During the past year, we have seen and heard of the massive acceleration in consumers shopping online. Notably, McKinsey called it the quickening – jumping 10 years forward in 90 days.
When stores re-open, we are all looking forward to a recovery in the high street but the analysis points to some of that switch being permanent. So, if you are a traditional retailer with 80% or even 90%+ of your revenue through physical stores, how do you change fast and far enough to compete in this new world?
A colleague framed the challenge as ‘flipping your digital share on its head’. That’s certainly the kind of big, audacious goal that would galvanise new thinking. As an example, Adidas outlined a 5 year plan to double their ecommerce business by 2025. So how might you respond to this challenge? Can 20% online vs 80% stores become 80% online, 20% stores? Is that the right goal?
This article is not about switching revenue from high street to online – it is framing the need for a step change in thinking so that established retailers can be as successful in the digital high street as they are in the physical one. For now, I’m going to focus purely on the customer, data and digital marketing components. Certainly, logistics and the wider omnichannel user experience will be key pillars but those are for another time (and probably another author!) The following steps are numbered for priority, not sequence. We know they work because we have applied them to enable a predominantly wholesale/retail business to grow their digital revenues 4-5X and achieve their 5 year plan within 12 months. Let me know if you’d like to learn more about that.
STEP 1 – Know your customer economics for the RIGHT customer
The building blocks for massive scale through digital channels have been well demonstrated by a whole host of D2C brands who have disrupted various categories. One major thing they have in common is the ability to acquire new customers at a cost most would find unaffordable. This enables them to outbid for the best, most qualified audiences and, thanks to the competitive nature of the auctions, better audiences lead to higher conversion, more data points and better learning of where the next purchase will come from.
This is the positive feedback loop of artificial intelligence at its best. If you want to be on the same playing field, you need to understand your unit economics – what is a customer worth and what is your allowable cost per acquisition? Note that all customers are not equal – you need to attract loyal repeat customers to generate a good lifetime revenue. That then affords a higher allowable cost. Anyone can get a customer on a discount or sale – how do you target customers who will buy again at full price? You need to start by bidding high enough for them to see you, because they demand a premium in the auctions.
STEP 2 – Build your lifetime value
We’ve analysed hundreds of businesses to help them understand the levers for lifetime value. None is more predictive than first order value. It is very hard to move future average order value far from where it started. So make sure you acquire the right customers on the right products and offers, not just on your most popular/easy proposition.
In parallel, you need to absolutely maximise your ability to market to them by improving data capture and permissions in-store and on-site. If you’re interested in how to do this, email me for some useful tips.
Once you have all of these happy new customers, you need to help them understand your brand, why they chose you, and why they should keep coming back. It’s a combination of storytelling and technical excellence in CRM. Remember that CRM doesn’t stop with email. So long as 1st party audience uploads are available in Google and Facebook, you can use a range of very effective ad formats to stay in contact. Bear in mind that these need adherence to a continually evolving definition of best practice. That’s why, at more2, we built specialist teams for each channel.
STEP 3 – Maintain a unified view of each customer
Life is relatively easy for the pureplay brands – every transaction goes through their website complete with full contact details maintained by the user. Piecing together customer lifetime value is far harder for multi-channel businesses where so many customers are anonymous. One advantage of changing consumer expectations is that few people want to touch money or receipts these days. Contactless checkout with electronic receipts is preferred, and with so many more buying both online and in-store, there’s a clearer benefit for customers to share their details when in store. You still need to spell out those benefits however – and measure your store team on data capture.
Both Google and Facebook can optimise for offline conversion events like store purchases. We’ve been working on a Facebook offline orders study that shows 2-3X the number of attributed orders when adding offline orders to those captured through the website pixel alone. Once you have these, you can even target store conversions specifically, which is ideal for locally geotargeted ads with store-led creatives. When you capture the full omnichannel value of a customer, that feeds back into being able to spend more to acquire and retain them.
STEP 4 – Get the tech right
Platforms like Google search and Facebook or Instagram have immensely powerful artificial intelligence engines. You will only compete for the best customers if your setup is equal or better than the big, established online players. This is very much achievable but do not assume that your current setup is fit for purpose. 8 in 10 brands that we audit have their Facebook pixel and feed misconfigured. Most of those whose search and shopping we audit score around 50% in our best practice review – that needs to be at least 70-75%. And then there is 1st party audience configuration – often an afterthought and poorly maintained. Why is this?
Firstly, there is a natural ‘gap’ between marketing and development. Marketing know what they want to do in the ad platforms but not how the pixels actually work or pass data. Development can read the help pages and write the code, but they don’t understand what is happening with the data they are sending. Sadly, flexibility in pixel and feed setup provides plenty of room to get it wrong. Neither has the complete picture or the experience to troubleshoot so it is no surprise that the end result is sub-optimal. Often this won’t be obvious in performance, which will simply be ‘OK’ instead of excellent, and scalable. We endorse the latter!
Secondly, the lean structure of today’s marketing teams only allows for specialisation in the very largest organisations. All the rest of us are multi-tasking generalists struggling to stay abreast of the increasing number and diversity of platforms our customers buy through.
STEP 5 – Focus on what ONLY YOU can do brilliantly
Linked to the point above, retail organisations are complex enough, without the challenge of the whole market turning on its head as it has in the past year. You need to focus on strategic and tactical activities that set you apart and that inhouse teams are uniquely better positioned to do well. Examples I’m thinking of include product development, brand storytelling, trading and merchandising, talking to/understanding your customers, orchestration of your campaigns across channels, managing your competitive position in the market, engaging with partners and influencers, managing key stakeholders, building and delivering your amazing brand experience.
STEP 6 – Finance and Marketing must be 100% aligned
Digital channels are always-on. Your performance is only as good as the accrued learnings of that particular campaign and set of conditions. Once your performance team has their objectives, they need to allow the auctions (the AI) to optimise towards getting the maximum incremental orders within your allowable cost. This means that budgets must flex month to month so you can overspend when conditions are good. If you work to rigid monthly budgets, it’s likely you’ll throttle campaigns at month end, which invariably compromises efficiency. If finance and marketing are on the same page, the machine can keep learning. In fact, it pays to bring finance on the journey and have them in the room when planning digital spend for these reasons.
STEP 7 – Wider business alignment to your customer economics
To grow your ‘direct’ business, the whole organisation must understand what a customer is worth overall, across stores and web. Digital teams must understand their influence on store trade. Store staff must know how the in-person experience, or data they collect, impact on overall loyalty and spend including click to collect and home delivery.
This mindset starts at the top, with the board understanding the fundamentals. Then, across the business, there should be owners for commercial customer outcomes like new customers, loyalty and lifetime value. Beyond this, who is challenging you and bringing new ideas around customer value creation? Who is benchmarking your efforts against the market leaders? That’s where outside help can be valuable.
Retail businesses have some inherent competitive advantages over pureplay digital businesses – ironically, by playing to these strengths you will be able to grow both offline AND online sales. So maybe flipping the percentage isn’t the goal after all! Why not shoot for growth at an even 50/50 split?
Thanks for reading – if you’d like to learn more about any of these topics, send us an email at email@example.com or contact me directly.
Chris Simpson, CMO and Digital Director.