Germany: Unlocking Customer Potential Through Innovation

By Marco Rivolta

While debt-related difficulties continue to affect the German economy, retailers are already adopting the kinds of solutions for which Germans are perhaps best known: innovative ones. In an environment where market saturation and pressure on margins are the norm, retailers are vying for a competitive edge in an overcrowded space. In an effort to anchor brand propositions in uncertain times and stand out from the competition, German retail brands are exploring solutions in three key fields: leveraging digital touchpoints, creating a diversified store network and bringing private labels to the next level.

Creating a seamless customer experience

Increasingly, consumers expect retailers to prove their value not only in-store, but also online. The fast rise of digital-only stores like Zalando, for instance, shows how traditional channels are under pressure and need to be integrated with digital ones to gain a competitive advantage. According to one e-commerce trends report, 6 out of the 15 most popular German companies are online retailers. Another study, from strategy consultancy OC&C, reveals that online retailers are performing better than traditional retailers in terms of quality, product diversity and services. Further reflecting the shift in consumer preferences, e-commerce sales reached close to 29.5 billion euros (USD $39 billion) in 2012, an increase of 13 percent from 2011. During the 2012 Christmas holiday shopping period alone, a 7.4 billion euro (USD $9.8 billion) turnover was generated online, compared to 6.5 billion euros (USD $8.6 billion) last year.

While the majority of brick and mortar retailers fell short of revenue targets last year, online shopping sales are expected to increase by 12 percent in 2013. While it has never been more important for retailers to combine on-site business with online channels, a website and Facebook page are not enough. As our online and offline worlds continue to merge, a brand-centric digital media strategy can smooth disjointed experiences and create consistency across touchpoints. How many digital initiatives a brand executes is now less important than how well a retailer’s digital initiatives support a larger effort to create a seamless brand experience. Through interlinked online and offline activities, the customer journey is simplified and a rich, consistent experience is delivered.

Germany’s Edeka supermarket excels in this area by communicating its commitment to fresh food and nutrition consistently and authentically through a seamless online and offline experience, giving the chain a substantial edge over competitors. In another example, Douglas, a leading European perfumery, has one of the most successful online stores in Germany and effectively uses social media to engage consumers and tell a story. With 50,000 online shoppers daily, high customer loyalty and 8.3 million customers across Europe, digital has played a key role in strengthening the Douglas brand and ensuring that its values and corporate identity are communicated thoroughly and thoughtfully at every point of contact. As enthusiasm for in-store promotions wanes due to already high retail density and the shift to online and mobile sales, brick and mortar retailers are finding that a smart digital strategy builds brand strength, delivers the seamless experience customers expect and effectively augments in-store sales.

Going where customers are

Although the role of digital is undisputed, interactions between brands and consumers in the physical channel still represent a tremendous opportunity for retailers. It’s no wonder that heavy investments are allocated to reinvent business models. Motivated by the need for customer proximity, retailers are evolving their store network strategy in two different directions. Players such as Kaufland and OBI are pursuing an integrated strategy that will involve the launch of huge stores—exceeding 10,000 square meters that operate as hubs—while also opening smaller, more nimble stores in city centers. Similarly, supermarket chain Rewe is opening vast Rewe Centers while promoting express concepts like the more compact Rewe-to-go model. Increased presence and coverage are expected to increase sales as well as brand value. That said, expansion alone does not automatically ensure brand strength and profitability, as the 2012 insolvency of Germany’s biggest drugstore chain, Schlecker, illustrates.

Convenience-seeking consumers are increasingly looking to purchase via smartphone, meaning proximity no longer guarantees loyalty. Indeed, one in three German consumers is already using a smartphone for shopping, according to Lebensmittelzeitung. As traditional retailers grapple with plans to expand or restructure, mobile commerce is seen by some as yet another competitive threat. However, given the success online retailers have seen (21 percent of German online retailers have a mobile website or a mobile app with a shopping function), mobile represents an incredible opportunity to drive loyalty, maximize revenue and extend the brand experience further.

Creating private labels that embody brand values

Private labels used to be considered “house brands” that were positioned as lower cost alternatives to regional, national or international brands. Now private label brands have evolved to fill niche markets at a premium quality level. A strong line of high quality, great value products that can only be purchased in-house attracts customers, builds loyalty (as consumers develop a preference for the in-house brand) and can be an effective differentiator.

Private labels used to be considered “house brands” that were positioned as lower cost alternatives to regional, national or international brands. Now private label brands have evolved to fill niche markets at a premium quality level. A strong line of high quality, great value products that can only be purchased in-house attracts customers, builds loyalty (as consumers develop a preference for the in-house brand) and can be an effective differentiator.

Through strong digital strategy, the development and promotion of private label brands and by balancing close physical proximity with mobile access, German retailers can get closer to consumers and gain an advantage for the brand in the process. While the European debt crisis will continue to weigh on the sector, those retailers that engage with consumers effectively in this age of participation— and have the willingness to move from delivering static brand-related content to ensuring a coherent two-way conversation across touchpoints—will come out ahead as the European economy regains its momentum.