Avoiding Digital Overcompensation
in the Name of CX

When anyone suggests to you that a major trend is inevitable, check your pockets. Usually they have wonderful technology to sell you (full disclosure, we are no different). But a couple of insightful commentary pieces on CNBC recently should remind us that a dog that actually catches the post office van might not like what it finds.

In the rush to survive the enforced “staycation” opportunity we are all enjoying during COVID-19, retailers are naturally falling back on their online capabilities, either pure online (Click. Buy. Ship. Enjoy.) or some kind of hybrid model (Click. Drive. Put on mask. Yell through window. Collect curbside. Drive like it’s a bank getaway.). The theory goes that, as online is the perfect customer experience, the winner is the most “online” retailer. Ditch the real estate, embrace the web. Missed the last wave, embrace the new one! How hard can it be?

Not only is it hard, it might not be the best idea.

First, the hard bit. Online execution at scale is expensive and competing with Amazon often futile. Walmart quietly wrote off their $3B acquisition of Jet to zero. Z-E-R-O, which according to my carefully constructed, Goldman-Sachs-quality valuation model is more or less $3B less than they paid. Which might, of course, say more about their M&A valuation prowess than the challenge associated with online execution, but it should remind us that differential experience needs differential thinking. And that tech prowess cannot be bought. Or perhaps can be bought for 1000x what it’s worth. SoftBank should probably chat to Walmart about a couple of properties it would like to unload.

Now the interesting question: Is a purely online solution even a good idea in the first place? Whether or not you’re in retail, it turns out it might not be, because of all things, maybe customers might not want it.

If you have read our material in the past you will know we subscribe to a theory that all successful enterprises achieve a balanced alignment between customers, employees and shareholders. Measure all three properly, match them up, that’s your recipe for success. Any one out of whack and it’s that two-legged-stool-meets-gravity theory. How does this look for online retail?

It might surprise you to know that online retailing is often less profitable than bricks and mortar. One of the big cost advantages of technology has been that you outsource part of your value chain to the customer. Self-service technical support gives you the opportunity to waste hours of your time on fascinating forums and knowledge bases that completely fail to answer your question but always ask you if they were useful. If you’re lucky, you find some 17-year-old in Des Moines who has written up the perfect solution to the problem for free, the same problem the corporate engineers didn’t bother with. But my point is that, despite all that, we prefer it all to calling the vendor. We want the problem outsourced to us, and the company saves money. Win-win, and voila we have a hobby thrown in for free.

When a retail store sells online, they often find they are insourcing the customer’s job. Whereas you or I may drive to our local Target, browse the isles, load the car and drive it home (not to mention buying a metric ton of confectionary on the way out) the online retailer may be doing all those things for the customer, with no premium for shipping (thanks, Amazon!). Working impulse purchase into curbside pickup just isn’t the same – those monster packs of M&Ms will just melt in the sun. Bottom line is that a shift to online for many retailers is not necessarily good bottom line.

What might be more surprising is that customers may be going in a different direction also. Evercore, the investment bank, reported that their recent study indicated that customers preferred multi-modal retail (online + physical) to both physical only and online only. This feels like one of those “duh” moments that we so often miss: a winning growth strategy looks like hybrid solutions, offering lots of options for customers that let them put their own journeys (literally and metaphorically) together.

That should not surprise us. Physical has some advantages (immediacy, although less pronounced these days) physical touch, and certain anchor products such as groceries that still attract in person buying. Amazon gets this, and has been buying physical operations, notably Whole Foods. Purchase patterns for some products, especially clothes, benefit from hybrid online/physical purchase answers, especially in stores which do not seem to be using my exact fit model, if you know what I mean.

Many of these lessons will apply to businesses outside the retail space. Understand your customer segment and their unique journey preferences; provide flexibility and do not anticipate a dogmatic, linear customer journey. Fine tune models of integrated, multi-modal operations with the customer at the center, rather than the functional design of the company.

Easier said than done of course, but if you would prefer, I can sell you a quick fix for just $3B.