Digital Evolution and its Impact on Retailing Value Chain
Digital transformation is widely gaining prominence in every industry. Manufacturers or Brands go digital to offer product or services that meet consumer expectations and to enhance business operations. In retail industry, the reason behind companies going digital is to respond to customer requirements and employee needs (Meyer, Helmholz and Bissantz, 2018).
In the retail value chain, the stationary retailing are being challenged as most retail trades are shifting from store-based formats to internet-based formats. The blog reflects impact of digital evolution on retailing value chain and how retailers can overcome this using sources of value creation.
“Stores only existed because the Internet hadn’t been invented”
-Oliver Samwer, CEO of Rocket Internet.
Brands/Manufacturers Reaching Consumers Directly.
Nowadays, manufacturers are increasingly reaching their customers directly due to which the role of intermediary retail stores is wearing off (Reinartz, Wiegand, and Imschloss, 2019). They are able to build powerful brand ecosystem that interact with customers through IoT, personalized communication, engagement and direct selling which leads to a new form of value creation. Big brands like Samsung and Nike have opened their own personal stores worldwide to sell and interact directly with their customers (Childs and Jin, 2018). Moreover, by 2020 Adidas is planning to own 60% of the retail space globally by increasing its flagship stores and stores within stores concept (Reinartz, Wiegand, and Imschloss, 2019). Furthermore, the IoT technologies is allowing manufacturers to stay in contact with consumers throughout the product lifecycle (Reinartz, Wiegand, and Imschloss, 2019). For example, BMW uses IoT to enhance customer engagement. When a customer locks their key inside the car, they can contact BMW directly and answer some questions. The doors will be unlocked remotely by BMW (Oancea and Simion 2018).
Third-Party Services Becoming Major Players.
There are some third-party services which are very effective intermediaries that link the manufacturers or sellers to the consumers and enable value creating interactions (Reinartz, Wiegand, and Imschloss, 2019). The main purpose of these third-party platforms is to make exchange of goods and transactions easy (Parker, Alstyne and Choudary, 2016). The famous examples are Amazon, Alibaba and eBay which do not carry inventory and still make profit from every transaction (Kasana and Chaudhary, 2014). Due to digital transformation these third-parties have become some of the most valuable platforms for customers as they are easily accessible points for transaction and information (Kasana and Chaudhary, 2014). This has been a threat to current retailer value chains as due to digital transformation, the traditional structure of (manufacturer to retailer to customer) has moved to each interacting directly with final customer and competing on who governs the end-consumer relationship (Reinartz, Wiegand, and Imschloss, 2019).
Amazon is the largest online retailer and the most extensive product search engine (McGee, 2017). It is widely used by consumers to compare prices, find particular products to buy and browse categories. Amazon has the power on consumer decision making as the products which would not be in Amazon’s list would not even come in consumer’s consideration. Amazon’s 1 click purchase options and checkout funnel easily takes customers from search to transaction (McGee, 2017). Moreover, reviews and ranking of products on Amazon website also strongly impact purchasing decisions (Mudambi and Schuff, 2010).
5 New Sources of Retail Value Creation in Digital World.
The sources of value creation which enables retailers to create value for consumers in this digital world are as follow:
Automation is known as all the processes and activities that operate automatically with no active human input. It enables value creation through more efficiency and convenience by using and optimized product. Through IoT, appliances such as refrigerators and washing machines can order refills automatically when supply is finishing (Cepa and Schildt. 2019). Another good example is of General Electric Company (GE), which has installed IoT sensors in the engines of aircraft that allows mechanics to monitor remotely the health of each component and collect data to help prevent engine failures and to monitor usage (Ju, Kim and Ahn, 2016).
Individualization means to personalize the marketing efforts and offering that are customized according to customer’s preferences and needs. The data which is available from online sources such as social media activities, purchasing behaviors and online reviews is used by companies to carry out personalized offering (Cepa and Schildt. 2019). For example, Amazon shows personalized ads to customers based on their purchasing and choosing behaviors which are collected when customers add products to online cart (Qudah, Cristea and Bazdarevic, 2016). Individualization enables value creation through more efficiency of decision making more relevance of the offering (Cepa and Schildt. 2019).
Ambient embeddedness is the integration of products, communication and processes into customer’s routine, making them present in instant environment and part of everyday life. It enables value creation through higher relevance, greater convenience and better experiences of offering (Cepa and Schildt. 2019). For example, household appliances, Marriott hotel and BMW cars are using such technologies and provides natural voice-based interactions which includes shopping activities (Strayer et. al, 2014).
Interaction refers to all the physical and virtual relations and all aspects of how companies or customers interact. Digital technologies are being used to enhance interactions along the entire customer decision process. It enables value creation through convenience, relevance and experiences (Cepa and Schildt. 2019). For example, IKEA released the app named “Place”. The app enables customers to see how particular furniture would look in their household which improves their purchasing experience (Ozturkcan, 2021).
Transparency and Control are the processes that give customers superior information and education. It enables value creation through empowerment. Digital evolution has enabled consumers to easily access product information through many sources such as online product description, prices and reviews. Customers get more command on their choices or behaviors and are able to make more better and effective decisions (Cepa and Schildt. 2019). IoT-enabled products allows more transparency and control for example, Colgate’s smart electric toothbrush allows users to monitor their habits of brushing and then enhance their brushing techniques (Aparna, Puranik and Sowmya, 2018).
Recommendation and Conclusion.
Covid-19 pandemic has been very challenging for retailers and brands worldwide. The companies which invested in enhancing their digital presence and capabilities are generating sales and are able to engage and stay in touch with customers even in the times of lockdowns. On the other hand, the retailers who had a weak online presence suffered during pandemic (Schleper et. al, 2021). Retailers and brands must improve their digital presence in order to stay relevant in the market during pandemic crisis as due to lockdown the consumers might shop less frequently in physical stores and more online.
In today’s digital world, the retailer has to gain meaning and relevance in the consumer’s life. For that they must develop themselves beyond the interactions in store. They have to be accessible both digitally and physically and make it easy for consumers to reach them and access information. Hence, in order to create a new value for customers and stay competitive among major players, the retailers need to adapt the digital evolution and also use 5 new sources of value creation as mentioned above into their business.
References.
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