PART 4: How to Thrive in a Digital Retail Landscape

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Part 4 of 5: Transforming business processes and structure to make it work

If you’ve come this far with me, I’m hoping you’re on board with the need to embrace e-commerce and embed deep personalization into our retail operations. The mistake that many are tempted to make, however, is to assume that this is merely a technological change: buy a new system, get it up and running, and voila, personalization! But no. As with any business transformation, we need to pay very careful attention to how we transform our businesses to embrace the new reality.

The overall goal of any new marketing and merchandising approach is attracting, retaining and growing a loyal, profitable customer base, but in the new digital landscape the tactics need to change dramatically to be effective. We need to be strategic and choose how and where to compete, play to the strengths of our value propositions, and take advantage of the competition’s weaknesses. This involves laying the right foundations to understand customers and their needs holistically, determine how to set omni-channel prices, understand when to use traditional trade and personalized customer promotions, and learn how to localize the customer experience across the store, the website and on mobile devices.

We need to consider three specific areas of process change: processes within a specific department or team (e.g., within merchandising), processes that span departments (e.g., across marketing and merchandising), and processes that extend outside the retail organization (e.g., involving manufacturing partners). Each one has its own challenges and complexities. I’ll give some important examples, but this list is by no means exhaustive.

Within a department

  • Imagine a new process in merchandising for setting prices in the physical stores and the online e-commerce store – should there be one price across both or should each channel have its own pricing? Should the e-commerce site have one price for all locations or should it follow the price zones for the physical stores?
  • In trade promotions, should the in-store trade promotions be replicated online? Should they vary by ad zone or be consistent across all ad zones?
  • Within the marketing department. a bigger question is how to create sufficient offers with sufficient funding to deliver relevant and personalized offers at a scale that will yield attractive incremental sales? For many retailers designing personalized marketing campaigns is a multi-week process.

Across departments

  • Personalized pricing is a great example of a process that cuts across marketing and merchandising. Today, it’s typically delivered through customer marketing campaigns led by the marketing department. But if we move toward personalized pricing delivered to shoppers via their smartphone apps, at what stage does merchandising start to become more involved in those decisions? Or do they cede control over all of pricing to the marketing department?

Across the value chain

  • A big challenge is incorporating the shopper marketing people into the conversations between the manufacturer and the retailer. This can involve building entirely new processes that are similar to those for trade promotions or adapting the current trade promotions process to incorporate shopper marketing components.
  • A new process also must evolve within the manufacturer organization for allocating budgets between the trade promotion and the shopper marketing units. Today, manufacturer budgets for shopper marketing are often less than 10% of their trade budget, and there are dramatically fewer people dedicated to shopper marketing than trade promotions. An added complexity is that trade promotions are usually driven by the manufacturer’s sales group, which is directly connected to the retailer’s category managers, but shopper marketing is usually driven out of a different team (consumer promotions). And no one wants to see their budget shrink, especially if it means giving another department greater control over the sales team’s ability to hit its targets (and get its bonuses!).

This last example highlights a major dichotomy the industry needs to overcome if it’s serious about embracing e-commerce and personalization: companies need to be able to prove they can deliver incremental sales at a profitable and scalable level, but without allocating sufficient budget and resources and building the appropriate processes and mechanisms, such proof may never come to pass. To really make this work, we need visionary leaders from the both manufacturer and retailer who are willing to take the leap.

The risk of outlining challenges is that it make this seem like an insurmountable task. It isn’t! But it’s important to identify the challenges and break them down into mini-tasks that feel much more achievable. The final challenge, and possibly the biggest, is people. In my next post, I’ll explore the change management aspects of this transformation.