Omnichannel – the multiplier between the bricks and clicks worlds

Growth being experienced in clicks and bricks

If the growth in parcel deliveries coming to my house are anything to go by, e-commerce sales continue to rise with digital technologies transforming the way consumers are interacting across many dimensions of commerce.?Digital devices are changing how customers discover, evaluate, purchase, receive, use, and return products. And, yes, more and more customer interactions take place entirely online. Over the past 20 years, e-commerce sales have grown to about 19% of total retail sales in Australia.

However, counter to many of the predictions from a few years back, my local shopping mall also appears to be thriving. Rather than shrinking their bricks and mortar outlets, leading brands continue their march of new store openings. In addition, what would have appeared heresy a dozen years back; bastions of the rising e-commerce wave such as Amazon are back integrated into physical retail stores.

Growth challenge of a market leading wholesaler

It was against this contrasting backdrop that I engaged recently with a leading wholesaler to assist in navigating their next chapter of growth. In their sector and target geography they are a well-recognised brand with a leading market share built up over generations of being in business. Market share reflected their strong physical presence with a branch network larger than all their peers.

However, headwinds were making going a little tougher. New online only traders were starting to make inroads and gain market share from their target consumers of small to medium enterprises. High variability in branch financial performance was challenging commitment to the current network footprint – let alone thinking about its growth. On top of this, technology enabled disruption of the value chain was in progress with suppliers attempting to go direct to consumers and retailers extending their reach upstream and remove steps in the value chain. Increasingly, digital applications were disintermediating the direct relationship with their customers.

Navigating tough strategic choices

Against this internal and external backdrop the wholesaler assessed the alternative growth pathways that could be pursued. One strategic pathway could be to shift more investment into the online space at the expense of reinvesting in the physical network in a ‘if you can’t beat them then join them’ strategy. Alternatively, and/or in parallel, a ‘culling of the weak’ strategy could lead to a rationalisation of the low performing branches thereby elevating the health of the remaining network. Unfortunately, neither of these strategies reconciled with the evidence of leading brands who were demonstrating the ability to grow through both bricks and clicks despite branch network densities well in excess of the wholesaler.

The rewards of an omnichannel strategy

A little more digging into the broader market data of e-commerce growth reveals that as much of the growth in e-commerce is being driven by bricks and mortar brands as from pure online brands. In addition, the perceived cost advantage of pure online providers are not as clear cut as initially imagined. It turns out that investing in information technology, distribution centres, shipping, and returns processing required by e-commerce only companies can actually cost as much as running physical stores. This is reinforced by studies suggesting e-commerce’s pricing advantages mostly stem from unsustainably lower profit margins rather than from structurally lower cost structures.

It turns out that forward-thinking consumer-product companies have been using their stores to educate consumers on product offerings, reinforce their brands’ positioning, and support growing e-commerce sales. In fact, recent research found that opening a new location increases traffic to a retailer’s website by 37 percent in the following quarter.

This data point to the conclusion: omnichannel wholesalers and retailers — those that seamlessly integrate the best of both digital and physical worlds at each step of the customer experience—are likely to enjoy significant advantages over retailers that try to pursue either strategy alone or both strategies independently.?For omnichannel players, websites and mobile apps are not just e-commerce ordering vehicles, they are front doors to the stores.?Stores are not just showrooms, they are digitally-enabled inspiration sites, testing labs, purchase points, instantaneous pickup places, help desks, shipping centers, and return locations. It turns out, digital technologies are transforming physical businesses rather than annihilating them.

Omnichannel is different from multi-channel strategies

An omnichannel strategy integrates multiple shopping channels to provide a seamless customer experience across the customer lifecycle from discovery, purchase, fulfilment and post purchase. This strategy can involve synchronising online and in-store inventories, offering in-store pickup for online purchases, and using mobile apps for personalised in-store experiences. The whole idea in omnichannel is that every customer interaction changes the customer’s overall experience of your product and brand. This compares to a multi-channel strategy where different channel strategies are progressed more independently.

Progressing omni-channel strategies across a continuum

It is common for companies to progress omnichannel strategies across a continuum as capabilities mature. In the first instance the focus is all on enabling commerce in both a digital and physical first manner. This is exemplified through digital discovery enabling rapid in-store fulfilment. Equally, in store it is represented by the shift to self-service scan to shop and digital elaboration at point of sale. With increasing capability omnichannel strategies start to integrate elements of personalisation in the buying journey whether this is through targeted product promotions and recommendations, bundled buying, and matching offers to personal or geographic characteristics. In store service personalisation is enhanced by capturing and communicating more intimate understanding of customers’ needs. The most advanced form of omnichannel is where consumers are purposefully engaged into a more extensive ecosystem of a brand experience with every growing community-based interactions to connect consumers with others like them. It is a relationship that transcends the direct buying and selling relationship providing continuity of engagement over time.

A well executed omnichannel strategy rewards both the supplier and the customer

A well-executed omnichannel strategy benefits suppliers and customers by creating alignment in motivations. For the supplier, integrated supply chains can help optimise stock levels and improve inventory management, it can attract an increasing customer set who are increasingly doing discovery online before making the purchase decision in store, thus benefiting from increased competitiveness and sales. For consumers, they are gifted with greater flexibility in how they interact with the supplier – all the while experiencing a consistent and more personalised experience thereby encouraging them to purchase more.

Can’t do everything so have to prioritise where to guide strategy execution

While more and more, customers move across all channels—in person, online, and beyond—to get what they want not every customer is looking for the same thing. Some people want more services for certain transactions; others prefer low-touch, 24/7 interactions.?Common execution shortfalls occur by setting out to provide multi-channel optionality for all customers at all potential customer touch points. This tends to lead to a slow, complex and high cost implementation pathway. The alternative pathway of focusing on the two or three cross channel customer journeys that are most important to the majority of customers is likely to deliver quicker higher overall customer satisfaction at a lower cost to implement.

Andrew Rosengren

MD Guberno Consulting