Digital Transformation of Retailers After Amazon

Introduction

The development of the internet changed people’s habits in many areas, commerce being one of the most affected industries. Now, a large portion of people choose to shop online, valuing the convenience of fast delivery, a broad selection of items, and easy product search. As a result, companies that adopted the e-commerce strategy early on have maintained their lead over the market. The biggest competitor among these ventures is Amazon – a multi-sided platform that hosts a variety of smaller brands and retailers as well as its own products. It competes with both large and small brick-and-mortar stores and online sellers. The goal of other companies, therefore, is to adapt to the changing market with digital transformation. The following essay presents a strategy for this process, including possible steps in changing the approach, human resources, organization, customer interactions, technology, and the system as a whole.

Example Description

Currently, Amazon dominates the online market both in numbers and in the minds of people. According to Thomas (2019), almost 75% of all US consumers go to Amazon when they want to purchase something. Moreover, the platform has reached an immense number of returning customers – more than 100 million people have a Prime membership, and the majority of them visit the website weekly (Thomas, 2019). These numbers can easily discourage any business without a strong internet presence from competing, but the changing preference of people towards online shopping urges retailers to innovate. Although one may not achieve the same success as Amazon, a company can modernize its processes to have a stable place of the market and be prepared for future entrants that will have the online platform in mind from the start.

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Digital Transformation Process

Prior to presenting the strategy, it is vital to note which directions are the most important for businesses that have an offline presence. In contrast to new firms, older brick-and-mortar shops have employees, products, and customers, and the framework in which they operate cannot and should not be fully demolished. Furthermore, as Tabrizi et al. (2019) note, technology is not the primary driver of success in a digital transformation process. In contrast to digitization and digitalization, which simply replace paper-based or analog devices with digital ones, digital transformation is a change of thinking and philosophy to which the business ascribes (Vial, 2019).

Wade (2015) introduces three basic questions for the journey – “Why transform? What to transform? How to transform?” (p. 6). The first query asks businesses to evaluate their need to undergo digital transformation and see how it can benefit them. Wade (2015) describes the retail industry as close to the center of the digital vortex – a spiral that depicts the businesses’ need to transform. Therefore, firms need to prioritize digital change in order to continue competing on the market. Then, the business has to ask which aspects of its structure and operations it has to improve with digital transformation. Here, the theoretical approach of Ivančić, Vukšić, and Spremić (2019) help; it considers eight spheres of transformation: strategy, people, organization, customers, ecosystem, technology, innovation, and evaluation.

Lastly, by understanding what businesses have to change, they open up the discussion of how these improvements need to be implemented. Wade (2015) suggests using the framework of digital business agility, which contains hyperawareness, informed decision making, and fast execution. Hyperawareness is the company’s ability to predict trends – such aspects of AMPS as analytical tools and social media are the most useful here. As such, the elements of technology discussed below are a part of creating hyperawareness. Informed decision-making is also based on using big data; however, it also requires employees and management to recognize which information is a priority and what can be used in the IT infrastructure. The spheres of people and organization are highlighted in this part of the process. The third segment of the model is fast execution – the company should quickly respond to changes in customers’ needs and preferences as well as competitors’ capabilities. The businesses’ ecosystem and innovation matter the most in this case.

Strategy

The first step in any change process is strategizing; in this case, a digital strategy should be created. It has to be in line with the vision that the company has – a focus on e-commerce, marketing, data use, innovation, customer connections, and other aspects have to be discussed with stakeholders. As Meyer, Helmholz, and Robra-Bissantz (2018) note, the initial question in digital transformation relates to customers, since their roles are becoming increasingly important on the internet. Thus, the particular retail business should ask what the consumers, both existing and potential, want from the company. Taking Amazon as an example, most consumers want a wide selection of products that are simple to find and choose, cheap and quick delivery, easy-to-navigate website interface, and effective customer support (Thomas, 2019). Moreover, clients value comfort and incentives– recommendations, emails, apps, and other digital innovations that simplify shopping and encourage repeat purchasing.

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The creation of the strategy requires internal changes in the company’s structure. According to Ivančić, Vukšić, and Spremić (2019), a business can benefit from hiring or appointing a Chief Digital Officer (CDO). The role of the CDO is to oversee the transformation, enact the strategy and monitor its implementation, and connect the business and the IT department in project development. Finally, the board of directors should support the new plan and agree on which steps have higher priority than others.

People

The next aspect of the digital transformation process is the people involved in the company’s operations. New companies have the ability to hire employees based on their technical skills, while older firms may employ people without specific training for digitalization. Nonetheless, Pelletier and Raymond (2020) warn against extensive staff change – people do not have to be replaced to modernize the business. Ivančić, Vukšić, and Spremić (2019) highlight the role of training and education for workers, stating that internal and external programs can increase the personnel’s knowledge. Thus, after outlining the strategy, the retail business should review its employees’ skills and create an education plan. For example, customer support can be retrained to answer clients online, while managers and accountants can go through a course explaining the intricacies of e-commerce.

Apart from that, the HR department should be prepared to search for potential hires with knowledge of e-commerce. In the sphere of technology (for instance, website building), a company can work with another agency or create a department of programmers, depending on the budget. Finally, Ivančić, Vukšić, and Spremić (2019) highlight the role of young people in the process of transformation – the proactive mindset and a deeper understanding of trends are drivers of innovation. Therefore, each company can choose whether a significant internal change is necessary before hiring other people, but education should exist in any strategy to ensure the staff’s preparedness.

Organization

As mentioned above, digital transformation differs from such processes as digitization and digitalization in that it has to become an integral part of the company’s philosophy rather than a tool for minimal change. It is not enough to create an online store or use internet-based customer support – the business organization needs to have an e-commerce-driven structure. Here, a firm can be advised to develop a digital transformation unit that will be responsible for implementing and managing efforts for change. Their knowledge should integrate into all projects, evaluating their potential for delivering products or services online. For instance, businesses do not need to reject their brick-and-mortar locations in favor of online shopping. As Thomas (2019) finds, the existence of real-life spots is one of the last advantages of such businesses over Amazon, which currently tries to incorporate itself into the offline sales sphere. However, the new unit can integrate brick-and-mortar stores to create pick-up locations for online purchases, including promotional materials for the website or app.

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Another change to the organization is a review of key performance indicators (KPIs) that need to evolve with the new company strategy. New KPIs have to include measurements related to digital performance, such as the number of visitors (new and returning), accounts created, purchases, and the effectiveness of advertising. The latter is measured by the click-through rate, an essential aspect of online marketing (Zhu and Gao, 2019). Furthermore, customer satisfaction with the new services can become a part of adjusting future objectives.

Customers

The philosophy of digital transformation is based on the idea that customers prefer online shopping due to a variety of benefits to real-life stores. Thus, the company has to evaluate which of its actions will lead to better consumer experiences, leading to new value production. The customer purchasing journey lies at the center of this assessment – it includes the creation of a need, product search, product evaluation, product purchase, and the final judgment (Reinartz, Wiegand, and Imschloss, 2019). Employees who understand customer needs – marketing specialists and salespersons should be included in developing the new system. Lastly, customer satisfaction has to be measured regularly to appraise the outcome of the new system.

Looking at Amazon, one can see which of the customer needs are the most valuable. First, as McAfee and Brynjolfsson (2017) find, customized recommendations play a significant role in increasing the number of returning clients. In this case, the knowledge of the staff is complemented by the use of data and analytics that online platforms can implement. When browsing an online platform, people leave traces that show their interests and preferences. This data should be collected and used by an analytics system to present users with recommendations and potential personal discounts to increase sales. More than that, customers’ search for products has to be supplied with algorithms that interpret people’s language in the search bar into a selection of relevant goods.

Ecosystem

Retailers often have partners that create a supply chain from the manufacturer to the customer. All members of this chain have to be involved in the transformation in a way. For example, warehouse storage and transport should be acknowledged when designing a system such as a website. An order placed for delivery should not go to the store only – all parties engaged in the process have to be a part of the IT development team. In the case of Amazon, the corporation has enough resources to cover all steps from the client’s order to its delivery. In contrast, many smaller retailers do not have this opportunity. Therefore, they should develop digital products with this limitation in mind, including their partners in the process of transformation.

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Some smaller retailers can even start using Amazon’s platform to see how the internal processes operate when their products are ordered by a customer. Although this solution does not aid in competing against such businesses as Amazon, it provides an accessible insight into large online companies’ operations. If a retail chain is massive and profitable, such as Target or Best Buy, it can allocate funds to modernize its whole ecosystem without Amazon’s platform. As noted above, brick-and-mortar stores have the benefit of having locations for order pick-up. These physical locations should also be included in product design.

Technology

As discussed above, technology is not the center of the strategy, but it is a vital part of the foundation. The company has to digitize all processes to ensure that all purchases are recorded in one system. Next, it could be helpful to automate some procedures such as order creation and warehouse logistics. Another sphere of using robots is customer support – a chatbot allows clients to get answers to simple queries without the assistance of a human, which lowers the demand for real-time conversation and shortens the time of waiting for a response (Thomas, 2019). A digital store should be supported by a strong IT system in physical locations (Baiyere, Salmela, and Tapanainen, 2020). This integration of both location types can help in collecting customer data, which should support a returning client base and increase loyalty. To collect this data, as noted previously, the company has to invest in technology.

Customer satisfaction plays a significant role in the ways of implementing new technology. Current research shows that simplification of interfaces in applications and on websites leads to better customer experiences (Ivančić, Vukšić and Spremić, 2019). Therefore, part of the strategy has to be devoted to creating an online platform and making it highly accessible for clients with all levels of internet knowledge. It should be noted that app creation is a substantial advantage to retailers moving online, as the share of people using mobile applications for online shopping continues to grow (Thomas, 2019). Moreover, it allows one to create a connection with a customer through their phone – the presence of the app on the screen dramatically simplifies the process of searching for a shop elsewhere, while also allowing the company to collect personalized data and create targeted offers.

Moreover, the technological advancement of storage and delivery is necessary. The company can employ robots to deliver goods or move them inside the warehouse. Also, it can automate warehouse storage records and processes – install smart shelves, automate checkouts, and optimize the layout. Here, the scale of change depends on whether the retailer has warehouses or works with other companies in the supply chain. In the latter case, the innovation of the ecosystem is required, as discussed above.

One of the theoretical models on which the retail business can rely is AMPS – the combination of four types of digital technologies that harness the internet’s potential fully (Marchand and Wade, 2014). First, analytical instruments and apps that use “big” data allow companies to understand how to conduct their business. Retailers may collect customers’ purchasing decisions as well as their demographic data to predict trends and market their stores. Data analytics for retail firms are used to predict future performance, optimize prices, indicate customer demand, and identify customer profiles.

The second part is mobile applications; as noted above, smartphone use is popular among modern consumers. Therefore, it is useful for retail businesses to adopt a “mobile-first” strategy in developing objectives. Furthermore, applications can implement artificial intelligence (AI) to maximize their efficiency. AI is used for customer service, data accumulation, behavioral analytics inside the app, and chatbots for customer support. In fact, predictive analytics of the data collected from apps should dominate the decision-making for the business, creating a data-driven approach to strategizing.

Platforms that share digital capabilities are the third part of this theoretical approach. While older systems are proprietary and exclusive, new operating systems and app foundations are free to use and share, and any business can take advantage of the latest technology and software. Finally, one of the major fields in which the company should progress is social media – it is a space to connect with clients and gather research data from consumers and competitors alike. Here. The use of AI and data analytics is also necessary – the retail has to both use its own account for connection and third-party programs to assess the big data on social media.

Innovation

The process of digital transformation has to be driven by innovation. Presently, many businesses are moving online, and the vast number of available products increases customers’ expectations and makes the competition intense. Thus, the company should encourage continuous improvement and inspire employees to share ideas, and offers new ways of growing the company’s share of the market. Moreover, it is vital to use technological advancements to help the retailer flourish. The use of big data, as discussed above, is a way to predict trends and see whether the store has the ability to improve.

Evaluation

The process of change has to be supported by an evaluation framework that appraises each decision and action and monitors the success of the business in the new sphere. First, the KPIs that align with the digital aims contribute to the outcomes of the transformation. Second, the mentioned above customer satisfaction is one of the measures related to client response to the new system. Questionnaires can be embedded on the website, application, or emails to clients. Some may take a form of a simple yes or no question, while others may ask for detailed feedback.

Apart from using surveys, a retailer can take advantage of informal customer feedback. The most significant contributor in this sphere is social media – such platforms as Facebook, Twitter, and Instagram are filled with people sharing their honest opinions about the products they use (Vial, 2019). Big data allows accumulating this knowledge in bulk, while the presence of the retailer on these platforms gives clients a channel for communication.

Conclusion

Digital transformation is a necessity for many e-commerce businesses, as it allows them to stay relevant to the younger generation and compete with the growing number of online sellers. However, it is a difficult process that cannot be implemented without sufficient planning and a clear understanding of customer needs and company resources. The strategy of digital transformation is consumer-driven, and the company should consider employee training, IT collaboration, organization restructuring, technology, customer satisfaction, and evaluation as the main parts of the plan. Based on the AMPS framework and the eight spheres for digital transformation, any retail business with an underdeveloped online presence can create a strategy and choose technology for change.

Reference List

Baiyere, A., Salmela, H. and Tapanainen, T. (2020) ‘Digital transformation and the new logics of business process management’, European Journal of Information Systems, 29(3), pp. 238-259.

Ivančić, L., Vukšić, V.B. and Spremić, M. (2019) ‘Mastering the digital transformation process: business practices and lessons learned’, Technology Innovation Management Review, 9(2), pp. 36-50.

Marchand, D. A. and Wade, M. R. (2014) ‘Digital business transformation: where is your company on the journey’, Thinking Ahead, Web.

McAfee, A. and Brynjolfsson, E. (2017) Machine, platform, crowd: harnessing our digital future. New York, NY: WW Norton & Company.

Meyer, M., Helmholz, P. and Robra-Bissantz, S. (2018) ‘Digital transformation in retail: can customer value services enhance the experience?’, Bled eConference. Bled, Slovenia, 17-20 June. Maribor: University of Maribor Press, pp. 291-300.

Pelletier, C. and Raymond, L. (2020) ‘Orchestrating the digital transformation process through a ‘strategy-as-practice’ lens: a revelatory case study’, Proceedings of the 53rd Hawaii International Conference on System Sciences. HICSS, Maui, HI. Honolulu, HI: HICSS, pp. 4316-4325.

Reinartz, W., Wiegand, N. and Imschloss, M. (2019) ‘The impact of digital transformation on the retailing value chain’, International Journal of Research in Marketing, 36(3), pp. 350-366.

Tabrizi, B. et al. (2019) ‘Digital transformation is not about technology’, Harvard Business Review, 13. Web.

Thomas, L. (2019) ‘74% of consumers go to Amazon when they’re ready to buy something. That should be keeping retailers up at night’, CNBC, Web.

Vial, G. (2019) ‘Understanding digital transformation: a review and a research agenda’, The Journal of Strategic Information Systems, 28(2), pp. 118-144.

Wade, M. (2015) Digital business transformation: a conceptual framework. Lausanne: Global Center for Digital Business Transformation.

Zhu, G. and Gao, X. (2019) ‘Precision retail marketing strategy based on digital marketing model’, Science Journal of Business and Management, 7(1), pp. 33-37.

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