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Microsoft Industry Blogs

As the retail industry undergoes a digital transformation, retailers and CPG brands are breaking out of their comfort zones to school themselves in the ways of startups and tech entrepreneurship.

They’re shaking up timeworn business philosophies and ingrained modes of thinking to make the necessary leap to a digital culture.

The shift is playing out among the so-called titans of industries, from retail and consumer products goods to banking and hospitality, as all businesses these days must double as technology companies to survive.

Technology-driven innovation is critical amid what’s been called “Ubernomics,” “the Uber effect,” and “the Uber economy,” whereby scrappy digital startups upended established, less nimble old economy giants. It’s how Uber disrupted the taxi industry, and how Airbnb has nudged the hospitality sector into reset mode.

Retailers are now tapping into startup and “hack” culture to accelerate the cycle of innovation—rapid prototyping, testing and learning—that’s so integral to the tech industry.

The need for speed was one of the big lessons Brian Cornell, CEO of Target, gleaned from working with the entrepreneurs from its Techstars startup accelerator program. “The juxtaposition of our operation and theirs was stark,” he said in a Target blog post. “Startups are measuring time in terms of months worth of funding. I saw first hand that we moved too slowly, too often,” Cornell said. “This kind of [product and solution] innovation is vital for retail’s future and will redefine our industry.”

Microsoft is learning too. During its annual //oneweek Hackathon, employees from varied backgrounds team up to dive into passion projects.

They’re given a week to birth a project or tackle a technology problem in the experiment-and-fail-fast startup ethos that can stoke the rise of great ideas that originate anywhere.

The Hackathons push us toward agility and experimentation, and have produced more than 3,200 projects, such as the Microsoft HoloLens, the augmented reality headset that’s being tested at home improvement chain Lowe’s.

Legacy retailers are also adopting a digital culture by plucking talent from the tech-startup world and digital enterprises, and installing them in the C-suite at the big retail chains. It’s evidenced by the rise of chief digital officers, who are working to bridge the gap between e-commerce and brick-and-mortar stores, and unlock their complementary profit potential.

Quick Study

The world’s biggest retailer has taken on the sector’s ultimate disruptor, Amazon, by joining forces with e-commerce entrepreneur Marc Lore, who founded Diapers.com, which was sold to Amazon in 2012.

Wal-Mart not only purchased Lore’s startup Jet.com last year, but also named him president and CEO of Wal-Mart’s $13.6 billion online business, tiny compared to Amazon, which boasts $82.2 billion in e-commerce sales.

With the acquisition and Lore’s leadership, Walmart is now taking on dynamic pricing, one ingredient in Amazon’s secret sauce that’s tripped up less agile legacy chains.

Via dynamic pricing, online retailers can make infinite pricing changes using sophisticated algorithms in real time based on market conditions, be it to undercut the competition or maximize the sale of a hot item.

But brick-and-mortar retailers, hobbled by 20th century systems, have struggled to keep pace with this “born in the web” technology.

Now Wal-Mart is jockeying to leapfrog Amazon with Jet’s “smart basket” technology. The platform, which runs on Microsoft Azure, aims to further disrupt the retail-pricing paradigm with its name-your-price model.

A consumer’s bill shrinks as their online shopping basket fills up, so the more one buys, the more they save. And the platform also offers consumers the option to pay an even lower price if they forfeit the free-return perk. It’s a potentially margin-boosting ploy, as, like free shipping, free returns are a huge profit drain for retailers.

For Wal-Mart, the potential payoff of smart-basket technology is the ability to compete with Amazon’s pricing prowess more easily and cost effectively.

“Our pricing engine will continually work out the most cost-effective way to fulfill an order from merchant locations closest to the consumer,” Lore said in a Microsoft blog post. “The engine will also figure out which merchants can fulfill most cheaply by putting multiple requested items into one shipment. And so we can cut probably 10% of a cost of a typical e-commerce transaction just by being smarter about fulfillment.”

In my next post on digital disruption within the industry, I’ll talk about collaborative commerce and the democratization of retail. In the meantime, you can also access our new Microsoft resource on transforming retail for the digital age.

LinkedIn: Tracy Issel