Updated on 06/02/2023
Retail and digital transformation: an introduction
What happens in the retail sector after digital revolution? In previous posts, we have underlined how the retail sector, especially for the more traditional organizations, is in a crucial phase of transformation. The stimuli come from digital transformation and new competitors on the market (Amazon, Alibaba, eBay, etc.) that are changing the rules of engagement and, consequently, are pushing all other retailers to rethink the structure of their business.
Given the delicacy of the situation, it is necessary to make the right choices and avoid missteps in order to remain competitive. After all, digitization has cornered the entire industry, forcing it to face its limits.
The 9 mistakes to avoid when talking about retail (after the digital revolution)
To sustain growth, it is no longer enough to focus on reducing the cost of supplies or the workforce, just as it is not enough to increase the range of products on offer, especially now that the sector is heading towards widespread stagnation and consumers are “running away” from large retailers and traditional retail in general (ilsole24ore.com).
In such a situation, what are the most common mistakes to avoid when tallking about retail after the digital revolution?
1. Believing that e-commerce in only a threat
First mistake to avoid in retail sector after the digital revolution: traditional retailers are often convinced that e-commerce is only, and above all, a threat to their survival.
In some scenarios, e-commerce does replace the traditional shopping experience, but this isn’t always the case. There are already some examples of collaboration between large retailers and their digital counterparts, in which the latter have sometimes become part of the shareholding structure of large commercial groups or have taken on the role of sub-suppliers.
Collaboration, moreover, can have considerable advantages. As is often the case, this is a great way to get to know the competition, especially when it comes to learning from winning strategies or about the specific skills being used. Some competitors, if strategically embraced, can become valuable allies to develop the skills necessary to remain competitive in the market for the long term.
2. Underestimating the importance of the customer experience
When it comes to the Customer Experience, retailers need to provide a memorable experience that will bring the customer back again and again.
There is an inseparable link between customer experience and customer satisfaction as well as customer satisfaction and customer retention, which is a key element for retail since a satisfied and loyal customer tends to spend 67% more than a newly acquired customer. It also allows companies to save because it is less expensive to retain a customer than to get a new one.
This means that every retailer must equip themselves accordingly, including by combining the digital and analog shopping experience so as to combine the strengths of both. And this leads directly to the third mistake.
3. Thinking that digital and analog can’t coexist
Just as digital retailers are not necessarily adversaries, the digital shopping experience does not necessarily exclude the physical one and vice versa. On the contrary, a combined digital and analog experience allows retailers to provide a better experience for their customers.
For example, the “New Sephora Experience”, developed in collaboration with Pantone, uses tablets to show the digital catalog of products to consumers and, thanks to a special mirror, provides advice based on the customer’s skin type and the desired effect. Fashion retailer Zara, in some of its pop-up stores, has created a platform where customers can get advice on clothing through an interactive dressing room that suggests new combinations based on the item you’re trying on. Customers can also pay using automatic checkouts, which eliminates waiting in line at the cash register.
These two are excellent examples of what is possible with the phygital customer experience. This new type of shopping experience is a real union between the physical and digital dimensions,where technological innovations are used to enrich the customer journey offered within the traditional retail store.
This type of customer experience also allows traditional retailers to benefit from certain innovations typically only available to digital retailers, such as the ability to track customer behavior and consumption or to implement retargeting strategies that encourage the user to buy again and again.
Obviously the phygital approach has advantages not only for supermarkets or physical stores, but also for online retailers.
4. Believing in the extinction of phisical stores
For some time now we’ve been hearing about the “retail apocalypse” that is causing large retailers (from Macy’s to Abercrombie) to close stores.
This situation has not yet occurred in Italy, where the sector still shows some signs of vitality, despite the many difficulties. Despite the data that shows continued growth in e-commerce, it does not mean that Italian retailers are immune to this eventuality. It is difficult to imagine that physical stores could be completely supplanted by digital retail, if only because there are some aspects of the physical customer experience that are irreplaceable.
One of these is the ability to make the most of the dopamine activation cycle, the biological mechanism that leads our brain to perceive a feeling of well-being while we are shopping. The human component is fundamental for activating this, it’s only found in the physical store. When we are warmly welcomed, like a loyal customer, when the salesperson remembers our tastes, when we have the chance to try and immediately purchase the product we want: our brain is stimulated to produce greater quantities of this “pleasure hormone,” pushing us to buy more.
Such moments are inevitably linked to a physical shopping dimension and can hardly be integrated into a digital customer experience. For this reason, giants like Amazon and Alibaba have already moved to open some physical stores in order to put a foot in the big distribution and enrich their CX, in perfect coherence with the phygital approach.
5. Underestimating the role of different generations
One aspect that often takes second place to the general change in customers’ habits (more and more social, more and more connected, more and more demanding) is the fact that digital transformation is also changing the composition of those who buy.
Recent research shows that the way customers buy changes according to the generation they belong to (npd.com). It is millennials who prefer online shopping year round, while shoppers between 18 and 22 years of age tend to concentrate their purchases at specific times, such as Black Friday, to take advantage of discounts. And although Generation Z is digitally native, they also want to have the physical shopping experience.
According to NRF research, 98% of 20-year-olds said they still prefer shopping in traditional stores, provided they can reflect and amplify their digital habits. This means that “analog” retail still has prospects, but it must be able to transform and keep up with younger consumers. One way to do this is not to make the next mistake.
6. Forgetting about social
No retailer, no matter their size or product, can afford to ignore social networks in their marketing strategy.
It is clear that social platforms are now a formidable means of communication to effectively reach a large number of possible consumers. Consequently, being present on social networks is a real obligation. This is also because being on social allows retailers to be closer to customers and to establish a more direct relationship with them. Social is also useful when it comes to providing effective customer care.
Thanks to immediate interactions, direct chats, and chatbots, social networks are the perfect environment to provide customer care, also because they significantly reduce waiting times, make the retailer’s reaction immediate, and allow them to learn more about the recurring needs of customers.
In a nutshell, social networks provide better customer care, which is a key lever for increasing customer satisfaction and retention.
7. Thinking that socials don’t sell
Social networks are important not only for the reasons listed above, but also because they are a great avenue for sales. Social commerce, i.e. purchases made directly on a social platform and not on a dedicated site, is, in fact, a relevant trend (insidemarketing.it).
Facebook, Instagram, and Pinterest are just some of the social networks that have integrated the purchase function into their network. Instagram, for example, already offers the ability to insert links that refer users to a landing page where you can make a purchase; users can also purchase through a shopping tag inside the photo that provides information about the featured product. For its part, Facebook has opened a real digital marketplace within its platform, the famous Facebook Marketplace; in 2018 alone, 800 million users used it to buy or sell a product.
However, being on social and using it to sell is not enough: we must also remember that each social has specific characteristics and is used to address different types of users, so this choice must also be made in a consistent and strategic way.
8. Neglecting brand equity
Buying a product is often associated with a political choice: consumers increasingly care about what they buy, how it was produced, where, and under what conditions.
More and more, this aspect is becoming relevant for consumers who require retailers of any kind to reflect the consumers’ values, such as those for eco-sustainability, environmental protection, etc. It is no longer enough to sell convincingly, it is also necessary for brands to be an active and relevant part of society.
9. Never change the winning team
Another lesson that digital revolution leaves to retail is this: no matter how successful the business formula is, it’s never good to rest on your laurels. On the contrary, you need to constantly renew your business and your offerings.
Large retailers, for example, should plan for this every 3-4 years, perhaps based on surveys and big data. The same is true for small retailers who may need to constantly experiment with both product offerings and the use of retail spaces. The trend should be to reduce fixed costs for things like space rental.
In this sense, digital technology can offer several innovative options. These range from the use of augmented reality for displaying products and guaranteeing an immersive customer experience, to offering online purchase options or click and collect, thus reducing the need for retail space.
In essence, there are many solutions; it’s up to each organization to find the most appropriate ones for their business.