Commentary

Want to win in retail? Focus on driving innovation

Oliver Guy, global industry director, Software AG, writes that the most successful retailers understand that their tech partners can help them put innovation at the forefront of their strategy, and trust partners to deliver focused, practical solutions to improve the customer experience.

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December 20, 2018

By Oliver Guy, global industry director, retail, Software AG

When it comes to technology adoption, retailers have historically lagged behind. When faced with the decision on how to spend allocated funds, more often than not, retailers chose to open new stores and keep legacy systems in place rather than invest in technologies that support the customer experience.

This all changed with the launch of smartphones. Omnichannel retailing became a new reality to contend with, and meant that customers could shop anytime, anywhere. Today's customers have more ways than ever to interact with retailers: at brick-and-mortar stores, online or on mobile devices.

This influx of mobile and digital shoppers — along with pressure from industry disruptors like Amazon — means technology innovation is paramount to success for traditional retailers. While a vast majority of retailers agree that technology innovation is vital to supporting the customer experience (and their bottom line), there's a significant gap between those taking real action and those riding on their coattails.

To gain a better understanding of why this disparity exists, a new survey from Retail Systems Research (RSR) and sponsored by Software AG, "Ramping Up Retail Innovation," aims to illuminate how retailers are approaching and integrating technology innovation in their organizations.

The difference between retail winners and non-winners

Innovation means different things to different companies. While both retail winners — which the study defines as those who outperform their competitors in year-over-year comparable sales — and non-winners want to be perceived as innovation leaders at 93 percent and 60 percent respectively, only 21 percent of non-winners believe they are more innovative than others in their vertical. Even when comparing themselves to those with similar annual revenue, only 32 percent of non-winners reported that they are more innovative.

This may be due in part to how retailers measure the success of innovation. Retail winners expect innovation to drive concrete results (66 percent), like return on investment, while non-winners regard customer satisfaction (60 percent) or traffic and conversion (53 percent) as the big metrics for success. In other words, non-winners tend to look to the end, and not always the means to get to that end.

It's also interesting to note that almost half (47 percent) of non-winners indicate that they aren't keeping up with their peers. Since they are expected to deliver top and bottom lines, they have little money left for innovation. This could explain why only 72 percent of them consider customer-facing innovations very important, while 93 percent of winners do. As retail winners already know, it's imperative to focus on new initiatives that satisfy the customer in order to meet their rising expectations for proactive service, personalized interactions and connected experiences, or risk losing them to competitors who are more willing to do so.

Another noteworthy finding is that only 38 percent of non-winners recognize the value of new product development to make them more competitive. If companies feel that they are losing ground, one alternative is to bring in interesting products to excite customers with some new value. Retail winners seem more likely to understand this, as almost three-quarters (73 percent) believe new product development is important.

The inspiration for innovation

More often than not, the best retail innovators tend to draw inspiration from a variety of sources, including those outside of their own organizations. While retail winners recognize that listening to customers can provide unique perspectives on how to improve their business, they also look to their current technology vendors for leadership and new ideas. In fact, two-thirds of retail winners look to vendors to come up with new and innovative ideas, compared to half of non-winners. In short, successful retailers understand the value of drawing innovation from a rich ecosystem of idea-generating sources.

Additionally, retail winners are more open to new ideas from alternative sources such as consultants, other tech vendors and even other industries. They also place far more importance on the latest technology innovations than average performers do, and count on their partners to help bring them up to speed on all technologies and how they can work to their benefit. The most valuable technology partners facilitate workshops that are designed to help their retail customers accelerate product and service innovation by addressing barriers that are holding them back. Specifically, these workshops teach retailers how to innovate with less risk and fewer resources, while also taking faster action on new technologies and ideas.

But which innovations are the most important to capitalize on? According to retail winners, technologies that drive customer-driven innovation are incredibly valuable, with 90 percent rating both customer-driven and technology-driven innovations as very important. When looking at specific technologies, an overwhelming number of retail winners believe cloud computing solutions are the most valuable to their business (90 percent) in terms of keeping up with consumer expectations, improving the shopping experience and creating profits, with new core systems (71 percent) and IoT (68 percent) following behind.

The most successful retailers understand that their technology partners can help them put innovation at the forefront of their strategy, and trust partners to deliver focused, practical solutions that they can use to improve the customer experience and ultimately keep competitors at bay. Those who don't approach innovation in this way risk losing share of wallet to retailers who can meet higher-than-ever customer expectations. If winners can teach us anything, it's that retailers simply can't afford to put innovation on the back burner.