity cost of not being omnichannel is 10% in lost revenue. Source: RIS/EKN Customer Engagement Tech Trends

5 CRITICAL OMNICHANNEL CAPABILITIES To drive successful omnichannel retailing you need to focus on improving these four key areas: Customer RESPONSIVENESS Merchandise AGILITY Channel INTEGRATION Organizational ALIGNMENT CUSTOMER RESPONSIVENESS Omnichannel shoppers are more demanding than traditional shoppers, so retailers need to know their clients better to understand their needs and respond more as new demands arise or fashions change. They need to redesign their processes and systems to put the customer at the center of their business. Omnichannel customers expect convenience, but not just in the narrow sense of enabling customers to buy, pay, receive and return using the method or channel they prefer. A new definition of convenience is emerging as customers demand that retailers immediately fulfill and ultimately predict their needs with more products and more frequent introductions. They expect speed, whether they are waiting in line to pay at the point-ofsale or ordering goods on the website. Amazon has raised the bar when it comes to fulfillment, first with free overnight delivery and most recently same-day satisfaction. Retailers need to close the delivery promise gap, whether it s an out-of-stock item ordered in a store or an online order for home delivery. However, the added logistical complexity of omnichannel can impact profit margins unless your supply chain is transformed to be truly agile and responsive. So, integrated supply chain management has become an essential component for any retail business today. You need effective and systematic demand forecasting and inventory planning processes that seamlessly integrate with downstream activities such as warehouse management and logistics. Finally, omnichannel shoppers expect personalized treatment. They are used to receiving personalized on-target messages from firms like Amazon, Google and Facebook, which are skilled at using customer data to create rich and personalized experiences. Increasingly, they expect brick-and-mortar retailers to be able to do the same. The concept of omnichannel is not new. But in recent years it has evolved from a concept that perhaps seemed irrelevant to many brick-and-mortar retailers to a must-have capability. Why? Simply because the majority of your customers now expect it. You need to recognize that most customers are omnichannel. Customers today are engaging with retailers through their mobile devices, online and in brick-and-mortar stores, but many brands are still challenged in targeting those customers and connecting each touch point to grow revenue. The more channels a customer uses, the more valuable those customers are. They spend more online and, most importantly for brick-and-mortar retailers, they spend more in your stores. According to a study by Harvard Business Review, customers who used more than four channels spent nine percent more in the store, on average, when compared to those who used just one channel. Yet, 68% of retailers do not know who their omnichannel customers are. Companies with omnichannel customer engagement strategies retain on average 89% of their customers, compared to 33% for companies with weak omnichannel customer engagement. Source: Aberdeen Group

6 MERCHANDISE AGILITY As consumers spend more time researching and comparing products across multiple channels, the importance of high quality products and pricing information becomes paramount for retailers. Leading retailers are therefore investing more in advanced product and pricing information management, seeking benefits that allow them to: 1. Reduce time-to-market for new product or promotion launches Product life cycles are getting shorter, so retailers need to get new products into the hands of customers quickly, which means streamlining the processes for creating, approving and distributing consumer-ready product information. Frequent and more complex promotions also require a quick process of creation and communication. Retailers need then to effectively manage product and promotion information changes across all formats and channels. These changes can occur rapidly and very often, so retailers need to respond to any changes as and when they are needed, including in real time. 2. Support larger product catalogs Many retailers are increasing the complexity of their assortments and the number of SKUs they sell. This increase can be by a factor of 5 to 10 times in the online channel. The industry calls this the endless aisle. This results in a huge amount of information that must be created and maintained efficiently. 3. Ensure a consistent cross-channel customer experience No matter which channel a product is being sold through, retailers must ensure that customers receive a consistent experience. This means for example that their products have the correct and most up-to-date information across online retail sites, print catalogs, store displays, kiosks, and mobile. Failure to do so can often result in consumers being misled into buying the wrong products or products that do not meet their specified expectations, which in turn affects return rates, customer satisfaction, and brand advocacy metrics. And ultimately margin. 84% of retailers believe that creating a consistent customer experience across channels is very important. Source: Retail Systems Research CHANNEL INTEGRATION Once a retailer recognizes omnichannel as a strategic imperative it will rapidly become apparent that integration between the online and offl ine worlds is a critical success factor. Indeed, it is precisely the lack of this unifi cation that is usually identifi ed as one of the most important reasons for retailers failing to progress their omnichannel strategies. A modern retail business needs a 360-degree view across all its channels, physical and virtual. It needs a retail management system with the following must have omnichannel capabilities: 1. Distributed order management An omnichannel retailer needs a single view of orders across the enterprise along with an interface for capturing them, including order processing workfl ows, intelligent order routing algorithms across all fulfi llment centers, and inventory allocation logic. Furthermore, distributed order management must support processes to handle a variety of order scenarios that can include recurring orders, pre-orders and back orders, partial shipments and drop shipments as well as order modifi cation and order cancellation. 2. Inventory visibility The platform must be able to consolidate in as close to real time as possible the available inventory from disparate systems into a single, enterprise-wide view of inventory. This can then be used across the selling channels to determine whether a product should be made available for sale, and if so, when and how it can be fulfi lled. In addition, as orders are created in each channel and inventory is reserved, the system can consider these transitional states and make available only inventory that can truly be promised to the customer. 3. Store fulfi llment Using your store as a fulfi llment center has two big advantages: it enables you to close the delivery promise gap and it helps get shoppers back into your stores something that many brick-andmortar retailers are struggling to achieve organically. Shoppers who opt to buy goods online and pick them up in store are likely to make an additional purchase while they are in-store picking up their order. Seventy-fi ve percent of those who have used Buy Online, Pick up In-Store (BOPIS) purchased something else while in-store according to one survey. Another store-based fulfi llment option is Ship-From-Store, which can be used as a relief valve to redirect orders that the fulfi llment center cannot handle during peak selling events. Used strategically, store fulfi llment enables creative digital selling strategies to drive store sales and inventory turns. By 2021, 90% of retailers will off er Buy Online/Pick Up In-Store (BOPIS) Source: Retail TouchPoints

7 ORGANIZATIONAL ALIGNMENT IT plays a key role in any omnichannel strategy but it is not the only element. If new investment in IT systems is not supported by organizational transformation, the outcome can often be disappointing. That is because traditional retail business functions and processes are no longer valid. New goals need to be defined, business processes realigned and different metrics developed to measure success. 1. Get top-level commitment In the omnichannel model, transactions, orders, and information flow across different departments within the retailer s business. Without a chief executive with oversight across all departments and functions, and a strong commitment to omnichannel success, it will be difficult to make the needed changes and allocate the required budget and staffing. 2. Tear down the silos Even after a retailer has implemented omnichannel solutions, the online and offline organizations may continue to operate as standalone (even competing) organizations within a single enterprise. To achieve true omnichannel success, this model has to be changed. 3. Develop an omnichannel compensation plan One area that is definitely in need of organization alignment is sales attribution. For example, who gets the credit and how does the retailer manage compensation for an order made online and picked up in-store? Retailers must reinvent compensation schemes to solve these situations and incentivize omnichannel success. 4. Align IT closely with the organization The IT department needs to be structured to support cross-channel processes and it needs to stay tightly aligned with the operational side of the business. Because delivering an omnichannel experience requires a high degree of fl exibility and consistency across the organization, IT needs to make cross-channel data and process fl ows a high priority 5. Adopt new metrics Traditional retail metrics fail to fully measure omnichannel success. Omnichannel retailers require new metrics company-wide to promote behaviors aligned with the needs of the omnichannel consumer. Only one in fi ve companies measures cross-channel attribution holistically across all touchpoints. Source: The CMO Club

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9 REINVENTING PHYSICAL STORES Despite the inroads being made by online-only retailers, brick-and-mortar stores continue to play the leading role in building customer loyalty and supporting financial performance. Consumers value the retail store experience on multiple levels and continue to make the vast majority of their purchases in stores. And, importantly, the value of stores extends well beyond brick-and-mortar to help increase volume and revenue across all channels. That s not to say that retail is business as usual. It s not. The advent of new retail channels has increased competition, costs and price pressures. The shift to an omnichannel shopping experience means the physical store s traditional role, as a stand-alone venue for fulfilling the needs of on-site customers, has reduced in importance. The reality is that physical stores are becoming omnichannel hubs and their operational excellence will be the key factor that will determine omnichannel winners and losers. To ensure that physical stores can play their new role, brick-and-mortar retailers will need to rethink traditional strategies, starting with the in-store shopping experience. Customers do not want to just walk into your shop, buy your product and leave. But many end up doing just that today because the in-store experience is not something they particularly value. If you do nothing to rectify that, the danger is that they will visit your store less often and instead buy online perhaps from a competitor. By creating a more immersive retail experience, retailers can drive people towards their stores, get them to spend more time in their stores, and ensure they leave not just with your products but also with good memories. Many retailers are experimenting with new formats and innovative technologies to deliver a stand-out in-store experience, a trend that is sometimes called experiential shopping. But there is a simpler way to make customers want to visit your store. In an age of sleek, efficient e-commerce, brick-and-mortar retailers can differentiate themselves from online rivals by creating a more personal shopping experience. So, retailers need to think of ways they can make service more personalized. Shoppers who walk into a store today would like a one-on-one shopping experience that is positive and rewarding. Your store associates are a vital link to achieving those goals. Most importantly, they must be equipped to fully serve the needs of the customers. That doesn t come from store technologies alone, it starts by making sure that critical customer and product information is easily accessible by associates from across all areas of the company.

10 DEVELOP A STRATEGY FOR OMNICHANNEL Before starting to define an omnichannel roadmap, a clear strategy must exist. 1. DEFINE A VISION What are the omnichannel goals you are envisioning? What do you want your shopping experience to be in the next three to five years? 2. SELECT THE CAPABILITIES Determine what is needed to execute the vision. Examples of capabilities might include: supporting scenarios like cross-channel buying and returns, creating a great shopping experience in the physical stores, enabling the shopper to access product information, prices reviews and other pertinent data online. It s whatever the retailer wants the customer to be able to experience and access when they re shopping. 3. LOOK AT WHAT OTHERS ARE IS DOING Although no retailer has completely mastered the art of omnichannel, some have managed to execute a particular capability such as in-store return of online orders, better or earlier than the competition, thus gaining a competitive advantage. Learning about what they are doing and adapting it to the business reality can be a valuable input that retailers can use for their own strategies. 4. ASSESS THE CURRENT OMNICHANNEL READINESS The following signs point to weaknesses in your Customer Responsiveness capability: Lack of a single customer view Customers are segmented into well-defined profiles but not across channels Nobody owns the customer experience and it is not defined internally Nobody is responsible for ensuring that customer data is properly collected, is clean and useful The following signs point to weaknesses in your Merchandise Agility capability: There is nobody responsible for the product, assortment and price decisions across channels Product assortment is difficult to select across channels Product and price information is difficult to share across all channels The following signs point to weaknesses in your Channel Integration capability: Lack of a single view of inventory and orders across the enterprise Cross-channel demand can t be well determined and planned No owner of the customer order and fulfillment processes exists and these processes are not properly defined internally Demand can t be captured in all channels, regardless of that channel s ability to fulfill the order Inventory can t be identified and promised to an order, no matter where it may be found Lack of clear mechanisms to measure success of inventory and order management processes Store fulfillment is not possible The following signs point to weaknesses in your Organization Alignment capability: Single-channel organization silos exist Sales attribution process is unclear No alignment in financial and supply chain processes and functions across channels

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12 DEFINE AN OMNICHANNEL ROADMAP Few retailers have the luxury of being able to start over again, so the vast majority of retailers will require some time to transform their back-end and customer facing capabilities into a seamless shopping experience across all channels in an efficient and cost-effective way. A roadmap can help retailers achieve that transformation. It is very important that the roadmap includes initiatives to progress in parallel in all the critical omnichannel capabilities. The retailer will also need to make a cost-benefit and ROI analysis of each initiative. 1. ROADMAP INITIATIVES FOR CUSTOMER RESPONSIVENESS a. Determine the most painful experience for customers today. Survey customers to know which of the shopping experiences does not meet their expectations. Focus on cross-channel opportunities which are missing, undervalued, or prohibited. b. Consider building a plan to unify the customer vision. Identify the redundancy, inconsistency, data quality issues. 2. ROADMAP INITIATIVES FOR MERCHANDISE AGILITY a. Consider having a unified repository for products and pricing information and a plan to ensure consistency across all channels. b. Decide which products to make available for omnichannel services. A cost-based analysis will need to be done to determine which products will be profitable. 3. ROADMAP INITIATIVES FOR CHANNEL INTEGRATION a. Consider a re-definition of all channels: how they are implemented, goals, bridges and incentives that will allow consumers to seamlessly move between them. b. Consider a plan to prepare the physical stores for their new role. 4. ROADMAP INITIATIVES FOR ORGANIZATION ALIGNMENT a. Identify a highly committed internal omnichannel task force that will help to execute the vision. b. Include a plan to train all required staff and hire talented professionals. c. Plan for a new compensation plan aligned with the new business goals and a new culture of collaboration across all departments.

13 CREATE IMPLEMENTATION PLAN Once a roadmap exists, the next step is creating an implementation timeline and assigning the proper resources. 1. WHAT WILL THE PROJECT TEAM LOOK LIKE? The core team must be lead by a top C-level, visionary and clear organization leader, able to influence and mobilize the whole company to achieve the expected results. The rest of the members of this core team must belong to both business and IT groups. The core team should be involved through all phases of the project. This will aid in identifying the downstream impact of decisions. 2. WHAT WILL THE PHASES LOOK LIKE? Define phases based on priorities that have been identified in previous stages and the selected execution strategy. For example, it could be possible to plan for a pilot in specific geographies, stores (existing or new) or products. Define goals aligned with global business goals, assign a budget, staff and a timeline to each phase. 3. WHAT ARE THE INITIATIVES INCLUDED IN EACH PHASE? Identify all initiatives included in each phase and their activities. Define goals, assign a budget, staff and a timeline to each initiative. 4. HOW WILL PROGRESS AND SUCCESS BE MEASURED? Since most initiatives can be crosscompany, it is very important to define clear follow-up and measure mechanisms that consider this reality.

14 THE ROLE OF TECHNOLOGY Technology provides innovations that enhance the customer s shopping experience across the entire purchase cycle Branded digital touchpoints Traditional touchpoints Kiosk Web Mobile Stores Contact center 3PL Commerce Platform Distribution center Product Management Assortment Management Pricing Management Order Management Physical stores Corporate back-office systems ERP CRM BI Supply chain Technology is used by retailers to advance in the development of the critical omnichannel capabilities and provides a way to accelerate the execution of the defined omnichannel roadmap. To support their omnichannel requirements, retailers need to adopt modern commerce platforms that: enable a truly single customer view across all channels; provide strong merchandising management for the centralized creation and maintenance of a vast amount of products and pricing data; include order management capabilities for a single view of all orders across the enterprise and the capacity to integrate multiple channels to support crosschannel scenarios; provide embedded analytics features for deep insights into channels performance and to potentially leverage Big Data; are easy to adapt to very specific business requirements that provide a clear competitive advantage, highly scalable and Interoperable with other information systems and retail technologies; cloud and mobile ready to provide maximum business and IT agility. The adoption of a mobile POS to provide a truly assisted sale or other customer- facing technologies in the stores, such as self-checkout terminals, digital signage, digital couponing, mobile payments, kiosks or localization devices (beacons for example) amongst others will allow retailers to improve the store shopping experience. Mobile solutions for inventory management will also help to improve stock management accuracy; a critical aspect if we think about store fulfillment. The commerce platform will integrate with other existing systems like CRM or ERP, or can include a strong ERP foundation in order to seamlessly integrate other key processes such as supply chain or financial management.

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