‘The Prime Effect’ Means Canadian Retailers Must Innovate to Survive

image: amazon prime

By Grant Alexander Wilson

Many retailers are experiencing what I have dubbed The Prime Effect in reference to Amazon Prime. The ability of online retailers to offer next-day delivery service for an annual fee or at an affordable price has dynamically changed the retail business and shifted sales from in-store to online.

It’s now more convenient and equally economical to shop online compared to in-store. The biggest retail question continues to remain unanswered. How do physical retailers increase in-store sales?

This question remains top of mind for retailers all year round. My interest in this as a research topic evolved from my PhD studies. Now, as a faculty member in the Department of Management and Marketing at the University of Saskatchewan’s Edwards School of Business, I am exploring how retailers can remain financially successful in the wake of The Prime Effect.

The answer to this all-important question relates to retail innovation.

online personalized shopping. photo: rdx sports

Innovation, financial performance linked

In my forthcoming study of 225 Canadian retailers to be published in the Wiley Online Library, innovation was found to have a direct impact on financial performance. Specifically, innovation was the missing link between retailers’ employee work ethic, customer orientation and financial performance.

But employing a customer orientation approach — an organizational-wide commitment to understanding and serving the needs of the target market — and having a motivated workforce was not enough to enhance retailers’ sales, margins or profits.

Retailers that were highly innovative, however, outperformed their non-innovative competitors. This finding is supported by other prominent research that has suggested innovation is the missing link between strategies and company performance, but I demonstrated its importance among retailers.

Retail innovations, of course, include new products and services but also personalized shopping experiences and unique loyalty programs, to name just a few.

Personalized shopping experiences can be implemented that mirror online analytics, permitting salespeople to use customer information to make recommendations. Unique loyalty programs can offer regular customers first access to new inventory, creating stronger brand loyalty and in-store sales.

Changing the environment

While strategy is a process, innovation is a way of thinking about strategy. Innovation requires environmental changes at companies that support new ways of thinking. Changing the environment requires new actions and behaviours of both management and employees.

Although innovation is typically thought of as creating those novel products and services, it also includes the environmental changes within organizations that support innovative thinking. Innovation thought leaders, in fact, suggest companies should invest as much as 10 per cent in innovation, and divest of activities that fail to add value by the same amount.

The first step is understanding the importance of innovation. The second step involves the willingness to dedicate resources to innovation. The final, most critical step is all about innovation implementation.

Implementing innovation

According to American academic Peter Senge, named Strategist of the Century by Journal of Business Strategy, it’s the job of senior leadership to create an organization’s culture. Therefore, top management must be committed to creating an innovative culture. In order for an innovative culture to be successful, it also requires employee buy-in at all levels.

It’s clear that retailers need to embrace innovation. They must have a workforce that is motivated as well as one that is customer-oriented, but innovation is what will truly set the top-performing retailers apart.

Regardless of the innovation strategy, it’s integral to the success of Canadian retailers. Perhaps the greatest strategic risk is not innovating and failing, but failing to innovate at all.

Grant Alexander Wilson is a faculty member of the Department of Management and Marketing at the Edwards School of Business, University of Saskatchewan. He teaches strategic management, entrepreneurship, and technology commercialization courses. His current research interests include entrepreneurship, marketing, consumer economics, and organizational learning.

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