What is merchandising 3.0?
Customer-centricity may be the hot buzz word in the retail world, but savvy, forward-thinking retailers have been familiar with the term for a while now. Rich sources of customer data and advances in technology are allowing for deep insights and stronger customer engagement. Astute retailers are differentiating themselves from competitors by weaving these gleaned customer insights into their decision-making processes, creating a true customer-centric experience by building a mature merchandising model.
We can call it “the four Rs”: putting the right product, in the right place, at the right time, at the right price. Merchandising – when done correctly – is a masterful blend of artistry and science. Traditionally, the buyer, or “artist,” applies intuition and experience to select the right products. The planner is the analytical “scientist” responsible for profitably placing the right inventory, in the right place, at the right time.
But retailers can no longer solely rely on the intuition and experience of their buyers or the analytical prowess of their planners; they must drive every merchandising decision based on the behaviours of their most important customers, especially Millennials and Gen Z consumers who don’t distinguish between physical and digital. Think of it in terms of Merchandising 1.0, 2.0, and 3.0.
At the 1.0 maturity level, a retailer functions in a product-centric system. Merchandise plans are based on product categories and pricing is based on historical data. At level 2.0, a retailer has moved to a cross-channel process, where plans are channel-driven and the online and physical stores do not really collaborate. Often a company’s siloed organisational structure – keeping online and physical separated – stands in the way of aligning their business around the shared priority of satisfying customer needs.
Merchandising 3.0 is the holy grail of the maturity model. Localised and personalised assortments are based on micro customer segments – from both online and the store. Reaching this customer-centric level of maturity is vital to retailers’ remaining competitive and profitable.
It’s a long road to maturity, though. Retailers are facing significant challenges in their efforts to advance through these levels. Foremost are a lack of customer focus, disconnects created by functional boundaries, and a lack of meaningful analysis of all the data that’s available to retailers through current technology.
So, how can retailers advance to Merchandising 3.0? By changing their focus from product-centricity to customer-centricity. Many are already on their way. Retailers are already redefining their organisational structures to reflect today’s customer-centric environment. It’s no secret that the retail industry has experienced greater change in the last five years than in the preceding fifty. Advancements in technology and the rise of omni-channel selling have been the primary force for those changes.
But just who are the consumers compelling these changes?
Millennials – roughly those born between 1985 and 2000 – are clearly today’s driving force in retail. But we are also witnessing the rise of the next wave, Generation Z, as a major influencer in retail practices. Both sets of digital natives spend significant portions of their lives interacting and engaging with society via social media.
For previous generations, the customer buying cycle began in the physical store. Short-term purchasing decisions and long-term loyalty were based on shoppers’ experiences. As digital storefronts emerged, the practice of shopping in a store was often based on the concept of “showrooming” — visiting a physical store in order to research, touch, and feel a product, then price-shopping online and buying from a digital retailer. Contrast that to today’s digitally-connected shopper. Millennials and Gen Z consumers were born and raised in the age of digital retail. For them, there is little distinction between a retailer’s digital and physical store presence.
This “techno-social” lifestyle has given these young consumers a sense of unity and community, which means they put a higher premium on the value and benevolence of a corporate brand. If a brand represents something positive in their world they will be loyal to, and inclined to purchase from, that brand.
Today’s technologically empowered consumer expects a personalised, differentiated offer no matter where or how he or she is shopping, and will go elsewhere in a matter of seconds if these expectations are not met. But it’s not just a matter of catering to the whims of a demanding consumer. It’s a matter of re-imagining retail at its core.
For decades, retailers have built their businesses on an organisational structure and culture that was optimised for a product-centric reality. Becoming customer-centric will not be easy, nor will it happen overnight. But’s it’s a Millennial and Gen Z retail world. To stay relevant, retailers must be successful at creating a seamless interaction between digital brand awareness and physical store experiences.
Jim Prewitt, vice president of retail industry strategy at JDA Software
SAS: Improving the British Army’s decision making with data
SAS’ long-standing relationship with the British Army is built on mutual respect and grounded by a reciprocal understanding of each others’ capabilities, strengths, and weaknesses. Roderick Crawford, VP and Country GM for SAS UKI, states that the company’s thorough grasp of the defence sector makes it an ideal partner for the Army as it undergoes its own digital transformation.
“Major General Jon Cole told us that he wanted to enable better, faster decision-making in order to improve operational efficiency,” he explains. Therefore, SAS’ task was to help the British Army realise the “significant potential” of data through the use of artificial intelligence (AI) to automate tasks and conduct complex analysis.
In 2020, the Army invested in the SAS ‘Viya platform’ as an overture to embarking on its new digital roadmap. The goal was to deliver a new way of working that enabled agility, flexibility, faster deployment, and reduced risk and cost: “SAS put a commercial framework in place to free the Army of limits in terms of their access to our tech capabilities.”
Doing so was important not just in terms of facilitating faster innovation but also, in Crawford’s words, to “connect the unconnected.” This means structuring data in a simultaneously secure and accessible manner for all skill levels, from analysts to data engineers and military commanders. The result is that analytics and decision-making that drives innovation and increases collaboration.
Crawford also highlights the importance of the SAS platform’s open nature, “General Cole was very clear that the Army wanted a way to work with other data and analytics tools such as Python. We allow them to do that, but with improved governance and faster delivery capabilities.”
SAS realises that collaboration is at the heart of a strong partnership and has been closely developing a long-term roadmap with the Army. “Although we're separate organisations, we come together to work effectively as one,” says Crawford. “Companies usually find it very easy to partner with SAS because we're a very open, honest, and people-based business by nature.”
With digital technology itself changing with great regularity, it’s safe to imagine that SAS’ own relationship with the Army will become even closer and more diverse. As SAS assists it in enhancing its operational readiness and providing its commanders with a secure view of key data points, Crawford is certain that the company will have a continually valuable role to play.
“As warfare moves into what we might call ‘the grey-zone’, the need to understand, decide, and act on complex information streams and diverse sources has never been more important. AI, computer vision and natural language processing are technologies that we hope to exploit over the next three to five years in conjunction with the Army.”
Fundamentally, data analytics is a tool for gaining valuable insights and expediting the delivery of outcomes. The goal of the two parties’ partnership, concludes Crawford, will be to reach the point where both access to data and decision-making can be performed qualitatively and in real-time.
“SAS is absolutely delighted to have this relationship with the British Army, and across the MOD. It’s a great privilege to be part of the armed forces covenant.”