Retailers spend an estimated $113 billion annually developing and executing advertising, marketing and promotions to drive store traffic. Despite these efforts, though, consumers have plenty of problems with the store buying experience. According to a recent AMR Research survey of 1,000 consumers, shoppers say that rude staff, high prices, poor quality or out-of-stock merchandise, and long checkout lines are the most significant reasons for driving them away. The survey also showed that it only takes an average of two to three negative experiences with a store to drive shoppers to a competitor.
With 70 percent of actual buying decisions made within the walls of the store, retailers must increase investments in enhancing the brick-and-mortar shopping experience to ensure higher conversion rates. But improving the shopping experience entails more than just increasing labor, carrying excess inventory or hanging additional promotional signs. It's about creating an in-store environment that consistently meets or exceeds customer expectations. Retailers willing to invest in enhancing customer interactions are improving operational efficiencies and increasing market share. For example, a specialty recreational retailer reported close to $90 per order in incremental store sales from customers picking up their online orders, and mentioned that its in-store kiosks allow it to lower inventory and increase conversion rates.
An apparel retailer realized a 20 percent increase in average transactions and customer visits increased by 15 percent after sending personalized promotions via customers' cell phones while they are in the store.
Pervasive Interaction Improves Retail
There are numerous ways to enhance the store experience, from improving associate training to investing in shopping assistant devices for a customer to use while browsing the aisles. But rather than trying a variety of disjointed efforts, retailers must embrace an overarching model that can guide these initiatives and determine if they are meeting the overall goals. A successful model must take into account how shoppers purchase in stores today and the influence of online shopping - which will account for $100 billion in retail sales in 2005.
The model developed by AMR Research is called Pervasive Interaction (PI). PI leverages customer insights from cross-channel shopping interactions, provides access to consistent product content, and enables timely and relevant delivery of information to employees and customers. The improved shopping experience based on Pervasive Interaction is striking:
Provides contextualized, personalized information from a single source. PI solutions deliver relevant, timely information to a shopper. This requires a single view of real-time customer information (e.g., address, e-mail transactional history, registry/wish lists and warranties) and product information (e.g., description, size, style, color and digital images) across all channels.
Delivers enhancements throughout the shopping stages. Instead of improving discrete parts of the shopping process, retailers enhance customer interactions and provide a positive and consistent experience through each of the shopping stages. Retailers determine the handoffs among the stages, bridge the interactions, and are sure to have employees or devices available to provide service at the appropriate times.
Is voluntary and unobtrusive. The ability to offer, but not mandate, self-service and personalized help will extend the convenience of the Internet to the store shopping experience. This will not only reduce operational expenses, but will also guide customers toward higher margin and complementary products.
Is multichannel aware. To ensure a consistent brand and service level across channels, as well as provide or capture accurate and reliable information, retailers link store-based PI activities with online capabilities.
Is not tied to a specific device. With the right security, personalization and usability, PI is consistently delivered to employees and customers through whatever device makes shopping more convenient, such as a personal computer or a PDA.
Improves associate performance. Instant access to consolidated enterprise data - customer data, product information, inventory and shipping details and so forth - enables employees to proactively help customers.
Enabling Pervasive Interaction
Successful PI-based shopping initiatives require a technology architecture that integrates with existing retail systems, such as customer and product databases, but also creates a foundation for future expansion and the introduction of a variety of devices and software solutions. We collectively call the architecture (the servers, databases, infrastructure and other back-end technology) and customer-facing solutions (the devices and software applications) Advanced Selling Technology (AST).
Key parts of AST architecture include:
A device management abstraction layer. This layer manages customer- and employee-facing in-store devices. Middleware should support remote system and asset management and diagnostics of every device, and easily enable the introduction of new devices.
Standards-based content delivery and capture services. Back-end applications send and receive content and software applications to multiple devices, and pre-format the information based on physical limitations of the delivery mechanism.
Multichannel content and order management platform. Retailers leverage next-generation e-commerce platforms to synchronize content and order management functions across all channels. These systems will be integrated into core POS systems and available at multiple access points.
Data repositories and analytical tools. Retailers that have not centralized merchandising data should plan to integrate disparate data from multiple transactional systems into a logical data model that delivers a unified view of customers, transactions and inventory.
Secure hardware and communications. Retailers will need to continue to invest in the underlying physical computing and networking infrastructure, including servers, networks, and wireless technologies for communication within the four walls of the store and between the home office.
Infrastructure. Infrastructure is the glue that ties the various layers of the technology architecture together. Capabilities include device management, standards-based application and data integration, transaction monitoring and granular data security. Customer-facing AST fits into two categories:
Physical devices. Devices such as handhelds, cart-based tablets, kiosks, self-checkout systems, electronic shelf labels, electronic signature capture peripherals, digital signage, scales and traffic monitors are examples of the newer hardware being used to deliver personalized and contextualized information to shoppers as well as store employees.
Software applications. While AST devices often get the most attention, their software is critical. The most useful application will be ones that can be delivered on multiple platforms. Examples include guided selling, personal shoppers, product locators, dynamic promotion displays, customer profiles and loyalty, customer surveys and traffic tracking applications.
The Seven PI imperatives
Retailers: it's time to move. To help you with this journey, AMR Research created a list of seven imperatives to manage the transition to a PI-base strategy:
1. Focus on usability. The user interface for all devices must shield the user from the complex integration and analytics buried in the technology architecture. Apple's iPod interface and the process flow at Amazon.com can be used as benchmarks. Success will require retailers to spend significant time during the requirements stage to understand the most effective design, workflow and range of functionality that will entice volunteer customers and reluctant associates to embrace the new shopping and selling tools.
2. Support change management. Home office and store management must train and empower associates so they embrace the ever-evolving store experience.
3. Deliver enhancements that appeal to your customers. Although retailers can learn about AST solutions and best practices from cutting-edge competitors in other retail segments, companies should be careful not to simply mimic the success of others. Retailers should reach out to their specific customers with focus groups, in-store and online surveys and other feedback mechanisms.
4. Rely on standards. Retailers must embrace solutions and vendors that support industry standards such as ARTS. With numerous best-of-breed vendors dotting the store solutions landscape, demanding standards-based solutions (both device and infrastructure) whenever possible will enable retailers to deploy devices and applications from a variety of vendors, ease the time and cost of integration among the disparate solutions, and otherwise future proof AST investments.
5. Proactively address security and privacy issues. A continuous spate of security breaches has brought data security concerns into the public spotlight and privacy concerns follow the introduction of most new technologies. As a result, retailers need to be vigilant in guarding their customer's private information. In addition to complying with the recent Payment Card Industry (PCI) mandate spearheaded by VISA and MasterCard, retailers should engage with vendors to ensure the highest levels of data and communications security.
6. Ensure cross-channel consistency. A lack of cross-channel operational efficiencies and technical shortfalls result in inconsistent branding, marketing, merchandising and promotions across channels as well as poorly trained sales associates. Retailers must integrate processes and data so cross channel interactions and shopping patterns, demand analytics, transaction logs and marketing data can be used to drive in-store efforts.
7. Leverage legacy technology whenever possible. Current store technology consists primarily of homegrown or highly customized packages, making it difficult to access information and integrate into other applications. Retailers cannot simply rip and replace these critical systems. Instead, they should invest in standards-based integration solutions based on Web services and XML to ensure that both new and legacy systems support PI initiatives.
Phased Maturity Model
While the vision and philosophy should remain constant, the maturity of an organization in regards to PI evolves over time. The following phases can be used to chart an organization's implementation of PI-based, store enhancements:
Phase 1: Transaction Performance. The goal in this phase is to reduce queue length andcheckout time. Payment processing time and cost is a focus. There is limited integration among store systems, and no real-time integration to home office or other channels.
Phase 2: Communication Efficiency. During this phase, retailers aim to deliver consistent and timely one-way communication to customers. Transaction-focused POS will be tightly coupled with global inventory and a distributed order management hub. Product and customer data is more consolidated and centralized. Cross-channel shopping history is accessible, but there aren't sophisticated analytical tools available. Knowledge and learning management applications are more dynamic. Most information will be accessed through a stationary kiosk (for customers and associates) or PC in the backroom (for associates only).
Phase 3: Pervasive Interaction. The objective in this final stage is to create full channel transparency, leveraging past customer interactions to proactively provide promotions and service directly to the customer and to assist associates. A robust AST architecture enables critical information from disparate systems to be integrated in real time and instantly accessed through a variety of customer-facing devices and software.
Retailer Spending Today and Tomorrow
From theory to practice, the PI model will have an impact on current and future technology spending aimed at improving the store shopping experience. The RIS/AMR Research survey of 147 retailers across various segments shows that retailers plan to increase investments in store software and hardware by an average of 7.1 percent annually from 2004 to 2006. The noticeable trend of continued annual increases is a promising sign that retailers will charge ahead with store transformation projects for the foreseeable future. Additional spending trends include the following:
A majority of retailers plan to increase store investments. Store technology spending currently represents approximately three-quarters of the overall IT budget, and 58 percent of retailers on average will increase store hardware and software spending from 2005 to 2006. Another 36 percent of retailers on average will keep their annual store technology investments the same as the prior years through 2006. These encouraging numbers show that retailers are recognizing that the store is a key extension of their brand.
Spending varies by segment. While increased store technology investments are happening across the board, grocery and mass merchandise retailers plan for more aggressive store spending growth over the next two years versus other segments. For example, 77 percent of respondents from each of these two segments plan to increase hardware spending in 2005, and software spending increases dwarf those from the other segments. It is also important to note that a majority of specialty retailers plan to increase store spending to differentiate against discount and dollar stores.
More than three-quarters of software applications will be managed centrally. By the end of 2007, 76 percent of store software applications will be hosted and managed at a central location. While retailers remain skeptical about moving critical POS software from store systems, applications such as workforce and task management, customer loyalty, inventory and order management are ready for central management.
More Kiosks Deployed
Customer-facing kiosks are becoming more common within the retail store. In fact, 44 percent of retailers across segments currently have at least one kiosk installed in a smattering of stores for applications such as photo processing, movie ticket dispensing, price checking, deli ordering and gift registry access. Further kiosk-related insights include:
Adoption will grow by 32 percent by the end of 2007. A significant 58 percent of respondents plan to have customer-facing kiosks installed within the next two and a half years, marking a sizable growth rate from today's deployments. Furthermore, the average amount of kiosks per store will increase from two today to three by the end of 2007, with department stores and big-box retailers surpassing the industry average because of sheer size of their store footprint.
In-store installations are rising. While almost half of retailers have some form of kiosk installed today, this hardware is only present in one percent of their stores on average. By the end of 2007, however, the respondents plan to install kiosks in 17 percent of their stores, reflecting the fact that retailers are currently testing the use of kiosks in a discrete amount of stores, but plan to accelerate rollouts through the end of the decade.
Kiosks will gain multiple apps. Today, two software applications are deployed per kiosk, but by the end of 2007 the number of applications will balloon to five per kiosk. Instead of unique physical devices deployed for specific store functions, retailers want to combine hardware purchase rationalization to increase the use and flexibility of each deployed device.
Loyalty apps will dominate in 2007. Today, the most prominent kiosk software is for product details and comparisons (37 percent of retailers), guided selling (31 percent of retailers) and e-recruiting (30 percent of retailers). While guided selling usage among survey respondents seems especially high, available applications are still early in the maturity curve. Respondents may have blended this with gift and wedding registries (retailer usage is at 26 percent) because these applications are designed to influence the shopping experience and assist in selling activities. By the end of 2007, account and loyalty software will be the most widely adopted applications. Many retailers will leverage next-generation e-commerce platforms to synchronize content, loyalty and order functions across all channels.
Portable Devices for Employees
Today, 41 percent of retailers surveyed use portable devices in the store, and that number will grow to 47 percent by the end of 2007. But 99 percent of the handhelds are intended for employee use only. While our qualitative findings show that retailers such as Bloomingdale's, Crate and Barrel, Stop & Shop, Albertsons and Bloom Stores offer customers mobile shopping assistants, most of the expected growth will be for employee usage to ensure product availability.
By the end of 2007, 51 percent of respondents will have store order management/replenishment, inventory lookup and price-checking functionality on associate handhelds. And 49 percent of survey participants will have product detail functionality by the end of 2007. This will help employees and customers compare items and make informed decisions prior to purchasing a product.
Because so few retailers allow their customers to use retailer-owned handhelds today, one can only look at their future investment plans when it comes to the software running on these devices. By the end of 2007, no one application stands out as the technology of choice, with the exception of providing the ability to look up inventory within the store or throughout the supply chain and guided selling to provide up-sell offers based on past purchases. As this market matures, software application investment priorities will fluctuate as early adopters identify best practices and pitfalls.
Increasing the uncertainty of future customer-facing handheld hardware and software utilization is the use of cell phones, laptops, PDAs and other consumer-owned devices. These delivery mechanisms are a powerful medium. With the right security, personalization and usability, personalized and relevant information should be consistently delivered to whatever physical device makes shopping more convenient.
Increased Store Wireless Investments
Retailers continue to upgrade broadband connectivity between the home office and each store location so data and software applications can be managed centrally, and accessed in real-time via any physical device in the store.
To further enable employees to instantly access critical applications, such as inventory and order management, customer data management and loyalty, and workforce management while on the sales floor, retailers plan to increase their in-store wireless capabilities. More than half (55 percent) of respondents say they have wireless capabilities in at least a portion of their stores today, and that number is forecast to grow 17 percent by the end of 2007 to 65 percent of retailers. The growth in broadband networking to the store and wireless capabilities in the store will help retailers accelerate the adoption of AST hardware and software utilization. Not giving stores the necessary bandwidth and mobility for these technologies will unknowingly facilitate under-utilization, and new investments will collect dust. Rob Garf is a senior analyst for retail with AMR Research.