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6 Practices That Will Shape Retail Digital Transformation

Digital transformation is one of the most important topics facing retail today. As one of the largest retail brands in the U.S., second only to Walmart, Kroger Co., a Fortune 25 company with over $100 billion in revenue, is two years into its digital journey.
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Digital transformation is one of the most important topics facing retail today. As one of the largest retail brands in the U.S., second only to Walmart, Kroger Co., a Fortune 25 company with over $100 billion in revenue, is two years into its digital journey. Kroger is making the transformation from its traditional roots as a sole brick and mortar company into starting to build out the omni-channel and digital commerce experience for customers.

Shashank Saxena -- Director, Digital and e-Commerce, Kroger

Leading this digital transformation is Shashank Saxena, the Director of Digital and e-commerce technology at Kroger. As part of this role he manages the Web, Mobile, Tablet, e-commerce and shared service app development teams in growing the digital presence of the Kroger brand and looking at how they can connect and serve their customers digitally. Working on his second digital transformation for a Fortune 25 company (prior to Kroger he was at Citigroup), this veteran sheds some light onto the hot topics of retail, digital, analytics, user experience and business models and provides an inside view on what's driving the change and how retail is going about in responding to this new environment.

6 Trends that will Shape Digital Transformation in Retail:

1. Use customer feedback for evolutionary change. Saxena says that customer feedback is absolutely critical, and in terms of understanding the customer needs they are very focused on what their customers are asking for. But as Kroger starts looking at what they want to build from an innovation standpoint, it is very different from just catering to a customer's needs.

Innovation is pretty different in my opinion. Innovation and digital transformation generally can happen in one or two ways. Either you go ahead and innovate through evolution, which is step features and functions, or through revolution. We've seen the industry go ahead and do both.

He categorizes innovations that change the way we do business, like the iPhone, as revolutionary innovations, whereas small step feature functions and enhancements that improve the product but do not fundamentally change the way something was done, he categorizes as evolutionary innovations.

At Kroger, customer feedback works really great in terms of evolutionary step feature innovations and is a very critical driving point in terms of what goes out in the next release on the product roadmap. And that's not just for Kroger, but that's across the board and in any industry where good product managers listen to customer feedback and incorporate feedback to evolve the product in the next release.

Saxena explains:

We are very focused on our customers and our customer feedback is a great thing. We try to incorporate that and evolve our products in that way, but we keep the distinction very clear in terms of when we are trying to be revolutionary versus evolutionary.

2. Pay attention to macro-economic trends. While customer feedback is the center of everything they do, as it should be that way for all companies and industries, Saxena says that over and above that, you also need to start factoring in macro-economic trends. Not just the overall trends impacting retail, but trends that impact digital in particular. According to Saxena, the rise of the value shopper, the rise of the millennials and the boom in the health and wellness are macro-economic trends that are starting to shape digital transformation in retail. Yet across all industries we've see the explosion of data, the emergence of platforms and the rise in mobility.

Saxena shares this astounding fact:

Since I woke up this morning and up until the time when this Google hangout session began, there has been more content uploaded on YouTube then content that Hollywood has produced in its 100+ years of its entire existence.

This is why understanding the trends and what's going on with data explosion is really critical. In his opinion:

As important as customer feedback is, it's not going to go ahead and explain the trends to you. Companies need to understand the macro-economic trends and start using them in a very focused way to add value to the life of the customer.

3. Evolve business models to meet customer preferences. In the last five years or so, in addition to technology innovation, we are starting to see business model innovation. Saxena points to Airbnb and Uber as examples of business model innovation because they are not hard-core tech innovations since the technology powering them is pretty simple for the most part. But what is innovative is actually the business model and how it's funded with low infrastructure cost, low start-up costs and crowdsourcing economies which has become the transformational piece of it.

Saxena says:

At Kroger, we think about business model innovations pretty often and we are starting to see that emerge more and more. But we also think about it in terms of how do we personalize our offerings, because personalization is a key differentiator and another emerging trend that we are seeing and business models will evolve as they start understanding customer preferences, or rather the change in customer preferences.

4. Drive value, not features. "We look at competitors, but we don't obsess over competitors because we're so obsessed with our customers that we focus on customer needs and what our customer is asking for," says Saxena. This is why he is slow to jump on the push notification bandwagon, even though he is constantly bombarded with the idea. He feels that launching a push notification where customers walk past the shelves of Tide and they receive an alert saying a dollar off Tide is a great feature that comes with a lot of other downstream implications.

Saxena believes that driving customer value is very different from bombarding customers with features because it's only a matter of time before the customer will be turned off. The value Kroger offers is very different. They incentivize customers to buy the things they buy often, not trying to cross sell and upsell them. They have a successful program called LCM Mailers where they send coupons to customers for the products that they buy.

Says Saxena:

We are so focused on what our customers want and what they buy often that we just want to go ahead and help them buy more of that or get what they want and not necessarily have them brand switch or try to monetize on top of that.

That's one thing I believe that Kroger does really well and we believe in the customer, which is why we keep track of what competitors are doing, but are not obsessed with our competitors.

5. Bring on the data. With today's connected customer being a lot more informed in terms of what they are doing, Kroger supports that behavior and drives analytics and insights around customer behavior and customer purchases.

Internally when we try to decide what to launch for the customer and what should go next on the product roadmap, the famous quote we have is, 'In God we trust. Everyone else must bring data,' because we want to be a very data driven retailer and we try to leverage insights in terms of what the customer is asking for and what we should be catering next to the customer.

6. Don't mess with the core brand. As someone who has spent time talking about lean organizations, Saxena says that the fundamental difference between big companies and The Lean Startup is that customer expectations are very different when a big company that has a well-known brand goes to market with a product. From a big company, the expectations are different because the brand promise says something. Yet Saxena points to the fact that every big company was small at one point when it started, meaning that essentially every big corporation was a startup at some point, and the way it became big was with repeatable, executable processes that scale.

These repeatable, executable processes are very counter intuitive to innovation, because customers expect consistency from big companies.

When a person choses to buy a brand, what you really need to understand from a customer mindset is they are opting for security over the unknown. There may be a product offering on the same shelf right next to your preferred brand for half the price. But when you are willing to pay the price premium, what you're opting for is security. You're trying to mitigate the risk of the unknown.

This is why trying to experiment with your core brand, may or may not be productive. It could work, but if it doesn't, you've lost a valuable customer. How you innovate, how you chose to innovate and where you chose to experiment become critical factors when you talk about big companies.

Saxena manages the tension between maintaining the stability of traditional grocery retailing and the need to shift and make changes based on data and these macro-economic trends by identifying areas where they can experiment versus areas where they don't want to run experiments. For big companies to create that startup culture around innovation and brainstorming, Saxena advises that it has to be done in a very controlled environment. You can run experiments, but you need to avoid the core products which built the revenue base and experiment and innovate elsewhere.

In running controlled experiments, the art lies in mastering the process of setting a hypothesis, tracking and monitoring results and then going ahead and rolling it out mainstream, which is very different from going ahead and experimenting with your core brand values.

You can watch the full interview with Shashank Saxena here. Please join me and Michael Krigsman every Friday at 3PM EST as we host CXOTalk -- connecting with thought leaders and innovative executives who are pushing the boundaries within their companies and their fields.