Want to give customers what they really want? Go vertical

By Veeral Rathod , written on June 10, 2013

From The News Desk

By now we’ve gotten used to having an abundance of options when it comes to shopping: ecommerce, flash sales, direct sales, pop-ups, good old brick-and-mortar, the list goes on. And for consumers, this is great; choice and convenience abound.

But on the flip side of each transaction, most retailers aren’t taking full advantage of the consumer insights they have at their fingertips. To give customers what they really want, retailers need to capture information at every retail touchpoint then integrate that insight back into the products and experiences they’re offering.

The evolution of retail is running in tandem with the evolution of technologies designed to improve the shopping experience. Companies like NomiCommerce Sciences, and RichRelevance are riding the wave of demand for personalization in retail, and giving brands the ability to better understand consumer habits.

Tracking consumer preferences enables a brand to better forecast sales and adjust planning around inventory, marketing, merchandising, and other decisions that impact what product gets placed in front of consumers. The question is, how much are retailers really doing with that knowledge? Most brands only scrape the surface, but for vertically integrated businesses the solution runs much deeper.

The problem is that tracking what people buy, don’t buy, return, or exchange can only do so much to improve your business. A wealth of deeper insight can be found in direct interactions with customers, and more importantly, that insight needs to be implemented in a meaningful way. For traditional brands, the point of sale is disconnected from production by any number of middlemen and distribution processes. As a result, it becomes very difficult to use consumer insights to actually change the product to meet demand. In other words, its easy enough to use CRM tools to put more of what sells and less of what doesn’t in front of customers, but much more difficult to adapt the product itself.

For vertically integrated retailers -- brands that skip the middlemen and take ownership of every process, from sourcing to design to production to distribution -- the possibilities are  broader and ultimately, more relevant when it comes to overall customer satisfaction.

The first step involves collecting quantitative data from every possible sales touchpoint, as well as rich qualitative insights from personal interactions between customers and sales representatives. From there, the opportunity arises to take personalization a step further by integrating this feedback directly into the design process, creating closer-to-optimal choices for existing and future customers. The less disconnect there is between salespeople and brands, the easier it is to ensure that this information is being translated accurately and efficiently.

To give an example that illustrates the scope of the potential, lets look at the luxury apparel industry. When buying relatively expensive items such as business attire and formal wear, it’s very common for customers to work closely with a sales associate and/or take their purchase to a tailor to find the right fit. It just isn’t as easy to grab something off the rack or shop online and get it right the first time. If you can capture information about fit preferences each time a customer tries something on, makes a purchase or an alteration, you can create individual profiles to cater to personal preferences, giving each customer a reason to stay loyal to the brand. At a higher level, you can use this aggregated feedback to create truer fit profiles across your entire customer base to more accurately represent the preferences of your target demographic.

Let’s say 65 percent of women who try on a size 6 end up buying a size smaller or taking in certain seams when shopping a particular brand. Instead of relying on sales representatives to guide customers to “size down,” vertically integrated retailers can take that insight and use it to adapt sizing and fit patterns to make it easier for customers to find the best fit the first time. Most importantly, the feedback loop is short enough that it becomes possible to make the change before certain expectations become ingrained among customers. Of course, each individual is shaped differently than the next, but the more you can learn about the average shape, the better your understanding of fit can become over time.

To give another example, in the auto industry, Tesla has caused a stir not only with its innovative electric vehicles but also with its bold approach to direct-selling and vertically integrated production. The company believes in selling directly to the customer, to bypass the traditional franchise dealership model. This direct interaction will give them faster and better analytics on their customer’s preference than other auto brands, which will enable them to improve their cars and innovate at a faster pace than the industry.

Beyond automobiles, there’s room for companies to use vertical integration to support innovation in all types of industries. Warby Parker’s vertical model is disrupting the eyeglass industry, giving consumers far more affordable options when buying glasses. Each time a customer tries on, returns or purchases a pair of glasses, the company has the opportunity to collect data (and in fact they’re using Nomi to integrate data from their flagship store in New York with online shopping information) and use it to provide a better product and service, while still keeping prices reasonable.

The real benefit of vertical integration is that it is actually possible to take insights from all of the powerful consumer research tools that exist and feed real-time information into the production of the product itself. Brands that aren’t nimble enough to see the need for change and adapt on the fly simply won’t be able to keep up as the retail revolution speeds ahead.

[Image Credit: zizzybaloobah on Flickr]