5 Potential Pitfalls to Avoid as You Prioritise Digital Transformation Goals

Digital transformation concept.

by Kaveri Misra

posted on 06-17-2020

Plenty has been written about businesses adapting to new demands in light of COVID-19. Indeed, the pandemic has changed priorities within many companies, requiring a renewed focus on business resilience.

If you’re charged with pivoting your company’s digital transformation plans in the face of COVID-19, you need to also consider how you will create a sustainable competitive advantage in the post-pandemic world. As you prioritise your company’s initiatives, it is imperative to look deep to uncover the right focus areas.

It is also crucial to stay away from the following five potential pitfalls as you go about tweaking (or overhauling) your company’s digital strategies.

Pitfall 1: Allocating digital investment for fulfillment only rather than the customer journey

With more people shopping online, there is a heightened urgency for businesses to use digital channels for customer outreach. Digital distribution is now taking centre stage in many traditional businesses heavily dependent on offline distribution—i.e., customers visiting physical locations. Banks, for examples, are seeing more of its customers going online instead of into branches, and supermarkets are seeing more purchases being made for online delivery.

In one of my previous blogs, I covered the internal conflict over channels (online/offline) that led to slow digital uptake in traditional businesses. But now the notion that “nothing is as effective as a face-to-face meeting” is being challenged, while the perceived value of digital outreach is at an all-time high. The relatively low cost associated with setting up a digital channel to accelerate its adoption across organisations is gaining recognition.

But avoid restricting digital development to just distribution or fulfilment. Digital can address many aspects of your customer journey, and prioritising the right aspects of the journey for the short and medium term is important.

Retail banks, for example, will have customers trying digital banking for the first time. Many are likely to face several challenges in onboarding. In this scenario, developing DIY video content and offering online screen-share sessions in which a branch manager assists the customer may be more important than optimising the path to fulfilment, such as checking an account balance.

In many cases, this intervention also applies to onboarding distributors. As a digital leader, you should expand the scope of digital to assist with the areas that will have the greatest business benefits.

Takeaway: Avoid narrowing investment in digital to only fulfilment of customer-facing assets. Instead, expand digital to use cases that needed face-to-face interactions pre-COVID-19.

Pitfall 2: Leaving “new-to-category” customers behind

We are hearing from many of our customers in India that marketing funds are in short supply. This has led to a reduction in performance marketing, which affects short-term investment, and brand marketing, which affects long-term investments.

Many companies are reorienting their efforts towards their existing customer base to improve customer lifetime value. The propensity, attrition, and lifetime-value models that were gathering dust have re-emerged in this battle to maximise value for existing customers. But don’t abandon efforts to acquire new customers at this time. Two aspects of new- customer acquisition should be prioritised.

First, some industries have experienced an organic increase in new-to-brand and new-to-category customers on digital channels. For example, the traditional television audience is now interested in over-the-top (OTT) streaming media services offered directly via the internet. More customers in the 45-plus age group are looking to purchase electronics online. The 18- to 25-age group is interested in purchasing a health insurance plan from a market leader instead of a startup. What brand manager wouldn’t want to showcase a healthy increase in new-to-category customers as a result of their campaign?

But these new-to-category prospects have disparate needs. On the one hand, the “digital naïve” segment likely needs a customer journey that best replicates the current offline journey. On the other hand, digital natives expect an excellent e-commerce experience no matter what the brand. If you do not address both types of needs, customers will find a brand that will.

Second, media costs are at their lowest due to suppressed demand in many categories. So why not use this time to build a connection with customers? With the right messaging and targeting, a brand’s reach can extend and create even greater differentiation from their competitors as we emerge from COVID-19.

Takeaway: While optimising the lifetime value for existing customers, don’t abandon efforts for onboarding new-to-category and new-to-brand acquisition.****

Pitall 3: Prioritising a super-optimised journey over a simple customer journey

The belief that all segments of online consumer want a one-click checkout is a myth. Several aspects of offline brand interactions are valuable to a purchase decision. When purchasing a home appliance, for example, some customers will visit a store instead of buying online because they value suggestions from shop assistants. Others might see appliance shopping as a family event with everyone having input into the purchase. A typical e-commerce journey strips a customer of all these valuable experiences—which could be to the detriment of your brand.

In the case of a consumer electronics retailer, an online customer journey may want to incorporate the ability to video chat with a shop assistant, a platform for price comparisons and negotiations, and a way for family members to shop jointly. Without these human-centred interventions, it could be difficult to keep some customers using digital channels in the long term. Habits are difficult to change.

Takeaway: Meet digital “naïves” halfway, and get out of the way of digital natives.

Pitfall 4: Scaling up D2C in a B2B company at the cost of digitalisation overall

First, a quick note on marketing budgets: Unlike other sectors, many B2B companies have experienced an increase in marketing budgets for digital channels, courtesy of the reallocation of trade show and conference budgets.

B2B digitalisation is progressing rapidly overall. Digitalising paper-based processes is obvious and essential. So is digitalising the supply chain: A real-time line-of-sight from the supplier to the original equipment manufacturer (OEM) to the distributor will enable brands to improve time to customers and enable them to create a long-term business differentiator.

But B2B brands still need to answer several questions in order to digitalise the supply chain. How do you digitalise supplier inventory? How do you connect to the inventory? How do you keep it updated and enable seamless tracking? How do you stitch the entire journey from the supplier, to the OEM, to the distributor, and finally to the customer?

Another route is direct-to-customer channels (D2C) that enable brands to collect information about customers and manage a communication line independent of the distributors. While it is a great time to put together a taskforce for this, it is a long-term initiative.

Several aspects of your organisational structure need to be rethought before D2C can be a meaningful business driver. For example, how do you change the organisation’s reward structure from maximising distributor value to customer value or both? How do you uncover the digital customer journey and align KPIs to different stages? How do you build a digital-first team? How does your branding change for D2C? It would be prudent to think through these nuances before prioritising investments.

Takeaway: B2B companies must optimise their supply chains through digitalisation before focusing on D2C digitalisation

Pitfall 5: Insisting on an equitable budget rationalisation across all functions

To act on any digital transformation priorities, companies need the right capital investments to cover people, processes, and technology. But capital is tight at many organizations amid the pandemic, and this likely won’t change for a while. While the finance team looks at budget rationalisation across the company, it needs to realize that it does not need to be equitable across all functions.

In other words, it may be prudent to have greater rationalisation of offline channels than online channels. Most traditional companies have preallocated budgets for improvement in their offline distribution channels, such as the consumer electronics companies focused on revamping stores to convert them into “experience zones.”

It’s likely time to reallocate investments from offline stores to digital. The investment earmarked for just five stores has the opportunity to reap 50 stores’ worth of revenue when invested in digital. Reallocation of budgets or disproportionate budget reduction across functions can help free up cash in the short term.

Takeaway: Prepare to embrace differential budget allocation/ cuts across offline distribution to fund digital investments

Pitfalls reframed

As you prepare for re-entry into the post-pandemic world, pay attention to:

  1. Selecting the right aspect of either customer journey or ecosystem journey that will reap maximum benefit from digital investment
  2. Investing to nurture new-to-category or new-to-brand customers
  3. Treating digital “naïve” and digital native segments differently
  4. Prioritising supply chain digitisation
  5. Differentiating budget rationalisation across offline and online

It is time to dig deep to uncover the right digital transformation areas that will not only prove worthwhile immediately after COVID-19 but also in the long term.

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Topics: Digital Transformation

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