How retailers are avoiding “Uberization”

 

Jan. 15, 2016

By Steve Laughlin

In today’s increasingly interconnected world, disruptive business models like those of AirBnB and Uber are thriving.

Built off a foundation of crowdsourced employees and sprawling networks, these businesses are quickly and directly connecting customers with their services and products. And it's making C-suite executives at retail empires in major and emerging markets around the world very anxious.

According to a recent IBM study of C-suite leaders, retail CxOs are fearful of competition from digital upstarts outside of their industry. The study found 67 percent of retail C-suite executives anticipate dealing with that type of disruption in the next three to five years — a significant jump from the average 43 percent who thought it would impact them in 2013. That's also significantly higher than the 54 percent of all C-suite leaders surveyed who expect to contend with competition from outside their industry.

Yet the retail industry may not have as much to fear as less innovative sectors. As retailers everywhere focus on reaching customers wherever they want to shop, they are already adapting some of the attributes of their more nimble competitors.

In IBM's study, 70 percent of retail CxOs cited consumer purchasing power as the most impactful trend on their business out of six other factors, compared to just 43 percent of global CxOs in other industries. Retailers know that in order to keep customers happy — and loyal — they need to come up with innovative approaches to learn and analyze shopping habits and patterns.

As an example, the Fung Group is partnering with IBM on an experimental retail laboratory in Shanghai. Called the Explorium, brands from Stride Rite, Hello Kitty, Nautica and New Balance are using location-based services and analytics to explore how consumers interact with new products in real time and analyze the environments where they are most likely to make a purchase.

These insights from external sources and connected devices are hugely important to the success of a global retailer when entering a new market — or making changes in an existing one. Macy's ispartnering separately with Fung Retailing to learn about local buying patterns and consumer preferences in China as it prepares to enter the market. This illustrates the importance of bringing innovation in from outside sources and expanding their partner networks to combat new market entrants.

Another way retailers can avoid Uberization is unlocking the context of ambiguous, uncertain sources of information — such as conversations between consumers online — that today remain out of reach of traditional computing systems. Retailers are turning to cognitive technologies to analyze massive amounts of unstructured data to better understand consumer behaviors and respond with an enhanced shopping experience. In an IBM study, 91 percent of retail leaders familiar with cognitive computing believe it will play a disruptive role in the industry.

As an example, for one large retail client, IBM developed a cognitive solution that analyzes the client's data in the context of information from multiple external sources — including local weather and up-to-the-minute social sentiment — to sense deviations in demand for selected products, make recommendations in areas from replenishment to pricing and dramatically improve demand forecasting. 

Though incumbent retail CxOs are rightly concerned about customers' attraction to the convenience of vertical businesses like Uber, they should take advantage of their size and ability to prototype innovations such as cognitive computing that provide contextual insights to why consumers make the choices that they do.

Large retail enterprises may be encumbered by a legacy infrastructure, but they also have a competitive advantage: the ability to use a breadth of customer data to quickly analyze then deeply understand what’s happening with their customers and how to personally reach them — all while saving costs and gaining profit. It’s an advantage they shouldn't take lightly