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July 2013, IDC Retail Insights #IDCWP17V

Redefining the Shopper Experience WithOmnichannel Retai l ing

W H I T E P A P E RSponsored by: Retalix

Chr is t ine Bardwel lJu ly 2013

EXECUTI VE SUMMARY

Consumers hold the power, and it is consumers who are currentlydefining the new rules of retail. As a multitude of interaction optionsand technologies emerge, so grows consumer expectation for retailers

to deliver a personalized and consistent shopper experience across allsales channels and touch points. Furthermore, consumers want to beable to access them simultaneously and interchangeably.

Consequently, omnichannel retailing, which transcends multichannelapproaches by assuring personalized tracking and full consistencyacross all channels and touch points, is no longer a mere dif ferentiatorof choice, but truly a must have. This means that retailers slow to shiftfocus from omnichannel theory to practice, especially in an intenselycompetitive market, run the risk of losing significant business.

Yet as bare a necessity as it has become, omnichannel implementation presents notable challenges. How does one get there? When analyzinggaps, for one, retailer s need to perform bold assessment of theirorganizational processes and technology capabilities, all whileadhering to a customer-centric perspective. For transfor mation tosucceed, they must get organization and processes right fir st, no lessimportantly than choosing the right technology for modernization.

Implementation of the right technological innovations will assuredelivery of deeply personalized yet seamlessly branded interaction,uniquely catering to the needs of each and every individual shopper.Adopting such an approach is the only way retailers can realize true

360-degree engagement and achieve "total experience" — an entirelynew level of relationship with shoppers that goes beyond mere salesinteraction and sale cycle.

I N THI S STUDY

In partnership with Retalix, this study explores the drive foromnichannel retailing, the processes and technologies retailers need toemploy to gain omnichannel capabilities, and the approach required toultimately deliver the "total experience" that present-day shoppershave come to expect.

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#IDCWP17V ©2013 IDC Retail Insights

SI TUATI ON OVERVI EW

O m n i c h a n n e l i s N o t a C h o i c e , B u t a n

A b s o l u t e M u s t

Consumers Define the New Rules of Retail

As new devices and social networking present a greater breadth ofretail interaction options, consumers are increasingly demanding thatretail services fully leverage these options and that their needs becatered to via a growing array of channels and touch points.Shoppers are not only demanding that service be delivered viamultiple channels, but also expect it be completely seamless andcoherently branded. In other words, shoppers are demanding seamlessomnichannel service.

And what exactly is seamless omnichannel service? Well, a dictionary

would have the following to say:

Omni- combining form; all; of all things

In more practical ter ms, shoppers expect retailers to engage andembrace them in the context of a unified brand, with compellingly

personalized and highly consistent service, anywhere and at any time.

When customers conveniently order items online or on their mobiledevices, for example, they expect that these be delivered to their hometrouble-free. Similarly, they will undoubtedly frown upon ar riving at astore to pick up items ordered on a retailer shopping portal, only to

discover that these items are no longer in stock. And should they haveset up an online account on a retailer's website, they will lik ely find itunacceptable when requested to provide personal details upon latercontacting that retailer's call center.

The Stop-Start Shop per

IDC Retail Insights uses the term "stop-start shopper" to describeomnichannel consumers. Stop-start shoppers generally "hop" amongnumerous channels and touch points over an undefined period of time

prior to making a purchase.

For example, when coming across a hat they like in a store, they won'tnecessarily purchase it right then and there. They'll scan its barcodeusing their smartphone instead, and place it in the retailer's mobileshopping basket. Upon arriving home later, they may log into theironline account with the retailer, this time via their laptop. Theirexpectation is to have their online shopping basket fully andcontinuously synchronized with its mobile counterpart, with the hatwaiting there for them to complete the purchase.

Single sign-in, a cross-touch-point "omnichannel shopping basket,"and coherent, personalized marketing promotions and product

recommendations delivered across all sales channels are but some of

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©2013 IDC Retail Insights #IDCWP17V

the means retailers can employ to address the needs of the stop-startshopper.

Omnichannel is No Passing Fad, and the Stakes are High

It is important to note that demand for omnichannel retailing is no passing fad. It is the new norm, and failure to accommodate it carries aheavy toll. Consider, for example, such formerly prominent brands asU.K.-based Clinton Cards, which doubted online shopping would takeoff, only to see most of its market share frittered away to onlinecompetitors offering customers the ability to create personalized giftcards on the web. Notable U.S.-based brick-and-mortar music and

book store chain Borders also suffered a similar fate.

The Time for Retailers to Act is Now

The business case for omnichannel retailing is clear. After all,

omnichannel shoppers are known to spend up to 3.5 times more thansingle-channel shoppers, and customers provided with seamlessexperience across numerous channels tend to shop more frequentlyand perform purchases across a relatively broad number of productcategories. Omnichannel retailing also improves customer retentionrates and increases customers' demographic diversity.

And yet most retailers are either not keeping up with this consumer-driven change, or are struggling to do so. Those holding onto siloedapproaches and manual systems integration are bound to get left

behind as those coming to grips with technological gaps in theirorganization, rearchitecting business processes, and implementing

platforms facilitating seamless omnichannel retailing will ultimatelytake the lead. This is not the time to hesitate.

M a k i n g O m n i c h a n n e l S h o p p i n g a R e a l i t y :

W h e r e D o e s O n e S t a r t ?

While developments have been made in omnichannel-enablingtechnology, omnichannel retailing is a relatively new concept. Best

practices are still being developed and information supporting businesscases, particularly with regards to innovative customer-facingtechnology, can be difficult to come by.

To help overcome these challenges, IDC Retail Insights has designedan omnichannel retail maturity model to guide retailers through thesteps necessary to producing an omnichannel experience (see Figure 1).

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F I G U R E 1

T h e I D C R e t a i l I n s i g h t s O m n i c h a n n e l R e t a i l M a t u r i t y M o d e l

Source: IDC Retail Insights, 2013

To briefly explain:

● "Customer experience" is what is to be delivered to consumers ateach phase. The maturity model is designed to produceincreasingly deeper engagement with shoppers, and serves todictate organizational and technological requirements.

● "Technology" refers to the technology investments required and

recommended to support experience reflecting this deeperengagement.

● "Process and people" provides framework-level guidance on howorganizations may have to restructure to become more experience-and less product- and channel-centric.

Even the most mature omnichannel retail businesses are currentlysituated at phase 2 (convergence) or 3 (precision) on the IDC RetailInsights maturity model, with progression toward full immersion beingthe next logical step, if they are to go even further than omnichannelretailing and attain the next level of "total experience."

Continuous Experimentation with New Channel Initiatives

Phase 0:EXPERIMENTATION

M a t u r i t y

L e v e l

C u s t o m e r

E x p e r i e n c e

T e c h n o l o g y

P r o c e s s a n d

P e o p l e

Offering MultipleChannels

Applications for aCustomer-Facing

OmnichannelExperience

Defining theBusiness Case

Phase 1:FOUNDATION

Offer/LoyaltySegmentation

Cross-ChannelServices (Click &Collect, Loyalty)

Data Foundation

SingleStoreTechnology

Model

ARCHITECTUREBest practice

Inventory/RFID

Store/OnlineInventory

Integration

OC KPIsIdentification

Phase 2:CONVERGENCE

Targeted Real-TimeOC Offer/Loyalty

Cross-ChannelSupport Services

Online Inside

Real-TimeCapabilities

O3 Platform (allChannels)

OC Fulfilment andMerchandising

Sensors

Social Integration

Omnichannel SC,Fulfilment and DC

Structure

OC PriceOptimization

OC BusinessPerformanceManagement

Phase 3:PRECISION

Context-Aware OCOffer/Loyalty

Personalization

On-DemandAssortment

OC Customer

Participation

EmbeddedApplication

Intelligence (inc.Location)

PredictiveAnalytics

AdvancedCustomer

Intelligence

Customer-CentricMerchandising

OC CRM

OC Promotions

Phase 4:IMMERSION

OC Basket ofGoods

Lifetime Next BestAction Dialogue

"Zero" OOS

Thin/Smart ClientsTouchpoints; POS =

Gateway to theOther Channels

SingleTransactionalEngine (Store,Mobile, Online)

OmnichannelSingle Message

Marketing

CustomerExperienceInnovation

Management

Phase 5:OPTIMIZATION

OC Basket of Value

Value-Add ServiceDifferentiation

Self-Learning OCExperience

O3 Optimizationand EmergingTechnologies

Integration

EmbeddedOmnichannel

Culture

Continuous OCProcess

Optimization

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This is no easy challenge, in that it calls for business modeltransformation aimed at capturing — and intelligently leveraging,carefully orchestrating, and efficiently executing — all moments ofomnichannel customer engagement into the retailer's brand experience.

For omnichannel retailing to truly become reality, it is critical thatretailers be as receptive as possible, and that they succeed in positioning themselves as capable of accommodating shoppers' everyneed and want, all while directly engaging them over any customer-

preferred channel. This requires that retailers address a number of business domains, while placing customer experience at the verycenter of their thinking and planning processes. These domainsinclude:

● Organizational and business culture and attitudes

● Business processes

● Technology selection and delivery

Creating an Omnich annel Business Culture

Retailers must adapt to omnichannel retailing. This change needs to beled by the CEO and board members, as only then will messagingtrickle through the business and retailers gain buy-in from all retailchain staff.

Too many retailer leaders do not understand the new rules of retail.They come from a traditional bricks-and-mortar, product-centric retail

background.

The first step for the CEO is to think of the business as a whole, ratherthan as siloed operations competing for revenue. This is im perative totransforming from a multichannel retailer to a business in whichomnichannel retailing and customer centricity are so ingr ained thatthey lie at the very cor e of the organization's culture and ar e regardedsecond nature by its staff.

The next step is to create partnerships between IT and line-of-business(LoB) heads. In working together, it may become apparent that otherunits share the same goals and that joint business cases may be

possible. A number of thought-leading retailers have createdomnichannel director- and even board-level roles, so as to streamlinethis process, achieve efficiencies across the entire business, and assurethat customer experience be at the heart of all LoB business decisions.

Developing Customer-Centric Omnichannel Business

Processes

Building customer-centric business processes is a vital step toingraining omnichannel retailing in the retail organization's culture.This can be achieved via a number of approaches, including:

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● Offering convenient services that span channels, as in allowingonline ordering and in-store returns, as well as click-and-collectservices. To assure high levels of customer service, retail staff willneed to be incentivized. Retail representatives providing click-and-collect services in stores and not incentivized for sales will

naturally be less likely to deliver exceptional service.Some retailers are therefore distributing their online sales toregional retail teams, so that the entire business is able to share insuccess. This is particularly important when products are out ofstock, in which case in-store staff can drive POS- or kiosk-basedonline sales and prevent loss of business.

● Transitioning IT teams from project-driven organizations requiring business alignment to service management organizationsdemonstrating high responsiveness to short- and long-term LoBleadership needs. This helps retail businesses assure fasterresponse to ever-changing customer demands.

● Unifying siloed online and store business repor ting, andconsolidating operations and processes to encourage omnichannel

business culture. For example, if in the past, retailers maintainedtwo merchandising teams — one for in-store and one for onlinemerchandising — the recognized best practice today is to bring thefunctions together under a single omnichannel team. It is alsorecommended that marketing be included in this consolidation toassure that retailer marketing department strategies be customer-centric — and that marketing be directed at a consolidated,omnichannel shopper persona — rather than run under a product-

or channel-centric a pproach.

Deploying the Right Technology to Support Omnich annel

Retailing

To qualify as omnichannel capable, retailers must revisit their ITstrategy, while going deeper, and beyond the application layer.

And yet, in the technology architecture prevalent in today's retailenvironment, a move to omnichannel marketing typically requiresutilization of multiple point solutions and plenty of integration.

IDC Retail Insights believes retailers must therefore move up totechnology infrastructure that eliminates the need for costly andcumbersome integration. The best way to do this is via flexiblearchitecture and unified software enabling seamless management andoptimization of all business processes, as well as of all product,shopper, and transaction data.

The recommended technological foundation will ultimately allowretailers to go beyond merely offering the same products, prices,coupons, and promotions across all channels. With a simplifiedapplication layer implemented on top of this foundation, retailersshould also be able to deliver fully personalized, anywhere, and

everywhere retailing — closely aligned with the familiarity, insight,and intelligence established on individual shoppers.

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This architectural approach is illustrated in Figure 2.

As shown, a similar approach can be taken for commerce, fulfillment,and merchandising.

F I G U R E 2

O m n i c h a n n e l R e t a i l A r c h i t e c t u r e


The architectural approach depicted above enables retailers to engageshoppers, influence their behavior, and receive their feedback at every

point throughout the retail cycle. Such expanded control andinvolvement is bound to help retailers enhance their relationships withshoppers, thereby strengthening their brand identity and increasingshopper loyalty and stickiness.

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EMBRACI NG THE FUTURE

R e a c h i n g B e y o n d O m n i c h a n n e l R e t a i l i n g

Delivering Total Experience

To achieve full omnichannel compliance, taking the right architecturalapproach is not enough. While shoppers don't really care about IT-related challenges, their demand for a seamlessly consistent experiencein all interactions with the retailer is growing to the extent of

becoming critical engagement criteria. They expect to be presentedwith the exact same promotions, whether checking the retailer'secommerce website, using its mobile app, or entering its physicalstores. They also require that they be allowed to seamlessly managetheir loyalty memberships anywhere — at in-store kiosks, at POSs,and online, or even via their social networking and beyond the salescycle.

In the current "always on" era of social network-connected shoppers,retailers need to be able to consistently manage and execute complex

promotions across multiple sales channels and touch points.This means having to streamline their marketing applications inaddition to their operational systems. They must do so while avoidingtimely and costly investments in sales channel integration, if they areto quickly and appropriately respond to shoppers' growing sense ofentitlement and their demand that retailers rapidly adapt to theirevolving needs.

Retailers' IT infrastructure must support innovative new channels thatwill allow them to leverage and capitalize on emerging technologies — digital coupons, mo bile offers, and location-based promotions, toname a few — to the fullest. Retailer marketing teams need to be

provided with a technological foundation that will enable them tocreate promotions once, and have them appear in real time across allchannels — on the retailer's ecommerce website, on its mobile app,and in stores — whether at POSs or information kiosks.

To achieve all this, retailers must expand their consolidated application portfolios with unified marketing and customer management platforms. These will ultimately enable them to seamlessly manage all

campaigns across all channels and touch points, and maintain the fully personalized, channel-agnostic shopper engagement crucial tosupporting the next level of retail service — namely "totalexperience."

Leveraging the Retalix 10 Customer & Marketing Suite to

Provide "Total Experience"

The Retalix 10 Customer & Marketing Suite utilizes a single platformthat draws information from all customer touch points and interactionchannels, allowing retailers to gain a complete 360-degree view ofeach individual shopper, with full correlation between shoppers' online

and offline personas. This web-based customer-centric suite capitalizeson the Retalix 10 platform's consolidated retail data and business logic

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repository to enable retailers to completely and seamlessly manage andexecute complex promotions across multiple sales channels and touch

points.

The suite fits with IDC Retail Insights' call for innovative omnichannel

IT strategies —

it helps retailers consolidate innovative marketingtechnology within their omnichannel IT environment so as to progressto the next service level of "total experience."

Retalix 10 Customer & Marketing Suite's range of marketing andloyalty management tools allows retailers to implement highlysegmented and personalized offers both in and outside stores. Itenables them to engage with and impact consumers throughout theentire "stop-start" shopping cycle, with seamlessly consistentexperience delivered at any point of interaction.

As illustrated in Figure 3, retailers can use the technology powering

the suite to interact with shoppers via popular communicationchannels, including social networks, dedicated portals, paper anddigital coupons, email, text messages, mobile marketing, and location-

based campaigns.

F I G U R E 3

R e t a i l 1 0 C u s t o m e r & M a r k e t i n g S u i t e


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In extending interaction with consumers beyond the actual act ofshopping to every possible phase throughout the stop-start shoppingcycle, IDC Retail Insights believes that the Retalix solution assistsretailers in achieving "total experience." It helps retailers become asaccessible as possible, and allows them to tune in and really listen to

shoppers' needs. Customer & Marketing strengthens retailers' positioning and ability to effectively fulfill these needs, and placesthem in a truly differentiated, competitive light.

ESSENTI AL GUI DANCE

It is our recommendation that retailers leverage the IDC Retail Insightsretail maturity model to progress from mere multichannel to trulycustomer-centric omnichannel retailing.

To do so efficiently and cost effectively requires that they employ

natively integrated real-time retail system architecture founded onconsolidated customer activity, product, service, and inventory data.To facilitate omnichannel retailing, this architecture needs toseamlessly connect an "all channel" commerce engine (coveringtransactions, promotions, loyalty, and more) with inventor y, demandforecasting, replenishment, and optimization tools. It should alsoleverage data-level integration and web services aligned to processingretailer business priorities and strategic objectives.

We ultimately encourage retailers to consider augmenting theirinvestment in omnichannel culture, business processes, and technology

with advanced, consolidated customer and marketing solutions such asthe Retalix 10 Customer & Marketing Suite to achieve the next levelin retail service — namely "total experience."

C o p y r i g h t N o t i c e

Copyright 2013 IDC Retail Insights. Reproduction without written permission is completely forbidden. External Publication of IDCRetail Insights Information and Data: Any IDC Retail Insightsinformation that is to be used in advertising, press releases, or

promotional materials requires prior written approval from theappropriate IDC Retail Insights Vice President. A draft of the

proposed document should accompany any such request. IDC RetailInsights reserves the right to deny approval of external usage for anyreason.

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