Success Measurement in the Omnichannel Eraby Mike Gergye
It’s an exciting time to be in retail. From the phone in your pocket, to the computer on your desk, to the personal assistant in your house, and yes, even to the retail store that you pass everyday– we have more ways to buy than ever. A recent Frost & Sullivan study showed that by 2020, omnichannel customer experience is projected to overtake price and product as a key brand differentiator.
So how is success measured? The old balanced scorecard is beginning to look more and more like a relic as leaders recognize that same store sales and in-store customer satisfaction are a shrinking piece of the puzzle rather than the whole game.
History does give us some lessons that we can look at. We just wrapped up football season, so let’s examine the biggest change to the grid-iron in history. At the turn of the 20th century, football players were being mortally injured en mass. “In 1905 there were multiple serious injuries and even fatalities as part of the regular college season.” (Klein, 2012) Something had to change. Enter Teddy Roosevelt. During the break between the 1905 season and the 1906 season T.R. met with leaders from several colleges to push reform. They made forward passing legal, established the neutral zone, and doubled the first down distance to 10 yards. The game was changed forever.
You might be wondering what Teddy Roosevelt and football have to do with omnichannel retail. Honestly, very little. What is applicable to this discussion is the necessary changes that coaches and players had to make. Instead of a small area that determined success, now threats and opportunities were everywhere. Rather than brute force, an understanding of the total contribution of the team was required to keep up. Things happened more quickly, there were more options, and the old playbook went out the window. When the game changes, so does the way we need to think about and drive success.
Same store sales aren’t the best indicator of growth anymore. We live in an omnichannel world and it’s time to embrace it. Consumers want to purchase goods online, be engaged on social media, and they see the retail location as a component of the process, not the finish line. If you are driving same store gains at the expense of growth in other channels, that short-term success could become long-term surrender.
So what is on the scoreboard and what is the new playbook? At present, balanced scorecards include metrics on growth, customer satisfaction, and maximizing revenue. These are, of course, still important. They will determine your location budgets and drive overall ROI. They are not, however, the whole game. An integrated approach is required to ensure the role stores play in your eco-system is maximized.
Developing an Eco-System
Omnichannel retail is about an evolution in the supply chain to fulfill retail sales. Consumers do not think about the shopping experience in the segmented way that many companies still build their strategies. The interconnected customer experience is the 100,000 ft view required to understand how to measure and drive success in the new retail marketplace. The lines are becoming blurrier and strategies for growth must become more holistic as a response.
Examples of channel crossover:
The message is clear. Shoppers expect an ecosystem that allows them to shop between platforms seamlessly. More importantly, gauging the impact and value of individual channels is becoming more difficult. How should you manage multiple channels when your overall revenue is going up inside of a geography? Developing an eco-system inside of the new retail landscape is a process that starts with supply chain, continues through multiple channels, and leverages one unified message and pricing methodology to drive a seamless customer experience.
Defining the Components
Omnichannel retail planning is a global approach to channel specific initiatives designed to maximize overall revenue. Market share may bleed from one channel to the next, but as long as it is captured from competitors, the strategy is working. Measuring the total contribution of geographic trade zones while still managing the revenue maximizing levers per channel should be used to roll-up efforts into a global view of strategic effectiveness.
Current State – Product is produced to annualized budgeted forecasts by channel based on historic sales and fulfilled through distribution centers to each channel.
Future State – All channel forecasts should be considered to minimize stock outs. Retail locations should be looked at as potential distribution centers for all channels to minimize shipping costs and to increase in store pickup availability. Measuring in store fulfillment value to total revenue is one way to reevaluate the contribution of physical retail revenue generation.
Current State – Retail doors are placed in locations with the best potential demographic concentration to drive sales. Trade zones are generally evaluated based on driving distance and the proximity to competing brands.
Future State – Trade zones will need to be expanded to include multiple geographies with white spaces minimized by focusing primarily on population density. Retail doors should be used as showrooms, retail hubs, and distribution centers to drive the overall geographic spend in the expanded trade zone with metrics on contribution to cross-channel revenue heavily considered when evaluating impact and ROI.
Current State – Brands offer the same products online that they do in store with variable shipping and pricing models. Online exclusive products are still used to drive sales to these channels across multiple retailers.
Future State – The online store front will become the digital lease line for retailers. The services offered online include all products offered in stores with cross-channel integration prioritized. Driving customers from physical stores to online retail and vice versa will be leveraged to create higher customer engagement and create digital marketing opportunities beyond physical in-store interaction.
Current State – This is admittedly and newer entry into the omnichannel lexicon, however, it is still a component that will continue to grow over time. Alternative channels are non-conventional pathways used to put products in front of consumers. The most readily apparent of these as an example is the use of Amazon.com as a distributor for products. Retailers are now using one of their largest competitors in both physical and online retail as a secondary conduit for reaching customers. The lesson is simple, go where the customers are shopping. In the digital world, every avenue is worth considering.
Future State – As the omnichannel marketplace continues to grow in complexity, alternative channels will continue to expand. Consider the record industry as an example. Initially, physical record stores were the only consumer avenue. Next, there was iTunes and the physical retail environment. Now, artists sell their work on an ever expanding set of sites in formats from digital to physical to subscription services. Anyone that has access to the distribution network can become a touchpoint.
Current State – Different channels run pricing at different levels throughout the year. Online specials and coupons are still prevalent. Pricing is used for channel specific liquidation and value positioning versus competitive products.
Future State – Unilateral pricing across all channels should be used to create a seamless customer experience. Research from Accenture found that 68% of Millennials demand an integrated, seamless experience regardless of the channel. That means being able to transition effortlessly from smartphone to personal computer to physical store. The potential revenue upside of driving traffic from one channel to another will outweigh lost margin dollars. Empowering employees to ensure that customers have a consistent experience should be one of the first steps any company takes in maximizing this opportunity.
Measuring Success and Effectiveness
Having discussed many of the current and pending changes that an omnichannel world has in store for us, let’s now turn our attention to the best way to measure success. We manage channels to maximize revenue contribution. In a world where consumers consider each channel a component of a larger customer experience, this approach can create blind spots that disrupt consumer purchase flow. I am not advocating discontinuing the use of metrics that we as retailers have used for years to drive results inside of doors. Rather, I am recommending that each of these be rolled-up into an omnichannel dashboard that would allow senior leadership to measure the efficiency of all efforts as components of a whole to determine the best balance of resource allocation inside of geographies. The goal should be to mirror the perception of the consumer that each of these channels is part of a larger whole contributing to overall business impact by territory.
Conventional Retail Scorecard Metrics
Adding an Omnichannel Balanced Scorecard
By examining the metrics above, we manage the overall performance of channel teams and drive impact. The downfall of this measurement system is that it does not allow for an evaluation of all channels as contributors to the overall customer experience. In order to ensure that the impact of each channel is being measured as a component of your strategy, the following score card metrics are offered as a starting point for how to ensure you achieve balance in spend allocation and revenue generation.
Putting it all together:
In a new game, we need to have a new view of the field. Rather than focusing on one channel at a time, a geographic approach is by far the best way to drive total overall value and market share acquisition in the new omnichannel world. Measure the success of your strategy as a whole with the ability to drill down by channel per trade zone, and you will be ahead of the competition in how you allocate your product, your funds, and your efforts going forward.
MarketSource provides field marketing solutions and we take an omnichannel approach so that we can meet all customers in whatever channel they want to play in. Find out how you can MarketSource your sales here.
Accenture (2015, January). Who Are The Millennial Shoppers? And What Do They Really Want? Retrieved from https://www.accenture.com/us-en/insight-outlook-who-are-millennial-shoppers-what-do-they-really-want-retail
Elkind, J. (2016, May 9). The loyalty funnel: 3 KPIs for measuring customer retention. Retrieved from http://marketingland.com/loyalty-funnel-3-kpis-measuring-customer-retention-175469
Kelin, C. (2012, September 6). How Teddy Roosevelt Saved Football – History in the Headlines. Retrieved from http://www.history.com/news/how-teddy-roosevelt-saved-football
Rudolph, S. (2016, April 22). 10 Notable Omnichannel Trends and Statistics [Infographic]. Retrieved from http://www.business2community.com/infographics/10-notable-omnichannel-trends-statistics-infographic-01520137#ep2c6DUKxms3giz1.97