A framework for making sense of the past, present and future of Retail.
exploded-view diagram
Our notion of Retail needs to be exploded. Not the “BOOM” kind. I mean the exploding we see in those beautiful part diagrams in old product manuals and patent applications. The essential components, their interactions, their functions laid out for inspection. The mystery of the whole becomes understood. The cause and effect become linked. With an unobstructed view of the WHAT, the HOW becomes clear. This decomposition is Step 1 on our path to a true understanding of Retail innovation.
The natural sciences started here. Early chemists broke down matter and continue to do so today. After the concepts of matter were reduced to atoms (the WHAT), the chemists began to pursue questions about how they interacted and behaved.
Some yet-to-be-discovered elements were predicted based on the rules established by the Periodic Table of Elements.
Step 2 is codification, the writing of generalized rules for the pieces. The most visual example of this practice in chemistry is the Periodic Table of Elements. It created an organizing framework (the WHERE, WHEN, WHY). It generalized a complex system.
Innovation happens in Step 3 when the general rules are applied to new situations to predict new truths. The Periodic Table’s empty spaces accurately predicted the existence of new chemicals and their properties without needing to be observed!
If you take a moment you can see how the same knowledge-building and innovation processes unfolded in Biology and Physics. But what about Business? And more specifically what about Retail? Must we happen upon new practices or can we derive innovation? Having spent most of my career in the industry, I have become a professional observer and practitioner. But knowing and executing today’s “retail best practices”, “omni-channel strategies”, etc is akin to following a book of recipes. I want to predict where this thing is headed.
Innovation is a blind leap from the comfortable footing of faithful implementation. So let’s get inside this machine and see what new concepts we can concoct from its parts. Let’s graduate from Observers and Practitioners with our anecdotes and practices to Innovators armed with predictions.
STEP 1: Decomposition
Before we become enlightened Retail masters, we must first break down the concept into discrete components. This over-simplification will de-clutter and organize. Only then can we build it up again in a logical fashion. We'll be in the weeds for a bit but it's necessary work to get where we're headed.
The Elements of Retail (the WHAT)
Customer Element
The Customer Element is the driving force in Retail. Every commerce transaction can be traced back to a job that the Customer needed to do (see Clayton Christensen). These needs can be functional, emotional or social. They are the causal forces in commerce. Without one, a Customer won’t participate in commerce. Other attributes make up the Customer including market characteristics (demographic, geographic, psychographic, behavioral). Though not causal to commerce, these inform and restrict how the job can be done.
Retailer
If the driving force in Retail is the Customer’s job, the Retailer must respond with an offering. This is the solution to the Customer’s job and the ability to fulfill it. We’ll further break down the offering to the Product Element and the Inventory Element.
Product Element
The Product Element represents the description of the offering, its price and all of the characteristics, content, data, about the offering. Product images, videos, categorization, specs are all part of the Product Element.
Inventory Element
The Inventory Element represents the stock of the offering that the Retailer has available to its customers. In a footwear store, the display shoe is the Product and the boxes in the back room are the Inventory. A work order describing a plumber's services is the Product and his hours available to complete these services would be the Inventory. For some retailers like consignment shops, the Product and Inventory Elements are combined into one item.
Store Element
The Store Element is the environment managed by the Retailer for commerce to happen. In traditional Retail, the Store is a brick and mortar environment. In ecommerce, this is a website or mobile app.
Employee Element
Employees perform the human tasks in Retail like manning the till, restocking, merchandising and marketing.
Brand Element
The Brand Element is the character, the persona of the Retailer. It includes tone, style, values, and purpose. Communication of these attributes through design and content is also part of this Element. The design of the display window, the creative content in a promotional email, the layout of a category landing page on the website, are all part of their Brand Element.
Transaction Element
When all the Elements align just right, a Transaction can occur between the Customer and the Retailer. The Transaction Element is composed of information provided by both the Customer and the Retailer. The Transaction includes the Products to be purchased, along with their quantities and agreed upon final pricing. It includes information about how the Customer intends to pay. If Inventory is to be delivered at a later time, the methods and options are included. Ecommerce extends the life cycle of the Transaction because Inventory is delivered to the customer after they check out.
My over-simplified assertion is that the totality of Retail can be described by the combination of these fundamental Elements. Now that we've exploded Retail, let's start building it back up.
STEP 2: Codification
The WHEN, WHERE, HOW of Retail
Now that we have decomposed Retail into the Elements of Retail, we can define the rules for when, where and how they contribute to the bigger picture.
The Life Cycle of Retail (the WHEN)
The Customer and the Retailer progress through a series of stages together, driven by the most important force in Retail, the Customer quest to solve for their job to be done.
Need - Develop
The Customer’s job first arises and they have a need for a solution. The Retailer develops a product for the market that solves a need.
Seek - Promote
The Customer either actively or passively creates a set of possible solutions. The Retailer promotes their offering to the market.
Research - Describe
The Customer researches each option. The Retailer communicates the detail of their offering through product displays, rich descriptions, demonstrations, etc.
Choose - Offer
The Customer decides which Product they will buy. The Retailer specifies the price and the availability of fulfilling the Product.
Buy - Sell
The Customer pays for and finalizes the Transaction. The Retailer finalizes the Transaction.
Receive - Fulfill
The Customer receives the Inventory. In brick and mortar retail, this occurs simultaneously with the Buy Stage. In ecommerce this Stage is the time between transaction and final delivery. The Retailer delivers the Inventory to the Customer.
Use - Service
The Customer uses the Product. The Retailer services Customer in their use of the Product.
The Channels of Retail (the WHERE)
Retail is experienced through different channels. These include physical contexts as well as digital contexts. This spectrum represents the next dimension, the WHERE of Retail. Before the digital age, the Elements of Retail could only interact in physical ways. Much of brick and mortar retail operates like this today. Ecommerce introduced digital counterparts to the Elements. Omni-channel Retail is the innovation resulting from the integration of the Elements along this axis.
The Execution Stack of Retail (the HOW)
The final dimension, the HOW, is the hierarchy of the means by which both the Customer and the Retailer achieve their goals. This is the Execution Stack. The Customer’s Goals are supported by Tasks, Tools and Behaviors culminating in an Experience with the Retailer. For example, a Customer within the Research Stage achieves their Goal of knowledge by the Tasks of searching, reading, and viewing using their mobile phone as a Tool. Their Behaviors may include tapping, swiping and pinching to zoom in to product images.
The Retailer’s Value Stack supports the Capability they intend to offer their Customers to experience. Moving down the stack, the tiers are Presentation, Data & Content, Applications, Infrastructure, Operations, Implementation, Design and Goals.
Using the example above the Retailer needs to align their efforts around the Product Element to achieve their goal of converting the Customer.
Two examples of the Retailer Execution Stack.
The Realm of Retail
When you bring together the three dimensions of Retail, you get a rich, precise description of the Realm of Retail. A point in space represents an Element's position with respect to the Retail Life Cycle, Channels, and Execution Stack. This creates a great way to visualize and catalogue all of the possible configurations in Retail.
The possibilities for one concept can now be visualized by taking a cross section at its point along its axis.
For example, by focusing on the Experience Tier of the Execution Stack dimension, you can model the Customer journey though Channels and Life Cycle. Focusing on the Retailer Capability Tier of the Execution Stack, will allow for mapping Capabilities against Life Cycle and Channel. A Retailer's Applications can be mapped by cutting a cross section there.
Customer Experience through Life Cycle and Channel
Retailer Capability through Life Cycle and Channels
In order for the Retailer to support a specific Customer Experience journey their Capabilities need to align.
Example Retailer Applications laid out across Channels and Life Cycle stages
STEP 3: Innovation
Now that we have a framework that describes Retail in a comprehensive way, we can define Retail Innovation in these terms by interrogating each possibility within the Realm of Retail. I'll be focusing here in future posts but will cover some types of innovation.
Retail Channel Innovation
Combinations of the Elements of Retail
As observers of the Retail industry we've seen the rise of omni-channel activity but thinking with our framework helps us understand why. New types of Customer Experiences and corresponding Retailer Capabilities can be derived by combining the Physical and Digital Elements of Retail. An adjacency matrix style diagram can be used to show all of the possible combinations between the digital and physical Elements of Retail. Each cell represents the Customer Experience or Retailer Capability derived from the integration of two Retail Element concepts.
Many Retail solution vendors are bringing new offerings to market to support Retailers who are taking advantage of the new opportunities afforded by digitization and mobility.
Some Examples
When the Physical Retail Employee is connected with the remote Digital Customer you have the capability of clienteling. When physical brick and mortar Inventory is made available on the Digital Store, incremental sales result from having greater availability for the Digital Customer. These innovations are already underway.
What experiences and capabilities do we get from combining remote corporate Digital Employees with in-person, Physical Transactions? This potential combination may mean that sometime in the future we'll see virtual remote store associates supporting selling and transactions to Customers in a brick and mortar store. Using this framework provides a powerful tool for brainstorming the possibilities.
Retail Life Cycle Innovation
Integration across the Retail Life Cycle. ECommerce software solution vendors are starting to pursue innovations by integrating backward and forward in the Life Cycle.
Innovation along the Life Cycle dimension comes in a few forms. Stages of the Life Cycle can be integrated within tiers of the Execution Stack to gain benefits for the Retailer. Eliminating Element hand-offs and integrations between stages in the Life Cycle creates a more seamless Life Cycle and at a lower cost of doing business for the Retailer.
Some Examples
An example in the Digital Channel would be ecommerce applications. These software vendor's Life Cycle scope has traditionally been the Describe, Offer and Sell stages. These applications typically operate on the Store, Product and Transaction Elements of Retail and have focused on supporting the Retailer goals of sales conversion. If they were to integrate back into the Promote Stage by taking on more marketing and demand generation responsibilities, they would benefit from understanding the Customer journey more accurately and use this knowledge to offer more contextual experiences to the Customer. This type of innovation may also create efficiencies for Employees who manage these Applications, allowing them to orchestrate a broader set of experiences. Forward integration into functions typically performed by order management system applications result in similar performance and efficiency improvements as well. We have already seen some of the leading enterprise ecommerce platform vendors building their own or acquiring OMS (Order Management System) capabilities.
Execution Stack Innovation
Consumer technology advances will continue to expand upon the Customer's Execution stack. When smart phones became widely available, Customers had a new Tool and set of Behaviors in the form of taps, swipes and pinches to perform their Tasks in Retail from wherever they were. Retailers need to keep pace with these consumer innovations with their Capabilities. In this example, Retailers rushed to ensure that their capabilities were suited for the mobile Consumer.
Another form of innovation along this axis is Execution Stack integration. Tiers in the stack have always needed to be integrated in some manner even if this integration was a business process. Some solution vendors who provide their products and services to Retailers are starting to see benefit in integrating up and down this stack. Vendors who support Digital Capabilities have integrated across the Application, Infrastructure and Operations tiers of the stack. This innovation is synonymous with SaaS or software as a service. In general integration enhances the existing performance metrics of the target Capability.
Vertical integration across the Execution Stack. SaaS Vendors innovated on this vector to provide better cost and efficiency performance.
When new unique Capabilities are required by the Retailer (often in response to new Customer Behaviors) innovation comes from specialization in the stack verses integration. When standard interfaces are formed between tiers, new specialized innovations can emerge.
Conversely, solutions integrated across tiers gain efficiencies by creating interdependence across the tiers on which they have integrated. This interdependence can reduce flexibility.
As a rule for innovation, when performance of an existing capability is most important, an integrated solution will be better. When a brand new capability or general agility is required, specialized and decoupled solutions are best and investment in the interfaces between the components is important.
Some Examples
One example of this situation played out in the Digital Channel where ecommerce platform vendors were in a market where their Retail clients wanted more control over the web customer experience. Managing ecommerce pages and content was too costly and too slow for the market. Some of these vendors invested in integrated up stack by including content and page management capabilities directly in the ecommerce platform. This integration, while providing great tools and efficiencies for executing the existing Capability, namely desktop browser web pages, created interdependencies within the software platforms. Because the Retailer's needed to increase performance on the existing Capability, this integrative innovation made sense. However, when mobile came along, and brand new Capabilities were required in the form of apps and responsive web design, platforms that were decoupled between the Application, Data & Content and Presentation tiers were more able to meet the needs of the Customer's new set of Behaviors. Innovation required specialization in this situation.
This is only the beginning of our exploration into the past, present and future of Retail. Now that we have a comprehensive framework, we can describe Retail precisely and we can pursue innovation with confidence. In future posts we'll explore specific applications of this framework with examples from Retailers and industry solution vendors. Until then... Onward! Forward!