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Omnichannel 1.0 is Dead. Long live Omnichannel 2.0

From Toys ‘R’ Us to the Bon-Ton, you don’t have to look very far to see that bricks-and-mortar retail is an industry struggling under the burden of transformation. The broad strokes of this disruption are easy to spot: Amazon.com’s massive ecommerce juggernaut has reached verb territory, as one retailer after another gets ‘Amazonned.’

Traditional retailers, of course, have had plenty of time to get their act together, as Amazon is a survivor of the dot-com frenzy of the 1990s. To be sure, they have each implemented one online strategy or another, but as they soon realized, simply selling goods online barely accounts for a blip on Amazon’s inexorable growth trajectory.

As the Digital Era dawned with the rise of smartphones, retailers realized they had to reinvent the sales channel or face extinction. The multichannel strategies of the late 1990s and early 2000s – adding ‘web’ to ‘in-store,’ ‘phone orders,’ and ‘mail order’ – wasn’t going to turn their fortunes around.

And so, omnichannel was born.

The Struggles of Omnichannel

The idea of omnichannel was to rethink the notions of channels altogether from the perspective of the digitally savvy customer who would bring their phone with them on shopping trips. ‘Showrooming’ – the practice of comparison shopping on your phone while in a store – became the first omnichannel use case.

Was such a customer shopping online or in-store? The answer: that’s the wrong question. The right question is how to create one comprehensive experience that delivered value to the customer regardless of technology touchpoint or interaction modality.

However, while some retailers focused their omnichannel efforts on the shopping experience, the practice soon took a fateful turn, focusing instead on product delivery. From the perspective of the bricks-and-mortar retailer, the way to compete with online retailers was to expand the ways customers could get their products.

Soon, retailers were rolling out a variety of delivery services to add to their traditional buy in store and take the purchase home model (aka ‘cash and carry’). Such new models included ordering online and delivering from the store (aka ‘ship from store’) and ordering online and picking up at the store (aka ‘click and collect’).

Just one problem: ship from store and click and collect cost retailers more money than cash and carry, crushing their margins. Add to the mix the hairball problem of product returns, furthermore, and the entire omnichannel movement became little more than a complicated way to go out of business.

Where Bricks-and-Mortar Retailers Went Wrong: Minding the Customer Journey

Omnichannel as it’s generally practiced today – what we might call ‘omnichannel 1.0’ – has largely been a failure, because retailers remain focused on making the sale. In fact, most of their key business metrics focus on sales – it’s all about the ka-ching.

However, one significant lesson of the Digital Era is that the sale is not the most important metric. The customer is – how happy, delighted, and successful the customer becomes over the lifetime of interactions with that individual.

In other words, it’s not about the sale. It’s about the customer journey.

Amazon gets this principle, of course, as Amazon Prime centers on the customer journey. Sure, each sale is important – but more important is the ongoing relationship with the customer. Get that right and the sales will pour in.

And it’s unquestionably working. What’s the recent news about Prime? First, it has over 100 million customers in the US. Second, Amazon is raising the price for Prime for most customers by $20.

Yes, that’s $2 billion added to the Amazon bottom line without selling a single additional item (assuming the number of Prime customers remains steady, which is a good bet as new members are likely to balance cancelations in spite of the price hike).

However, with few exceptions, bricks-and-mortar retailers have nothing like Prime that drives revenues the way Prime can. Today’s feeble attempts at customer loyalty programs and mobile apps for a brand’s biggest fans pale in comparison to the serious dough Prime is bringing in.

Solving this problem will take time, money, and courage to be sure, but the first step to fixing omnichannel – moving to the proverbial ‘omnichannel 2.0’ – is to shift the key performance metrics away from sales-centric numbers to customer journey numbers like lifetime value.

Reinventing Omnichannel for the Digital Era

If omnichannel is all about digital and digital is all about technology, then maybe retailers just need better technology, right? Wrong. If anything, there has been an excessive and poorly-placed emphasis on technology that is in part responsible for leading bricks-and-mortar retailers astray.

You can easily find evidence of this fundamental mistake simply by looking on how traditional retailers organize their omnichannel divisions. What was the web division in the mid-1990s became the ecommerce division and then perhaps the web 2.0 or social media division in the mid-2000s, only to become the digital or omnichannel division in the 2010s. The problem? It’s still a division.

Meanwhile, senior leadership still manages and runs store operations separately from their omnichannel activities, and even the marketing efforts often bifurcate between traditional (print, in-store, signage) and online/digital.

For such organizations, omnichannel isn’t so ‘omni’ at all, is it?

This bimodal pattern of separating the innovative, technology-empowered omnichannel efforts from the traditional in-store efforts is sinking the entire ship, as neither one separately can keep the company afloat.

Instead, the entire organization must itself be ‘omnichannel’ – that is, reorganize horizontally to better serve the customer across all channels along the entire customer journey. It’s no mistake that Intellyx has been calling such reorganizations Digital Transformation.

The Intellyx Take

The accelerating pace of innovation in digital technologies is unquestionably a driver of innovation in retail, but unless retailers can reinvent their businesses, such technologies will be little more than fingers in the dike.

Given the expanding capabilities and variety of such technologies, coupled with the increased focus on privacy and customer empowerment, understanding which technologies to apply and how will be increasingly important.

Yes, retailers may be able to track customers’ every gesture and glance as they wander the aisles, but will such capabilities help them with their customer journey metrics, or will they simply scare customers off?

For bricks-and-mortar retailers struggling to survive, there is a glimmer of good news: even Amazon faces its own struggles to move forward in this disruptive, omnichannel 2.0 world, only from the other direction.

True, they’ve nailed the ecommerce piece, but they’re still trying to figure out the right ship from store and click and collect modalities – or perhaps other modalities as yet invented. In fact, its Whole Foods acquisition is largely an experiment, both in retail delivery as well as in optimizing the perishable supply chain.

Omnichannel 2.0, therefore, is largely an unwritten book. Century-old retailers have every bit as much of a chance at success as Amazon or the fresh crop of cloud-based retailers from the new millennium. The good news is that regardless of who wins this war, we consumers are likely to be the winners in the end.

Copyright © Intellyx LLC. Intellyx publishes the Agile Digital Transformation Roadmap poster, advises companies on their digital transformation initiatives, and helps vendors communicate their agility stories. As of the time of writing, none of the organizations mentioned in this article are Intellyx customers. Image credit: Phillip Pessar.

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More Stories By Jason Bloomberg

Jason Bloomberg is a leading IT industry analyst, Forbes contributor, keynote speaker, and globally recognized expert on multiple disruptive trends in enterprise technology and digital transformation. He is ranked #5 on Onalytica’s list of top Digital Transformation influencers for 2018 and #15 on Jax’s list of top DevOps influencers for 2017, the only person to appear on both lists.

As founder and president of Agile Digital Transformation analyst firm Intellyx, he advises, writes, and speaks on a diverse set of topics, including digital transformation, artificial intelligence, cloud computing, devops, big data/analytics, cybersecurity, blockchain/bitcoin/cryptocurrency, no-code/low-code platforms and tools, organizational transformation, internet of things, enterprise architecture, SD-WAN/SDX, mainframes, hybrid IT, and legacy transformation, among other topics.

Mr. Bloomberg’s articles in Forbes are often viewed by more than 100,000 readers. During his career, he has published over 1,200 articles (over 200 for Forbes alone), spoken at over 400 conferences and webinars, and he has been quoted in the press and blogosphere over 2,000 times.

Mr. Bloomberg is the author or coauthor of four books: The Agile Architecture Revolution (Wiley, 2013), Service Orient or Be Doomed! How Service Orientation Will Change Your Business (Wiley, 2006), XML and Web Services Unleashed (SAMS Publishing, 2002), and Web Page Scripting Techniques (Hayden Books, 1996). His next book, Agile Digital Transformation, is due within the next year.

At SOA-focused industry analyst firm ZapThink from 2001 to 2013, Mr. Bloomberg created and delivered the Licensed ZapThink Architect (LZA) Service-Oriented Architecture (SOA) course and associated credential, certifying over 1,700 professionals worldwide. He is one of the original Managing Partners of ZapThink LLC, which was acquired by Dovel Technologies in 2011.

Prior to ZapThink, Mr. Bloomberg built a diverse background in eBusiness technology management and industry analysis, including serving as a senior analyst in IDC’s eBusiness Advisory group, as well as holding eBusiness management positions at USWeb/CKS (later marchFIRST) and WaveBend Solutions (now Hitachi Consulting), and several software and web development positions.

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