The Big Omni-Channel Trap: How Retail Risks Overspending, Low Returns

[UPDATED] The big omni-channel trap awaits digital executives who make huge technology, process and people investments to create new “experiences” for “connected customers” but neglect social technologies’ ability to engage people emotionally. Few business executives have spent enough quality time in digital social venues to appreciate how personally and deeply people collaborate online; rather, it is normal for CDOs, CMOs and CIOs to primarily think of “digital” as mechanizing technologies like Web transaction systems (ecommerce), mobile and big data. That’s the preconception baits the big omni-channel trap. The Big Omni-Channel Trap is second in CSRA’s retail & omni-channel series, and it will show you how to avoid the trap.

More and more customers and other stakeholders are collaborating online and getting accustomed to being individually treated like people, not demographics of consumers or customers. They like it. People can’t resist places in which they, and others around them, are listened to and responded to meaningfully. People respond to each other’s emotions. Organizations that don’t appreciate this development will invest heavily and receive lackluster returns, weakening themselves at a critical time.

Conversely, organizations will outperform when they ground omni-channel investments in engaging stakeholders’ emotions and personal motivations.

Omni-Channel Snapshot: How It’s Different

Although it’s already a buzzword, the “omni-channel” term is valuable because it signals a different future state experience. The current state at most (r)etail firms isn’t pretty from a customer perspective; firms are at some stage of providing multi-channel or cross-channel to customers. Omni-channel refers to using digital and social technologies to boost the speed and type of interactions among the customer and the organization, resulting in more transparency and functionality.

Omni-channel also means de-siloing organizations so that customers may examine, access and purchase inventory (or any information) from any interface (physical store, Website, mobile, kiosk) and take delivery onsite, at another site or via delivery service. Notably, it means that customers can change interfaces mid-way through a process; for example, a customer starts configuring the laptop via iPad while commuting in the morning, finishes configuring memory while on lunch from her work computer and consummates the sale from her mobile phone in the afternoon. The next day, before it is shipped, she may cancel shipping and pick it up at a retail location. This requires the organization to provide “state” that transcends technologies that operate largely in isolation of each other, a very significant undertaking.

Whether you have been behind the curtain at a multi-channel operation or not, you can probably appreciate, as a customer, how different it is from omni-channel. Mobile has a different database from Web; nothing is connected to the physical stores. It’s not easy to order online and pick up at a store; crossing “channels” is difficult. Going omni-channel will require huge I.T. investments, to say the least. But it will increasingly be table stakes to stay in business.

Sociology Snapshot: Social Grooming

Think about your experience with other people for a minute. When you are trying to do something that’s personally meaningful, and another person helps you, you probably feel very gratified. Being cared for in an empathic way is one of the most satisfying experiences people can have.

When another person cares for you publicly in a group context, you probably feel gratified and important. Caring for another person in public is called social grooming; each party raises his/her standing in the group by committing to caring for the other publicly, and reciprocal altruism is the social flywheel that keeps it going. Social grooming is in our DNA, so it is inseparable from our core being. Our bodies actually release endorphins when we receive an act of social grooming. That is how important it is to us as human beings. Read more about this in Grooming, Gossip, and the Evolution of Language. It may sound geeky, but it reveals the secret of “social.” In spades.

Digital social venues enable people to groom each other in massive groups that self-organize based on interests, culture and other factors. They make social grooming digital. They enable personal individualized experience at scale. Personal Individualized Experience will soon be the new bar for firms that want to be relevant, so omni-channel initiatives that do not include caring for people using social technologies will underperform.

Two Omni-Channel Value Vectors

Broadly speaking, omni-channel can serve customers along two vectors: the pleasure vector and the efficiency vector. In the former, organizations care for people publicly, thereby increasing their sense of wellbeing and accomplishment. Serving people publicly helps them achieve things they want, and it gives them social grooming satisfaction. Along the efficiency vector, organizations use digital technologies to decrease the friction of interacting with them. Social business drives the pleasure vector, and ecommerce, mobile and big data & analytics drive the efficiency vector. Obviously, there is cross-over between vectors, and here’s how the vectors accentuate each other.

Pleasure Vector

CSRA’s social business engagements have consistently shown that most “task-oriented” interactions in digital social venues involve solving problems or pursuing opportunities. Organizations use social business strategy to define, identify and find people online who have high impact on the business and whom they can serve meaningfully. Social business strategy analyzes people, their activities and organizations’ assets, and it creates social business initiatives in which organizations interact and serve very efficiently. Here’s how the economics work.

“Personal” means listening to a person and responding to him/her based on what s/he says or does. A machine cannot do it; only another person can. People will always give more value to interactions with other people because such actions are instances of social grooming. Even interactions with very sophisticated robots, because the latter have no will, will be discounted. It is precisely because these interactions between people are relatively exclusive that they are highly valued. This suggests a lack of scalability.

However, digital social technologies are revealing how personal scales. When people in digital social venues see other people, who have similar interests, passions or problems to their own, receiving personal treatment, they often feel a knock-on effect. Call it vicarious social grooming. It is especially strong when the person identifies with the person directly receiving the personal treatment. It is not uncommon for people in digital social venues to bond with other people because they have similar interests by definition. In digital social venues, social grooming gets amplified by the network effect.

Therefore, by giving personal individualized treatment to the few, organizations can affect the many. Organizations practice intense social grooming in digital social venues with people that resonate with the their missions and purpose. In so doing, organizations groom a 100-fold larger group of people, offering them vicarious social grooming.

It is also important to recognize that ninety percent of people in large groups prefer to observe others interacting (“lurkers”); however, they are still a part of the group and feel connected to it. Obviously, they know that they can interact when they want to, and they do. When the group’s overall culture is inclusive, most members find it easier to feel a kinship with the group. That intensifies the vicarious social grooming effect. In fact, on social business engagements, I use this “vicarious social grooming effect” as one of the quantitative metrics with which to rate and rank digital social venues. Venues in which it is strong are far more valuable places in which to interact. These metrics also help when creating and building venues; they give you the ability to measure progress.

The pleasure vector is the secret of maximizing returns on omni-channel investments because it isn’t understood. The pleasure vector is implicit, so most organizations will overlook it—and it engages customers’ deepest needs.

Efficiency Vector

Most customers use multiple devices to interface with the organization: physical stores, telephone, email, chat, kiosks, Web, mobile and in-store transaction systems, to name a few. All these transactions generate data. Up to now, each system has had its own database, so information is minimally shared among them, which leads to friction and frustration. Imagine for a moment that each of the five senses had its own database, and they weren’t integrated. A mess.

When the organization’s data is integrated and supports any kind of interaction the customer wants, it is able to decrease friction and increase efficiency. It is easier to do business with.

In multi-channel, when the customer sees the model, size and color of shoes he wants online and wants to wear them on a business trip tomorrow, it causes extensive frustration when inventory isn’t available to him. Drive 50 miles to another store. Pay more than the shoes in delivery fees. Get another color. The firm’s inefficiency becomes the customer’s problem. This is current state in most business, government and nonprofit organizations.

The main point about the efficiency vector is that it gives the customer satisfaction, but not in a deep emotional way. It is explicit, easy to see, because it closely resembles an “I.T.” proposition. It adds value, but its “differentiation multiplier” is significantly less than the pleasure vector. And it carries the lion’s share of the omni-channel financial investment. Big data & analytics aim to use the customer’s individual data, other customers’ data and external factors to make inferences about probable customer wants and behavior. The organization can suggest things to the customer that will have a high likelihood of relevance. Web and mobile are the two main digital interfaces to many organizations.

Using the Pleasure Vector to Optimize Omni-Channel

• Obviously every organization’s omni-channel journey is driven by many variables, but all will benefit from using social business to learn what most motivates their highest value customers and other stakeholders. Social business is far less costly than the I.T. investments involved in getting the back end to play nicely.
• Moreover, by interacting with customers in digital social venues, organizations can verify and validate their understanding of what customers value most highly—before they make and sequence large I.T. investments. Even more exciting, by observing how people really act, organizations gain access to implicit, tacit knowledge of customer behavior (most customers aren’t aware of all aspects of what they want, but they show it when they interact with groups of other customers).
• Investing in the omni-channel back end of the enterprise will be a multi-year journey, so knowing what gives customers the most pleasure and the most frustration will be very helpful in planning investments, and it will significantly impact ROI.
• The socially driven pleasure vector also enables organizations to build trust very efficiently when they interact authentically, consistently and empathically. Everyone understands and prizes a person or organization that makes commitments carefully and keeps them. Managing and fulfilling expectations in digital social venues will create unprecedented “stickiness.”
• Since omni-channel is a journey, organizations that provide what customers really want will become more profitable earlier and generate momentum to complete their journey more quickly.
• Read more about omni-channel in How Social Changed Retail: Empowered Customers and Omni-Channel Commerce.