Retailers: you must embrace digital in your physical environments too

You can grow your retail business by embracing digital interactive technologies, using them to create new customer experiences and enhance existing ones.  Even in businesses that still rely on traditional “physical” methods to sell products, digital technologies can have a huge positive impact on commercial growth.  At our recent FORA event in New York, we spoke to an executive from the cosmetics industry, to gain insight into what digital means to this traditional multi-billion-dollar market.

Modern success stories too often give the impression that focusing overly on physical products will doom a company to failure (think of lending physical DVDs and tapes falling to the dominance of virtual content and streaming). However, a huge swathe of consumer products remains physical – for example, those of the cosmetics industry. In our conversation, the cosmetics industry executive made the comment that the industry’s original response to digital was to try to replicate physical products and experiences in the digital space (such as through better representation on websites and apps), seeking to develop engagement solutions to attract and retain customers. This approach directly mirrors those seen across other verticals, but it can have limited impact when the core value proposition of the enterprise is on physical consumer goods.

In-store digital experiences, such as augmented reality for sampling cosmetics, are driving up consumer demand

The cosmetics industry’s approach has become more sophisticated, focusing instead on emphasizing the physical aspects of its value chains, supported by digital, with technologies being positioned to enhance physical environments (such as in retail stores). This shift is opening a new world of opportunity for retail-focused organizations.

Innovative solutions are now more common in the cosmetics space, tackling logistical and experience-based challenges. The example put forward by our panel described the challenge of enabling customers to test new cosmetics in-store before making their purchase selections. Unlike when trying on clothes, the process of applying cosmetics, washing them off, then testing other options, is likely to be an arduous experience that consumers don’t particularly enjoy. However, there are technological solutions that allow consumers to see how the cosmetics will look, using an app on their mobile phone or, increasingly, via an augmented reality experience. Such augmentation can help consumers to make the right choices, quickly and easily.

Some cosmetics companies – and, more broadly, some retailers – are succeeding in building customer experiences that leverage the value and benefits of digital, but in their uniquely physical environments. How? By re-imagining the role that digital can play in their supply chains, and at their points-of-sale.

Part of your digital journey must be about identifying what it is about your business that keeps customers coming back

Not everything needs to transform, and it is vital that this is recognised – some physical aspects of a business or value chain have strong appeal for consumers, and they always will. The cosmetics industry executive stressed this point as an essential part of the mindset – if quality products that consumers like to touch and feel before making a purchase are the core value proposition of the brand, then these should form the core value proposition of the brand with any digital transformation activities needed to wrap around them.

It becomes increasingly important – in a business-world driven by the hype that urges enterprises to embrace digital or face annihilation – to pause and take the time to identify what it is about a business that keeps customers coming back. The most fundamental quality of the Digital OneOffice (HfS’s vision of the future digital organization; see Exhibit 1, below) is the drive to build an organization that places the customer’s needs at its centre. It is therefore encouraging and refreshing for us, at HfS, to hear about an organization that is working to build a modern digital business around the customer, instead of buying into the hype and implementing digital technologies, like shiny new mobile applications that look great but offer little substance to the overall customer experience, because the underlying processes remain the same.

Exhibit 1: The HfS Digital OneOffice Conceptual Framework

Select the right partner for your needs: Do you need a business partner or a technology specialist?

However, to reach this end-state, most businesses need support. Finding the right partner is crucial to this and the correct context for the partnership is key. From the interviews HfS Research conducted as part of the Digital Technology Strategy and Consultancy Services Blueprint, we could see a rough bifurcation of the market (and, helpfully, the industry):

• Buyers who need a digital business model transformation partner. One set of buyers wants holistic transformation services, where they give the partner the existential challenge to make them digital. This requires a service provider that can draw on experience from other industry clients to guide the enterprise through its digital journey; an external visionary, working with the enterprise to reframe the business in a more digital context, essentially helping to knit it all together.
• Buyers who need a technology partner to implement their strategy. The other set of buyers has a much clearer digital vision and requires a different type of partner. In this case, the partner’s strengths are focused on the technical delivery of IT implementation. Innovation is focused on the technology and its implementation, rather than on driving deep strategic imperatives.

And, of course, there are some client organisations looking for both a technology partner and someone to help drive the holistic transformation. These enterprises are searching for a provider with a strong technical pedigree, and the digital, business, and market awareness to help build a strategy that makes sense to their business. Nevertheless, the market more broadly has separated into these two camps – one in which the full digital transformation journey is outsourced to a provider, who can feed into the roadmap and plug in digital technology solutions as required to reach desired end-state. And one in which technology-focused vendors provide the services, solutions and talent needed to help enterprises on a roadmap and with a strategy that can be driven internally.

The example of the cosmetics company is representative of the second category: they had a clear vision of what they wanted to achieve; the right service partner was one that would listen and help them with the technology challenges of their digital transformation. It was clear that the vital step for them was that of finding a tech-savvy partner to help them navigate the digital mists and develop solutions that made sense to their vision of their future enterprise. This enabled them to focus on what they do best – delivering high-quality cosmetics and consumer experiences to their customers, in a highly competitive marketplace.

The bottom line: Not everything needs to change, for digital transformation to make good sense for your enterprise.

The key takeaway from our discussion is this: if it ain’t broke, don’t fix it; don’t mess with the things that keep your customers coming back. Identify these areas and maximize their value, by wrapping digital technologies around them that provide greater customer experiences through frictionless support and engagement.

Note: At our recent FORA event in New York, the panel for this discussion included a Senior Business Operations executive from a major cosmetics brand and the CEO of CSS Corp, their IT Services partner. The panellists were asked about the focus of digital technologies and models on the physical space, and the unique challenges faced by retail and fast-moving consumer goods enterprises.