Incredible changes are happening in how consumers are shopping today. Pulling in some recent data from McKinsey's iConsumer initiative (a program to monitor and analyze the behavior of digital shoppers). For example, two years ago, about 15 percent of shoppers checked prices on the mobile devices when they were in a store. Now that number is closer to 50 percent. And of those 50 percent who checked, 2/3 of them changed their buying decision because of it. This rapid change in behavior is creating massive strains on brick & mortar retailers, who need to adapt even as competition from pure online retailers continues to chip away at them.
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The future of brick and mortar retail in the digital era
1. WORKING DRAFT
Last Modified 3/19/2014 4:21 PM Eastern Standard Time
Printed
The Future of Brick &
Mortar Retail in the
Digital Era
McKinsey on Marketing & Sales – Slideshare Brief
September, 11 2012
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
2. McKinsey & Company
LastModified3/19/20144:21PMEasternStandardTimePrinted
| 1
What percent of consumers have used their mobile
phone to conduct research on prices?
In how many categories is Amazon the most frequent first
destination for people starting their online research?
New consumer behaviors are shifting the future of retail
SOURCE: McKinsey iConsumer survey
What percent of consumers have signed up for location
based services like foursquare, shopkick or loopt?
B. 10% C.20% D. 30%A. 5%
B. 5 C. 8 D. 10A. 3
B. 30% C. 40% D. 50%A. 60%
3. McKinsey & Company
LastModified3/19/20144:21PMEasternStandardTimePrinted
| 2SOURCE: McKinsey iConsumer survey
New consumer behaviors are shifting the future of retail
What percent of consumers who have signed up for text
promotions have taken an action after receiving one?
What percent of consumers have bought online and
picked up in store?
What % of all consumers have or would consider
making a purchase on a mobile phone?
B. 30% C. 40% D. 50%A. 20%
B. 35% C. 45% D. 55%A. 25%
B. 20% D. 50%C. 35%A. 10%
4. McKinsey & Company
LastModified3/19/20144:21PMEasternStandardTimePrinted
| 3SOURCE: McKinsey iConsumer survey
New consumer behaviors are shifting the future of retail
What % of consumers delay a purchase / buy elsewhere if
they find a lower price by using their phone in store?
What % of consumers first log onto a social network for
content to read/ browse online?
What percent of consumers aged 55-64 have used
Facebooks‟s “like” function?
A. 35% B. 50% D. 80%C. 65%
B. 60% C. 80% D. 20%A. 40%
B. 30% C. 40% D. 50%A. 20%
5. McKinsey & Company
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Assortment leadershipPrice leadership
Category depth
Avg. number of SKUs / category
(5 categories)
100 random items
Price index1 vs. Amazon.com
SOURCE: William Blair pricing report, 2011; Wells Fargo SKU analysis, 2011; American Customer Satisfaction Index, 2011
1 Price including sales tax and shipping
2 Non-food and non-club, determined by 2011 revenues
Customer experience
Experience rating
American Customer Satisfaction
Index 2011
316
2,125
7X
86
76
13% higher
scores
113Top 5 retailers2 105
100
5-13% lower
prices
Amazon's "triple threat" value proposition is eroding traditional
retailers' value propositions
6. McKinsey & Company
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The future of US commerce will largely be shaped by 5 trends
SOURCE: McKinsey Digital Marketing Practice, Expert interviews
What we will see in commerce…
▪ Consumers are savvy shoppers, doing deeper research,
expecting seamless experiences, and continuing to engage post-
purchase
1
Iterative
Decision
Journey
▪ Mobile revolutionizing the “how” of retail, enabling window
shopping 30x per day, price comparisons in-store as the norm,
and enabling a new level of “impulse” purchases
2 Mobile
▪ Social winning the „digital clock‟, with consumers spending
greater share of time and mind share – and becoming mechanism
for search, recommendations, and commerce
3 Social
▪ Local core to the commerce experience, with shoppers
increasingly „localizing‟ their experience (e.g., buy online / pick up
in store, see in-store / ship to home) and expecting local alerts
4 Local
▪ Increasing demands in shipping and returns, with consumers
expecting free shipping option (75% of consumers would wait 5
days if shipping were free) and same-day / 1-day delivery as part
of the menu
5 Fulfill-
ment
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After a decade of online shopping, shoppers now have high
expectations of retailers across the consumer decision journey
SOURCE: McKinsey Digital Marketing Practice, Expert interviews
Now: The consumer decision journeyThen: The funnel
A systematic narrowing
of choices
▪ Consumers narrow a
broad selection of brands
to single choice
▪ Follow linear process from
awareness to purchase
▪ Brands focus on extreme
ends to drive traffic and
close sales
Evaluate
Buy
Bond
Consider
Exp-
erience
Advo-
cate
8. McKinsey & Company
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| 7SOURCE: Multichannel pricing survey, January-February 2012 : Question 22
Mobile technology is making consistency and value fundamental
to capturing consumers early in the journey
Increasing DecreasingChange since 2010
1 Percent of respondents who claim that they used their cell phone or smart phone when doing price research in the last 6 months;
average across CE and APP
50
13
+37
20122010
Mobile price checks
are increasing…1
When do consumers use mobile
device to compare prices
Percent
… they occur early in the journey …
4
After I visit
the store
While I am
at store
31
Before I go
to store
65
How use of mobile device in-store
changes customer action
Percent
… and have direct impact on
behavior
Would not
affect purchase
or future
decisions
17
Would buy
item, but
impact future
decisions
18
Would delay
purchase/buy
elsewhere
65 9
-1
-8
9. McKinsey & Company
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Retailers can harness Social across stages of Consumer
Decision Journey
SOURCE: McKinsey Digital Marketing Practice, Expert interviews
Evaluate
Buy
Experience
Advocate
Consider
Bond
ConsumerCDJstage
Retailer action
Monitor what is
being said
Interrupt remarks
real-time
Lead changes in
behavior
Amplify current
activity
Brand
monitoring
1
Customer service
3
Brand/ content
awareness
Product
launches
Targeted deals
and offers
7
9
8
Solicit consumer
input
10
Crisis & oppor-
tunity management
2
Referrals and
recommendations
Brand advocacy
5
4
Foster
communities
6