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2014: Digital Reality Sets In

Nigel Fenwick
Vice President, Principal Analyst
January 17, 2014

2014In my post at this time last year I wrote of the changes we could expect in 2013 around the shift toward digital business. And indeed we did see a significant move toward digital business in 2013 – a transition that’s still very much just beginning.

But 2014 will be different. 2014 is when digital reality begins to sink in for CEOs around the world. And if your CEO doesn't figure out digital business this year, I predict 2015 will be a very challenging year for your organization, no matter what business you are in.

The Retail Conundrum

A recent Wall Street Journal article highlights the challenge of retailers very well. Store footfall is declining as consumers' lives become more digital. We are seeing a steady shift toward shopping online and shopping less often. So how can today’s retailers survive? The simple answer is that many will not. Retail will undergo a seismic shift in the next 10 years. And since retail is a major employer, it's a shift that will impact us all.

Time drives behavior. Digital tools extend the workplace into our private lives, allowing greater productivity while also creating fewer opportunities for large chunks of time to “go shopping.” We are increasingly using digital technologies to optimize how we fill our days for work and pleasure:

•  Digital scheduling tools like Google Calendar help us plan our work and play time.

•  Reminder apps help structure what we need to do with fewer opportunities for impulsive behaviors.

•  DVRs, Netflix, Hulu, and Amazon help time-shift entertainment to burst-fill small downtime slots or fill even bigger chunks of time as we binge-consume a season of a show all at one time.

As a result we have fewer blocks of “quality time” – the time we gift to ourselves to do the things we like to do as a reward for doing all the other things we have to do. We aim to spend our quality time wisely doing the things that give us pleasure.

For retailers there is indeed one very important demographic that I don’t count myself in: the people who get pleasure from shopping (unless I’m shopping for gadgets, hi-fi, or tools it seems). Retailers must still compete with other draws on the time of this important demographic – and compete even harder for people outside of this demographic. Retailers must compete for a share of quality time, not just a share of wallet.

The shift for retail is a transition from selling boxes to fulfilling desires. And to fulfill desires, retailers will need to become an extension of how we choose to live. In the future I believe we’ll subconsciously select the businesses we feel we want to partner with to help us achieve our desires. We already see the signs of this shift in the transition toward customer experience as a major driver of success.

Better online marketing is not a silver bullet. When Best Buy’s CFO, Sharon McCollam, told the WSJ “we were out-competed from an online marketing standpoint” she highlights what I see as a critical gap in understanding among senior executives about the transformation to digital business. Too many CEOs and their executives view today’s digital business challenge as a marketing problem or even a technology problem. While digital marketing is a critical business capability, such a view greatly underestimates the opportunities and challenges of fundamental digital transformation. 

The real challenge for every company, especially retailers, is to make the transition from a company that is in business to sell products or services to becoming a digital software company that adds value to their customers by fulfilling specific desires. Emerging leaders in digital business, companies like GE, are radically rethinking their business value models to create added customer value from bits and bytes. But it's not easy, and nobody has yet fully transformed their business. And because this is an incredibly difficult transformation to undergo, some companies will flounder along the way: The results at JC Penney over the past couple of years highlight the risks of getting it wrong.

The transformation to digital business requires such a significant mindset shift that I believe the overwhelming majority of today's CEOs will find it difficult to make the transition. That’s why I predict 2014 will be the year of digital reality – where many CEOs are forced to reconcile their long-held beliefs about their business with the new realities of a digital world. 

If you’re interested in this transformation challenge, I’m working on research to help firms make the transformation to digital business, and our upcoming Technology Management Forum is designed to help technology management teams “unleash your digital business.”

I’d love to hear from you in the comments section below or on Twitter  Do you believe the digital economy will force transformation on every business?

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