Since the emergence of digital media, we’ve heard about the growing power of the consumer. Today, it is astonishing to see how far this trend has continued to evolve. Across industries, the Consumer 2020 is in control as they select, or replace, the brands that have traditionally provided products, services, and experiences.
Cisco research shows that four out of ten companies will fail over the next decade if they cannot transform their business to meet today’s digital demands. We are already seeing the truth of this in the marketplace:
Now the question becomes how to survive in this chaotic environment. The ultimate survival strategy is to invest in a mix of technology, software, and services supple enough to adapt to each change as it comes along. Based on this foundation, you can create a customer experience, pricing model, or ecosystem of partners and services that allows you to find ways to not only survive, but thrive.
Recently, Cisco introduced the idea of disruption across industries—disruption that can be addressed only through a powerful digital transformation. We describe this as a “digital vortex,” which describes industries that will see the most disruption over five years. But this disruption is occurring even faster than expected, and new research shows that retail is becoming the single most disrupted industry.
This is due to industry-leading disruption from companies such as Amazon, which has broken new ground in its quest for the Consumer 2020 with its acquisition of Whole Foods in grocery, Emmy-winning media and entertainment offerings, and AmazonBasics brand of consumer goods (with more than 900 products). Amazon is succeeding by:
In a recent survey, 70 percent of retail executives responded that their businesses are likely to be “massively disrupted” by digital technologies in the next 12 months.
* In just the last three years, retail has risen from the seventh most disrupted industry to the first.1
1. Forrester, Ogders Berndtson, Global Digital Business Online Survey, 2015
The digital vortex changes how business is being done. Retailers may compete on cost (Amazon), on customer experience (Virgin), or on a platform (Pinterest). As a retailer, you need to choose where you want to compete. These models focus exclusively on delivering three main forms of value for the consumer.
Cost value: Offerings cost much less than traditional options, if they cost anything at all. Examples include freemium models, consumption-based pricing, and price transparency.
Experience value: Giving customers what they want, how and when they want it. This can mean letting customers choose what they want and skip what they don’t, reducing effort and complexity, and providing instant gratification.
Platform value: Using digital technology to scale offerings, leverage new sources of data, and create network effects. Platform value enables rapid scalability, reduces capital expenditures, and creates multi-sided markets where all parties benefit.
Note that while cost value and experience value are as old as competition itself, platform value is new to the digital age, and it is the driving force of the most disruptive companies.
The digital vortex also changes the nature of competition in two ways.
The first is the emergence of a new type of competitor we call the “value vampire” because it creates value for customers while draining revenues and profits from the markets they attack. Value vampires use combinatorial disruption that puts extreme cost value (including free or ultra-low cost, price transparency, and buyer aggregation) at the heart of their business models. Their offerings are much cheaper, and often all-around better. Incumbents quickly lose not only revenue but relevance.
In other words, a value vampire is a company whose competitive advantage shrinks the overall revenue or profit pool (or both) in a market. Value vampires are dangerous for incumbents because they are ruthlessly efficient at creating customer value.
“Value vacancies” are short-duration windows of opportunity in tightly contested markets. They can be leveraged by organizations in response to threats from value vampires and other digital disrupters.
It’s no secret that the majority of retailers are seeking to compete on customer experience. With value vampires sucking the profits from core businesses, and value vacancies vanishing quickly, companies need new strategies to survive. A simple—but powerful—strategic framework shows how companies must respond when attacked by disruptors, and how to make the most of growth opportunities.
When a disruptor attacks a line of business, a company must decide whether it can fend off the disruptor and win, or whether its best move is to get as much as it can from a business in decline.
The “harvest” strategy is all about gaining as much revenue as possible when the disruptor has the upper hand. This can include using “blocking” strategies, such as lawsuits and regulations, to slow the disruptor down. It can also include making strategic investments in the business to make it profitable for longer.
Eventually, the business may no longer be profitable, or may not fit with the strategic direction of the company. At that point, it can be sold off or shut down—this is the “retreat” strategy. Or it can become a niche business, profitably serving a small group of customers.
Now let’s look at offense tactics. A company can move into the “disrupt strategy” when it senses a new opportunity, such as a completely new market. It can also disrupt its own core business—seeking to deliver a product or service in a new way, even at the risk of reducing the revenue of one of its own businesses. Finally, a company can disrupt itself when a value vampire attacks a core business—competing instead of moving into harvest.
Defensive and offensive strategies for today’s retailer—and the threat of the “value vampire.”
Withdraw from business when revenues dry up, or move into niche
Block disruptive threats, maximize revenues from businesses under attack
Defensive and offensive strategies for today’s retailer—and the threat of the “value vampire.”
Win the competition for new market by outperforming rivals
Disrupt your own core business or create new markets
Finally, we have the “occupy” strategy. There is an important difference between disrupting a market and winning—or occupying—it. Often, the company that wins a value vacancy is not the first one in. This is good news for big companies that are agile enough to compete, since they can often use their own size, scale, and expertise to their advantage.
Create omnichannel, personalized customer experiences. Customers shopping online expect seamless, convenient, fast, and personalized shopping experiences. Retailers need to provide the same or better experiences at the store. Customer insights give you the ability to predict and personalize customer engagements. Accenture finds that customers call out poor experiences as the primary reason for switching allegiances. Already, there is a 50 percent increase in companies that say they compete directly on customer experience.
Empower associates to be productive and customer-first. To deliver the best in-store customer experience, you need a workforce that’s ready and eager to deliver what your customers demand. Productivity technology empowers associates to become trusted advisors, equipped to help customers with real-time inventory information, product specifications, and personalized recommendations. Digital capabilities such as on-demand training, analytics, and collaboration tools yield better-trained, better-supported, and more satisfied associates who remain on the job for longer. Gallup Research shows that companies with workforces that are highly engaged have 1.5 times higher earnings per share.
Optimize your retail operations. To remain competitive in the modern digital marketplace, your retail infrastructure must balance customer demands for personalized digital services with operational requirements for unified commerce. Increasingly, stores need consistent information management combined with a consistent omnichannel experience to ensure accelerated deployment and rollout of new business functions, services, and apps.
Protect your brand and secure your operations. Cybersecurity attacks continue to make big headlines. Retailers need to build strong processes, IT networks, and systems that secure their business from the store to the cloud to the data center. By offering faster threat detection, secure mobile access, and continuous compliance for cardholder data, security becomes another critical aspect of the Consumer 2020 experience.
Build your store on the Cisco® Digital Network Architecture (Cisco DNA™). The essential strategy for digital transformation in this rapidly changing environment is to invest in a technology foundation that is flexible, automated, and secure—a digital-ready network. With Cisco DNA, retailers can revolutionize how they design, build, and manage the network for almost any new use case, including Cisco Kinetic™ solutions to create sensor networks to enable the latest customer experiences.
To meet the needs of the Consumer 2020, Cisco creates a digital transformation roadmap based on the right infrastructure, aligned to specific retailer goals.
Every retailer starts their digital transformation from a different point. Regardless of where the retail business is today, this is a holistic and long-term transformation process. It requires a sweeping set of changes to develop digital retail capabilities, but you can proceed with incremental building-block steps once the right foundation is in place. It also requires an attentive approach to change management, to help each retail team make the most of its new capabilities.
Cisco provides solutions, software, and services for both the foundation and the higher-level digital capabilities. We help retailers build basic, enabling technologies, create differentiation, and even define new business models. Cisco works with retailers to determine where they can get the most impact to design a roadmap for digital transformation.
For almost 40 years, Panera Bread has cooked up edible innovation with fresh, authentic artisan breads served in almost 2000 cafés across the U.S. But today, faced with explosive growth, the company is taking it to the next level with an award-winning digital transformation.
Phase I: Panera set up the wireless foundation for a series of digital cafés enabled by Cisco’s digital-ready network, designed to help develop customer experiences, use automated processes to reduce costs and complexity, and lower risk with world-class security and compliance.
Phase II: The company created a new “quick service” business model. Now consumers can place a mobile order up to five days in advance and come by the café to pick it up; lines and wait times are reduced as the store receives an automatic alert upon their arrival. Dine-in guests may also select items via phone or at the kiosk. By enrolling in the MyPanera digital loyalty program, consumers receive more personalized services, such as having the system remember their favorites.
Phase III: The solution supports “farm to fork” initiatives and deploys wellness apps to support customers’ dietary needs and fitness goals. Panera also uses this new technology to manage parking, enable delivery, and centralize security.
The new business model is hugely popular: Within the first year about 50 percent of all transactions were completed over the Cisco network. Today, Panera is rapidly growing its reputation as a “destination” food operator that resides on the cutting edge of customer experience.
Who is on your team to help make this happen? The CIO and CMO should be at the top of your roster. However, many of today’s retailers need to correct a misalignment of purpose between IT departments and marketers. Marketers are focused on developing new apps that give customers an engaging, personalized experience, while IT is still charged with maintaining the legacy infrastructure.
But the goals of these two functions are beginning to collide, with websites and apps run by the CMO now becoming cornerstones of the business. CIOs are moving toward overseeing all of IT in collaboration with marketers and business units.
To meet the expectations of the Consumer 2020, CIOs and CMOs must combine resources and share control in the age of digital proliferation and silos.
This allows retailers to deliver fresh digital experiences for customers (and also for associates) and to work together to support business strategy.
Working with a powerful executive team, retailers can combine development of enterprise and Cisco development and operations resources (control, governance, accounting, etc.) with dynamic, technology-based customer experiences to create affordable technologies that are agile, reliable, and secure. In this way, CIOs and CMOs are able to create a new type of business model.
Gone are the days when shoppers accepted cookie-cutter products and experiences. Thanks to evolving technology and increasingly higher customer expectations, we are seeing a major trend toward individualized products and services that change course as new data is acquired.
It’s not just about computers and smartphones but “things” such as cars, refrigerators, homes, and even light bulbs connecting to the Internet. Every device captures data—smartphones, video cams, location beacons, web activity, credit cards, and so on. And the Consumer 2020 wants to offer input on social media, crowdsourcing, and reviews.
Further, with computing power per dollar at an all-time low, the ability of the CIO and the CMO to use data is improved. We have made rapid strides in machine learning over the past few years, and innovative media such as virtual reality, augmented reality, and intelligent assistants are adding fuel to the hyper-personalization engine. The total amount of data created (but not necessarily stored) by any device will reach 600 ZB per year by 2020, up from 145 ZB per year in 2015.
With the Internet of Things (IoT), retailers can automate and remotely monitor their operations while improving the customer experience. Having a completely connected network of sensors and systems makes critical information available across store sites and supply chains.
Building on top of Cisco’s IoT networking capabilities, the Cisco Kinetic platform is an IoT data fabric that:
Overall, Cisco Kinetic will help retailers get the most value possible from their IoT data.
In-store analytics are key to keeping the retailer agile and well-informed:
Hyperawareness: By relying on a well-planned analytics strategy, CIOs and CMOs can monitor key metrics, including store traffic, average purchase basket size, customer demographic profile, shoppers’ preferences, and dwell time. These can be broken down into customer and staff heat maps. They can also be used to manage inventory shelf life, assisting with inventory management and loss prevention.
Informed decision-making: Based on these in-store metrics, managers and staff are also positioned to make more-informed decisions about the business and about their customers, including forecasting. They have the ability to tap the knowledge of product experts as needed, and can also predict shopper purchase requirements more accurately. Plus, they have data to help them evaluate the likelihood of shopping cart abandonment.
Fast execution: Finally, managers are in a position to act on store conditions in a timely way, such as dynamic staffing based on store traffic and product placement of high-value or perishable items.
Industry research shows that customer experience directly affects the bottom line for the retail business. Customer experience is also instrumental in satisfying and retaining customers. In fact, 70 percent of buying decisions depend on how customers feel they are treated.1 Just a 5 percent increase in customer retention can increase profits by as much as 25 percent.2
So how are some retailers thinking about how to improve customer experience?
1. Elzinga, D., & Finneman, B. Ten years on the consumer decision journey: Where are we today? [Blog post]. McKinsey & Company, November 17, 2017.
2. Reichheld, F, Prescription for cutting costs, Bain & Company, 2017.
Based on Cisco networking, Domino’s has built a world-leading digital-ordering and point-of-sale platform for 14,000 stores globally. Using the platform, the company is able to be more responsive by collecting and analyzing all kinds of information about customers, from names and phone numbers to online ordering habits.
Associates are urged to walk customers to any item they can’t locate, tear open bags of food for impromptu tastings, and accept returns with no questions asked.
Cisco Intelligent Onboarding and captive portal capabilities simplify Wi-Fi access and personalize the consumer experience at leading retailer Harrods. When customers enter Harrods, their mobile device is detected, and they receive a welcome message and a prompt to open a custom app and join the Wi-Fi network. Cisco Enterprise Mobility Services Platform collects information for location analytics so Harrods can dig deeper into shopper dwell time information and examine shopper activity and the paths they take to increase loyalty, basket size, sponsorship opportunities, and ad revenues.
Wal-Mart has signed a deal for voice ordering through Google Assistant. What makes this deal unique is that for the first time Google will sync up with Wal-Mart accounts. This will make reordering much easier, since Google Assistant will know what products consumers purchased in the past, and it incentivizes them to earn discounts for ordering online and picking up from stores.
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