7 must-win battles in Retailing

A changing industry – retailing in 2014 and onwards

November 2015


The retail industry is transforming rapidly …

The traditional industry boundaries are changing – manufacturers sell directly to customers, wholesale need to act as retailers and retailers manufacture their own brands. At the same time the customers have multiple touch points across channels operating together and want a one brand experience with coordinated products, services and prices.

Today’s competition is about agility and time-to-market. It is about differentiating service concepts and focusing on adding value for the end-user. The traditional value chain is transforming into customer journey retailing.

Retail is no longer an industry but a function to be pursued by all parties

Sliding sector barriers in retail

For years, vertical integration has been a power game between manufacturers and retailers. It has also been a way to kill complexity in the value chain and slim the processes towards a seamless customer offering across channels.

Slimming the traditional value chain from manufacturing to end-usage is the core of building profit and increasing the end-to-end efficiency and resource utilisation.

Direct customer contact is no longer only a retailer’s privilege. Customers choose where and how to purchase. The need for “one-point-of-contact” decreases relative to their online shopping frequency, while there is an expectation of full transparency across channels.

At the same time, “local means global” to customers as supply systems and logistic capabilities open up to delivery around the globe.

As a result, future market definition is set by the customer and defined by their behaviour. Suppliers and retailers have to adjust, and the winner is the one who is in alignment with the customers’ needs.

Functional retailing end-to-end

Retailing is about generating traffic and demand. It is about influencing as many processes in the customer journey as possible. No part of the journey is willingly left to others, and both manufacturers and retailers aspire to win this game and gain full control of the end-to-end supply chain.

Retailing today is about being a front-runner on the technological scene to reach end-users as seamlessly as possible – it is also a matter of sourcing and procuring at the lowest possible costs.

The winners of tomorrow need to know how to navigate across different channels and platforms with a uniform message.

  • Understand the needs of the customer and tailor value-adding services to the market place.
  • Combine the virtual service offerings with the physical presence throughout the value chain end-to-end.
  • The core product of the future is more than an SKU

… defining new MWBs to succeed in the future

Implement has defined 7 must-win battles (MWBs) which support a “customer-centric approach” and “new supply chain thinking” to succeed in retailing in the omni-channel era.

Customer-centric approach

As customers expect to be recognised across channels and be remembered for their previous behaviour, it increases the demand for retailers to move from multichannel to omni-channel delivering “one brand to one customer” across channels.

An omni-channel approach forces retailers to be present and interact simultaneously in many channels. It increases demands for new structures and processes internally. To prevent costs from escalating, retailers must find relevant growth opportunities in their customer journey management and choose where to play and how to win to ensure profitable transformation.

The future customers are not loyal to products or brands. They are only loyal to themselves and seek continuously to fulfil their own needs. The phrase “customer is king” is more true now than ever.

Both retailers and suppliers have to be open to complementary services to increase the customer experience, as customer needs do not follow traditional market definitions. If needed, they have to build partnerships to deliver on critical customer requirements. They have to identify new sources of income to add more value to customers.

The key to growth lies within the customer. A comprehensive customer insight sets the direction for increased customer satisfaction and willingness to pay. Winning will also require the ability to transform big data into customer intelligence and make it the focal point for new service offerings in retailing.

New supply chain thinking

Industries, and through them also product categories, are changing. Therefore, category growth is not just about doing more of the same in a more efficient manner. It is about shaping a new category and meeting new demands in the market. It is about merging industries and bundling service offerings in retailing. It is about untraditional thinking in category growth management – and beyond.

Stores appear in new shapes and are no longer forced to be stock-keeping or even physical. Formats are changing and must be flexible to population size and market dynamics. The ‘brand = format’ equation is changing, and retailing is about reinventing network planning and store formats. In the end retailing is about moving goods or providing profitable services to the end-user. New store formats, flexible delivery options, differentiated offerings and uniform digital presence force us to seek new ways of sourcing to ensure a dynamic cost base.

The 7 must-win battles of retail

Going from multi-channel to omni-channel …

The digital era sets new standards in retailing, and the different players are forced to apply to the new rules with instant and uniform solutions across channels. The retailers need to build up a new infrastructure, both in terms of processes and platforms in order to meet customer expectations in the future.

Going from multi-channel to omnichannel

Why is it a MWB?

  • Customers experience the benefits of cross-channel and omni-channel services such as time efficiency and higher individualisation in all touchpoints.
  • Suppliers and retailers need to adapt to the changes and integrate their services across channels. Furthermore, the digitalisation is a game changer due to price transparency, high convenience and fast fulfilment.
  • The end-users are increasingly aware of the benefits of direct access to suppliers. Globalisation makes it possible for them to see the world market as their local market.

Important issues to address?

  • We need to increase the value streams and ensure cost efficient solutions across channels.
  • We have to exploit our brick and mortar establishments to optimise the customer experience throughout the customer journey without compromising on their digital opportunities – and vice versa.
  • We need to interact in the future to meet customers’ demand for individualised solutions and relevance in all touchpoints.
  • We need to be prepared to organise differently in order to interact with customers in different channels at the same time with a uniform message.

Few retailers or service providers practice an omni-channel approach today. Still we see some very good examples of seamless retailing where customers are viewed as a “single customer” and met with a uniform service offering in different channels simultaneously. These companies often have a strong heritage in viewing customers as relations instead of transactions.

Danske Bank, SAS, IKEA, Apple, Nordstrom, Walmart.

… forces retailers to reorganise and rethink their service offerings

Key answers

  • We must have a full understanding of our customers’ needs in all touchpoints throughout the customer journe
  • We have to identify gaps in our delivery model by matching our existing service offerings with customers’ needs
  • Our business model has to be adjusted to new market dynamics, if needed – both in terms of service offerings and execution in all touchpoints
  • We need to be prepared for change in our organisational and governance structure and redefine roles and responsibilities
  • We have to rethink our technological infrastructure to meet the demands of a uniform service offering in all channels simultaneously
  • We need to find ways to gain the financial power to ensure full implementation – and sometimes be open to new partnerships to do so
  • We will have to review our supply structure and store formats and be open to new and flexible ways to reach the end-user. No “one fits all” solution is expected to win in an omni-channel world
  • We have to review our KPIs and move from measuring omni-channel impact on transactions to measuring on a customer relation basis such as customer lifetime value
Maturity ladder: Level of customer-centric coordination

Identify growth opportunities in customer journey management …

Customer journey management opens up to new thinking in designing service offerings in retailing. The purchase funnel often starts long before customers appear on the retail scene. The many moments of truth in customers’ decision patterns force retailers to be present throughout the customer journey and adjust their service offerings accordingly.

Customer journey

Why is it a MWB?

  • Customers do not buy products – they buy solutions to their problems or needs. Their journey very often exceeds the defined value chain of suppliers and retailers.
  • Retailers are under pressure and have to reinvent themselves to play a more important role in all relevant touchpoints.
  • Suppliers also need to find alternative ways to interact directly with end-users in order to influence and strengthen customer preferences in their decision tree.
  • The lack of value innovation and differentiation in the market results in high price sensitivity, which again puts pressure on margins and cost structures.

Important issues to address?

  • We have to add true value to customers throughout the customer journey to increase lifetime value and profitability – even if it exceeds our existing business model.
  • Our customer promises should address the most important customer needs to ensure willingness to pay.
  • We need to define our role in all moments of truth to ensure purchase and repurchase.
  • Our go-to-market strategies and communication tools have to be integrated and seen across all touchpoints to ensure a uniform message across channels in all moments of truth.
  • We have to change from product orientation to solution thinking and build ownership in the organisation of customer segments and customer journeys instead of products and services – and reorganise if needed.
  • We have to revisit our KPIs in all moments of truth in order to optimise our impact across channels.
  • The supplier-retailer relationship has to be revisited and redefined as the industry slides. No one can afford to stick to the “old norms”.

It is all about fulfilling customer needs the best way at the lowest cost in all touchpoints across channels.

… and open up to new sources of income with value-adding services to customers

It is extremely complex for even the most established brands to be present in all moments of truth across channels. The diversification in service offerings requires unbundling, complementary services and partnerships. Retailing of the future is about increasing customers’ perceived value and even strengthen their own delivery in the value chain with partnerships, if that is what it takes. Strong customer relations are the entry ticket to open up to new sources of income in the value chain through partnerships and thereby increase profit per customer.

Even strong brands open up to partnerships to increase customer value

Why is it a MWB?

  • The overall need fulfilment on core offerings is high, and it is perceived as difficult to innovate further on existing offerings to increase customer satisfaction and basket size.
  • Market dynamics are under pressure, and it is increasingly more difficult to maintain pricing levels of the core products.
  • Customers’ willingness to pay increases relative to the perceived need fulfilment and forces companies to look into attached products and services.
  • The agenda is shifting from brand focus to customer focus, and in order to increase customer preferences companies seek partnerships.
  • Many companies have an extensive customer base, which could be of interest to other companies to tap into.

Important issues to address?

  • We need to differentiate our services and increase the relative value perception to disrupt the market standards and maintain the price levels.
  • The differentiated services put pressure on our cost structure and force us to think differently to prevent reduced profitability.
  • We have to revisit our branding platform and be open to partnerships to build new value streams and new sources of income.
  • The customers who visit our stores or buy our brands are our real asset. We need to be adaptive and innovative to optimise customer satisfaction.
  • We have to see partnerships as a possibility of increasing our brand value in the eyes of the customers and make our customers “accessible” to a third party if a partnership increases the total customer satisfaction.
  • We have to be open to the cultural impact of introducing new value streams and to reorganise in order to ensure implementation power if necessary.

Transform big data into customer intelligence management …

Retailing generates a lot of data. But generating big data without converting them into customer intelligence is a waste. Customer intelligence management is about fuelling our sales engines and optimising our sourcing and processes. It is about increasing our cash flow in the supply chain and allocate resources to the right focus areas. It is about getting a better picture of our business.

Why is it a MWB?

  • Digital platforms help retailers to better analyse their customer relations and lifetime value to optimise marketing and enhance competitiveness.
  • A better understanding of “what happens when” is a valuable input to business planning and resource allocation in retailing – even in brick and mortar stores.
  • New insights enable retailers to move away from the classic push model to the pull model where pipeline management and replenishment is the same, which again has a positive impact on cash flow management.
  • Big data are on everybody’s lips, but financial impact only occurs when we turn data into intelligence and intelligence into action.

Important issues to address?

  • It is not just about lots of new data, it is about assessing new insights into our existing data and developing guidelines and strategies to capture, analyse and utilise future data.
  • New insights will develop new ways of doing business. When increasing the company’s understanding of customer needs and behaviour, new skills need to be adapted such as dynamic pricing, personalised recommendations, shopper-specific discounts and adapting customer service to the customers’ needs.
  • It is critical to build interfaces and integrate data to be able to optimise processes and make the supply chain more cost effective.
  • Customer intelligence management is a sales engine as well as a business model optimiser. How do we organise and formalise to get the maximum impact?


How Target Figured Out A Teen Girl Was Pregnant Before Her Father Did

Every time you go shopping, you share intimate details about your consumption patterns with retailers. And many of those retailers are studying those details to figure out what you like, what you need, and which offers are most likely to make you happy. The US retailer Target for example, has figured out how to data-mine its way into finding out whether a customer is expecting a new family member long before they start to buy diapers, just by looking into their online behaviour.

… and use them as input to manage category growth

Category management is about optimising service offerings within the category with the objective to grow the category. But new technologies make traditional categories grow into new categories. The category disruption has been the entry point for new players in the market, but has also been the stepping stone for other retailers to new market opportunities and growth.

Why is it a MWB?

  • Category management has traditionally focused on optimising profitability within the scope of the existing category.
  • As categories see declining growth rates, there is a need to widen the scope of category management to optimise the current business and moreover to shape the future of the category.
  • New technologies open up to category innovation and even make categories grow into new industries.
  • New categories force the existing players to revisit their business model. It opens up to new players in the market and causes some to exit the market, if they do not adapt.

Important issues to address?

  • We need to understand the most efficient growth levers to ensure scale and ROI on our initiatives.
  • We need to work cross-functionally and address new trends and demands in our service offerings.
  • We have to be open to product cannibalisation if it brings more value to the customer.
  • We have to be open for collaborative solutions and selectively choose suppliers to drive and finance a joint profitable growth agenda.
  • We need to sharpen our innovation initiatives in branded goods and electronic services to explore the full potential of category drivers.
  • We have to free capacity and kill complexity to be agile and flexible – and to be able to respond quickly on competitive actions, if needed.
Category growth strategy and share gain strategy

Netflix is an example of a player entering a category by using new technologies and trends to grow the category. Renting movies has moved from a brick and mortar solution (Blockbuster) to an online service offering, where we can stream and download everywhere at any time. The category has grown and opened up for new players to enter.

Amazon started out as a pure online book store and is now one of the largest retailers dealing with all kinds of products and services. They are servicing their customers on all platforms. They were one of the first companies to open a market place for private sellers and other retailers and introduce a share gain solution to traditional retailing. They are now building up postal services, and their lockers are a physical sign of their presence and innovative category management.

Reinvent network planning and store formats …

Network and store formats change in order to meet new behavioural patterns, cut costs and increase customer experience in key locations. As e-commerce tears down local market boundaries, it is time to reinvent the classic growth formula of distribution, rethinking store formats and network planning.

Why is it a MWB?

  • E-commerce growth shapes the role of the physical store, and customer expectations of physical stores are changing.
  • The cost base and operating models of physical store networks are challenged, and the distribution path to growth in many sectors is obsolete.
  • Local market fragments and the ability to charge premium local mark-ups are diminishing as the competitive landscape turns national and sometimes global.
  • Retailers need to rethink their physical distribution to align with customer expectations, reduce costs and define the role of brick and mortar businesses.

Important issues to address?

  • We need to ask ourselves to what extent the digital formats are shaping customer expectations and what the key requirements for developing the physical stores are.
  • We have to look into the key commercial benchmarks for the sector and define the levers for customer preferences and behaviour.
  • We have to decide on store formats and set standards to deliver true customer value and ensure brand building impact.
  • We need store networks to be optimised to enable growth and leverage competition on target prices with a competitive cost base.
  • We need to define the role of the physical stores as an integrated and unique channel in an omni-channel and e-commerce-driven business environment.
  • We have to look into the value aspects of today’s network and formats and set critical standards (no. of stores, operating costs, expected plan for the future).
  • We need to look into the customer journey and set requirements for each channel.
  • We have to build metrics to evaluate and reconfigure our store network and the shape of different formats.
  • We need to motivate our organisation to be prepared for adjusting and adapting to changes.
Format and network planning framework

… and rethink the supply chain to ensure high availability and a dynamic cost base

Omni-channel retailing is not about delivering everything to everybody in all channels at the same time, but rather to have the right products and services in place for the right people at the right time. It is also about being in control of all processes and being agile in relation to new trends and demands. Furthermore, it is about thinking of sourcing and supply in a new perspective to keep a dynamic and efficient cost base despite the omni-channel complexity.

Why is it a MWB?

  • The customers’ demand for instant delivery forces companies to revisit their sourcing and supply structure
  • The supply chain is no longer a chronological end-to-end process as customers are not following the same path to a purchase anymore
  • Customers demand availability of goods and instant delivery at the same time, which force both suppliers and retailers to integrate vertically and gain control of as many steps of the supply chain as possible
  • New store concepts with virtual display of goods open up to new kinds of locations, moving online advantages to a physical environment
  • Challenged cash flow requires extreme cost focus and value chain efficiency at the same time as omnichannel retailing makes sourcing more complex

Important issues to address?

  • We need to work with differentiated supply of goods and services and be able to find alternative sourcing of less demanded goods and services
  • We need to ensure transparency in our flow of goods to optimise forecasting and improve cash flow
  • We have to deal with new standards within delivery times and be open to new ways of sourcing via sourcing engagement partners and online supplier communities
  • We have to rethink supply chain management and move away from only optimising the existing one and instead design with structural flexibility to handle changes – even the ones we cannot foresee
  • We need to be open to vertical integration or to entering into close partnerships in order to ensure full control of the sourcing of goods
  • We have to focus on structural flexibility in the supply chain to meet the complexity of omni-channel sourcing
Yesterday, supply chain was important. Tomorrow it will be mission critical