Mark McDonald

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Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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The Digital Edge in Retail

by Mark P. McDonald  |  November 26, 2012  |  6 Comments

Today is Cyber Monday, the day when experts suggest that more than a billion dollars will be spent online as people purchase gifts for the holiday season.  This fact coupled with an interesting but not particularly revealing article “Death by a Billion Clicks”  by Michael Copland on Best Buy in Wired Magazine raises the question:

What are the digital edges available to incumbent retailers?

A digital edge is the combination of digital technology with the physical world to create new sources of customer value and company revenue.  It is an answer for executives in today’s companies looking to find new ways in which technology can support tomorrow’s growth.  An eBook, The Digital Edge, published last month by myself and Andrew Rowsell-Jones provides a summary of the ideas and approaches to answering that question.

Here are some thoughts as they apply to retail in general with Best Buy as an example.  One caveat before we start: a blog post of around 1000 words is not a total digital retail strategy, but it should help illustrate what it means to create a digital edge.

A digital edge starts with an overall business goal or objective that guides how you bring the physical and digital world together to create revenue and value.  In the case of digital retail a generic outcome might be:

Individuals use our global organization to meet their particular wants and needs.

A good outcome identifies a contradiction that leads to value.  In this case of retail the contradiction is a personal result from an impersonal supply chain.   The contradiction does not need to be unique, but it should lead to a unique and differentiated digital solution.  For example, Nordstrom’s uses a highly trained; customer oriented sales staff to create its personal results.  That is great for them, but not necessarily for everyone.

The idea behind the contradiction is to remind you that the goal is do apply digital technologies in ways that create a digital difference. With the goal and contradiction in mind, the process moves toward identifying the different combinations of digital and physical resources to resolve the contradiction and achieve the overall goal.

The Digital Edge book identifies five different models for how digital and physical resources come together.  The figure below summarizes these models in terms of the relative role of digital and physical resources.  The arrow indicates the resource primarily responsible for creating results and value.

Each model provides a different way to bring physical and digital resources together to create value and revenue.  Rather than a ‘maturity model’ the different models represent colors in a palette that you combine to achieve the goal via digital technology in combination rather than simply substituting ‘clicks for bricks’.  Such an approach may make you ‘feel digital’ without truly being digital.

A few thoughts, very few actually, appear below on how these different models create potential digital edges in retail.  Remember that these are high-level statements to illustrate ideas rather than a well-defined strategy.

Automate is the model where the scale processing potential of digital technology changes business processes and operations.  Two aspects of retail warrant greater degrees of automation in service of our retail goal.  An enhanced catalogue based on new combinations of internal product descriptions and knowledge offers an information foundation to customers.  Applying this information by letting ‘customers know everything we know’ is the foundation for a digitally different shopper app that builds confidence and trust. Another idea is transforming payments across the supply chain so ‘you get paid when we get paid’ to accelerate cash and transparency between the retailer and supplier leading to micro fulfillment necessary for the velocity and diversity of products required to serve individual needs.

Apply model concentrates on individual use of digital technology that creates value in ways that lead to company revenue.  In Retail, the apply model would go beyond a simple ‘identify and offer’ digital mobile shopper app that copies the online website.  Instead digital information in combination with location, offer, inventory, social/peer and catalogue information would put the individual at the center of their needs and our ability to fulfill those needs. Combined with an augmented store, the common layout becomes a personalized path to their particular wants and needs.

Accompany based capabilities give company associates the tools and information they need to add value to the customer experience and company operations.  In Retail this may build on the advanced digital shopper, mentioned above, to provide associates on the floor or phone the additional information, context and confidence to create a specialized experience rather than continually asking ‘is someone helping you, identifying a need that someone else can meet, or following a predefined one size fits all script.

Augment uses digital technology and information to extend the capacity and capability of the physical environment and therefore the customer experience.  This is critical in Retail as each store represents a victory and challenge.  It is a victory as it’s no small feat to get customers into the store with the challenge that their interest needs to turn into results.  Using individual location and expressed interest to make suggestions, offer packages, apply past history all can make the impersonal store feel more personal.  It can also give store managers better insight into traffic flow, interest and staffing requirements to have the right resources in the right place.

Abstract refers to the value created by ‘digital on digital’ that is often associated with big data analytics.  Several digital edges exist in this area, from company focused business intelligence about product availability, assortment, price and promotion to customer-focused information about peers, preferences, packages and pricing.  Abstraction creates transparency that builds trust when it is accessible across the value chain and particularly with customers to influence their behavior.  Trust and confidence are  reasons why people showroom a store like Best Buy and others. Abstract solutions require making connections across the other models to bring intelligence to life by creating accessible customer value in ways that lead to addressable company revenue.

The digital store of the future is not just an integrated mobile/web application that allows you to look up deals.  That is a form of digital substitution that accelerates commoditization and would lead to ‘death by a billion clicks’ as pointed out in the Wired article.

Instead, consider how digital technology can create an edge that brings out the best in digital and physical resources.  In this case consider the connections between abstracted intelligence, an augmented environment where digitally accompanied associates interact with customers who apply the information to their individual need.  All backed by a hyper efficient, automated and digitally disruptive supply chain platform.  It is an environment where an individual would use our global organization to meet their particular wants and needs.  An experience that is digitally different and impossible for those without a physical presence to copy and commoditize.

Today is Cyber Monday and that got me thinking about what a digital edge looks like in retail.  The thoughts above are my own and limited.  They seek to illustrate the ideas in the Digital Edge Book.  For more detail please consult the book on Amazon, iBooks or Barnes and Noble.

What are your ideas on how to blend ‘clicks and bricks’?  How should existing companies make the transformation from a world where physical and digital compete to one where they combine, create and innovate value and revenue?

Related Posts and Links

The Digital Edge: Exploiting Information and Technology for Business Advantage: Mark P. McDonald,Andy Row…

Digital Strategy Does Not Equal IT Strategy – Mark P. McDonald – Harvard Business Review

Digital substitution or digital combination?

Creating a difference between digital, digitize and digitalization.

Mapping three paths for digitalizing the business

Feeling digital is not the same a being digital
Digitalization creates new dimensions for disruption

6 Comments »

Category: 2013 Amplifying the Enterprise Digital Edge Digitalization     Tags: , , , ,

6 responses so far ↓

  • 1 Ed Hawkins   November 26, 2012 at 10:07 am

    This was interesting – in many ways – I see a cross section of the models happening in my business depending upon the actual product being sold through the retailers. I am a Digital Marketing Director in the Garden and Pet Industry. In our case, some products are tailor made for digital attraction and fulfillment (toys for dogs come to mind). Others are best fit for in-store experience technologies (large and heavy bags of grass seed). So, therefore, is it possible that a company employ a hybrid of the models where the consumer buying experience differs based on product type (and form factor) but is the same when it comes to after market service and support?

  • 2 Mark P. McDonald   November 26, 2012 at 10:12 am

    Ed

    Thanks for your comment and the answer is absolutely. The post mentions thinking about a digital edge for retail with Best Buy as an example. The specific aspects of each of these digital edge models would need to be tailored to the type of retail involved. For example, fashion and clothing would place more emphasis on style, size color, selection, availability rather than technical descriptions.

    I can see the potential for different after market service situations as well. For example in Garden and Pet type categories the after market extends into a network of local providers, local conditions etc that open the door for continued contextualization and specialization based on a unique combination of digital resources and physical realities.

    Hope this helps add some depth to the original post as you can only say so much in around a thousand words.

    Mark

  • 3 Ben Rund   November 26, 2012 at 1:36 pm

    Ed and Mark,

    combining digital resources and physical realities is what SportScheck (German sports apparel retailers) does. They believe in their sports product knowledge as factor for customer service. Digital sources of high quality product data are used for different services in-store and online.

    In-store sellers and customers have support by information on tablets and touchscreens. Online customers get consulting to find the best running shoe through a online dialog, asking questions to offer the best match product to meet customer expectations.

    Ben

  • 4 Murray Reisler   November 28, 2012 at 1:24 pm

    Automation has probably been the most widely used model to date to create value through more efficient supply chains. However todays challenges are more related to the market & the ability to provide more personalized value to each customer. We have become use to mass merchandising depersonalized psychology over the last 50 years due to centralization and economies of scale. I believe that to enage the sales associate at store level there is a definite opportunity to use the accompany model & empower them. The apply model will also be a very important mode to develop synergy for the customer so the all channel experience becomes natural. Do you think that retailers we now become more decentralized?

  • 5 Samantha   December 6, 2012 at 6:18 am

    If it was Billion users who purchased the stock online then can you imagine how many people have been spotted on the Malls and Shopping complex on that day !

  • 6 Close an IT infrastructure, open a digital platform   December 17, 2012 at 7:53 am

    [...] The Digital Edge in Retail [...]