What the Future of Retail Marketing Has in Store

December 7, 2019

The Personal Touch




How will shopping change in the future? Much like how it always has, but smarter, easier, and more seamless — all stemming from the ease of automation and AI. Despite the increasing clout of social media and digital marketing, physical retail stores aren't a thing of the past but a vital window into how marketing will be practiced in the future.

The future, of course, entails personalization, promoting inclusivity and sustainability, and using innovative approaches to reach people at the right time and place, not to mention having a willingness and the skills to leverage data to learn from customers. Retail marketers who prioritize the consumer experience and journey — not just the actual product — will gain loyalty and awareness that can't simply be bought by marketing campaigns, but through hands-on care and thoughtfulness for its customer-base.

Digital devices are ubiquitous, and the data that is collected encourages a highly personalized customer experience that stems from individual preference. Using data based on preference empowers consumers, even if indirectly.

Data-driven purchases are the future. But what does this mean? For starters, a highly personalized shopping experience. In an increasingly digital age, consumers are at the epicenter of the retail and consumer packaged goods industries. Their lives are improved and enhanced due to technological advancements that make it easier for them to find the products they want without a fuss.

In some cases, retail stores themselves benefit from technology, offering a fun, entertaining, and personalized experience that get consumers stoked to shop in the first place. Retail isn't just about purchases, but entertainment and culture — and inspiring consumers. In other cases, technology has entirely altered the landscape for products, and forced industries to pivot from products to services; the music industry being Exhibit A, as manifest in the popularity of platforms such as Pandora.

According to Forbes, "for the first time in history, a majority of the global population [50.8 percent] will be connected in 2019. This equates to 4 billion internet users." In addition, Forbes reported that the consumer journey is the top priority for most professionals: "Euromonitor International conducted a survey of 602 professionals globally in September 2018 [and found that] in the next 12 months, about two-thirds of respondents viewed improving the customer journey and user experience as the most important initiative in 2019."


New Research

Extending Value Through Experiential Marketing

When physical locations are part of the greater retail ecosystem, they provide brands with the opportunity to connect with their audiences long after a purchase is made, says Donny Makower, president of RED Interactive Agency, whose clients include AB InBev, Hasbro, and Under Armour. "When you offer meaningful experiences to consumers, you develop an actual relationship with them," he says. "And that's where brands get significant long-term value."

The shift to online shopping is causing major contractions among traditional retailers and boutique outlets alike. Brokerage firm Credit Suisse reports that more than 8,640 brick-and-mortar stores may shutter in 2017. Karuna Rawal, president of Arc U.S., whose clients include Coca-Cola, MillerCoors, and Procter & Gamble, said that companies "have to make sure the in-store experience is 'un-Amazonable.'"

He added: "What's really becoming differentiating for retailers is to have customer service experts who can provide advice to consumers without pushing a particular product. That's going to get someone to go the store. Or, it might be building a sense of community with like-minded people. Every brand has to figure what that looks like for their own category."

In response, brands are experimenting with new in-store marketing models and reconfiguring how they present their wares in a physical environment. Indeed, 44 percent of retail executives in the U.S., Germany, Japan, and the U.K. said improving in-store experiences was a strategic priority for the next year, according to a study by Digimarc and Planet Retail.

New York City-based News America Marketing is working actively with its CPG clients to develop "media-to-shelf" campaigns, says EVP and CMO Angelique Krembs. The company's in-store products include at-shelf messaging, coupon and sample dispensers, cart advertisements, and in-store merchandising services. "Once you have the consumer in the store," Krembs adds, "you can use analytics from digital and transaction data to add even more personalization and improve the shopping experience."


Launching Retail Locations Still Viable

YETI, which markets coolers and other products to outdoor enthusiasts, opened its flagship store in February to help expand the brand's appeal. Located in Austin, Texas, the 8,000-square-foot space features a slew of brand-specific visual displays, as well as scent and sound systems, designed to enhance the customer experience. There's a film viewing area, a performance stage, a bar, and wall screens displaying moving images of YETI brand ambassadors. The store also features artifacts from outdoor adventures, including a pick-up truck and a fishing skiff.

"We have so many inspiring layers and experiential components to our brand that it seemed natural to open a store, but present it more as an experiential event," says Tony Kaplan, director of consumer experience at YETI. "Through the lens of our ambassadors and steady stream of new, innovative products, we want to give our fans a memorable and shareable experience that will motivate them to come back often."

Brick-and-mortar stores remain vital for consumer product giant Procter & Gamble. In fact, 95 percent of the company's sales currently derive from physical locations, according to Matt Barresi, brand director of North America selling and marketing operations at P&G.

Everyday distractions of modern life have made it a lot harder to attract shoppers to brick-and-mortar stores, but experiential retail may offer a remedy. By integrating technology into the shopping experience, retailers are able to better attract and retain customers. Experiential retail turns the mundane experience of browsing, trying, and buying into something fun and exciting.

Consider a 2019 report from Accenture, which stated that "despite continued growth in digital commerce, the physical store will continue to be the largest revenue-producing channel until at least 2026. But it is already evolving from a distribution channel into a customer experience platform. Technology is enabling front-line engagement with customers in store. We see more high-engagement social interaction in brick-and-mortar."


The Music Industry Changes Retail's Tune

From its earliest days, the recorded music industry revolved around a product — akin to many industries. Originally, this was sheet music and cylinders. In recent decades, it was records, then cassettes, CDs, and, eventually, downloads. Throughout the years, the product format changed, but the economics of the industry was always tied to selling a product.

A service-based business model enables consumers to access benefits without owning a product. This is not to say that there are no physical assets, only that the benefits provided by these assets for end-users are enjoyed as a service to use rather than as a product to own. In particular, benefits are available on demand. Pricing can be per use or by subscription.

Service-based offerings are not new, of course, but digital technologies have made it possible for such offerings to make inroads into categories that have long been exclusively product-centric.

The two biggest streaming services or platforms are Pandora, launched in 2005, and Spotify, which rolled out in 2008. Pandora provides a personalized radio service while Spotify offers a catalog of music. Both operate on demand without requiring ownership. Both also employ algorithms to customize playlists and recommendations.

A bigger opportunity is building value from live concert experiences, which is a form of retail. Instead of using concerts to promote music products like records, CDs or downloads, the product is used to sell the shows. Streaming has sparked a revival of live performances, with the bulk of these revenues accruing to artists, promoters and venues, not music labels.

U.S. ticket sales are projected to grow from $1.94 billion in 2012, to $2.44 billion in 2021, and sponsorships from $6.78 billion, to $9.55 billion, during the same period, according to Statista. TechNavio projects 6.9 percent year-over-year growth for global live music ticket revenues, through 2021. Music festivals have become a worldwide cultural phenomenon, and brands that become sponsors or vendors can reap the benefit of being embedded in an experience.

In an era supposedly defined by the long tail of demand, industry insider and culture critic Bob Lefsetz wrote about the huge appeal of Adele's 25 tour: "PEOPLE WANT TO BELONG."

Relationships trump brands, but what happens when algorithms are part of the picture?

The rise of algorithms is perhaps the biggest change that digital is bringing to the music industry. Streaming services and other digital music platforms use algorithms to classify people's tastes and then predict what people might like to hear subsequently. These predictions can be for playlists that people are familiar already or for new music to introduce to consumers.

As algorithms curtail the purchasing process,the usage or consumption process will become more important as the only unmediated opportunity for marketers to connect with consumers.

Such algorithms are not unique to music. Recommendation engines of various sorts are commonplace online. But the future of marketing is going to be increasingly determined by algorithms guiding and supporting decisions made by both individuals and influencers.

As the future unfolds, marketers will have to advertise to algorithms instead of consumers because algorithms — not consumers — will be scanning and processing information and advertising.

Consideration sets will matter much less, if at all, because algorithms will make limited, even single recommendations about what to buy. The task of marketers will be getting into people's preference profiles, not getting into people's consideration sets. As algorithms curtail the purchasing process, the usage or consumption process will become more important as the only unmediated opportunity for marketers to connect with consumers.

One criticism of algorithms is that they lock people into echo chambers of existing tastes, thereby shutting people off from new or different offerings (although algorithms have been developed recently that address this by recommending "adjacent" rather than identical options). Brands fear that they will lack opportunities to connect directly with consumers or reach new consumers, which is exactly what digital delivery and distribution platforms are trying to achieve.

They want consumers to commit to their platforms, and not necessarily their brands. Spotify wants to own customer relationships. So does Amazon. In the existing climate, all brands are challenger brands. To survive, brands need to get outside of the data. This is the paradox of the digital era. Oldtimey analog or non-digital connections are more important, not less. Analog is critical to mastering digital. Brands in all categories have to think in these terms, as well. Brands want to drive algorithms rather than the other way around.

The lessons learned applies even more in a future of music as a service, much like other products, and follow the line of data and experience together. Marketers need to follow this example and get outside the data in order to get people asking algorithms about their brands. The business choice for brands is simple: Either establish an identity that acts as a meaningful attractor or become commoditized.


Trending

Innovative Push for Retail

Michelle Greenwald is CEO and founder of Inventours, a company that provides executive education through onsite visits to successful and creative people across the globe in product design, food, fashion, technology, sustainability, and hospitality. Greenwald visits stores regularly to see which trends are emerging in the retail sector. She's identified 63 types of innovation to inspire marketers to think about different types of product development. She believes that everyone in a company should learn about innovation:

Trend #1: Technology reduces time to purchase. Retailer apps with time-saving push notifications offer data collection for brands and convenient services for consumers to help them evaluate products while they're circulating in stores. The emphasis is on skipping the line. At Zara's Fifth Avenue location in New York City, for instance, customers can leave the shop's dressing rooms with clothes and check themselves out using an app.

Trend #2: Personalization and customization. At Nike's House of Innovation in New York, the ceiling in the entryway is angled to match the angle of the brand's "swoosh" trademark. To inspire creativity, Nike lets customers make their own sneakers. American Girl, meanwhile, explores the notion of creating dolls that match customers' looks and lets them design fashions from interactive kiosks within retail stores.

Trend #3: "Instagramability." "Instagramability" has become a KPI for marketers. The Culinary Institute of America now has a course on how to make food worthy of an Instagram post. The Victoria's Secret location on Fifth Avenue in New York includes a museum of the Victoria's Secret Angels, where people are encouraged to take selfies.

Trend #4: Augmented Reality (AR). The Sephora retail location on 34th Street in Manhattan is one of the most tech-forward stores in the world — and the No. 1 retailer on social media. Next to the mirrors, there are virtual artists who can teach shoppers new make-up techniques. Shoppers can also take pictures of themselves that are broadcast via the entire Sephora network, its website and its stores.

Trend #5: Storytelling. Some brands tell their stories right on the walls of their retail outlets. Lilly Pulitzer's dressing room, for example, has décor that aligns with its brand message. Every wall tells a different part of its story. Or take the headquarters of TOMS Shoes in Venice, Calif., which shares the story of the company's worldview and global impact using in-store signage.

Trend #6: Transparency. Everlane, an online-only clothing retailer, opened its first physical store in New York City's Soho neighborhood in 2017. The company's message is about having complete transparency, or what it refers to as "radical transparency," with customers. It works with factories it believes are ethical, and shares those factories' stories with customers, who can put headphones on in the store and listen to a factory floor in California buzzing.

Trend #7: Product Testing. Some brands have found success by allowing customers to try products in a risk-free way, which often spurs conversations about those products. The Microsoft store on Fifth Avenue has seven levels, including areas for gaming where contests are held and customers can experience virtual reality. Harman Kardon, a division of Samsung, has a $150,000 sound system and a DJ booth in its store that customers can try out.

Trend #8: Curation. Product curation helps customers make purchase decisions. Amazon has a store in Soho called 4-Star because it only sells products that have been rated with at least four stars on its website. The MoMA design store associated with the world-famous museum, exclusively sells products from new designers, many of whom have used crowdsourcing platforms to fund their projects. A digital wave is underway that could bring a cumulative $2.95 trillion (U.S.) in value by 2025 for the retail industry, according to Greenwald.


Four Business Models Shaping the Future of Digial Commerce


Shopping in the Not-Too-Distant Future

According to a new MediaVillage study released November 2019, marketers identified data and analytics as the most important contributors to media decisions, ahead of brand safety and cost efficiency. Jack Myers of MediaVillage, Charles Chappell of The Hershey Co., and Louis Jones of the 4A's shared perspectives on the future of marketing data and analytics:

  1. By 2025, between 85 percent and 90 percent of media transactions will be guided by data and machine learning. The majority of media transactions will be automated. To prepare for this, companies need to develop a strategy and invest in the technology and infrastructure required to support this inevitable reality.
  2. First-party data is paramount, and brands that do not have vast amounts of first-party data should consider partnering with retailers, publishers, and competitors to create a shared pool of data.
  3. Collectives or partnerships may be key to elevating data and analytics within the marketing community. One reason Google, Facebook, and Amazon are so attractive to marketers is their reach and scale. Through partnerships, marketers could increase access to critical data.
  4. Data quality is key. As machine learning and automation grow, it's important to establish quality parameters and align definitions to ensure data is high-quality.

Teams of specialists encompassing data strategy, machine learning, ad tech stacks, and other areas will converge and work closely with brand managers. Brand managers will be expected to be fairly fluent in technology and data, so they can maximize the use of those tools.


Best Practices

Handicapping the Future of Retail

A trio of top marketing and advertising executives chime in on where retail marketing is headed. One emerging trend: the melding of the physical and digital worlds in order to create a more memorable customer experience. There's also a growing onus on marketers to identify (and leverage) usable data and not get bogged down by all the noise.

Angelique Bellmer Krembs, VP of Marketing Activation at PepsiCo: "Despite the challenges, marketers can agree that the future of retail is heading toward a fusion of the digital and physical worlds, with brick-and-mortar and online stores learning from each other and brands playing to the inherent strengths of each. As the pace of innovation accelerates, brands and retailers need to act now to create experiences in the digital and physical spaces that support one another."

Nabeel Alamgir, CMO at Bareburger: "Our focus on customization reflects our finding that 60 percent of our customers select the build-yourburger option from our menu. So we're prioritizing customizability because that's what they prioritize."

Louis Jones, EVP of Media and Data at the 4A's: "Data is here to stay. It's going to grow in importance and complexity. That means you have to have people who can get your company through the fog. There is a lot of data out there, and a lot of it's not good. Part of the challenge is identifying what data is usable and then finding smart ways to use it. The other part of it is understanding data from an ROI and attribution perspective. The reality is time is short for everyone, so marketers need to wrestle with and understand the right things to pay attention to. Verification is really important. You want to justify your spending versus some level of performance, and the better that data is, the better those equations work out for you."


Case Study

The Technology That's Revolutionizing Retail

Brick-and-mortar stores face mounting challenges as a result of changes in both consumer behavior and the economics of retail. McKinsey and Co. identified numerous ways in which emerging technology can help retailers respond to these challenges.

  1. Experiences, Not Things: According to a Harris Group survey of 2,083 adults ages 18 and older, including 507 millennials ages 18–34, 72 percent of millennials prefer to spend money on experiences, rather than on material things.
  2. Personalization: Customer-data provider AgilOne reports that brands ought to provide personalized experiences as a matter of form, according to 79 percent of U.S. and 70 percent of U.K. consumers.
  3. Increasing Preference for Self-Service: Retale, a mobile shopping innovator, has found that 85 percent of customers have used a self-service kiosk, with 20 percent confessing that they "don't like interacting with cashiers." Among millennials, that figure rose to 28 percent.
  4. Integration of Digital and In-Store Experiences: Accenture's research indicates that 68 percent of millennials expect a seamless shopping experience across all marketing channels. Such data don't just impart an admonition but offer an opportunity: 22 percent of those surveyed said that they spend more money in stores when their brick-and-mortar operations are integrated with their digital channels.

As retailers have struggled to adapt to these changing consumer preferences, they have encountered a coinciding decline in online traffic. To the dismay of many, retailers are simultaneously facing a decline in their net profit margins, which forecasters, projecting for the period between 2016 and 2022, expect to fall:

  • From 12 percent to 10 percent for hardware stores
  • From approximately 5 percent to approximately 4 percent for grocery stores and hypermarkets (also known as superstores)
  • From approximately 6 percent to approximately 2 percent for specialty apparel and department stores
  • From 5 percent to 4 percent for office product retailers

McKinsey identified technology as a critical resource for retailers as they struggle to adapt to these changes and overcome these headwinds. To illustrate technology's value for retailers, McKinsey enumerated useful digital innovations and how they apply to retail operations.

  1. Artificial Intelligence: McKinsey helped one client capitalize on AI technology to develop a Conversion Coach — a program that mined transaction data to provide store associates with purchase recommendations that were customized to the buying histories of individual customers who entered the retail location.
  2. Smart Technology: Using beacons that detect individual customers' entry into stores, sensors at Kenneth Cole locations deliver exclusive offers and content to visitors' smartphones.
  3. Omnichannel Fulfillment: Target makes 90 percent of store pick-up items available within an hour through visible inventory systems. It is also piloting dedicated store pick-up employees. Walmart is following suit, and operates automated pick-up "towers," or order dispensing machines, at 700 stores.
  4. Advanced Analytics: Birchbox is using in-store cameras and heat sensors to track shoppers' physical movement in stores to determine which displays and products are the most attractive and using those insights to improve other displays. In the future, the brand may integrate the data on individuals' physical, in-store movement with its online data to produce even richer insights.

Elevating the Retail Experience

In many cases, having a trained, highly knowledgeable staff that can provide one-on-one service and a bit of luxury can make all the difference. Take the marketing strategy developed by the Nestlé Group brand Nespresso, a maker of coffee and espresso machines and high quality coffees and espresso. At 450 boutiques worldwide — in addition to boutique-in-shop locations at retail partners like Bloomingdale's and Sur La Table — Nespresso coffee specialists help customers use the Nespresso machines in order to sample different coffees and espressos. If consumers prefer to relax, they can take a seat and order from a menu of light fare.

These trained coffee specialists are on hand to discuss everything from a coffee origin to its flavor profile. It's a way to compete against ubiquitous products, such as the Keurig machine, that consumers can easily find online or at membership warehouses like Costco.

Eataly, an Italian mega-market with some 30 locations globally, takes an extremely creative approach to engaging consumers. For example, the 50,000-square-foot NYC Flatiron location features six restaurants, four mini counters selling gelato and panini, a book store, a wine shop next door, and a butcher, among other attractions. Customers even have access to an olive oil sommelier.

Occasionally, Eataly hosts "Meet the Brewer" dinners at the rooftop restaurant at which diners can meet local brewers and enjoy a special menu specifically designed to pair with that brewer's beers. Eataly also offers weekly tours led by trained guides, including one for children during which they can learn Italian phrases.


Source Information

"Shopper Marketing: The Good, the Bad, and the Ugly." John Bajorek, EVP of Strategic Growth and Innovation at WD Partners. ANA Shopper/Commerce Marketing Committee Meeting, 3/20/19.

"Ten Innovative Trends Happening in Retail." Michelle Greenwald, CEO at and Founder of Inventours. ANA Brand Activation Marketing Futures 1-Day Conference, 1/17/19.

"Open Innovation." Jennifer Hurford, Director of Strategy at Wunderman Thompson Data; Frank Jurden, Executive Director, Advisory at VMLY&R. January, 2019.

"CMO Trend Brief: Future of Retail." ANA Marketing Futures, 11/12/18.

"Future of Retail." ANA Ask the Expert, June 2018

"Music Lessons: Four Things Brands Can Learn from the Digital Disruption of the Music Industry." Kantar Media, 2018.

"Nine Predictions on the Future of Data and Analytics." Jack Myers, Chairman, Media Ecologist, and Author at MediaVillage; Charles Chappell, Head of Global Media and Agency Excellence at The Hershey Co.; Louis Jones, EVP of Media and Data at the 4A's. ANA Media Conference, 2/28/18.

"Retail Reformation: The Technology That's Revolutionizing Stores." Anne Kronschnabl, Associate Partner at McKinsey and Co.; Alex Roderiguez, Partner at McKinsey and Co. ANA Shopper Marketing Committee Meeting, 9/6/18.

"5 Stats You Need To Know About The Digital Consumer In 2019." Michelle Evans, Forbes, 2018.

"Reimagining Retail." ANA, May 2017.

"High-Touch Retail." ANA, February 2017.

"Painting the Digital Future of Retail and Consumer Goods Companies." Accenture, 2017.

Source

"What the Future of Retail Marketing Has In Store ." Insight Brief written by Joanna Valente, Manager, Content Strategy, Marketing Knowledge Center, ANA. Designer: Amy Zeng, Marketing and Communications, ANA. Editor: Matthew Schwartz, Senior Manager of Marketing Communications, ANA. © Copyright 2019 by the Association of National Advertisers, Inc. All rights reserved.