Convergent commerce: The new face of consumer-centric retail 

Intro: The new retail trajectory

Consumers have repeatedly shown that they’re ready to embrace changes in the way they learn about, browse for, compare or purchase goods. The bigger question is to what extent retailers will be able to keep up. 

Companies invested heavily in e-commerce and their online offerings in response to the pandemic, and for a time, those bets appeared to pay off. But what many took for a permanent migration to virtual channels may prove more transitory. 

In major economies, the share of online spending is rapidly retreating to pre-pandemic norms as restrictions ease, and consumers return to brick-and-mortar stores. Research points to a pronounced decline in the enjoyment of online shopping, particularly among formerly e-commerce-enthusiastic millennials. According to Morning Consult, in mid-2022, only 37% said they shop online because they enjoy doing so.

Online retail losing allure (% of US consumers expressing enjoyment of each retail category)

With inflation and slowing growth added to the mix, future demand for any form of shopping is increasingly difficult to predict. As both businesses and buyers shift to cost control in response, splashing out on a new payment gateway, or an augmented or virtual reality (AR or VR)-enabled retail experience can seem like a risky strategy. 

Yet even amid austerity, there’s no question that consumers still want options – and that expectations will remain high.  

“When it comes to how they serve customers, retailers used to call the shots,” notes Visalakshi Subramaniam, Global Head of Industry/Domains, Thoughtworks. “But now the consumer is in the driver’s seat. They can choose where, when and how they shop; quickly check prices here or there and get goods delivered at their convenience. Retailers don’t have a choice but to open their doors to whatever the customer really wants, or risk losing out.” 

“New sales channels are emerging all the time,” says Preetisudha Pandab, Retail & Commerce Industry Advisor, at Thoughtworks. “Be it online, retail store, mobile, social selling or live streaming, they're all part of tomorrow's landscape and will be constantly redefined with new and emerging technologies.”

As consumer engagement channels explode, and experiences and expectations evolve, digital and physical environments are both multiplying and merging, Pandab notes. 

“Touchpoints like social media that were once used for awareness and education are increasingly becoming shoppable purchase channels,” she explains. “Retail is no longer about creating a seamless experience across several channels, but commerce anytime and anywhere. Navigating this increasingly fragmented world of channels and touchpoints is what we mean by convergent commerce.” 

“Convergent commerce can also be thought of as a wrapper on an age-old problem that retailers have struggled with and are still working to fix,” adds Daniel Horton, Head of Retail North America (NA) at Thoughtworks. “How do we provide the customer experience that they expect? How do we allow them to feel like they are part of the organization, and not just a purchase that is measured in dollars?”

i. Breaking down convergent commerce and its implications 

Research shows a significant proportion of consumers now turn to everything from AR/VR apps, to livestreaming and AI-powered conversations with voice assistants to evaluate and make purchases, on a regular basis. These tastes are especially prevalent among younger consumers and in emerging markets. In some markets in Southeast Asia, for example, up to 70% of consumers report having bought something from a live streaming show.   

Consumers dive into a host of shopping options

“Shopping is now a fluid state of activities,” says Pandab. “It needs to be connected, meaningful, fast and convenient, and beyond the boundaries of the classic business model. The ability to scan an item you like, find it online with visual search, buy it on the spot and get it delivered whenever and wherever compresses the purchase funnel to a visually informed shopping flow.” 

These trends are blurring the lines between functions like marketing and sales, and need lightweight and resilient technology to support, Pandab says. 

“Convergent commerce requires a shift from traditional channel thinking to a scenario where a customer can start the journey anywhere, at any stage, with real-time information,” she explains. “Multi-channel systems were primarily binary silos, all about online versus offline. Communication was also more transaction oriented – creating a seamless handoff from one channel or touch point to the other. Convergent commerce represents an evolution from a transactional, to a more functional and frictionless experience.” 

Because of the extent of options and access to information consumers now enjoy, “loyalty has clearly been diluted,” says Subramaniam. But even in convergent commerce, customer retention ultimately depends on divergence – that is, bringing together channels and touchpoints in a way that differentiates the retailer from others.

 “Consumers don’t want 100 big-box, white label retailers offering the same thing,” Subramaniam says. “They expect a difference in their shopping.” 

Convergent commerce also requires retailers to make hard decisions about which technologies to invest in, channels to prioritize and customer demands to support. “Ultimately it all boils down to running a profitable business,” notes Subramaniam. “You can’t do it all, or bend over backwards in a way that threatens your ability to do that.” 

To ensure these decisions are informed, retailers “don’t have a choice but to rely on technology, and data, simply because of the sheer scale of the touchpoints that customers want to have,” Subramaniam adds. “When you have that kind of scale you realize you’re sitting on tons of data – but you have to figure out a way to do something with it.” 

ii. Future commerce requires a data-driven foundation 

Technology certainly shapes a retailer’s ability to use data effectively, but it is not necessarily synonymous with data-driven decision making. 

Only by “developing the right mindset first, and capabilities next, can organizations create the building blocks for a convergent commerce ecosystem,” says Pandab. “They have to first be clear that the consideration is not whether to be online or offline, but being in multiple places at the same time, in a seamlessly integrated way.” 

This is a complex process that starts with a realistic assessment of the retailer’s current technology stack – understanding the rationale for building it, its main functions, how capabilities and services can align to future needs; then incrementally evolving the ecosystem so it’s fit for that purpose. 

Capability modeling through frameworks like the National Retail Federation’s ARTS Operational Data Model can help the organization understand their entire retail landscape and zero in on their key capabilities – the “secret sauce” to their success, or the elements of the organization that make it distinct and the unique value it delivers to customers, on which time and money should be concentrated, Horton explains. 

“Capability modeling helps the business understand which market trends are applicable, and to focus the organization and culture in a way that removes silos and allows internal departments and teams to share data and work together,” he says. “That drives teams, priorities and business initiatives that will carry the organization forward.” 

“A key part of evolution is prioritizing integration – not just of tech, but strategy to planning, to execution, to analysis,” agrees Pandab. “That might mean rethinking how the organization is structured, its objectives and key results, and how processes converge.” 

To build the kind of strong, scalable data foundation that’s a necessity for algorithmic retailing or predictive modeling, “the most critical thing is having one source of truth,” Subramaniam explains. “Not a single Excel sheet that you’re maintaining as a category manager – data has to be made available to all business stakeholders, because everybody is now making decisions based on that information.” 

Unfortunately integration is typically where many retailers run into trouble. "A significant technical barrier to convergent commerce is often an organization's legacy practices and systems," notes Horton. "Many seasoned retailers have a group that works independently to support brick and mortar, which maintains their data, then they start an e-commerce group which builds its data set, and later on they do the same thing when they move into the mobile space – leading to data silos and duplication of effort with no added value to the organization. Product and customer information might remain completely siloed among these groups, preventing the organization from fully understanding its customers."

“In the standard way retail enterprises have grown, very few have thought about breaking silos; they’ve just gone ahead and added new channels or capabilities,” agrees Pandab. “As long as those added to the overall P&L they were serving the purpose. However in convergent commerce, you can’t afford silos. There has to be shared accountability over the full marketing and sales funnel.” 

Silo-busting may seem like a monumental task, but Pandab points out the process can start small, and steadily build momentum. 

“We may pick one category, or a few channels and start converging them, showing value, bringing in advocacy, building adoption, then going across, so there will never be a start-stop moment where people say that from tomorrow onwards, all departments need to collaborate,” she explains. “That creates a traffic jam situation, which nobody wants. But if we start small, let the roads merge into one another, it slowly becomes the norm. People see that there is added value, because it starts reflecting in the outcomes.” 

The structure of a convergent commerce-ready retailer

"The idea is not to fix the silos in one day, but to create a digital platform underneath and start looking at centralization,” Horton agrees. “Not a data lake, but a mesh, where capabilities in an organization each own a relevant business process and the outcomes to the customer. They own the services and the data on the back end, and the platform provides the features to enable whatever customer touchpoints they’re supporting.” 

This structure allows the organization to create any number of interconnected smaller teams, similar to mini-startups, each “with the autonomy to do their work, but not the anarchy to go crazy,” says Horton. “This structure allows them to focus on and deliver that ‘secret sauce’ – the features and functionality that they should be doubling down on, because it provides the most value to the customers.”

Subramaniam likens these varying capabilities to “army tankers” – large, long-term initiatives that are core to the organization – and “speedboats,” more short-term bets that need to be made in response to new business conditions or consumer demands. Having a technology foundation that can support both ensures retailers maintain divergence without costs spiraling out of control. 

“You need your army tanker, the solid strategy that you can’t replace, that you have to constantly spend time building,” she says. “But at the same time, you can’t shy away from responsiveness anymore, which is where your speedboats come in, capabilities that you can optimize for so that you can react quickly when required.” 

In pursuing these changes, and customer-centricity, Subramaniam cautions organizations not to lose sight of their own people. “Some organizations think if they’ve gone down the route of the customer, they no longer need to worry about adoption or how they’re going to upskill employees,” she explains. “But how do you get people to fundamentally trust the technology that you have built? Ultimately you might be telling them that the job they’ve been doing, a machine can do a lot better, or that data can take over gut experience built over the last 30 years of their lives.” 

To win people over, businesses can take time to point out the positive aspects of change – such as systems freeing people from redundant tasks so they have more time to think strategically about the business, or data models helping identify market cycles that benefit the company.

“It’s important not to have an all or nothing attitude towards technology, to understand that technology is a means to an end, and to bring change management into the loop,” Subramaniam says. 

There is also no need for retailers to tackle what can be an intricate process alone – in fact, Thoughtworks experts point out, this can often be counterproductive. 

“Partnerships are a must,” Pandab says. “While it would be ideal to build your new data platform all by yourself, onboarding the right partners is key to scaling efficiently. When you partner to scale, you are also lowering your entry and exit barriers. Leveraging the expertise and experience of your partners, when done right, helps you realize value faster; and in the event you fail, it’s a relatively easier exit.” 

“With partnerships, retailers can provide a better service for their customers and increase their touchpoints without heavy capital outlays, and at the same time retain more customers,” Horton agrees. “Partnerships free you from having to reinvent the wheel, and provide the space to look for those unique opportunities and marketplaces that you can focus on to provide the customer value that no one else can.” 

iii. Choosing channels and priorities

For any retailer conscious of consumer behavior, the big questions are not so much around whether to get on board with the convergent commerce trend, but which specific channels and touchpoints to focus on. 

All signs are that a significant number of people are keen to try out new channels and technologies as part of the shopping experience. One study by PwC found over 80% of consumers reported shopping across at least three channels over the previous three months, and that a third had used a VR retail channel. Of those using VR, around a third purchased products as a result, including luxury goods.

Emerging channels driving purchasing decisions

Proportion of consumers using VR retail channels who:

Yet setting up and maintaining a high-quality customer experience on emerging channels like VR can be time-consuming and expensive, and won’t always make sense. For all the demands to meet consumers wherever they want to interact on a 24/7 basis, Thoughtworks experts say adoption of different channels and touchpoints needs to be weighed carefully. 

“With so much going on, organizations sometimes get short-sighted when assessing the relevance of a new channel to their business,” notes Pandab. “Instead of prioritizing a channel with staying power or being pressured to jump on the same bandwagon as their competitors, they need to learn how to take a test-and-learn approach – focusing on small pieces and demonstrating value – to remain competitive while identifying what works best for them. The key touchpoints will vary depending on the type of organization and what they want to achieve with their clients.” 

“Convergence doesn’t necessarily mean adopting all the channels everyone else does,” Subramaniam agrees. “Again it’s important to maintain divergence, and actually figure out for yourself those elements that define you and support your corporate strategy.”  

According to Horton, it’s essential for retailers “to establish the outcome they are trying to drive – for instance, whether they prefer to direct consumers to their store or e-commerce site – as that will form the basis of their strategy.”

"For example, certain businesses shouldn't be all e-commerce, as a showroom for shoppers to touch and feel their products is possibly more important than a focus on newer online channels, whereas others may benefit from using their e-commerce site, mobile, or social media channels as the main point of contact with their customers," he adds. 

Focus on maximizing the impact of select channels, in line with specific metrics that are deeply relevant to the retailer, its products, and its identity, ensures organizations avoid spreading resources too thinly, or the confusion that results from teams being pulled in too many directions.

“Especially in retail, what you optimize for as a company is critical,” says Subramaniam. “The reason a company like Walmart does so well is because all functions are optimized only to one thing: operational efficiency. In many retailers, different functions will optimize for different things. When they put in a business solution, one function will want customer value, another customer experience, another efficiency. Net-net they’re all left sitting and wondering, why am I not getting the holistic benefit of all these things?” 

The best initial step is often to make the customer, rather than the product category or function, the fulcrum around which strategy takes shape, says Subramaniam, noting this can often be the fastest path to positive business outcomes.   

“If you know your segmentation really well, and can predict with some certainty who’s going to walk into your store, it may be sufficient to have just five or seven brands on display instead of 25,” she explains. “To do that you need to put a lot of energy into understanding the customer, through social media feeds or different touchpoints, and how they behave inside and outside the store. But that drives efficiency, because you’re no longer negotiating with 25 suppliers to fill up your shelves, or dealing with all the supply chain costs behind that.” 

Furthermore, tapping into new channels or touchpoints doesn’t always require starting from scratch. 

“It’s important to remember that as these points are converging, some channels which were once used to build reach or education, such as Pinterest, are now possible to leverage for purchase conversion,” says Pandab. “Conversely, something that was built for completing purchases, such as your e-commerce cart and checkout page, might now also be used as an avenue for guided selling.”   

“In most organizations, it's not the lack of technologies that’s the problem, but the low utilization rate of existing capabilities,” she adds. “Often departments don’t even speak to each other when they are procuring new technologies and remain unaware there are existing solutions that can be tapped on. Other times organizations procure a full solution suite when they only plan to use a handful of features, and before they realize it, they’ve accumulated a lot. The ‘tech sprawl’ situation we are witnessing today within the MarTech ecosystem is a classic example. Moving towards convergent commerce therefore is not necessarily based on deep investments in new technology, but leveraging existing technologies, as well as considering more dynamic platforms to embed messages and shopping experiences into the communities where customers live.”  

iv. Positive, not intrusive, customer experience 

In convergent commerce, the old adage to ‘know your customer’ takes on new urgency – and presents new difficulties. On the one hand, deep customer data is the starting point for offering the personalization, convenience and meaningful experiences consumers have come to expect. 

“Providing the best experience depends on knowledge of your customer mix, and using only tech that’s fit for purpose,” says Subramaniam. “If your retail setup is catering primarily to elderly customers, then you need to be very careful about technology, ensuring it’s an enabler and not something which will make them run away. You may be serving a person today, but an older version of that person tomorrow, or perhaps not even that person at all – it may be their refrigerator that decides to buy from you, which means you’ll need completely different payment systems.” 

At the same time consumer concerns about data privacy and security, as well as tighter regulation – in the US alone, multiple states are poised to introduce new privacy laws next year – mean efforts to source, interpret and use customer data need to be pursued with the utmost caution, and sensitivity. 

“To establish the right level of engagement with consumers without crossing the line and being viewed as intrusive, retailers need to rely more and more on zero party and first party data, which necessitates more customer-facing channels,” says Pandab. “That's why you're seeing a lot of direct-to-consumer activities that give access to the required data, while remaining on the right side of data privacy regulations and consumer expectations.”   

Horton counsels embedding these considerations in any channel or product the enterprise creates from the start. “Core engineering practices allow retailers to ensure data security and privacy are written into the code from day one,” he explains. “While data security and privacy need to be part of the strategy, the fear of customer insecurities or data getting lost or misused shouldn't hinder innovation.”

Personalization based on customer data: Why it falls flat

“The basic principle is transparency, which is pivotal to building trust,” Pandab says. “Even in collecting data from third parties, organizations have to be transparent with their customers, informing them what they’re collecting, why and the full journey of that data. Some retailers mistakenly think the consent customers give on one channel is transferable to others, but that's not always the case.” 

When transparency is practiced and evident to customers, data can move from being a potential liability to the basis for better customer relationships, Pandab notes. 

“Organizations that are confident of their data strategy should not hesitate to communicate their practices to customers to build trust,” she says. “The more you build and stay true to that trust, the better it bodes for the future, given data will only become more vital. ” 

“Retailers should also keep in mind that they don’t always need a massive amount of data to be successful,” she adds. “More important is whether you’re able to apply whatever data you gather, and bring it to life in the form of data-driven decisions and innovation. The data you collect should serve the objective you want to achieve. Being lean, transparent and purpose-led will help you strengthen your data value chain.”

Horton also emphasizes that retailers will almost always be on safe ground and foster opportunities with data if it’s applied for customer benefit. 

"Providing real value to customers in exchange for their data will ensure they aren't afraid to share it," he says. "At the end of the day, customers want to buy an experience, not just a product. Doubling down on creating unique experiences with the data they share can help organizations stave off price wars during a recession and increase customer retention. 

“That doesn’t necessarily mean retailers have to invest in the latest technology,” he adds. “But it does mean that they need to show that they actually care enough about their shoppers to make them want to come back.” 

v. Looking into the convergent commerce crystal ball   

Even amid the uncertainty clouding the economy, consumer spending patterns and habits, and the channels that will next seize shoppers’ attention, Thoughtworks retail specialists see several clear trends emerging and enduring in the months and years ahead.  

One is connected devices playing a larger role in everyday retail. “Interactions of all the devices a consumer owns will increasingly be expected to form a part of their retail experience,” says Horton. “For instance, a consumer may share a shopping list created with the help of their virtual assistant with the grocery store, such that when they arrive at the store, the groceries are packed and ready for collection. The store of the future will be about simplicity, convenience, support and value for the customer. Not fancy widgets or technology, but the feeling that the retailer cares about them.”

“If we’re in a place where a refrigerator has access to its owner’s health records, their preferences, what they should be eating, and takes steps to purchase what they need for the week, gets it right and makes it seamless, it’s clearly a whole different ballgame,” Subramaniam says. “But that’s where the extent of the possibility of retail is going.” 

While more retailers will also leverage technology to automate mundane processes, Horton also sees rising awareness of the importance of people throughout the customer journey. “Retailers have to remember that people are social creatures and a degree of human interaction is important to build personal connections with their shoppers,” he says. “That’s part of the entire retail experience.” 

In the race to find and carve out loyal customers, victory will ultimately rest with the retailers who manage to stay nimble. 

“You’ll have to know when to make pivots and turns,” says Subramaniam. “If who you’re going to serve becomes the most important entity, the technology you adopt needs to have the ability to adapt to the ‘who,’ and that if that fulcrum changes, you can decide what you should retain, and what you have to depart from. The most important thing is not to hold on, but to be able to let go, to embrace something which is new. From a technology standpoint, as well as from a business thinking standpoint, you need to build things in a way that allows space for the organization to shift.” 

“Being a future-ready retailer means creating an environment where you can thrive amidst ambiguity,” Pandab agrees. “We are entering a world where nothing is constant or obvious, everything is evolving constantly, and will continue to do so. We need to be resilient, not just in terms of our platforms, but also as organizations, and be ready to collaborate and make adjustments in response to external drivers.”