Amazon's acquisition of Whole Foods put the world on watch: Digital transformation in the nation's non-durable goods market will now begin in earnest. Since groceries account for nearly 20 percent of U.S. consumer spending, pundits have been spouting hot takes on every aspect of this truly disruptive deal. Home delivery, big data analytics, robots in stores, demographic alignment between high-income Whole Foods shoppers and Amazon Prime members…everything is up for analysis. But all the speculation hinges on Amazon's unique M.O. — accelerated digitalization that reshapes consumption models.
Retail was one of the first market segments to "go online," but it has yet to see the mass shift to digital that has transformed financial services, transportation, hospitality, energy, and media. According to the U.S. Census Bureau's Q1 statistics for 2017, only 8.5 percent of the nation's retail sales were conducted online. And Europe holds the same percentage as a whole (though the U.K. and Germany are well ahead of this pace). Amazon, by the way, accounts for 53 percent of that share, as well as much of the overall growth in the American retail sector. (Alibaba's dominance in China tracks in parallel.)
There is obviously still plenty of room for disruption in retail, but key players like Amazon are now shaping the digital future — fueling trends that will define the new state of how we buy and sell.
While it's convenient to measure digital penetration based on simple measures like "online sales," that perspective is no longer indicative of leadership. The old truism that "the customer is king" takes on new urgency as the driving force in digitizing the meaning behind every interaction in search of complete understanding of the customer journey. Master the customer experience and you master retail.
Modern customer experience is delivered through engagement via multiple, distinct, largely digital means, which somehow need to be conjoined. The goal is to remove the barriers that exist between and among sales channels so that consumers can evaluate purchase decisions, pay, and receive goods in a host of modes, anytime, anywhere. Today's customer weaves about from social media, to SMS, to websites, to chat bots, to human agents — and expects the context of those brand interactions to travel with them.
Meanwhile, most retailers remain operationally siloed with respect to channel-based organization, budgets, and the technologies that drive customer experiences. Digital transformation leaders like Amazon are laser focused on innovating the best means to continuously drive positive customer experience, executing against the goals of consistency and convenience, while reigning in the overall costs to the organization.
The finish line for retail is always moving. What may have held true a week ago, often loses its relevance as inventories diminish, prices adjust, and competitors respond. Additionally, the models used to determine "next actions" or define "next experiences" are merely estimates of the highest and best outcomes.
By building a culture of continuous learning, companies like Amazon never lose track of the need to iteratively improve. Whether improvement is a function of changing conditions or a better algorithm (or both), building a structure of experimentation allows organizations to learn and adapt.
Retailers — like their peers in financial services, transportation, and hospitality — must quickly embrace a fast-paced, DevOps mode of agile execution that aligns the business with developers and significantly accelerates the pace at which new products and applications are brought to market. In addition to a process revolution, this model represents a significant change in assessing and measuring risk. Leaders will measure the opportunity costs of delay, have the means to assess impact, and the ability to rapidly pull back and improve when necessary. It's a model that recognizes and rewards organizations that increasingly stretch their own comfort boundaries.
Shedding hardware components (getting rid of on-premise servers, for example) is currently a big trend in retail, but an even stronger growth area is digital innovation with respect to customer experience. In essence, the most disruptive retailers are now squarely entrenched in the software development and deployment space.
Personalization is key to retail customer experience. To be clear, this is not just the well-worn "people like you also viewed…" Consistently employing the ideal channel to deliver a bundle of messaging, imagery, and value that is tied to your historic behavior is the core goal. That information is linked to the quantitatively derived expectations for what would suit you best and is also linked to many others a lot like you who have shown similar propensities for taste and action, thus also increasing insight about population preferences and imparting context.
The most challenging aspect of personalization is assessing deep context instantaneously so it can be acted upon when it most matters. Context comprises many variables: location, past behavior, purchase occasion, current browsing (including what you may have dropped into your shopping basket or tried on in a changing room), the weather, time of day, or traffic conditions. Context defines personalization in ways that historic targeting can never hope to achieve on its own.
Artificial intelligence is well suited for the context challenge. It abandons traditional linear, sequential processing to mirror the human brain's ability to process in parallel. The current use of AI chat bots is just a rudimentary step toward the full potential. Retail — especially everyday spends like groceries – contributes significant consumable data with which to train future AI models. For example, facial recognition may provide identity in stores the way that cookies recognize us online. Individual and unique preferences concerning what we want, how we shop, how we save, and where or when we need our goods delivered can be pinpointed in increasingly nuanced and occasion-specific ways.
Physical store locations form one of the most intriguing aspects of Amazon's Whole Foods acquisition, which seems counterintuitive since ecommerce is often blamed for the retail sector's dramatic downsizing in store counts. But outdated retail customer experience models are much more culpable for the decline. Simply put, traditional stores have not kept pace with a more experiential set of consumer expectations.
The successful brick-and-mortar retail store of the future must be compelling to visit, simple to navigate, and ultimately free of frustration. Store designs will reflect the possibilities of discovery and eliminate the need for full-line inventory. Consumers may not care where the product is and whether they can carry it out the door, but merely how easily and how fast it can be delivered to where they need it.
Amazon helped invent the digitalized retail business, and has successfully modeled a new means to meet ever-evolving consumer expectation when purchasing books, consumer electronics, and countless other durable goods. The Whole Foods acquisition indicates yet another transformation in the offing, revamping how we purchase non-durable goods and experience physical retail exchange as well.
While the stakes are extremely high and consumer expectations are evolving quickly, Amazon is certainly well positioned to define future standards for grocery marketing that will impact the entire retail sector. After all, a relentless focus on the customer has served Jeff Bezos and Co. pretty well thus far, while once familiar but less fleet retailers have fallen in their wake
By David Rosen, digital transformation technologist and strategist,TIBCO Software
Source Dale Furtwengler