Navigating the Path to Frictionless Retail

Anyone catch the music featured in T-Mobile’s Super Bowl ad? It took me a few bars and some debate to “name that tune,” but yes, it was a nursery-friendly version of Nirvana’s All Apologies.

I had a rush of fond memories after identifying this obscure cultural reference from the 1990s; the decade that brought us grunge rock, slap bracelets, and eCommerce. The first secure retail transaction over the web occurred in 1994, either by NetMarket or Internet Shopping Network (there is some debate). In either case, this new technology gave consumers the ability to access any product, on-demand, from their homes. For the first time we had an incredible selection of products at our fingertips and — more importantly — transparency, flexibility and control in the purchasing process.

Fast Forward to 2018, when…

…Mobile technology enables the customer to shop anytime from anywhere

…Foot traffic to malls has been declining since 2014

…20 Major retail chains have filed for bankruptcy in the last two years

I keep hearing about a “retail apocalypse,” but I think that phrase does not capture what’s going on. As I see it, we are once again at an inflection point, where control and influence have shifted away from the retailer and towards the customer. The revolution that began in 1994 continues today. And in 2018, the most prevalent market trends all have a strong customer orientation.

• Blending of the physical and digital worlds driven by customers’ expectations of a seamless experience
• Vertical integration that has retailers expanding into logistics and product development to compete with experience focused digital natives
• Shifting customer demographics that are creating demand for service-oriented retail, valuing experience and products
• Increased demand for personalization and tailored experiences across retail customer journey
• Ambient commerce that is enabling anywhere, anytime purchases — not just from retailers

The retailers who succeed in the next decade will be those who transform themselves and their business by refocusing, reimaging, and redefining the customer’s experience. At NTT DATA, we are focusing this conversation around the idea of Customer Friction, which refers to any aspect of a customer interaction that has a negative impact the customer experience. Using this quantitative measurement of the customer experience, it becomes possible to pinpoint challenges, prioritize improvement opportunities, and drive transformation.

Bricks-to-Clicks

eCommerce was the darling of the 1990s, but today we are seeing a resurgence in brick-and-mortar, as physical stores become the epicenter of the customer experience. In fact, $1.2 trillion of total U.S. retail sales in 2016 were web-influenced offline sales, and 49% of U.S. adults reported using “buy online, pick up in-store” or “reserve online, pay, and pick up in-store” options when shopping online.

That’s an exciting trend, but this multi-channel environment presents a challenge for many retailers. The omni-channel strategies that many have pursued to-date have resulted in bolt-on channel silos that limit the ability for multiple retail channels to work together to deliver a superior customer experience.

To further explore multi-channel retail, NTT DATA recently undertook a comprehensive assessment of the customer experience. Our aim was to better understand the customer friction within the retail industry. We used the Customer Friction Factor℠ Assessment to measure 15 retail organizations and gain insight into the customer-focused transformation taking place in the retail industry. The Customer Friction Factor Retail Study revealed that:

• Communication of expectations is critical, with 50% of retailers setting timing and fulfillment expectations up front, allowing customers to make an informed purchasing decision
• Fulfillment challenges were prevalent, with only 33% of organizations able to have a product ready for pick-up within an hour of placing the order
• Inconsistencies persist within brands, with 26% of stores varying experiences and outcomes across locations.

Obviously, there is room for improvement. All the apologies in the world will not make up for poor customer experiences, and those who deliver a great experience outperform their peers in terms of both revenue growth (48% improvement) and profitability (45% improvement).

Given the challenges posed by this new focus on customer experiences, it’s no surprise that retailers are striving to transform their business. Inevitably, some traditional retailers will fail and disappear, some will be surpassed by more agile digital natives, and some will experience unprecedented growth. To participate in the historic opportunity, retails must embrace this perfect storm of customer expectations for service and demand for transformation with innovative approaches that will enable commerce to take place on the customer’s terms, delighting customers in new and novel ways. This is what we refer to as Frictionless Retail.