As part of the launch of the Business as Unusual book (click on badge on left to get to the Amazon page) by Thomas Saueressig and Peter Maier that we helped conduct interviews and research for, we will share excerpts from each of the 10 chapters/300 pages, and also give you a “behind the scenes” view by sharing snippets of some of the over 100 SAP, customer and partner video interviews that ended up in the book.
Here are some excerpts from the third Megatrend – New Customer Pathways:
Nineteenth-century Philadelphia retailer John Wanamaker allegedly complained, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” These days we brag that we can effectively measure payback from digital campaigns, but that’s not the whole picture: A third of the world’s advertising money is still spent on billboard, direct mail, print, and other analog media.
SAP has over 13,000 retail and countless consumer product customers in over 100 countries. None of them are exactly alike. They are carving a dizzying range of pathways to their customers. In this planet-scale laboratory of experimenting with new customer pathways, we’ll search for patterns and discuss the outlook for retailers and their technology providers like SAP.
Matt Laukaitis is executive vice president and global general manager of SAP Consumer Industries. He offered SAP’s definition of consumer industries: “Consumer industries, in our former definition, included retail, consumer packaged goods, and wholesale distribution. A few years back, we also added healthcare and life sciences. Then earlier this year, we expanded our scope to agribusiness because we see so much opportunity across channels as companies operate beyond traditional industry boundaries. In each of those sectors, we’re seeing significant conversation about building pathways directly to the consumer.”
Laukaitis pointed out that the COVID-19 pandemic has changed the attitude towards innovation and risk: Companies got addicted to rapid innovation. In the past, there were a million reasons why corporate inertia would say, ‘You know, we’ve thought about a curbside pickup, but we don’t need to do that now. We’ve got so many other priorities.’ But many of our customers surprised themselves when they were pressed to change: they could get new services like curbside pickup done in a couple of weeks. Now the leadership teams of companies and their boards have come to like the new speed, saying, ‘Okay, now we know we can do things very quickly, so let’s start knocking down this list that previously looked kind of unassailable.’
Accenture’s design agency, Fjord, coined the term “liquid expectations” for the idea that customer experiences are fluid across industries. Laukaitis agreed with this notion: “Consumers don’t care if a brand is owned by a traditional consumer products company, by a retailer, or by a healthcare or financial services company. They go for products and services that meet their needs and preferences, and don’t care about historic industry boundaries. This also motivates players to venture into new territories and to experiment with disruptive business models.”
Achim Schneider is global head of SAP’s retail industry business unit. He provided more examples of blurring of industry boundaries, citing one organization’s expansion to an adjacent industry as a customer experience mechanism and organic branding opportunity: “Sansibar started as a small company on an even smaller island, Sylt, in North Germany. They run fashion stores and have their own brands. They sell over 1,500 wines at stores across Germany. They have a hospitality and catering business, and they run fancy restaurants. I think that kind of combination is becoming more and more important for these hospitality retailers. On the other side of the planet, Jumbo Seafood in Singapore is moving in a similar direction. And a huge Korean restaurant chain told us ‘Well, we think we are more of a retailer.’”
Ralf Kern is global vice president of SAP’s retail business unit. He described how customer expectations vary with the retailer they engage with: “If you shop in a convenience store, you’re happy if you’re in and out within a minute and you get exactly what you need. At a fashion retailer, like Louis Vuitton, you may have a glass of champagne, and stay a couple of hours and expect service to get your selection right. At a DIY store, you may want to rent an appliance and get it delivered to your home and have a painless return process, and if you find that you couldn’t make the bathroom tiles stick as well as you thought you would, they can give you advice or the phone number of a reliable craftsman. In Germany, if you go to an Edeka, you expect a broad selection of fresh grocery compared to an Aldi, a Lidl, or another discounter.”
Figure 4.1 shows the wide range of pathways to companies beyond going direct-to-consumer(D2C); the many different forms of business-to-business transport, the key roles of wholesalers/distributors and retailers and the many sales options consumers can choose from. Successful consumer product companies manage to hide the complexity of the system from the consumers by delivering a unified and engaging experience. Seamless channel orchestration for sales and fulfillment is only one part of the customer journey: Intelligent, fair, and convenient returns and reimbursement processes, warranty and repair management, recycling, and refurbishing…all these processes are even more complex and have a lasting effect on customer experience and loyalty.
Schneider pointed out, however, that D2C is hardly a new trend and that additional expenses for shipping and handling, for example, might make some products more profitable for D2C channels than others: “Adidas, Nike, Under Armour, and others have been going direct for a long time. Adidas has grown to 12,000 stores since it entered China in the late ‘90s. I think that was a very clear indicator how many consumer packaged goods companies are thinking. If I have a Nike store, it could be a franchise store or it could be an owned Nike store. For the consumer, it’s the Nike brand. However, it might be a bit different in cosmetics or personal care brands going direct to customers.”
One D2C challenge is how to compete with the scale of fulfillment logistics of an Amazon or a Shopify. Many consumer companies are used to shipping pallets, not single items. Going with specialist third-party logistics companies for order fulfillment has been the solution for some. As we discuss in Chapter 9 on the Resilient Supply Networks megatrend, support for “micro-fulfillment” has emerged, including smaller warehouses closer to consumers, warehouse bots that can be deployed as a service, and last-mile delivery ecosystems. All these approaches can reduce the historical fulfillment barrier to online D2C commerce.
While returns have always been a business reality for retail organizations, the uptick in the returns rate is worrisome. Laukaitis commented on how organizations can respond, citing one online apparel and footwear retailer who he believes applies best practices for returns management: “Zappos and other retailers have conditioned consumers to expect a hassle-free returns experience. It is important to consider both the employee and customer experience in this process and understand how to optimize margins for the business. It’s essential to empower the people at the customer interface to handle items and guide the consumer through the returns process. Then it’s important to educate the store and warehouse employees on how to inspect the returned products and to decide on the best routing of the returned product.”
Best practices also vary with the type of product. Laukaitis used SAP customer Tapestry, which has luxury brands such as Coach, Kate Spade New York, and Stuart Weitzman under its umbrella, as an example: Luxury brands have returns policies that are pretty generous because they want to be customer-focused. But how do they make sure every return makes sense? The speed of adjudicating the return is critical. The verification process obviously has to be pretty tight, given the high dollar value of those products. For example, are there particular products within the Coach portfolio that cause more trouble from a return perspective, or are there certain things that the associate has to be trained to look for before they actually accept it at full value? Provenance and authenticity are vitally important to the brand, so it's essential to avoid restocking counterfeit items.”
This pursuit of high-quality, intuitive, and customer-centric store experiences has naturally changed how stores are organized. Schneider provided us an idea of how retail stores have been morphing: “Stores are becoming small logistics centers. It does not matter if they are grocers or hard goods retailers. Customers are ordering online and picking up instore. How can you ensure that you have the right product at the right time in the store if you promise a less-than-two-hours pickup time? In fashion, stores are becoming experience centers. You get the consultation and you can see, touch, and feel the fabric. You order, and you get it shipped home. Stores don’t have to have all the colors and sizes of the products available. You just have the selection there. Some stores are using technology”
SAP has a focus on smart stores at the SAP Experience Center at Walldorf, where it showcases some of the technologies you can experience:
- Devices for counting people to analyze traffic into and out of the store and monitor key passageways like stairs and elevators
- Demographic cameras pointed at an entrance to register the age and gender of consumers
- Multi-3D sensors that detect dwell time and route
- Cameras directed at shelves to detect when a product is no longer available—perhaps selected, replaced by customers in the wrong spot, or out of stock
- Electronic shelf labels that can be updated with new prices in real time
In contrast to Fressnapf’s growth during the COVID-19 pandemic, retailers depending on traffic at airports and other travel venues would experience a very different range of challenges. As we discussed in Chapter 3 on the Integrated Mobility megatrend, Gebr. Heinemann is the market leader in Europe and one of the top global players in the duty-free and travel retail industry worldwide.
Roland Vorderwülbecke, director of IT at Gebr. Heinemann describes some of the challenges .. the company has very few touchpoints with individual customers. Customers enter one of its Duty Free & Travel Value stores only when they are traveling, and only when circumstances allow time for shopping either at the origin airport or at the destination airport. It takes a long time—sometimes years—to develop even two or three touchpoints with a single customer, depending on their travel patterns. How do you convince such customers to share data to participate in a loyalty program and how do you build a community around them? Often, the promotions offered do not fit with travel plans. The company is moving from a push to a pull model and developing a "next-best offer" mindset. In the past, Gebr. Heinemann has tried out digital displays in stores—one was internally called a “Digital Instore Assistant” to guide customers—but utilization was low. Now, the company is leaning more towards a high-touch clientele service model in their stores, according to Vorderwulbecke.
Ritu Bhargava described how the SAP architecture supports its customers. The management of commerce, service, and customer data is the technical and business foundation, provided by SAP S/4HANA. The next layer enables different business models, from B2B over B2C to all the variants of business-to-business-to-consumer (B2B2C). “Across CX, there needs to be a layer that breaks down the process- and databased organizational and technical silos. This flexible and modular layer provides the basis for a great deal of business innovation. For example, our intelligent commerce solution will leverage this layer in the future. Our customers experiment a lot and not everything will work out, stick, and stay, so we give them the option to subscribe to modular extensions on a consumption basis. This way they pay ‘by the drink’ on their journey to shape the ultimate customer experience.”
A twin of this post will include video excerpts from conversations with many of these executives so you can put a face and voice to those in the book.
Other posts on the other chapters to come.
