Retailers need to think like software companies

Dan Norris-Jones, founder of technology consultancy Priocept tells Talk Retail how retailers should get inspiration from technology companies. 

Today’s businesses are heavily reliant on technology. Nowhere is this more true than retail, where customers from both spaces – the high street and online – have increasing expectations that need to be met by ever more sophisticated technology.

This may feel like an obvious statement for savvy retailers. But what’s less obvious is that retailers will, arguably, soon derive more equity value from their software, than from the products they sell.

With the rise and rise of online retail, a customer’s first point of interaction will usually be ‘with their mobile’ or ‘via a website’. But in reality, the first thing that a customer is really interacting with is a ‘piece of software’. All those mobile apps and websites are nothing more than pieces of software. And if the path to purchase goes smoothly, in all likelihood the only interaction a customer will have with your brand will be via that piece of software.

In reality, this ‘piece of software’ is more likely to be a complex chain of integrated software systems spanning mobile apps, web applications, online search tools, product content, customer reviews and payment gateways. When seen in this light, it’s not too far-fetched to say that retail, as a sector that’s particularly dependent on e-commerce and therefore software, drives equity through its software technology as much as the products actually being sold.

Amazon is prime example. Although it started life as a retailer, it has now evolved into an incredibly sophisticated software company. Perhaps this shift goes some way to explaining why Amazon took one in every four pounds spent on physical music, games and video in Britain during the 2014 run up to Christmas.

When the internet began to be used for online selling, we all thought it would circumvent the ‘middle man’ by directly connecting suppliers with buyers. But the reality couldn’t be further from the truth. This disintermediation has not happened because instead of making the middle man extinct, online retail has forced the middle man to evolve into ‘middle software’ of continually increasing complexity and sophistication. And it’s this ‘middle software’ that has created a new battleground: a complex and challenging software arena where smart retailers can create their own brand-defining value-add.

If retailers are to keep up with their customers’ increasingly demanding expectations, they need to carefully consider their software development capabilities, both in terms of investment levels and business models, with in-house versus outsource being the key debate. Retailers that surpass their competitors’ software development capabilities will be better placed to innovate and build ever more sophisticated user experiences that make online purchasing quicker, easier and more cost effective.

Software is now an undeniably vital part of retail. The companies that will thrive are those bold enough to adopt software and technology-first mentalities. This means replacing ad-hoc web projects and web agency briefs with long-term investment in R&D – including both high-risk technology research and long-term structured product development. Failure to do so will hand control to the digital innovators and their software engineers: the new middle men who are already busy building cosy software-based relationships with your customers.