7 Deadly Sins of Retail Innovation (and how to avoid them)

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Innovation in UK digital retail is explosive. If you read any trade publications, listen to analysts, or chat with consultants, it seems to be an un-yielding tide of new concepts to try, new solutions to pilot, or new vendors to assess. The future of retail is about using technology to strengthen customer relationships and improve customer experience.

The 7 Deadly Sins of Retail Innovation represents work that is having to be done today, across many top tier retail brands, in order to support their innovation needs tomorrow. For many these cracks in the foundation are large enough that it has impacted their ability to embrace the new opportunities that we all read about. Many of these foundational elements don’t get press, that aren’t talked about, because for many UK retailers this is viewed as a “fixing” issue that should have been addressed along the way.

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Deadly Sin 1. Silos vs. Experiences

Issue: In the UK retail, most brands treated the digital channel as “the digital channel.” Website customers were treated as just that. This view influenced the culture within the retail organization, resulting in marketing programs being channel specific, treating “web” shoppers as though they are somehow different than the rest of the customer base, and creating a compromised “retail brand experience” as shoppers engage across multiple channels, be it digital and/or in-store.

Cost/Opportunity: The cost of this is only beginning to be realized. Recent first party research with several top brands has shown that marketing to customers who are known to be engaged across multiple sales channels, in ways that support their preferred shopping methodology, can impact LTV by as much as 30%.

Solution: It’s called an “enterprise data model” or, if you would choose to go old school, the fabled “360 degree view of the customer.” This data model creates an “org chart” style view of the customer, allowing a depiction of their value, their shopping pattern, the influence of marketing, and their engagement to be expressed through every sales channel up through the brand. This model has been embraced by some of the largest brands in retail as the core of their data driven marketing efforts.

Using an enterprise data model view of the customer, a retailer was able to identify over 5,000 unique shoppers who engaged with a product on-line who, within 20 days, purchased that product in-store. (Yes, this creates a marketable persona)

Deadly Sin 2. Acquiring clicks vs. customers

Issue: The birth of digital marketing resulted in our focus on a myriad of new metrics and KPIs. We began focusing on view-through, click through, and yes – even conversion. In our roles, we began getting incented on “transactions”, but with little regard for the QUALITY of the click or the transaction being driven. Being blunt – we stopped focusing on acquiring customers who would have sustained value for our retail brand.

Cost: First party research across multiple apparel and lifestyle brands has shown that LTV numbers are on the decline. The number of “one and done” customers have surged, especially during holiday/ seasonal purchases (typically viewed as times when new customer acquisition should be at it’s peak).

Solutions: There are several, from basic to advanced:

1) Better Nurture of New “At Risk” Shoppers/Customer

Know your marketing sources that drove the visit or first product purchase. If it came from a source where loyalty would be “questionable” – put the shopper into a nurture program.

2) Better Ad Targeting

When you have an enterprise data model, you have the opportunity to build “stratactical audiences” to use as “look-a-likes” for your display/social marketing efforts.

This means that not only can you identify the shoppers who are engaged with specific product lines, but refine that audience to be those who have made multiple purchases in the line or have purchased beyond that line.

3) Better “lifecycle marketing” strategy

If the click is the start of the relationship, managing the shopper relationship that follows is where the relationship is monetised. From working the consideration set towards the first purchase, recognizing lateral product opportunities based on that purchase (these aren’t always “complimenting products”), identifying volatility in a shopper’s purchase pattern of consumable product lines, – to knowing when and how to ask the rock star customer for a referral. It all starts with the quality of the acquisition and having a plan for that shopper – no matter who they become.

First time purchasers who come through comparison shopping are 75% less likely to conduct a secondary purchase with your brand than those acquired through other channels (and some of those numbers are scary too).

Deadly Sin 3. Batch and Blast Marketing vs. “Conversation Marketing”

Issue: UK retail fell into the trap of “email is cheap so I’m going to send a lot of it.” UK retailers are sending different offers, different products, flooding into the shopper’s inbox at an average 3 emails per week (during seasonal shopping these average was 8 emails per week). These emails more often than not failed to account for historic purchase activity, seasonal browse activity, known product propensity, or the shoppers active engagement with other offers/marketing messages.

Cost: Aside from the obvious subscriber fatigue and diminished value of your retail brand, there are substantial opportunity costs in not ”listening and acknowledging what your customer has told you through their actions.”

Solution: Move to a “conversation marketing” strategy. The concept is simple. If your shopper has initiated a conversation with you through their behavior, then acknowledge that instead of sending the next batch and blast email. This gets us into simple triggered email (browse abandon, purchase abandon, on-site ad interaction) but can extend to some advanced programs (seasonal shoppers, continuity/replenishment, purchase nurture).

Deadly Sin 4. Digital Measurement vs. Retail Metrics

Issue: As you scale the ranks of a retailer’s organization, everyone uses different measures to judge the success of their responsibilities. As senior level executives are running the company based on metrics that speak to the health of the company, their subordinates are often times looking at metrics that fail to align to those same goals, but rather are role/practice focused.

Cost: A friend of mine, Jim Novo, Principal at The Drilling Down Project, often refers to a “common measuring stick.” There should be cohesion in measuring of business critical KPIs that serves as the goals for the entire organization. If those metrics don’t exist, then maybe we need to create them (hint: see the last Deadly Sin).

Solution: Become data driven. It starts with finding a good pub and scheduling an offsite for leadership and key contributors. You discuss 2 sets of metrics; strategic metrics (those that are irrefutable and enduring drivers of business growth) and tactical metrics (that address current opportunities or challenges, yet still align to strategic goals). Every key contributor is charged with reporting on existing metrics (tratactical tactical), and developing a path of measurement of new metrics. This exercise provides transparency and alignment to business drivers, creates transparency and accountability, allows the team to applaud success and address/focus on short comings. This extends from EVP/C level execs through managers.

RecordSet: A US retailer extended Loyalty Program award notification into their website, letting shoppers know they have a $10 certificate to use.

Results: Peaked at a 10x conversion increase before settling at a 7x. That said, the goal was bolstering LTV – which early results are indicating a 38% increase in spend for the 12 months post the transaction.

Deadly Sin 5. The discount brand (or… my retail brand is only known for discounts)

Issue: UK retailers are using discounts as the crutch to support their lack of brand development and commitment to the shopper. There. I said it. I know it’s harsh, but it’s true. This is one of the top challenges facing almost every retailer that I work with (especially general merchandisers).

Cost: Billions. Discounting as a differentiator not only erodes margin but marginalizes your brand paving the way for attrition. I could throw some stats your way, but instead I will offer one word – Amazon.

Solution: For many of my UK Retailers, the painful path of moving away from discount strategies has started and now budget and effort is being spent redefining their retail brand value/differentiation. For others, it has meant refining their loyalty program strategies, adding more value that isn’t simply based on discounting. What nearly all of my retailers have agreed on is “conversation marketing”. I.E. Listening and responding to not just what your customers are telling you – but who they are – see Sin 6 following.

Sin 6. Relevance without Context (or... dumb triggered communication)

Issue: One growing issue for UK retailers is the realization that they don’t know who we are talking to. Simplest example? Abandoned shopping cart emails. Are they relevant – sure. That said... context is more than understanding “what” – it’s “who” where that transitions triggered communication from tactical to strategic.

An example? Sure. Every retailer I work with has cart abandonment programs running... many with a discount as a 2nd or 3rd drip in the program. I start the conversation out the same way. Would you change your abandon cart email message and offer if you knew I was:

  1. Potentially a higher value new to file customer?
  2. Someone you have paid (SEM/Display) to come to your website?
  3. A win-back customer/or am currently in attrition risk?
  4. A loyal in-store customer making my first purchase through the website/mobile site/app?
  5. Active in your loyalty program?

Believe it or not, I have yet to sit across from a retailer who says “Nope – I would give them all the exact same message and treat them identically.”

Cost: As mentioned before, blind discounting only hurts your bottom line. Without knowing who our customers are (and letting that influence our marketing strategy) we are wasting millions in discounts unnecessarily. When we discount, we fail to do so strategically – meaning that hit to margin isn’t an investment.

Solution: Remember that Enterprise Data Model we talked about all the way back at Sin 1? Yeah, it’s value is back again. The ability to mobilize these critical audience insights means (simply) smarter marketing.

Sin 7. We ignored the Science (data science, that is)

Issue: Data Science as a practice has been readily available for the last 15 years in turn key technology – but we ignored it. Now, everyone is in hot pursuit of the latest “predictive model”, but most retailers are poorly positioned to take advantage. Our data is still siloed, it’s dirty, and while we want the value of the data science – we aren’t in a position to spend the money for the specialists required to build accurate and compelling insights.

Cost: Simply put, if you compete on data science you win. Retail brands will live (and many will die) based on their readiness for this next “evolutionary step”. This is the path to customer centric retail and being able to rapidly respond to changes in our markets, merchandising mix, and sales channel adoption. Data science depends on a clean data set, actionable customer depictions, and an understanding that the science doesn’t end at an audience or segment, but influences the message, the merchandising and the campaign. Without these, your models simply aren’t effective. With it, your models (and revenue) soar.

Opportunity: It starts with the appetite. Knowing, right now that this is a top priority. Then you need an enterprise data model... something that allows your data to readily participate in machine learning/data science. You need to avoid common pitfalls like designing your models to only create audiences without the corresponding creative support. And you need a partner, one that understands what it means to manage the lifeblood of your retail efforts – from shoppers to product.

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