Is digital transformation a gamble you can’t win?

29th Dec 2021

When I talk to brands and retailers about the problems with digital transformation, I like to use a gambling analogy. Let’s imagine you walk into a casino, sit down at a table, and start to win. Everything goes well at first, but we know what happens eventually. The house effect starts chipping away at your earnings, and even with the best odds, you eventually lose.

This may not seem like the best analogy for digital transformation, but bear with me. If you ask brick-and-mortar CMOs why they are undertaking transformation, they’ll offer a variety of reasons: better data, customer-centricity, the need to compete with emerging disruptors, and so on. But that’s not the real reason traditional brands are launching transformation efforts. 

In almost all cases, they’ve done so because their core business was losing sales to online competitors. With the widespread adoption of e-commerce and free shipping, not to mention the pandemic, brands and retailers have seen a big drop in physical traffic to their stores — and thus their sales.

In response, they have responded with digital transformation, which largely seeks to emulate the very companies that are displacing them. They are racing to convert themselves into e-commerce platforms with data-driven analytics, marketing automation, and hyper personalisation — none of which are their core competencies. As a result, they are in unfamiliar territory and find themselves in a race for something they’ve rarely worried about before: traffic. 

Historically, successful retailers paid little attention to traffic. That’s because they could count on a certain amount of people coming through their doors. The challenge was not to attract them, but to retrain them. Marketing efforts tended to be small-scale and off to the side, and certainly nothing like the huge, automated efforts we see today. 

By putting so much effort into traffic (and converting it), they are transforming themselves, sure, but into something that plays right into the house’s hands. For one, the tools and platforms they are using to drive traffic are not their own. Either they are competitive platforms like Amazon or service providers like Shopify that offer similar services to their competitors. In the one case, they’re turning their destiny over to a competitor; in the other, they are adopting a service that anyone can buy.

Eventually, the house effect begins to occur. Constrained by the available technology, brands can provide only a modestly distinct experience, while heavily paying for the privilege. They start losing, and the “casino” starts winning.

I don’t want to say that digital transformation is a bad thing, but it has to have the right goals. Its purpose should not be to emulate larger competitors or adopt the same practices as everyone else, but to differentiate themselves through experiences unique to their organisations. Let’s see how this can work:

Provide a competitive shopping experience. There is a large and overlooked difference between customer experiences and shopping experiences. Retailers historically focused much more on the latter, using their salespeople and other staff to answer questions, aid in product discovery, and ensure that customers purchased the right products for them (returns are much less common at retailers with salespeople than at ecommerce companies). Brands need to remember that no matter how far they digitally transform themselves, their people are the core strength that actually distinguishes them from the competition. 

Make automation work for you. Brands are valuable only insofar as they are different, but they are increasingly automating all aspects of their sales process. In so doing, they are disconnecting customers from the people who deeply understand their products and services. It’s important to remember that the end goal of transformation is not efficiency, it’s to facilitate meaningful connections between brands and people. So, it’s important to make the connections to the right people.

Bring back the shopping story. Think of a memorable shopping experience you had. You probably walked into a store and heard a story about the product you are buying, often told by a good salesperson. Too often, brands tell stories that are disconnected from the experience that people have while shopping for them. They are wonderful at using influencers of all kinds to evoke desires, emotions, and aspirations, but when a person is shopping for a product, the real influencers are the people who can show them how it will fit into their lives. Digital transformation tends to silence these people rather than bring them out where they can be heard. It can do the opposite, however.

Brands and retailers today need to realise that digital transformation does not make them distinct — and often does the opposite. This is a serious risk and an unforced error. All brands have a critical advantage over e-commerce platforms and other high-tech rivals: their own organisations’ knowledge and expertise. They need to find ways to use transformative technologies to bring forward that knowledge and use it to improve the shopping experience. So long as they are relying on digital transformation merely to gain traffic, they are playing by the house’s rules. But when they start using their own organisations to the fullest, they will be able to break free and win on their own terms.


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