The 80/20 Rule and the Future of the Retail

At first glance, the report from mid-2016 that over 20% of Starbucks’ revenue came from their mobile app is encouraging. Confirmation that the future is apps, after all. And it’s great news for Starbucks, that has the benefit of knowing its brand is represented on the devices of a significant chunk of their customer base.

Starbucks predicts that the mobile app could account for more than half of their transactions within a matter of years. Because of its growth and intake, Starbucks has made their mobile app one of their core strategies. It could even affect the way they build their future cafes, designing the in-store experience entirely around the app.

It seems like a good plan, too. It’s why large companies — retailers in particular — are investing heavily in developing storefront apps for their customers.

But there’s a catch.

At one time, apps were considered an acquisition tool, but those days are in the past. Apps are now a means of retention — your best customers will expect a smartphone app, but what of the casual consumer? That much larger percentage of customers who won’t install your app? They’ve already got a convenient place to shop on their phones.

Amazon.

The 80/20 Rule

Think about that 20% again, but flip your point of observation. Starbucks is a company that still brings in 80% of its revenue through traditional means, but is a strategy that brings in a fifth of its revenue important enough to change the layout of its stores?

It would be a sound plan if they could guarantee stable growth in app installs and low abandonment rates. Even so, it seems risky. Will the predicted increase in revenues from the app come from more installs, or will it result from casual coffee drinkers who start buying their Joe somewhere else?

Most companies are not close to Starbucks’ revenue from apps — they’re in the 5% to 6% range — but they still invest huge amounts in building mobile apps, because they see that 90% of time on mobile is spent in apps, and are pursuing strategies to earn attention during that time.

That investment rarely pays off. That’s because the sobering reality of the mobile world isn’t that pretty. There are currently a total of 4.9 million apps available on the Google Play Store, Apple App Store, and Windows App store. The cost of developing those apps is very high, and the immediate user abandonment rates are astronomical — so high that losing 80% of your mobile users on Android is considered normal. Add to that the fact that consumers are dissatisfied with mobile retail experiences, on both mobile browsers and in apps, and you’ve got your choice of bad options.

An overwhelming majority of mobile apps live in obscurity on the app stores, buried under a mountain of apps in other categories, like productivity and gaming, that dominate the mobile app markets. And if their apps are discovered, they’re almost immediately abandoned. And if for whatever reason, the users do not delete the app, they’re likely to be dissatisfied with it.

Playing the Next Few Moves

Let’s say that mass retailers follow their consumers and go all-in on mobile apps. Their physical stores become extensions of the app experience, and the primary (or perhaps only) way to shop. For the loyal customers, it’s a dream come true. Personalized experiences at every physical location. Unparalleled convenience. A direct connection to the brand.

But where loyal customers see connection, new and casual shoppers might see a barrier. They’d have to download a new app, go through an on boarding experience, possibly even enter their billing information, just to buy a few items. What was once an experience rooted in the convenience of proximity and speed has been transformed into a hybrid physical-digital experience that demands an extravagant series of steps for basic participation.

What’s keeping that shopper from hopping onto the Amazon app — which is probably already on their phone — placing an order for the same item, and having a drone deliver it to their house in less than an hour? And as the capabilities of programs like Amazon Prime Air grow, retailers will have to dig deep to compete. By pursuing only the most loyal 20% or less of their customers, they’re missing out on the 80% that’ll go straight to Dronesville.

Meanwhile, Amazon is attacking the industry from both ends, raising the bar on the physical shopping experience with Amazon Go. With Amazon Go, the company is essentially creating one-click purchasing for the physical world. It’s the most disruptive thing to happen to brick-and-mortar retailers since the bar code, and it renders obsolete the combined efforts of Verifone, Visa, Amex, Apple Pay, not to mention your chip card. Amazon, who is already so far ahead in the digital space, is working to disrupt the shopping industry even further.

After that, it’s only a matter of time before Amazon’s control over the retail space is total. What happens to brands when they’ve only got one distribution option?

They lose their voice. They lose the ability to connect with their customers.

Mobile is Important

I’m not saying this to discourage mobile strategies. In reality, they are vital for brands that want to stay competitive as more and more of consumer time is spent on mobile devices. The question comes down whether or not a native app is the right strategy for everyone.

And while the mobile web isn’t quite the answer brands and retailers are looking for, native apps can be costly and distracting. If your core strategy involves building a customer retention platform for the minority of customers, what are you doing for everyone else?

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