Thursday Mar 07, 2013

Its all melding together


Let us start our discussion of the 5-layer model with looking at the changes in consumer behavior - the apex layer that has knock on effects on all the rest.

In other words, let us examine our own behavior when we buy things these days. How often do we rely on just the product label for product information? We rely quite a bit on multiple sources of online information in addition to traditional media such as TV and print. Our awareness of products and brands is built not only on personal research & experience but that of others.

The smartphone, especially one of the consumer oriented ones since iPhone's launch, is now a trusty tool for the shopper - a link to all the information she needs. BTW, it has just been 5 years since the iPhone was launched - hard to imagine, isn't it?

I list the most notable trends that have implications for value chains.

Driver Change / Trend
Implication
Mobile Computers
Smartphones and tablets marry the computational capacity and connectivity of PCs with the ubiquity of a phone.
Imagine for a while your day without your phone - it is difficult to just think about that. Let alone readjusting to life without it. As an 'always online' and 'always with me' implement, it is a valuable medium to reach customers / consumers.
Online Commerce Online sales are growing (see more details below) and is no longer a geeky curiosity. In fact, mobile phones and tablets have only increased the ease with which consumers can shop online. The endless aisle. The long-tail. The cheaper storefront option when compared to a brick and mortar store. E-commerce is all that and also table stakes for those selling to the the Gen-Y and the Millennials. It offers the ability to reach remote markets and run very targeted promotions.
Price Comparison
Price comparison bots and mobile phone apps that allow shoppers to pick the best deal have made price competition fiercer.

The stiff price competition has implications for both operations and marketing. Supply chains need to improve operational efficiency and drive out costs. Marketing needs to 'differentiate' the offering thus making comparisons difficult.

Opinions from friends & family ...
Social technology e.g facebook, twitter is making it easier to get views and opinions of people who have always mattered.
At the very least, companies need to know what is being said about them or their offerings. Eventually they need to master it to the same extent as traditional media.
... even complete strangers
Every one of us has looked at a product review on Amazon.com even though it was to research a product buy somewhere else.
As with social media this represents a huge source of market intelligence that cannot be ignored.

Macy's financial results announced last week have been the subject of many omni-channel related articles, not least because of Macy's clear enunciation of their strategy but also because it is clearly showing results.

Online sales are a big and increasing contributor to their growth. What is interesting from a value chain perspective, is that Macy's has been using the stores to fulfill online orders and plans to do more of that in the future. Considering that brick and mortar retailers carry vast amounts of inventory in their stores, this trend is likely to grow as the tools and processes to handle fulfillment from stores develop further.

Staying on the subject of online sales a bit longer, let us do a back of the envelop estimate of Macy's online sales. If 60% (extrapolating comp-sales for all stores) of their $1.28B of top-line growth came online sales and online sales grew 41% in the year then their online sales in fiscal 2012 are ~ $2.6B. Roughly 10% of sales but 60% of revenue growth. In this light, the emphasis on an omni-channel strategy is obvious.

Macy's is not unique though. According to the US Census Bureau, which has a special section tracking the electronic economy, eCommerce has been growing monotonously for the last decade (see the seasonally adjusted sales in dotted blue in their chart below). Even the financial crisis that triggered the great recession was merely a brief dwell.

As the mid and small end of the retail industry moves online, the share of online sales will grow. Predicting where it will stabilize at is an interesting but mostly academic exercise. For businesses right now, the more immediate area of inquiry should be to re-imagine their operations with an omni-channel consumer in mind.

Why you ask? The clue is something that you find posted on many stores in India. It is Mahatma Gandhi's quote from when he was a civil rights activist in South Africa of 1860 - “A customer is the most important visitor on our premises. He is not dependent on us. We are dependent on him. He is not an interruption of our work. He is the purpose of it. He is not an outsider of our business. He is part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us the opportunity to do so”. The answer to our question is that consumers are 'favoring' omni-channel retailers - and falling out 'favor' of the consumer is not a viable business strategy.

To be sure the omni-channel challenge is not just to provide a unified merchandising and fulfillment experience. It is not just the ready access to online and mobile channels. It is also the monitoring of vast sources of market information on online fora as well as the influence of friends and family. All that information needs to get internalized in the business processes of the organization - to inform and improve the merchandizing and fulfillment processes.

To close, one should look at what Macy's CFO said recently, "Candidly, it’s getting so hard to know what’s a store sale and what’s a mobile sale and what’s internet. It’s getting harder to figure out the lines between them". As consumer behavior and enterprise response evolve more into the omni-channel mode, this will get even more complicated. Even so, for the sake of operational efficiency retailers will need to distinguish between the channels used by consumers. .... hmmm, that is a good subject for a future post. 
About

We discuss the trends in economic / business data related to value chain (planning & execution). The aim is to connect the dots between the buzz (& hype) and the fundamentals behind it.


The views expressed on this blog are my own and do not necessarily reflect the views of Oracle

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