Monday, December 31, 2012

Surrounding the customer: Strategies for cross-leveraging assets across channels for competitive advantage

The connected-consumer forever changed the way retailers sold their goods. Each retailer no matter what channel they were selling in had to appear in other channels as well. Walmart and Target had to open their online store fronts. Amazon had to start appearing locally at Amazon Lockers at one of your neighborhood stores. Being multi-channel has become hygiene factor, even for online retailers. 

However, being multi-channel is only a hygiene factor. It is a not a competitive advantage by itself, any more, unless you  strategically leverage assets across channels for competitive advantage.

Identifying the Assets

So, what are the strategies to leverage such assets? To understand that, you need to first identify those assets. Below is a perspective on what kind of assets are there. I have derived them by identifying links between the assets that appear across channels of distribution. These are assets on the distribution side. These assets are - 

  • the locations of the retailers (these could be stores for a brick and mortar retailer or fulfillment centers for an online retailer), 
  • the customers who get serviced by these locations, 
  • the orders these customers place and 
  • the insights the retailer has based on these orders. 
This linkage of assets is diagrammatically illustrated in Figure 1 below.

Figure 1: Assets on the distribution side and their links

Building The Right Asset Bases

Every retailer has the assets that are mentioned above. These assets turn into a competitive advantage if you carefully nurture them and grow them into a differentiation  Just having a location somewhere is an asset. Having these locations strategically to suit your business's direction is an advantage - such group of locations create a competitive advantage for you. Your 'location base' becomes a competitive advantage for you. 

Other such competitive advantages are 'customer base', 'order base' and 'insight base'. 'Order Base' and 'Customer Base' are slightly different - you can have more customers than your competitor but they might not be placing as many orders i.e. you have a larger customer base but a smaller order base. These asset bases are depicted in Figure 2 below

Figure 2: Potential Asset Bases
Any business has limited resources. Choosing to invest in building on a certain asset base should be strategic decision. Decision should be based on which asset base will be the most critical to your business's future, based on what asset base can be most easily converted into a differentiation, and other factors. As you would notice in some of the case studies below, these investments doesn't necessarily have to mean investing in building more of the asset, but could mean in investing in sometimes enriching or re configuring the asset. An example below is of how Walmart enriched their stores to also fulfill cross-channel orders.

Defining Leverage Strategies

Once you have identified your asset bases, you try to leverage on those advantages to gain greater foothold across channels. The strategy to do so, is different based on what is your advantage. Below is an illustration of such strategies lined up with their respective asset bases (see Figure 3 below).

Figure 3: Strategies to leverage asset bases

Each of these strategies have been utized by retailers earlier. Below is a depiction of such strategic templates (see Figure 4 below)

Figure 4: Strategies and their Case Studies

Each strategy and their respective templates is described below -

Strategy 1: Extend Reach

Case Studies: Walmart, BestBuy's and others' Order Anywhere, Pickup Anywhere programs

This is an offering to your customer to call in customers from online to your stores and vice versa. It gives more stickiness with the customers. BT Expedite had observed that -

  1. Click & collect boosts on-line orders by at least 10% with some retailers achieving >30% uplift.  This is incremental to year-on-year increases in web sales typically in excess of 20%
  2. Best in class retailers are seeing >60% upsell once a customer is in-store to collect their order
However, just having more assets should not be considered as a reason for embarking on this strategy. I have previously posted my opnion that having more density of stores in the same metro area need not be a advantage -

Have more density of stores could mean you either 
  • add cross-channel fulfillment capabilities in all of the stores, which would be redundancy and lower utilization of the investment you make into refurbishing stores for cross-channel fulfillment OR
  • add cross-channel fulfillment capabilities in a key store in each metro area, which would mean that you asset quantity is of no consequence

Strategy 2: Spread Overhead

Case Studies: Amazon Prime

Amazon Prime is an example of this strategy. This strategy requires a large customer base because only with a large base , even a low adaption rate can assure a break even. Amazon was able to successfully execute this strategy with Amazon Prime. 

In fact the sucess of Amazon Prime, proved as further flank for Amazon to enter other markets. I had tweeted about the video market where it was making headway due to its user base of Amazon Prime

Strategy 3: Enrich Service

Case Studies: Amazon Local Express, Walmart's Same-Day Delivery Beta

This has not been new to the industry. Early dotcoms had unsuccessfully attempted it, al beit in a less sophisticated market. Present day retailers are driven towards this by Amazon's Local Express offering. Amazon had itself chosen this strategy due to the change in sales tax regime's in several states of the United States that encouraged it to bring fulfillment centers closer to cities. 

However, this is not a leverage strategy you should pick up if your asset base is not suitably positioned. Analysts anticipate probable losses in this strategy. If your asset base is not suitably aligned, perhaps partner with evolving players in this field like the US Post Office or Google.

Strategy 4: Read Forward

Case Studies: Target's Mailers

Retailer collect a lot of data, inadvertantly. More recently, retailers have started to pool this data together using technologies around BigData. Target Corporation for one was able to leverage this to an extent that it could predict family events. The strategy is to leverage such insights from across channels to encourage customers to buy.

A word of caution on this strategy though, is that it is very easy to confuse having just build BigData tools with having executed this strategy. The strategy is not just about BigData, it is about using BigData to drive meaningful and varied insights. About having an organization and skill pool to identify and process those insights. I had previously quoted PayPal's then Chief Scientist on this, in this tweet -


Retailer have exhibited the above strategies based on their unique competitive advantage positions. Choice of detailed strategy is based on complex considerations. Perhaps retailers could use my perspective on assets as a framework to chose strategic investments and chose suitable strategies to leverage those investments.