The packages have been unwrapped, the ribbons have been undone, and the unwanted presents have been re-gifted or returned. How has the current state of the art with respect to holiday shopping unfolded, and what do we think might be coming up next?
Not Your Dad’s Shopping Experience
The holiday shopping journey over the past 30 years or so has been utterly transformed. For one thing, it’s starting earlier—the National Retail Federation says that 40 percent of consumers start their shopping before Halloween! And, as Andrew Hill said in a recent column, “This Christmas, I have browsed for and bought presents on foot, online, on the phone and via email, while in the office, in bed, at the breakfast table and in the train to and from work. I’ve clicked-and-collected, picked up from the Post Office, ordered for delivery to home and office, and bought gifts from stores, stalls and Selfridges itself…” The days of traipsing around the department store or mall and bundling wrapped packages into big bags seems kind of quaint.
The numbers are astonishing—some $730 billion in the U.S. alone. And with an estimated 30 percent of many retailers’ sales for the year coming from holiday shopping, getting it right can be the difference between success and disaster. And yet, the evidence suggests that many retailers aren’t getting it right at all—a recent McKinsey survey found that across multiple countries analyzed, 47 percent of respondents said their biggest concern with the whole shopping experience is not knowing what gifts to buy. Even after deciding what to buy people, about half of gift-givers get it wrong. A recent look at the latest holiday season found that 46 percent of consumers return gifts!
And, instead of inspiration (or panic) striking as they stroll around the mall, the McKinsey survey found that the majority of shoppers (62 percent) combine their in-person searches with some kind of digitally-based research, often using their smart phones. Moreover, they expect retailers to be able to respond to them via digital channels, even offering promotions right to their phones while they are in the store.
Other big changes have shaped the shopping experience of today. One is the virtual death of the traditional “sales funnel” that had lead generation at the top of a funnel and sales spilling out the bottom. As John Hall, the founder of Influence & Co said of classic sales funnel thinking, “Too many companies see customers as gatekeepers to wallets.” Instead, it’s far more helpful to think of customers in terms of what I’ve called their consumption chain—the complete sets of experiences they are going through that might incidentally cause them to buy something. A simpler version of this has been called the marketing life cycle. This has significant implications—potential customers can be at any stage, with any sets of expectations, and any amount of information. And most retailers are spectacularly unaware of critical elements of the customer experience. When the chain breaks, the whole process of buying breaks down.
The ecosystem in shopping has also changed radically. A topic I hadn’t thought about at all until attending the Digital Content Next conference was how that changes the game for content creators. What is called the “attribution problem” is that content creators (like a magazine) can create customer awareness and desire, but as customers take the next steps to search and refine their decision criteria, the “credit” for the purchase goes to whoever makes the last click, often a platform like Google. As one unsmiling attendee observed, “Content may be king, but right now distribution calls the shots.”
Weak Signals Coming into View
There are, however, changes on the horizon. Some retailers, Best Buy, for example, have figured out how to offer consumers experiences that can’t be matched by the e-commerce players, even involving service from real human beings. Consumers are so keen to avoid ads that services such as Hulu are inserting them when a viewer presses “pause.” Some brands, such as Nike, have basically taken back control from platforms such as Amazon and gone directly to their consumers. Advertising, even advertising using sophisticated algorithms on the big platforms, is in secular decline. Marketers are extremely mistrustful of the large platforms, even as brands risk getting sullied by appearing next to distasteful content. Consumers aren’t looking so much for transactions as they are looking for connections and experiences. Things have given way to experiences that people are shopping for. And some pundits are arguing that we’ve reached “peak stuff,” compelling some shoppers to go on shopping fasts!
Creating Early Warnings Scenarios
Now, let’s use the technique from Chapter 2 of my book Seeing Around Corners to create some plausible scenarios that retailers and shoppers might be facing in the future. What I’ll illustrate is how to do the following:
- Articulate two (or more) crucial uncertainties in the sector.
- Create a story about the future states that different values of the future uncertainties might imply.
- Define a “time zero” event.
- Work backward from that event to create an early warning system.
The first step in the process is to posit two potentially important future uncertainties, with different values for each. This yields four possible future states for your business (you can think of this as scenario planning “light”). So for the future of holiday shopping, let’s think about whether the majority of brands convert to a direct-to-consumer model, or whether they try to stick with established distribution channels. And on the other dimension, let’s think about whether the advertising-dominated ecosystem that favors the big platforms continues, or whether it gives way to some other way brands establish connections with consumers. That gives us a table that looks like this:
|No real change in distribution||Brands convert to direct to consumer en masse|
|Advertising model continues as the dominant revenue generator|
|Ad model gives way to alternatives|
The next step is to create a short “story” about the future state each scenario represents, as summarized in this table.
|No real change in distribution||Brands convert to direct to consumer en masse|
|Advertising model continues as the dominant revenue generator||More of the same—content creators at a disadvantage||Battle for attention and audiences fragment into niches with a few big players|
|Ad model gives way to alternatives||Retailers up their game and create new models for consumer relationships||Big tech players lose their grip; content creators and curators of experiences on the rise|
Then, come up with what I call a “time zero” event for each scenario—in other words, something that might be in a newspaper headline that represents either a positive or negative signal of an inflection point.
|No real change in distribution||Brands to direct to consumer en masse|
|Advertising model continues as the dominant revenue generator||More of the same—content creators at a disadvantage
The United States has half the newspapers it had in 1994
|Battle for attention and audiences fragment into niches with a few big players
Small players shunted aside as big brands capture audiences
|Ad model gives way to alternatives||Retailers up their game and create new models for consumer relationships
Not your dad’s retail—how Best Buy and Showfields lead the path forward
|Big tech players lose their grip; content creators and curators of experiences on the rise
Revenge of the creators—Facebook learns the danger of depending on other people’s content
With the “time zero” events established, the task now is to work backward. Identify information that in your team’s view would represent leading indicators of the time zero event becoming more of a reality. The more you start to see lots of indicators associated with that event piling up, the more likely the event is to be becoming a reality.
For instance, if I were considering the “revenge of the creators” time zero event, some indicators might include the following:
- Customers drop platforms like Facebook in favor of more secure, ad-limited, and safer, if smaller, platforms
- Creators get a lot smarter about paywalls and judicious release of their content
- Facebook starts to pay creators for access to their content (already happening)
- New business models involving subscriptions and memberships start to dominate attention versus passive consumption of advertising
- Legislation severely limits the ability of private companies to capture personal information such as location
- Third-party cookies are severely limited by both legislation and consumer preference
- Ad-blocking becomes the default feature for most mechanisms to access the web
For each of these indicators, make it someone’s responsibility to look after it. That way, anybody that has information with respect to it knows exactly who to send it to. Then set aside time regularly to go through the list and update it with any new information.
You can do the exercise for as many critical uncertainties as you would like to explore and have the time to think about.
As an additional exercise, go through each of the scenarios you have developed and see whether your current strategic plans are robust in the face of each. Sometimes, you’ll find that all your careful planning is only suitable for one, even though you can conceive of more plausible ones.
So what might we expect for holiday shopping going forward? Perhaps in a world dominated by creators, our biggest problem—not knowing what to buy—can be solved by creativity and ingenuity offered by creative types. After all, an algorithm can only provide answers to questions we’ve already asked—not those that are new to the world.