REPORT: Understanding the future consumer

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Introduction

Much has been made of the rise of online shopping, the changing needs of newer generations and the rise of the sharing economy. Changes to lifestyles, technology, demographics, supply chains and social values are shifting the behaviour of consumers. This report looks at how these factors are likely to influence the future consumer and what steps retailers need to take to be prepared.
These charts from Macquarie Group shows the trend in Australia. While online retail is still a small part of overall retail sales, it is responsible for a large part of the growth in retail sales.

Source: ABS, Macquarie Macro Strategy

A ‘golden age’ for consumers

Consumers are changing rapidly. The challenge for businesses is to ensure that management and their views on how to run a retailer keep up.

Inevitably, there will be a generational inflection point in the management ranks of major retailers, as Mark Teperson, Chief Digital Officer of Australian retailer Accent Group says.

“If you look around the global retail marketplace, and you look at CEOs and you look at their background and their heritage, they are all principally traders: they all grew up running retail stores, bricks-and-mortar,” Teperson said. “With very few exceptions, we have yet to see a retail CEO who was born in the digital era, grew up running and driving a digitally led business, who understands retail and the nuances of retail. I think over the course of the next five years, to meet the future needs of consumers, I think we will start to see a change.”

Most major consulting firms have looked at what we might expect from the future consumer. KPMG notes:

“In essence, the mission is the same as it ever was: to get the right product in front of the right shopper at the right time and for the right cost. It’s just that, in a world where shoppers can buy in-store, on a website, social media, via their smartphone and, with the advent of the connected consumer, by pressing a button at home to ensure they never run out of their favourite brands, that mission has become exponentially more complicated.”

Deloitte suggests that we are “living in an era where customers are in the driver’s seat more than ever before and they are craving authenticity, newness, convenience, and creativity. We are living in the customer-driven economy.”

Accenture calls this the “golden age of the consumer”. The next decade will see shoppers having more choices and control than ever before. They will be presented with a growing array of products and services, often personalised to their specific needs and wants. Consumers will continue to demand price and quality transparency, along with a wide range of convenient fulfilment options. Overall, the retail experience is poised to become more inspirational, exciting, simple and convenient, and responsive to consumers’ ever-changing needs.

Understanding the changes in the consumer market will be critical to the success of retail businesses in the future. Those who fail to adapt risk losing market share relative to the companies that seek to build a deep understanding of the changing preferences of their customers.

Retail management software provider Vend puts it this way – in the past, offering the right product at the right price might have been enough to win over customers.
Now, the world is an integrated marketplace where the number of purchase points has exploded. Customers can shop everywhere at any time and buy on impulse across a variety of channels. And they expect retailers and brands to adapt to their changing lifestyle – one that is focused on convenience and with a priority on experiences.

What most of the world’s consumer markets have in common is that they move faster than they used to. Alex Baldock, CEO of British retail group Shop Direct, which owns very.co.uk and Littlewoods, goes as far as to say: “You have three seconds to seize the customer’s attention. It’s called thumb-stopping. The three second audition.”

Intense strategic focus on different customer channels and digital execution can also obscure the truth that, in many respects, the core of what consumers want is the same as it’s always been. Shoppers have never relished being lied to or buying products that don’t do what they’re supposed to do. Now, courtesy of digital technology, they can share their discontent in an instant.

At the same time, it’s inarguable that technology has introduced a new level of complexity. Take delivery options, just as one example: the consumer may want to collect it from a store, receive it at home, at work, or have it sent to a locker. Robots in warehouses may be the most visible evidence of the new technologies that are rapidly transforming the consumer industry supply chain, but at present the most significant driver of change is the smartphone.

It’s critical for companies to be able to balance the complexities of technology and consumer expectation with the simplicity of customers wanting great products and service at a competitive price.

According to Michal Maimaran, a clinical associate professor of marketing at the Kellogg School, firms need to look across industries and assess their customer service against the broader consumer landscape. “Whether they’re flying to London, ordering a pizza or buying a pair of shoes, customers have come to expect the same ease and fluency, so you have to cater to those expectations,” he says.

Every retailer will claim their business is customer-centric. But there can be a significant gap between what they think they are delivering and the true satisfaction of their customers. Some companies are guilty of being too focused on their product – an approach often described as the “build it and they will come” trap, where the company thinks success lies in simply having a great product without ease of use and great customer service. On the other hand, customer-centric businesses put customers at the heart of their operations, which creates repeat buying, advocacy, retention and loyalty.

Today, many firms have robust digital and social-media presences that make it easy for customers to find information and ask questions without ever picking up the phone. Similarly, many firms allow customers to use apps to place orders, hail cars, check in to flights and make appointments in a matter of seconds, and at all hours of the day.

Customers are also exposed to increasingly innovative customer service. Thanks to firms like Dominos, which offers customers the ability to place an order by tweeting a pizza emoji, customers are becoming accustomed to service that is not just convenient but surprising or even fun.

Consider that many of today’s customer-service hotlines – whatever the business – tend to keep a record of their customers’ personal information, past transactions and preferences as a way to save time and make interactions more efficient.

“Now, when customers give their information to a company, they expect everyone from that company to have that information,” Maimaran says. “Anything less falls short of the standard.” Service models that feel burdensome or redundant are not well tolerated.

How shopping will look in the future

Photo: Matt Cardy/Getty Images.

Accenture has carried out research into the future of shopping and outlined what shopping might look like in 2026.

Routine purchases become effortless

In the near future, Accenture expects that routine purchases are delivered automatically via auto-replenishment, saving consumers time and simplifying their lives.
Routine purchases primarily occur on digital channels with a cadence dictated by the consumer. Retail interaction with consumers is divergent with high-engagement product categories (e.g. hard lines, consumer electronics) purchased in extremely interactive, experiential stores, while low-engagement products (e.g. home and personal care) purchases are automated and hassle free.

Insight: Understanding where a product offering sits in the spectrum of purchase channels will be critical to building sales.

Stores are a destination experience

By 2026, shopping in a store has been transformed. It is no longer merely about purchasing a product, but is a rich, engaging and specialised experience driven by innovative business models. Retail is re-imagined, and shopping is an experience full of discovery and excitement. Stores are destinations to interact with the product, talk to product experts and provide an ambience which encourages consumers to stay and keep coming back. They are technology enabled, which means a consumer’s digital device is integral to providing an engaging experience.

Insight: Retailers will need to consider their store strategy carefully, including location choice and service levels, to ensure bricks and mortar executions add value and aligned with how consumers relate to the brand.

Ubiquitous data leads to highly personalised shopping

In the future, consumers are truly the epicentre of the retail industry. Their lives are simplified and their lifestyles have improved due to technological advancements. Technology is embedded into their daily lives, which means hyper-connectedness is the status quo. Sensors and digital devices are everywhere— throughout homes, in clothing, in appliances—and the data that is collected drives a highly personalised customer experience in the journey to purchase a product. Consumer preferences are immediately understood, which means companies provide hyper-personalised product and service offerings.

Insight: Leveraging data sets – either those that are owned by a retailer or sourced from elsewhere – can provide a competitive edge. Most retailers have a lot of data, but it will be the insights from that data that will prove their value.

Demographics and the rise of millennials

Born between 1981 and 2000, the millennial generation has grown up with the internet. Many have had a mobile device from an early age, connect with peers constantly via social media and do not understand the concept of going to a physical store to buy music.

Research suggests that this generation behaves quite differently from older generations, particularly in how it interacts with favourite brands and retailers. For millennials, it is all in the experience. With fresh ideals and aspirations, having personal experiences are more important to them than owning things.

As a generalisation, millennials prefer instant gratification from experiences that can be shared socially through both word-of-mouth and social media.

Millennials also support companies perceived to do good, preferring to spend their money with brands that are socially responsible. Social responsibility and actively doing good are themes that recurred often in our research and are important for retailers to consider.

According to McKinsey research, millennials are three times more likely than baby boomers to assume that newer brands are better or more innovative and three times more likely to say they typically learn about new products or brands from social media. Traditional marketing vehicles – such as in-store displays, print advertising and television commercials – therefore influence millennials less.

Millennials place a higher priority on what they consider to be authentic and personal. They expect to be able to try anything once, want experiences to be funa and prefer informal interactions.

“To create loyalty with millennials, brands need to first cover the basics—that means top notch customer service and quick, individualized responses, through the channels they use such as social media and messaging,” says Joel Benzimra, Global Advisory Lead for Consumer Markets, KPMG International.

“But beyond that, brands need the right content strategy. They need to engage millennials with communications that are both entertaining and informative. Elements of gamification or exclusivity can work well. Some of the footwear brands that are popular with millennials use limited editions to create product and brand buzz. Millennials will line up physically and digitally to get their hands on these exclusive products.”

This group’s increasing reliance on peers or ambassadors means customers are among the most influential promotional conduits for companies. Both online and offline, the frequency of peer opinions as top awareness influencers highlights the significance of creating brand ambassadors and delivering a positive customer experience.

Willy Kruh, Global Chair, Consumer & Retail at KPMG International, wonders if boardrooms understand the urgency – or the scale – of the demographic changes that are already remaking the industry.

“Millennials have turned the world upside down,” Kruh says. “Apple, craft beer, Airbnb, Uber have all been driven by them. Their behaviours, although not homogeneous geographically, have certain common threads: being digital natives, not going to stores to buy, driving online sales, putting a premium on experience and wanting things delivered and done for them – that’s why they’re known as the Do-It-For-Me generation.”

The next big change will be the growing importance of “Generation Z” (those born from the mid 1990s to the early 2000s). They are likely to be a bigger cohort than either the millennials or the baby boomers.

Teperson of The Accent Group notes:

“However fast and profound we thought the last five years were, the next five years are going to be even more profound, and even more radical in terms of pace of change, because Generation Z grew up with the mobile phones in their hand, it’s native to them.”

Redefining convenience

Accenture notes that the definition of convenience is no longer location based. Convenience now demands an ecosystem of products, technologies and services that enable easy interactions.

Examples include delivery and concierge services. Products come to consumers where and when they need them, with an array of value-added options – delivery curbside, to work, to their front door or inside their pantries and refrigerators.

Unlike early referral service models where retailers would help consumers find a service provider, new models will feature “menu-priced services”. For instance, Amazon Home Services allows customers to connect with background-checked, insured and licensed service professionals for tasks ranging from furniture assembly to yard work. Best Buy’s “Geek Squad” has more than 20,000 agents who will travel to a customer’s home to help them get the most from their technology products, including home theatre systems and appliance set up.

In Australia, IKEA now offers customers the option to book and pay for someone to assemble their furniture at the same time they purchase it in store. This provides the added service and convenience now demanded by many modern consumers rather than leaving the consumer to perhaps search online themselves for help with assembly.

The desire for convenience has become particularly noticeable in the area of ready prepared meals. Research firm Euromonitor notes that with competing family, work and personal priorities, it is no surprise that cooking and meal preparation falls by the wayside for many consumers, who then resort to ready meals, takeaway and delivery. This is especially true for Gen Z and young millennials under 25.

As well as ready prepared meals, meal preparation kits have been a strong growth category to fill the need of consumers, particularly those in their 20s and 30s, who would rather spend time on non-cooking activities, but who also recognise the benefits of cooking at home.

The rise of subscription services

Subscription services are another area that is part of the boom in convenience demanded by consumers. McKinsey asserts that e-commerce subscribers tend to be younger urbanites with money. Compared with the general US population, they are more likely to be 25 to 44 years old, to have incomes from $50,000 to $100,000, and to live in urban environments in the North-eastern United States. These subscriptions particularly appeal to women, who account for 60% of them.

For those who subscribe, the model can be quite appealing. The median number of subscriptions an active subscriber holds is two, but nearly 35% have three or more. Male shoppers are more likely than women to have three or more active subscriptions—42% versus 28%, respectively—suggesting that men particularly value automated purchasing and the ability to limit store trips.

There are three broad types of subscriptions: replenishment, curation and access. Replenishment subscriptions allow consumers to automate the purchase of commodity items, such as razors or diapers. Curation subscriptions seek to surprise and delight by providing new items or highly personalised experiences in categories such as apparel, beauty and food. Last, access subscribers pay a monthly fee to obtain lower prices or members-only perks, primarily in the apparel and food categories.

Curation services, with 55% of total subscriptions, are by far the most popular, suggesting a strong desire for personalised services. Replenishment accounts for 32% of subscriptions and access subscriptions for 13%.

Insight: Paid subscriptions should be considered as part of any marketing mix. Consumers have shown a willingness to continue paying for a range of new and innovative products where they see value.

A new approach to experiences

Growing environmental concerns, shifting cultural status symbols and the era of sharing life via social media have all contributed to more and more consumers seeking experiences over things, with millennials leading the way.

The “experience” factor is also why physical stores will remain important. Over one-third of global consumers enjoy visiting shopping malls and browsing in stores, even when they do not need to buy anything, and one-quarter report that they often make impulse purchases.

Consultants EY point out that, as more products and services become commoditised, consumers are putting increasing value on experiences.

A survey by Adobe found that “customer experience” was seen by most retailers globally as a key differentiator.

Consultants Deloitte have stated that retail innovators know technology is no longer supplemental to the shopping experience, it is fundamental. Technology alone, however, is not enough. Customers are seeking new and surprising products and experiences. Retailers are increasingly challenged to find ways to delight their customers and strengthen loyalty. It is about mastering the art and science of customer engagement to design fresh experiences, enabled by technology.

They highlight that the consumption of “experiences” has outpaced the consumption of “goods” by a factor of three over the last two years. This means decreased share of wallet on non-durable and durable goods (particularly apparel), as well as declining foot traffic at mass retailers and department stores. We are seeing a movement away from the mass-produced toward the bespoke.

Customers worldwide are busy following celebrities and brands on social media and simultaneously building their own audiences. They are seeking experiences and products that reflect the personal brand they promote on social media. This manifested initially in the travel and tourism sector. Resorts have focused on being “Instagrammable”, with Condé Nast now aggregating data on geotags and hashtags to inform their reviews. Hotel guests, particularly millennials, value how their trips are perceived on social media as much as the actual quality of the real experience.

In China, Alibaba’s online channel TMall has introduced a “see now, buy now” experience for fashion. Consumers watching a fashion show on TV can buy items they like directly from TMall.

Accent Group’s Teperson describes the need to offer a top customer experience this way:

“… to differentiate ourselves in the market we’d have to have the best in-store fit out and environment, so the most innovative environment, the most exciting and engaging environment, we’d have to have the best merchandise that is available in the market. You can no longer differentiate yourself on product, because product is readily available everywhere.

“The other one is service, so we invest huge amounts of money in service experience, so our teams in our stores are really leading the way in terms of how we provide service to customers, and that has to look different in each of our different retail formats. For example in Platypus, which is really a trend and culture led business, we have live DJ’s in our stores, and the vibe and the experience that you get there is a very sensory related experience. On the other end of the spectrum, you have The Athlete’s Foot, which is a fitting specialist business, that it’s really providing say one to one and customer service, so as far as we measure and analyse your foot, that’s so that we can make the best recommendations for the right shoe for your foot.”

Experiences are digital, too

Digital is clearly the avenue for acting on local insights through customised marketing execution, such as personalised offers. Customer-facing apps allow businesses to drive traffic by providing services that customers want. Social media also can grab the attention of a local audience.

Accenture highlights the example of US cafe chain Panera which offers an app called Panera 2.0. Accenture believes this app is proving the power of turning data into analytic insights. The company has seen a 28% increase in sales in just two years. Users of Panera’s platform can order from their phone or in-café iPad kiosks. Customers can save regular orders as favourites for easy ordering the next time. Also, orders are linked to a loyalty program to further reduce friction and enable a seamless experience.

Highlighting that the move to new technologies and delivery methods is not easy, Panera CEO Blaine Hurst said that, originally, the service was nothing close to the hit it is today. “In 2014, we nearly killed delivery,” Hurst told Business Insider. Panera is now delivering across the US. The chain recently announced that delivery is now available in 897 cities and 43 states nationwide. What’s more, 62% of Panera’s business is off-premise, which includes drive-thru, take-out, delivery, and catering.

Insight: Brands that allow customers to share great experiences are able to build organic marketing at an unprecedented scale and speed. Consideration of how product, price, and service interact to create positive experiences is a vital part of the retail offering.

Payment methods

Australian consumers are now relying less on cash when they shop, preferring to use debit or credit cards and smartphones.

Globally, cash use is declining. Sweden is leading the charge as it aims to become a cashless society by 2030. Swedes use cash for only 30% of transactions (1% in value).

Reserve Bank of Australia (RBA) data shows that, while Australians still use cash, a decline is also evident. RBA researchers stated that while Australian consumers have increasingly been using electronic payment methods in preference to cash for their transactions, the overall demand for cash in Australia, however, remains strong.

The 2016 study by the RBA revealed that cash was used for only 37% of payments, down from 47% in 2013 and 69% in 2007. This data is based on the number of transactions, but, when the RBA looked at value of transactions, cash was only used for 18% of transactions in 2013. Debit and credit cards are now the preferred payment method for Australian consumers at 52% in 2016 up from only 26% in 2007.

The other technological development that is starting to impact payments in Australia is the use of mobile credit card payments (that is the card is stored on a mobile device which is then used to make the payment).

The rise of sustainability

As mentioned earlier, millennials in particular like to support companies perceived to do good, preferring to spend their money with brands that are socially responsible.

A 2015 survey by Nielsen found that 83% of millennials would be willing to spend more on a product if it came from a sustainable brand. Arguably the most socially aware generation to date, millennials want brands to be open and honest about their social responsibility initiatives.

Accenture quotes research from Nielsen showing that more than half of consumers (55%) are willing to pay more for products and services from companies committed to positive social and environmental justice.

Credit Suisse, in a report titled “Millennials’ Values”, noted that sustainability “is a core value for millennials, who are becoming more and more demanding in this regard, requiring companies to show how they make a positive contribution to society before buying their products”.

Accenture Consulting described the example of US yoghurt company Noosa. The CEO of Noosa, Darcey Macken, claims that Noosa is well-positioned with millennials who rank trust, value and transparency high on their list. She says the company has “a genuine, authentic story with happy cows on a family farm”.

“Power continues to shift rapidly to the consumer. The level of detail our consumers want to know about our farm and our food is amazing. It’s a great time for us in the industry to talk back to our consumers and be transparent.”

Accenture believes that transparency may become a key non-price purchase trigger. They note research showing that 9 in 10 consumers globally rate ingredient transparency as important or very important for companies to address.

In another example of the interest in ethical sourcing, Australian app Good On You provides data on 1500 fashion brands and measures the sustainability impact of fashion brands based on three criteria: labour impact, environmental impact and animal welfare such as use of furs and leathers.

The company gives brands ratings that range from five stars (“great”) to one star (“we avoid”). Major global brands such as H&M and Zara are rated three stars (“it’s a start”) for creating “short-lived, fast-fashion” products.

The app has been downloaded more than 120,000 times since its launch in 2015. Its key users are Australian and US women in their 20s and 30s.

Co-founder Gordon Renouf hopes the app will put pressure on fashion brands to improve their practices and make their supply chain more transparent.

“Even if 2, 3 or 4% [of your customers] walk away, that’s enough stimulus,” he said.

The app comes as fashion retailers are facing increasing pressure to be transparent about their practices.

In 2016, Australian label Gorman faced backlash for posting Instagram photos of Chinese factory workers making Gorman garments, as consumers questioned the company’s labour practices on social media.

This year denim and apparel retailer Jeanswest became one of the first Australian retailers to publish all its tier-one supplier list to the public, to improve transparency.

Australia’s major department stores are also getting aboard. David Jones launched a limited collection to coincide with Fashion Revolution Week.

Fashion Revolution Week was created to raise awareness of workers’ conditions on the first anniversary of the Rana Plaza garment factory collapse in Bangladesh, in which 1138 people, mainly women, died.

A David Jones spokesman said at the time: “There are brands that do a lot of good things we don’t tell customers about. We’re encouraging them to share more with the customer. We want to bring about awareness, it’s not about driving profit”.

Competitor Myer is also committed to improving “transparency and visibility” around sustainable choices, says the company’s executive general manager of HR, risk and safety, Louise Tebbutt.

“Increasingly, our customers are researching the origins of the products they buy and are looking for responsibly produced items, so having further transparency and visibility on this is something we’ll be placing a greater emphasis on,” she said in April.

Teperson at Accent Group has said that issues such as ethical sourcing “used to be a niche area, although not yet mainstream, it is growing in importance driven by millennials”.

While this is a hot topic at the moment and clearly taking up the attention of firms, it will be fascinating to see if the interest in sustainability from consumers as a purchasing factor is maintained over time.

Insight: While some of the concern about sustainability may be concentrated in particular customer segments, over the long-term this appears to be an increasing consideration in the global consumer market. While it may not be relevant to some retailers now, it could be in the future, so staying abreast of the community conversation is important.

Tying together the mega-trends

In the future, it is likely that our personal technologies will evaluate what products or services we need, when we need them and where best to buy them – not just in terms of finding the right price, but also in terms of sourcing brands and suppliers that align with our values.

Consumers will trust these intermediary technologies to curate the right choices and purchases on their behalf. Today, 47% of consumers already say they are open to the idea of buying items through a chatbot. Furthermore, almost half of US consumers say they are willing to share personal information if it gets them a better deal.

As buying becomes more automated, it will become a very different activity from shopping, which will also evolve. We will actively “shop” for only a select few brands. These purchases will help people express and shape their identities.

For future consumers, buying will become an act that we find necessary, but mundane; a task we’ll personally spend as little time and thought on as possible. Shopping will evolve into the realm of immersive experiences, requiring an investment of the time we choose to give. It will be the space where we engage with the brands we love, that reflect our values and feel part of who we are.

Over time, consumer engagement will polarise. Many people are likely to become disengaged from a lot of the products and services we buy. Brands will need to ensure clear differentiation or risk becoming commoditised as a result. But people will also become super-engaged with those brands that capture their hearts and minds. This won’t be limited to luxury or expensive brands but will also include brands that are valued in different ways: for example, their ethics may resonate, or they may give a sense of the treasure-hunt experience when people search for bargains. These super-engagement brands are the only ones people will actively “shop” for or with, because they help us express and shape our identities.

Future shopping will have to be a highly conscious and experience-led activity, taking place in retail destinations that provide differentiated and relevant goods and services in distinctive virtual or physical spaces. Talent will shift from task focus to offering expertise and experience. Successful retailers will be those producing their own branded goods and services. Most of their profit will come from production and related services, not distribution.

Technology is rapidly changing how we live and how we will shop. Research by consulting firm Deloitte notes the impact of technology is not just limited to the in-store experience. Deloitte asks us to consider the arrival of driverless cars and their potential impact on behaviour. Unmanned cars will allow smaller or hyper-local retailers to afford personal, same-day deliveries. Imagine buying baked goods directly from the bakery, while they are still hot. Or being able to program your car to run errands to multiple stores and pick up everything on your shopping list. The impacts to the customer journey from self-driving vehicles are endless.

As if the online/offline mix were not enough of a challenge, industry leaders are also already grappling with digitally-enabled business models such as rental and secondary markets (the sharing economy), the personalisation economy (curated subscriptions), auto-replenishment and smart ordering via the replenishment economy and the services economy (“Do it for me.”). But, adapting business models to accommodate these new trends could be highly profitable, with Accenture estimating US$2.95 trillion of potential value for the industry and consumers.

Ever-connected consumers have higher expectations than ever before as combinatorial technology and new business models provide many ways for them to discover, purchase and engage. Not only are consumers dictating exactly what they want, but they are embedding themselves at all stages of the value chain – acting as developers, marketers, salespeople and even employees. This is a fundamental change in the consumer value equation, amplifying historic drivers – cost, choice and convenience – and adding both control and end-to-end experience.

Accenture research suggests that technology innovation and the Internet of Things will exponentially increase the number of points of purchase. The store is rapidly becoming just one node on a spectrum of opportunities to reach customers.

The Accenture research notes that already people buy while scrolling through Facebook. They use voice recognition to ask Alexa advice on the best brand for removing stains. Customers might purchase jewellery at a pop-up shop at a local music festival. And the interaction doesn’t stop at the purchase. Technology allows customers to interact with brands across time and platforms which is why the Alexa model is now being viewed as a future platform for advertising. If the advice steers consumers to purchase a brand, brands need to be on Alexa.

Chinese company Alibaba has introduced innovations using Augmented Reality to offer consumers virtual dressing rooms where they can see what clothes would look like on them and a mobile app that allows consumers to take a photo of themselves and experiment with different make-up products.

Boston Consulting advise that, while peer pressure from flashier digital counterparts is heavy, wise retailers only invest in a digital strategy that fits their customers’ specific needs. They suggest retailers only make digital investments that truly serve their customers’ needs in a differentiated way. But this will vary by retailer. For example, some retailers may need to make operational investments to reduce costs, so they can lower prices, rather than spending on showier digital investments.

Australian online fashion retailer The Iconic has adopted technology from Alibaba Inc that allows consumers to take photos on their mobile device of clothing they like and upload them to a visual search engine. If a consumer likes their friend’s new shoes or a dress they see on social media they can take a photo, find the product on the website and purchase it.

The place for physical stores

The majority of retail sales still comes from physical stores. While that is likely to continue for the near future, many retailers are updating their store models to ensure they keep the interest of today’s consumer.

A survey by PwC shows that the physical store is not dead. Although mobile has increased as a means of shopping, over the past five years the percentage of shoppers purchasing via physical retail stores is relatively unchanged. Mobile (and tablets) has largely grown at the expense of PC usage.

In an article on the retail sector, Bain points out that a huge part of the challenge has been figuring out how to nail the online offering without losing sight of the critical role that stores will play in the customer experience. That requires boldly experimenting with stores to enhance the shopper experience—to learn what shoppers like in a local trade area while testing your own capabilities. For example, you could install cafes where shoppers can dine on prepared foods provided by third-party vendors or devote aisles to fresh seafood. You might design an attractive space devoted to picking up items bought online, or erect kiosks for placing online orders that will be delivered to a shopper’s home within an hour, seamlessly combining the best of both physical and digital retailing.

Bain tell retailers to “ask yourself what you want the physical store to look like for your customers and begin moving in that direction now. For example, create a customer-friendly pick-up experience that is operationally efficient”. They give the example of Walmart which is experimenting with an offering where customers can text an associate while in the parking lot to get a head start on picking up items purchased online.

Research by the US National Retail Federation shows that 78% of consumers are visiting physical retail shops as often or more often than a year ago. The experience of shopping is still an attraction.

Scott Rigby, Adobe’s Head of Digital Transformation for Enterprise Solutions, APAC, highlights the term ‘Phygital’ – the blending of the physical and the digital – a term that has been coined to describe an optimal in-store experience, neatly capturing the need for a more engaging and digitally-enhanced offline experience that brings the convenience, efficiency and information-rich nature of online shopping to the in-store environment.

Personalisation

Personalisation is another growing trend in retailing.

Boston Consulting Group emphasises that retailers should prioritise opportunities for intervention based on pain points, need, or opportunity. They should ensure that they are delivering personalisation with a purpose, that each intervention delights or adds value for the customer.

They also point out that it is important to avoid defining customer value too broadly or superficially. The definition must be sufficiently granular – by department or category – to be actionable and operational. For example, many retailers say that their customers prize “value” or “a high degree of choice”. But these concepts are too broad and vague to translate easily into concrete supportive action and are even less helpful when applied storewide.

Professor Tiberio Caetano from the University of New South Wales describes personalisation as “treating different people in different ways with the aim of increasing profit”.

Providing excellent consumer support, loyalty programs and benefits, and a forum for feedback, will all remain vital to earning the loyalty of customers across generations. However, to attract the younger consumers, companies need to offer more personalised interactions, more customised experiences and one-on one engagement.

As millennials become a larger proportion of the total consumer market, excellent customer support and loyalty benefits will become minimum expectations. Loyalty will be granted to those companies that make their customers feel like they are part of a community, and one where they feel important, unique and valued.

Conclusion

While the rise of online shopping is getting attention, physical retail is still dominant and likely to remain so for some time.

Nevertheless, retailers need to be aware of the rapidly changing demands of the consumer and particularly the impact of technology.

Consumers are looking for a seamless experience – whether online or in-store, they expect a more personalised service. Convenience is the other key demand of today’s consumer.

There is also an increasing interest in sustainable and environmentally-friendly products and practices.

Retailers need to be able to adapt to these trends and ensure they can use the data they have available to design an experience their consumers now demand.

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