New Retail Trends and Digital Transformation
With the development of information technology and mobile networks, consumers' dominance on the demand side has greatly increased. Not only do we have more choices for product diversity, prices, and service levels, but we also have updated definitions and requirements for the convenience and diversity of consumption. More than ever, retailers need to understand consumers and further think and adapt their products and services.
- Simple: Enjoy an efficient and effortless shopping experience wherever and whenever you want.
- Personalization: Personal preferences, needs for products or services, etc., can be met.
Responding to Consumer Demands: Three Characteristics of New Retail
Unlike in the past, where most industries focused on the company's products and services, the core value of New Retail is in the fact that it is "customer-centric". In today’s New Retail environment, companies can expand their market presence by increasing their understanding of customer needs and preferences.
In today's retail industry, competition is fierce. To achieve market growth, numerous brands continue to develop new products and services to meet the unmet needs of customers. As a result, the boundaries between products and services are gradually becoming indistinguishable. Supermarkets and drugstores have diversified their business models by integrating products and services. With the integration of online and offline marketing, and the use of digital technology, through data collection and analysis of customer consumption behavior, we can better understand consumer needs. As a result, new markets have emerged that allow for large volume sales by large enterprises, as well as specialization by small enterprises. There are markets for one-stop large retailers, as well as markets for small retailers specializing in boutique and highly customized items.
The threshold for consumers to shop online has almost disappeared. Following new retail models, marketing entities follow strategies that integrate multiple channels such as e-commerce platforms, official websites, social platforms, physical stores, etc., to contact, understand, guide, and sell customers at all times. No matter O2O (Online to offline), Omni-channel, or OMO (Online Merge Offline), the focus is on narrowing the gaps and barriers in actual distance and time with customers.
When multi-channel and full-field contact with consumers becomes possible, by collecting customer consumption trajectory information and analyzing customer behavior and preferences, the launching of products and services can be adjusted for accurate online and offline promotions through different channels. By integrating activities that are highly relevant to the potential customer base, valuable and important information can be broadcast to the customer. Being close to the consumers' daily life, and increasing the opportunities for contact and transaction, is leading to new technology developments for New Retail.
The development trends of New Retail:
In recent years, retailers have begun to integrate channels and have entered an era of diversified "omnichannel" which provides customers with a consistent and smooth shopping experience. Large-scale retailers have established the relatively complete integration of all channels, and have gradually built up application ecosystems centered on the target customer groups.
The era of all-access is coming:
The advancement of technology has changed consumer behavior. Traditional retail businesses which have been based on people’s product preferences, have evolved to include online channels that assist sales by addressing consumer experience preferences. Innovative developments are integrating both virtual and real channels to create platforms that take into consideration all aspects of the customer's life. In the New Retail era, the role of consumers has changed from passively accepting products provided by brand name suppliers or manufacturers, to being the leading forces of the consumer industry. Suppliers, channels, and brands must all put consumer demand first. From shopping information inquiries, trial orders, ordering, pickup, to return and exchange, all information must be synchronized and exchanged. With the convenience and needs of consumers as the core, the division between online and offline will be removed, so that consumers can access desired products and services at any time and place. All channels must offer complete information and services to provide a consistent consumer experience.
Diversified retail business models prevail:
In response to changes in consumer demand, more and more non-traditional, new business models have emerged, which has resulted in retail fragmentation. Various emerging business models provide services or goods that satisfy their niche markets, so that consumers are becoming less dependent on traditional retail models. Retail fragmentation can be most clearly observed in emerging countries, where emerging retail is developing at surprising rates. Emerging business models disregard traditional retail standards seen in malls and stores, and neglects existing market rules. It is expected that the retail market will continue to become more segmented in the future.
The influence of online communities on consumption patterns:
Social software has become an important part of public life. Consumers share their personal life, experiences, and style and product preferences on social networking sites, and in return seek opinions from friends and relatives in the community. While consumers, especially Generation Y, are evaluating the product’s actual quality, they are also looking to see how their consumer products are rated on social media. Users' online sharing, commenting, and communication may become the final driving factor for purchase. The influence of community opinion leaders can bring amazing sales opportunities through the rapid and large-scale transmission of information in the online community. Consumers' sharing information via word of mouth on the Internet will significantly affect corporate brands and product acceptance.
The application of digital technology is increasingly important:
Technology applications will revolutionize the consumer experience and bring a major transition from in-store to out-of-store shopping. Technologies such as artificial intelligence, big data analysis, and AR/VR technology will be more widely used in the retail industry, bringing consumers a new shopping experience. For example, the use of artificial intelligence in stores and the use of robot customer service will become more common. Data analysis combines the basic information and consumption behavior of online and offline consumers to help retailers make accurate marketing decisions. In the omnichannel era, the ultimate purpose of the use of various technologies and big data is to accurately predict consumer needs and meet their needs before consumers express or even realize what those needs are.
Personalization and experience first:
Consumers have changed from simply satisfying their consumption needs to valuing the consumption experience itself. The motivation for consumption is to enrich personal value and enhance experiences. Consumers expect shopping itself to become an interesting leisure and entertainment activity like watching a movie. Items are not just purchased out of necessity. Compared with traditional products, consumers are willing to spend 20% more on customized products, and 37% of consumers value product quality over price. Therefore, it is expected that brand power and product power will again become the key to marketing in the future.
New business opportunities for Generation Y:
Generation Y, the millennial generation, presents vast business opportunities for the future of retailing. The combined world population of Generation Y, one of the two markets with the greatest consumption potential, has exceeded 400 million. One consumption characteristics of these millennials is the willingness to spend more time browsing through shopping information on internet devices. They value the digital experiences and rely on online channels for shopping. They travel more frequently and spend more money on travel than previous generations. Brand loyalty is low, so emphasizing digital experiences that enhance brand impression can effectively enhance brand recognition. These changes in consumption characteristics have also brought new business opportunities. With consumption characteristics such as high consumption power, high influence, preference for quick response, and instant entertainment, millennials have become the main market drivers of fast retailing.
Opportunities and challenges of New Retail:
Whether it is being used to help understand customers purchasing, or for customer relationship management (CRM), or for the opening up of new sales channels, digitalization is a modern tool used for data creation and analysis. It is an extremely important transformation strategy that all retailers need to recognize. However, before digitization, operators must first understand and realize the goals that can be achieved through digitization before they can take digital actions that are in line with commercial purposes and interests.
Operation of internal and external balance:
Any point or channel of contact with customers may bring brand attention, traffic, and orders to the industry, but they may also bring customer complaints. With the use of digital tools, there is more interaction with customers, types of business models vary, and business volume increases. All these can expose the business to possible negative impacts including products being out of stock, logistics problems, poor customer service, and disruptions in the daily operations of physical stores. All these possible negative influences should also be assessed as well to ensure that the customer experience is smooth and consistent.
Review of cost and operating structure:
Although global e-commerce is continuing to grow, pre-tax net profit margins of the retail industry has declined in recent years. In digital and multi-channel operations, where the organization and strategy of acquiring customers has changed significantly, there are often many potential operating costs that need to be reasonably analyzed. Industry players will need to carefully evaluate their related revenue, cost structure, and channel benefits to properly scale their businesses to match the rapidly changing trends of business models and tools.
New Retail Transformation Strategy:
Product side - provide differentiated products and experience:
The provision of differentiated products and services by retail companies can increase net revenue by 12.7%, and private brands are one of the strategies that companies can develop. Private brands of global retail companies account for about 16.5% of retail sales. Private brands allow retailers to directly grasp consumption data and quickly test and verify consumer needs. Since there is no need to go through an intermediate brand, the channel can directly cooperate with the upstream supply chain. In addition to making product production more efficient, it can also master product manufacturing, raw material sources, etc., so that products can meet the attention and respect for the environment and gain consumers’ trust.
E-commerce is better equipped than brick-and-mortar stores to provide consumers with various experiences and services, such as clear shelf arrangements and quick payment. However, most consumers still value the experience of brick-and-mortar stores. The advantages of online consumption will be extended to offline, which will greatly improve customer satisfaction and further bring opportunities for performance growth. Enterprises can cooperate with sales application system suppliers to use the analysis of consumers' past consumption data to create personalized marketing or product recommendations that are more in line with consumers' expectations and more accurate. When using consumer data, enterprises should not neglect to pay attention to information security, because information security issues will seriously affect consumers' trust in enterprises and affect their future profits.
Customer side - master the membership economy and deepen loyalty:
In a mature consumer market, the number of new customers does not always see significant growth, and the repeated purchases of loyal customers becomes the key to continuous profit for the company. Repeat purchases from existing customers accounts for 67% more in purchases than purchases from new customers. At present, some index companies such as Starbucks and Amazon have noticed the economic potential of membership and actively promoted membership programs. Membership information also enables companies to track member consumption behavior data for further analysis as a reference for subsequent corporate strategies such as providing a personalized marketing experience or developing new products.
The key to the success of the membership system is to attract consumers to become one-time customers through various reward methods, and then to become loyal members with repeated consumption. Monetary or non-monetary rewards can attract consumers to join the membership. The key point is to convey a sense of psychological honor. If combined with the existing living habits of target consumers and the delivery of the all-channel experience, it will be more effective in attracting consumers to become loyal members. Its technological and user-centric design is in line with Generation Y's expectation of a seamless virtual-real integration consumer experience that can be achieved through Omni-channel sales.
Channel-wide sales strategy:
With the use of digital technology, each generation is gradually drawing closer to becoming like Generation Y. The proportion of different generations using technology assistance at various stages of the consumption process, such as for collecting product information before consumption and comparing prices during consumption, has gradually increased. Omni-channel has become the future business model of the retail industry. Retailers should focus on integrating consumers contact points and sharing data across channels to deliver a consistent consumer experience.
In the omnichannel strategy, the information that consumers access and provide online can be used to optimize the services provided by physical stores, and the consumer behavior data collected offline can also be fed back to improve the content of the online interface. Physical storefronts can be transformed into concept experience stores, showrooms, or touchpoints that provide pick-up. Through actual face-to-face contact with consumers, it can supplement consumer behavior data that cannot be collected through online channels. By analyzing consumers' online consumption information, brick-and-mortar stores can more accurately grasp consumer preferences, and store staff can focus on delivering a warmer service experience that is closer to consumer needs. Implementing an omnichannel strategy will bring new opportunities across fields for companies to improve employee productivity, increase revenue and reach more customers, as well as enhance brand awareness and return on investment.
The production side - the establishment of a smart supply chain:
The evolution of technology has greatly reduced the cost of data processing that used to cost a lot of money. For example, in the past, companies had to purchase hardware equipment to store data. Today, they may only need to rent the cloud to have enough storage space. This trend enables the traditional retail supply chain to be upgraded to become smarter. The operation of the retail supply chain relies on the exchange of funds, materials, and information between different operators. In the past, these elements flowed linearly in the supply chain. The operators only knew that they were processing part of the information. In such situations, other links are often unable to respond accordingly due to a lack of information, resulting in a waste of resources and production capacity. The smart supply chain is an open, dynamic circulation and integrated system using data and network connections, which can integrate data information from different sources and locations so that operators in all links can be informed of the process synchronously. The process of product design, production, wholesale distribution has not changed, but the exchange cost of each link can be reduced.
The application of a smart supply chain is not limited to the improvement of process efficiency in a certain commodity production link, but can also benefit higher-level corporate goals or strategies. Traditional supply chain manufacturers must choose between cost, service, production efficiency, and innovation, and technology can enable them to achieve optimal results in these aspects. In addition, supply chain manufacturers can also create new profits for upstream companies because the application of technology in the supply chain can enable goods to enter the market faster. Establishing a smart supply chain can provide efficiencies in the manufacturing process of goods, allowing companies to experiment at the same time with lower risk costs.
Operational aspects - cross-border innovation, cross-industry cooperation:
- Open innovation: Traditional enterprise innovation is limited to internal R&D departments. Open innovation allows enterprises to connect with external partners, introduce external supply chain manufacturers or consumer opinions, and produce more unique innovative products through the exchange of wider information and resources or business models, to create a mutually beneficial industrial ecosystem.
- Borrowing from different industries: Innovation out of nothing is difficult and consumes a lot of R&D costs. By only following the same industry’s innovations, a company tends to imitate past technology and is slower to come up with new developments. Retailers can consider borrowing innovative practices from other industries that have achieved initial success, and then adjusted those characteristics and applied them to their own business models.
- Cross-industry cooperation: Completing every link of enterprise innovation does not need to be accomplished alone. Companies can consider the most advantageous aspects of the enterprise itself and focus on its full development. Other links, and data from other companies such as logistics, R&D, marketing data, etc., can be brought in to supplement enterprise development. By outsourcing or developing alliances, the enterprise can create a platform for cooperation with external players. By integrating business entities from different industries, and co-locating the dispersed stakeholders on a public platform, both the company as well as the cooperating enterprises can benefit from the platform. The selection strategy for cooperation should be based on four themes: brand value, price, complementary brand attributes, and the customer base that they hope to reach.
The innovation strategies of retail enterprises mostly focus on the three key points of business model, platform, and customer experience. For the business model, companies should first focus on the allocation of assets, capabilities, and value chain, to serve customers and create profits in various ways. In terms of platform innovation, the focus can be on reinvention, recombination, or finding new applications of technologies or resources to create new value for customers. Customer experience should include connecting customers, serving customers, attracting customers in unique ways, and changing the way they interact with the company and products. Facing transformation and change, in the future, business leaders should be willing to try new things and accept failure, make good use of the latest changes brought about by technology, and embrace new and innovative ways of thinking to maintain their dominant position in the rapidly changing business environment.