Why most retailers’ digital transformations fail

February 3, 2023
Rebecca Wine profile picture
Rebecca Wine

With inflation on the rise, shoppers are becoming less loyal to their preferred brands. A successful digital transformation for retailers will allow them to harness their data and gain a complete understanding of their customers can pave the way for smoother and more tailored shopping experiences, and be the key to regain customer loyalty. However, most retailers are stuck in their transformation journey. This article unpacks why this might be happening.

70% of business’s digital transformation fails. The root of the problem lies in technology advancing faster than the organization's ability to implement and utilize it, leaving many businesses stuck in their digital transformation journey.

Tony Moroney, founder and managing partner of Beta Digital, explains that when asking top management what digital transformation is to their firm, you will get different answers from practically everyone. 

So let’s start with the definition of digital transformation. Digitization refers to creating a digital representation of physical objects or attributes. Digitalization refers to enabling or improving processes by leveraging digital technologies and digitized data. In the context of retail, digital transformation is defined by an “organization's ability to utilize technology to pursue new business models, streamline operations, and create personalized experiences for customers that drive loyalty and profitability”.

That definition also underlines why digital transformation is such a hot topic in the retail industry. With inflation on the rise, shoppers are becoming less loyal to their preferred brands. For retailers, being able to harness their data and gain a complete understanding of their customers can pave the way for smoother and more tailored shopping experiences, and be the key to regain customer loyalty.

The digital transformation challenge and how we got here

So, why do so few retailers succeed in their digital transformation journey? I asked Linda Mason, a principal consultant at Applied Retail Transformation, who has been part of digital transformation projects with numerous clients, such as L'Oreal Professional, Target, Ahold, Avon, and more. She believes the challenge of digital transformation stems from the decay of the personal touch in retail and can be traced back through 800 years of retail history.

In the early days of mercantile activity, the one-to-one relationship established between retailers and customers was rooted in personalization.  The retailer often knew their shoppers personally, and could guide them in a way that was tailored to the shopper. The result was an extremely high degree of loyalty. However, when more and more shops opened, this relationship became threatened by the increase of competition.

Throughout the 20th century, the use of one-to-many channels like mass print, TV, and digital quickly eroded true personalization and loyalty in retail. Mason explains that this erosion is due to the exponential growth that retailers have experienced, particularly in the last 80 years. The fast growth of retailers also led to siloed organizations. "There are groups handling the transaction systems, product lifecycle management, decision support systems, and many of them don't even talk to one another in the same department," she says, "let alone build a strategy that is streamlined throughout the organization operationally."

Resistance to digital transformation in retail

This is where the resistance to digital transformation in retail comes from. Mason states that "there is a comfort in working with hard numbers and established metrics, and less comfort with thinking about how to change roles and behavior within the organization." In analog work cultures, there is internal competition between physical stores and eCommerce departments, instead of focusing on satisfying the customer's needs and figuring out how to meet them operationally.

Most retailers already have the technology to reconnect with their customers and win back loyalty, but they lack the processes and organization to leverage it. In order to win, retailers must acknowledge that their organizational process needs to be re-evaluated. In Linda’s experience “once they make that commitment to change metrics, to change behavior, then everything becomes possible.”

An example: The digital transformation of the leaflet/catalog

This is also something we often see with our own customers at iPaper: many retailers are reducing or dropping printed catalogs completely and want to replace this channel with a pure digital solution.

However, being able to do this is completely dependent on what stage their organization is at, with regard to digital transformation.

We advise our customers therefore to see the digital transformation as a timeline, with steps they can take along the way that fits the maturity of their data and organizational structure to support digital.

Timeline of digitalisation of the printed leaflet

Digital transformation can help retailers in uncertain times

Digital transformation done correctly gives retailers the opportunity to make shopping a social experience again, even virtually. By effectively using data management strategies, retailers can personalize the shopping experience and reform bonds of loyalty with their customers. In essence, digital transformation is about transforming the organization to use digital capabilities to reconnect with their customers.

This can be done by looking at profitability and margins with regard to the customer and not by the sales outlet. This clears the path for you to enhance cooperation between channels and improve convenience for your customer. Essentially, customers want a seamless shopping experience throughout all shopping channels. Silo management and restructuring the organization is key to the success of your digital transformation.

The bottom line is that you don’t have to be a tech expert to make digital transformation work; you just have to figure out a way to harness the power of tech and build the agility to streamline it throughout your organization.

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