00:00:00
it is I think a fictitious e effort to
00:00:02
try to characterize a particular
00:00:04
customer as an online customer a recom
00:00:06
Mor customer when we are all Omni
00:00:09
Channel we walk in the store with our
00:00:10
phone on the hand we leave the store
00:00:13
empty-handed because we know that we can
00:00:15
order when we are home or the other way
00:00:17
around we're at home we find something
00:00:18
we like say I'm going to go to the store
00:00:20
and check it out and I think that the
00:00:22
retailers need to be aware of this
00:00:24
welcome to the ripple effect the podcast
00:00:26
that takes you on a journey through the
00:00:28
minds of work and faculty I'm I'm your
00:00:30
host Dan Looney and in each episode
00:00:32
we'll be diving deep into the
00:00:33
inspiration behind the groundbreaking
00:00:36
research that Wharton professors have
00:00:38
conducted and exploring how their
00:00:40
findings resonate with the world today
00:00:42
well when we go to buy things these days
00:00:44
e-commerce seems to be one of the
00:00:46
biggest players in the marketplace but
00:00:49
what makes the difference for online
00:00:50
retailers in order to be successful
00:00:53
Santiago Galino is an associate
00:00:55
professor of operations information and
00:00:57
decisions here at the Wharton School
00:00:59
Santiago great to see you again thank
00:01:01
you very much for having me thank you it
00:01:04
feels like this is just an Ever evolving
00:01:06
world right now around retail with all
00:01:08
that's going on all the new technology
00:01:11
the mindset of the companies the mindset
00:01:13
of the consumers it it feels like we're
00:01:16
in a process right now where retail has
00:01:18
really changed a lot for the for the
00:01:20
betterment of the of the public I think
00:01:22
yes no I agree and I think that uh this
00:01:25
is not new to retail I think retail if
00:01:28
you think as an industry
00:01:30
is constantly evolving what I think is
00:01:32
new and probably what you're pointing to
00:01:34
is the pace and I think that these days
00:01:36
the changes that we're seeing in in the
00:01:38
retail industry require the companies
00:01:40
and the consumers to keep up with all
00:01:42
the changes that are happening to to
00:01:44
stay to stay relevant and and and and be
00:01:46
and be successful all right so you talk
00:01:49
about two aspects there one being the
00:01:51
consumer the other being the
00:01:54
company let me start with the consumer
00:01:56
first because I think we've gotten to
00:01:58
the point right now where the the
00:02:00
expectation of the consumer is better
00:02:04
faster and the experience has to be as
00:02:08
good as possible yes yes I I think that
00:02:10
that that's probably what is driving
00:02:12
most of the changes I think that the
00:02:14
consumer expectations are as high as
00:02:17
ever and this is in part because
00:02:20
companies has been making a lot of
00:02:22
changes that benefit consumers and and
00:02:25
and I think we're we're at at an
00:02:26
interesting point because retailers now
00:02:30
need to look back and make sure that
00:02:32
they're able to make a profit while
00:02:34
fulfilling those expectations and
00:02:36
sometimes exceeding those expectations
00:02:38
and I think that if you focus on online
00:02:40
retailing there was a lot of effort to
00:02:42
get things faster more assortment uh
00:02:46
free returns and all these things are
00:02:48
great for consumers they're very happy
00:02:51
but we're starting to see that some
00:02:53
retailers are struggling to see how they
00:02:55
can sustain some of these things and so
00:02:57
I think it's interesting what's going to
00:02:58
happen next in terms of of keeping the
00:03:00
consumer happy keeping it engaged but
00:03:03
also being aware of what is the bottom
00:03:06
line of the business how then has that
00:03:08
changed the overall mindset of the
00:03:10
company in terms of delivering all of
00:03:13
that and I think I would assume that
00:03:15
we're talking about everything from the
00:03:17
experience right in the store or online
00:03:19
all the way down through delivery and
00:03:21
the operational as well yes so I think
00:03:24
that today the companies need to be
00:03:28
smarter about the different offerings
00:03:30
that they give to to Consumers because
00:03:33
like you were mentioning before these
00:03:35
high expectations can be uh composed by
00:03:40
a lot of different parts and some of
00:03:42
those parts are essential to the
00:03:43
consumer and some are nice to have and
00:03:46
that's when the retailer can be smart
00:03:48
about it and in recent years one thing
00:03:50
that we've seen from retailers is that
00:03:52
they also became more sophisticated in
00:03:54
their analytics capability the way they
00:03:57
mine into the data that consumers are
00:03:59
providing to them to be able to make
00:04:01
this judgment cause in what is those
00:04:04
things that needs to happen and what are
00:04:06
those things where they can be a little
00:04:07
bit more sloppy or or relax the the
00:04:10
standards and still have the customer
00:04:12
being happy and they are able to make a
00:04:15
profit out of it so that's an element of
00:04:17
the technology advancements we've seen
00:04:19
play out here in the last decade or two
00:04:21
and from a technology standpoint we've
00:04:24
obviously made great leaps in the last
00:04:26
two decades or so but it still feels
00:04:29
like we have a long way to go like there
00:04:31
will be more and more advancements AI
00:04:33
being maybe the next one as we move
00:04:35
forward over the next few decades yes I
00:04:37
I think it's it's like a moving Target
00:04:40
right so if you think about the
00:04:41
transition to online uh retailing that's
00:04:44
that happened now many years ago but now
00:04:46
more than 40% of the transactions happen
00:04:49
from smartphones and that put another
00:04:52
stress into okay how I interact with the
00:04:54
consumer now is seeing my assortment
00:04:57
interacting with my company in a smaller
00:04:59
screen on the go while commuting which
00:05:01
is something that is different from what
00:05:03
the online experience was maybe 5 10
00:05:06
years ago so then when you think about
00:05:08
the operational side then you have to
00:05:10
focus on the
00:05:12
website uh the accessibility of all the
00:05:15
different products that people are
00:05:16
looking for the speed at which that
00:05:19
website takes you through that process
00:05:22
because if the consumer doesn't have
00:05:25
that Optimum experience then you're
00:05:28
potentially talking about lost consumer
00:05:30
lost Revenue to the company longer term
00:05:32
yes yes that's right and in fact the we
00:05:35
work with uh some colleagues on a paper
00:05:38
that actually looks at that and we found
00:05:40
that a 10% slowdown on the website speed
00:05:44
can cost like 4% lower sales and 2%
00:05:48
reduction in conversion and that I think
00:05:50
it's it's interesting but connecting to
00:05:53
what I was mentioning before we also
00:05:55
look at how that impact of speed is
00:05:57
different in the different steps of the
00:06:00
customer Journey so it's not the same if
00:06:02
you have a Slowdown when you land on the
00:06:04
page when you're are searching for the
00:06:06
product compared to when the website
00:06:10
slows down at the checkout point in fact
00:06:12
at the checkout Point slowdowns are much
00:06:14
more damaging to the customer experience
00:06:17
and this is what I was mentioning that
00:06:19
companies need to be smart because it's
00:06:20
not that you you say well in Ideal World
00:06:23
I want to make my whole website be
00:06:25
faster and and and more efficient but
00:06:28
sometime that can be too expensive so
00:06:30
being smart about where to put your uh
00:06:32
your investment and where to put the
00:06:34
focus can be critical what about the
00:06:36
delivery component after that purchase
00:06:38
is made as well because that's obviously
00:06:40
been a big focus of a lot of companies
00:06:42
and I think Amazon is probably the one
00:06:44
that has probably made the biggest
00:06:45
investments in terms of making sure that
00:06:48
that last mile is is is a vital
00:06:50
component for them yes I I think that
00:06:52
that's that's that's an interesting
00:06:54
question because I think that many
00:06:56
retailers for for the last few years
00:06:58
have been chasing Amazon in this effort
00:07:00
and Amazon has been amazing at achieving
00:07:02
that customer
00:07:04
service exceeding expectations sometimes
00:07:07
in terms of delivery speed but this
00:07:09
again in my in my experience and in my
00:07:11
research shows that it is not a blank
00:07:15
policy that should apply to all product
00:07:16
categories even to all customer
00:07:19
circumstances there are some customers
00:07:21
that are more planning in their
00:07:23
purchases uh and so they're happy to
00:07:25
wait two three four days and that on the
00:07:28
operational side has a huge impact it's
00:07:31
not the same cost not the same stress to
00:07:34
the supply chain to deliver something
00:07:35
the next hour the next day that a week
00:07:38
from now and sometimes the same customer
00:07:41
is willing to change one or the other
00:07:43
and now we are seeing retailers offering
00:07:45
those options and the customer Express
00:07:48
the option and with that it is I think
00:07:50
it's an opportunity for a win-win the
00:07:52
customer and the company and and I guess
00:07:54
it's part of the reason why we've also
00:07:56
seen uh companies and when you think
00:07:59
about the the holiday retail season
00:08:01
companies push out the length of where
00:08:04
they want to see that consumer think
00:08:06
about holiday shopping you know into
00:08:08
early October in many cases yes in
00:08:11
indeed and I think that the holiday
00:08:13
season is interesting because it put to
00:08:16
a stress test to all the operations like
00:08:18
in terms of the delivery options and
00:08:21
also in the store execution some of the
00:08:24
I think peak in stress on the online
00:08:26
business is because many retailers
00:08:28
starts to stock out in the physical
00:08:30
stores and so customers that are looking
00:08:31
for a particular doll to to or a
00:08:34
particular toy for their for for their
00:08:37
kids they really stress out and start to
00:08:40
put those orders online and I think that
00:08:43
in part is a manifestation of this
00:08:45
challenge that retailers have to have a
00:08:47
coordinated strategy both online and in
00:08:50
stores obviously a lot of these
00:08:52
companies have had to take an omni
00:08:54
Channel approach uh to be able to have
00:08:57
success because there are so many touch
00:08:59
points that are out there for them to
00:09:01
try and reach the consumer right now yes
00:09:03
yes and I I think it's important for
00:09:05
those for those retailers to keep in
00:09:07
mind that customers are only Channel and
00:09:10
and and in that sense it it is I think a
00:09:13
fictitious e effort to try to
00:09:15
characterize a particular customer as an
00:09:17
online customer a brick and mor customer
00:09:20
I me we are all Omni Channel we walk in
00:09:22
the store with our phone on the hand we
00:09:25
leave the store empty-handed because we
00:09:27
know that we can order when we are home
00:09:28
or the other way around we're at home we
00:09:30
find something we like say I'm going to
00:09:32
go to the store and check it out and I
00:09:34
think that the retailers need to be
00:09:35
aware of this because for for for for
00:09:38
for
00:09:39
example the customer will arrive to the
00:09:41
store with a lot more experience and
00:09:43
knowledge about the product because it's
00:09:45
been searching and and finding
00:09:47
information online before it arrives to
00:09:48
the store the level of disruption then
00:09:52
in in retail right now significant it
00:09:54
feels like that we've seen play out in
00:09:57
the last decade or two but still the
00:09:59
potential for more disruption as we move
00:10:01
down the road I think so I think where
00:10:04
we haven't seen all the disruption H
00:10:06
roll out I think that there are still
00:10:08
retailers that will be able to navigate
00:10:10
successfully and transform and convert
00:10:12
that's always my hope I like to see
00:10:14
companies being able to reinvent
00:10:16
themselves also unfortunately we're
00:10:18
going to see some some more disruptions
00:10:21
and some big players uh failing
00:10:23
unfortunately but this is the nature of
00:10:25
retail and this go back to what we
00:10:27
talked at the beginning that retail by n
00:10:29
by this own nature is constantly
00:10:31
evolving and and and and that's why it's
00:10:33
fun for me to do research on this
00:10:34
industry what do you think it means for
00:10:36
bricks and mortar uh in the retail
00:10:38
sector moving forward because that there
00:10:40
for a while there uh the death of of
00:10:44
bricks and mortar retail was being
00:10:45
forecast obviously the focus on the big
00:10:48
malls here in the United States is one
00:10:50
area but it does feel like there may be
00:10:52
a path where where bricks and mortar can
00:10:55
still stay viable even with the online
00:10:58
component I absolutely and I think there
00:10:59
are two parts of that one is that
00:11:03
finding customers online is getting more
00:11:05
and more expensive and so when the
00:11:07
companies do the math the physical store
00:11:10
becomes an attractive and viable way to
00:11:13
make your brand known to customers have
00:11:16
the opportunity to attract new customers
00:11:18
compared to what is these days more
00:11:20
expensive uh eyeballs on the on the
00:11:23
internet the other part is that where I
00:11:26
think is the interesting component is
00:11:27
that brick and mortar has the
00:11:29
opportunity to bring that experience to
00:11:31
the customer that is possible but harder
00:11:34
to do online and I think that if you
00:11:36
look at which retailers has been
00:11:38
successful uh these days are those that
00:11:41
in their own category with their own
00:11:42
constraints have been able to bring that
00:11:45
experiential component to the customer
00:11:47
that wants to travel to the store
00:11:48
because it likes to navigate the aisles
00:11:51
and find those deals there likes to
00:11:53
interact with the customers in the store
00:11:55
like peers buying and searching for
00:11:57
products and have that Discovery uh
00:12:00
exercise or simply because it's much
00:12:02
more efficient to go there find what I
00:12:04
want and get out of there as soon as I
00:12:06
can the experience has different uh
00:12:08
flavors but I think that that
00:12:10
experiential component is key these days
00:12:12
but doesn't that M it make it even more
00:12:13
challenging when you think about this
00:12:15
from a generational standpoint I mean
00:12:17
baby boomers you know expected one thing
00:12:21
and they've had to adjust to this
00:12:23
Digital World the younger Generations
00:12:25
basically have come into it and their
00:12:28
true experience is digital with that
00:12:31
component of bricks and mortar kind of
00:12:33
as a side piece it feels like that
00:12:36
that's true and talking to many
00:12:37
retailers they had point out to
00:12:39
something that I think is to me very
00:12:41
interesting that what you say is 100%
00:12:43
true the new generation is much more
00:12:45
digital much more invested in their
00:12:47
online experience however and for that
00:12:50
reason when they go to the store the
00:12:53
human contact can have a huge impact
00:12:55
because if you're having a coffee with
00:12:57
friends you are more of an older
00:12:59
generation you constantly talk to people
00:13:01
and you are in in interaction but the
00:13:03
younger generation maybe they have a
00:13:05
handful of conversation with real people
00:13:07
a day and that's why the impact of that
00:13:09
conversation if it's well uh if it's
00:13:12
well planned and in in a nice context in
00:13:14
a histore can have a much better impact
00:13:16
so is it a surprise then when you see
00:13:19
some online companies Warby Parker being
00:13:21
one that start out online but then they
00:13:24
bring in the bricks and mortar component
00:13:26
a little bit later down the road yes no
00:13:28
to me I mean it makes complete sense and
00:13:30
and you see that many of those uh
00:13:33
companies that started online they at
00:13:36
the beginning they were arguing they
00:13:37
will never go offline there was no need
00:13:40
for rck and mor but then they discovered
00:13:42
that with the right strategy they can
00:13:45
combine The Best of Both Worlds and some
00:13:48
of them have a bul with a physical
00:13:50
presence that is like a showroom so they
00:13:52
don't need to carry inventory because
00:13:54
they want to have a focus on the
00:13:56
experiential component like Bono noos is
00:13:59
an example but Warby Parker the same way
00:14:02
I think that it is it is not a
00:14:05
competition between the two it's just to
00:14:07
try to find the right balance and
00:14:09
ultimately make a profitable proposition
00:14:11
to to the customers but doesn't it also
00:14:14
then really put a focus on the company
00:14:17
and how it runs on a day-to-day basis
00:14:20
from an operational perspective to make
00:14:22
sure they are as e efficient as they
00:14:24
possibly can be because I it feels like
00:14:26
we're at a point right now where
00:14:29
retailers if they make a mistake it's
00:14:31
very hard for them to come back from it
00:14:35
to be as successful as maybe they want
00:14:36
were and absolutely and I was talking
00:14:39
with W with a retailer actually
00:14:41
yesterday and I think we we come up to
00:14:43
the conclusion that with all these
00:14:44
changes with all the Innovation is still
00:14:47
true that retail is detail and so this
00:14:49
is this is this is I mean something that
00:14:51
was true 100 years ago and it's true
00:14:53
today and this is exactly your point I
00:14:56
think that execution is key because in
00:14:58
many industry in many Industries the
00:15:00
margins are big yeah retail with all
00:15:04
these competitive forces all the changes
00:15:06
were tend to have very thin margin so
00:15:09
it's a it's a story where details are
00:15:11
key what does this then this period of
00:15:14
time then maybe tell you about where
00:15:18
retail is going or where retail has to
00:15:21
go in the years ahead yes so I think
00:15:23
that the the the years ahead we should
00:15:26
put a focus on these details I think
00:15:28
that
00:15:29
in my in my in my mind there been for
00:15:32
many companies like a rush to offer uh
00:15:36
everything to the customers without
00:15:38
thinking can we sustain this over time
00:15:40
can be can we be profitable with this do
00:15:43
customers really need all this that
00:15:44
they're asking and I think that these
00:15:46
days we're seeing again going to to to
00:15:49
the analytics and and and and being
00:15:51
smart about how to read the data that
00:15:53
the retailers are extremely rich in data
00:15:56
they can be able to walk back and see
00:15:59
what is these uh details that they need
00:16:01
to tweak to make to to make the company
00:16:04
successful so I think that going forward
00:16:06
we're going to see more of these changes
00:16:08
that will tweak things in order to make
00:16:10
the company more efficient and hopefully
00:16:14
translate those efficiencies to the
00:16:16
customers one example for is is returns
00:16:19
I think that online returns is a is a
00:16:23
pain point for any online retailer and
00:16:26
and I think that it's being very
00:16:28
generous the policy but many companies
00:16:30
are starting to revisit that and see how
00:16:33
they can uh still keep customers happy
00:16:36
but without being naive about the whole
00:16:38
process are are more companies than
00:16:41
finding areas finding those little areas
00:16:43
where as you said with returns maybe
00:16:46
they change the philosophy a little bit
00:16:48
and it helps their bottom line but it
00:16:50
doesn't have a significant impact on the
00:16:52
relationship with the consumer looking
00:16:54
for those ways to be able to to make
00:16:56
that fine cut yes I I I I think so and
00:16:59
one one other area that I hope that we
00:17:02
see more changes is in Staffing think if
00:17:04
you think about the the two main
00:17:06
Investments That retailers have is like
00:17:08
their inventory the assortment that they
00:17:10
carry and the people in the store and I
00:17:12
think that with this call for an
00:17:14
experiential component I think that many
00:17:16
retailers should rethink how they train
00:17:20
they retain and they keep their own
00:17:22
staff H being able to provide that high
00:17:25
experience that customers are expecting
00:17:27
Santiago great to see you again thanks
00:17:29
very much oh my pleasure thank you
00:17:31
Santiago Galino associate professor of
00:17:33
operations information and decisions
00:17:35
here at the Wharton School thank you for
00:17:38
listening to the ripple effect we hope
00:17:39
you found this episode informative and
00:17:41
engaging don't forget to subscribe and
00:17:44
leave us a review so that we can
00:17:45
continue to bring you the best Insight
00:17:47
from the Wharton
00:17:50
School
