Merchants: Digital Presence and Strategy are Key to Success in Today’s Competitive Environment

Over the last decade, merchants across all sectors have gone through a metamorphosis of sorts, with new online merchants emerging and often growing fast and furiously, while many larger, physical anchor stores struggle to remain relevant in the face of digital displacement. Now more than ever, merchants need to innovate to stay relevant to their customers in a fiercely competitive landscape with constantly changing channel and buying desires.

Our merchant eBook, How to become a Payments Trailblazer, recently published as part of the Culture of Innovation Index by ACI Worldwide and Ovum, explores the attitudes toward innovation among merchants across four key vertical sectors – retail, hospitality, digital goods and telecoms. The index identifies five types of organizations, as defined by their approach to innovation and business transformation: Laggards, Emerging, Tech-led, Advanced and Trailblazers. The aim of the exercise is simple: to identify not only the factors that separate the most innovative businesses from the laggards, but also to find out what trailblazing merchants do differently from the rest.

Merchants that have a strong digital presence will have the edge

Our research has delivered some interesting and surprising findings: Digitally-driven mid-tier merchants are emerging as winners of the global innovation race – for now. According to the index, 37 percent of mid-tier merchants with annual revenues between $5bn and $10bn are either “Advanced” or “Trailblazers” when it comes to innovation, whereas 23 percent in this group are classified as “Laggards.” Looking at the world’s largest merchants, the situation reverses: 37 percent of merchants with annual revenues of at least $10bn are “Innovation Laggards;” 22 percent are classified as “Advanced” and only 8 percent are “Trailblazers.”

There are several explanations for this phenomenon: Merchants everywhere are challenged by pressure from new entrants, the breakdown of traditional industry boundaries, and growing customer preference for a digital-led or digital-influenced purchasing experience. Many of the mid-tier merchants in the $5bn and $10bn revenue range are relative newcomers, often eCommerce companies that are able to cater quickly to consumers’ preferences for a digital-led or influenced shopping experience. Whereas many of the world’s largest merchants have also embarked on ambitious and challenging digital transformation programs, they often have a large number of physical stores and legacy platforms to contend with. However, I am convinced that businesses that have a strong digital presence and strategy, whether they are big or small, will have the edge in today’s competitive environment.

How to approach digital transformation as a merchant

The term “digital transformation” is widely used to describe a range of large-scale projects with an array of objectives and outcomes. In practice, these sit on a continuum between two extremes. Merchants need to differentiate between initiatives that are short-term responses to current challenges and those that are longer-term and designed to reshape how they do business. While both approaches are informed by the need to differentiate and enhance customer experience, the speed and agility required to address short-term priorities should not be achieved at the expense of strategic initiatives leading to more fundamental digital transformation. Merchants need to take a realistic look at how they balance these demands to plan properly for success.

Investment in AI technologies is growing, and security remains a key issue

Our research also finds that the investment in AI technologies is growing, with the hospitality and telecoms sectors most heavily focused. Among hospitality businesses, 42 percent have clear plans around increased use of technologies such as machine learning and bots, while the figure is 39 percent for telecoms. In the case of hospitality, this reflects a growing emphasis on the use of data across operational areas such as supply chains, logistics and maintenance.

Security remains a key issue. However, the need to provide a smooth customer experience while not compromising security remains a delicate balance. At a global level, 73 percent of merchants believe that their risks of a data breach are higher than a year ago, and 76 percent view security concerns as a brake on their ability to innovate. Interestingly, merchants in the Trailblazer category are less concerned about this point, perhaps reflecting on past investments in their fraud detection and prevention capabilities.

Key characteristics of trailblazing merchants

The report also outlines seven key characteristics of “trailblazing” merchants – the most innovative enterprises – that stand out from the rest of the market. Among those key features are: a strong central function tasked with driving innovation, an agile culture that is responsive to customer needs, taking advantage of emerging technologies, and focusing on customer experience by bringing innovative products and services quickly to market. There is no single recipe for success in today’s new retail environment, but our research provides a blueprint for what the most innovative and successful merchants do right. Catering to a growing customer preference for digital-led or digital-influenced purchasing is key. This includes new payment options; a focus on mobile, especially in-store, and a stronger, more seamless cross-channel payments experience.

Want to learn more about how you can reinvent your payments? Meet with ACI Worldwide at Money20/20 USA 2019 in Las Vegas, October 27-30 (Veronese 2502) to talk with our team, or to find out more about our newly-released Culture of Innovation Index, conducted with leading analyst firm, Ovum.