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ASCM Insights

Retailers Use Supply Chain to Harness the Power of Brand Loyalty

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Industry, consumer and technology factors are creating new opportunities for retailers to become a targeted customer’s preferred brand — if they can radically rethink supply chain operations and relationships with suppliers, fulfillment operations and ecosystem partners. As consumers gravitate toward buying from retailer brands for which they have a strong preference, a modern version of brand loyalty will emerge.

To become consumers’ preferred destination and succeed in this new age, it’s essential to develop a “thinking supply chain” that captures and retains customer loyalty. At the same time, supply chain ecosystems must collaborate and accelerate decisions based on a trusted, secure and intelligent relationship, through which all parties jointly understand and fulfill demand. This enables retailers to increase efficiency and become that preferred brand.

Brands must develop new types of agreements, metrics, decision-making criteria and systems to work together to accelerate decision-making, improve supply chain execution and loyalty. This hinges on establishing a culture of sharing and trust throughout the supply ecosystem, as well as a singular focus on serving customers. To secure their place as a preferred destination, all parties in a retailers’ supply chain must operate as a part of a collaborative, customer-focused unit that is dedicated to driving business together. This is a significant change from the traditional point-to-point supply chain execution where individual entities make decisions based on their own criteria or where individual touch points within a supply chain are the subject of optimization.

Supply chain executives are charged with matching supply and demand by orchestrating the ecosystem, managing the flow of goods, and putting the right products in the hands of customers — all while controlling costs. It’s essential to invest in supply chain because it is the key operational function with the greatest potential impact for improvements on both customer experience and costs. Chief supply chain officers, who have long been viewed as cost center managers, are now front and center in the battle for growing the business by fulfilling on brand promise.

Customer lifetime value, a critical business metric indicating the revenue one can expect from a customer over the course of the relationship, indicates loyalty performance. High loyalty means retailers can maximize revenue over time and minimize the cost of acquiring net-new customers. The total customer spend and length of the relationship can be directly influenced by supply chain execution that meets delivery promises in a cost-effective manner.

Supply chain execution is ground zero for an environment where customers make purchasing decisions based on brands’ ability to provide compelling offerings, fulfill on brand promise and accurately anticipate future demand. Managing supply, demand and flawless execution efficiently throughout the supply network is a competitive necessity. Supply chains that ensure long-term loyalty are fluid, flexible, responsive and interconnected in order to understand, meet and anticipate demand.

To grow loyalty, retailers should apply the same level of effort spent transforming online buying processes to making their supply chains more collaborative and responsive. IDC's 2019 Global Retail Innovation Survey revealed that many retail leaders are already starting to give back-end operations (omnichannel order orchestration and fulfillment, just-in-time production and real-time inventory management) the same attention as they did in digitizing and transforming their front-end experience. These best-in-class businesses are nearly twice as focused on implementing intelligent fulfillment than the laggards, taking action to improve service and satisfaction levels — key loyalty drivers.

Service drives satisfaction, satisfaction drives frequency, frequency drives loyalty, and loyalty drives higher customer lifetime value. Again, supply chain execution directly impacts customer lifetime value.

Numerous smart brands are developing unconventional supply chain initiatives, partnerships, acquisitions and formats to improve offerings, execution and loyalty:

  • Kohl’s and The UPS Store are taking Amazon returns. This gives them insight into customer preferences, a new source of foot traffic, and access to net-new shoppers while providing an appreciated service to customers.
  • Nordstrom Local, a new concept, is an inventory-free store and convenient online delivery and return destination for Nordstrom shoppers. This format features personal stylists, dressing rooms and value-added services such as tailoring that can drive loyalty.
  • Instacart provides ecommerce, fulfillment and delivery services for retailers and consumer packaged goods companies such as Sur La Table, Aldi and Smart & Final. Third-party ecommerce fulfillment companies give retailers the local presence needed to fulfill ecommerce orders.

These affiliations enable retailers to improve loyalty through valuable services and by gathering additional demand signals to make more informed decisions in the future.

Recommendations for successful transformation

New technologies including the internet of things (IOT), blockchain, artificial intelligence (AI) and more — play an important role in connecting parties, informing decisions and automating execution to improve supply chain responsiveness. These tools also provide the foundation for retailers to move from conducting linear transactions to collaborative supply chain partnerships.

Retailers must think big and work small to craft a compelling long-term vision and bring it to life through a series of concrete, programmatic projects. Given the supply chain changes required to lead in the new wave of loyalty, a fresh approach to communication, systems and skills will be required. Further, support a successful transformation across the supply chain by

  • soliciting support and buy-in early from the C-suite, including executive air cover, budget and commitment to develop new systems and skills
  • exploring existing consortiums, industry hubs, service providers, vendors and regulators that have initiatives underway or other types of useful expertise
  • starting with a pilot program with key partners to address a business weakness
  • investing widely in education to get agreement, input, and help identifying obstacles
  • identifying existing IOT network and AI foundations and expertise in use in other areas of the enterprise
  • prioritizing trust, sharing and security among supply network partners.

Retailers can increase loyalty and efficiency through collaborative, flexible and responsive supply chain execution. New technologies provide the intelligence, automation and power top retailers need to take advantage of new opportunities and become consumers’ preferred destination in the new wave of brand loyalty.

About the Author

Leslie Hand Vice President of Research , IDC Retail Insights

Leslie Hand is vice president of research at IDC Retail Insights. She may be contacted through attunecommunications.com.

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