Why do some large, established companies create so much value via digital technology, while so many others struggle to get it right? Most often it’s because they’ve figured out how to combine the scale advantages of incumbents with the speed and agility of native digital businesses. We call these companies digital forerunners and have found they share a number of key characteristics. My colleagues Elizabeth Spaulding, Sarah Dey Burton and I break these down in the Bain Brief, “Anatomy of a digital forerunner.”
Unlike many large companies, digital forerunners are comfortable taking risks on technology investments. But they also understand that becoming “more digital” is not an end in itself. While the rapidly accelerating pace of innovation is providing new opportunities along every link in the value chain, the critical litmus test for any new investment is this: Will it help us better serve our customers?
There’s no better example of this principle at work than at beauty retailer Sephora. With 1,900 brick-and-mortar stores in 29 countries globally, Sephora is hardly a native digital company. But it has used digital technology masterfully to transform its customer experience along all its channels and touchpoints—online or offline. One reason it has succeeded is that each digital investment serves a clear purpose, making it easier for women to sort through the bewildering assortment of makeup choices to find what really works for them.
Consider Sephora’s Color IQ tool, which scans the surface of a makeup wearer’s skin to find her perfect foundation, concealer or lip color match. Once a customer has a color number, she can use it online or in the store to sort through Sephora’s full inventory of products. It also indexes makeup items according to 25 other attributes—whether it has a powder or liquid finish, for instance—making them easily searchable from any device. Through Sephora’s “Loves” list and Beauty Insider rewards program, customers can also maintain lists of favorites and win points toward free products, all managed through the website and Sephora’s mobile app.
All of this gives the company a wealth of valuable information on its customers. But Sephora uses that data to provide value, not just produce marketing spreadsheets.
What digital forerunners like Sephora know is that a key goal of digital customer engagement is to move away from the traditional “one-to-many” marketing model and create opportunities for a more compelling one-to-one dialog. But they also recognize that success means using digital tools to build real and enduring relationships by providing a more individualized, deliberate experience. That way each customer becomes an important partner in the value-creation process, not just a wallet. Too many companies try to gather information first and then figure out what to do with it later. Digital forerunners use data intentionally to learn from their customers and use that knowledge to continuously improve the customer experience.