Time to buckle up | Part one: enhance your customer experience


In Part 1 of the series, we’ll compare and contrast the impact both the current Corona crisis and the 2008 financial crisis have had and continue to have on the retail sector, specifically in terms of structural transformations, purchasing patterns, and consumer sentiment


Within retail, the magnitude of disruptive trends typically increases during a crisis, while also speeding up their transformational impact by at least 3 years. For this two-part blog series, IG&H's specialists in retail digital transformation and Piet Coelewij, seasoned executive and board member in the retail and consumer sector, have provided their perspectives on how retailers can transform the sector to outperform their peers.


Conclusion: Time to buckle up. Digitally innovating customer experiences and jumping the curve is imperative to become a retail winner.


Crises accelerate the structural transformation of the retail sector

Reflecting on the 2008 economic crisis and what seems to be happening as a result of the 2020 Corona crisis, we have seen each crisis accelerate the structural transformation of retail. In 2008, digital platforms proved themselves to be a disruptive and superior technology-driven business model. The Corona crisis has demonstrated the resilience of platforms like Alibaba and Amazon, as their business model is secured against economic fluctuation. In prosperous times they grow as a result of general economic growth, and in downfall, they grow as a result of price transparency. Simultaneously, in traditional brick and mortar retail, the crisis set the stage for further shake-out and consolidation driven by financially strong retailers (for example, in the Netherlands, the acquisitions of Super de Boer and C1000 by Jumbo).


The 2008 crisis uncovered the weaknesses of the mid-market, particularly in non-food retailers. More traditional retailers differentiating in either the low-cost segment or the customer value-added segment were successful, whereas retailers that were stuck in the middle encountered difficulties. Remember the news headlines of major store closures (such as V&D in the Netherlands and Sears in the US)


The Corona crisis has created a new transformational wave

While the 2008 crisis led to the end of the mid-market (with the further rise of digital platforms and growth of the differentiated low-cost and customer value-added retailers), the Corona crisis is creating a transformational shift, very much driven (still) by platforms, towards true Omni-channel.


‘We are now moving into the fourth phase of digital retailing. The first wave was about efficiency, where the capital employed in relation to the cash generation of e-commerce was unprecedented. The second wave was personalization and customer experience. The third was the structural use of the network effect where an increase in parties linked to the network results in more value for the customer.’

Parties such as Amazon and Alibaba have reinvested most of their profits into expanding their networks and leveraging the network effect. Currently, we are in the fourth wave — the move towards Omni-channel retailing, which will be accelerated by the current crisis. This means that retailers create (digital) one-to-one relationships with their customers and use the channels in an integrated way. E-commerce will have to become an integrated part of a retailer’s model, rather than a separate channel. As a result, we see pure players entering the realm of physical retail in a big way with examples like Amazon GO, Alibaba’s Hema, and Amazon buying Whole Foods.


‘The next step in the blending of channels will happen as a result of customer-experience innovations that disrupt traditional customer journeys by integrating retail with other (online) aspects of life such as social media or entertainment.’

An example of this would be telling smart home system, Alexa, that you would like to purchase the jeans that someone is wearing in a particular YouTube video.

’Retail survival of the fittest speeds up during crisis periods’.

To provide some guidance on becoming an innovative retail winner, we have identified three fundamental shifts that you need to strongly consider. In Part 2 of this blog series, we’ll dive deeper into how to leverage fourth-phase business model innovation shifts. But here we’ll be discussing the shift towards value that has emerged as a result of the pandemic.


Shift 1: Overall value trends

How to enhance the overall value perception of your customer experience


1. The Corona crisis has given personal hygiene and health trends a significant boost

The nature of the current crisis has a significant impact on hygiene and health concerns. Not only have retailers had to take precautions in their operation that have impacted how they do business, what they sell has also been impacted. An increasing number of health-focused products have found their way to market. There was already a move towards more health-conscious purchasing behavior, and this will get a sizeable, long-lasting boost as a result of the pandemic.


2. The ’new normal’ will accelerate the shift to convenience 2.0

New services facilitate the step-change towards next-level convenience. In food, this crisis accelerates the shift towards constant and easily available (semi-)prepared meals at any time, offered at decentralized (smaller) stores or food delivery services. At the same time, convenience also means the shift from DIY to DIFM or a subscription form for recurring needs like contact lenses. In order to avoid crowded places, the crisis has increased the movement of customers toward retailers who provide a quick, nearby, and non-crowded environment, with technology as a key enabler. Concepts like pick-up points and stores without check-out (Amazon GO) will continue to get a growth boost. You only need to look at more advanced Asian markets to see the full potential of convenience


3. The Corona crisis has made consumers demand retailers take responsibility for people and the planet

The pandemic has accelerated demand for sustainable products, both in terms of the planet and people.

‘The youth of today are the first generation who actually changed their buying behavior based on their ideology.’

As a result, retailers need to re-consider topics like value chain responsibility and local sourcing. Retailers now innovating their products and experiences to build on these trends are likely to jump on a new growth curve.


Buckle up, now is the time to act

Every crisis accelerates trends and creates opportunities. In that regard, the Corona crisis is no different. Retail must prepare for the rapid development of one-to-one customer relationships to create a clear customer experience advantage. To be successful in doing so, you need to embrace digital business models and technology.


With special thanks to Piet Coelewij,


Stay tuned for Part 2 of our blog series in which we’ll provide guidance with regard to the shifts towards business model innovation and partner collaboration.


Contact

IG&H has 33 years of experience in helping clients innovate, deliver superior experiences, and execute their strategies in the retail sector.

Why not arrange a meeting to discuss how we can help?


Authors

Jochem Jansen

E: jochem.jansen@igh.com


Myrthe van Hoek

E: myrthe.vanhoek@igh.com