How retailers will compete on service-led strategies in 2018

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Over the last 12 months, we have started to witness the true impact of the digital age on the retail industry, with a number of retailers rethinking their business models to keep up with changing consumer behaviours.

In this digital world, customers demand a much more personalised experience with brands, and are even willing to pay more for that tailored service – as a result, we are seeing businesses scrambling to introduce service-led approaches to their customer engagement.

Given this trend, 2018 will be a particularly unpredictable year. However, this article will attempt to shed some light on where the industry could be heading by analysing the investment patterns of retailers over the last year.

The traditional store made its comeback

One of the most significant events of 2017 was Amazon’s acquisition of Wholefoods, which sent shockwaves through the industry – it was a major indication that bricks and mortar is here to stay.

Amazon also developed its physical footprint by extending the presence of its online stores, but it was not just the major players contributing to this revival.

Bonobos demonstrated a showroom concept that provides customers with a modern shopping experience emphasising customer service over products, while Etsy, a pure online player, worked with retailers such as Selfridges to launch ‘pop-up’ stores as an additional channel for reaching customers.

This shift back to bricks and mortar is certainly causing retailers to re-evaluate their future approach, and as we begin 2018, it is fair to say that this trend will continue.

That said, with new ways of applying technological innovation, and the modern demand for a personalised shopping experience, these stores will be very different to how we once knew them.

The rebirth of loyalty

Many predicted that we would see major investment in loyalty schemes last year, and despite the fact that retailers such as H&M, Tesco and Bodyshop made some headway in enhancing their offerings, this has not been as much of a theme as expected.

We should not be fooled by this – loyalty is central in business planning and strategy right now, but the work is allocated to determining how to connect with customers on a level that will really engage.

We should expect to see the launch of a number of data-driven loyalty packages from retailers in the next 12 months.

Our ‘Loyalty Deciphered – How Emotions Drive Genuine Engagement’ study indicated that customers now want a deeper emotional connection with brands, finding that 82% of consumers with high emotional engagement would always buy the brand they are loyal to when making purchasing decisions.

As a result, retailers will need to invest in data-driven programmes that build up a detailed picture of the needs of each individual customer and tailor their offering based on those insights.

We should expect to see the launch of a number of data-driven loyalty packages from retailers in the next 12 months.

Technology and the store of the future

With technological innovation improving and the cost of implementation reducing, retailers are starting to experiment with new ways of using technology to improve their services and increase efficiency.

2017 saw Farfetch, the luxury fashion e-retailer, create a test run of a tech-powered retail experience dubbed the ‘Store of the Future’.

It envisions the future of the retail store – as part of the system, customers are identified on entry, data is created based on their browsing and purchasing, and digital assistants provide digital wish lists and real-time curated recommendations.

Recent reports claim they are now the UK’s fastest growing retailer, suggesting these new technologies are far from gimmicks.

We also saw a very clever incorporation of digital and service capability through IKEA’s acquisition of TaskRabbit, which allowed them to complement their service by providing their customers with links to freelance workers, i.e. handy men or movers.

It is a fascinating moment for the retail industry, and we can look forward to seeing new innovative technology implementations in 2018 that will start to shape the future customer experience.

Fixing the space issue

Amazon was involved in another major industry moment this year, having launched its Amazon Go prototype to showcase the sector’s first truly contactless experience.  

It is a huge advance and retailers are struggling to react with anything of remote comparison, however we saw many design new concepts to tackle the space issue and attract customers to stores.

Retailers will continue to explore options to diversify as a means of using their space more effectively and enticing new customers.

Sainsbury’s led the charge with their rollout of 250 Argos stores across its branches in the UK, and even more recently, Tesco paired up with Next in a bid to tie grocery and clothing into one shopping experience.

The question that looms for 2018 is whether these concessions will be enough alone to entice customers into their stores, with the focus from customers being very much centred on where they can find an efficient and personalised shopping experience.

However, as financial resource continues to be tight across the industry, retailers will continue to explore options to diversify as a means of using their space more effectively and enticing new customers.

Embracing the change

The one thing that stood out for me in 2017 was not the specific technology implementations changing areas of the retail landscape, but the willingness of retailers to try something new to tackle industry challenges and meet the evolving demands of customers.

Retailers are looking for opportunities to diversify, make acquisitions, or change their business models – it is the surest sign that businesses believe existing models are becoming outdated, and that we are set for a new era of retailing.

2018 will be another tough year in the retail industry, but with that comes a lot of opportunity to try something new and get a leap on the competition – it will be a fascinating year! 

About Chris Long

Capgemini Consulting

Chris Long is a managing consultant at Capgemini Consulting. He has been working at Capgemini since 2012, and specialises in Retail Management, Store Operations and Demand-Driven Supply Chain.

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