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Market Movers Importance of Loyalty and Retention as part of Digital Commerce Transformation

How has scarcity affected consumer shopping behavior? What innovations are taking place in mCommerce to meet consumer demand?

Charles Nicholls of SVP Upscale Commerce at SAP - provides time to market strategies for those brands in the midst of a digital transformation, insight into mobile commerce trends and how a re-shopping can be destructive to your business.

Charles also shares thoughts on the “shop local” trend and introduces us to the concept of B2SmallBusiness.

Transcript

AL Lalani:

Welcome to another discussion of Annex Cloud Market Movers, where we bring in-market experts and luminaries to help us through these times. Today, I have Charles Nichols. He's the GM of Upscale Commerce at SAP. Welcome to the discussion, Charles.

Charles Nicholls:

Thanks for having me.

Al Lalani:

Wonderful. Charles, we've seen some interesting times, so to speak, in 2020 in terms of kind of the economic climate as well as COVID-19 and many other things that are happening. Today, I wanted to kind of focus on the discussion as it pertains to digital transformation and maybe more specifically digital commerce and the impact of that.

Now, on the slightly silver lining on the challenges, digital commerce has exploded. We all know that it's sort of grown astronomically over the last few months. Some statistics show that, at least in North America, it went from close to 6% to 14% in a decade. It went from 14 to 27% in less than three months. And so, that's a decade worth of jumping in less than three months. So, that's huge. What's your take as it pertains to businesses and moving that transformation to online in a fast way?

Charles Nicholls:

Well, you say interesting times. I mean, of course, the Chinese curse is, "May you live in interesting times." Definitely, definitely some very challenging times for some businesses in they've seen a... You see this polarization of either it's really up and it's moving really fast, or it's really down. And they're one of these two.

Depending upon where you are really on the spectrum, some businesses have been very heavily impacted by supply chain disruption. And therefore, the move is to try and go direct-to-consumer as fast as possible because traditional channels of supply don't exist in the same way as they did before. And in the other cases, you then see businesses that are scaling and struggling to deal with demand. And we've had notices saying, "We're not taking any more orders on eCommerce sites," which I've never seen in all of my histories with eCommerce. It's very, very unusual times.

And really, what it's doing is it's just, I think, accelerating trends that have been there for a while. You see this actually broader than just eCommerce, but in digital transformation in general. For example, where I come from in the UK, a senior exec in the health service basically said in two weeks, they did more digital transformation than they'd done in the previous 20 years, which just reflects what they were doing, which is everything suddenly has to go digital, we need to find different ways of doing things, et cetera, et cetera, everything et cetera. So, I think really, this is an acceleration of things that have already been there, rather than something new. You talked about compressing the amount of growth in eCommerce into a shorter space of time.

Now, there's an argument that buyer behavior will go back to where it was before or maybe partially back. If we look at previous big disruptive events, whether that's the dot-com boom or the credit crunch or these sorts of things, these big disruptive events, eCommerce tended to come out of the other side of it with a growth spurt behind it, as an accelerator really, where it's part of the solution. In the case of the credit crunch or, in fact, the dot-com crash, where you mainly have a big recession or something like that and then customers can then become very price-sensitive, they want to shop around for a better deal in which case eCommerce then, from a consumer's point of view, is part of that solution as well.

Al Lalani:

Wonderful. And you bring a different twist to it from an Upscale perspective. I think that maybe more adapt to the times. Now, SAP, as a company, has had a commerce solution for a very long time, but there was a need, it seems like, to bring in an alternative to the market. Could you talk a little bit about what the differentiation is and how you're positioning it?

Charles Nicholls:

Yeah. I mean, Upscale is a brand new B-to-C eCommerce platform. It's kind of designed specifically to the kind of revolutionize commerce. That's kind of how we set out to do it really because we felt that B-to-C was showing some signs of needing something fresh. And, in particular, there were a series of things, looking for a lower total cost of ownership, a faster time to value. If you go talk to Gartner or Forrester, they'll say those two things are the biggest issues in eCommerce, which is, "How do I get it live faster?" More agility, if you like. And, "How do I do it at a cheaper cost?"

So, a lot of what Upscale has been focused on is really how can we do that so that we can open up the market quite significantly. We're not aiming at necessarily the same market; we're aiming, really, to expand the market quite significantly. When you do that with new technology with a totally lower cost of ownership, then you can very often find that all of a sudden, people can do eCommerce where they couldn't before. We see that, for example, in smaller markets or particularly in digital transformation, where people want to try something out or do something new or something fresh or they want to experiment, all those sorts of things. And that really requires a different kind of approach, which may mean much more sort of no-code or low code. It's more out of the box or something like that. But there's also through-to-commercial models, which are sort of more pay as you go rather than the big upfront commitment, where you're changing the balance of kind of what a traditional commerce project has looked like.

These have often looked like a big waterfall project where there's a big commitment and it's going to be six months to a year. And there are always some horrendous stories of people who've taken more than a year or whatever, had really painful experiences. So, the time to value has got to get compressed, really, to open up these new use cases.

And, again, that whole theme has been totally accelerated by COVID because there's now a crying urgency. If you've never been direct-to-consumer before, you've only been B-to-B, for example, which is a very common conversation I have daily with customers, then this is now a screamingly urgent priority. And therefore, I cannot be planning on a 12-month implementation cycle. I need to be able to do something much, much faster.

Al Lalani:

Absolutely. And that speed to market extremely, as you said, is very important based on what's going on today. Specifically related to commerce and specifically related to sort of that change in the times, one of the things, topics that are near and dear to our heart, and we've seen this over and over back in 2008 or 2001, the other crisis that happened was this move towards keeping your customers happy. It's a saying that during kind of boom times, you focus very much on the top of the funnel; during challenging times, you want to keep your customers close to your heart and keep them extremely excited and retain them. And so, retention and loyalty are extremely important. Now, where you come from, from an Upscale perspective or from a digital commerce perspective, what is your take on retention and loyalty as it pertains to commerce?

Charles Nicholls:

Well, I mean, if you start with consumers and how consumers have gone through this experience... I've sort of studied consumer online buyer behavior for a long time and it's fascinating, of course. Maybe for the first time in, I don't know, a generation or maybe multi-generation, consumers have experienced scarcity for the first time. They've seen empty shelves, queuing outside stores. I mean, stores rationing at some points. I mean, these things have long and lasting effects.

I remember my grandmother was an eye surgeon in World War Two. And I can remember when I was a kid, I'd go in and see her from the outside. And one of the first things she made me do was wash my hands. She was focused on hygiene. Of course, we do that all the time now. And then years later, when I cleared out her flat, I found that she was hoarding boxes and boxes and boxes of soap in her hand. Two years’ worth of supply of soap. More than she could ever use. And the reality is, is some of these effects can be quite long-lasting.

And one of the things that we have built into Upscale is this whole concept of continuity commerce. And continuity is very much an idea of today and very relevant today in that it's focused more on those auto-ship kinds of a subscription, where instead of buying a one-off product, maybe I can buy a subscription to this. And this is pretty important because, in an era where the customer can't then get the product, certain product categories are super sensitive. Anything that touches the skin, deodorant or toothpaste or makeup remover, or any of these things, or shampoo, these things, consumers are very, very reluctant to switch brand. They're very sensitive about that. All brand loyalty studies show that those things are critically important. And, as a result, if you now have a consumer where there's been a scarcity of some of those sorts of things, then behavioral will change and there's an opportunity maybe to turn products into subscriptions.

And when you do that, if you do that well, and a good order management system will do this for you, it should then reserve those out of stock so you never go out of stock on your subscriptions because this is a very high-margin business, which serves both the brand and the consumer really well. The consumer gets reliability of supply, never runs out, quality of supply as well. They know it's coming from the brand manufacturer. There's no sort of authenticity issues or any of those sorts of things. And, at the same time, the brand gets the sort of a higher margin kind of a picture.

And, in and all of that, a lot of this is really around wallet share, which is how do we maximize wallet share for our consumers. And to make those programs work really well, you need loyalty elements in there. You need surprise and delight at the right time and all these sorts of things to sort of prevent churn and make sure that you keep those customers happy over a long period of time.

SAP also acquired Qualtrics last year. And we also see Qualtrics as playing a very important role in this as well, which is taking the temperature of customers on a regular basis to make sure that we understand exactly where they are from a sentiment point of view. And that whole delivery, quality of experience, did the product actually do what it's supposed to do? Did it arrive on time? Was the packaging good? Could I use it? Was it damaged? Did I have to return it? All of that stuff is incredibly important to loyalty. It tends to get forgotten when we talk about commerce. We think commerce is all about personalization and the website and making it look pretty, but the reality is, is it's that end-to-end journey, those things that really make the difference, as to whether you end up with a customer for life or ultimately whether somebody gets deeply frustrated.

Al Lalani:

Absolutely. I think those two things that you mentioned, specifically around sort of understanding and garnering customer feedback and then applying it to continuity commerce to kind of manage churn along the way, because keeping it longer is really the play there, is extremely important.

A couple of things I would add in this sort of element is, in this case, where the time to market is important and people are getting up to speed, this might be a digitally native brand or it might be a digitally native brand within a larger company that's being launched. It's important to kind of, when they acquire these customers, to keep them around. Especially, some of these customers may have connected to the brand digitally for the first time. So, they might be experiencing the product through a third-party, potentially. They might have bought it at a retail store, but this is the first time they're buying it online. And so, the brand is now acquiring a customer or at least acquiring a customer name, that they had a customer but didn't know who that was and sort of keeping that customer sort of happy in an ongoing perspective is important as well within that.

Charles Nicholls:

Absolutely. And for the first time, if they're a brand going direct, taking responsibility for customer service, which they've not had to do before. And how do you handle returns and all that sort of stuff? We have been conditioned to phenomenal service from an Amazon or wherever, where it's returned without a quibble and away you go. And therefore, you've got to get geared up ready for that as part of the story.

Al Lalani:

Absolutely. I want to go back to some of the principles you were talking about, time to market, speed versus customization, that sort of the piece, the founding principles for Upscale you were talking about, and very, very adapt for the current times. But what are other things that are important, from a commerce perspective, that you are focusing on that create a differentiator in the marketplace? I mean, commerce has been around for a very long time. And so, a lot of people have innovated in it for the last 20 years. And we've learned from the things that have worked and then sort of speed part is important. But are there other things that you're focusing on in the near future that will make it differentiated within the space?

Charles Nicholls:

Yeah. I mean, we're fortunate with Upscale in that there's a huge amount of innovation here. And when we said we set out, really, to try and reinvent commerce, we've done that at many levels, from the fact that AI is built in from day one, it's not kind of bolted on as an after-effect. It basically fundamentally changes what you can do. The fact that the store self optimizes, personalizes automatically at the individual level, makes sure that you're balancing your inventory and exposure or... many, many of these things.

But the reinvention you perhaps see probably starting with mobile. Mobile is very important. I mean, we've seen, over the last few years, this gradual shift to mobile. Now, it's about 70%, depending upon your brand stats of traffic on mobile devices and, yet, only about 30% of conversions. So, there's this gap between people buying on the device and people actually being on the device in the first place.

One of the golden lessons, of course, for any marketer or merchandiser, is we have to be where our customers want to be. They want to be on mobile. They don't want to share. They don't want to stop shopping on mobile and then go onto a desktop in order to then complete the transaction. We call that re-shopping. It happens very commonly when you cross channels, whether you go from mobile into store or mobile to desktop or whatever. Re-shopping is very destructive because it's a bad experience for the customer and the customer loses momentum and perhaps doesn't then complete the transaction and all these sorts of things happen. You can't track the customer typically as they move across those channels, so it becomes very hard.

So, one of the things that we did is we really thought about this and said, "Okay, well, let's build the next generation of commerce, mobile-first." So, many of the concepts in commerce were designed for a screen this shape, not this shape, and a big screen like this, with a keyboard and a mouse. And, of course, when you take that and you then squeeze it down into this little form factor, it's very difficult.

And we have this thing called responsive design, where we take and we squeeze and we try and reshape it. And the reality, of course, is that it doesn't work very well. And there are many, many, many examples of that. And that's why you have this gap between conversions on mobile devices and conversions on desktop.

So, one of the things that we've done is we've fundamentally changed that so that the experience is very visual. We think about which content gets displayed. You've got the very little real estate. You haven't got the same real estate that you have on your desktop device. You can't just take all your categories, for example. Your category tree could be long with maybe a sort of 30 or 40 or 50 categories. Do you squeeze those all into a small phone? That doesn't work so well.

So, we've tried to make it a very sort of a visual swipe, tap, pinch. We call that a tap-tap-buy kind of experience, where it's as easy as just finding things and navigating through. And we use a lot of AI to figure out what to show, given the limited real estate, those sorts of things; and then link that in with progressive web app technology or native apps, which you can deploy to very easily; and mobile wallet payments.

We're using an Apple Pay or Google Pay or something like that, where, in fact, the checkout experience is now significantly faster than on desktop or mobile. So, as a result of that, you see the combination of this much more native, visual, engaging experience coupled with very easy payment on the device because all the payment card information, your shipping and billing details, or an email address, they're already in there. It's literally, "Oh yeah, ah-ha. I have one of those," bang. And you can see up to 3 or even 400% increases in page revenue by putting a one-tap buy capability in the right place for the right product.

So, this is really, truly a revolution that is happening. And I think it just reflects the fact that people have shifted to mobile. So, there are two dimensions to you. There are many more.

Al Lalani:

No, absolutely. No, thank you for sharing that. And I've personally been in the commerce space a very long time and building sort of commerce from '99 onwards or 2001 onwards. And we used to reimagine. The risk/reward response has been around for a while but went from desktop to make it mobile-friendly to be mobile-adaptive to mobile-responsive to mobile apps to now, most recently, PWA and everything else. And so, what you were saying is essentially starting natively from the mobile ground up makes a big difference and that's sort of how it's natively imagined. And then adapting and using AI to present the right things at the right time, because you can't present everything right away and it's not the right user experience, is extremely important. So, I think those are some great differentiators.

Lastly is kind of going away from technology, if you were speaking to me and I was the exec at one of the large brands that were not direct-to-commerce, but they were kind of selling through other channels or whatever else; but now, with COVID, now, we're really strongly considering this; but, at the same time, I have certain other disruptions happening in the marketplace. My retailers aren't selling because they're closed or I have distribution challenges or manufacturing challenges. So, I have a lot to deal with, while still considering the future of being able to kind of build and grow in the direct-to-commerce space. What kind of advice are you giving executives at this point in time on how to consider operational challenges versus future growth and thought process around that?

Charles Nicholls:

Yeah. I mean, in many respects, many of the executives I talk to now are, to some extent, in a relatively tactical mode. The really big strategic projects have perhaps been kind of put on hold while we're trying to figure out what happens? Is there a second wave? And all this sort of other stuff. And we hope there isn't and everyone stays safe and all that stuff. But the reality is, is we have to plan for a more uncertain future with supply disruption.

And whilst the traditional caution really around going direct-to-consumer is, "I'm going to upset my channel," I mean, that's just kind of gone now. People just don't see that anymore because if the channel cannot deliver products or get products in the hands of customers, then you've got this massive disruption, then you have to do something else. And therefore, that's another way that it's kind of accelerating a trend that kind of was already there.

So, the advice I would give really, I mean, there's obviously... A direct channel gives you an ended relationship with the consumer. That's important for a combination of reasons. It's not just the security of supply and the fact that you can, as channels shift or as disruptions come in or Black Swan events happen, that you can still continue to sell, but also you get a feedback channel, feedback coming back direct from consumers about did they like the product or not?

This takes you into the realm of, even post-COVID or pre-COVID, into the realm of a digital-first product launch, where actually you launch a product digitally first, effectively into a test market of your best consumers that buy from you online. And then you can get the sales data from that and figure out, "Do we need to change the formulation? Do we need to change the packaging? Do we need to change the pricing? Have we got it right?" Or take that sales data directly into your retail stores and your traditional distribution, and use that data to then negotiate your shelf space and everything else that you would do.

Normally, you're putting a lot of money in that to try and get the new product the right shelf space and get the attention and put it on an end cap and all this other stuff. There's lots of sort of trade promotion money going into launching the product. But if you only have the sales data coming from a different channel, then you have the opportunity to do that. So, that's one example of why it's kind of important.

The other one really is around that brand loyalty, is the ability to serve on a consistent basis and maybe even own the shelf. It could be the bathroom shelf at home or it could be the snack cupboard. Snacking is one of those trends, which is very important in lockdown terms. So, can you own the snack shelf? Can you deliver a regular supply, a regular box, all those sorts of things you were talking about earlier on. They're very important in terms of wallet share and helping build that ongoing relationship.

There are also two other opportunities I'll callouts as well. One would be minority brands. So, these could be what you might think of as long-tail items, where it's an older brand and it's got a specialist following, it's not distributed in as many places as you'd normally have, those sorts of things. This is perfect for direct-to-consumer because you've got brand fans who can't easily access the product. And it's a smaller brand that your distribution channel maybe don't care about so much. So, this is a great place to start. You're not going to upset any channel partners. You've got already some loyal fans and therefore a great opportunity.

Another one to think about, thinking about the operational challenges, is maybe thinking about mom and pop stores. So, mom and pop stores are interesting because they have had a disrupted supply. They may not be able to get your product from the distribution when they go to Costco or wherever else it is, whichever other distributors they're going to because they have disrupted supply and therefore they'll sell whatever happens to be in stock. So, to manage that and get the loyalty of that small retailer, local is kind of important. Particularly important at the moment because consumers in lockdown are shopping more local and they're shopping closer to home and all those sorts of things. They don't want to go into the big queue-up and mask-up shopping experience in the supermarket. Then maybe the shop local thing actually works really quite well.

The other nice twist about shop local, from a brand point of view, is you may well be able to sell by the pallet... sorry, not by the pallet. By the case. You may be able to sell by the case. If you're used to shipping a pallet, going to a case is much more manageable and to sort of a small trade than it is to go down to individualize items for individual indirect shipment to consumers. So, it's, if you like, a baby steps on that route. And, again, loyalty that is going to be critically important. Those typical cash sales, and therefore you're going to want to have some kind of a loyalty scheme to hooking those retailers to get them coming back and reward them for that ongoing loyalty they give to you.

Al Lalani:

Yeah. And I really like the last one because, I mean you're focused on B-to-C, but this is more B-to-small b, but it sort of behaves like B-to-C in a way, right?

And so, the concepts are similar, but, at the same time, that continuity piece really applies because these smaller retailers probably want to buy on a continual basis, on an ongoing basis. I also really liked the first point you mentioned about kind of that feedback loop. That's extremely important for the brand because a lot of brands are investing tons of amount of money. And the reason I really liked that twist is... or my thought on that twist is, in the upcoming years, a lot of brands will start figuring out how they can save costs. And save costs will become, by default, mantra that they have to just inherently do as part of the business. And part of saving costs is not investing too much in that whole supply-chain experience, building the product, and getting feedback before you know it's going to be successful, where they can actually hear that direct-to-commerce really test this out, get feedback in a very, very quick experience perspective before investing significantly in marketing or growing other channels beyond it. And so, sort of plays to that cutting the cost sensitivity that might play in the near future as well.

Charles, lots of amazing, great ideas. Thank you so much for joining us today. I really appreciate you taking the time and wish you much success with Upscale. And for everyone else, if you want to see more interviews as we had with Charles, please go to annexcloud.com/marketmovers. thank you very much again. Bye for now.

Charles Nicholls:

Thanks.

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Al

Al Lalani

Co-Founder, Annex Cloud

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Charles Nicholls

SVP Upscale Commerce, SAP

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Since 2010, Annex Cloud has provided industry leading loyalty solutions to more than 250 leading brands and retailers, including Jenni Kayne, Hewlett-Packard, Bed Bath & Beyond, e.l.f. Cosmetics, Olympus, Sugarfina, Mizuno, MacKenzie-Childs, VF Corp., with the ability to engage tens of millions of their customers one-to-one at scale.

The Annex Cloud platform provides fully integrated Customer Loyalty, Referral Marketing, and User Generated Content (UGC) solutions that seamlessly work together to optimize the customer journey and deliver a unified customer experience that is designed to accelerate revenue growth, retain valuable customers, increase average order values (AOV) and drive repeat order frequency.

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