Monthly Archives: November 2016

Artificial Intelligence – Digital Outcomes or Digital Disruptions for Retailers?

Artificial intelligence (AI) is intelligence exhibited by machines. AI, still science fiction for most of us, is now becoming a daunting reality in the retail sector. Although we have learned machines (e.g. robots) for some time now, connecting them with the internet may accelerate digital disruption. Digital disruption occurs because unmet needs in the market and in our societies can be addressed through digital means1.

What does Artificial Intelligence means for retailers?

“Artificial intelligence is the key to the future of online retail, providing a crucial way to help shoppers find what they want” suggests Isabell Fraser business and property reporter at The Telegraph.  It is about consumers using voice commands using their smartphones to order products from retailers.

The opportunity that the Internet of Things (IOT) may offer Bricks and Mortar retailers was previously discussed in this blog (Retail and the Internet of Things). The IOT allows any machine with an on/off switch to be connected to the internet. “The IOT is very closely related to Artificial Intelligence (AI). In fact, IOT would not be very powerful without AI” commented Douglas Green in Quora. According to Mark Jaffe, CEO of Prelert, the realization of IOT depends on being able to gain the insights hidden in the vast and growing seas of data available. Since current approaches don’t scale to IOT volumes, the future realization of IOT’s promise is dependent on machine learning to find the patterns, correlations and anomalies that have the potential of enabling improvements in almost every facet of our daily lives.

Customers of retailers may therefore, in the near future, command any household appliance to function at their convenience.

Not long from now…

Imagine this, not long from now – Mary asks her washing machine (she named it Alice) with the following voice command: “Alice, add 2 kilogram washing powder to the shopping list”. Alice, an AI device, is also part of the IOT. Alice has recognized Mary’s voice command and added washing powder to Mary’s online shopping list which is instantly send to her local grocery retailer. Later the same day, a drone delivered the groceries, also the washing powder that was ordered by Alice.

Allright, we’re not there yet. Two of the most common uses of AI in retail are around visual search, offering shoppers items that are similar to a picture they like and have uploaded, and for personalized recommendations report Leslie Hook and Lindsay Whipp in The Financial Times.

AI inside the physical shop

AI also creates opportunities inside a store. Bricks and mortar retailers hope that AI could draw customers back to their physical stores. Leslie Hook and Lindsay Whipp quoted Michael Klein, head of industry strategy for Adobe Marketing Cloud saying that “merchandising needs to become entertainment”, pointing to digitally enabled experiences such as virtual makeovers or home furnishing demos.

Experts writing in The Future Of Shopping report talk about the impact the “fourth industrial revolution” – a merging of physical, digital and biological technologies – on shopping.

The report, co-authored London marketing agency Holition forecasts the following:

  • Virtual reality (VR) headsets that gauge your mood in the lighting and atmosphere of a simulated store.
  • Immersive virtual experiences involving products, such as visiting a cocoa farm to watch beans being picked and processed to make chocolate.
  • AI assistants that know your interests and tastes better than you do and can pre-empt purchases. For instance, shortly before a seaside holiday they might show you a range of swimwear.
  • Holographic fashion shows held in unusual locations.
A customer using a virtual mirror in store

A customer using a virtual mirror in store – image Wikimedia

Wow! There are seemingly unlimited opportunities for retailers, household appliance manufacturers and cloud computing companies applying AI. Or will the digital disruption that AI cause too big to handle?

The other side of Artificial Intelligence

The AI story unfortunately has an eerie side.

Jerry Kaplan2 introduced AI in his book with the following warning: “Recent advances in robotics, perception, and machine learning, propelled by accelerated improvement in computer technology, are enabling a new generation of systems that rivals or exceed human capabilities. These developments are likely to usher in a new age of unprecedented prosperity and leisure, but the transition may be protracted and brutal”. Kaplan foresees that without adjustments to economic systems and regulatory policies, there may be an extended period of social upheaval…

Kaplan’s concerns are shared by Bill Gates reports The Washington Post.   Gates said: “First the machines will do a lot of jobs for us and not be super intelligent. That should be positive if we manage it well. A few decades after that though the intelligence is strong enough to be a concern”. Stephan Hawkin, although totally dependent on AI, bluntly suggests that AI could bring an end to mankind.  Retailers, however, do need mankind to stay in business…

Retailers that choose to ignore AI may not escape from the digital disruptions it causes. Digital disruptors innovate rapidly, and then use their innovations to gain market share and scale. This happens far faster than challengers still clinging to predominantly physical business models can cope with1.

Concluding

Retailers will have to decide where and when Artificial Intelligence has the potential to replace human intelligence. Cost and scale will drive these decisions. Future decisions about AI by retailers will probably be about the ethics of using the technology and the effect it may have on society.

Notes

1Bradley, J., Loucks, J., Macaulay, J., Noronha, A. and Wade, M. 2015. Digital Vortex: How Digital Disruption Is Redefining Industries, ©Global Center for Digital Business Transformation.

2Kaplan, J. 2015. Humans need not apply: A guide to wealth and work in the age of artificial intelligence, Yale University Press.

Images: flickr.com; wikimedia.org

Amazon.com and Walmart – Set to Face Off in the Omni-Retail Channel Space

Amazon.com and Walmart are busy reacting to challenges in their retail channels. The outcomes of their strategies are setting up these retail titans for a massive collusion in the Omni-channel retail space. “Amazon and Walmart have become the disruptive titans of today’s business world” says Jim Tompkins, CEO of Tompkins International. The rest of the retailers are playing catch up as they create benefits for their customers at a phenomenal rate.

But what are Amazon.com and Walmart now doing? Amazon.com – by far the leading online retailer is opening physical stores. Walmart – the biggest traditional (physical) retailer is frantically trying to compete with Amazon.com in the online retail channel. In short, Amazon.com is adding Bricks to their Clicks and Walmart is adding Clicks to their Bricks. However, they will both end up as Bricks and Clicks retailers.

Both Amazon.com and Walmart has entered the Omni-retail channel simultaneously to achieve the ultimate title: The World’s Biggest Retailer…

The paths that Amazon.com and Walmart took to the Omni-retail channel

Although the paths that the two retailers took leads to the Omni-Retail channel, they took different routes to reach their destination.

Amazon.com – adding Bricks to Clicks

Amazon.com, the most successful online retailer by far, is now opening physical shops of all kinds – and fast. That begs the question – why? Amazon wants to enjoy the advantages that a physical shop offers.

According to Trevis Team writing in Forbes, Amazon is opening physical stores to: 1) provide a more personal shopping experience to its consumers; 2) reduce shipping costs by providing a store pick up facility; and 3) integrate the online and offline shopping experience for its consumers in addition to creating a strong brand image. It is adding Bricks to Clicks then…

Nathan Cohen-Fournier and others from Tufts University suggest that Amazon’s ability to maintain its dominating position in e-commerce is under threat. Once competitors catch up with Prime and same-day shipping (Walmart and Ebay already have similar offerings), consumers will demand even lower prices and differentiation. In this regard, Bricks-and-Mortars have the lead, due to immediacy, trial-touch-feel, and ease-of-return. Also, essentially, Amazon is choosing growth over profits says Mac Bartine in Quora.

“Does this mean that Amazon will have to open more Brick-and-Mortar stores than just the one in Seattle?” asks Wayne Rash writing in eWeek. Perhaps, but it’s unlikely it could reach the penetration of Walmart.

The ultimate answer likely will mean more innovation from both companies—and that means consumers will benefit.

Amazon.com is masters of online retailing

Amazon.com is masters of online retailing

Walmart – adding Clicks to Bricks

Walmart has a long history of taking the best of what other companies do and incorporating it into their own business model. It is now doing its best to oust Amazon. But, in a world that has quickly gone digital, where Amazon has continually refined and improved its delivery options, Walmart has not quite come up with an answer to challenge the online leader.

Wayne Rash suggests that Walmart did not succeed to challenge Amazon with online sales. Products on Walmart’s website rarely were cheaper than Amazon’s and fast delivery only happened if the desired product was already in a store near you. Walmart’s online offerings were broader than one usually finds in their brick-and-mortar stores. However, Amazon always had more offerings to choose from.

For a long time, Walmart had an edge over Amazon simply because it had a network of stores. “However, by building up its Prime membership, which offers free two-day shipping, and increasing its shipping capacity and options, Amazon has made that edge less relevant” writes Daniel B. Kline in the Business Insider.

All Bricks-and-Mortar chains, not just Walmart, have struggled because they haven’t sufficiently adapted to the fact that retail on the web is a harsher environment compared to what they face on land.

The clash of equals in the Omni-retail channel

So, if Amazon.com and Walmart will face off in the Omni-retail channel, what will happen?

Both retailers are treading on each other’s strong points, challenging each other’s competitive advantages. For Amazon opening physical stores it means it customer’s expectation can be met regarding the shopping experience. Amazon’s customers can now enjoy shopping at their physical stores, using their senses to experience the products. They will however still enjoy the advantages that Amazon offers as a leading online retailer.

Walmart, on the other hand, has hundreds of physical retail outlets, with proficient staff that know how to please customers.  Walmart is the master of merchandising and decorating and fitting a shop to encourage customer patronage. What Walmart however realise, is the need to do business online the same or even better than Amazon. Walmart doesn’t have the skills or the organisational culture to confront Amazon successfully on its own. It is therefore unsurprising that Walmart acquired Jet.com to jump-start their online sales.

Who will be the winner of this epic battle? It will probably be the retailer that knows and satisfies the needs of their customers the best. As Jim Tompkins remarks that there are five elements that every counter-offensive must have for retailers to thrive nowadays:

  1. Omni-channel
  2. Store Fulfillment
  3. Same-Day Delivery
  4. Planning-Execution
  5. Demand-Driven Value Network

Tompkins notes that it is not about how much you sell online, but about the impact of online sales. Therefore, as a small Bricks and Clicks retailer – don’t even bother to compete directly with the Amazons or Walmarts in the Omni-Retail channel. Rather identify a niche market and develop your brand to provide the customers the best Omni-retail channel experience they could ever wished for.

Note:

Nathan Cohen-Fournier, Adolfo Gatti, Angelica Nouhi  2016.   AMAZON VS WALMART – REAL VISION CASE COMPETITION, Fletcher School of Law & Diplomacy, Tufts University

Images:

wikimedia.org and flickr.com

Crossing the digital threshold – adding Clicks to Bricks for sustainable retail outcomes

Retailers should start crossing the digital threshold to survive and grow their business.

The word ‘normal’ no longer has a place in the vocabulary of retailers around the world. The advent of the internet has caused a revolution in the retail industry with customers doing their shopping online at the expense of their neighborhood retailers.

As revolutions go, it started out slowly, but the adoption of innovative digital technology and the rolling out of broadband mobile connectivity have caused the retail revolution to spectacularly, and exponentially get out of control.

Big and small retailers are closing shop and shopping centers stand empty because of the online migration by their customers. The high street in London has an oversupply of retail space and shopping centers have run out of ideas on how to lure customers back. “For retailers, the space race is over!

Because of the multi-channel landscape, ‘clicks’ are just as important, if not more important, than ‘bricks,’” says Robert Chapman Chartered Surveyor and Director, Robert Chapman & Company. In spite of the perceived threat that the online channel poses to traditional retailers, it may offer a huge opportunity.

There is a saying, ‘if you can’t beat them, join them’.  The key to this in the retail sector lies in multi-channeling. Traditional retailers or ‘Bricks and Mortar’ retailers who added an online channel to their business, becoming ‘Bricks and Clicks’ retailers, are surviving and doing well. But what exactly is multi-channel retailing and how can retailers communicate with customers online?

Crossing the digital threshold by reaching customers in different ways

Multi-channel retailing is the use of more than one channel to sell products or communicate with customers. The channels can either be physical such as ‘Bricks and Mortar’ shops, catalogs, and/or kiosks; or virtual, such as online shops, mobile app stores and online catalogs.

Vanheems and Kelly investigated consumer behaviour and found that the use of multiple channels in retailing is effective for reaching more customers. They sell more products, and are making more profits (International Journal of Integrated Marketing Communications, 2009, 1(2):44-56). Research by Kwon and Jain found that consumers in the retail industry value multi-channel retailing since they have more options where they can shop and make purchases (Journal of Marketing Channels, 2009, 16:149-168).

Although multi-channel retailing is not a new business practice, the online retail channel has revived it. Digital innovations, broadband connectivity, mobility and computer savvy consumers have revolutionized retail industries globally.

Meet your ‘new’ customer – the online shopper

The internet has helped to empower traditional retail customers to become what we now call ‘online shoppers’. Online shoppers are dynamic, hands-on, mobile and interactive users of the internet.  The internet offers them quick access to a variety of products and prices, anywhere at any time. They find it easy to pay for products online and the delivery is conveniently at their place of choice.

It is therefore unsurprising that online retail continues to grow exponentially. The exponential growth of online retail sales in the United Kingdom from 1998 to 2015 is shown in Figure 1. A staggering 20% of UK retail sales for February 2016 were online (Internet Retailing). The customers have crossed the digital threshold, but what about the retailers?

uk-online-sales

Figure 1. Online retail sales in the United Kingdom from 1998 to 2015 Source: (http://www.statista.com/statistics/315506/online-retail-sales-in-the-united-kingdom/)

 

The impact of online retailing on ‘Bricks and Mortar’ retailers

 As shoppers are entertained with more innovative apps to enhance their online shopping experience, many ‘Bricks and Mortar’ retailers are still in the denial phase of their self-imposed digital nightmare. Some commentators are, however, seeing the writing on the wall: “The fun of going to shopping malls, department stores, and stand-alone locations may soon be a thing of the past.”

Bricks and Mortar stores are in danger of dying out completely and it has been happening little by little over the past decade,” says Danny Cox in reaction to the closure of 15% of the giant retailer Macy’s physical shops in the United States as they move their business online. It is not only the big retailers that close shops and move online.

Adding an online channel to their physical business has helped small retailers to remain open. According to Lawrence and Schiller, local people or people somewhere nearby use the small retailer’s website as a tool. They consult the website to see if products are in stock and how the prices compare with that of other retailers.  It is critical that ‘Bricks and Clicks’ retailers know how and where to communicate with customers in the online channel.

Communicating with your customers online

Nothing can be more frustrating for Bricks and Clicks retailers than having spent thousands of rand and many hours creating a website only to realise that nobody is finding you on the internet. Adrienne LaFrance, writing for The Atlantic, puts the vastness of the internet in perspective: “Although there are more than one billion websites on the internet, the vast majority of them are never seen”.

Once a visitor has found your website, she should enjoy the experience and then click to buy something. She may also be an online advocate for your business by telling her Facebook friends about her great shopping experience. She may however do the opposite if she had a bad experience. Retailers can reach their customers via different digital marketing channels.

Digital marketing channels

Communicating with your customers in digital marketing channels is rather different than doing it the traditional way. While most traditional mass media outlets provide audiences with scheduled content, digital media usually function as a gateway to a variety of information, entertainment content and communication tools.

Retailers can measure how effective their marketing communication is in the digital channel. The digital marketing channel offers retailers the opportunity to target conversations with their customers, and to create better relationships with them.

Drs Dave Chaffey and Fiona Ellis-Chadwick from The Open University in the UK have identified and described digital media channels such as affiliate marketing, e-mail, social and search engine marketing that retailers may use to attract visitors to their websites.

Affiliate marketing – is a commission-based arrangement where referring sites receive a commission on sales or leads by retailers. It is an opportunity for retailers to become more ‘visible’ on the internet since each time a customer clicks on the link of your site, search engines may give their site a higher ranking.

 Opt-in-email marketing – is a valuable digital marketing tool for conveying short, simple messages that call for action on behalf of the recipient. It usually involves sending advertisements, to request business, or solicit sales and to build loyalty, trust, or brand awareness.

Social media marketing – millions of people use social media to discuss, review, recommend, and give feedback about an organisation. As result, social networking sites such as Facebook have become one of the most popular and fastest-growing internet activities. Therefore businesses find them useful for connecting with customers, contributing to customer learning and getting customer input.

Search engine marketing – search engine marketing is an important digital marketing channel for acquiring customers. Customers use search engines such as Google, Yahoo, and Bing to find information on the internet. Search engine marketing can be ‘organic’ or ‘paid’. Organic search results are listings on search engine results pages that appear because of their relevance to the search terms. Organic search is free for retailers.

Paid search, by definition is not free for the retailer. The ranking that a retailer’s advertisement achieves on a search engine result page depends on the bid price, the content of the advertisement, and quality score of the landing pages.

Your business need to be found online in order for you to communicate with your customers online.

Have you started adding Clicks to your Bricks?

If your answer is ‘no’, then there is a real possibility that your retail shop is already losing business. Your customers have started crossing the digital threshold a long time ago. If they can’t find your business online, they will stop buying from you. The choice of crossing the digital threshold remains yours…

Image: flickr.com