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When Amazon purchased Wholefoods in 2017 retailers’ worries grew. Two years later, the tightly coupled omnichannel and loyalty scheme has driven Amazon’s subscription revenues up by 39% in a single quarter. Retailers striving to catch-up are betting on Digital Transformation programs. So what lessons should retailers focus on to compete against Amazon? The slogan, ‘The Earth’s Most Customer-Centric Company’ provides the clue to Bezos’ dominating digital model.
Jeff Bezos applied his digital transformation playbook to The Washington Post by analyzing the newspaper’s transformed acquisition, value and content models which provided critical lessons for retail transformation projects.
Transforming the Washington Post
When Bezos acquired the Washington Post in 2013 the paper was losing revenue and its losses were widening. Bezos told the staff to ‘Stop whining that the web took publishing away from you, took your business model because it also brought new models’.
Bezos doubled the IT division and recruited high-quality talent. Their mission: TO SAVE JOURNALISM. In the same way that Tesla shunned off-the-shelf ERP to build its own, The Post developed proprietary technology that fundamentally changed the way news is published.
Today’s news is real-time and cannot be delayed by download speeds. Technology closely tracks readers’ online behaviors – the stories they read, how far they scroll, which headlines, images or videos work for each user at the precise time of day.
This raw data is delivered in real time back to the newsroom systems to optimize photos, headlines and even formats for each mobile device. As a result, year-on-year online readership is up 22% and annual digital advertising revenue exceeds $100M.
The Digital Frontier in Retail
Our world is rich in raw data that is driving the surviving retailers to transform core business processes. Digitally native specialists like Wayfair, Zulily and Warby Parker have disrupted business-as-usual in their segments. The e-commerce leviathans Amazon, Alibaba and Rakuten present an even more daunting threat to the entire industry.
Old retail business models were optimized to take title to goods, tightly couple inventory and availability, and drive customers to stores through advertising. Up-ending that model takes most leadership teams well outside their comfort zones.
Lessons from The Post
The Washington Post has gained unprecedented insight into its readers. Its automated systems act in real-time on those insights to capture readers, deliver content and guarantee their return.
What is the parallel for a retailer looking to make a similar transition? Studying the Post’s transformation, I see three capabilities that retailers can hone: Acquisition, loyalty and merchandising.
- Automating the Acquisition Machine
Miki King the Post’s new CMO, began by consolidating offline and digital marketing budgets. She then retrained staff to shift focus from local marketing to customer experience. Her goal was to have “one voice to the consumer market”. In two years King tripled the subscriber base by weighing every activity against the pursuit of subscriber growth.
Retailers and brands incessant pursuit of new customers makes it harder to gain attention. Customer Data Platforms (CDP’s) and programmatic ad buying are adding to the noise. Influencer marketing via video and social are now critical to acquisition.
The success of brands such as HausLabs and Kylie Cosmetics demonstrate the importance of social following. Augmented Reality, Avatars and Smart Conversational Agents are maturing fast. The buyer’s journey has completely changed and will continue to develop.
Omnichannel retailers must now optimize spend, timing and targeting across all available media. In this new dynamic environment, there is no static formula that a marketing department can develop and commit to.
Online marketing is a continuous stream of experiments set up to target outcomes. Experiments will feed data to machine learning algorithms that dynamically adjust content and timing to make audience decisions on-the-fly.
- Rewriting the Loyalty Equation
Traditionally teams of skilled journalists and editors painstakingly curated, researched and reported the news. Today news is captured in real-time and fed with minimal editorial into distribution channels. News media offer more news with more perspectives, delivered instantly but with less guaranteed quality.
As a purveyor of the truth, the Post has re-engineered itself to deliver editorial quality at a seemingly impossible speed and scale. Most importantly it has mastered revenue generation by honing an effective and compelling paywall.
In the omnichannel world, customers have little or no loyalty, so how can we increase the speed and scale of value delivered to the customer? By identifying, profiling and understanding customers as individuals or micro-segments.
By building processes that inject those insights into every customer touch-point and into the entire supply chain. Digital native Stitchfix has done exactly that by creating a user experience that maximizes customer understanding.
With that insight, Stitchfix knows what products customers desire for the next season in the precise quantities.
- Re-inventing Merchandise Intelligence
The Post optimizes story headline, content, images and video for its target customers and device. Why shouldn’t a retailer think about its products in the same way?
A clothing retailer should see the micro-segments that need garment sizes and fits. A furniture retailer should find all items with a specific finish and identify all households that have purchased it in the last 90 days.
Smart devices have exposed product attributes that are more suited to a visual user interface. Today’s product data is not suited to chatbot and smart speaker conversational interfaces. Today’s merchandising applications are based on a hierarchical product schema for top-down category management.
We need more granular and semantic definitions to track merchandise across many contexts. With systems like this data science will deliver superior insights.
A Retail Digital Nervous System
Nike’s recent CEO appointment swaps a footwear designer with one from the technology industry. The company has been preparing for a future-focused on data by acquiring two analytics companies.
Nike is walking the talk on data-driven, direct-to-consumer sales of connected products through tech-enabled stores and a growing online ecosystem.
Once updated the customer acquisition, retention and merchandising processes will provide some defence. To go on the offensive, those systems and processes need to be deeply integrated. Define how you will identify your most valuable customers, understand their needs and predict what they will desire next year.
Create new engagement tactics and build sustainable relationships with those customers so they keep coming back. Build the capability to operate in a world where accessing rich customer data needs their explicit consent. Your technology and business vision should converge around achieving these objectives.
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