The Top Three Challenges with Omnichannel Retail

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There are many terms associated with doing business across multiple platforms, multi-channel, omnichannel and unified commerce to name a few. But just because a retailer opens up shop, literally as brick and mortar, or online or on a social platform or via direct mail/telephone center, doesn’t mean they are fully integrated/unified. Before a brand decides to leverage a new method of selling, they need to ask one fundamental question: “Are you trying to be customer-centric or are you looking to expand your distribution?” In other words, are you focused on allowing your shoppers to access your products anywhere at anytime on their own terms, or are you focused on growing your channels and managing individual P&Ls for profit? Many of the readers of this article have already mentally answered: “both,” but that would not be totally honest. Here’s why.

In the journey to omnichannel, though not necessarily an insurmountable challenge, is how to consistently train and integrate associates across platforms. Store associates, call centers, telemarketers, chat representatives and even FAQs all need to speak to the customer in a consistent brand way, but each will essentially operate differently based on shopper need and expectation.

Top Three Challenges

Brand expansion and diversification prioritizes business goals and traditional retailer KPIs. Customer-centricity prioritizes the shopper and their experiences and LTV. But why can’t you do both? You can, but not to the same degree. Ultimately brands need to determine how many channels they need to serve their core shoppers, their prospects and their lapsed consumers, aka, loyalty/acquisition/attrition. Doing so, however, presents three main challenges: Attribution Methodology, Pricing Consistency and Inventory Accuracy.

  1. Attribution Methodology
    Attribution is no longer just a marketing challenge; it is a holistic business challenge. How does a brand determine which channel, which engagement, which investment is driving a consumer behavior and ultimately profitability? Retailers often apply the first touch, last touch, or a hierarchy method in determining how to apply “credit” for a conversion/sale. If you are a catalog company who also has stores, do you credit the catalog for an in-store purchase if the book just dropped and an item featured in the book is purchased at brick and mortar? Conversely, do you credit a store with conversion when a shopper visits a location but makes a purchase online within 48 hours of her trip? And if you factor in returns, should a store solely absorb the impact to their P&L when an item bought through another channel is brought back to their location?

    Adding even more complexity to these scenarios, how do you determine the value of a sales associate or customer service agent in generating cross channel sales? If you are channel-centric, you will review each channel on their own profitability, which would hold stores accountable for 4-wall profit even if they are “assisting” with profitable sales elsewhere (think of customers who get a catalog then go to a store to try on items and ultimately buy online for an expanded color assortment). If you are consumer-centric, you will evaluate profitability in totality and assign a percentage of sale to each channel/engagement that may have served the customer by providing an on-demand experience to fill separate needs (catalog to showcase a new assortment, stores to allow for proper fitting and styling assistance and digital to offer depth of selection and 24/7 shopping access). Clear as mud, right?

  2. Pricing
    Here is where digital platforms (web/social/meta) have the advantage. Dynamic pricing models are easily applied on digital platforms. Realtime look-up functionality, price matching and key item protection are all possible online. Think of airlines and hotels who can operate like the stock market and increase or lower prices based on volume and demand. Stores have some flexibility via signage and POS programing, but print vehicles are locked into the MSRP the second they run off the press.

    So, for omnichannel retailers, how do you ensure that the customer experience is consistent while managing slow moving products and staying competitive? Like everything else, you need business rules. In many cases you will see retailers drop direct mail first, allow for a full price sell-thru period and then manage the inventory in store and online. Markdowns are often taken at the store level first as they have limited real estate while the website can actually personalize the customer experience in real time based on user.

    Making sure your associates and call centers are trained to accommodate price discrepancies is critical to maintaining trust with your customers. Other brands may utilize lifestyle catalogs or direct mail and omit the pricing, encouraging the recipients to go online for product details, assortment, and pricing. Regardless of the business rules, a channel-centric retailer will manage pricing to drive the greatest profit by cost center; a customer-centric retail will manage pricing to individual consumer expectations, exposure and experience.

  3. Inventory
    It seems inventory as a retailer challenge is eternal. Excess inventory, scarce inventory, off-season inventory, slow-moving inventory, inventory left at the docks, never received, caught up in oversees supply chain issues, and the list goes on. Layer on allocation of inventory by channel and you have the equivalent of the retail Rubik’s cube. Deciding which channel should get how much inventory and in what order is perhaps one of the most complex unified commerce dilemmas. If one channel has more success in selling an item or is faster out of the gate to produce strong sell-thrus, do you shift inventory allocated to catalog to store or from store to web? Ideally, fully integrated retailers would have a shared source of inventory from which to pull, but, more often, decisions are made by drop dates and floor-sets. And if this is the case where you are set up to be agile, how do you allocate the open to buy dollars by channel?

    The conversation around shared vs separate inventory is not new, but as brands continue to expand their distribution, especially if they have a wholesale component (which we did not discuss here), the dialogue grows longer. Channel-centric brands will make decisions based on historical selling and plan forward in a consistent fashion. Customer-centric brands will take consumer behaviors into consideration and set-up inventory to serve them vs the channel (which may or may not be as profitable). This is a perfect case scenario of how and where retailers should use AI/ML. Dissecting historical selling, economic conditions, individual consumer behaviors, regionality, number of skus, supply chain triggers and a multitude of other input variables is impossible for human buyers/planners/allocators, but not for machines. A fully integrated merchandise and assortment planning system coupled with a modern POS system and an end-to-end transparent supply chain are all critical to mastering this evolved business model.

Frontline Omnichannel Ambassadors

Another area of consideration in the journey to omnichannel, though not necessarily an insurmountable challenge, is how to consistently train and integrate associates across platforms. Store associates, call centers, telemarketers, chat representatives and even FAQs all need to speak to the customer in a consistent brand way but each will essentially operate differently based on shopper need and expectation. Some retailers have used inactive store associates to fill in for call center teams (since they have firsthand exposure to the products), others leverage a combination of automated representatives and human representatives, while others rely on third party/oversees teams to manage this function.

Here’s when a channel-centric brand will measure the value of each sales center independently with various metrics (UPTs, AOVs, time on call, upsell value, return/resale percentage, etc.). A customer-centric brand will evaluate the shopper journey and purpose for engagement by sales center and accept that some touches will not yield a return on investment but that the overall profitability of the shopper will yield loyalty and LTV (think of registry services or gift giving services that require different levels of service prior to conversion).

Still think that being omnichannel vs customer-centric are the same or can both easily be achieved? Then welcome to retail today. The good news is that while some retailers are further along on the unified commerce path, everyone is evolving and the journey, if you do it right, is always continuing with new technology, changes in consumer segments and even product evolution. The most important thing is to keep the conversation top of mind throughout your organization—from C-suite to warehouse to associate. Every decision you make needs to be evaluated through the lens of whether you want to be more channel-centric or whether you want to be more consumer-centric.

Note: Columbus Consulting is a Robin Report Collaborative Partner



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