digital media paper jul12

7/28/2019 Digital Media Paper Jul12

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The future of retail Consumer adaptiveretailing

Australian online shopping market and digital insights

July 2012

pwc.com.au/onlineshopping


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The futureof retailing Online retail is now embedded inconsumers behaviour and will forcechanges to the traditional retailoperating mode; those retailers thatdo not move to the new model willnot survive.

According to the PwC and Frost &Sullivan Digital Media Research 2012report, the Australian retail landscape isgrowing at a steady rate.

The research identi ed a number of factors stimulating growth of Australianonline retail, including:

greater variety/choice of goods

widespread usage of mobile devices

continued strength of the Australianand New Zealand dollars

increasing level of sophistication andcomfort amongst consumers across allage groups

use of social media by both consumersand retailers to drive brand awareness

proliferation of group buying sites.

2 | PwC


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Australian and New Zealand online shopping market and digital insights | 3

$16bOnline shopping in 2012 isexpected to reach

6.3%Online shopping equates to a totalof retail sales

$253.8bProjected to reach for 2012

$26.9bPredicted online shoppingexpenditure by 2016

9.6m Australians aged over 15 will makeonline shopping purchases in 2012

17.6%Growth in online retail expenditure

$13.6bOnline shopping in 2011 88%Online shoppers in Australia areexpecting to maintain or increasetheir online expenditure

Key statistics


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4 | PwC

The evolving consumerWith the evolution of digital mediums,consumers are becoming increasingly sophisticated, connected and have highexpectations of the retail experience.

Affected by a variety of environmentaland social economic factors, research

has revealed that the key factors drivingconsumers to online channels areprice (55%), convenience and range(both 15%) 1.

Mobile devices are also expected tosigni cantly change the way in whichconsumers are interacting with retailers.

Through the proliferation of the internet retail is now borderless. Researchhighlights that 75% of Australianconsumers make purchases from

offshore sites, with around 45% of onlineexpenditure going overseas 2. Onceseparated from the rest of the worlddue to geography, Australian consumerscan and do purchase from internationalretailers that offer lower prices, a wider variety of goods and free shipping.

In addition to the threat of internationalretailers targeting Australianconsumers, local businesses alsoface challenges from manufacturersand brand companies that they have not traditionally considered ascompetitors. Locally and internationally these businesses are recognising theopportunities offered via digital channelsand increasingly selling direct toconsumers. Big brands such as Sony and Apple offer competitively priced deals,exclusive products and customisationoptions via this strategy.

Although local retailers clearly recognise the importance and valueoffered through digital channels ande-commerce, few are really leveraging

it to their advantage. Not a set andforget strategy in order to keep up withincreasingly sophisticated consumers;retailers need to adopt a Consumer Adaptive Retailing approach.

1 PwC and Frost and Sullivan, Digital Media Research , July 20122 PwC and Frost and Sullivan, Digital Media Research , July 2012

62%Of all Australians aged between15 and 65 that currently use theInternet, own a smartphone

34%Of Australians have shopped online via a mobile devices during the

past 12 months

57%Of Australian online shoppers haveincreased their level of spendingover the last 12 months viamobile devices.


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The new world of retailConsumer adaptive retailing

Role of store

Customer

experience

Multiplechannels

Technology

integration

Store

Supply chainMarketing

Support functions

Onlineand mobile

channels

Onlinemarketing

Yesterday: Online retailingRetail and digital capability

In the traditional retail model, the onlinechannel sat as ancillary to the bricksand mortar business. Retailers werenot geared towards integrating digitalofferings into their broader businesses.From the back-end, ful lment, stock management, merchandising, etc. all too often each channel sat incompetition with the other, perceivedas cannibalising sales.


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6 | PwC

With the advancement and penetrationof digital mediums, retailers lookingto future proof their businesses notonly need to provide customers witha seamless experience across multipletouch points, but must integrate allprocesses and business systems. Inaddition organisational structures needto be consolidated to maintain nancialsustainability in the rapidly changingretail environment.

Businesses with an inability to recognise,enable and ef ciently manage newchannels put themselves at risk of beingtargeted and outplayed by disruptors andchannel speci c intermediaries that focuson uncovering these weaknesses andproviding solutions for gaps in the market.

Store reset

Engagedcustomer

Adaptivemarketing

Agiletechnology

Sales channels

Channelspecic

marketing

Analyticsand channeloptimisation

Supply chain

Support functions

Today: Multi-channel retailingDigital enterprise


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Mobile

S t o

r e W e b

Market place

Big data Social networks

Products and services People and productivity

Analyticsand channeloptimisation

Channelspecic

marketing

Networkedsupply chain

Supportfunctions

Context adaptivemarketing

Tomorrow: Consumer adaptive retailingNetworked marketplace

Moving to the futureThe Consumer Adaptive Retailingmodel encourages leveraging existingservice based offerings and systems inconsideration with the ever-evolvingconsumer ecosystem, to deliver a servicethat is intuitive and responsive.

Weve identi ed the following key areasthat businesses need to consider whenplanning for commercial sustainability:

Store reset

Engaged consumer

Adaptive marketing

Agile technology.


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8 | PwC

Store reset Once upon time a retailers real estate wascongruent with its slice of market share in todays landscape bricks and mortarhas been deemed by many as dying a slowdeath. In order to adapt to the new world,multi-channel retailers need to re-evaluateand pivot the role of the store within theiroffering.

With pure players, such as Amazon andeBay competing of ine turning storesinto showrooms via mobile technology it is clear that the role of the physical storeno longer holds an onus on customersto complete their purchase right thenand there.

In response to this, larger retailers need toevaluate the needs of both their customersand performance of individual stores.Retailers need to take an multi-channelapproach to their overall offering lettinggo of the traditional mindset and enablinga seamless customer experience whetheronline, of ine, mobile or social.

Some of the larger US retailers, haveimplemented various strategies in order toreset their business while maintaining astrong cross-channel offering, including:

converting under-performing storesinto ful lment centres for onlinechannels

reducing store networks

cutting the size of their in-storedisplays and subletting to otherbusinesses

the use of pop-up stores.

This approach yields a two-fold bene t forthese retailers, allowing them to tightentheir supply chain and stock management,as well as producing an additionalincome stream through a diversi edof ine offering.

Other retailers are leveraging digitalexperiences in-store to engage withand offer value to consumers. UK-basedretailer, Tesco implemented an augmentedreality virtual 3D viewer in order to allowcustomers to view a wide range of products within a richer context, while saving valuable oor space. 3

South African retailer 8ta implementeda whispering window technology,allowing customers to browse through astore catalogue after hours and enabledthem to request a call back when thestore reopened. 4

These examples of the evolution of bricksand mortar stores support the digitaloffering and in the long run will give theseretailers a competitive edge within theConsumer Adaptive Retailing model.

3 Power Retail, Tesco Trials Augmented Reality to Reduce Online Returns , 18 November 2011 http://www.powerretail.com.au/multichannel/tesco-trials-augmented-reality/

4 Springwise.com, Whispering Windows lets Stores interact with shoppers 24/7 , 21 October 2012 http://www.springwise.com/retail/whispering-windows-stores-interact-shoppers-247/


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Engagedconsumer While the retail industry is moving furtherand further away from its traditional roots an old fashioned notion that rings moretrue today than ever before the customeris always right!

Especially in the current climate where themajority of retailers are bridging the gapbetween traditional and multi-channelretailing consumers are increasingly sophisticated, informed and will not waitfor local service providers to catch up.

Understanding purchasing intent In an increasingly diverse consumerlandscape, it is of the utmost importancethat retailers invest budget, resource andtime to understand the purchasing intentof their target audience/s.

The Digital Media Research 2012 highlighted that price is a key factor inthe push for online purchases. In order tocapture these customers, retailers need tounderstand the appeal of offers online anddevelop a pricing strategy that will not only entice, but ensure they are competitiveboth locally and internationally.

Retailers need to consider that a strategy based only on price will not work if theproduct quality and availability cannot bereadily determined. Conversely a strategy based on rarity or exclusivity will not work if advocates are not involved in order togive the product notability.

Forecasting the future shopper experienceIn the world of Consumer Adaptive Retailing key to the customerexperience is automation, innovation, personalisation and convenience.We explore some potential futuristic retail scenarios: Automated Everyday Shopping Purchase of everyday house-

hold items will happen automatically, through prompting and/ordirect purchasing via intuitive household appliances and machines(eg fridges, washing machines, coffee machines). For example,a washing machine will hold washing powder and automatically addsthese items to a customers shopping list when applicable.

Centralised Pro les and Preferences Customers will be ableto store all purchasing preferences in a central location and shareinformation with retailers seamlessly. The customer expectation will be that the returned product, for example a shirt, will suit theirspeci c needs in terms of the perfect t, while matching pricing andquality requirements.

Free and Convenient Supply Chain Delivery of products willbe free and made at a time, date and location that is convenient

to the customer. Anywhere, Anytime, Any Device Shopping Offers are presented

contextually depending on the customers device and environmentat the time of offer. For example, a customer listening to a song on theradio in their car will be able to purchase the track by simply pressingbuy on the steering wheel and an MP3 will be loaded onto theirstorage device of choice.

Bidding for Conversions Customers will be able to register intentfor items they want to purchase and receive offers from relevantretailers with these products, only sharing details with the merchantthey have decided to purchase from.


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Service please!Something that sets local retailers apartfrom looming international compeitorsis the ability to offer localised servicesand deliver exemplary customer servicein order to gain loyalty.

US shoe pure player Zappos sets thebar in terms of customer service,referring customers to competitorsif they offer better value.

Best Buy offers customer servicesupport via Twelpforce (run throughTwitter), a similar service is alsooffered by Telstra locally.

Appliances Online not only employsa team of appliance and whitegoodsindustry professionals to offer itscustomers unbiased professionaladvise prior to purchasing, but enablescustomers to select an convenientdelivery window, provides connectionof new and removal of old appliances,plus allows cash on delivery.

With the myriad of channels and tacticsavailable to retailers, customer service isoften overlooked but represents a crucialelement of the retail offering. The oldadage that your products are only as goodas the people who sell them, is implicitin the new world.

Retailers also need to take customerfeedback seriously, managing complaintsand closing the loop on poor reviews.Where customer connections can run intothe hundreds, if not thousands (via socialnetworks), retailers can ill afford the risk of a bad review.

On a positive note good experiencescan be rewarded with not only positivereviews, but organic brand advocates.Moving towards a model of Consumer Adaptive Retailing, businesses shouldengage brand advocates through rewardssystems when promoting products andservices, allowing them to organically cultivate brand communities.

PersonalisationDigital channels have allowed consumersto differentiate themselves from the pack by allowing them access to products notnecessarily available to the wider public.Retailers such as Shoes of Prey, Bosco Bearand Joe Button engage consumers with theoffer of unique products, allowing these

businesses to build their own brand equity and status.

Another emerging trend in the US isfor websites to display a select numberof items on their websites accordingto personal preferences identi ed viaa software algorithm. For example,ShoeDazzle handpicks a selection of products based on a personality stylequiz and charges shoppers a monthly subscription fee for this service.

In another form of personalisation andengagement, other retailers, such asModCloth, involve customers in themerchandise selection fostering bothcommunity and direct curation of contentfrom its target market.

However the expectation of personalisation is not only limitedto products, whereby consumers areincreasingly bombarded with informationand are increasingly partial to beingpresented with content curated especially

for them.Within a Consumer Adaptive Retailingmodel, based on speci c customer dataand highly intuitive software tools, savvy retailers will be able to offer services andproducts to clients based on their speci cbehaviours, social and transactional data.


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Adaptive marketing No longer is the store front the physicaldoor that customers enter and exit from, whether it is through an e-commerce site,a mobile app, an interactive billboard,through their friends Facebook pro le, while viewing a video in YouTube thereare multiple doors through which acustomer can interact with a business.

With a multitude of platforms and toolsemerging on a daily basis, it seemsthat retailers need to be everywhere allat once to be seen. Running multiplechannels in silos will be detrimental tothe business the key to marketing is anintegrated approach.

SearchWhere once links and keywords ruled

supreme for businesses to be seenonline, search engines are continually tweaking their algorithms to ensure thedelivery of intuitive and valuable results.It is becoming increasingly importantfor retailers to differentiate their contentin order to invoke a tangible responsefrom the consumer (like, review,purchase). For this reason, Search EngineOptimisation (SEO) and distributionstrategies are very important. It is nolonger a matter of Build it and they will come

In the online environment shop brands arebecoming increasingly less important thanproduct brands. Consumers tend to searchfor brand names and/or generic products(eg Nike or Running Shoes) via searchengines. Therefore those retailers sitesthat rank highest in search engines eitherfor product brands or generic products will most likely be the benefactorsof conversions.

Retailers, who take a differentiated andintelligent approach to content, will berewarded by engaging their consumers with descriptive and appealing copy, which will in turn lead to higher traf cand rankings.

DistributionSEO should work in tandem with other

above the line and digital marketingtactics including Search Engine Marketing(SEM), social media, email, mobile, usergenerated content in order to actively acquire customers.

The increasing sophistication of marketingtechnologies, such as retargeting, willalso assist retailers with both distributionand acquisition.

Retargeting allows retailers to actively follow visitors through their online

journey using cookies and strategicdisplay ads. This represents an enormousopportunity for retailers to actively marketto and target speci c segments of theiraudience.

Retailers also need to recognise that thedistribution of content is no longer limitedto traditional channels of communications there is increasing movement towardsconsumer driven marketing channels.

UK company Tesco is trialling a virtual3D tting room through its Facebook page.The application suggests clothing sizes andcustomers can then try clothes on digitalbodies and share their selections withfriends facilitating instant marketing forthe retailer. 5

5 eConsultancy, Tesco launches Facebook-based virtual tting room, 29 February 2012 http://econsultancy.com/uk/blog/9164-tesco-launches-facebook-based-virtual- tting-room


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At the very least retailers should beadopting an integrated approach to thedevelopment of a cohesive marketingdistribution strategy spanning across eachof the channels where their customers want to reach them.

Retailers may also need to rede netheir brand values. From the consumer

perspective it is not about the value of the brand it is about their personality,need and expectations. Therefore retailersneed to ensure that their distributionchannels offer a perceived tangibleutilitarian experience.

Social media channels above all needto have a clear and concise strategy sothat outcomes are explicitly measurable.Retailers should not take for granted that,for example, a Facebook presence will

ensure automatic brand recognition andconversion. There is a great deal of noiseon Facebook and users are unlikely tofollow an umbrella brand with which they have not previously transacted from.

If maintained and actively managed thesechannels (eg Facebook, Twitter, Pinterestand Instagram) represent a brilliant

opportunity for retailers to: spread the word, educate and

develop a brand identity forsingular products

uncover and recruit brand advocates

allow engagement directly witha concentrated segment of theirtarget audience

create a brand personality.

Table 1. Examining the benefts o existing adaptive marketing tactics and technology

Adaptivemarketing tactics Benefts

QR codes Can be leveraged for localised of ine offers andcustomer acquisitiwon. Provides useful insightsabout location distribution of consumers andpurchasing behaviours.

Facial recognition Recognising individuals and tracking their use andbehaviour and personalising the offer no matter where they are.

Near eld communication(NFC) Enables consumers to transact either in the physicalmarket or virtually. Also can allow for information tobe provided in context. For example, providing fullspeci cations of a product in-store or as a tool forcustomer service staff.

Augmented reality A way of visualising products in the context within which it would be used (eg presenting a bride-to-be in her wedding dress, within a scene from herfantasy wedding)

Gami cation Adding the element of competition and/or rewardsto the shopping experience to make it fun, engagingand surprising, to encourage conversion and loyalty.


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Acquisition As the global retail industry converges andconsumers worldwide become accessible,there is an untapped opportunity forlocal retailers to extend their offering tointernational markets. This is particularly relevant to retailers that offer productsand services which are unique and/or

differentiated a path that local retailerssuch as Shoes of Prey, SurfStitch andPumpkin Patch are already heading down.

Important considerations when forginginto these new economies include 6:

Strategy business objectives,risks and gains, economic stability,existing partners.

Ful lment and Supply Chain product range, inventory maintenance, delivery methods.

Audience and Cultural consumerdifferences, online consumptiondifferences, delivery expectations.

Marketing branding, publicrelations, maintaining integrity of brand.

Resources set up and ongoingresource requirements remote or onthe ground support.

Technology and Infrastructure adaptability and integration with

existing technology, reporting tools. Legal and Trading trade laws, tax

implications, security requirements,promotional laws.

In order to gain a different audiencesegment, leverage a wider product rangeand access lower prices, an increasingnumber of local businesses are setting upinternational sites to ful l orders locally.Started as a way in which to even theplaying eld for local retailers, businesses

such as Harvey Norman, are forging ahead with this model.

Taking a Consumer Adaptive Retailingapproach, in the future retailers may takethis model a step further and partner with similar business and commercialthird parties in global markets. In essenceforming a retail network and openingup opportunities for a symbioticrelationship to leverage local reach,brand and operations. The bene ts of this approach are that it will provide

retailers with revenue sources againstloss of traditional physical retail revenue, while opening them up to a broaderinternational audience.

When considering this approach retailersshould ensure that local consumers viewtheir site as a gateway to this premiumoffering. In order for this strategy to work,retailers must maintain their own brandand user experience.

6 Power Retail, Growing Globally Special Report, Getting Your Ducks in a Row , February 2012


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Agile technology The use of technology is vital to thesuccessful operation of all businesses.Implementing robust, agile systems thatare compatible with various businesstools will assist in providing a seamlesscustomer experience, while streamliningand simplifying business operations.Consolidation and integration are key toadopting a Consumer Adaptive Retailingmodel enabling business to be exibleand uid in their approach to retailing.

Key to future proo ng a business is within the design and development of online offerings and ensuring responsiveadaption to various platforms and devices.

Design must be undertaken with externalintegration in mind as well as reducingredundancy.

Retailers also need to be mindful that dueto the rapid evolution of technology, they should be re-evaluating their core systemson a frequent basis against the changingmarket and consumer needs. Investmentinto business technology should also bebased on shorter cycle times.

In the present day, though retailersrecognise the importance of leveragingtechnology for business purposes, all toooften they are not necessarily aware of the valuable and insightful customer metricsgathered from these systems. Analyticshold the power to enable retailersto identify niche audiences and effectively deliver a targeted and personalisedexperience to customers.

This information can be invaluable fornot only marketing, but merchandisingin assessing trends and for evaluatingthe business model as a whole to identify gaps and weaknesses. At a granular level,analytics can be used to determine wherecost of acquisition is too high and eitherremedy or wait until channel volume justi es effort.

A major part of the technology offeringis supply chain and ful lment. Althoughthere is unlikely to be a massive shiftaway from the traditional model of ful lment, this area requires businessesto think laterally about potential

solutions to suit increasingly demandingcustomer expectations.

Where once retailers were required tokeep warehouses full of stock, there arenow multiple models of supply chain andful lment emerging that alleviates this.Drop shipping, re-parcelling and thirdparty ful lment services allow retailersto better service customers and be moreadaptive in their approach.

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Table 2. Examining the Current Retail Playing Field and how it is Evolving to a Consumer Adaptive Retailing Model

Digital channel experts Online marketplaces Traditional retailers

Expertise These retailers are specialistsin channel enablement andchannel centric marketing.They also source in volumesthat reduces pricing and

increase availability forterritories that would nothave otherwise had the rangeof choice.

Marketplace models whichboth sell and offer aggregateoffers from retailers.Marketplaces aggregateeyeballs and merchants,

facilitating transactionsand taking a fee for theprovision of their service.They provide centralisedaccess to everything andultimately become a retailerand/or retail channel in theirown right.

Established businesses thatown a large customer baseand have brand recognition within the local market.Specialists in loyalty

marketing.

Strategy To win on price andavailability.

Enable retailers to transactonline taking a fee fortransactions and associatedservices (eg shipping, returns,

administration, etc). Amass a large customer base

to gain in order to provide value for retailers and brands.

Fight for market share withother incumbents.

Saturate marketplace withbrand messaging, historically through above the lineadvertising.

Lateralise offering to thirdparty offers (eg insuranceand nance).

Strengths Great channel enablersand digital marketing andengagement specialists.

Branding, range andprovision of collective serviceattracts consumers.

Experts in SEO and SEM.

Experts in channelenablement and channelspeci c marketing.

Signi cant brand recognition.

Offer of ine options, localdistribution and customerservice support.

Established trust withconsumers.

Weaknesses Purchases must be madeonline, no local support.

However, some businessesare now partnering withlocal retailers for ful lmentand support.

Sourcing and customeracquisition for start-upbusinesses is costly.

Usually do not offer localful lment or support.

However, some marketplacesare slowly building local support, delivery and returns services.

Less competitive on price.

Slower to enable newchannels.

New to search.

Not as agile as onlinecompetitors.

Retail examples Wiggle, ASOS, Surfstich Appliances Online Amazon, eBay, Alibaba,West eld Coles, Woolworths, Myer,David Jones.


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Digital channel experts Online marketplaces Traditional retailers

Moving to a Consumer Adaptive Retailing Model

Store reset Establish localised of cesin growing internationalmarkets and work withthird parties to provide localproduct, ful lment andsupport.

Emerging push into physicalrealm via mobile and af liaterelationships.

Leveraging digitaltechnologies, such as mobiledevices, interactive displaysand WiFi to enhance the in-store experience.

Engagedcustomer

Offer price competitiveness, wide product range,availability and excellentpost-purchase marketing.Engage consumers throughself-built communities andsocial media channels.

Offer price competitiveness,product range and availability and excellent post purchasemarketing.

Price competition locally iserce but compared to OS

pricing and availability thereare huge gaps.

Aggregating internationale-commerce offers in orderto offer value to existingcustomer base.

Adaptivemarketing

Experts at leveraging andcontextualising offers forexisting channels. Alsoactively engage in and quickly develop offerings throughnew channels.

Experts at leveraging andcontextualising offers forexisting channels. Alsoactively engage in and quickly develop offerings throughnew channels.

Experimenting in newchannels but approach tendsto be fragmented.

Agile technology See themselves as technology companies and leverage thesesolutions innovatively.

See themselves as technology companies and leverage thesesolutions innovatively.

Technology has traditionally not been seen as strategicand as a consequenceexperimentation is slowand often costly.


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2012 PricewaterhouseCoopers. All rights reserved.PwC refers to the Australia member rm, and may sometimes refer to the PwC network. Each member rm is a separate legal entity. Please see www.pwc.com/structure for further details.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.Liability limited by a scheme approved under Professional Standards Legislation.PwC Australia helps organisations and individuals create the value theyre looking for. Were a member of the PwC network of rms in 158 countries withclose to 169,000 people. Were committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and nd out more by visiting us at www.pwc.com.au.

PwCs digital offering is comprehensive,coupled with a pragmatic and strategicapproach. We assist from strategy development, right through to execution,

to make sense of digital change.

Acknowledgements Anthony Mittelmark Director, DigitalNirosha Sirimanne Digital Producer

For a deeper conversation aboutmaking sense of digital changein Retail, contact Stuart Harkeror John Riccio

Stuart HarkerGlobal Retail & Consumer Advisory Partner+61 3 8603 2280+61 0 418 339 [email protected]

John Riccio National Digital Leader+61 3 8603 4968+61 0 419 275 097 [email protected]

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