Original article published here
Magic mirrors, virtual rails, digital fitting rooms, even brainwave readers — these are just a few examples of the retail industry’s attempts to improve in-store customer experience with cutting edge technology. Somewhat surprisingly, they haven’t driven the kind of business value we’ve expected. In fact, traditional brick-and-mortar retailers announced 6,400 store closures in 2017. Large or small, we’ve seen many casualties. Something clearly isn’t working. Here we examine three common mistakes brands make when trying to deploy innovative customer experience technology, and suggestions on how to avoid them.
Mistake #1: Sticking To One-Way Communication
That holy grail of in-store experience comes at the tail end of a long chain of customer interactions with brands. You can’t analyze interactions effectively without looking at how brands communicate with customers — and vice versa. What we’ve witnessed lately is not only the failure of traditional retail, but also the failure of mass scale B2C marketing. Traditional consumer marketing is quickly becoming that guy who won’t stop talking about himself when he goes on a date.
Customers want retailers to know them intimately and they expect a personalized shopping experience — both online and in-store. Unfortunately, when brands roll out new technology, they often miss the opportunity to open a two-way conversation with the customer.
Where To Go From Here:
There is magic in the simple act of listening to and learning from your customers.
For example, did you know that research shows Millennials are less likely to shop at store with escalators? As NYU’s Scott Galloway put it: Millennials value their free time too much to “navigate a 300-meter maze of fragrance and housewares departments, then travel into the sky 50 feet to find out you don’t have a size 7 Aquazzura red velvet over-the-knee boots.” Also, research shows that displaying books face-out in bookstores boosts sales, even though it drastically reduces the number of titles that can be stored per linear foot of shelving. This is how Amazon Books brick-and-mortar store presents books on its shelves.
Researchers gleaned these two insights from, you guessed it, asking questions, listening to and learning from the answers. Effective retail innovation happens when you use technology to listen to your customers, learn about them and act.
Thanks to the Internet revolution and recent advances in the area of personalization and content targeting, we now have the means to market to masses by building individualized relationships with each customer. Gathering data at every touch point is what enables brands to deliver personalized experiences, with two-way conversation being the driving force behind the relationship.
Mistake #2: Misunderstanding The Role Of Innovation Labs
When Apple created its revolutionary retail experience, it wasn’t because they were trying to “innovate.” It was created out of necessity. This is how Ron Johnson explained it back in 2005:
“I sat in a room with Steve, and he put on the table Apple’s product line. And we had four products, two portables and two desktop computers. (…) And that was a challenge (…), but it ended up being the ultimate opportunity, (…) because we don’t have enough products to fill a store that size, let’s fill it with the ownership experience. So, we quickly moved from a buying experience to an ownership experience.”
Large brands are notoriously bad at innovation. Some give it up entirely and instead focus their M&A efforts on disruptive startups. Others still run their innovation labs, hoping that throwing piles of cash at propellerheads will result in a silver bullet solution. But they often only come up with cool gimmicks in search of a problem, which is why many innovation labs now face closure or major scaling back.
According to a Forbes article penned by Tendayi Viki, founder of Benneli Jacobs, a strategy and innovation consultancy firm: “Most people working at innovation labs tend to conflate innovation with creativity (…) A lot of innovation labs are well designed to spark the creative juices of the people who work there. However, very few labs are designed to search and find profitable business models for the ideas being generated.”
Where To Go From Here:
To ensure you don’t make the same mistake, remember that an innovation lab is meant to streamline work to reach the common goal faster and more effectively, not to create a separate group that is just an “idea center.”
Some retailers get it. Back in 2015, Nordstrom took half of its lab’s digital staff and spread them across the rest of the business to work closely with shoppers. “We concluded that concentrating those resources within technology was not the most effective way for us to create great service experiences for our customers,” said Nordstrom’s CIO Dan Little. That change of focus, from forced innovation to working more closely with the customer, might explain why Nordstrom is one of the few department stores that grew their retail footprint in 2017.
An effective way to make the most use out of an innovation lab may be to work backwards from a business goal: define success metrics, set an ideal timeline, focus on customer experience, set a budget and use the innovation lab to fill in the specific tactics with the creative mind they’re known for.
Mistake #3: Focusing On Transactions Instead Of Driving Value
Many brands still struggle to come up with a way of earning the interest and trust required for their customers to become comfortable sharing personal information. That level of trust and customer engagement is very difficult to achieve in a purely transaction environment, yet Gary Vaynerchuk’s “Jab, Jab, Jab, Right Hook” principle (read: “Give, Give, Give, and only then Take” principle) is still rarely applied by retailers in their social, mobile and web channels.
Customers who get no added value from relationships with brands tend to be less loyal, which is reflected in their purchasing behavior being more promotion-driven.
Where To Go From Here:
Building a relationship requires open lines of communication that go beyond the typical transactional touch points. You focus on providing utility and you give your audiences a reason to talk to you. And “talking” often times means giving the customers a good reason to share information they normally wouldn’t.
This is what Nike does well. Out of the 10 iPhone apps available from Nike in Apple’s App Store, only two are product or commerce-focused. The other eight include fitness apps, educational apps, phone emoji packs, etc. And as you use the apps, Nike learns about you, your habits, your whereabouts and keeps the dialogue going. Nike customers are willing to trade information about themselves in exchange for the value they receive.
A brand that follows a similar set of principles is Sephora. The beauty retailer has realized that their customers were unable to experiment with their makeup as much as they’d like, especially if the opportunity was only offered in-store. Sephora released an augmented reality app called the Virtual Artist, which works in a similar way to Snapchat Lenses — you hold up your phone and the app overlays makeup on your face in real time. And as you do that, Sephora keeps learning about your preferences and builds an increasingly more accurate and complete customer profile — your specific likes and dislikes, preferred brands and color palettes, etc.
Brands mustn’t forget that long-term loyalty and relationships begin with seemingly ‘small’ but very critical first steps, beginning with understanding their customers and their behaviors and preferences. It takes time but if you’re committed to really knowing your customers and implementing technology that adds to their experience, loyalty and relationship will naturally follow. For some brands, that means an increased focus on new, cutting edge innovation, for others, it’s about making better use of your existing technologies.
Start with baby steps, test your new ideas often and early and drive your roadmap with data.
There’s no doubt that we are witnessing a turning point in the history of retail. While most retailers are still unsure about what the future holds, this paradigm shift creates a once-in-a-lifetime opportunity for those willing to actively listen and provide value to their customers. And those not willing to adapt to the new paradigm will keep serving generations to come — in the form of Harvard Business School case studies.
Learn about our retail service offerings or contact us to start on your retail innovation project.