BearingPoint Cross Channel Growth

Growth strategy Cross-channel retail

POINT OF VIEW

To get there. Together.

3Point of view

Contents

Inroduction ...................................................................................4

Cross-channel threat for classic retailers ..........................................8

Value appropriation in the shifting ecosystem ...............................12

Effective cross-channel response ...................................................18

Needs based cross-channel design ................................................24

Operating model transformation...................................................30

Open up to accelerate change ......................................................36

Summary ....................................................................................40

Contributors

Author

Jan Jacob Koomen

ContributorsJessica GroenewegNatasha Permyakova

Marketing & CommunicationSandrine Pigot

DesignSabrina MalaurieAngélique Tourneux

Introduction

5Point of view

Introduction

For classic brick & mortar retail companies there has not been lack of warning about the growth of e-commerce in the last 15 years. The actual impact has been slower to materialise, but turns out to be more dramatic than expected. At first, only books and consumer electronics seemed to be affected. Now, in one category after another, new successful competitors are taking off, including shoes, apparel and even groceries. Whilst e-commerce advances, the next wave of innovation such as mobile shopping arrives, with Tesco and Ahold launching QR-based shopping channels.

Just as the record industry has been transformed by peer-to-peer downloading, the software industry by open source development, telecom by Skype and ‘The Britannica’ stopping producing printed versions with the advent of Wikipedia, now retail companies are increasingly in the line of fire of social and internet- driven cross-channel innovations.

As Amazon posts another 41% revenue growth to $48.1 billion, we are now at tipping point and in response many retail organisations have recently accelerated cross-channel investments.

• Walmart has spent more than $300 million acquiring five tech firms since May and hired more than 300 engineers and code-writers in the U.S. and India1.

• Ahold has acquired Bol.com, the leading e-tailer in the Dutch home market, for €350 million2.

• Sears Holding Corporation, the owner of Sears, Kmart and 1995 e-tailer “Land’s End” states: «We are accelerating actions intended to drive our strategic agenda to become the leader in Integrated Retail. Profound changes in technology have an impact on the entire retail landscape, the way customers shop and the way they live... We are accelerating our actions to bring together a unique set of technology and retail assets to deliver a seamless, integrated experience for our ‘Shop Your Way’ Rewards members and customers—at the store, online, and at home3.»

Many smaller retail companies have invested in cross-channel initiatives, making the assortment available online, experimenting with Facebook and introducing new technology in store. These initiatives have often been responsive, ad-hoc and separate from the core business; not delivering the turnaround and volume growth that was expected.

1 Bloomberg Businessweek-Europe Edition – April 2012

2 Press release Ahold May 9th 2012

3 Annual Report – K10 – Sear Holding Fiscal year ending 28th

of January

6 Point of view

We propagate a more profound response to the developments in the market. Retail should transform its business system to reap opportunity for growth in cross-channel. There are six reasons why this transformation requires an integrated and urgent response from the retail industry: • Alternative innovative ways to deliver retail

services pose an increasing threat to classic brick & mortar focussed retail companies in the market

• New competitors introduce innovations that pose a substantial threat by profoundly changing the business system and delivering higher value to customers at lower costs

• An effective response to the cross-channel opportunity links innovation to the existing formula position and leverages the existing channels. Cross-channel is not a bolt-on; it is an integral part of value creation by retail companies

• Cross-channel innovations should address the same needs as the core retail formula addresses. Existing and new points of contact with the customer should reinforce the value perceived by the customer

• The impact of innovating these existing business models is substantial, as a shift has to be made from product/outlet-centred processes towards more customer/order-oriented processes. This transformation therefore affects all aspects of the retail company operating model

• As the future is increasingly dynamic and uncertain, successful transformation requires continuous innovation based on connected processes and empowered organisation. This requires a cultural change that will open up the organisation

These reasons support a six-step approach to cross-channel growth strategy for a retail company: • Change imperative: Create a common

understanding and a sense of urgency by evaluating the current and future market situation with the arrival of successful cross-channel competitors

• Business system analysis: Analyse value chain and assess the impact of cross-channel innovations on each of the steps where the retail company competes

• Strategic positioning: Sharpen up the generic strategic position: in what aspect of the retail service does the company intend to distinguish itself from the competition

• Cross-channel design: Define key cross-channel innovations that will be the centre of the strategy. These innovations and the generic position should address the same customer needs

• Operating model: Identify the impact on the current operating model, including governance and IT

• Change management: Open up your organisation and implement a pilot-based change program based on lean principles

Each step will be discussed in the next six chapters.

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Cross-channel threat for classic retailers

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Cross-channel threat for classic retailers

After decades of systematic growth the classic brick & mortar retail is facing the combined pressure of economic recession and the growth of alternative innovative channels.

E-commerce companies like Amazon, consumer-to-consumer retail like e-Bay and other innovative group-based or mobile channels grow rapidly at the expense of classic retail volumes and loosen the grip that retail corporations have on the consumer through the extensive network of brick & mortar outlets (see fig.1).

Key Question: Is your retail company ready to cope with the growth in cross-channel business?Key take out: Cross-channel business is growing at the cost of classic retailing, and many retail companies are ill prepared to gain from this growth.Your action point: Create an imperative for change: assess the market of your retail business and project impact of the arrival of a substantial cross-channel competitor, both in terms of profitability and your ability to compete.

Fig 1: Retail growth is concentrated in channels where classic retailers are less dominant

100%

0%Brick & mortar sales

Shar

e of

val

ue/r

even

ue

Share of consumer purchases by channel

e- & social commerce

Revenue of classic brick & mortar focussed

retailers

Loss

Growth: e-Commerce& Social commerce

Source: BearingPoint - 2012

Clas

sic

reta

ilers

Oth

ers

10 Point of view

The core capabilities of retailing, great merchandising, relevant formula design and high performance execution are still key to a successful retail growth, but the underlying trend is that, in one category after another, a substantial volume shifts towards new channels.

The ability of classic retail companies to compete with innovative e-commerce pure players is hampered by the need to protect existing channel revenue and partners. Also pure players in e-commerce are better able to attract talent, achieve higher stock turnovers, create better quantitative insights in their customers and generate more exciting innovative concepts for consumers.

Instead of aggressively charging into growth opportunities that cross-channel provides, many retail companies have simply placed their assortment on-line and initiated ad-hoc initiatives on new media, focusing mainly on communication. They fail to deliver the transformation in the relationship between retail company and consumer that is hoped for.

The question that these retail companies need to answer is: how can we re-invent our business model to leverage the potential of these new channels, combining the strength of brick & mortar with the use of new concepts. This paper addresses some key steps to take to understand and develop the cross-channel strategy that will deliver the required growth.

Fig 2: Breakthrough e-commerce growth appears in one category after another

Books: Search

Consumer electronics: Compare sites

Shoes:Return policy

Clothing: Online depart-ment stores

Groceries: Weekdaysubscriptions

Share of e-commerce

TimeSource: BearingPoint - 2012

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Fig 3: Impact of other channels is larger than can be measured by looking at the growth of e-commerce

Historic context:

The term ‘Retail’ is derived from ‘tailer’, meaning to cut off. Its function was to cut back large quantities for trade to portions suitable for domestic use.

In the last century the arrival of supermarkets, category killers and own retail brands brought the transformation to the value chain that has

enhanced the position of the retail industry. These developments have been driven by increased affluence, mobility, globalisation, product availability and changes in real estate prices.

E-commerce and social commerce shift the power back to smaller scale retailers as they greatly reduce the investment required to set-up shop and make it easier to attract a wide clientele.


E-commerce growth is just showing the tip of the iceberg by addressing only the transaction step. Consumers spend a much larger part of their journey

on the value chain outside the brick & mortar outlet channel1.

1 Lesson 4, The 6 CCDNA Lessons, BearingPoint 2012

9% is 2012 online share of all European retail business

71% of European smartphone owners use their phone in store

16% of consumers change their mind about their offline purchase based on information gathered with their smartphone

96% of European consumers research and compare products online

44% of consumers that start product search online migrate to the offline channel

e-commerce

Transaction in brick &

mortar

Value appropriation in the shifting ecosystem

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Value appropriation in the shifting ecosystem

Key Question: How should we interpret the impact of cross-channel on the retail ecosystem and our competitive position?Key take out: Existing and new competitors that successfully implement cross-channel transformation pose a strong threat to incumbents as they improve competitiveness in many aspects of the business system, creating more value, increasing efficiency and improving customer relations.Your action point: Draw your own value chain including margin build up and competitors. Assess the impact of new channels.

Invest Innovate Make Attract Select Transact Provide Service

Retail value chain defined:

• Invest: Invest in all aspects of the chain required before payment comes in

• Innovate: Create products and service concepts that fulfill consumer needs

• Make: Produce items that deliver value• Attract: Attract consumers to consider the item• Select: Help consumer to arrive at the best

choice

• Transact: Exchange ownership of the item and payment

• Provide: Ensure the item is made available to the consumer at the place where it is required

• Service: Maintain relationship with consumer to enhance product experience as well as facilitate additional acquisition by consumer

Retail is a part of the value chain that creates value by enabling consumers to acquire items that fulfil their needs.

Cross-channel innovation has put retail incumbents under threat. Key innovators have transformed business models for each step in the value chain.

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Here are some cross-channel innovations that work with an alternative superior operating model:• Amazon has not just allowed customers to order

(transact) on-line. It has also greatly improved the search for the right book (select) and has built a competitive alternative to brick & mortar stores for delivery of the books (provide).

• eBay has changed the role of the small scale manufacturer by creating a platform for an alternative retail system built on peer-to-peer sales (transact) and promotions (attract).

• Zipcar is another example of a transformed business system – this very popular carpooling community allows its customers to share a ride with other customers, bypassing alternative ways of providing a transportation service (select, provide).

• Crowdsource.com is a platform that offers instant access to more than 500,000 hyper-specialized workers. The business problem is divided into small tasks which are sent to thousands of workers who quickly complete them. The tasks


Fig 4: Cross-channel value chain innovations

Amazon: Has made it possible to better find books in a wider assortment

Crowdsource.org: Is an alternative for banking and research combining the wallet and brains of many

Nestlé's Maison Caillier introduces individually customised chocolates

PayPall, Square & Stripe: Plug and play electronic payment

Metaio: Develops mobile phone augmented reality user manuals

3D printers allow for home manufacturing under € 10.000,-

Bodymetrics:Kinect based body scan

Zappos: Has initiated a score of online fashion department stores

E-Bay has supported the (resurrection) of a home grown C2C and B2C industry Now followed by Reuse, C2C and Landshare


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are then reassembled into a final product and delivered to a client (finance, make).

• PayPal and Square challenge the way businesses transact with consumers by introducing mobile payment dongles that process credit card payments via smartphones (transact).

• Nestlé's Maison Caillier invites its consumers to unveil their “Chocolate personality”. Consumers first have to order a box of 5 differently flavoured chocolates, taste them and then rate them online (innovate). Then the company will follow this rating to personalize an individual’s chocolate box (make).

To create competitive cross-channel retail concepts and address consumers in all aspects of their journey when purchasing an item, retail companies should address all aspects of the value chain when designing a cross-channel strategy. Innovations can improve both value creation for the customer as well as value appropriation by the retail company1 (see fig.4). Innovation can improve efficiency, make the proposition more effective and strengthen the relation with customers.


Design themes for improving the performance of the retail business system along the value chain:

• Value creation for the customer: The customer attaches higher value to the way he is helped to acquire an item that satisfies his needs. The value may orginate from:

- Efficiency: Reduce the cost or effort to acquire an item

- Effectiveness: Ensure an item acquired better satisfies the needs of the customer

- Engagement: Add emotional value to the product with the shopping format or experience

• Value appropriation by the company: The company can deliver the same value to the customer more competitively in one of three ways:

- Efficiency: Reduce the cost to deliver the service and item

- Effectiveness: Better tuned format to meet the customers’ needs more effectively

- Lock-in: Reduce churn by ensuring customers want to come back

• Bodymetrics introduced its Kinect body scan that 3D-maps the consumer's body to create a perfect fitting pair of jeans (attract, select).

• Metaio created an augmented reality app to replace paper user manuals (service). The app can help users with everyday activities – such as opening a box or replacing a spare part. By pointing a smartphone at the object that has a problem, the app identifies the object and gives instructions on how to fix the problem by showing the instructions as augmented reality to the camera’s view.

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Some examples of different design themes:

Consumer efficiency

• Tesco South Korea opened a virtual grocery store that allows consumers to shop with their smartphones by scanning QR-codes in the metro station. This strategy makes productive use of commuters' waiting time, while simultaneously saving shoppers' time spent going to the supermarket.

• Peapod, an American subsidiary of Ahold, has recently placed a virtual grocery store in Chicago’s highly travelled State and Lake Station Tunnel. Commuters can order groceries on the platform, manage shopping lists and schedule deliveries – for next day or even several days or weeks in advance – during their train ride to or from the office2.

Consumer effectiveness

• Nordstrom sales associates use an iPod to look up past purchases. This enables them to spend more time with consumers on the shop floor.

• Apple store employees use iPod touch or iPhone devices to complete the transaction and email the customer a receipt.

Consumer engagement

• C&A Brazil makes it easier for consumers to choose a garment by displaying the number of Facebook likes on the garment hanger. When the item is “liked” on Facebook, it will instantly appear on the hanger in the store helping a consumer in doubt to make the right choice.

2 Press release Ahold May 7th 2012

Company efficiency

• Swiss watchmaker Tissot introduced the augmented reality app that allows consumers to try on different watches without going to the physical store. By wearing a paper wristband, consumers can see how the watches look on their wrists in 3D and change different features using the touchscreen.

• Nordstrom is rolling out 5,000 mobile checkout devices at 116 full-line stores in preparation for its Anniversary Sale in July.

Company effectiveness

• Wehkamp, a Dutch online retail company, offers discounts based on the GPS location of the consumer in more than 5500 brick & mortar stores in the Netherlands.

• High-end dress designer Derek Lam in partnership with eBay posted 16 looks from his Spring 2011 collection for consumers to go online and vote. More than 120,000 votes were cast and the top five were produced and available for sale on eBay.

• Threadless is a t-shirt company that allows customers to submit, discuss and rate designs, and the most popular ones are chosen for production.

Consumer lock-in

• Amazon saves delivery address, payment details and purchase history of the customer, which makes the next purchase faster and easier and creates lock-in with the retail company.

• Supermarket in the neighbourhood may attract consumers solely due to the habitual loyalty it creates. Consumers won't go to another store simply because of the location convenience.

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Fig 5: Breakthrough e-commerce growth appears in one category after another

Home shopping / automated vending

Online search & advice

Connected supply chain Self-help / self-service

Digital enhanced experiences / customer life solutions

One-on-one customer behavioural data

Direct relation via social / my account

Value creation

Customerefficiency

Customer effectiveness

Customer engagement

Value appropria-tion

Operational efficiency

Operational effectiveness

Customerlock-in


Effective cross-channel response

19Point of view

Effective cross-channel response

Key Question: How do I develop an effective cross-channel strategy and roadmap for my company to grow? Key take out: Linking your core retail position with a cross-channel strategy that supports this position will maximize your impact on consumers and will support your growth.Your action point: Review the company position and cross-channel proposition. Find key initiatives to enhance experience using cross-channel.

Seven discriminating strategies to compete in retail1:

1. Lowest price2. Biggest selection3. Quickest service4. Easiest solution5. Greenest proposition6. Hottest proposition7. Most exciting experience

1 Loosly based on “Winning at retail” WILLARD N. ANDER

and NEIL Z. STERN

By trying to be the best in meeting every need that might be relevant for consumers at the lowest possible price, a retail company runs the risk of being attacked by lower cost rivals that run at a slightly lower quality. Consumers will not be able to recognise the difference and focus will shift towards the price (see fig.6).

To be effective in cross-channel, a retail company first needs to decide on an overall strategy to win in the mind of the consumer. There is an infinite number of options to compete in, however these can be grouped in seven core choices.

1. Lowest price

These retail companies focus on discipline and operational excellence, provide no perks and niceties and offer consistently low prices which creates a no-risk environment that satisfies the consumer's need for safety. Cross-channel elements addressing the same safety need will help to enhance the customer experience, e.g. cross-channel transparency and digital assisted self-help.

Walmart, for instance, a vivid example of a low-cost retail company, pushes shoppers to scan their own items and make payments themselves, eliminating the cashier.

20 Point of view

2. Biggest selection

This strategic choice is characterised by the dominant assortment in a specific category. Finding the ‘sweet spot’ between having too much and not enough is the key to this type of strategy. It reassures consumers’ comfort that they do not need to shop anywhere else and can be sure to find what they need, thus addressing basic functional needs and making shopping an easy experience. The perfect cross-channel mix for this choice will appeal to functionality and ease of the shopping experience.

Amazon is one of the biggest retail companies, which builds its strategy around the wide assortment. Its cross-channel roadmap relies on the availability of the information as well as relations with social community. The “Customers who viewed this item, also viewed…” tool is a shining example of how it can be done.

3. Quickest service

The quickest retail companies aim to fulfil consumer need as quickly as possible. They are normally in convenient locations with parking facilities, they know what the customer is looking for, enable accuracy and efficient check-out and make it possible to order and collect an item at convenient hours. By addressing the need for functionality and experience, cross-channel elements such as digital assisted self-help would be a good tool to enhance this strategic choice.

McDonald's introduced self-service touchscreen kiosks that take orders and money. Adding extra cheese, more fries, a larger Coke – is now only at a finger tap away. In addition, a customer gets instant access to the full McDonald’s menu, and knows at a glance if something isn’t available for any reason.

4. Easiest solution

This type of strategy implies that a store is not just a place to buy, but a solution to a problem. It is characterised by a limited assortment and customer centric employees. This type of retail company offers the perfect product selection that aims to make it easy for consumer to choose. Cross-channel elements that address the consumer's need for experience would be a suitable option here.

A number of Swedish online retail companies, such as Mat&Ro, Linas Matkasse and City Gross offering grocery subscriptions, are a shining example of this strategy. They aim to make the life of their customers easier by helping to plan and do grocery shopping. They offer packed grocery bags containing fresh ingredients and recipes for a

Fig 6: By trying to be good in everything retailers become undistinguished

High

LowPRICE DEEP

ASSORTMENTWIDE

ASSORTMENTEASY

ACCESS

Red Ocean

Low quality / low cost

High quality / high cost

EXTENSIVESERVICE

ENTER-TAINMENT

FIND &SELECT


21Point of view

selected number of meals that are delivered right to the customer's door.

5. Greenest proposition

This type of retail company offers a selection of products that minimise the impact on the world thus addressing functional need as well as helping consumers to communicate who they are and express their identity. Providing local connected services and building relations with the social community could be suitable options to enhance this strategic choice.

Marqt is the Dutch chain of supermarkets that offers ‘real food’ that is produced with respect for people, nature (the environment) and animals. This is a typical example of greenest proposition, which is supported by the use of local suppliers that cultivate fresh organic products. In addition, such a supply chain allows to build relations with social community by providing work for people who need social help.

6. Hottest proposition

The ‘hottest’ retail companies are experts in their category, they stand apart from the rest by employing innovative concepts and fashion. This type of retail aims to address consumer need for experience and recognition; the level of customer engagement and customer service plays a crucial role. Cross-channel strategy should focus on building continuous relations with the customer as well as create distinctive shopping experience.

Louis Vuitton introduced its groundbreaking app Amble conceived as a digital travel diary that allows to design emotional experience and memory of travel. The app was designed not merely as a travel guide, but to transform travel experience into enriching personal experience by allowing consumers to create and share their own spots or discover must visit haunts of such celebrities as Sarah Jessica Parker or Sofia Coppola.

High

Experience

Hottest

GreenestEasy QuickestBiggestPrice

Low

PRICE DEEPASSORTMENT

WIDEASSORTMENT

EASYACCESS

EXTENSIVESERVICE

ENTER-TAINMENT

FIND &SELECT

Red Ocean

Fig 7: Successful retailers focus on value divers that fit their strategy


22 Point of view

7. Most exciting experience

In this case a retail company provides full experiential proposition that combines product, service and price. Cross-channel options that help to enhance the ultimate experience are the way to go. It can be cross-channel experience design, in-store and mobile digitization, turning staff from sellers to entertainers, etc.

Starbucks recently opened its first concept store in Europe with its “Slow” Coffee Theatre, hyper-local design, floating community gathering spaces and on-site bakery. The Coffee Experience Laboratory at Starbucks was designed and engineered to, as Starbucks says, “treat coffee as a theatre”. The moment a customer walks in the door, his eyes focus on the “stage” (where the baristas are working) and there are no seating locations in the entire facility where the baristas and the stage are out of sight which creates an exciting experience for Starbucks consumers.

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Needs based cross-channel design

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Needs based cross-channel design

Key Question: How can I assess the impact of individual cross-channel innovations especially with respect to their attractiveness to my customers?Key take out: Cross-channel innovations are ways to create value for consumers by addressing existing core needs much more effectively. Your action point: Make list of potential cross-channel elements that you are considering and check what basic customer need is addressed.

Retail consumer needs pyramid

Analysis of consumer behavior shows basic needs are shifting in channel but not changing in core quality. In the context of retail the Maslow pyramid can be summarized in four needs:

• Function: Make the acquisition of an item that fulfills the consumer requirements at the lowest cost, both in terms of finance as well as in terms of effort.

• Safety: Ensure that the acquisition of an item does not cause any anxiety in terms of having paid too much, having purchased an item that is not suitable or having purchased an item that is not received well by social peers.

• Experience: Deliver the acquisition process as an experience that is tuned to the situation of the consumer, who might be in a hurry or might be looking for entertainment.

• Recognition: Provide the means to allow a consumer to increase his social status with the acquisition as well as the acquisition experience.

Cross-channel innovations, and the technology behind them, enable faster creation of customer value by addressing the underlying consumer need more effectively. These innovations are a source of sustainable competitiveness. Consumer needs in retail can be organised in four categories.

Function

Cross-channel delivery makes the item more efficiently available to the consumer. Also in some areas it is a more safe way to get items. De Bijenkorf, a Dutch department store chain, offers in-store collection for online orders.

26 Point of view

Safety

Digital and mobile shopping technology has enhanced the availability of item acquisition opportunities, thus limiting associated anxiety and risks. Amazon released Price Check, its comparison shopping app, that allows users to scan the barcode of a product, take a picture of it or type the item’s name to see prices from Amazon.com and its 2 million online merchants.

Experience

Digital and mobile tools can turn the acquisition of an item into an exciting experience. Disney Explorer is a free app for iPad that offers a mobile experience of the sights and sounds of Disneyland while getting information on and planning the trip. The app offers the ability to “tap into beautiful images, animation and interactive touch points that represent experiences inside Disneyland park, Disney California Adventure park, Downtown Disney District and all three hotels of the Disneyland Resort.”

Recognition

Consumers can share preferences and rate each other’s taste in a social community while shopping. Fantasy Shopper is a new website that allows consumers to shop in real world stores without spending real money. It allows to share picks with Facebook friends, create outfits for them and follow style icons. In addition, it allows to unlock discount codes and win real world shopping vouchers. It is also possible to buy the desired item for real with just one click.

Historic context:

Needs have not changed over time, what has changed is the ways to deliver them. The first retail innovation was the emergence of markets many millennia ago. These markets facilitated acquisition of the right products at a reasonable price, reduced risk and increased safety.

A second major innovation was the arrival of the shop, a fixed building with a fixed assortment. This further enhanced efficiency and security. Branded products in these shops further reduced risk of buying bad quality product and increased the ability to compare pricing.

Supermarkets allowed consumers to acquire items at lower costs (lower retailer margin), due to increased productivity of the retailer organization.

Specialty shops were an early sign of social standard. Being accepted was the first step. As Julia Roberts in the scene of “Pretty Woman” shows, this is still the case for exclusive shops in present days, if a customer enters without the proper look or credit card. Branded high- end retailers have enhanced the ability of consumers to communicate the social standard more effectively.

Experience and belonging also play a crucial role in the classic form of social sales, the ‘Tupperware party’. Tupperware produces durable household containers as well as related household products. Housewives can invite friends to a party in their home facilitated by a Tupperware representative in which Tupperware is demonstrated and sold.

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Before retail Small shops Mass retail Cross-channel

Fig 8: Cross-channel innovations address the same underlying needs that other earlier retail innovations addressed.

Exclusive products /

fabrics

Branded carrier bag

Tupperware parties

Outsourcing to staff

Personal service

Brands Branded formulas

Parking

ShopsShopping

malls

Known assortment

Local word of mouth

Consumer association

Self-help

Door-to-door delivery

Price /quality improvement

Guilds

Town markets

RecognitionBelongSocial

ExperienceEasyRitual

SafetyInformationNo-risk

FunctionSelf-helpAutomation

MASLOW

In-store recognition


28 Point of view

Fig 9: Each strategic direction is linked to other consumer needs

Experience“We have an experience you do not want to miss” ++ +

Hottest “With us you will be hot and fashionable” + ++

Green“You will minimise impact on the globe if you use our product” ++ +

Easy“We have the perfect selection for you and make it easy to choose” ++ +

Quickest“You will fullfill your need in a fast way at our place” + ++

Biggest“We will make sure you will find what you are looking for”

+ +

Price“You can trust us to provide the lowest cost product” ++ ++

Func

tion

Safe

ty

Expe

rien

ce

Reco

gnit

ion

Each of the seven discriminating strategies to compete in retail (see figure 9) focus on different needs. For instance, when competing on price, key consumer needs that are met are functional and safety: «I want to be sure that this is the cheapest way of acquiring the product that will fulfil my requirements».

Examples of price focus include the use of electronic self-help, comparison sites and consumer connection platforms.


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Fig 10: Cross-channel innovations should enhance the consumer needs that are central to the overall retailer format if it is to create competitive advantage

Function Safety Experience Recognition

Recognition

Experience

Safety

Function

Consumer needs

addressed by cross-channel

innovation

Consumer needs central to retail format

Area of effective cross-channel innovation


More generically, any cross-channel innovation should be selected and designed to reinforce the

needs that are addressed by the core strategy.

Operating model transformation

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Operating model transformation

Key Question: What are the key issues I have to address in my operating model to achieve successful cross-channel transformation?Key take out: Although there are many design themes, attention should be given to: customer experience design, cross-channel handling of orders, use of networks as an extension to the organisation, changing role for the personnel in store, shift from product towards customer centric IT design and additional investments in electronic channels. Your action point: Review your strategy, make the choices and draft a roadmap for developing and implementing your cross-channel capabilities.

Operating model cross-channel capabilities

Strategy• Strategic orientation• Segmentation model• Value creation model*

Formula design• Assortment & pricing• Channels• Locations• Customer experience*

Processes• Assortment, pricing & promotion management• Sales forecasting & monitoring• Order management• Inventory treatment*

Organisation• Management structure• Owned network (incl. franchises)• Paid network (incl. media)• Earned network (communities, partnerships)*• Incentive systems*• In-store operations*

Systems• ERP• Planning, logistics & distribution• Integrated view of the customer*• Customer relationship management• E-commerce*• Social on-line (incl. my.account.)*• POS systems• Sales force automation*• Consumer in-store automation*

* Especially affected by cross-channel

BearingPoint has developed a framework for assessing the impact on the operating model five key themes. Some of the capabilities in the framework are generic, already in place and will need to be reviewed against shifting strategy.

Others are specific to a cross-channel strategy, and these are the ones that require the most attention, as they might be new and the ones that are the key source of competitive advantage.

32 Point of view

Strategy

Cross-channel impact: To create a competitive cross-channel retail organisation, the strategy needs to address all aspects of the value chain, and systematically introduce innovative cross-channel concepts.

• Customer value: What is the key value that consumers will find, compared with the competition? How and where will cross-channel/digital innovations create this value? Is standard customer segmentation in place across all channels?«Almost half of the EU retail companies say they address customer segments differently across-channels»

• Strategy: Is a company-wide cross-channel strategy defined? If so where is the ownership and the budget allocated? «Only one third of European retail companies have a companywide cross-channel strategy»

• Strategic orientation: Is the companies´ DNA more defensive or innovative? Is the organisation cost focused or is the organisation willing and in position to commit funds to more adventurous innovations? Is the organisation driven strictly from the centre or is power allocated more decentralised?«42% of the European retail companies state that they find it important to analyse costs and revenues carefully, to keep costs under control and to selectively generate new services or enter new markets. Only 19% state that keeping costs under control is their most important goal.»

Fig 11: Classic retailer operating model

Category

Category

Category

Logistics

ERP

Region

Outlet 1

Outlet 2

Outlet 3

Region

Outlet 1

Outlet 2

Outlet 3

Region

Outlet 1

Outlet 2

Outlet 3

Marketing communication

Cons

umer


33Point of view

Formula design

Cross-channel impact: Formula design gets more extended. All channels are an integral part of the formula as the consumer experiences it.

• Cross-channel assortment set-up: To what level is your assortment harmonised across-channels with respect to core assortment and “long tail”? Is consistency desirable? To what level are prices standardised?

«More than half of EU retail companies say they have harmonised prices on all channels»

• Customer experience design: Do you design the journey of the customer outside the direct environment of the shop? What channels do my customers use as part of their purchase journey? Have you reviewed the consistency of your customer experiences in all channels?

Fig 12: To compete in cross-channel, the operating model needs to be changed and expanded

Category

Category

Third party assortment

Content creation

Logistics

ERP

Region

Outlet 1

Outlet 2

Outlet 3

Region

Outlet 1

Outlet 2

Outlet 3

e-Commercee-Services

Home delivery

Third party Affected

Third party services

Retailer enabled social networks

Direct communication

Marketing communication

Cons

umer


34 Point of view

Processes

Cross-channel impact: Key complication in the processes is that inventory and orders are not channel or store-specific anymore. Items bought in one channel might be picked up in another and returned in a third.

• Merchandising, sales forecasting & monitoring: Is merchandising executed across channels? Are sales targets set per channel or cross-channel? Is in-season planning across channels? Is sell-through monitoring cross-channel? How are purchase budget limits managed?«27% say that closed-loop feedback of sell-through/ order management/ merchandise planning is already realised»

• Integrated inventory treatment: Do you keep separate DC stock allocations between channels or is inventory integrated? Is in-store inventory visible across-channels? Do all channels share item availability and shipping time? «Only 17 % of the respondents offer multiple order/ pick-up/ delivery options»

• Integrated order management & procurement: Is ordering, order management and controlling centralised? Mixed order & delivery models? Centralised fulfilment or decentralised (store based) fulfilment return policy ?«Most companies have a mixed mode in cross-channel fulfilment, a quarter does not have cross-channel capabilities at all»

Organisation

Cross-channel impact: To harness the innovative power and local execution power of the world outside the retail company, a network of partners might be required that are much looser organised than a classic top down retail organisation. These partner networks used to include franchisees and large suppliers. They might now be extended to local suppliers, local individuals who perform services, social communities, key persons in social communities, key customers, IT partners and media partners.

• Integrated management structure: Are operations integrated or do separate business units exist for channels? Are stores centrally owned, or do local owners need to come on board? How are cross sales allocated, for instance to regions or store areas?«Almost half of the retail companies state their management structure is decentralized and participatory, thus encouraging many organisation members to be involved»

• In-store operations: Are in-store personnel willing and able to handle more advanced ordering, service and sales tasks? Are staff willing and able to move from transaction executioners to experience deliverers? At what level do you have full control of the quality of in-store operations?«Only 7% of European retail companies have equipped their stores/associates with mobile technology: 45% expect to implement this within the next 3 years»

35Point of view

• Network: How do you plan to gather the resources required to deploy the strategy? At what level are you able to find, recruit and keep these resources within your company? How will you connect communities and organisations outside your company to fill in resource gaps?

Systems

Cross-channel impact: As much of the transformation to cross-channel is driven by the growth of internet, mobile and other technologies it is not surprising that technology is key to some aspects of the cross-channel transformation. In the heart of the organisation ERP, assortment management and planning & logistics systems will be affected as they cannot be based on regional/ outlet- based processes only, but need to move towards customer/ order-based processes. To create a consistent customer experience, information about this customer should be available on all interaction points (360° view of the customer). This might also require you to provide support to sales people with ways to access and enrich this data.

Also specific capabilities might be needed for direct consumer interaction such as e-commerce suites, social on-line and in-store automation for consumers.

• IT system integration: At what level are IT systems integrated and available especially with respect to: Enterprise Resource Planning System, Distributed Order Management, Merchandise Planning & Control System, Inventory Management, Order picking and packing system, Data Warehouses/

Business Intelligence, Customer Relationship Management, POS-System, In-store automation for sales assistants and In-store automation for customers?«Only 15% of the European retailers state that they are currently satisfied with their IT landscape in terms of supporting cross-channel retailing»

• Integrated view of the customer: Do you have an integrated view of your customers? Do you make customer information available to sales associates? Is your store personnel equipped with mobile technology to access customer information?«33% of European retail companies synchronise customer information across all channels»

In conclusion, one could say there is a vast amount of work to be done in order to build competitive cross-channel capabilities in European retail companies. Despite the recession, many retail companies are investing substantially in cross-channel capabilities.

Source of the citations: «C3 Retail - Cross-Channel-Commerce in Retail Business», 2012, BearingPoint

Open up to accelerate change

37Point of view

Open up to accelerate change

Key Question: How do I manage the organisational transformation to a cross-channel retail company?Key take out: The transformation needs to be planned and managed at three levels: continuous innovation of cross-channel interaction with customers; change management of organisation, network and personnel to shift to a more flexible adaptive way of working; systematic transformation of process and systems to support these initiatives at competitive costs1.Your action point: Divide your strategic roadmap into three parts: Cross-channel innovations, underlying capabilities and change management.


Fig 13: Continuous cross-channel innovation needs to be supported by organisational

strengthening

Although the benefits can be huge, the impact on the organisation will also be significant. If your organisation decided to embrace the cross-channel world and get fully ready, this means that not just the IT systems, processes and organisation will change.

Impact on the DNA of the company

A cross-channel retail company will be competing with fast-growing rivals that have a culture focused on luring talent, enlisting communities and that are fully connected. For a typical retail company organisation that is grown from the adage “retail is detail” and that has the associated check and control culture in place, it might be hard to compete with such highly motivated competition with low overhead.

Cross-channel Innovation

Connected process & system transformation

Empowered people change

management


38 Point of view

Retail companies do not, will not, and need not change to a ‘start-up’ mentality, but there are two core choices that are inevitable. First, the organisation needs to be tighter connected and operate at lower fault margins. Second, the organisation needs to release control and empower its personnel and partners. These changes are driven by the need to achieve consistent consumer experience, connect socially and be able to adapt to the rapid changes of the cross-channel world.

• Consistent Customer Experience: To build a lasting relation with a consumer ‘extended’, organisation needs to be trustworthy. This trust is gained by repetitive consistent experience at all points where your customer comes into contact with your formula or products. This touchpoints are at the edge of your organisation where your personnel, your partners or your systems have a direct impact on the consumer. It is an infinite number of possible experiences that can only be managed by the people involved based on clear vision and expectations and supported with all relevant information of the customer and the product.

• Socially connected: A huge source of potential in cross-channel retailing is relations within social communities, either based on shared interest, shared transactions or shared social groups. To tap into this source effectively, a retail company should interact in a balanced way with these groups. Networks that are owned or paid for by a retail company do not have the same scope or level of trust and value as those networks to which a retail company has earned access. The process of building up credibility is largely done by the social network itself. It cannot be commanded,

rather it needs to be enticed by well-informed, connected respectful interaction.

• Adaptive: At this moment in time no one knows the exact impact and take-up of current technological developments in the future. Also changes are happening fast, both in the media landscape, places where consumers convene and technological possibilities.Technological fates are determined by classes of independent programmers who decide to support one technology over another. In this environment it is key to centrally manage the IT investment very strictly, carefully and incrementally. To generate innovations retail companies need to enlist partnerships with small suppliers and IT firms, testing new concepts on a small scale, managing incentives intelligently and being ready to scale up when success is met.

The change in the DNA needs to be managed explicitly and carefully as part of the transformation, both by involving the organisation as well as by systematically building up of system and process capabilities. Leading such a change requires a simple and clear message around the goal to achieve the individual responsibility of the organisation members and the sharing of and connection to information.

39Point of view

Summary

41Point of view

Summary

Innovative ways to deliver retail services over alternative channels pose an increasing threat to classic brick & mortar retail companies.

The arrival and growth of cross-channel innovations drive profound transformation of the business system. Existing and new competitors that successfully implement cross-channel transformation pose a strong threat to incumbents as they improve competitiveness in many aspects of the business system, creating more value, increasing efficiency and improving customer relations.

An effective cross-channel strategy links a cross- channel innovation roadmap to overall retail company positioning. Linking your core retail position with cross-channel strategy that supports this position will maximize your impact on consumers and support your growth.

A customer needs analysis is the base for designing and implementing cross-channel innovations in retail. Cross-channel innovations are ways to create value for consumers by addressing existing core needs much more effectively.

Transformation to become a competitive cross-channel retail company affects all major components of the operating model. Although many design themes remain, attention should be given to: customer experience design, cross-channel handling of orders, use of networks as an extension to the organisation, changing role for the personnel in store, shift from product towards customer centric IT design and additional investments in electronic channels.

Successful transformation supports continuous innovation based on connected processes and an empowered organisation. The transformation needs to be planned and managed at three levels: continuous innovation of cross-channel interaction with customers; change management of organisation, network and personnel to shift to a more flexible adaptive way of working; systematic transformation of the process and systems to support these initiatives at competitive costs.

42 Point of view

Contacts

NetherlandsJan Jacob Koomen Tel: +31 6 53 23 25 [email protected]

Natasha PermyakovaTel: +31 20 504 9000 [email protected]

Jessica GroenewegTel: +31 20 504 9000 [email protected]

© 2012 BearingPoint Holding B.V. All rights reserved. Printed in the EU. The content of this document is subject to copy right (“Urheberrecht”). Changes, cuts, enlargements and amendments, any publication, translation or commercial use for the purpose of trainings by third parties requires the prior written consent of BearingPoint Holding B.V. Any copying for personal use is allowed and only under the condition that this copy right annotation (“Urheberrechtsvermerk”) will be mentioned on the copied documents as well. SO 0631 EN

Other countriesPeter BrenteSwedenTel: +46 8 410 11 630 [email protected]

Carole GiraudFranceTel: +331 58 86 38 [email protected]

Jari LaineFinlandTel: +358 400 7696 [email protected]

Ulrik NoergaardDenmarkTel: +45 2210 [email protected]

Henrik OhlssonNorwayTel: +47 240 69 [email protected]

Christian WolterGermanyTel: +49 40 41 49 22 75 [email protected]

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