By Gam Dias.
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 asingle quarter.
Retailers striving to catch-up are betting on Digital Transformation programs. So what 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.
Bezos applied his digital transformation playbook to The Washington Post. Analyzing the newspaper’s transformed acquisition, value and content models provides critical lessons for retail transformation projects.
Transforming the Washington Post
Jeff 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. 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 proprietarytechnologythat fundamentally changedthe way news is published.
Today’s news is real-time and cannot be delayedby download speeds. Technology closely tracksreaders’online behaviors-thestories they read, how far they scroll, which headlines,images or videos work for each userat the precisetime of day. This raw datais 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
Ourworld is rich in raw datathat is driving thesurviving retailers to transform core business processes. Digitally native specialists likeWayfair, Zulily and Warby Parkerhave disrupted business-as-usual in their segments.The ecommerce leviathans Amazon, Alibaba and Rakuten present an even more dauntingthreatto the entire industry.
Old retail business modelswere optimized totaketitle to goods, tightly coupleinventory and availability,and drivecustomers tostoresthrough advertising. Up-endingthat model takes most leadership teams well outside their comfort zones
Lessons from The Post
The Washington Post has gainedunprecedented insight into its readers. Its automated systems act in real time on those insightsto capture readers, deliver content and guarantee their return. What is the parallel for aretailer looking to make a similar transition? Studying the Post’s transformation, I see three capabilities thatretailers can hone: acquisition, loyalty and merchandising.
Miki King thePost’s new CMO, began by consolidating offline and digital marketingbudgets. Shethen retrained staff to shift focus from local marketing to customer experience. Hergoal was to have “one voiceto the consumer market”. In two years King tripled the subscriber base by weighing every activityagainst the pursuit of subscriber growth.
Retailers and brandsincessant pursuit of new customersmakesitharder togain attention. Customer DataPlatforms(CDP’s) and programmatic ad buyingare 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, Avatarsand SmartConversational Agents are maturing fast. The buyer’s journey has completelychangedand will continue to develop.
Omnichannel retailers must now optimize spend, timing and targeting across all available media. In this new dynamic environmentthere is no static formula that a marketing department can develop and committo. Online marketing is a continuous stream of experiments set up to target outcomes. Experimentswillfeed data to machine learning algorithms that dynamically adjustcontentand timing to make audience decisionson-the-fly.
2. Rewritingthe Loyalty Equation
Traditionally teams of skilled journalists and editorspainstakingly curated, researched and reported the news. Todaynewsis captured in real-time and fed with minimal editorial into distribution channels. News media offer morenews 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 aneffective and compelling paywall.
In the omnichannel world, customers have little or no loyalty. So how can weincrease the speed and scale of value delivered tothe customer?By identifying, profiling and understanding customersasindividuals or micro-segments. By building processes that injectthoseinsightsinto 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.
3. Re-inventing Merchandise Intelligence
ThePost optimizes storyheadline, content, images and video for its target customers and device. Why shouldn’t a retailer think about its products in the same way? Aclothing retailer should see the micro-segments that need garment sizes and fits. A furniture retailer should find all itemswith a specificfinish and identify all households that have purchased it in the last 90 days.
Smart deviceshaveexposedproduct attributes that are more suited to a visual user interface. Today’s product datais not suited to chatbot and smart speaker conversationalinterfaces.Today’s merchandising applications are based on a hierarchical product schema for top down category management. We need more granular and semantic definitionsto track merchandise across many contexts. With systems like thisdata 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 stores and a growing online ecosystem.
Once updated the customer acquisition, retention and merchandising processes will provide some defense. 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.