Winds of Change: Customer Demands, Improving Technology are Creating a New World for Retailers

In Philip Dick’s “A Minority Report,” Tom Cruise walks through a mall where his character’s name is called out by a screen and he is addressed for an ultra-targeted Guinness ad.

Yesterday’s science fiction is tomorrow’s retailing reality. With today’s technologies this ‘futuristic’ scene can actually be a reality if it makes business sense for retailers. Yet today’s customer are not passively reacting to the changes around, in many cases they are driving the change. The reality is that both sides are evolving. We discuss some of these critical changes that are happening on both sides — the demand–side winds on the customer front, as well as the supply-side winds on the firm front, which are revolutionizing today’s retail markets.

Demand-Side Winds:

1. Omnichanneling customer
One of the major themes of today’s retail landscape is the convergence of online and offline consumer purchase behavior. Typically consumers conduct search on information about the product or service to evaluate the compatibility of the product with their preferences, and to minimize risk of a poor fit. The online-offline divide is seeming to increasing an artificial divide as technologies enable consumers to seamlessly conduct searches in one medium and to consummate the transaction in another.

2. Social-networked customer
A second major theme is the explosion of social media. Arguably, social networks have existed as long as human society, but the ubiquity of mobile technologies and attendant app platforms has served a dual function of surfacing and measuring many of these pre-existing social interactions that were previously unobservable, as well as to catalyze and facilitate new social links and networks. Consumers still trust word-of-mouth the most in making product choices, especially word-of-mouth from people they know personally or by reputation, and whom they trust. Many online commercial and social platforms are validating reviews with recommendation systems such as Amazon’s ‘Verified Purchase’, as well as gamified tokens of breadth and depth of expertise such as the Badges and Mayors provided by the online platform Foursquare to retail outlet and restaurant visitors.

3. Locally Supportive and Sustainability-Sensitive Customer
Farmer’s Cow is an example of a local co-operative that has garnered support due to the trend towards authenticity. Consumers are moving towards authenticity, recognizing that they are part of a local and a global ecosystem, and that they would like to give back to the local community and contribute towards sustainable and green practices. They are also looking for products in line with a healthy, organic lifestyle.

4. Human connection-seeking customer
Years ago, the European car companies came up with their factory delivery program – customers ordered in the United States and then traveled to Europe to visit the factory, take delivery, drive around the continent, and deliver back at the port for shipping to the U.S. The focus was, of course, on the vacation, but watching their car go through the final steps in the assembly line, and meeting the people involved, was perhaps no less important. Today, consumers are increasingly sensitive toward the people behind the product and service. This creates empathy, and makes customers less price-sensitive too.

5. Value-Seeking Customers
The Great Recession of 2008 has had a lasting impact on consumer need for value in retailing. This has meant the rise of dollar-store chains, the move to online purchases, the rise of foodservice in unconventional retail settings, such as Cumberland Farms gas stations, giant warehouse clubs, like Costco, as well as a seemingly lasting decline in consumers’ willingness to pay for luxury goods.
Supply Side Winds:

1. Instant Delivering Firms
Amazon has been grappling with the ‘two day problem’ in creative ways. This problem is that the logistics of shipping prevent Amazon, and other online retailers, from tapping the instant gratification and other non-digital aspects of shopping. In spite of convincing 95 million U.S. consumers to become Amazon Prime members, they still have to wait two days to enjoy their purchase.

Some of the ways that Amazon has been trying to bridge this gap has been that through setting up its warehouses across the country, for example in Windsor Locks, Conn., and by exploring innovative ways of shipping through, for example, the use of drones to bypass the traditional delivery infrastructure, and the move into traditional retailing. The last surprising, but logical, strategic move includes the purchase of the Whole Foods chain, the partnership with Kohl’s, and the opening of Amazon Go stores which have innovated ‘just walk out’ technology by eliminating the checkout counter through wireless payment using sensors at the exits.

2. Artificial Intelligence User Firms:
Technologies such as machine learning and artificial intelligence are being used to bridge the gap between the impersonal nature of earlier generations of computer-aided recommendation systems and the move towards virtual Shopping Assistants, such as Alexa. There is a technological dimension to this innovation as engineers strive to interpret emotions in the vocal commands of consumers, and also to inject emotion into the Assistant’s interactions with the consumer. There is also a strategic dimension as these technological developments raise switching costs for consumers, and increase profits through enabling creative cross-selling of higher margin products, including, increasingly, internet store brands such as Amazon Basic and Chrome products.

3. In-store Customer-Converting Firms:
The age-old saying that ‘time is money’ is being increasingly implemented using the ubiquitous mobile smartphone. An extreme, some would say egregious, example of this is the ‘HIJACK!’ promotion used by a shoe store in Guatemala, where consumers in a mall were targeted by a promotion the value of which reduced with every passing second! While it is difficult to conceive of an identical promotion in the United States, online “flash sales” and other similar promotions that tie the value of a promotion dynamically to the passage of time will be an increasing trend in the future.

4. Geo-Conquesting Firms:
Retail-beacon technology is being used to target consumers when they are close to a competing store in a mall. This enables firms to take point-of-purchase targeting beyond loyal customers who are visiting their stores currently, to also “poach” customers who are en route to another competing store that is located close to the focal store.

5. Sharing Economy-focused Firms
As large sections of the economy move towards rental, rather than ownership, through the sharing economy (e.g. Uber, AirBnB), ownership of products is also becoming an archaic notion in many product categories. Consumers are focusing on their use of products, and where these show a declining trend over time, prefer to rent rather than buy.
As the demand-side winds meet its supply-side counterparts, we experience developing storms that sometimes turn into tornados. Results of such wind-shear are apparent as some of the old guard like Sears and Toys R’ Us wither away; others like Macy’s and Walmart seek to reinvent; while the new guard, led by Amazon, rises on the retail horizon.

Debanjan Mitra
Professor of Marketing, UConn School of Business
Debanjan Mitra is a professor of marketing and the Voya Financial Chair at the UConn School of Business. His research encompasses innovation and new product management. Joseph Pancras is an associate professor of marketing at the UConn School of Business. His research interests included targeted marketing and competition in digital contexts.
View Posts

Joseph Pancras
Associate Professor of Marketing, UConn School of Business
Dr. Pancras has several years of industry experience in custom marketing research in leading research groups such as Kantar and Taylor Nelson-Sofres, and brings these experiences to bear on his research and teaching. His research has been published in Journal of Marketing Research, Management Science, Journal of Retailing and Journal of Interactive Marketing.
View Posts