Changing Minds, Business Models: Can the Consumer Products and Services Industry Sell Its Vision to the Workforce?
Technology was, by far, the star of this year’s National Retail Federation “Big Show” conference in January – from smart shelves fitted with real-time inventory trackers to mobile checkout apps and robots that promise to drive costs and errors out of the supply chain.
Retail automation is a trend we touched on in a blog post on mobile payments back in May of last year. Already, advances in mobile payments and smart stores connected through the Internet of Things (IoT) are creating a frictionless shopping experience that could previously only occur in science fiction, along with opportunities to boost customer loyalty.
Where industry leaders see opportunity, however, employees often see a threat, particularly retail workers in repetitive or transactional roles – cashiers and stockroom personnel, for example. Change creates uncertainty, which manifests as reluctance to adapt. For those caught in the crosshairs of automation, it’s only natural to resist. This resistance to change, and the cultural concerns associated with it, were top of mind for industry leaders in a recent survey, Executive Perspectives on Top Risks for 2018, from Protiviti and North Carolina State University’s ERM Initiative.
Personally, I wasn’t too surprised to find out that the number-one risk concern for consumer products and services industry leaders in 2018 was resistance to change, given the opportunities to transform business with new technologies (“Resistance to change might restrict our organization’s ability to make necessary changes to the business model and core operations”). Executives classified this as a risk with the potential for “significant impact.”
Within days of the NRF show in New York, Amazon opened its first checkout-free grocery prototype, Amazon Go, to the public in Seattle. A week later, Kroger expanded its scan-as-you-go “smart cart” experiment to 400 stores nationwide. Apple Stores have allowed customers to pay with their iPhones since 2011. And, as I mentioned in May, some clothing retailers are experimenting with a “showroom” model that converts brick-and-mortar locations into browsing galleries, with all purchases made and fulfilled online.
These are significant changes, and the amount of organizational resistance to them is closely tied to organizational culture, on one hand, and the organization’s ability to attract top talent, on the other. For example, it can be difficult to enlist the help of rank-and-file employees to help identify and escalate risks as they arise if those people perceive change as a threat, or if they don’t feel that the company supports open and honest communication. On the other side of resistance is the risk of losing out on top talent in the market – people with those hot programming or automation skills who are seeking innovative and stimulating companies with bold visions and dynamic, forward-looking cultures.
These three concerns – resistance to change, talent, and culture – were the big three in this year’s survey. Rounding out the top five concerns for consumer products and services companies are the fear of disruptive innovations outpacing the organization’s ability to compete or manage risks accordingly and the ever-present concern about cyber attacks. As thieves are becoming increasingly adept at locking up operations for ransom and stealing customer information and regulators are becoming less patient with each data breach, boards and executives are once again listing data security as a high priority.
The direction of the industry is clear. New technologies, a race to reduce costs and a fierce competition for ever-more-picky and mobile customers with many options at their fingertips are driving the change. The business models must evolve or the business will become irrelevant – and executives know it.
For a more detailed analysis of survey responses pertaining to the Consumer Products and Services industry, you can download the industry summary from our website. The full survey with cross-industry results is available here.
The 2017 holiday shopping season was a wake-up call for any merchant who still thinks mobile commerce has yet to take off. Mobile transactions accounted for about one-third of online revenue during the holiday season — or more than US$35 billion — according to research from Adobe Insights. Mobile sales on Cyber Monday hit $2 billion for the first time.
These numbers are strong evidence that consumers are finally becoming more comfortable with using mobile devices to make online purchases. There’s good news to report about consumers’ feelings toward in-store mobile payments, too: Nearly half (45 percent) of mobile wallet users surveyed by Statista rated their recent experience with in-store mobile retail payments as “excellent.”
To help fuel these positive trends further, retailers, technology firms and financial providers need to work together to develop consistent and friction-free mobile payments experiences. And to increase adoption of digital wallets and other mobile payment methods generally, they need to be effective at (and proactive about) addressing consumers’ concerns about fraud, privacy and security.
Collaboration, cooperation and innovation in these areas are necessary to the overall success of the mobile payments industry. But there are other initiatives mobile-forward businesses can undertake to help their customers feel not only confident but also enthusiastic about using mobile payments systems. Offering compelling digital loyalty programs, either by developing their own app or using an existing platform, is one strategy for retailers to consider. Here’s why:
- Rewarding customers for their loyalty helps to increase mobile payments adoption. Whether they are earning points or cash back or receiving freebies, special offers or coupons, loyalty programs give consumers a reason beyond speed or convenience to use mobile payments systems instead of a credit card, debit card or cash. Even more important, it motivates them to do business with a merchant time and again — perhaps as often as every day.
- Digital loyalty programs make it easier for consumers to earn rewards (which can make them feel good about the brand). When a loyalty program is integrated with a consumer’s mobile wallet, that person doesn’t need to worry about carrying a physical card or entering a phone number — or even remembering that they belong to the program. The mobile wallet and the payment system exchange all the necessary details, making the process hassle-free. This experience can help a consumer feel more positive about the merchant’s brand.
- Digital loyalty programs provide data that can help retailers deliver more personalized shopping experiences to consumers — and sell more. Data insights collected from customer loyalty program platforms (with users’ permission) can lead to a win-win for consumers and retailers. Armed with detailed information about shopping habits and preferences, retailers can create incentives that reward customers for certain behaviors. Customers receive highly targeted messages and offers, providing them with a more personalized shopping experience. And retailers can build stronger relationships with customers while encouraging them to make purchases more often — and spend more when they do.
Keep the Omnichannel Factor in Focus, Too
Providing a personalized shopping experience, across all touchpoints, is also central to delivering an omnichannel experience. Many consumers today, especially from the millennial age demographic, already expect to be recognized as the same person across all the channels and devices that they use to interact with a business. That’s just one more reason it’s critical for retailers to make digital loyalty programs a priority, and to invest in tools that help them to collect and interpret data from customers through all channels if they haven’t done so already.
However, we know from the results of our latest Executive Perspectives on Top Risks survey, conducted in partnership with North Carolina State’s ERM Initiative, that many companies, particularly traditional retailers, are struggling to embrace and implement change fast enough to compete with new digital and omnichannel players. In our analysis of findings for the consumer products and services industry, we note that “too many retailers are focusing on what was successful 10 to 15 years ago than what can be successful today, and in the future, considering that the bulk of retail customers fall into younger age brackets that have become accustomed to a different way of shopping.”
Obviously, that needs to change. But retailers must also understand that in the digital economy, change is constant. So, they will need to be prepared to continually evolve their mobile payments strategies —including digital loyalty programs — to keep consumers engaged and revenues growing.
Just look at Starbucks, which is widely regarded as a mobile payments success story. Its Starbucks Rewards loyalty program has more than 14 million active members. The coffee retailer also reports that 30 percent of total tender is from mobile payments, but that figure has not increased since June 2017. As a result, Starbucks is looking for more ways to drive customers to mobile payments. Two strategies the company has already announced: making its mobile order-ahead service available to non-Starbucks Rewards members starting in March, and offering a Starbucks Reward Visa card in partnership with J.P. Morgan and Visa.
Only time will tell whether these strategies are effective at driving mobile payments adoption further among Starbucks’ customer base. But these moves suggest that Starbucks’ management sees mobile payments as an important part of the company’s future and wants to do what they can to bring as many customers as possible into the mobile fold.
Mobile payments strategies will vary by retailer, but the need to engage customers effectively through mobile will not. Simple, compelling and easy-to-use digital loyalty programs can help retailers make strides in both fueling mobile payments adoption and growing revenue through this channel. The time is now to explore the possibilities. The 2017 holiday season was clearly a tipping point for mobile payments, and research shows many consumers like the in-store digital wallet experience. Retailers should heed these signs of change, or risk getting left behind.
Today, the Trump administration announced steep tariffs on steel and aluminum to go into effect in 15 days. According to the administration, these two industries have been targeted for many years and subjected to unfair trade practices resulting in plant closings and decimation of whole communities — a trend that is creating not only economic consequences but also a national security concern. As President Trump announced today, strong steel and aluminum industries are vital to the national security of the United States. Specifically, the president indicates that he intends to build up the country’s military using American-made steel and aluminum.
The tariffs will consist of a 25 percent tax on foreign steel and a 10 percent tax on foreign aluminum. No tax will be levied on any product made in the United States. According to the administration, it is open to modifying or removing tariffs on individual countries. Canada and Mexico will be excluded from the tariffs for the time being. The president indicated that if these countries and the United States can come to agreement on the North American Free Trade Agreement (NAFTA) renegotiation, the exclusions will become permanent; the implied message is that if the renegotiation is unsuccessful, tariffs will be applied to all imports, regardless of source.
No one should be surprised at today’s actions. The president campaigned on this issue and can be expected to play to his base that this is a “promise kept.” That said, there are signs of flexibility for countries willing to make adjustments in the interest of more fair and reciprocal trade. However, any country granted an exclusion would result in higher tariffs for other countries in view of the administration’s apparent commitment to maintain a level of protection in defense of domestic steel and aluminum industries.
Critics of the administration’s move today have raised concerns regarding the possibilities of strong reprisals and escalating protectionist practices that could lead to full-scale trade warfare, create strong headwinds of slower global growth and higher inflation for exporters and multinationals, as well as consumers and businesses having strong reliance on imports. Given this week’s fluctuations in the markets in which there was an abrupt decline followed by a recovery, fears of an extreme response appear to have subsided – at least for now.
These tariffs have understandably raised questions among many organizations in different industries. While this obviously is an evolving situation and much more will develop and become clearer in the coming weeks, I asked some of Protiviti’s Global Industry Leaders to share with me their initial thoughts on some of the potential impacts in their industry and the questions their clients are asking. Here’s what they had to say:
Manufacturing and Distribution: The proposed tariffs are applied broadly rather than to specific countries, which opens up the risk of retaliation, even from U.S. allies. Clearly there will be winners and losers in the manufacturing industry, based on the particular sector. Obviously, domestic steel and aluminum producers stand to gain the most from these tariffs as they counter cheaper imports “dumped” from heavily subsidized countries like China. However, due to tariffs raising the cost of steel and aluminum in global supply chains, many U.S. industries that use those metals could see decreasing margins, increasing prices for customers and/or a reduction in manufacturing jobs. This could include automakers, machinery and equipment manufacturers, beer and soda companies and the construction industry, to name a few. From a trade partner standpoint, certain European and Asia-Pacific allies who are larger trading partners than China on certain goods could be harmed. If a trade war ensues, no one wins.
Consumer Products and Services: Steel and aluminum tariffs will likely drive up costs on manufacturing equipment and raw materials used in packaged consumer goods manufacturing as well as the finished goods themselves, although no one knows for sure just where the point of levy will be in the value chain. For a long time, companies have taken full advantage of cheap labor costs abroad through outsourcing, offshoring and emphasizing low cost producers in building global supply chains. As a result, U.S. businesses and, in particular, retailers have benefited from less expensive imported goods. Accordingly, the National Retail Federation and the Food Marketing Institute have expressed concern that these tariffs will impact the finances of all Americans with higher costs on basic consumer items, including food and food packaging. Additionally, for many years, Americans appetite for imported goods has increased and a trade war could lead to higher prices for imported goods Americans enjoy. If the administration’s trade policies and retaliation by other countries were to increase the cost of imported goods, it is reasonable to expect – at least initially – upward pressure on the prices of consumer goods.
Technology: Although the technology industry is not typically called out as one of the significantly impacted industries, steel and aluminum are major components for many manufactured technology products. A key unknown as of this writing is whether the tariffs will be assessed on raw materials or finished goods. Companies (e.g., Apple) that manufacture components and products outside the United States will fare better if the tariff is on raw materials than those that import steel and aluminum to produce components in the United States. If assessed on finished goods, manufacturing outside the United States will not protect products from cost increases. Companies that have implemented and utilized technological advances to streamline their manufacturing processes, and therefore their use of affected metals, may insulate their import costs as compared with companies that continue to manufacture via less efficient processes. Another significant unknown involves retaliatory tariffs. The EU has proposed very targeted product tariffs so the potential impact on technology industry players remains a risk should their products be targeted by affected countries.
Energy: Margins are already tight in the industry, so this could create a bump in the road to what has been recently on a steady (albeit small) uphill climb. U.S. companies with assets and operations internationally are likely not affected. However, oil field services companies that make rig and production equipment will likely see higher costs to machine their products. These higher costs could be passed on to upstream companies purchasing oil field services materials and services. Pipeline companies would likely incur increased costs. Given that most of their revenues are domestic, utilities are less likely to be impacted by anti-trade policies. They may incur increased costs – probably construction-related costs – that could be passed on to general public in the rate making process.
To sum it up, one thing we can say is this: No matter what happens, protectionist rhetoric is now out in the open. Once that cat is out of the bag, it’s hard to stuff it back in.