ANALYST: James Cooke, Nucleus Research

The Bottom Line 

As retailers seek to master Omni-channel commerce, they need to engage in demand shaping, the practice of spurring consumers to buy products to move inventory. Omni-channel retailers can use this supply chain strategy to avoid discounting stock and to preserve margins. Nucleus has found that companies using sophisticated inventory optimization applications in conjunction with price elasticity tactics can cut inventory and obsolescence costs by as much as 20 percent.

Demand Shaping

The chief competitor to all Omni-channel retailers – electronic commerce giant Amazon.com Inc., based in Seattle – is already the master of demand shaping. Amazon uses its knowledge of online buyers’ past purchases and prompts them to make new purchases, using targeted emails. In that way Amazon encourages demand for its inventory, using promotions and offers to motivate consumer purchasing behavior.

Amazon is hardly alone in practicing demand shaping. Worldwide distributor of electronics and maintenance products, RS Components in Corby, United Kingdom, prompts visitors to its website with buying offers. If an online customer buys a power tool, then the RS Component’s website might suggest batteries as an accessory purchase. RS Components has gone even further in engaging in pricing elasticity tactics, trying to link product pricing to market availability and competition.

If they haven’t done so already, Omni-channel retailers should emulate Amazon and RS Components and employ demand shaping on their websites. As a first step, a merchant needs a common pricing strategy for both online and in-store items to avoid sabotaging themselves by offering lower prices on merchandise in one channel and not the other. They need to capture point of sale transactions, whether at the store cash register or on the click button on the web store front, to update inventory in real time.

Second, merchants need to deploy sophisticated demand planning and inventory optimization applications in conjunction with promotion software. In fact, advanced inventory optimization software can pinpoint the window period for selling that avoids margin erosion, an important consideration when selling products with life cycles.

Armed with that knowledge, a retailer can get involved with demand shaping. They can employ a promotion campaign for select stock items either with offers to website visitors or through a targeted email to a list to spur purchases of products before they are forced to engage in deep price cuts in order to move items taking up space in the warehouse.

Quantifying the Value 

Although the main goal of demand shaping is to increase sales, it has another important benefit – supply chain efficiency. A well-run supply chain keeps just the minimal amount of inventory on hand to support sales and avoids obsolescent costs. This approach is especially beneficial to merchants engaged in a common pool of inventory strategy, pulling stock for web-placed orders from both the warehouse and retail location.

Unsold items act as a drag on a retailer’s top line and bottom-line. The traditional practice has been for the retailer to get rid of aging stock through enticements such as “on sale” signs in the store to goad price-conscious consumers into opening their wallets or purses.

Unfortunately for brick-and-mortar merchants, shopping sites such as Amazon do not have the expense of overhead associated with physical structures and retail labor. Its inventory carrying costs only occur in the distribution center unlike a traditional retailer who bears both store and warehouse costs for holding stock.

That’s why if they have not done so already, Omni-channel retailers need to catch up to shopping sites and adopt demand shaping. Not only can this tactic boost sales, it can result in bottom-line savings. In fact, an analysis by Nucleus Research shows that significant savings are likely. Nucleus has confirmed that one company using demand shaping reduced both inventory and obsolescent costs by timing promotions to move items before the market forced prices downward. That company received a 20 percent savings in inventory and obsolescence. Nucleus believes that this experience is hardly unique and that other Omni-channel retailers would receive similar benefits.

Conclusion

In comparison to digital merchants, Omni-channel retailers are handicapped by having to maintain a physical presence in addition to an online sales channel. To be profitable running two channels, they need to turn over inventory as quickly as possible. That’s why they need to adopt demand shaping to move product out of the warehouse and store, thus lowering inventory carrying and obsolescence costs in addition to boosting sales.

ECS Global Inc, the world-renowned communications company, is about to change…so that they can stay the same. This is because a range of customers from a variety of iconic retailers, through to the smallest retailer, have consistently responded to the Company’s core values of personalized service, stability and reliability, consequently enabling them to grow rapidly – but they still want the ECS Global approach and culture of personality, realism and honesty on a one-to-one basis.

Such an approach is getting harder to maintain in the face of digital marketing which, on the surface, enables companies to target potential customers online with messages designed and timed to correspond with their receptiveness at different times of the year or week or day. In reality, this is only ‘Information Architecture’ as the approach is designed to match a customer profile which assumes a preference for this channel – but usually, is ‘backed-up’ by other methods, such as paper, telephone calls, etc. This then makes the marketing exercise costly and inefficient and exactly the opposite of what it was supposed to do by reducing the feel of a personalized approach.

This was the challenge facing ECS Global – how to enable customer organizations to join up these channels, remove significant duplication and inconsistency, and to touch their target audience through the channels they wish to be communicated through. In other words, do what ECS Global does!

Therefore, The ECS5 Media Suite has been devised to enable all organizations to communicate with a customer, whether in a physical location or external, by engaging with them through the most appropriate channel. The risk is of course, that the choice of channel is correctly ‘matched’ – get it right, and you increase sales and reduce costs: get it wrong…well, that’s where the ‘panic alarm’ element of the system comes into play. This is the ‘back-up’ which enables the client to feel that they do have a ‘Plan B’!

Naturally, this being ECS Global, they wouldn’t ask a client to do what they couldn’t, or didn’t do themselves, so the Chief Executive Officer, Derek Buchanan, set out a clear articulation of what clients can expect from interaction with the ECS Global team – anywhere in the world. They get personality, punctuality, speedy responsiveness, a realistic commitment that can be fulfilled, and if something changes (for good or bad) then the client will be told in advance and honestly. Perhaps most important of these is the ‘match’ of personality to the client, so that the individual, personalized approach is established and maintained – the client gets to communicate with ECS Global through the channel they want!

In effect, through training and shrewd, discrete recruitment, the ECS Global culture is being maintained, but also being shared with clients as part of a long-term strategy of growth for both parties in the deal. Remember, this growth is based on ECS Global’s aspiration to be trusted by their clients and ensure they are always able to provide guidance and support, through a total and passionate commitment to their clients in delivering the best quality solutions and service, so feedback is essential.

What does this feedback currently look like? Here’s a representative sample from clients –

“By using the ECS5 Media Suite, we are able to rapidly deploy specific marketing campaigns in store, which are both cost effective and complement the brand.”

“Since we introduced the ECS5 Media Suite, we have a more professional look and feel in our stores. The solution has enabled us to achieve significant savings through improved efficiency and also an uplift in sales through better consistency in our signs”.

“The ECS5 Media Suite allows us to try different ways of communicating with customers and what really struck us was their understanding of what we are trying to achieve as a business, and their knowledge of what content was becoming in a future Omni-channel world”.

The key words here are ‘knowledge and understanding’ – these encapsulate the culture which makes ECS Global a reliable and trustworthy partner in delivering the same high quality product and service through ‘more of the same’!

Kitchen Stuff Plus is a Canadian owned and operated retailer in the Greater Toronto Area offering an ever changing variety of cookware, kitchen gadgets, bath accessories, housewares and home decor products. Starting from a single booth at a local Flea Market just over 20 years ago, Kitchen Stuff Plus has grown to include 14 retail locations, a Warehouse Sale location and an eCommerce sales channel that services Canada and the USA.

As a discount retailer with regular pricing adjustments, over 8,000 unique products in-stock, new products arriving every day and a variety of footprints, Kitchen Stuff Plus faces a variety of challenges when it comes to ensuring that signage information is current and correct. In the past, signage was generated manually by each store, leading to reduced productivity and occasional spelling mistakes and pricing errors – all of which has been resolved by implementing the ECS5 Media Suite throughout the retail chain.

“We discovered the ECS5 Media Suite and fell in love with it. This software allows us to feed all of our product and pricing information, including product descriptions and the category the item belongs to, directly from our Microsoft Dynamics Nav ERP System. We can automatically generate signage for a variety of templates and print them in the various sizes required by our stores,” says John Thompson, Director of IT at Kitchen Stuff Plus.

Jay Engel, Merchandising Manager, remarks “We were very excited to see what we could do so quickly with the ECS5 Media Suite and knew that we could do so much more as we became comfortable with the software! We could implement almost any idea without limitation!”

Part of Kitchen Stuff Plus’ store signage solution is to communicate the incredible value customers are receiving and the ECS5 Media Suite allowed them to create various templates for visual impact as customers browse the store. A customer can walk up to a sign, without a store associate, and easily read detailed information about a product – information that they would not usually be able to find without talking to an employee. This improves both the customer shopping experience, making it easier to learn about specific products, as well as helping reduce and re-task labor without impacting the in-store experience.

“One of the things we really like about the solution,” John continues, “is that it has allowed us to introduce full color brand logos onto our signs. We are also able to incorporate graphics as well as features and benefits, making our signs and stores look very professional.”

Kitchen Stuff Plus has found that conversion has significantly improved since implementing ECS5 Media Suite signage, noting that having visually impactful signage helps draw customer attention to the products. The staff were really excited that the solution was web based, meaning that new signage could be printed from any computer in the store, allowing signage updates to be assigned to any staff member with far less training than was previously required, making the entire experience more profitable.

Store associates have found that creating and printing signs is a very easy process, as it only requires that they log in to a computer, type in a stock number, select the sign size and print. All the necessary information for the sign is centrally programmed for them, eliminating spelling and pricing errors. Being able to centrally manage a system from Head Office was an essential part of the ECS5 Media Suite solution, as it makes it quick and easy for all users, creates a consistent look and feel across all stores and allows pricing updates to be instantly communicated to all retail locations simultaneously.

Since going live with the Enterprise Communication Suite, Kitchen Stuff Plus have opened 3 new stores, which they have found to be a much more simple and streamlined experience when it comes to setting up initial store signage, significantly decreasing the time it takes to set up a brand new store.

Utilizing the ECS5 Media Suite has meant that Kitchen Stuff Plus has saved a considerable amount of time and money. Previously each store manually created their own signage, which could consume over an hour of an associates’ time – that time has now been reduced to 15 or 20 minutes. When you multiply that time saving across 14 stores and 365 days a year, the time savings alone are worth the investment.

Another factor in choosing the ECS5 Media Suite solution was knowing that signage could be displayed in multiple languages, which the database is designed to do and is a feature that can be used at any time. Being able to put in solutions today that are going to work tomorrow was vitally important to the Kitchen Stuff Plus IT team.

Liz Early, Store Manager, concludes “This is by far the best signing system we have had and is incredibly quick and efficient. The staff are able to use it very easily and it just saves so much time. The look is very professional and consistent, which helps us make the store look great on a daily basis.”

Derek Buchanan, Chief Executive Officer of ECS Global Inc, says “We are really excited about moving to the next phase with Kitchen Stuff Plus and continuing to evolve our strong relationship and provide Kitchen Stuff Plus with further opportunities in terms of communicating with their client community.”

Geolocation solutions could soon reshape the traditional consumer/retailer relationship and become the next key differentiator in retail.

The explosion in popularity of mobile devices and a continually constrained economy have pushed retailers to re-examine their processes of customer engagement, better aligning them to suit the growing demand of omni-channel.

If not doing it already, retailers will need to take an advanced approach to engagement, implementing solutions such as non-intrusive IP location to capture increasing amounts of data, breaking down the customer journey and filling in the knowledge gaps that give retailers sleepless nights.

Knowing where a customer shops when not in your store or how much they’re spending with competitors has always been a difficult problem to solve. In fact, just being able to recognize your customers when they walk through the door has always been headache-inducing.

Retailers and brands with aspirations to grow their m-commerce offering will need to position themselves correctly with better opt-in schemes and dynamic content to encourage consumer interaction. Developments such as HTML5 on mobile devices make increasingly dynamic content possible and allow retailers to provide better ways to attract consumers and extract a much deeper level of data that could revolutionize the shopping experience.

Systems that use the basic building blocks of geolocation are already becoming a key conversion tool for many online and traditional bricks and mortar retailers. They use WI-FI positioning to automatically reference an IP address against a ‘who is’ database service, locating a customer’s physical details

The next stage of this is not just to isolate where a person is positioned, in terms of map co-ordinates, but where they are at a street level, what are they interacting with and when they’re near your store – be it on a global scale.

Knowing the location of customers is only half the battle however, the true benefit of geolocation relies on having the ability to automatically send personalized data including; discount codes, local offers, news, tie-ins, and national promotions directly to customers. This could be a key differentiator in the future for building relationships and becoming trusted brands.

Other benefits include; being able to deliver the correct country or even regional website for your customers straight away, showing customers your nearest outlets to where they are right now, automatically calculate your customers’ local stock levels or shipping costs, reduce form filling, map out where your site visitors are for planning future campaigns.

Permission to use customer’s personal data remains key and will be a hurdle on the horizon before the technology will be fully adopted. Customers can feel as though their privacy is being invaded and retailers will need to ensure that they tackle this issue fully before investing heavily in rolling out any expensive technology.

Trust validation symbols and SSL certificates may not be enough to convince customers of trusted data security and retailers will need to work hard to encourage them to sign-up or opt-in to a geolocation ‘scheme’, which will bypass a lot of security issues.

Mobile will also unlock ‘self selection’, where the customer views geolocation as an asset and not an intrusion. Customers must be handed a transparent option that is secure and is an obvious asset to their shopping journey – giving them more control and something that will facilitate faster service.

For those who implement successfully, sales could grow rapidly in-line with consumer confidence, along with the ease of buying on the go through a one-click sale strategy that is optimized for mobile devices. As customer user numbers grow so will conversion rates.

Mobile is now being seen as a glue that will hold the bricks and mortar outlet and the online sales place together. Surprisingly, a high percentage of mobile users still log on to use basic functions such as store opening hours.

Mobile retailing can mean different things to different businesses. Many retail media experts are starting to eliminate the tablet device from the mobile sector, as they are generally a replacement for a laptop (often used in front of a TV). Many retailers still include them and they can swing the conversion data and sales reported. This skewing of the numbers has come under much debate as to whether the full picture over mobile retailing is yet accurately known.

Some retail strategies are moving on from in-store kiosks to replace them with one aimed towards a Bring Your Own Device – fitting in perfectly with geolocation and utilizing customers’ own devices.

Larger on-site screens can still add value but or perhaps is used to attract the eye of customers. There are even moves to personalize this display through data gathered through geolocation.

Throughout the consumer journey, shoppers want to be inspired to act and engage in an interconnected way. It is clear that brands and retailers now need to be fearless in their approach to mobile retailing, the omni-channel environment and geolocation.

An inspiring and well thought through adoption of geolocation technology could raise the consumer relationship to new levels, accelerate user adoption, trust, brand loyalty and reduce brand abandonment, while a poor one could generate scepticism and even lose sales.

Derek Buchanan, CEO of ECS Global Inc, urges companies to recognize the importance of joined-up communications.

“Miscommunication is endless,” said JP Rattie. No, I’d never heard of him either, but he has described, in three words, what happens when words and messages are miscommunicated.

Far from being a simple moment in time that can be fixed there and then, miscommunication travels, and can be hard to stop. Take for example, the hotel that failed to take down its posters advertising a Burns Night supper, days after Burns night had passed.

Aside from me sharing this story with as many people as will listen, I now have to worry about whether this single lapse is just an unfortunate mistake or if it is indicative of their general management of information. Am I being too harsh?

The truth is, we expect companies to be consistent and accurate in their communications with us and we are less and less tolerant of mistakes. They used to say, if you have a good experience, you tell ten people, if you have a bad one, you tell 100; well, how about a million, and any number of companies are still regretting the mistakes they made that caused the victim to create a youtube video downloaded by millions of people all over the world.

Reputations take years to build and they can be destroyed in seconds. While companies that ‘fess up’ to their misdemeanours and publicly apologize will always mitigate the damage more than those who try to tough it out, the truth is, most companies routinely miscommunicate with customers in ways that may not lead to a viral youtube video, but do lead to a slow, even initially unnoticeable erosion of trust and of spend. Customer loyalty can disappear with a bang as well as a whimper.

The irony is that companies have never had more ways to communicate with their customers; social media, newspapers and magazines, advertising hoardings, telephone, catalogues, the Internet, stores and restaurants, smartphones. The irony being, here are new ways to get the message across, but at the same time, more opportunities to get it wrong. The problem is often not the message as it is communicated through one channel, but how it is communicated across channels.

Consumers don’t think in terms of channels; they almost certainly don’t care that the company has worked hard for consistency and accuracy in each and every channel, if they don’t actually deliver. This, I believe, is where the battleground is now – how companies can see themselves through the eyes of their customers and still satisfy the varying requirements of each part of the business that is responsible for different channels.

Interestingly, the obvious candidate for managing the flow of information is the CIO, as he/she has the word information in their title, but it falls to a range of people in the business, a range that is broadening with the growth in the number of channels – a certain recipe for greater miscommunication.

Communications are a senior management issue, backed by technology that is able to manage the dissemination of words and messages, visual and audio, in print and digitally, in ways that make it easy for everyone in the business to deploy. This is well beyond the capabilities of the traditional corporate standards manual, which can impose the standards but is unable to respond to constant changes in market conditions.

Once companies have control of their communications, they will need to ensure compliance by their staff in how they are deployed and managed. “The single biggest problem in communication is the illusion that it has taken place,” said the playwright George Bernard Shaw. How common is it for retailers to impose rigorous standards in terms of labeling, promotions and pricing, only to see the individual stores deploy either incorrectly, inconsistently or without due care over the life of the stock, with the result that price tags may be wrong or even missing.

Ultimately, it is the customer who is now in control and they will make decisions not to buy even at the very last minute. For instance, some fashion retailers have discovered that customers will try on a garment in the changing room, find it fits, want to buy it but then dump it once they emerge from the changing room to see a long queue at the checkout.

Communications at this level is a much more demanding science, because it requires an understanding of the customer journey, both in-store and online, and it is not a predictable journey that can be easily mapped, with a route from A to Z. The truth is, the customer now navigates around a supplier in ways that are entirely known to him but often puzzling to the retailer. Added to which, the customer is now communicating in the other direction through social media in an unstructured fashion that can create a deafening white noise of feedback that even the largest and most responsive company can struggle to manage.

I’m the last person to say that the answer to these challenges is simple, but I do recognize that the rewards for companies who get it right are enormous. How else to explain that, in the teeth of a recession, some companies are posting record sales, while others are going out of business. Communications are one of the major differences between these two types of company.