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
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.
Competitive Advantage from
Mobile Applications, Opportunities for Action in Consumer Markets / The Boston Consulting Group,
Feb 2002
Mark Frantz with Jim Dion , “6Steps to a Customer
Intelligence Advantage”, Retail Executive Digest, October 2003
