Adapting to the New Truths of a Shifting Retail Paradigm
Retail is constantly evolving. Some changes are so small or happen over such a long period of time that the impact on day-to-day business is negligible. Then there’s the case of the past few years. We’ve seen technological and societal forces converge and drive enormous changes, incredibly quickly. Whether you call it a revolution, a quantum leap, or a paradigm shift, it’s brought about a new set of truths that retailers must first accept, then adapt, to remain competitive.
Customers Hold the Control
From the days when Romans did their shopping at Trajan’s market, through the advent of shopping malls and even the dawn of e-commerce, it’s the retailer that held the power. We started to see a change with the launch of big digital marketplaces in the 1990s. Then, with the rise of smartphones and ubiquitous internet connectivity, the phenomenon we’ve come to know as “showrooming” was unleashed and the game changed. By the late 2010s, consumers were empowered with easy access to the world of information, and the balance of power completely, irrevocably shifted to their court.
Today, consumers are armed with nearly perfect information about products. Yes, this includes basic specifications, lists of features and even opinions based on the experiences of others, but it also goes deeper. They know where the product is available, how much each merchant charges, what each merchant’s purchase policies are, and even how experiences with those merchants compare to each other.
What this ultimately means is that the empowered, all-knowing consumer no longer needs a retailer to push information at them. From inspiration through consideration, they’re the pilots on their journey through the purchase funnel. They choose where they look and what factors they prioritize. And when they want a deal, they have access to coupons and offers in a few clicks. For the first time in history, the retailer has very little control, and remaining competitive requires entirely new product delivery and service models.
Customers Are Won or Lost in Digital Channels
While the majority of purchases are still made in-store, winning the customer in the physical environment is almost entirely gone. Why? Because consumers with unfettered access to a world of information are going through the purchase funnel on their own devices, then only going to the store to conduct the actual transaction.
Still, most retailers bucket their operations into brick-and-mortar vs. digital. And the CFOs who hold the purse strings continue to allot marketing dollars based on the revenue generated by each. In their minds (and strategies), if e-commerce is only bringing in 15 percent of sales, then digital should only get 15 percent of the marketing budget.
This is a big mistake that’s becoming increasingly costly because it completely misses the fact that the majority of in-store purchases begin in digital channels. People no longer gain inspiration or start their discovery process by window shopping. Instead, they search Google, Amazon.com, social media, influencer feeds, media mentions and everything else that may or may not include your website. And there, they get all of the information they could ever need or want.
The lesson for retailers is that their digital and physical operations are integrated, whether they intend them to be or not. We spend very little time in shopping malls, while we spend about 40 percent of our waking hours online. Even if the dollars aren’t coming in through e-commerce channels, there’s no denying that’s where the majority of the potential customer contact is. So that’s where the dollars should go.
The Classic Digital Marketing Playbook is Losing Effectiveness
Consumers with unlimited virtual access to an infinite aisle of products presented with completely transparent information are incredibly difficult to reach. Therefore, while digital marketing spending has doubled in the past couple of years, it’s not necessarily being spent in the right way. In fact, a lot of that money is being wasted because the tools and tactics on which retailers have relied (and dedicated their budgets to) are losing influence.
Take search engine marketing. It used to be that a retailer could more or less pay to get a higher position in search results. Now, costs-per-click are skyrocketing leading to diminishing returns and uncertainty about the ranking of product ads. Even with large digital marketing budgets, it’s hard to stand out in big platforms and marketplaces like Google, Amazon and even social media. Retailers’ ability to manipulate their online visibility is steadily declining, as there are simply too many competitors to make paid listing ads an efficient way to drive traffic by themselves. Email, which is still a top focus of most retail marketing departments, is another channel for which return on investment is on the decline thanks to increasingly efficient SPAM filters and the deluge of marketing emails that most people now receive.
Thankfully, just because some things are no longer working as they did doesn’t mean nothing works. In fact, there are two keys to success in this new paradigm that are like going back to marketing basics:
- Figure out where your customers are, then adapt your strategy to ensure you’re visible where it matters most. For example, if they’re spending time on YouTube, Instagram, and TikTok, video is what will make you stand out. Since so few retailers are really leveraging video right now, it’s a huge opportunity and it doesn’t require adding budget as much as just reallocating it.
- Build a brand and an assortment of products that stand out vs. the competition. This starts with a real-time understanding of the thousands of competitors you have for each product and then tailoring your offering, prices and services to carve a compelling niche. Google is investing much of its R&D into providing customers with confidence in their purchases by laying bare prices, available discounts, shipping fees, availability, product features, and product and service reviews all in one place. Retailers need a strategy to stand out from their competition on all these elements.
The Answers Are Not in Your Customer Data
For the past few years, retailers have been on a quest to harness the power of data to create personalized shopping experiences. Now many of them are in a panic about the impending death of the cookie, questioning how they’re going to be able to track and target customers without them. But in the new retail paradigm, that’s the wrong question to ask.
We’re in the middle of a transition toward decentralization (i.e., Web3), and while the connection between Web3 and retail remains primarily hypothetical, the two are evolving in parallel, driven by the same societal and technical forces. Just look past the shiny objects of blockchain and avatars and you’ll see that it’s really all about consumers’ declining trust in huge companies and increasing desire to be the owners of their own data and protectors of their own privacy.
Alongside the rising number of consumers who are reluctant to share information is an increasingly large competitive field, all vying for attention. And in the infinite aisle, hierarchy is disappearing. Retailers now need to adapt to a playing field on which all of the players are presented side by side, where consumers with complete transparency into the strengths and weaknesses of each are free to choose the winners.
How You Compare is More Important Than Who You Are
Even if the competitive field wasn’t becoming an every-man-for-himself battle, retailers would still be faced with the realities of declining loyalty. Shoppers will buy from the source that gives them the best deal. The issue is just more complex with the Google-ization of shopping because that opens the definition of “deal” up to more criteria than just price.
Just think about the way discovery works now. A shopper doing a search for “red Nikes” will be presented with a multitude of options, and price is just one of many factors with which they’re presented. On the plus side, this enables a retailer to compare favorably, even if their price isn’t the lowest, which avoids having a race to the bottom. On the other hand, it massively increases the points of comparison at the same time it all but anonymizes the competitors. Whether you’re a 100-year-old retail behemoth or a startup operating out of someone’s basement may not be obvious at first blush. And even if it is, the consumer may care more about shipping times and review scores than they do a reputation that’s taken decades to build.
Ultimately, retailers are facing a set of unprecedented challenges that money and reputation can’t necessarily resolve. Old mantras like “know thy customer” and “location, location, location!” are still relevant but they need to be adapted to a new digital world where “know thy competitor” holds equal importance in positioning a brand to appeal to modern consumers.
Mark Chrystal is the CEO of Netail, a technology that enables retailers to auto-identify competitors across the internet and track their assortments.
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