Customers are a disruptive force in retail. So disrupt back.
2 mins read
Buying behaviour has changed. Dr. Oli Freestone, Head of Institute at Capita, discusses some of the big shifts, and what it means for retailers looking to win market share.
It's plain to see that retail is experiencing extreme turbulence: rising cost pressures; the threat of new entrants; the acceleration of technological change and rapidly shifting customer behaviour. These are all factors that are attacking existing business and operating models, meaning that for many, standing still ultimately means going backwards.
Retail has always been a cyclical industry, shaped by shifting markets and evolving patterns of customer behaviour. As a result, it’s had to re-invent itself on several occasions: the shift from local market trading to the high street and then to out-of-town centres; the emergence of the first supermarkets through to today’s online giants; and more recently the birth of direct-to-consumer brands and influencer business models. It’s plain to see that retail is experiencing extreme turbulence.
Shifting customer behaviour
As the balance of power has flipped from retailer to customer over the last two decades, those who have not kept their finger on the pulse have fallen by the wayside as customers have demanded greater choice, more channels, and improved convenience. For instance, no longer is it acceptable to provide an 8 am to 6 pm home delivery window (although many still do!) or to not have a detailed understanding of customer contact and context across all channels in order to better tailor your proposition. Whereas once shoppers may have accepted mediocre, their ability to go elsewhere at the swipe of a finger has meant the best have captured more share of wallet, whilst the rest have seen their returns diminish.
Here we highlight three big trends in customer behaviour that retailers should consider:
1. It’s no longer a funnel
Decision-making has become much more complex for items with high involvement (e.g. infrequent, riskier, higher price points), whilst simultaneously more ‘automated’ for lower involvement purchases (e.g. routine, more commoditised, lower price points). Products and services with high involvement, such as luxury goods or insurance, increasingly involve a complex latticework of channels and feedback loops during research, consideration and decision-making. We’ve seen the traditional decision-making journey move away from a “funnel”, where options are surfaced early and then systematically narrowed down to a single decision in a methodical manner, to a process which is far more cyclical and complex. The explosion of choice is one of the reasons, meaning that customers are faced with a paralysing array of options.
As a result, retailers need to be better equipped to support customers in making decisions that reflect this challenge. For instance, where once we may have started off with an idea of the TV we wanted to buy, then researched options and prices before making a decision in-store, we are far more likely to now start with a rough idea, research online and as a result either expand our decision-set or alter it altogether, as new ranges and options are presented to us. Further interactions across social media may change that view again, whilst well timed targeted messaging, Black Friday offers or a recommendation from a friend could take us down another path.
Contrast this with lower involvement purchases. One-click shopping and subscription models have taken the decision-making out of the equation and made repeat purchasing of staples practically frictionless. Here, if you’re not front-of-mind very early on, you risk being disregarded not only for the first purchase, but potentially for a significant period of repeat purchases.
As a result, if you’re playing in the high-involvement end of the spectrum then you must understand the array of channels your customers are using across the decision-making journey, and how-to best advise and nudge your customers through each stage.
Whilst for low involvement you need to have a compelling and simple proposition (e.g. strong brand, market-leading pricing or promotions) from the get-go to even be in the game. [Check out our Retail Futures podcast where Capita experts Jo Weigh and Charlie Whitworth look more closely at how customer experience, the online journey and personalisation are all evolving, and how retailers can drive growth in this challenging environment.]
2. The sale is just the start
Whilst the proliferation of channels and products requires retailers to find new ways to get their products and increasingly services included in the initial consideration set, it’s arguably just the beginning of the hard work. Sure, you may have secured a sale, but the post-purchase experience shapes your customer’s opinion for every subsequent decision in the category, and how well they in turn might “re-market” you via their own network of friends and followers. It’s the digitally savvy that continue to outperform the market in this post-purchase stage, with the more successful providing ever better services in order to increase the chances of return visits and repeat buys.
These retailers are far more adept at using insights to retarget and personalise offers, and have a better understanding of the lifetime value of their customers. They’ve invested in tools such as social sentiment analytics and conversational commerce to drive closer relationships. If you’re not thinking about what happens after the sale then there’s a good chance you won’t be involved in the next one.
3. Promiscuity is on the rise
Various marketing gurus have declared that loyalty is dead. Whilst the customer is definitely more in control than ever before, this statement seems a tad hasty. Strong brands still command loyalty, and excellent service will bring a customer back. However, retailers are having to work harder and harder because of factors such as the explosion of choice, the complexity of decision-making and the pace at which expectations are moving.
As a result, rather than loyalty being dead, we’d argue promiscuity is on the rise. A well-timed offer or message could be the killer intervention required to make a customer trial an alternative. In order to do this, retailers must understand the various stages of decision-making, the channels used, and the right time to intervene. This requires deep insights and the tools to take real-time decisions. We’re seeing savvy retailers putting more resources into setting up customer experience centres which are more akin to “mission control” facilities, whereby masses of data are continually analysed across channels to understand where service breakdowns and opportunities are occurring.
In summary, the balance of power may have swung over to the customer, but retailers must seize the opportunity to disrupt back.
This article appeared in Retail Week on the 21 November 2019