Global Headquarters: 5 Speen Street Framingham, MA USA P F

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1 Global Headquarters: 5 Speen Street Framingham, MA USA P F Redefin i n g the Shopper Experie n ce With O m n i c hannel Retailing W H I T E P A P E R Sponsored by: Retalix Christine Bardwell July 2013 E X E C U T I V E S U M M A R Y Consumers hold the power, and it is consumers who are currently defining the new rules of retail. As a multitude of interaction options and technologies emerge, so grows consumer expectation for retailers to deliver a personalized and consistent shopper experience across all sales channels and touch points. Furthermore, consumers want to be able to access them simultaneously and interchangeably. Consequently, omnichannel retailing, which transcends multichannel approaches by assuring personalized tracking and full consistency across all channels and touch points, is no longer a mere differentiator of choice, but truly a must have. This means that retailers slow to shift focus from omnichannel theory to practice, especially in an intensely competitive market, run the risk of losing significant business. Yet as bare a necessity as it has become, omnichannel implementation presents notable challenges. How does one get there? When analyzing gaps, for one, retailers need to perform bold assessment of their organizational processes and technology capabilities, all while adhering to a customer-centric perspective. For transformation to succeed, they must get organization and processes right first, no less importantly than choosing the right technology for modernization. Implementation of the right technological innovations will assure delivery of deeply personalized yet seamlessly branded interaction, uniquely catering to the needs of each and every individual shopper. Adopting such an approach is the only way retailers can realize true 360-degree engagement and achieve "total experience" an entirely new level of relationship with shoppers that goes beyond mere sales interaction and sale cycle. I N T H I S S T U D Y In partnership with Retalix, this study explores the drive for omnichannel retailing, the processes and technologies retailers need to employ to gain omnichannel capabilities, and the approach required to ultimately deliver the "total experience" that present-day shoppers have come to expect. July 2013, IDC Retail Insights #IDCWP17V

2 S I T U A T I O N O V E R V I E W O m n i c h a n n e l i s N o t a C h o i c e, B u t an A b s o l u t e M u s t Consumers Define the New Rules of Retail As new devices and social networking present a greater breadth of retail interaction options, consumers are increasingly demanding that retail services fully leverage these options and that their needs be catered to via a growing array of channels and touch points. Shoppers are not only demanding that service be delivered via multiple channels, but also expect it be completely seamless and coherently branded. In other words, shoppers are demanding seamless omnichannel service. And what exactly is seamless omnichannel service? Well, a dictionary would have the following to say: Omni- combining form; all; of all things In more practical terms, shoppers expect retailers to engage and embrace them in the context of a unified brand, with compellingly personalized and highly consistent service, anywhere and at any time. When customers conveniently order items online or on their mobile devices, for example, they expect that these be delivered to their home trouble-free. Similarly, they will undoubtedly frown upon arriving at a store to pick up items ordered on a retailer shopping portal, only to discover that these items are no longer in stock. And should they have set up an online account on a retailer's website, they will likely find it unacceptable when requested to provide personal details upon later contacting that retailer's call center. The Stop-Start Shopper IDC Retail Insights uses the term "stop-start shopper" to describe omnichannel consumers. Stop-start shoppers generally "hop" among numerous channels and touch points over an undefined period of time prior to making a purchase. For example, when coming across a hat they like in a store, they won't necessarily purchase it right then and there. They'll scan its barcode using their smartphone instead, and place it in the retailer's mobile shopping basket. Upon arriving home later, they may log into their online account with the retailer, this time via their laptop. Their expectation is to have their online shopping basket fully and continuously synchronized with its mobile counterpart, with the hat waiting there for them to complete the purchase. Single sign-in, a cross-touch-point "omnichannel shopping basket," and coherent, personalized marketing promotions and product recommendations delivered across all sales channels are but some of Page 2 #IDCWP17V 2013 IDC Retail Insights

3 the means retailers can employ to address the needs of the stop-start shopper. Omnichannel is No Passing Fad, and the Stakes are High It is important to note that demand for omnichannel retailing is no passing fad. It is the new norm, and failure to accommodate it carries a heavy toll. Consider, for example, such formerly prominent brands as U.K.-based Clinton Cards, which doubted online shopping would take off, only to see most of its market share frittered away to online competitors offering customers the ability to create personalized gift cards on the web. Notable U.S.-based brick-and-mortar music and book store chain Borders also suffered a similar fate. The Time for Retailers to Act is Now The business case for omnichannel retailing is clear. After all, omnichannel shoppers are known to spend up to 3.5 times more than single-channel shoppers, and customers provided with seamless experience across numerous channels tend to shop more frequently and perform purchases across a relatively broad number of product categories. Omnichannel retailing also improves customer retention rates and increases customers' demographic diversity. And yet most retailers are either not keeping up with this consumerdriven change, or are struggling to do so. Those holding onto siloed approaches and manual systems integration are bound to get left behind as those coming to grips with technological gaps in their organization, rearchitecting business processes, and implementing platforms facilitating seamless omnichannel retailing will ultimately take the lead. This is not the time to hesitate. M a k i n g O m n i c h a n n e l S h o p p i n g a R e a l i t y : W h e r e D o e s O n e S t a r t? While developments have been made in omnichannel-enabling technology, omnichannel retailing is a relatively new concept. Best practices are still being developed and information supporting business cases, particularly with regards to innovative customer-facing technology, can be difficult to come by. To help overcome these challenges, IDC Retail Insights has designed an omnichannel retail maturity model to guide retailers through the steps necessary to producing an omnichannel experience (see Figure 1) IDC Retail Insights #IDCWP17V Page 3

4 Process and People Technology Customer Experience Maturity Level F I G U R E 1 T h e I D C R e t a i l I n s i g h t s O m n i c h a n n e l R e t a i l M a t u r i t y M o d e l Continuous Experimentation with New Channel Initiatives Phase 0: EXPERIMENTATION Phase 1: FOUNDATION Phase 2: CONVERGENCE Phase 3: PRECISION Phase 4: IMMERSION Phase 5: OPTIMIZATION Offering Multiple Channels Offer/Loyalty Segmentation Cross-Channel Services (Click & Collect, Loyalty) Targeted Real-Time OC Offer/Loyalty Cross-Channel Support Services Online Inside Context-Aware OC Offer/Loyalty Personalization On-Demand Assortment OC Customer Participation OC Basket of Goods Lifetime Next Best Action Dialogue "Zero" OOS OC Basket of Value Value-Add Service Differentiation Self-Learning OC Experience Applications for a Customer-Facing Omnichannel Experience Data Foundation Single StoreTechnology Model ARCHITECTURE Best practice Inventory/RFID Real-Time Capabilities O3 Platform (all Channels) OC Fulfilment and Merchandising Sensors Social Integration Embedded Application Intelligence (inc. Location) Predictive Analytics Advanced Customer Intelligence Thin/Smart Clients Touchpoints; POS = Gateway to the Other Channels Single Transactional Engine (Store, Mobile, Online) O3 Optimization and Emerging Technologies Integration Defining the Business Case Store/Online Inventory Integration OC KPIs Identification Omnichannel SC, Fulfilment and DC Structure OC Price Optimization OC Business Performance Management Customer-Centric Merchandising OC CRM OC Promotions Omnichannel Single Message Marketing Customer Experience Innovation Management Embedded Omnichannel Culture Continuous OC Process Optimization Source: IDC Retail Insights, 2013 To briefly explain: "Customer experience" is what is to be delivered to consumers at each phase. The maturity model is designed to produce increasingly deeper engagement with shoppers, and serves to dictate organizational and technological requirements. "Technology" refers to the technology investments required and recommended to support experience reflecting this deeper engagement. "Process and people" provides framework-level guidance on how organizations may have to restructure to become more experienceand less product- and channel-centric. Even the most mature omnichannel retail businesses are currently situated at phase 2 (convergence) or 3 (precision) on the IDC Retail Insights maturity model, with progression toward full immersion being the next logical step, if they are to go even further than omnichannel retailing and attain the next level of "total experience." Page 4 #IDCWP17V 2013 IDC Retail Insights

5 This is no easy challenge, in that it calls for business model transformation aimed at capturing and intelligently leveraging, carefully orchestrating, and efficiently executing all moments of omnichannel customer engagement into the retailer's brand experience. For omnichannel retailing to truly become reality, it is critical that retailers be as receptive as possible, and that they succeed in positioning themselves as capable of accommodating shoppers' every need and want, all while directly engaging them over any customerpreferred channel. This requires that retailers address a number of business domains, while placing customer experience at the very center of their thinking and planning processes. These domains include: Organizational and business culture and attitudes Business processes Technology selection and delivery Creating an Omnichannel Business Culture Retailers must adapt to omnichannel retailing. This change needs to be led by the CEO and board members, as only then will messaging trickle through the business and retailers gain buy-in from all retail chain staff. Too many retailer leaders do not understand the new rules of retail. They come from a traditional bricks-and-mortar, product-centric retail background. The first step for the CEO is to think of the business as a whole, rather than as siloed operations competing for revenue. This is imperative to transforming from a multichannel retailer to a business in which omnichannel retailing and customer centricity are so ingrained that they lie at the very core of the organization's culture and are regarded second nature by its staff. The next step is to create partnerships between IT and line-of-business (LoB) heads. In working together, it may become apparent that other units share the same goals and that joint business cases may be possible. A number of thought-leading retailers have created omnichannel director- and even board-level roles, so as to streamline this process, achieve efficiencies across the entire business, and assure that customer experience be at the heart of all LoB business decisions. Developing Customer-Centric Omnichannel Business Processes Building customer-centric business processes is a vital step to ingraining omnichannel retailing in the retail organization's culture. This can be achieved via a number of approaches, including: 2013 IDC Retail Insights #IDCWP17V Page 5

6 Offering convenient services that span channels, as in allowing online ordering and in-store returns, as well as click-and-collect services. To assure high levels of customer service, retail staff will need to be incentivized. Retail representatives providing click-andcollect services in stores and not incentivized for sales will naturally be less likely to deliver exceptional service. Some retailers are therefore distributing their online sales to regional retail teams, so that the entire business is able to share in success. This is particularly important when products are out of stock, in which case in-store staff can drive POS- or kiosk-based online sales and prevent loss of business. Transitioning IT teams from project-driven organizations requiring business alignment to service management organizations demonstrating high responsiveness to short- and long-term LoB leadership needs. This helps retail businesses assure faster response to ever-changing customer demands. Unifying siloed online and store business reporting, and consolidating operations and processes to encourage omnichannel business culture. For example, if in the past, retailers maintained two merchandising teams one for in-store and one for online merchandising the recognized best practice today is to bring the functions together under a single omnichannel team. It is also recommended that marketing be included in this consolidation to assure that retailer marketing department strategies be customercentric and that marketing be directed at a consolidated, omnichannel shopper persona rather than run under a productor channel-centric approach. Deploying the Right Technology to Support Omnichannel Retailing To qualify as omnichannel capable, retailers must revisit their IT strategy, while going deeper, and beyond the application layer. And yet, in the technology architecture prevalent in today's retail environment, a move to omnichannel marketing typically requires utilization of multiple point solutions and plenty of integration. IDC Retail Insights believes retailers must therefore move up to technology infrastructure that eliminates the need for costly and cumbersome integration. The best way to do this is via flexible architecture and unified software enabling seamless management and optimization of all business processes, as well as of all product, shopper, and transaction data. The recommended technological foundation will ultimately allow retailers to go beyond merely offering the same products, prices, coupons, and promotions across all channels. With a simplified application layer implemented on top of this foundation, retailers should also be able to deliver fully personalized, anywhere, and everywhere retailing closely aligned with the familiarity, insight, and intelligence established on individual shoppers. Page 6 #IDCWP17V 2013 IDC Retail Insights

7 This architectural approach is illustrated in Figure 2. As shown, a similar approach can be taken for commerce, fulfillment, and merchandising. F I G U R E 2 O m n i c h a n n e l R e t a i l A r c h i t e c t u r e Source: IDC Retail Insights, 2013 The architectural approach depicted above enables retailers to engage shoppers, influence their behavior, and receive their feedback at every point throughout the retail cycle. Such expanded control and involvement is bound to help retailers enhance their relationships with shoppers, thereby strengthening their brand identity and increasing shopper loyalty and stickiness IDC Retail Insights #IDCWP17V Page 7

8 E M B R A C I N G T H E F U T U R E R e a c h i n g B e y o n d O m n i c h a n n e l R e t a i l i n g Delivering Total Experience To achieve full omnichannel compliance, taking the right architectural approach is not enough. While shoppers don't really care about ITrelated challenges, their demand for a seamlessly consistent experience in all interactions with the retailer is growing to the extent of becoming critical engagement criteria. They expect to be presented with the exact same promotions, whether checking the retailer's ecommerce website, using its mobile app, or entering its physical stores. They also require that they be allowed to seamlessly manage their loyalty memberships anywhere at in-store kiosks, at POSs, and online, or even via their social networking and beyond the sales cycle. In the current "always on" era of social network-connected shoppers, retailers need to be able to consistently manage and execute complex promotions across multiple sales channels and touch points. This means having to streamline their marketing applications in addition to their operational systems. They must do so while avoiding timely and costly investments in sales channel integration, if they are to quickly and appropriately respond to shoppers' growing sense of entitlement and their demand that retailers rapidly adapt to their evolving needs. Retailers' IT infrastructure must support innovative new channels that will allow them to leverage and capitalize on emerging technologies digital coupons, mobile offers, and location-based promotions, to name a few to the fullest. Retailer marketing teams need to be provided with a technological foundation that will enable them to create promotions once, and have them appear in real time across all channels on the retailer's ecommerce website, on its mobile app, and in stores whether at POSs or information kiosks. To achieve all this, retailers must expand their consolidated application portfolios with unified marketing and customer management platforms. These will ultimately enable them to seamlessly manage all campaigns across all channels and touch points, and maintain the fully personalized, channel-agnostic shopper engagement crucial to supporting the next level of retail service namely "total experience." Leveraging the Retalix 10 Customer & Marketing Suite to Provide "Total Experience" The Retalix 10 Customer & Marketing Suite utilizes a single platform that draws information from all customer touch points and interaction channels, allowing retailers to gain a complete 360-degree view of each individual shopper, with full correlation between shoppers' online and offline personas. This web-based customer-centric suite capitalizes on the Retalix 10 platform's consolidated retail data and business logic Page 8 #IDCWP17V 2013 IDC Retail Insights

9 repository to enable retailers to completely and seamlessly manage and execute complex promotions across multiple sales channels and touch points. The suite fits with IDC Retail Insights' call for innovative omnichannel IT strategies it helps retailers consolidate innovative marketing technology within their omnichannel IT environment so as to progress to the next service level of "total experience." Retalix 10 Customer & Marketing Suite's range of marketing and loyalty management tools allows retailers to implement highly segmented and personalized offers both in and outside stores. It enables them to engage with and impact consumers throughout the entire "stop-start" shopping cycle, with seamlessly consistent experience delivered at any point of interaction. As illustrated in Figure 3, retailers can use the technology powering the suite to interact with shoppers via popular communication channels, including social networks, dedicated portals, paper and digital coupons, , text messages, mobile marketing, and locationbased campaigns. F I G U R E 3 R e t a i l 1 0 C u s t o m e r & M a r k e t i n g S u i t e Source: IDC Retail Insights, IDC Retail Insights #IDCWP17V Page 9

10 In extending interaction with consumers beyond the actual act of shopping to every possible phase throughout the stop-start shopping cycle, IDC Retail Insights believes that the Retalix solution assists retailers in achieving "total experience." It helps retailers become as accessible as possible, and allows them to tune in and really listen to shoppers' needs. Customer & Marketing strengthens retailers' positioning and ability to effectively fulfill these needs, and places them in a truly differentiated, competitive light. E S S E N T I A L G U I D A N C E It is our recommendation that retailers leverage the IDC Retail Insights retail maturity model to progress from mere multichannel to truly customer-centric omnichannel retailing. To do so efficiently and cost effectively requires that they employ natively integrated real-time retail system architecture founded on consolidated customer activity, product, service, and inventory data. To facilitate omnichannel retailing, this architecture needs to seamlessly connect an "all channel" commerce engine (covering transactions, promotions, loyalty, and more) with inventory, demand forecasting, replenishment, and optimization tools. It should also leverage data-level integration and web services aligned to processing retailer business priorities and strategic objectives. We ultimately encourage retailers to consider augmenting their investment in omnichannel culture, business processes, and technology with advanced, consolidated customer and marketing solutions such as the Retalix 10 Customer & Marketing Suite to achieve the next level in retail service namely "total experience." C o p y r i g h t N o t i c e Copyright 2013 IDC Retail Insights. Reproduction without written permission is completely forbidden. External Publication of IDC Retail Insights Information and Data: Any IDC Retail Insights information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Retail Insights Vice President. A draft of the proposed document should accompany any such request. IDC Retail Insights reserves the right to deny approval of external usage for any reason. Page 10 #IDCWP17V 2013 IDC Retail Insights