Retail Convergence

Retail Convergence - A Changing Landscape

There is a large movement in retail toward what is now being called Convergence. Convergence is the blending of channels into a single concept that leverages components from all consumer touch-points into a single set of processes and procedures that act the same, regardless of the consumer touch-point. 

While one could argue that this is simply Omni-channel, this would not extend the vision far enough. Convergence is not just about the unification of channels, it is about the unification of activities and interactions across all touch-points, including what have been perceived as channels in the past, but are becoming increasingly difficult to link to a specific system or business unit. An example of this convergence is the use of mobile devices while in a retail store, either through third-party solutions such as a Google search, or through mobile applications residing on the consumer phone itself.

Convergence comes in the form of data, commerce, and interaction. Data being a natural progression of the movement toward a single version of the truth for unified data, with commerce coming in the form of the endless aisle and DOM capabilities, while interaction imbues the benefits of engagement and messaging across all touch-points in a centralized process and vision.

As a recent Forrester article pointed out, a majority of sales today happen in the world of a blended on-line and in-store interactions. Sales begin on-line through eCommerce or social engagement, move to the store, and sometimes back to eCommerce again before a purchase is made. While Omni-Commerce is a portion of this customer lifecycle, not all interactions with a brand come in the form of purchases, or even as a lead-up to a purchase. Interactions may be related to brand awareness, service or follow-up, ratings or comments on-line, recommendations to friends, and a host of other aspects of a customer journey that are largely out of the control of the retailer or brand. 

Convergence is an attempt to unify processes and procedures, as well as technologies to combine all channels into a single concept rather than a recognition that channels even exist. It is to Omni-Channel what Omni-Channel was to Cross-Channel.  The movement form Cross-Channel to Omni-Channel was to break down the walls barriers of the channels, so they could function in tandem, whereas Convergence is the breaking down of the silos of channels themselves.

How will this impact retail and retail technology?  It will impact overall retail in a very dramatic fashion, in that the lines between channels will no longer exist. Commerce online and in the store will be seamless, with orders being placed on mobile devices while in a store, and baskets being shared between customers and associates to build the perfect outfit. Marketing will provide a queue of consumer messaging which can be delivered by any touch-point, and when performed can trigger the next communication, which is also oblivious and uncaring as to the next customer touch-point.

Influencing the customer journey will become the primary goal of a retailer, and providing tools to assist retailers in influencing the journey will become the principal purpose of retail technology companies. 

The next few years will fundamentally change how system and process are managed in retail, and for those not progressive in their thinking, there is a serious risk to success on the horizon. 

Is Apple the Sony of the 21st Century?

I just completed a webinar on the ROI of in-store mobility for retail, and focused a portion of the discussion on the platform to deliver the experience, and the devices which retailers were considering for their in-store mobility strategies.  We performed a poll on the attendees for the event, asking which device was being considered. Not surprising, Apple came in first with the Apple iPad, and second with the iPhone/iPod.  Android and Windows represented a fairly small segment. So why am I asking if Apple may be the next Sony?  My response is a single word “proprietary”.

How many of you can recall the advent of the Walkman, and the tremendous almost life-changing impact the product had on society as a whole?  Talk about disruptive technologies!!  The Walkman was the perfect answer to the boom-box of the generation, and not only provided the mobility required to take your music with you, but also the ability to listen via high fidelity without disrupting those around you. Sony captured the hearts, minds, and wallets of a huge share of the market as a result.

How many of you recall the MiniDisc player?  Oddly enough, it wasn't until 2013 that Sony announced the demise of the MiniDisc from their suite of products, although the company has struggled since the 1990’s to gain any momentum in the space at all. Why?  Primarily due to the proprietary nature of the discs and the corresponding players (and also the price, as a MiniDisc player might run you $750 back in 1992).  A great technology was ultimately marginalized.

How about the Sony Betamax?  Back in the 1970’s the Betamax was all the rage (at least for a couple of years – in a couple of markets). Sony had developed a consumer-level analog videocassette recorder format, but competitor JVC was worried about how they wanted to structure the deal, and decided to develop a competing technology known as VHS.  While Sony was not trying to be entirely proprietary in their approach, there had been a history of prior deal relate to the U-matic format that made JVC nervous. While the VHS format came to market later, JVC was quick to license their technology to nearly every consumer electronics company, which then set the standard. Some have argued that this happened even though Betamax was the better quality picture (although in reality this may not have been entirely the case). Regardless, it ultimately became about the shared standard, and cost of getting products to market based on the corresponding competitive pricing. Sony once again lost out.

So how about the Sony Memory stick?  Remember whenever you bought (or buy to this day) a Sony digital camera, or some other electronic device from Sony, that you needed their proprietary memory card?  While there were standards for storage devices such as the SD card, Sony insisted on continuing with their proprietary format, to the frustration of many users.

Then there was the ATRAC Audio Compression technology of 1993, where Sony insisted on selling their solid-state Walkman using this proprietary compression, rather than the rapidly growing MP3 open standard. 

Is any of this sounding familiar with the Apple products?  

Not only is Apple proprietary with its iOS software, but it is also proprietary with its hardware devices and peripherals (has Apple not heard of mini USB or SD cards?). It is also proprietary with its delivery mechanisms, all centered on the iTunes hub (and yes, I know about corporate provisioning files, but focusing on the overall Apple ecosystem).  While there is no doubt Apple has seen incredible growth due in large part to their almost maniacal control over the user experience, one which is best managed through proprietary measures, the return on this approach has diminished significantly as competing technologies (Android and Windows on the OS software side, and Samsung, HTC, Motorola, and others on the hardware side) have begun introducing improvements and/or specialized devices and capabilities for specific targeted consumers or industries.  The Samsung Galaxy, with its oversize screen, and even new waterproof and dustproof version, provides a great example of creativity not yet provided by Apple.  While the iPad mini may be hugely successful, the competition will be introducing even more looks and form factors to compete.

If the Apple ecosystem had a true Network Effect, where the value was derived in some form by the network of all others using it, then I think the story would be different (yes, FaceTime is a step in this direction, but there are many alternatives).  For example, Facebook provides value in and of itself by the quantity of users on the platform. I’ve been able to connect with dozens of friends from college whom I might never had found without Facebook. While the quantity of apps and music provided by Apple is a motivation, even this gap has closed dramatically. Ultimately, much of what Apple provides is in the long run simply a set of commodities.  

In Q2 of 2013, Android tablet sales surpassed Apple’s iPad for the first time ever.  The Android operating system for smartphones has been outpacing Apple now for a couple years (although this bounces back and for a little depending on new devices arriving into the marketplace). And this is just Android.  While admittedly these are the two most important operating systems on mobile devices today, it is likely ill advised to count Microsoft out of the picture too quickly – especially in the retail industry.

The reason for this is competition.  I am speaking perhaps less about the competition related to the operating system, and more about the competition related to the hardware vendors that have traditionally played in the retail space. Powerhouses like NCR, Motorola, HP, and even Dell have each carved out a niche in retail over the last decades, and none of them are complacent in their approach to competing for in-store and back-office technologies.  These same manufacturers are responsible for a very large part of the software and hardware that runs the retail organization today, from shipping and receiving, to POS, to back-office solutions.  As many of them cannot deliver customized versions of Apple product, they have shifted their attention to Android and Microsoft.  

I’ll be perfectly honest here – Microsoft stubbed its toe badly; not just in the consumer market, but in Retail as well. While their attempts to introduce more user-friendly software has been a step in the right direction (first with Windows Mobile 7, and now with Windows 8), the existing technologies in retail could not migrate to the new technologies; and in fact even applications written for Windows Mobile 7, will not easily migrate to Windows 8.  So while retailers were using Windows devices heavily only five years ago, Microsoft opened the door to other operating systems by not providing a migration strategy for legacy software solutions.  Most can now argue, if my software needs to be re-written anyway, why not write it for iOS, or Android? And the vision of one common experience on the PC and tablet still hasn't materialized in the way most would have hoped, even with Windows 8.1.

That being said, most POS solutions are still operated via a PC, with mobile solutions still representing a small portion of devices used in the typical retail store.  I don’t see this changing anytime soon. That is not to say I don’t see it changing in the future, however, as I do believe it is somewhat inevitable.  The ultimate question becomes when, and what will the state of the software landscape be at that time? 

In addition, those software vendors that also deliver hardware are certainly not inclined to rewrite their software on a hardware platform that is not their own.  So while many vendors that sell only software have quickly retooled their development to the Apple iOS, this is not the case with the big players in the market.

In addition, POS terminals typically perform many more tasks than simply ringing a transaction, and Manager Workstations even more than POS terminals. While mobile capabilities for these other solutions are likely desirable in the long-run, I am still left wondering how quickly this conversion will take.  And once it does, does it not make sense that a common operating system still has validity? One that can run on a PC as well as a mobile device?  If not a common OS, then certainly a common technology capable of running on both devices (think HTML5 web applications). Under this last scenario, Apple then carries less value, but perhaps also less risk. If solutions don’t care what platform they run on, then Apple is as valid a choice as any, and due to the current adoption rate perhaps a strong contender.  But this presupposes many solutions providers are writing applications that are OS agnostic, which unfortunately has not been the case.  

Retailers do have specific hardware needs as well. Today’s POS register still needs a receipt printer, a scanner, and a card-swipe.  And while there are many components available as add-ons to the Apple products, these are not nearly as “built-in” to the design as certain offerings soon to come out by competing vendors.  And with the competitive nature of retail technology over the years, you can bet this only gets more heated.   

So do I believe Apple will fail in the retail industry?  No, at least not any time in the near future. Do I believe they will dominate retail?  Let me think about it while listening to my MiniDisc player or relaxing to a good movie on my BetaMax while transferring my digital content to my iPad from my Sony memory stick.

OK, I’ll admit most of these technologies would likely have been supplanted by now anyway. But perhaps that is my exact point – why isn't it Sony that did just that? 

Retail Mobility – Today’s Technical Challenges

Retail Mobility – Today’s Technical Challenges

For any Retail CIO, the rapid changing technology landscape is making it difficult to deploy in-store mobile solutions. There are a number of implications to deploying mobile technology on the store floor, ranging from the selection of the device, to the solutions available by device platform, to security and potential privacy concerns.  And while all of these issues exist, it is clear that a large number of retail organizations feel it is imperative to get technology on the floors, so as not to be left behind.

The technology landscape has changed dramatically in the last 5+ years. Consider the following:

• New Channels – Consumer Mobile, Social Media, Publically available API’s  
• New Devices – iPhone, iPod, iPad, Android Phones and Tablets, Windows 8 PCs, phones and Tablets; each with different screen resolutions and screen sizes
• New Operating Systems – iOS, Windows 8, Android; each with a different development environment for native application deployment.
• New Data Access Requirements – Cloud, On-Premise, Hybrid deployments. Social and Public APIs. Omni-channel real-time connectivity.

Most retailers have been caught a bit off-guard with all of these changes.  Not that they didn’t see any of them coming (we have all known the potential of mobility for some time), but the speed of the changes, and the urgency to deploy technologies now has come as a bit of a surprise.  

Let’s be honest. Retail is often not the most up-to-date in the technology department – at least not on the store floor. There are certainly legitimate reasons for this – cost and risk to name the two most obvious. Putting new hardware and software into every store, adding wireless infrastructure, bumping up bandwidth, etc. all come with a cost associated with them. Then there is the risk. Take POS as an example. POS is mission critical, and having registers down for any period of time can have dramatic impact on the sales of the organization. This is true of most in-store solutions, as issues at the store can have dramatic impact at the head office. As a result, retailers have most often followed the adage that slow and steady wins the race – or at least it was until a few years ago.

Then along came Mobility. Mobility impacted customer perception in three important ways:

1. Consumer adoption of mobile smartphones became ubiquitous, and the ease of use of the devices, on the go, became commonplace. In fact, combined with the always connected Internet at home, consumers were beginning to enter the store with as much knowledge as their associates working for the retail store. Expectations began to rise. 
2. Apple Stores came out with a new way of ringing up customers on the iOS devices, which was seen as a far better user experience (although forms of mobile POS have existed for many years). Mobility was suddenly seen as sexy and not just practical for line-busting. 
3. New form factors began to arrive, creating the potential for a joint Associate/Consumer experience. While tablets have been around for over a decade (I was personally involved in a Clienteling deployment using Windows Tablets over a decade ago), the ease of use of the iPad and Android tablets made it far more feasible to deploy applications that were easy to use, with little training. And these solutions could actually augment the relationship with the in-store associate.

As Executive Management began to understand the impact of mobility (if not just from the point of view of consumer perception), more and more initiatives were created to leverage these new capabilities.  The obvious low hanging fruit was POS, but without some other technologies also being supported on the same device, the ROI was sometimes hard to justify. For this reason, many retailers looked for deploying in-store solutions other than POS in parallel with their mobile POS initiatives.

This is when the real challenges began.  First, the easy approach to mobile POS was to “bolt on” the mobile solution provided by the existing POS vendor. The challenge here was that not all vendors had a mobile solution; or those that did may not have had a solution on the device type of choice by the retailer. The iOS platform was gaining the largest acceptance (particularly in the US), and many vendors committed to creating solution on the iOS (iPod, and now iPad). Unfortunately this created additional issues for retailers in the form of security and privacy, as well as internal expertise. In addition, most PC-based solutions remained on the Windows platform, as this has been the hardware of choice for a number of years in the retail stores. As a result, IT now needed to support multiple hardware platforms.

Globally the device of choice was not always the iPod or iPad, as Android began to gain momentum.  While Windows was clearly late to the game (unfortunate due to the more robust security in the platform by nature), even Windows Mobile platforms were no longer supporting past application development (such as Windows Mobile 6.5), so now vendors were faced with a new set of Operating Systems for which to design, and retailers new devices (and corresponding OSs) to deploy.   Add to this that fact that traditional hardware vendors such as HP, NCR, Motorola, etc., were unable to deliver iOS hardware solutions due to the proprietary nature of the Apple platform.  As each of these vendors looked for ways to compete in the mobile device space, they looked to Windows or Android for their solutions; which has ultimately led to more competition, and even less clarity.

Making Sense of It All

So what is a retailer supposed to do in the midst of all of these changes?  What follows are my thoughts on how many of these challenges might be addressed.

In order to handle the problems associated with the above issues, retailers should be looking for solutions that provide the following four capabilities. The solutions should be:

• Platform Agnostic – solutions should be able to be deployed on myriad devices and Operating Systems - natively. While not 100% standardized today, HTML5 solutions provide the best cross-platform capabilities, and with the use of cross-platform development tools, these solutions can now be installed on devices natively, which provides for a much richer user experience. While there may be issues in the myriad screen resolutions and dimensions, these tools offer the promise of building code once and running it on existing PC hardware and on various mobile devices. 

• Data Agnostic – solutions should be able to access data from a variety of existing data sources real-time, and operate as though the data exists within the particular solution itself. While Web Services (SOAP and Restful) are clearly meaningful, a complete Data Access Layer that can draw data from a variety of sources into a logical data model, and then operate on this logical model can be even more significant. With the availability of data providers, this can now be a reality. Such a full extraction and separation of concerns allows a software solution to integrate in a variety of ways based on the retailer’s specific environment and data availability. 

• Deployment Agnostic – while retailers were cautious about storing data in the Cloud due to security risks, more and more retailers are seeing the benefits of doing just that. Hosted solutions, or Software as a Service (SaaS) has become commonplace in most industries, and retail is beginning to follow. Some information, however, does currently reside in-house, so a migration to the cloud is not practical, so solutions that allow for a hybrid deployment is a perfect compromise. This provides the benefits of the Cloud (cost savings, distributed data access, scalability, etc.) and the gradual migration of prior investments. Of course for those retailers with large IT organizations, the on premise model should also be available. 

• Flexible and Extensible - solutions deployed in retail must be flexible and extensible through SDKs and configurable capabilities whereby a retailer does not have to rely on the solutions vendor to add new features, or modify the way the solution works today. While there are clearly advantages to certain features being incorporated into a base solution, there are times where a retailer may wish to leverage prior development efforts, or to create a unique set of features which provide a degree of competitive advantage they may not wish to share. This extensibility is critical to future-proofing a solution to allow for the lowest total cost of ownership.

Conclusion

Advancements in technology and in consumer expectations have made deploying mobile solutions a high priority for many retailers; however the range of solutions, platforms and devices has made the choice of the ideal solutions increasingly challenging.

By leveraging technology and software development advancements, however, retailers can now begin to address these challenges with little risk. Solutions that can run on any device platform, can access data from a variety of sources, can be deployed in the Cloud or on-premise, and are fully extensible, are now not only a possibility, but a reality. Such solutions provide the retailer the flexibility needed to leverage existing systems, and the comfort in making decisions on their future hardware and environmental platforms.

Retail Mobility - Potential Impediments to Success

Retail Mobility

Potential Impediments to Success  

by: Scott Pearson

A general discussion document on the direction of mobility in retail and the potential barriers to rapid adoption of point-of-decision solutions.

Author's note: This was originally written in 2005, but in revisiting it recently I couldn't help but compare it to the state of the world in 2013. While serious progress has been made, it is surprising to see that we are faced with many of the same problems today - although perhaps to a much lesser degree. 

  

Introduction. 2

Stages of Information Technology. 2

Point-of-contact Solutions. 4

Real Benefits and Impediments. 6

Initial investment 7

Need to prove a defensible ROI. 7

Infrastructure issues. 9

Fear of Customer Reaction. 11

Inability to analyze data real-time. 12

Conclusion. 13

Introduction

With the advent of wireless mobility in retail, the knowledge of the enterprise can now be leveraged at the point of decision in real time. With real-time information on the sales floor, retailers can now assist in increasing service to customers as well as in raising the productivity of associates, one of the most difficult costs to control in retail.

Retail is at a point of flux as many retailers are only now preparing for the logical adoption of these sales floor technologies. It may be years before all retailers see the true advantages of enterprise mobility, and many will be caught playing catch up just to align themselves with their changing strategic direction. 

Stages of Information Technology

Information Technology management has gone through a series of stages. Richard Nolan describes the stages as initiation, contagion, control, integration and ultimately mastery of a dominant design.[1] He further describes these stages as having followed an “S-shaped” curve where broad acceptance, competition and efficiencies ultimately reduce the benefits over time. This sets the stage for the next stage, which ultimately supplants the previous. The dominant designs in this process have included mainframes, minicomputers, microcomputers, and network client servers. These dominant designs are further defined as the Data Processing Era, the Micro Era and the Network Era.[2] 

In a similar fashion Bill Nuti of Symbol Technology speaks of five Ages of technology: The age of centralized computing, the age of distributed computing, the age of personal computing, the age of networked computing, and ultimately the age of mobility. It is his belief that the impact of mobility will usher in a new age that will harnesses the technological developments of previous ages in productivity and advances them to all areas of an organization, including factories, warehouses, distribution centers and in the field. [3]

As described by Nolan, “the fundamental difference between Industrial Age companies and Information Age companies was the formal recognition of information as an important resource, and the incorporation of new management principles to manage information effectively and explicitly as a resource.” It is this realization that has allowed IT-enabled network organizations to begin to focus on their surroundings, and react and respond to the outside worlds, rather than simply make and sell products.[4] With the ability to provide this information at the point of contact, even on the move, mobility is the next logical extension of the Information Age.

Nearly every technology demonstrates spillover effects – new ways of using the technology that had not been anticipated. Early stages of spillover tend to be improvements in how things are currently done, but later stages can often change environments in fundamental ways. As highlighted in a review from the Boston Consulting Group titled Competitive Advantage from Mobile Applications, “As consumer companies embrace wireless applications three significant stages will occur. First, communication between organizations and their employees, customers, and suppliers will be radically enhanced, in effect mobilizing business operations. Second, companies will use new data from consumers and equipment to reshape business models. And third, previously untapped data will be processed in ways that will change the rules of competition and even redefine industries.”[5]

The above effects are fully anticipated, and are in fact what has been seen by the adoption of each of the various stages of IT development. What is ultimately unknown is exactly what changes in business models will occur, as well as what rules of competition will prevail. It is a safe bet to assume that technology at the point of decision will help to increase retail productivity on the sales floor, and quite likely help to increase productivity of the shopper as well.

Point-of-contact Solutions

With new standards of CDMA, GPRS and 802.XX, distributed computing and the Internet have converged to provide the necessary foundation to support enterprise mobility. Enterprises are now capable of moving the knowledge and power of the organization to the point of contact. The standard of choice for retail is currently Wi-Fi however the specific standard is less important than the ability of the technology in bringing information to the sales floor. 

The lack of information at the point of decision is extremely prevalent in retail. In fact, the retail sales floor has remained largely unchanged through the entire Information Age with the one exception of the cash register evolving into the point-of-sale terminal. The productivity of a vast majority of retail personnel has been virtually unchanged by technology. As retailers continue to focus on ways to keep sales staff on the selling floor and away from inventory stocking duties, the productivity of the associate becomes even more critical.

With the advent of the Internet backbone, and wireless technologies, retailers are now able to implement solutions that put information at the point of contact. These point-of-contact solutions are all designed to increase the productivity of the associate, manager or customer. The solutions range in functionality from mobile POS for queue busting, to merchandise location systems designed to ease the process on the floor and stockroom, to manager’s dashboards designed to keep the manager on the selling floor and out of the back office and finally to clienteling, where customer information is leveraged to enhance the relationship between the customer and deliver unique value propositions to each customer. It is a logical step toward a customer-centric organization that is highlighted in the implementation of these service oriented applications.

An additional benefit of point-of-contact applications is the ability to promote a two-way communication with the enterprise. There is now a structured way to gather additional information, as well as feed information. By allowing an associate to gather previously unavailable information about a customer, the organization begins to learn. If handled correctly, this learning becomes the beginning of a relationship where the customer has trained the retailer in how to best service their needs, and the switching costs associated with re-training a new retailer become very high. Additionally, best practices of the organization may be driven to associates guaranteeing a consistent experience, and a possible reduction of associate training. Training is a critical issue with retailers, as the turnover rate for most retailers is quite high.

A recent Gartner study concluded that “increasingly, retailers in this century want to replicate the personalized customer buying experience of years past, so they need to develop a more personalized relationship with the customer. It was the technology that initially took the retailer away from the customer because the information was digitized, thereby breaking the personalized relationship between the retailer and customer. In the future, it is the technology that will be used to reconstruct this personalized retailer/customer relationship.” [6]

Real Benefits and Impediments

Enterprise mobility may well become the mantra of the decade, promising to empower users with more information than ever before, at the most critical time—the point of decision. Providers of mobility solutions cite myriad advantages, and amazing ROI potential. They paint a picture of a world where every employee has access to all of their information in real-time, when they need it. 

It is often assumed that the ultimate value of mobility is a given. The following quote form Puneet Gupta of CNETAsia highlights the sentiment “The value that mobility brings to an enterprise is well known. It’s difficult to imagine how an enterprise can not benefit from real-time or near real-time access to information. The question is not whether enterprise mobility is desired, but when, where, and how it should be rolled out. Using a mobile strategy, an enterprise can expect regular and significant benefits in terms of productivity, response time, and accuracy of operation.”[7]

It is assumed that enterprise mobility will help to increase human productivity, as well as hardware productivity. Human productivity includes the gains seen by the associate or customer by using the technology. Hardware productivity refers to the previous dollars invested in data centers and networks. Enterprise mobility makes this information available to a new set of people, extending the investment – increasing the ROI on the dollars spent yesterday.

While both of these productivity gains would prove beneficial to any retail organization, the real picture cannot be painted so easily. Retail is faced with a number of issues that are assured to slow down the acceptance of wireless applications, and the subsequent benefits derived from those that are implemented.

Initial investment

Perhaps most daunting to many retailers is the initial cost of the needed applications, hardware and infrastructure. While investment in technology is never inexpensive, it is multiplied many times over for the typical retail enterprise. While a retailer may have multiple distribution centers that require infrastructure, they pale in comparison to the number of stores the retailer has. A retailer with 200 outlets would need to consider the additional cost of infrastructure, hardware and software for 200 doorways, and multiple touch-points within each doorway. This can prove to be extremely costly to an enterprise. For many retailers this has been sufficient justification to hold off on updating for as long as possible. Because of slim margins, retail has historically been slow to adopt most technologies. The added pressures of a slow economy further exacerbate this issue.

Despite these concerns, retail is beginning to show signs that many realize a need to update infrastructure. In a recent Gartner study 54% of respondents said they had begun or completed efforts to improve network infrastructure, and an additional 27% said they would do so within the next two years. In addition 55% of respondents had begun broadband initiatives, with an additional 21% hoping to complete these efforts inside of two years. Perhaps most telling, 35% have begun or completed wireless access to the stores with an additional 33% hoping to complete access in two years.[8] While the shift is significant, it is clear that the retail industry has a tremendous way to go. While 80% of retailers are adding, or will have added, network infrastructure a marked 20% have no intention of doing so in the near future.

Need to prove a defensible ROI

Because of the financial pressures of the economic downturn, and what might be characterized as a general disregard for IT in the retail sector, most IT spending must now go through a rigorous approval process. By holding investments to a higher standard retailers believe they can reduce the investment dollars needed for IT initiatives, and guarantee positive benefits from each. Through the 1980’s and 1990’s, most retail technology was aimed at reducing costs in the supply chain, or in optimizing the flow and quantities of merchandise to the stores. While having the right merchandise at the right store can increase sales, these initiatives have largely been viewed as cost reductions. Applying ROI models to cost reduction can be fairly straight forward, so these technologies were somewhat easy to justify for many retail organizations. 

As retailers begin a more customer-centric focus the assessment of solutions begins to shift from cost reductions to increasing top-line sales growth. Applying ROI models to these solutions has proven to be more difficult. It can be rather tricky to quantify customer intimacy. As described in 6 Steps to a Customer Intelligence Advantage by Mark Frantz with Jim Dion, “It takes a leap of faith by the CEO and CFO to believe that knowing customers better in stores can be tied to a sales increase. Moreover, public companies look for quarterly payback periods, and much of this involves paybacks that are 2-3 years out. Customer intelligence is a strategic move to create a compelling value proposition. It entails lots of detailed grunt work, but it will eventually become the price of admission into the retail game.”[9]

This has put a lot of authority for IT spending in the hands of the CFO, as it is often difficult to defend an ROI on a service related initiative. Even in a situation where a pilot rollout has been used, it is often difficult to point directly to the initiative as being responsible for any improvement. While most retailers may define Key Performance Indicators to study as metrics to support an ROI, it is still nearly impossible to isolate a store to a level that can guarantee the results are from the initiative. If sales increase, it could be due to an early cold spell, a new collection that arrived in the store, a recent sale, or a new marketing campaign.

All hope is not lost in this arena however. With the recent acceptance of CRM across the industry, there is a renewed focus on customer-centric initiatives and a template of sorts. CRM has brought about a shift from a transaction based approach toward a customer view, where the focus ultimately becomes lifetime value of the customer, and a share of their wallet, rather than a share of the market. By leveraging the success of many of these CRM initiatives, retailers have begun to loosen the purse strings regarding some of these initiatives. As described below, however, this can often create larger problems than many retailers imagined.

Infrastructure issues

Many retail organizations have begun to see the need to redefine their value proposition, and are looking for technology to help align them with their chosen strategic approach. With a realization that not all retailers can be low-cost leaders, retailers are looking at a variety of differentiating activities. As described by Joe Skorupa in Wal-Mart Nation, retailers must “focus on refining their business models and carving out profitable niches in the multi-trillion dollar retail pie. Wal-Mart may be the business leader of our time, but retailers who follow its lead do so at their own peril.”[10] For these reasons, many retail enterprises have shifted their focus to the customer, and toward solutions aimed at increasing service at various levels. In a recent Gartner study, over 70% of retailers responded that in two years they will have completed work in centralizing customer intelligence, while 64% will have increased efforts to segment customers based on needs, behaviors or economic value.[11] While this concept may seem obvious, it requires a monumental shift in how retail technology is applied. 

The current mix of technologies in the typical retail environment is comprised of a tremendous number of legacy systems. The primary form of technology in the store, the POS system, is typically some of the oldest technology in the enterprise, and is usually based on old and sometimes proprietary platforms. In addition to old systems, there are numerous databases storing information in the typical retail enterprise. POS systems generate a transaction log file which stores the transaction data, while merchandising systems track the SKU and UPC information. CRM systems contain personal customer data on some customers and additional databases, such as proprietary credit cards, may contain still other pieces of personal data. When there is a common view of the customer, the data is still often unclean as the initial data entry is often duplicated between stores, and often within stores. Since scrubbing data can be a very tedious and time-consuming process, it can prove to be a decision point whether to move forward on initiatives.

The realization that retailers have to get a handle on their data is perhaps best highlighted by the statistic that 52% of retailers have begun or completed initiatives in creating data warehouses or data marts. In addition, 23% plan to update their data storage procedures in the next two years.[12] A quote from this Gartner study describes the situation aptly “Business experts believe no industry stores and tracks more data than retailing, so it’s not surprising that the data warehouse figures tell a strong story in the study.”[13]

While it is clear that retailers recognize the need to move toward an integrated system, most face an uphill battle with the disparate systems throughout the enterprise. With the advent of Web Services enterprises are more able to pass information from one system to the next, however it is a daunting task to determine the appropriate data, protocols to follow and read/write permissions for the various data. With a lack of a basic foundation, many retail organizations are just taking their first steps in the direction of a fully integrated enterprise.

Fear of Customer Reaction

Many retailers have found themselves questioning the premise of customer data on the floor out of fear of what the customer reaction might be. With the backlash of various initiatives such as DoubleClick[14], an increase in advocacy groups and a general growth of customer awareness of data privacy, many retailers fear the customer’s wrath if they perceive privacy threats. To complicate the point even further, there is a real issue of how to identify the customer in the first place. Clearly the POS terminal is too late to use data in a meaningful fashion. With the fear of how customers might react at the forefront, it can clearly be an uphill battle to gather the information in a meaningful manner. Mark Franz said it quite succinctly in a recent RED brief “As retailers discovered the value of customer data, consumers discovered the witness protection program.” [15]

While these concerns are as real as any impediment mentioned above, they are perhaps the easiest to address for the retailer moving toward service. Retailers that offer compelling reasons for the customer to participate and identify themselves will typically allay fears and receive consumer acceptance. In fact, while consumers and advocacy groups may make noise about these issues, their actions contradict their protests. Seventy-nine percent of consumers responding to a Forrester survey had responded to none of the opt-out notices they received from financial companies.[16] Furthermore, most demonstrated that privacy was for sale, for the right price.

Most consider the record of their technology behaviors – like what they watch on TV, which sites they visit online, and where they use their mobile phones – to be private. Yet between one-third and one-half are willing to share this data with providers for a $5 discount off their monthly service fee. [17]

While drawing the conclusion that customers don’t really care that much about their data could be dangerous, it is clear that they are willing to give data when they feel they will receive some real benefit in doing so. Many high-end retail sales associates have been doing just that in the form of a client book since the inception of retail, and the recent surge in loyalty programs supports the premise equally well. By allowing the retail organization to now control this data, there is actually a greater level of security, where customer data doesn't walk out of the door when a sales associate leaves a retailer. When customers are aware of the benefits, they have shown a broad acceptance. One lesson learned is that the benefits and policies should be clearly explained to a customer up front.

Inability to analyze data real-time

One final impediment to the effective use of point-of-contact solutions in the retail environment is the lack of processes capable of analyzing and delivering meaningful data real-time. While CRM applications have helped to slice and dice customer data to a point where customers can be segmented in myriad forms, it still approaches the task from a “one to many” perspective in that it identifies a condition (or set of conditions) and finds a group of customers that meet the search criteria. A customer-centric model needs to approach the interaction from a “one to one” or “one to many” perspective. A customer must be identified and an offer, or offers, must be determined based on unique customer data at or near real-time.

The ability to do this sort of analysis does not exist in the typical retail environment. As discussed by Mark Franz, “This is hard to do with 24,000 SKUs and 120,000 customers. Normal systems don’t do it well.”[18]

While present in some form on the web, the ability to apply extensive intelligent agents against the various retail data sources poses a real issue of real-time functionality. Basic functionality, similar to what has become popular on the web, will likely be the retailers first foray into real-time intelligence and suggestion engines, however most of the current applications rely heavily on inference engines. While inference works well for general merchandise and hard goods, it does not work well for fashion or soft goods. While it would be easy to infer that a customer buying baby formula may also need diapers it is less easy to infer that a customer that bought a blue shirt needs tan chino pleated pants. It is far more likely that a merchandiser might wish to suggest coordinating items, or group collections for this sort of detailed suggestive selling.

Conclusion

Mobility is the next logical step in the Information Age. Retail enterprises are ideal candidates to take advantage of this new platform as it finally moves information onto the sales floor, where it can best increase productivity. The retail organizations that realize the potential of this power have begun to build their organizations around this business model. They are looking at the various solutions and integrating applications that help them to provide a unique value proposition to each customer. 

Unfortunately, many retailers are faced with some form of impediment to the immediate acceptance and success of these initiatives. With concerns involving the initial investment and a need to prove a defensible ROI, retail decision makers are somewhat reluctant to place their necks on the cutting block, although the need to generate top-line increases is beginning to change this environment. With additional

complex infrastructure issues and lack of technology capable of performing real-time data analysis and delivery, there are limitations to the types of solutions retailers will look to deliver short-term. Quick wins are critical for proving the need to move in this direction strategically. For some retail organizations the fear of the customer reaction to privacy serves as just one more excuse to not move forward. While it is rarely the primary reason, it helps to support decisions based on other criteria.

Each of these arguments can be answered on an individual basis yet the sum of the total may cause pause with many retailers. It is clear that technology is moving in this direction, so the real question becomes how long they can afford to not respond.

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[1] Richard Nolan, ” Information Technology Management from 1960-2000”, Harvard Business School, June 7, 2001

[2] Nolan, 2001

[3] Bill Nutti, President Symbol Technologies, “The Enterprise Mobility Company / Keynote Speech”,  January 2004

[4] Nolan , 2001

[5] Competitive Advantage from Mobile Applications, Opportunities for Action in Consumer Markets / The Boston Consulting Group, Feb 2002

[6] Quoted from a Gartner Study in internal Symbol Technology document Dec 2003

[7]Puneet Gupta, Make the move with an enterprise mobility strategy, Techrepublic / CNETAsia 10/16/2003

[8] “Networks and Infrastructure – Laying the groundwork for the real-time, multi-channel store of the future”, Retail Technology Study, Gartner Research, June 2004

[9] Mark Frantz with Jim Dion , “6Steps to a Customer Intelligence Advantage”, Retail Executive Digest, October 2003

[10] Joe Skorupa, “Wal-Mart Nation”, 14^th Annual Retail Technologies Trends Study, Gartner Research June 2004

[11] “Customer-Centric Retailing, 14^th Annual Retail Technologies Trends Study, Gartner Research June 2004

[12] “Building the Smart Enterprise”, 14^th Annual Retail Technologies Trends Study, Gartner Research June 2004

[13] Ibid.

[14] Ken Mark and Prof. Scott Schneberger, “DoubleClick Inc.: Gathering Customer Intellegence”, Ivey Management Services, 2001

[15]Mark Frantz with Jim Dion , “6 Steps to a Customer Intelligence Advantage”, Retail Executive Digest, October 2003

[16] Jed Kolko, “Privacy For Sale: Just Pennies a Day”, Forrester WholeView Technographics Research,  June 11, 2002

[17] Jed Kolko, “Privacy For Sale: Just Pennies a Day”, Forrester WholeView Technographics Research,  June 11, 2002

[18] Mark Frantz with Jim Dion , “6 Steps to a Customer Intelligence Advantage”, Retail Executive Digest, October 2003