By Andrew Quartermaine
Over the last decade, merchants across all sectors have gone through a metamorphosis of sorts, with new online merchants emerging and often growing fast and furiously, while many larger, physical anchor stores struggle to remain relevant in the face of digital displacement. Now more than ever, merchants need to innovate to stay relevant to their customers in a fiercely competitive landscape with constantly changing channel and buying desires.
Our merchant eBook, How to become a Payments Trailblazer, recently published as part of the Culture of Innovation Index by ACI Worldwide and Ovum, explores the attitudes toward innovation among merchants across four key vertical sectors – retail, hospitality, digital goods and telecoms.
The index identifies five types of organisations, as defined by their approach to innovation and business transformation: Laggards, Emerging, Tech-led, Advanced and Trailblazers. The aim of the exercise is simple: to identify not only the factors that separate the most innovative businesses from the laggards, but also to find out what trailblazing merchants do differently from the rest.
Merchants that have a strong digital presence will have the edge
Our research has delivered some interesting and surprising findings: digitally-driven mid-tier merchants are emerging as winners of the global innovation race – for now. According to the index, 37% of mid-tier merchants with annual revenues between $5bn and $10bn are either “Advanced” or “Trailblazers” when it comes to innovation, whereas 23% in this group are classified as “Laggards.” Looking at the world’s largest merchants, the situation reverses: 37% of merchants with annual revenues of at least $10bn are “Innovation Laggards;” 22% are classified as “Advanced” and only 8% are “Trailblazers.”
There are several explanations for this phenomenon. Merchants everywhere are challenged by pressure from new entrants, the breakdown of traditional industry boundaries, and growing customer preference for a digital-led or digital-influenced purchasing experience.
Many of the mid-tier merchants in the $5bn and $10bn revenue range are relative newcomers, often ecommerce companies that are able to cater quickly to consumers’ preferences for a digital-led or influenced shopping experience, whereas many of the world’s largest merchants have also embarked on ambitious and challenging digital transformation programs, and they often have a large number of physical stores and legacy platforms to contend with. However, I am convinced that businesses that have a strong digital presence and strategy, whether they are big or small, will have the edge in today’s competitive environment.
How to approach digital transformation as a merchant
The term “digital transformation” is widely used to describe a range of large-scale projects with an array of objectives and outcomes. In practice, these sit on a continuum between two extremes. Merchants need to differentiate between initiatives that are short-term responses to current challenges and those that are longer-term and designed to reshape how they do business.
While both approaches are informed by the need to differentiate and enhance customer experience, the speed and agility required to address short-term priorities should not be achieved at the expense of strategic initiatives leading to more fundamental digital transformation. Merchants need to take a realistic look at how they balance these demands to plan properly for success.
Investment in AI technologies is growing, and security remains a key issue
Our research also finds that the investment in AI technologies is growing, with the hospitality and telecoms sectors most heavily focused. Among hospitality businesses, 42% have clear plans around increased use of technologies such as machine learning and bots, while the figure is 39% for telecoms. In the case of hospitality, this reflects a growing emphasis on the use of data across operational areas such as supply chains, logistics and maintenance.
Security remains a key issue. However, the need to provide a smooth customer experience while not compromising security remains a delicate balance. At a global level, 73% of merchants believe that their risks of a data breach are higher than a year ago, and 76% view security concerns as a brake on their ability to innovate. Interestingly, merchants in the Trailblazer category are less concerned about this point, perhaps reflecting on past investments in their fraud detection and prevention capabilities.
Key characteristics of trailblazing merchants – and where they are investing
The report also outlines seven key characteristics of “trailblazing” merchants – the most innovative enterprises – that stand out from the rest of the market. Among those key features are: a strong central function tasked with driving innovation, an agile culture that is responsive to customer needs, taking advantage of emerging technologies, and focusing on customer experience by bringing innovative products and services quickly to market.
There is no single recipe for success in today’s new retail environment, but our research provides a blueprint for what the most innovative and successful merchants do right. Catering to a growing customer preference for digital-led or digital-influenced purchasing is key and the research indicates the priority areas for merchant investment in payments over the coming 12 months.
Critical here is the ability to offer customers the payment methods they prefer – it’s the single biggest investment focus for a quarter of online merchants and a top 3 priority for over half of the in-store merchants in the Ovum study. Increasingly, merchants are understanding that customers in different demographic groups and different geographies are looking for different payment options. Any merchant looking to grow domestically or across borders is going to be investing in this area.
Digitisation of the store is also an important investment area, as merchants look to enable mobile payments – whether through endless aisle apps, self-serve kiosks and other queue busting capabilities. There is, too, clear recognition of the need to deliver a seamless and consistent customer experience regardless of channel, as consumers increasingly switch between channels to browse and buy.
Finally, our research indicates that the use of voice and Internet of Things (IoT) devices is set to become a potentially significant differentiator for merchants. Among Trailblazer merchants, 50% plan to invest to support sales through digital assistants such as Alexa (and other forms of connected device) in the coming year.
Want to learn more about innovations and how to be a payments trailblazer?
download the eBook for Merchants
Andrew Quartermaine, Vice President, Merchant Retail, ACI Worldwide