3 Principles Driving Digital Innovation in Retail

Ever-changing customer demands and technology have worked hand-in-hand to transform the retail industry with everything from mobile apps and online shopping to data-driven personalized recommendations and next-day delivery. However, it’s more than just replicated store experiences online. Retailers must leverage digital experiences to enhance their brand, engage customers with unique buying journeys, and open themselves up to new revenue streams that will add value to the customer.

3 Principles Driving Digital Innovation in Retail
3 Principles Driving Digital Innovation in Retail

In this article, we explore all the pieces that make up the retail digital innovation puzzle and how to put them all together to give your business a competitive edge, including how to:

  • Address retail’s new normal
  • Adapt through digital innovation
  • Create impactful and successful experiences
  • Embrace the product mindset

Table of contents

Retail’s new normal
Adapting through digital innovation
Create experiences that enhance the business and brand
Embracing the product mindset

Over the past two decades, technology has changed the retail industry more than anyone could have imagined. From online shopping and next-day delivery to mobile apps and data-driven personalized recommendations, things that were once unimaginable years ago are now expectations.

As societal changes in 2020 have only amplified the pace of technological disruption, innovation is no longer a competitive luxury but a necessity. Now, more than ever, the retail industry’s success hinges on the ability to use data and technology to adapt to customer behaviors with unique and engaging experiences.

However, while digitization offers tremendous opportunity for retailers, it’s more than just replicating store experiences online. Retailers must leverage digital experiences to enhance the brand, engage customers with unique buying journeys and open themselves up to new revenue streams that will add value to the customer. By doubling down on innovation with a customer-centric mindset, retailers can not only survive but find a competitive advantage in the current disruption.

“Real innovation happens when digital product development teams focus on customer problems and drive real business results. It occurs at the intersection of business outcomes and customer desires,” says Casey Craig, SVP of Retail, 3Pillar Global. “By adopting a product mindset, business decisions have a foundation and path forward to support true innovation,” Craig continues. As described in 3Pillar Global David DeWolf’s book, The Product Mindset: Succeed in the Digital Economy by Changing the Way Your Organization Thinks, the product mindset is a collection of principles and a way of thinking to develop and execute digital products to create value for the business.

Retail’s new normal

The disruption in 2020 resulted in tremendous changes in the retail industry. The initial shutdowns and restrictions led consumers to make swift changes in how they shop. Meanwhile, retailers quickly sought new ordering, payment, and fulfillment models to address safety concerns, supply chain challenges, and a host of new local regulations.

Analysts believe the retail industry is undergoing a massive shift to digital channels that will forever change the future. According to a McKinsey survey, approximately three-quarters of consumers have engaged in a new shopping behavior since March 2020. Many are now visiting stores less, shopping online more, and making greater use of services such as buy online, pick up in-store (BOPIS), and curbside pickup. Even as vaccines may spur a return to normalcy in the coming years, most analysts agree consumers will permanently retain many of these new shopping behaviors.

  • 80% of shoppers say convenience is more important than it was five years ago.
  • 95% of shoppers have backed out of purchase due to inconvenience.

As they adapt to this new environment, many consumers place greater value on convenience through features such as one-click ordering, curbside pickup, and curated experiences. Eighty percent of shoppers now say convenience is more important than it was five years ago, and 95% of consumers have backed out of a purchase because it was inconvenient to them, according to the National Retail Federation’s Winter 2020 Consumer View Report.

To reduce risk in the pandemic, both retailers and consumers have made an enormous leap forward in the adoption of mobile and contactless payments. According to an April Consumer Survey by Mastercard, three-quarters of consumers who adopted a new contactless payment method during the pandemic said they would continue to use it.

Offering a seamless, convenient, and personalized experience across all channels is no longer a luxury for retailers—it will soon be a requirement simply to stay in business.

Adapting through digital innovation

In this era of disruption, retailers must differentiate themselves with unique digital products that offer customers value, convenience, and personalized experience across all channels.

Now is the time to double down on innovation in the core experience to meet changing customer expectations. According to McKinsey, customer experience (CX) leaders not only realize more resilience during recessionary periods, but they also yield returns three times higher than CX laggards. Analysts note retailers should set high aspirations for the customer experience by expanding digital initiatives, transforming store operations, and embracing an agile operating model.

In 2020, many retailers quickly adapted to changing conditions and new shopping behaviors. Some rolled out apps and online ordering to support a sudden surge in consumers seeking BOPIS and curbside pickup. Over the course of just a couple of weeks, Best Buy and Target rapidly set up new staging areas for curbside pickup and adjusted their apps to better support one-click notifications. Restaurants, such as Chipotle, also improved their mobile and online ordering experience to support a surge in volume. And grocers such as Hy-Vee began scaling up online ordering and offering things like curbside meals-to-go.

In this state of innovation, it’s important to not overestimate the abilities of commercial off-the-shelf (COTS) solutions. COTS solutions can’t always deliver the unique and engaging digital experiences retailers need.

We can’t know what the coming years will bring, but we do know the increased pace of innovation will keep the pressure on retailers to evolve. Retailers can best navigate these waters by leveraging digital product strategy, ongoing development, and a whole life cycle to build differentiated and innovative digital experiences.

Retailers must embrace a customer-centric mindset through custom digital product development which fosters continuous innovation that aligns the brand and consumers’ evolving needs.

Create experiences that enhance the business and brand

Digital products must meet the retailer’s need to build the brand and generate revenue. While generic digital products like contactless payments and traditional online ordering might enable a more frictionless experience, the best digital products ultimately enhance the brand and build customer loyalty.

Retailers gain no value by letting aspirations to be perfect delay the release of otherwise good digital products. The best way to ensure customer demands are met is using early and frequent releases as a litmus test to determine whether to eliminate or double down on successful ideas. Apple is one company that has excelled at this concept by releasing digital products regularly, then using updates to refine and enhance. Steve Jobs was known for his willingness to test, make mistakes, and quickly improve other innovations.

“The best companies aren’t afraid of experimentation. They build and release and continuously innovate until they find their differentiator. Then, they build their business off of that,” Craig says.

Operating in this fashion also increases the likelihood that digital products will start generating a return and fund themselves. This incremental ROI enables retailers to manage risk better and continually build upon success. Amazon, which started as an online bookseller, built its brand on that foundation, then branched into countless businesses and new customer experiences through continuous innovation. Warby Parker has grown from an apartment-based business to a $3 billion operation by disrupting the entire eyeglass industry to meet consumers’ needs for an easy and cost-effective way to buy glasses.

The most innovative retailers don’t worry about what competitors are doing – they double down on differentiation and experiences that build their brand.

There are three principles for how retailers can create impactful and successful digital product experiences:

Focus on consumers’ needs

Retailers can’t always expect consumers to adopt their innovative idea. The most successful digital products are built from the ground up specifically to meet customers’ greatest needs. As consumers are the ones who ultimately decide which digital products will win and lose, high-performing B2C companies create digital products that offer irresistible value. Starbucks’ highly successful pay app is noted for its ease of use, which enables customers to save time by walking in and picking up their coffee. And H&M’s app allows shoppers to scan items for real-time availability and upload photos of their own clothes to find similar-looking items.

“With so many apps and experiences available, consumers will quickly walk away from anything that doesn’t meet expectations,” says Craig. “It grows easier each day to adopt—and abandon—digital products. You must focus on building digital products that solve for a need to ensure customers choose you over a competitor,” he says.

This means retailers don’t need to start with a complex, overdeveloped end-to-end solution. The key is to identify the most important consumer pain point then focus all efforts on addressing it. By rejecting the need for completeness, retail leaders can give their teams freedom to think creatively, solve smaller parts of the problem and deliver pieces of the product more quickly. Instead of a traditional development model that uses blocks to complete a digital product, developers should offer “slices” of solutions by solving for today’s needs with tomorrow’s in mind.

Minimize time to value

By bringing digital products to market early in the life cycle and striving to create a return, retailers can also minimize the time to value. The idea is to get products to consumers as quickly as possible because value only exists when those customers can use, interact with and deliver feedback about those digital products.

Decreasing time to value offers several main benefits—it increases efficiency, strengthens shareholder investment, and creates a feedback loop that deepens employees’ and customers’ commitment. The retailer can then identify where to best allocate its assets and efforts, which in turn improves the digital product and gains reciprocal appreciation from the users. “It’s a good thing if customers are offering feedback on your products and want more. It offers a clear sense of how and where to make further investments,” Craig says.

The best retail experiences often come to market as a viable digital product that is then improved upon. Home Depot has continually updated its app, which first launched in 2010, with new capabilities to make it one of the most respected in the retail industry. Many other top-performing retail apps, such as those from Amazon, Best Buy, and Walmart, regularly release updates as developers continually learn, refine and improve the customer experience.

Excel at change

Creation is only the first step in digital product development. Once the digital product attracts customers, developers must continually improve and add features to build customer engagement and brand loyalty. To thrive in this state of constant innovation, retailers should embrace the mindset that products are never done.

There are several things retailers can do to ensure they excel at change and make change wisely. This includes ensuring that changes are efficient and align with the greater business mission, and results captured and analyzed. Retailers should deploy minimal UX changes to not overwhelm users or run unnecessary risks. It’s also essential to involve development teams in decision-making and give them the freedom to experiment.

Amazon makes thousands of small changes daily. While few customers notice them, they are designed to ensure the retailer is continuously delivering the best experience based on changing consumer needs and expectations. Wayfair has also grown from a two-person company in 2002 to a $10 billion giant today through constant change and incremental innovation.

“You have to build for change and excel at it, striving for a streamlined and flexible environment,” Craig says. “Focus on a constant state of small changes.”

Embracing the product mindset

Given the events of 2020 and the increasing pace of change, retailers can’t quite know where the industry will be in five, 10, or 20 years. Whether it’s another global event or a new technology that changes shopping behaviors the way smartphones did, what is certain is that customers will continually seek fresh and engaging experiences.

The old digital product development model no longer works in this complex environment, and companies can no longer evaluate success on old metrics. To win customer loyalty with unique experiences, retailers must move beyond COTS solutions and seek partnerships to support ongoing, customized innovation. They must leverage data to identify customer needs, build digital products to meet those needs, bring them to market quickly, and continually improve. By embracing the product mindset, retailers can ensure they’ll remain competitive no matter what the new normal becomes.

Source: 3Pillar Global