Omnichannel: The New Path to Purchase
Omnichannel poses multiple challenges—and significant opportunities for private label.
Omnichannel is one of the hottest topics in retail today. Econsultancy describes it as “an integrated sales experience that melds the advantages of physical stores with the information-rich experience of online shopping.” Omnichannel suggests the ability to have a continuous experience across brands, across formats, and across devices that is completely customized. In short, it is the sum of every possible way a retailer or brand can connect with—or see to—their end consumers.
For years, the consumer path to purchase was envisioned as a funnel—shoppers started with a limited number of brands to chose from in a brick-and-mortar store—and then winnowed them down through a straight-line process to make a purchase decision.
Today, this path may more closely resemble pinball, as plugged-in shoppers bounce between touchpoints to seek knowledge to inform their purchase decisions. Online reviews, mobile applications and social media are just a few of the many digital tools consumers are using to make these choices.
The effect of online interaction will only grow. Google reports that three-quarters of all consumers were influenced by online research prior to making purchases during the 2013 holiday season. Omnichannel is about defining the set of best practices that allow retailers and brands to leverage these new touchpoints in a consistent way to optimize the consumer experience across the multiple channels in which they interact with stores and brands.
These new channels have created a significantly different consumer. A 2013 RSR survey confirmed that shoppers are more likely to be knowledgeable about competitive offerings, pricing and products than ever before. They also expect immediate availability of shipping, a wider variety of products and information on social networks prior to purchase. Just getting products to the shelf won’t cut it anymore.
There is a payoff for selling to these increasingly demanding shoppers. In the RSR survey, 76 percent of respondents also said multi-channel shoppers are significantly or slightly more profitable than single-channel customers.
Despite growing consumer demand and clear benefits for adopting omnichannel strategies, many stores and brands in the United States have a long way to go. In one RIS retailer survey, over 80 percent of retailers said they were “behind the curve.” In the United States, food retail is lagging the furthest behind. Due to slower purchase patterns and the durable nature of their products, the best current examples are in clothing, electronics and mass merchandisers.
This doesn’t mean there aren’t food retailers—and private label programs—that are good examples of omnichannel success. There are just fewer at this stage.
The new ways shoppers are educating themselves about products and pricing has created a set of opportunities and challenges for retailers and brands to create happy and loyal customers.
Give Consumers a Single Shopping Experience
Consumers today are becoming far more channel agnostic about how or where they shop. One of today’s busy shoppers may look for coupons on a retailer’s mobile app during their commute home, browse recipes on their tablet while watching TV at night, and finish building their shopping list from their favorite store’s weekly flyer (which they link to from their email, of course) on their laptop during the work day, all before stepping foot in a store. And the store itself may be from any one of the brick-and-mortar channels, not necessarily the one where consumers have traditionally bought those products.
Consistency is the hallmark of strong branding and the key to a successful omnichannel experience. Retailers should design websites with responsive layouts that allow content to display in an easy-to-digest format regardless of screen size—without sacrificing the depth and quality of the site’s content and features. Canadian grocer Sobeys is a great example of a retailer who does this right. From big-screen desktop monitors to smaller mobile phones, the Sobeys site provides its content in a format suitable to the screen. More importantly, it eliminates the dreaded “mobile version” of the site that strips out content, features, and usability in exchange for better “fit” on the smaller screen.
Likewise, mobile apps shouldn’t be standalone offerings. Consumers expect useable features that make their shopping experience easier, allow them to do the same things as the retailer’s website, and add extras that allow them to utilize the tools available through their smartphones. Walgreens, for example, receives top marks on both Play and the App Store for providing all of the features of their website in an easy-to-use format, plus great add-ons such as the ability to scan pill labels to refill prescriptions. The Shop Your Way app from Sears utilizes the customer’s GPS to deliver curbside pickup orders in 5 minutes or less after the customer arrives.
In a case of function following form, customers should be enabled to move seamlessly from platform to platform with a single login. Couponing, product research, shopping, and account management should all be available on any platform the consumer uses, and actions on each channel should carry over to the others as they switch between devices and platforms. Kroger has one of the best couponing and loyalty ecosystems, which allows customers to use a single login to load coupons to their loyalty card via their mobile application or website. Based on purchase behavior, the system also recommends other coupons that may interest the customer.
Anything, Anytime, Anywhere
Today’s shopper doesn’t look at online and in-store purchases as separate entities. Rather, they view them as two sides to the same retail coin. In-store still represents the lion’s share of retail purchases, but shoppers also expect the flexibility to order online, from their mobile phone, and just about any other place a whim may strike them. To retain customers, retailers not only need to stock their favorite “must have” salad dressing, they must be equipped to sell it to them wherever the shopper is, whenever they want it.
Just as important as how customers make purchases is how fast they get what they want. With online retail giant Amazon making two-day shipping an industry standard (and offering same-day delivery on some products), anything longer just won’t do. For some stores, online orders can be shipped to a shopper’s home, or made available for pickup at a local store later that day. If a product isn’t available in the store, consumers won’t request a rain check—they will pull out their mobile phone and quickly find another store that has the product in stock or available for next-day shipping. Store associates are expected to help shoppers find the items they need, be it at a nearby store or from another location that can ship, if they wish to retain the sale.
There are a number of retailers who have launched programs that help address the anytime/anywhere nature of today’s shopper. Sears’ In-Vehicle Pick Up, discussed above, is a good example of this. Walgreens offers same day fulfillment with its Curbside Pick Up program, where orders are walked out to shoppers’ cars. The drug chain also offers in-store pickup, and free shipping on orders over $25 from their website or mobile platforms. Walgreens estimates that multi-channel shoppers spend six times as much as single channel shoppers do.
Among food retailers, ShopRite does an excellent job of addressing omnichannel fulfillment with their ShopRite at Home program. It allows shoppers to order and purchase groceries online, then arrange for home delivery (or in-store pickup) at a convenient time.
The “click and collect” format is rapidly evolving in Europe, where leading retailers are engaging in a race to provide the best service to online customers. Home delivery has long been an option for many European shoppers, and retailers are developing drive-through pickup locations that are low-cost and do not require the customer to be home (or pay pesky delivery fees). Many sellers are also investing in “dark” stores—warehouses where trained staff hand-pick orders for delivery or customer pickup. Others offer pickup lockers at gas stations and other highly trafficked locations. French retailer Leclerc saw a 68 percent increase in first-half 2013 sales at its “Drive” stores, estimating that, while 25 percent of Drive sales were poached from inside its own stores, the rest came from other retailers who did not offer a comparable service.
An interesting early example of omnichannel success comes from Tesco’s Korean banner Homeplus. Realizing that their customer base was frequently short on time due to long commutes each day, the retailer set up virtual stores in a number of subway stations. Commuters could “shop” by scanning QR codes of products in an illuminated display with their mobile phones, and have their orders delivered right after they get home. U.S. grocery delivery leader Peapod is now using similar campaigns in a number of cities across the county.
Make Shopping Social
The omnichannel shopping experience is further empowered by social media. With consumers interacting with stores and brands on Facebook, Twitter, Pinterest, Instagram and a variety of other social platforms, social marketing is an important part of a full omnichannel strategy.
For omnichannel marketers, social media provides a platform to hear customer opinions in real time, and savvy sellers are taking advantage of this new source of consumer preference data. Nordstrom, an early adopter of the visual wish-list platform Pinterest, leveraged this feedback into a unique in-store program. The clothing retailer developed a program using “the world’s largest wish list” where items that were popular among its four million Pinterest followers were displayed in a special section in the store. Local salespeople have an in-store app to help match popular Pinterest items with their store’s inventory.
Many retailers, including Target, allow customers to interact with product listings via social media. Through their website, Target shoppers can like, +1, pin or tweet products they like. Not only does this provide data on what products online shoppers prefer, it also lends additional visibility to the products themselves, as shoppers’ online friends and followers see the interactions in their feeds. In the future, smart omnichannel retailers may integrate these “likes” onto in-store displays, showing shoppers how popular certain items are. Online reviews are another possible online tool retailers can add to retail displays.
H-E-B is a great example of how to leverage social media to drive private label sales. H-E-B Facebook posts regularly promote its private label products (and almost never national brands). Cooking demonstrations on its YouTube channel highlight dishes made with H-E-B brand products. Its Pinterest page links back to recipes on the website that suggest store brand items at every opportunity. H-E-B is aggressively seizing the chance to market its own brands to an engaged shopping community.
Integrated Inventory Management
The omnichannel evolution creates a demand for retailers’ inventory-management systems to do more than they ever have before. In-store and online inventories have been managed separately by many retailers, but addressing the new path to purchase will require these systems to be fully integrated together.
Home Depot is addressing the challenge by building three new distribution centers that will help the retailer offer more products and faster delivery. With each distribution center warehousing over 100,000 different products, integration with in-store inventory systems allow store associates to offer shoppers a truly “endless aisle.” The retailer is hoping to drop the “e” from “e-commerce.”
Department store giant Macy’s is also pursuing similar solutions. When customers desire sizes or styles that are not available in the store, associates are able to access inventory information from all of the chain’s stores. When the item is found, it can be shipped to the customer’s home, or made available for pickup at their local store, usually with no additional charges.
Market One Time
For many companies, online and traditional marketing activities are handled separately, with their own budgets, and channel-specific data metrics and goals. With consumers no longer choosing to shop in a single channel, should marketers still promote these channels separately?
Measuring ROI for online activities has long been problematic, and many retailers still elect to use simplistic first- and last-touch metrics to measure impact on sales, rather than more-developed algorithms that measure the entire consumer path to purchase. Recognizing that online research can drive in-store traffic, and that in-store showrooming can create online purchases, will allow progressive omnichannel retailers to create integrated marketing plans where online and offline activities have little overlap. Rather than competing for sales in their respective channels, marketers will focus on total sales rather than separate online and offline figures.
A frequent topic of omnichannel expansion is POS systems. While today’s retailers frequently have dedicated platforms for in-store, e-commerce and m-commerce, two-thirds of respondents to an RIS News survey indicated that they were examining their options for a unified system to handle all three channels. Utilizing cloud-based technology that can integrate with universal inventory systems and CRM ecosystems will provide retailers with a clearer view of the consumer path to purchase, and complete data to leverage in marketing campaigns.
The Opportunity for Private Label
What does all of this mean for private label? Clearly, omnichannel is an institutional challenge that requires investments in supply chain, systems and operation, and not something that is product-oriented. However, within the framework of all of these challenges exists an important opportunity for private label.
Although national brands have traditionally dominated media and advertising, the emergence of digital and social channels in the omnichannel world shifts the consumer focus toward retailers. Stores’ online properties will be the front line for consumer messaging, providing product comparisons and reviews, social promotions, and online catalogs that consumers seek in the digital age.
This provides a clear opportunity for private label to drive the leading edge of omnichannel marketing. Social media posts can promote awareness and brand identity for store brand product lines. Grocery websites can show the price advantages of buying private label next to their national brand equivalents. And retailers can leverage customer reviews to demonstrate product quality to hesitant buyers.
Moreover, private label products offer retailers added flexibility in discovering what works best for their integrated omnichannel marketing campaigns. With little in the way of defined “best practices” for coordinated on- and offline marketing strategies, most retailers will need to use some trial-and-error experimentation to see what connects best with their shoppers. Without the more-rigid promotional schedules of national brand products, retailers can experiment with store brands to see which online marketing strategies most effectively increase in-store sales, and vice-versa.
Some of the challenges in creating omnichannel supply-chain solutions will also lend themselves to private label products. With many store brand items shipping through retailer distribution centers, rather than being direct shipped or cross-docked to stores, retailers can make their own brands “early adopters” of their emerging fulfillment, inventory and delivery formats.
Omnichannel is not just a buzzword. It is the wave of the future. With web and mobile replacing TV and radio, retailers will control their message to customers in the omnichannel world. It’s their message, their media, and they get to choose which brands get to be the
Packaging and the New ‘First Moment of Truth’
As more consumers shop online, the dynamics surrounding products—how shoppers can interact with the product, formulating all-important product-purchase decisions—change. How shoppers arrive at the “first moment of truth,” when the switch clicks in their mind and they’ve decided to purchase a product, changes in notable ways online, including how we approach packaging.
“It’s evolving consumer behavior; the growing transition to online shopping that’s moving buyers’ first moment of truth,” said Lisa Baer, senior director of market innovation at HAVI Global Solutions. The packaging on the shelf has traditionally been the main point of interaction with the consumer, but that isn’t always the case today. When shifting that interaction online, many new and important variables enter the picture, creating both challenges and opportunities. What’s important is how to connect the brand and its packaging to appeal to the consumer both online and offline. The packaging really may need to speak and function quite differently, Baer explained.
Removing a product from brick-and-mortar can yield new advantages. “Online, space is no longer a restriction to the actual physical size of the retail shelf or backroom storage. Packaging can be much larger, with more space and new areas to list product benefits, usage guidelines, even more room for another new product introduction on the package, like a new flavor or added accessory to the existing product,” said Baer. “When we relieve the size limitations, we could have more space than we had ever previously thought about before. Simply put, in the growing online shopping space, today’s companies can get more creative with some really new, strategic thinking in the way products are presented at all touchpoints.”
While online shopping eliminates the ability of shoppers to pick up a product, physically turning it around in their hands, the virtual environment can replicate much of that interaction through 360° rotation of the product, highlighted callouts of key product and brand attributes (product description, nutrition facts, differentiating and unique brand details, etc.).
Online formats can also add dynamic, new perspectives to this interaction. “The digital framework can give packaging more opportunities,” said Baer. “Utilizing 3-D or digital animation is one example, where brands could, in effect, show how a package is opened, how it’s used and even how it could even be disposed of. Another example is to go further and address some end-of-life packaging issues to directly add value to the brand—and add value to the consumer by explaining how they could repurpose it, reuse it, recycle it.” All of these factors can serve as points of differentiation for the brand.—DJP