2020 Retail Outlook: Retailers Will Primarily Compete on Services. Here’s Why.

Over nearly three decades, online shopping has ushered in many changes to the retail landscape — one of which is that a growing number of product categories are now commoditized. Whereas previously, shoppers wishing to comparison shop had to travel physically to other stores or seek out new catalogs, now it’s easy to find multiple sources for even hard-to-find or niche products, all with a tap on a smartphone or click of a mouse.

Some brands have responded to this widening competition by lowering prices. However, as mass merchants such as Walmart and Amazon.com move to the front of the pack with steep discounts, inexpensive private-label offerings and free shipping, the race to the bottom has become a losing proposition for smaller retailers and brand manufacturers.

Changing the Nature of Retail Competition

A more sustainable approach is for brands to make customer service — or, more broadly, the customer experience as a whole — their key differentiator. Building service, rather than steep discounts, into the core of brand identity avoids eroding margins. Moreover, by promoting responsive, thoughtful service that complements a brand’s unique product offerings, it can demonstrate its expertise and position the brand as an authority in the category.

Consumers acknowledge the value of the customer experience and are willing to pay for it. Consulting firm PwC found shoppers are willing to spend up to 16 percent more for a positive customer experience, and 73 percent said the customer experience influences purchase decisions beyond product quality and price.

For these reasons, four in five companies predict they’ll be competing primarily on customer experience by 2020, according to research firm Gartner. However, investments are still lagging behind this expectation. For more than half the companies surveyed by Gartner, customer experience budgets were set to remain flat or drop. And just 10 percent of firms told PwC they were prioritizing improvement in customer experience in 2017, a drop of 60 percent from the prior year.

The offerings brands used to consider “valued added” — from personal shopping services to product “how to” videos to special events — are increasingly essential components of the customer experience. As sellers head into 2020, they should devise new ways to build service into their core offerings and prioritize frictionless execution across touchpoints. Among the to-dos:

1. Boost investment in new services.

Whether in the form of one-on-one style consultants, planning or design apps, or installation and assembly helpers, merchants should think creatively about how they can enhance their product offering in ways that appeal to their core audience. For example, Sur La Table has transformed from a supplier of kitchen wares to a home chef resource, thanks to in-store programming that includes classes, product demos and test drives, as well as specialized services like knife sharpening. Online, shoppers can browse recipes and how-to videos alongside buying guides and gift recommendations.

2. Reward loyalty with exclusive access to services.

As brands develop new service-centric programs, they should consider integrating a rewards perk for their most loyal customers. These can include after-hours access to stylist or personal shopping services, a dedicated rep to handle questions and orders, discounts on events, and sneak peeks at new collections before items go on sale to the general public. All of these can encourage loyalty and enhance the appeal of membership in rewards programs.

3. Support offerings seamlessly across touchpoints.

Once service offerings are in place, merchants should adopt a channel-agnostic approach to delivery and execution, then test rigorously to ensure smooth online/offline transitions. Processes for picking up and returning orders in-store should be frictionless; registration for events via mobile devices shouldn’t involve too much keyboarding on small screens; and live chat events with style consultants must be able to accommodate anticipated traffic — and then some.

Taking the Lead in Customer Service

The opportunity is still ripe for brands to seize the lead by offering stellar customer service and customer experience. In 2020, merchants that make service a central brand offering will start to pull away from the competition. This is a trend that will snowball in the coming years.

Fang Cheng is the CEO and co-founder of Linc Global, a customer care automation platform that helps brands differentiate themselves with automated services and experiences across the channels shoppers prefer.