NRF’s Top 100 Retailers List is dominated by large, low-cost retailers. Amazon allows consumers to price shop any product, anytime, from anywhere. Walmart has built its entire operation on reducing costs. Costco operates around discovery and value, and its scale and negotiating strength keeps costs and prices down.
No matter what retail sector you’re in, your biggest competitors are likely doing everything they can to keep costs and prices down. Unfortunately, that means that if you aren’t a luxury retail brand or a low-price leader, you’re at risk of being undercut by giant retailers.
But not all hope is lost. Only a few will win the price battle, but you can also compete with better merchandise, better branding, and better experiences. Competing and differentiating in today’s retail market means delivering an elevated experience and a great price.
The current state of the world is compounding the pressures driven by giant low-cost retailers. Labor costs, supply chain costs, and inflation are all on the rise. The annual inflation rate in the U.S. accelerated to 7% in December 2021. Consumers right now are working harder than ever to shop for the best price, find the best value, and even trade-down less expensive items. In an environment where inflation and prices are going up, you must focus on muting that impact for your customers — and if you don’t, your competitors will.
Retailers with sophisticated supply chains have been able to pivot amidst pandemic disruptions, without major cost implications. On the other hand, retailers with less sophisticated supply chains are now forced to look at every aspect of their operation to find opportunities to lower costs and keep prices competitive.
While most major cost-cutting measures will involve an initial investment upfront, the payoff is worth it in the end — especially if it means an improved experience for the customer. Here are a few strategies your retail organization can adopt to cut costs, without sacrificing the experience.
Automate customer service in the contact center and the store
Intelligent automation plays a key role in driving business efficiencies, increasing revenue, and decreasing costs. While strong automation strategies will likely require initial funding, the return on investment has been proven time and time again. In fact, intelligent automation has been shown to cut business process costs by 25 to 40% according to one Deloitte study from 2020.
IVRs, chatbots, and conversational AI can help defer calls from your contact center while also providing exceptional, on-brand service experiences to your customers. At Avtex, a TTEC Digital company, we’ve worked with a number of clients to design intelligent conversation flows that provide a great experience, defer calls, and easily identify the point of escalation from bot to agent. Automated customer service in the contact center is a win on all fronts — it reduces costs, provides better experiences, and in some cases, even drives conversion.
Other kinds of automation like packaging robots and in-store stocking cameras can help shield retailers from shocks in the labor market and are poised to continue redefining the future of retail. Leveraging automation frees your employees up from menial tasks and allows them to focus on high-value tasks that result in exceptional experiences for your customers.
Prioritize the digital experience
A great digital experience is a win-win when it is rooted in customer data, has a clear view of the customer journey, and is designed to provide your customer with the information they need to engage and transact with your brand, without requiring employee assistance or an in-store visit. On one hand, your customers get what they need quickly and efficiently. On the other, seamless digital experiences can help you divert in-store or contact center interactions and free up your employees to provide focus, attention, and energy to those customers who need it.
Shifts in consumer behavior have demanded the need for accelerated digital transformation. Plus, certain situations and occasions make more sense happening via digital. Take the travel industry for example. Would you rather be able to easily change your seat on a mobile app, or call the airline, wait on hold, only to never get connected with a person that can help you?
While on the surface it may seem like digital experiences are taking away from years of customer service differentiation, digital is only enhancing the customer experience. If you really understand the customer journey, have done the research, and have developed the insights to know what customers are looking for during every moment along their journey, you will actually identify moments where the customer tells you they love your service, but just don’t need it for that specific interaction.
Take Chick-fil-A as another example. The American fast food restaurant is widely known as a leader in customer service. Yet, many customers still use their app and order delivery and curbside, without ever engaging with a team member. There’s a variety of occasions and trips in which even your most loyal customers don’t need human service. It doesn’t mean those customers don’t value Chick-fil-A’s service, it just means that Chick-fil-A has given every customer the opportunity to interact with their brand in the way that they want to.
Double down on owned brands
From high end apparel retailers to budget conscious grocery retailers, the shift toward owned brands has been happening for years. Owned brands give retailers more control over design, quality, manufacturing, supply chain, and branding, while opening up more potential for higher margins, and lowering costs to produce. The other benefit of owned brands is that they prevent consumers from competitively shopping and driving the price down.
Bed, Bath & Beyond has completely overhauled their owned brand selection — and have gained more control over the style, design, and quality of the products as a result. They are building compelling products that are differentiated in the marketplace.
If you’ve built an owned brand that communicates the right style, and the right quality, and it is at a better price than the national brand, that’s a real win for the customer experience.
Capture data everywhere in the supply chain
Prioritizing data capture across the entire supply chain is yet another strong cost-cutting strategy. Being proactive about managing the data you’ve collected can really help you optimize the supply chain end-to-end. Start by applying machine learning to predict how your goods are flowing through the supply chain and determine how your fulfillment and delivery is likely to turn out.
Exceptional data collection can result in a seamless experience from the moment a customer places an order, all the way through to the last mile fulfillment. The best data practices allow you to get out in front of any trends or problems in your supply chain and manage them much more proactively and efficiently.
Plus, any disruption to the customer experience is going to drive significant cost. If you have to return or cancel a complex purchase like a patio furniture order, the reverse logistics to complete that return are incredibly complex.
Get strategic about personalization, pricing, and discounts
If you can gain a deeper understanding of your customers, motivate them to sign up for loyalty programs, and send them highly customized and relevant messaging and offers, then you can cut costs significantly in a couple of ways. First, you’re not paying to send out offers, emails, and communications to targets who wouldn’t have responded anyway. In other words, you’re getting away from spray and pray marketing. Second, your pricing and discounting strategy will get even stronger. Here’s an example:
There may be a certain segment of customers motivated by a buy-one-get-one 50% off deal, but another customer segment might need a buy-one-get-one-free offer to feel motivated enough to complete a purchase. If you can nail down which customer will be excited by which offer, you can retain your margin and reduce your markdown costs.
Pricing, discounting, and the efficiency of your marketing communication can all add benefit to your marketing program and your markdown costs, while driving revenue and customer loyalty. If you have the right data and customer insight, you can be more strategic about where you invest your markdown dollars.
At the end of the day, most retail brands compete on some combination of good value and great experience. So, unless you’re a giant retailer like Walmart who is leading the charge on low prices, your brand has to stand out in order to increase customer loyalty and drive new business. Finding ways to keep your cost structure in check while also delivering a great experience is really the only way to stay relevant in a market where your competitors are aggressively cutting costs and keeping prices down.
