Supply chain plays a big role in enabling the customer experiences and ensuring business profitability. We look at how we can help make our customers happy—and return for more.
Written by Christine Pardiñas and Henrik Batallones
In retail circles there has been a lot of talk about the customer experience—the whole of what the customer sees, feels and thinks throughout the consumption journey, from the decision-making process, to the actual purchase, to what happens after. You may have encountered this when coming across discussions of new retail formats, especially for brick-and-mortar stores, but this also applies to e-commerce. There’s talk of the user experience: how long the user spends scrolling through an app, which offers are more attractive to whom, how easy it is for them to find certain functions within the website.
This has become the new frontier in attracting and retaining customers, especially now that they have less time, more things vying for their attention, and a better sense of what they want (but not what they want exactly). From afar, however, it seems it is not of any concern to the supply chain profession: all this talk of attracting new demographics, of creating a retail experience and of fostering brand loyalty seems like a domain of those in the sales and marketing function.
But in reality, we in supply chain play a huge part in it. Apart from ensuring that products are delivered to our customers when they want it at the optimal price—the bread and butter of our profession—we play a big role in enabling the customer experience. No amount of work can build brand loyalty if the items they want to get aren’t available or come to them in less than good condition, after all.
Take coffee. Back then our options were instant coffee powder, or buying a full-fledged coffee setup with a grinder and a coffee maker, or maybe getting a cup at hotels or restaurants. But the arrival of coffee chains like Starbucks broadened the market and made the drink a status symbol and the centr of a recreational activity, especially for younger generations.
Now, you have coffee chains catering to almost every price point and preference. You can get affordable but good coffee from chains like Pickup Coffee, or you can hang out at your nearest Starbucks, or you can spend extra for single-source beans and specialty drinks from the likes of Toby’s Estate. If you’re really passionate about your coffee, you can get a subscription from the likes of Yardstick Coffee. Or if you just want a quick fix, go to Dunkin’ or Tim Hortons, or get a bottle at your nearest convenience store—or make it yourself at home, with instant and coffee now coming in multiple flavors variations.
It is supply chain that makes all these possible, ensuring they are available to customers. It is also supply chain that makes sure all these happen while making sure the business is profitable and sustainable. One can spend on a Scandinavian look for their third-wave coffee place, but if the coffee supply isn’t sorted out, nobody will patronize the business, and it will fold sooner or later.
Defining the customer experience
The customer experience matters, regardless of whether you’re a retailer, a manufacturer, or a logistics provider. It matters regardless of what part of the business you are in. As long as you are serving a customer, you are heavily involved in enabling their experience—and your work can make or break it.
It is not just about what a customer feels when they enter a store, or what they see when they browse your online store. Customer experience, or CX, refers to the overall perception a customer has with a business or brand. For us in supply chain, this means if we are not able to bring products to shelves during peak season, for example, it impacts a customer’s perception of the retailer and the manufacturer. They may be forced to look for another brand, and they may end up sticking with it, which ultimately impacts the bottom line.
Research from marketing software developer HubSpot indicates that 93% of customers who love a certain service will become repeat customers, and perhaps even advocate for the brand to others. Customers with high brand loyalty have an average of 306% higher lifetime value—that’s the company’s total revenue from that customer. This does not just matter to retailers, but to the brands that they sell, as well as with their partners who support their operations.
This is why major companies are investing significantly in the customer experience. Major global retailers like Amazon have invested in their fulfillment networks to ensure prompt delivery for their customers, while Alibaba’s Freshippo grocery chain invested in technology to provide more product information to customers as they make their decisions. Other high street chains are investing in merging the online and physical shopping experience, such as Zara’s “Store Mode” technology.
Others are focusing on a memorable experience in store, whether it be the stylish minimal design of Muji’s coffee counters, or sales staff sharing truly useful information whenever you’re in a Sephora or Olive Young branch. Finally, even major food brands are getting in on the act, with well-loved names like Knorr and Nestlé deploying chatbots and other online tools to provide recipes and nutrition information for the harried housewife (or househusband).
Ensuring a great customer experience starts with understanding who you are catering for. Retailers in particular are heavily investing in market research to understand how their customers are segmented and how to better cater to them. From what generations do your customers come from? At what stage of their life are they in—are they starting out in the labor force, or starting a family, or on the verge of becoming empty nesters? How much are they willing to spend within a certain period of time? Do they prefer products that are of high value and low price, or are they willing to fork out extra for a more premium offering? The possibilities are endless.
Customer segmentation means retailers are no longer as straightforward as they used to be. Back in the day, we expected to see the same products whatever branch of a grocery chain we may be, for example. Now, the mix of products, or assortment, of a particular grocery depends on its location. Are there more younger families and customers in the immediate area? Are there more expats who may choose more premium products? Are there more condo dwellers, or more people who live inside gated subdivisions?
Add to that the different retail brands with different targeting. Take retail conglomerate DFI’s grocery chains in Hong Kong: there’s Wellcome for regular shoppers, Market Place for more upscale customers, and 3hreeSixty for those who prefer organic and environmentally-friendly products.
There are even more possibilities with e-commerce, where services can gather more insights into the preferences of the individual customer—what they browse for, what they put inside their carts but never buy, what they eventually buy, how much they’re willing to spend for faster delivery, and so on. Recent years have even seen new consumption models that bring unique challenges to a company.
Take the subscription model. It no longer just applies to the media we consume: one can now get a subscription for meals, especially for those with specific dietary requirements like keto or low sugar. A variation is the meal kit subscription popularized by the likes of HelloFresh in Europe and the US, where customers get the ingredients for their chosen meals pre-portioned, and then cook it at their own convenience.
All this leads to more complex supply chains. What used to be a more linear affair has become a tangled web of product variations and store locations. (The fact that some retailers now prefer manufacturers and distributors to deliver direct to stores adds to this complexity.) And it’s not just about moving the products. Take laundry detergent. Some customers prefer to buy sachets, while some choose to buy in bulk. Some prefer powdered detergent, while some—maybe those with newer washing machines—have to use liquid detergent or pods. Some are okay with a more straightforward product, while others want a better scent or fabric care.
And increasingly, some customers have the environment on top of their criteria. Is the packaging recyclable? Will the product leave microplastics in the water supply? Manufacturers now have to consider all these factors too when deciding what their products will be made of and who they market it to.
In an ideal world, we would be able to meet the expectations of every single customer. But this does not come cheap, and it can come at the expense of the business’ profitability and sustainability. No matter what point of the supply chain we are in—whether we provide raw materials, or put the products together, or deliver them, or sell them to the end customer—we have to balance satisfying the demands of our clientele with making sure our businesses can remain afloat.
But building and enabling the customer experience need not be very expensive. Arguably, we are already doing some of this, perhaps in parts or by accident.
How can supply chain enable CX?
If supply chain enables the customer experience—perhaps more so than how a store looks and what an ad campaign makes one feel—then how do we go about it?
First, one must remember that there is no one-size-fits-all solution. There is no one-stop shop, the same way groceries have diversified heavily in recent years. Once we embrace the idea that we may not be able to catch everyone in the pursuit of a better bottom line, we can work towards enabling a good experience for the customers we choose to target—and, in return, bigger and longer-lasting returns for our company.
We have to define for ourselves what our value proposition is. What do you have to offer? What is your customer going to you for? What makes you different from the rest? What makes you worth the effort? These questions are relevant no matter what point of the supply chain you are in. When you have a better understanding of what you can reliably offer to your target customers, you can then work in improving your services and providing more value.
We also have to adopt a truly customer-centric vision. This means orienting our processes to satisfying the customer rather than just cutting corners to boost profits. Again, there is a delicate balance to be made here, between providing more for our customers and ensuring our business’ sustainability. Whatever path you take, the company’s vision must also be properly communicated to every employee to truly achieve buy-in and they can truly work towards a common goal.
One of the key enablers of the rising importance of CX is the abundance of data gathered about our customers, from deeper market research, to data collection tools like loyalty reward programs, to analysis of online behaviors. This poses many challenges for supply chain players. How do you sift through all this data? How do you choose which data is relevant to your value proposition? What data do you share with your partners to allow for more whole-of-supply-chain efforts towards satisfying your customers?
It is important to look at your data gathering and analysis capabilities and how fast you can share relevant information to others. Or, indeed, how willing you are to share information, rather than hoard it.
That said, sharing of relevant data can help all supply chain players to jointly forecast demand and adjust resources accordingly. It also allows us to provide more information to customers who now care about these things more, like how ethically the product is sourced or produced. Also, new technologies such as artificial intelligence are poised to make it easier to do many of these things—and more importantly, they cost less than, say, five years ago. The barriers to entry are lower and, as demonstrated by the pandemic, investing in technology is now necessary to keep up with the rapid pace of change.
We should also continually address operational bottlenecks and strive towards more efficient processes in our supply chains. Just because we now know our customers’ needs are complex doesn’t mean our supply chains have to be convoluted. We have to identify the best solutions for our customers’ needs at all levels—and more importantly, be able to adapt when the situations call for it. Do we need several mega distribution centers or are we better off served by smaller regional warehouses? Should we deliver by bulk to our customers, or is it best to do multiple drops to different stores, as is increasingly the case today? How much of a certain item do we produce, and what do we do if we have spare production capacity?
The model of hard discount stores like Dali is an interesting case: they are able to provide cheap products to customers by carrying only basic items and offering a no-frills experience in their stores. (Think BYOB: briing your own bag, bag your own buys.) One of the ways they do this is by offering private label products, tapping major manufacturers to produce these and gaining savings through reduced marketing spend. It’s a win-win for everyone involved: Dali is able to offer a unique selling point in the crowded grocery market, and manufacturers can utilize excess capacity with a smaller impact on their costs.
We should also bolster the capabilities of our people. The rapid pace of change and increasing complexity of our supply chains means our employees need to better adapt to new processes, and even to make high-level decisions at lower levels of the hierarchy. While the basic tenets of supply chain management remain relevant, the applications are often evolving due to the entry of new technologies and new business models. Continuous investment in upskilling is needed so we can better serve both immediate and end customers. These efforts will pay off in the long term and contribute to the continued sustainability of our businesses.
Unfortunately we cannot be any more specific than this. The customer experience is unique in that there is at least one for every customer. We may not always make it perfect every time for every single one of them, but we can work to make sure than whenever our customers choose us, they come away thinking the effort was worth it—and that, maybe, they will come back for more.
And we in supply chain are in a unique position to do so. We have the ability to see the big picture thanks to our presence at all points of the product cycle, from development to distribution to the moment it reaches our customers. We enable production decisions; we develop sales targets; and we help build the core of the retail experience—informing what the customer thinks and feels throughout the sales journey and beyond, and ultimately contributing to our company’s profitability.
So whenever you hear talk of the customer experience, remember that we in supply chain play a key role in making it possible. We go beyond just delivering the product: we build value for our customers, and ultimately contribute to the success of the companies we work for.
The customer experience in action
Brands have used different technologies—or relied on good old expertise from staff—to build a good experience for its customers, and ultimately earn their business.
- Closing the fulfillment gap: Amazon has made significant investments in its fulfillment network—from advanced warehousing technologies to utilizing drone and autonomous vehicles—to ensure speedy delivery for its customers, sometimes in as little as two hours.
- Machine learning takes a guess: Companies are leveraging AI to better anticipate what customers might want at a given time. Think of Grab suggesting where you might want to go or order food. They’re also using AI to account for local languages and nuances—Filipinos, Singaporeans and Malaysians call McDonald’s different names, after all.
- Connecting online and offline: Zara’s “Store Mode” technology allows customers to access a specific branch through its app and see which items are available in which size. Something similar is being done by Uniqlo in the Philippines, allowing customers to see what’s available—and order app-exclusive sizes.
- A slightly different mix: Recent years have seen the emergence of new variations in the supermarket format—take hard discount stores like Dali, or Korean chain No Brand. Even established chains have shown variations in their assortment depending on their location. Noticed not all Savemore branches are the same?
- Curation and expertise: Sometimes all a brand needs is to demonstrate its authority over the product it sells. Skincare brand Kiehl’s organizes its products into categories depending on what problem it addresses—anti-aging, anti-acne, and so on. And their staff are ready to answer any questions. The doctor uniforms help, too.
About the authors
Christine Pardiñas is supply chain consultant for Royal Duty Free Shops and a former president of SCMAP. Henrik Batallones is marketing and communications director of SCMAP and editor-in-chief of Supply Chain Philippines magazine.