For established electronics retailers, the process of digital transformation can be tough. Legacy technology, policies and processes – as well as internal culture – may all need to be updated.
The big banks have a similar problem. For the past few years, they have been under much closer public scrutiny of their effort to reform their practices and infrastructure. So, what can the major electronics retailers learn from the banks as they modernize their business models and technology?
The lessons fall into four main categories – technology strategy, credit management, multichannel sales, and protecting the brand.
Use case – Surge Electricals
Let’s imagine a fictitious retailer to illustrate some common challenges – we will call them Surge Electricals.
Surge Electricals have been serving B2C and B2B clients via an omnichannel sales strategy for over three decades. Its legacy brand was reflected in aging technology, processes, and policies.
A level of complacency meant that internet sales were not regarded as a threat to a strong, established national store presence. In-keeping with this, its internal culture is highly risk-averse.
Once the potential scale of online sales had become clear, the retailers’ slow deployment of new technology has left the company exposed to new competition such as Amazon, and its market share is diminishing. In the case of the banks, their transformation was further enforced by changes to banking regulations that allowed new types of competitors into the market.
The parallels with the banking industry are very clear.
Trade credit program for B2B customers
Historically, Surge had offered an in-house trade credit program. At its peak, the program was being used by tens of thousands of limited liability business customers. The company would only do business with established limited liability companies where a formal credit score from an established source could be obtained easily.
Expanding its trade credit program is now core to the growth strategy of Surge Electricals.
Lesson 1 – ‘Build or Buy’ technology strategy
The banks have adopted two types of strategy that retailers can also assess.
Banks commonly either build their own technology or buy it from a third-party, which is usually a fintech (financial technology) provider. In some cases, the buy option has literally seen the banks purchase fintechs and integrate their services into their own operations. Alternatively, the buy option is to outsource certain types of operation to a third-party on a white label-basis, so customers never realize they are outside the bank’s core services.
Whereas banks may feel they are in competition with third-party fintech service providers, retailers can take a less defensive attitude and the ‘buy’ strategy is likely to be far quicker and much less costly than the ‘build’ option.
Lesson 2 – Managing credit
Just like the banks, the pandemic reduced the risk tolerance of Surge Electricals, a UK-based company. The business has drastically reduced the number of B2B accounts supported on its trade credit program to a few thousand. Those prospective B2B customers who met the strict initial eligibility criteria now have to wait up to five days for a decision on their application.
While the banks were also keen to avoid taking on any risk, there is an important point of differentiation that creates opportunity for Surge.
If the banks loan money to businesses, the banks must underwrite those funds themselves. If a loan is not repaid, the banks are liable for that debt. Surge on the other hand could offer their customers a line of credit equivalent to a loan without taking on the risk and liability for it. By outsourcing the credit scoring and underwriting to a third-party, Surge could grow its trade credit me and increase the size of addressable market far beyond limited liability companies with long trading history without being liable for any losses should their customers default on payments.
The size of the credit lines that could be offered to customers was a potential issue. Outsourced providers may be limited to offering a maximum monthly credit line of around €25,000 for its clients. This would be well below the needs of many of Surge’s impressive B2B customer base, which could require credit limits up to €10 million each.
Lesson 3 – National store network as part of an omnichannel strategy
Surge Electricals have several B2B channels with two in-store business centers. This reliance on foot traffic is also a contributing factor to its loss of market share, which was exacerbated by the pandemic.
The banks faced similar problems with physical branches seeing declining footfall, prompting a program of closures as banking moved online. The banks were finding that their branches were being used for older services such as paying in checks or paper-based applications that they had so far been unable to move online.
Surge has an online presence, but it also has physical stores. As part of its omnichannel strategy, Surge could integrate its trade credit program across all its sales channels and leverage the program as a valuable way to drive footfall in-store. A B2B buyer could purchase either through the Surge app and have their goods delivered to their office or stop by a store and pick up their goods and pay in-store with their trade credit.
Lesson 4 – Protecting the brand
Both banks and retailers are understandably protective of their brands. In many cases, they have been a staple of their local communities for decades and become part of the daily lives of generation of consumers.
Given the equity in the Surge name in both the consumer and business markets, the company is understandably protective of its brand and customer journey. So, in this instance, retailers and banks are in step with each other.
Retaining this brand equity is key. While we have discussed the merits of outsourcing its trade credit program to a third-party, Surge will need to be mindful of the consumer experience. If their B2B buyers detect they are somehow being taken outside of the trusted brand, they may become uncomfortable and lose trust in the process.
Choosing an outsourced option that can be branded in line with the Surge Electrics name and visual style would be vital to creating a seamless customer experience.
Finding the right way forward
There are many parallels between large retailers and legacy banks. Both are protective of their long-standing brands and are keen to find a profitable place in today’s markets. Both also need to move quickly as new competitors close in.
However, retailers may be able to learn some lessons from their banking counterparts and follow strategies that are more challenging for banks. The ability to outsource financial services and particularly risk and underwriting of credit can be especially helpful for retailers as they look to differentiate themselves when competing for B2B clients.
With many possible outsourced service providers to choose from, one way to assess their capabilities is by the range of credit lines they can offer. Many large retailers will not be able to offer a meaningful B2B trade credit program to their customers with monthly limits of around €25,000 per month. Retailers like Surge would need to offer its clients credit lines of €10 million each per month.
Implementing an outsourced trade credit program not only enables B2B clients to buy more but it is also a powerful loyalty tool so clients can buy more often.