Executive Thought Leadership

Courting the Connected Consumer

Best practices for retailers in the age of networked information and customer participation.

The retail industry is in the midst of a major transition, driven by the rise of the “connected consumer” on one hand, and the need to increase revenue, or top-line growth, on the other. This transition presents retailers with new challenges and opportunities.

Connected consumers are shoppers who use technology to apply the elements of value in new and different ways. They use the Internet to compare multiple items online to find the best prices and selection. Technology has enabled these connected consumers to expect multiple options in the areas of convenience, shopping assistance, inventory, privacy, and interaction—well beyond the confines of a physical storefront. The mind-set of this connected consumer has shifted to expect localized and personalized service.

The 2006 holiday shopping season erased any remaining doubts about the rise of the connected consumer. Same-store sales during that period increased only 3.1%, according to the International Council of Shopping Centers. Online shopping, however, jumped 26%, according to ComScore Networks Inc.

Changing Behavior, Shifting Priorities

As frequent visitors to sites such as Amazon.com and Netflix.com, connected consumers are accustomed to receiving highly personalized product suggestions based on preferences and their previous retail interactions. They now expect this kind of personalized customer experience, whether shopping online or in stores. And these expectations cross nearly every industry, whether it is consumer goods, retail financial services, healthcare, or automotive.

Perhaps nowhere is the connected consumer more prevalent than in the Generation Y group. The first generation raised in the digital age, Generation Y interacts with their universe online: their homework is done on a computer, almost all forms of communication are conducted online, and they consume entertainment over the network. As a result, they expect a digital interface to all providers in their lives, irrespective of industry or service.

Concurrent with this trend is the growing pressure on retailers to increase top-line growth. During the past few years, many retailers focused on improving the bottom line by implementing fast and easy cost-cutting measures. Once they squeezed out inefficiencies, retailers focused on improving their top line in order to increase earnings.

But increasing top-line growth isn’t easy. During the past five years, the average S&P 500 company increased bottom-line growth by 28 to 30%, but top-line growth only by about 8%.

Retailers that recognize the critical importance of addressing these connected consumers’ expectations by providing a rich customer experience will increase brand recognition and, ultimately, their sales. The findings of the recently released, second annual e-commerce study conducted by the Cisco Internet Business Solutions Group (IBSG) provide a case in point. The study found that relative newcomer Scion (a marque of Toyota Motor Corporation) edged out retail giants such as Sears, Target, Circuit City, and Wal-Mart by ranking highest in providing an engaging online customer experience. This has contributed to Scion’s impressive 80% brand-name recognition among its 35-and-younger target market.

Retailers will continue to recognize the role of emerging capabilities—converged technologies and advanced processes, such as community and social networking and multichannel integration—as critical in meeting the needs of today’s connected consumers. Truly integrated multichannel capabilities also are an important pillar of the connected customer experience. Retailers need to develop customer-centric processes, enabled by technology, to deliver a differentiated experience.

Creating Customer Loyalty

Delivering a positive experience to all customers—and especially to connected consumers—is essential to increasing top-line growth. After all, consistently satisfied customers turn into loyal customers, by far the most profitable segment of retail shoppers. Loyal customers expect the retailer to know when and where they are shopping, to receive customized and personalized solutions, and to be rewarded for their loyalty. These expectations require the retailer to capture a great deal of data about shoppers, and then to turn this information into actionable insights.

Many consumers want more than just the right item at the right price—they want a positive customer experience. The traditional in-store retail experience increasingly frustrates them. They feel they don’t get enough attention, and they’ve grown tired of dealing with inexperienced sales clerks and hearing that specific items are unavailable.

Nearly 80% of companies believe they provide a positive customer experience. Unfortunately, only 8% of consumers agree. This disparity suggests that many retailers are only just beginning to understand how to provide consumers—connected or otherwise—with an experience that transforms merely satisfied customers into loyal ones who place a premium on preferred vendors.

Starbucks is one retailer that understands the importance of delivering a positive customer experience. Consumers gladly stand in line at Starbucks to pay a premium for a cup of coffee, even when they can get it next door for less. Why? Because Starbucks delivers a consistently positive customer experience. Other examples of companies that create a positive customer experience include Apple, Best Buy, and Tesco.

Delivering a Positive Experience

So what can your company do to deliver a positive customer experience?

Learn as much as possible about your customers’ preferences, transaction histories, and needs, regardless of whether they approach your company in the store, over the phone, or online. The more information you have, the better you can deliver on customer expectations.
Provide your salespeople with the most up-to-date information about your inventory at all times so they don’t have to tell a customer “no.”
Rethink how you deliver sales promotions. Although the majority of purchasing decisions—75% by some estimates— are made at the point of sale, only a minority of promotions actually are targeted to consumers at the point of sale. Clearly, it would be more effective to deliver these promotions where a purchase is more likely to occur. Numerous network-based technologies, such as digital signage, information kiosks, radio frequency identification tags, and opt-in location services that beam promotions directly to a customer’s handheld device, can help accomplish this.
Develop an intelligent retail network that is secure and optimized for retail-specific functions. This provides the foundation for delivering a set of common services to all devices and applications you deploy, whether they’re at corporate headquarters, store locations, the call center, distribution center, or on the Web.

Looking Ahead

In the future, the most successful retailers will be those that best understand connected consumers and build their businesses around them. They will have an intelligent retail network infrastructure in place, enabling them to learn more about their customers, to provide up-to-date information across retail channels, to deliver targeted point-of-sale promotions more easily, and to sell to customers successfully across all sales channels, at all times.

The successful retailer of the future will use the information gathered from devices on an intelligent retail network to transform interest into demand, prospects into customers, and customers into evangelists. Ultimately, loyal customers are what drive a retailer’s top-line growth. They’ll keep Wall Street and your shareholders happy. And, most important, they’ll keep you in business for years to come.