Retail is almost as old as civilization itself. The first evidence of items being sold by vendors dates back to almost 10,000 years ago, when bartering was prevalent. Over time, as coinage and currency replaced the barter system, permanent shopfronts and shopping complexes became the norm. Retail has been evolving ever since into what we see and consume today. Powered by incredibly complex supply chain systems and centuries of customer research, the retail industry is now a well-oiled machine and phenomenal revenue generator.
At a whopping USD $28 trillion dollars, the retail industry accounts for over 30% of the entire global economy.
Brick-and-Mortar Retail — A Troubled Behemoth
Of the USD $28 trillion dollars the retail industry generates each year, over 90% of all retail purchases happen at offline brick-and-mortar stores. As vast as this channel is, it is not without problems. Over the past decade, three main factors have brought brick-and-mortar retail to a crossroads. At this juncture, brick-and-mortar retailers must adapt to a customer who has access to more competitive channels, and frankly more choice when it comes to customer experience.
The E-Commerce Disruption
The recent growth of e-commerce and m-commerce has drastically changed the shopping landscape. Until the e-commerce boom during the early 2000s, brick-and-mortar retail shop owners performed well with conventional methods of marketing and customer relations.
Until now, the customer-retailer relationship was typically local and on a personal in nature. People frequented the stores in their neighborhoods and towns, building relationships directly with their vendors. E-commerce changed that by offering sellers multiple channels through which to reach and communicate with customers.
E-commerce also is highly competitive with regard to pricing, which has drastically challenged customer loyalty. According to a recent survey conducted by the Johannes Kepler University Linz, over 53% of shoppers chose the medium because of a particular product sold at a lower price. Also, product portfolio offering on the e-commerce platform is much larger and more convenient for the shopper.
Lack of Knowledge about the Customer
During the research phase of Nucleus Vision, retailers complained most about a lack of knowledge about their customers. The industry stats tell the same story. The lack of customer engagement at the shop floor is pushing people away from malls and shopping complexes, which has resulted in over 8000 retail outlet closures for this financial year alone.
A unified customer profile is perhaps the holy grail of brick and mortar retail. Knowing a customer’s needs, tastes and aspirations can help retailers take relevant action and communicate effectively with the client. Until now, the technology and framework needed to capture relevant data to build this customer profile simply didn’t exist.
This lack of customer knowledge is telling, as various research firms have confirmed that only 18% of modern shoppers find the experience of shopping in-store to be relevant and enriching. An even lower 13% of the shoppers believe that in-store associates have any influence over their buying decisions.
Outdated Loyalty Programs
At the outset, it is important to understand that a good loyalty program is the single biggest differentiator for an offline brand. It is the biggest tool to for brick-and-mortar retailers to retain existing customers. For businesses, it is 6–7 times more expensive to acquire a new customer as opposed to retaining an old one. A return customer has over a 60% chance of making a new purchase as opposed to a new client.
Customers love loyalty programs too. At least 75% of adults in the US engage with at least one loyalty program. Some surveys claim that over 83% of existing customers agree that loyalty programs make them more likely to do business with a company. 76% of customers also report that a loyalty program is an important part of their relationship with the retailer.
While loyalty programs are one of the most tried and true marketing tactics, they are notoriously expensive to develop. Last year, US businesses spent close to USD $2 billion dollars in developing loyalty programs.
Over the years, loyalty programs haven’t adapted to the changing retail landscapes and as a result, they’re losing their effectiveness. According to The 2016 Bond Loyalty Report, which queried 12,000 Americans and 7,000 Canadians about their 280 loyalty programs across all industries, only at 50%(in 2016) were actively participating in their loyalty programs. Of those 50%, one-fifth had never redeemed their rewards.
In their current structure, most loyalty points have a limited shelf life. In some schemes, they expire; you lose them if you don’t spend them. This is great for the companies issuing them but not so much for the customer. The result? Customers are sitting on over $100 billion dollars worth loyalty points.
Resolving these issues is the next step for brick-and-mortar retail:
1) How can the pricing and cataloguing benefits of e-commerce be adapted and applied to brick-and-mortar retail?
2) How can brick-and-mortar retailers make the in-store shopping experience more personalized?
3) How can we take loyalty points to the next level?
Me and my team at Nucleus Vision have spent the past three years solving these very problems. It hasn’t been easy, and every solution brings its own set of issues which need to be addressed. But now, we are at a space where we can say that we’ve successfully created a solution that can solve all these problems at scale. We have even implemented this solution across 10 retail outlets.
In the next blog, I will walk you through the technology that powers our solution, and how it addresses these problems.
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