At some juncture in recent history (within the last 15 years), in order to facilitate growth for share holder and board satisfaction, most of the dominant and globally-recognized brands, companies and institutions have had to embrace dynamic audience cultivation.
- new brand incubation
- technology or brand/company acquisition
- or a re-imagining of revenue stream opportunity through revenue diversification or distribution
Mature organizations have had to understand strategic value in order to prioritize channel-driven initiatives such as: driving multiple channels of purchase, ‘bricks to clicks’ that increases annual or customer lifetime value or through product licensing that expands product categorization (i.e. wallet share) or franchising that expands geographic distribution (audience size).
Tech Sector and the lure of ‘buying’ one’s way towards strategic growth.
Acquisition is common practice in the fast-growing tech sector, where IPO’s climb to new heights each day, it seems, and as evidenced by Snapchat’s $28.3B IPO valuation. Yet today’s apex of tech sector valuations, has been built upon the faulty ground of early dot-com failures, where in 1999, Webvan (true story, in its first year of operation, as an early adopter, I happened to get food poisoning from a non-date marked deli item of chicken salad, an ‘elementary mistake’ or missing ‘a basic’ in the foodservice industry) filed for an IPO with a company valuation of $1.2B and plans to expand to 26 cities. Nasdaq halted trading of their stock just two years later, forcing the online grocer to close shop. Or Friendster, that had all the right ingredients for tech start-up success, with the exception of a site that worked…became the inaugural social media network that would never become Facebook.
Traditional sector advantages to the tech sector’s high-growth and high-risk value proposition.
What traditional sectors and companies may not realize when considering their capability to innovate in today’s technology landscape, is that they have customer assets that technology start-ups must acquire:
- A Product that works, that has resulted in consumer loyalty
- The Trust-Factor that serves as the backbone of the customer experience, be it physically or digitally and drives cross-channel purchasing and those willing to ‘travel’, given brand trust.
- Consumer Transactional History, whether this has been unlocked or not, is typically held captive in legacy Order History (OMS) systems, POS and shipping logs.
At a time when large-scale companies realize that they must ‘join the game’, often their organizations are silho’d and fragmented. Product & merchandising (or commercial efforts) often reside under 1 lead, stores are ‘pitted’ against eCommerce operations typically with competing vs. unified goals, where alignment threatens performance and individual compensation. Lastly, and perhaps most importantly, history through the lens of the customer’s purchase behavior either requires a CapEx expenditure that takes (years) and many consultants to consolidate, and oftentimes, omit key portions of information, making it 70% relevant… and therefore, not ‘worth the effort’.
The greatest hurdle, to overcome however, is when companies that represent a particular market, vertical or category, must evaluate emerging channels, such as eCommerce or mobile shopping, and the market maturity has not yet been fully ‘realized’, given the fact, that that particular organization has not yet adopted and placed its masthead ‘open for business’ in that emerging channel.
This was the juncture of technology adoption for organizations such as: Zara, owned by Inditex, and today’s largest vertical fashion retailer in the world as it approached its eCommerce strategy; MoMA, the Museum of Modern Art, which faced a significant build-out expense when re-opening their doors in mid-town Manhattan and Williams-Sonoma, which needed to embrace the digital era, from its stalwart brands Williams-Sonoma and Pottery Barn. Each company or organization took different approaches, but each leveraged the following brand and company assets to achieve significant omnichannel success:
- Put the Customer at the center of the experience.
- The Trust-Factor: be it trust in a name such as Zara for go-to ‘fast fashion’ that makes women feel smarter and ‘on trend’, or MoMA, The Museum of Modern Art, where their name represents the global curatorial standard in modern and contemporary art, or Williams-Sonoma Inc. where a customer database culled from 36 years of direct-catalog selling provided customer segments seeking furniture at more palatable price points. Williams-Sonoma’s advantage as a direct-cataloger immediately instilled trust centered on honed customer service and fulfillment infrastructure. Consumer trust (not to be mistaken with consumer confidence) is an inherent key to unlock new channel or market potential.
- Customer touch points. One of the greatest challenges for newer and particularly “pure plays” online-only brands is being able to grow audiences for retention marketing, where the first marketing objective is typically engagement followed by conversion, followed by up or cross-sell.
Having guided each of the aforementioned organizations in their brand strategies, digital revolutions and growth trajectories of the past 10 to 15 years, where significant portions of their strategic entries focused on geographic expansion outside of their native markets; be it Spain for Zara or outside the United States for MoMA. Each organization faced opposition in its embracing and ultimately paving the way forward in its respective sector, market and serving today as the shining examples of online and omnichannel success. Each had to overcome both internal dissention in embracing technology-centric solutions and consumer markets that were also not yet ‘on-board’ with the direction of what has become their growth trajectory. While there is a level of faith or intuition that has to bolster executive level decisions, we’ve learned that with larger organizations where risk can be exorbitant, a diversified discovery, market and comp analysis ultimately leads to a risk-adverse solution that so far, has not yet yielded ‘unsuccessful’ results, which brings us to a modern day example… El Palacio de Hierro, the largest luxury retailer in Mexico.
neta + El Palacio de Hierro
On the edge of growth and somewhere closer to San Francisco, circa 1999 versus New York City, today; in 2016, El Palacio de Hierro, the brand synonymous with Mexican luxury steeped in a heritage of 125 years, came to netamorphosis with a fundamental problem and opportunity.
Problem: How could a brand that was emblematic with the word ‘luxury’ at a national level, leverage the fastest “country-growth” trajectory of Uber as evident by Mexico having the second-highest mobile global conversion rate (second only to South Korea*)?
Aspirational Opportunity: As the leading luxury department store in Mexico, although well below their penetration of total sales, El Palacio had the international aspirational model of Nordstrom (amongst other department stores across the border in the United States) which was trending for 2 consecutive years where online sales contributed to a quarter of overall sales, and y/y growth (#18 Internet Retailer’s Top 500).
While Uber and Nordstrom represented ideal opportunity, El Palacio needed to first understand and evaluate the risks versus opportunities facing its consumer base, market opportunity and cultural context, given what was an even more pronounced cultural divide between Mexico’s omnichannel evolution compared to the United States’ investments in technology infrastructure (internet bandwidth in addition to private and public postal/delivery reform), and legacy /systemic software?
Cultural Context = Consumer + Market Opportunity
At the time that we arrived on the ground at El Palacio, the organization was in the midst of a company-wide transformation under new leadership. As a result of this new leadership, which hailed halfway across the world, coming from a publically traded retail company 3 – 4x the annual revenues of El Palacio and with significantly more pronounced online sales penetration than what was currently trending within the Mexican retail landscape, there were several groups of consultants brought in to guide and advise; ranging from independent consultants to the largest financial consultancy in the world, to creative and production agencies…and us (goldilocks). There were different areas of focus for these different groups, and ours was simple; derive the most compelling online growth plan in accord with the problem & opportunity that had been relayed to us.
- Understand internal strategic thinking first. What I’ve learned historically when arriving to a larger-scale organization, even in a foreign language, is that often there is intuitive strategic thinking from within the organization that has not been “heard” given communication barriers attributed to hierarchy. This can be alleviated when an organization welcomes new leadership, contingent upon that particular management style, and if captured within the immediate 6 – 12 months of that leader’s transition, when individuals are both motivated and fearful of change. There was in fact, strategic planning for growth that had been proposed internally and was based on the approach of its most direct competitor to drive online sales, however, given breadth of market, even if that competitor may represent significant market value, it doesn’t necessarily account for forward-thinking customer experience, that will ‘gain market’ share in time, which is why it is relevant to expand comp analysis beyond 1 to 2 organizations and often outside of direct competition.
- Competitor Market Analysis – the Comp Set. Although the direct competitor provided a compelling reason to follow the internal strategy, there was a glaring competitor in the market to gain insights from; the pioneer of all online sales, Amazon, which had debuted in Mexico with a full assortment in 2015, the year prior. What was relevant to El Palacio, regarding Amazon’s Mexican market entry, was even though Amazon represented the opposite end of the ‘price spectrum’, with the exception of electronics where they overlapped consumers, was that Mexican consumers were familiar with Amazon, which means Amazon had immediate brand recognition and one would expect the ‘trust factor’ on day 1. Market analysts had touted Mexico as one of the first countries/territories where Amazon and Alibaba would compete head-to-head, but since their respective debuts in the past 12 months, and flat performance, there was little analyst coverage other than missed ‘expectations’. The question that had not been answered was, why?
- When consumer trust trumps brand recognition. As there was little written about the lack of success in Amazon’s meeting performance expectations, we proceeded in (3) parallel discovery efforts:
Q&A with lead merchants at El Palacio and the simple question:
Q. Have you purchased something on Amazon.com.mx since its debut?
A. The surprising answer was that many people had purchased from Amazon in the past 12 month…
…but from the American site.
- What seemed to be happening was that even from a Mexican retail institution such as El Palacio, where commercial department heads were beyond familiar in dealing with complex international shipping and freight logistics they did not trust the Mexican postal service or other delivery services to deliver online purchases. Thus, ordering from the United States website and shipping to places across the US-Mexican border such as San Antonio, TX or Miami, FL was considered ‘safer’ and therefore trust-worthy. This was new and unfathomable information that had not previously been shared in our preliminary conversations.
- As we assimilated our interview discovery information, we were also conducting our comp analysis in parallel to discover that Amazon’s fulfillment queue and customer service touch points differed significantly in its Mexican operation vs. US operation. Unlike its American site operation which had not made available the ease of customer service since 1999, when Jeff Bezos touted that the internet provided a much more direct means of customer feedback that was supported by a “below-the-fold” customer feedback form field that asked 1 question: “Are you satisfied?”, Amazon was very much available and communicative with its Mexican customer.In contrast to its US counter-part website, which had invested in logistics infrastructure, and its Wal-Mart approach that the lowest price ‘wins’ the consumer; Amazon.com has stripped the customer – service interface, on Amazon.com.mx, Amazon had prioritized the human reinforcement element and integrated:
- Real-time live chat
- 4 post-order operational emails including:
- Order confirmation
- Shipping confirmation
- Shipment in transit notice
- Delivery confirmation
Our end-to-end mystery shopping analysis which ranks eCommerce order fulfillment had given Amazon.com.mx a ‘service ranking’ of 5 as opposed to Amazon.com where it typically receives between a 3 or 4, contingent upon the type of product ordered, and deducted points as it doesn’t readily respond to customer-driven inquiries, but instead delivers solely on speed and convenience (which is a successful approach for its dominant merchandise categories).
- Don’t underestimate anecdotal research.
As we began to understand the lengths that Amazon was extending to ‘convert’ the consumer to eCommerce in Mexico, we asked our Uber driver, our waiter at the hotel restaurant, everyone we met at El Palacio if they had ordered anything online. Where now unsurprisingly, we found the resounding answer to be ‘no’, and the reason: they didn’t ‘trust’ the delivery of goods. Equipped with this understanding of the cultural mindset, as we entered 1 of 2 CDMX fulfillment centers. We were now less shocked to learn that in our tour of order fulfillment that El Palacio’s customers were ordering multiple items per order and that these orders were being split and fulfilled separately. From a cost-perspective, where we have conducted fulfillment/cost per order analysis for many US companies as a profitability expense control, this fulfillment approach was illogical, but as we learned, this fulfillment operation was in response to consumer demand or feedback…in that the customer felt greater confidence by ordering 3 items, with the hopes of receiving only 2 or even just 1 item out of that order, and ultimately El Palacio was listening to its customers.
While we had not come across this same cultural scenario at the outset of the .com days in the United States, or in southern Europe, albeit different permeations of distrust, Mexico presented a unique challenge…how would we overcome what seemed to be a very dense distrust?
If Uber, a company that had not existed prior to 2009 could enter the complex Mexican business landscape, in one of the most notoriously un-safe countries in the world and experience its most successful on-ramp, why could we not solve this cultural problem that could leverage the most aspirational brand in Mexico?
While the immediate answer may not have been as sexy as comp’ing Nordstrom’s present-day penetration of total online sales, or hail a short-term growth-trajectory as significant as Uber’s, it did shift the approach from the internal strategy into a 3-year comprehensive solution of 76 initiatives centered around the following priorities:
- Build the Mexican consumer’s confidence online through 20 UX and messaging ‘wins’
- Maximize the Call Center through humanizing and reinforcing the online experience (1-on-1)
- Achieve an Order Fulfillment Rate > 80% (striving for a target of 90 – 95%)
- Optimize its “Collect and Return in Store” program as an alternative fulfillment program non-reliant upon delivery (Future: Uber would be relevant)
- Redirect commercial and merchandising efforts to focus on hard lines, which is exactly where Amazon started…and where consumers were buying
While this appears simplified, in fact it is a complex, cross-company and functional execution to successfully roll-out, and what differentiates our approach to omnichannel strategy is that we are integrated as part of your team to ensure streamlined and successful execution of each initiative, should our engagement empower us to do so.
So now, a new question, if we can solve this insurmountable problem facing the largest luxury retailer in Mexico…what problem(s) are you facing in your company?