6 :1:3WWCUIELSALTROTAMRBAELNRESSSFEORRVMICETiny computers will also usher in the era of wearable computing. These hands-free, click-free computers,whether in the form of smart glasses, in-ear computers, or other form factors, could help sales assistantsthrough the sales process and enable them to deliver improved customer service. Such sales support systemsare attractive in an era of fast-changing product portfolios and high staff turnover. Hay Group reports thatmedian retail staff turnover for part-time labor is 67%, though it varies dramatically by retailer.Wearables could use a Computing technology worn by their customers. These wearable 51combination of visual recognition, shoppers is also an opportunity devices can be used to monitorspeech recognition, and other to transform the customer shopper behavior, triggersensors to help assistants experience. While 80% of US personalized offers, and deliverefficiently assist shoppers. For consumers currently have rewards to shoppers for certainexample, when a shopper asks, privacy concerns over wearable behaviors (perhaps for visiting the“Which of these wireless printers technology, half of those same store a certain number of times incan also scan at 600dpi?” consumers would be willing to a month or in a year). Shoppersthe sales assistant could near share personal data collected will need to perceive that theyinstantly be presented with a list from their wearable devices with enjoy a fair exchange of valueand guide the shopper to the retailers if they are given some for agreeing to wear technologyappropriate products. Or “Is this kind of compensation such as supplied by a retailer. It will needdress available in a size 8?” could a coupon or discount (Source: to offer them benefits theytrigger a stock check enabling the Accenture’s Acquity Group, 2014). value and come with adequateassistant to respond that he has assurances regarding privacysome in another store and offer Some retailers are already and security. These benefits mayto have it waiting for her to try on experimenting with replacing or may not be related to thewhen she gets home. loyalty cards with wearables for shopping experience itself. Retailers should begin insights that help them deliver experimentation with better customer service. wearable technology and devise strategies Retailers might want to explore to complement the the benefits of giving wearables to capabilities of their existing their regular shoppers and what human sales teams with value exchange will be required real-time, data-driven to incent shoppers to keep these wearable items on their bodies.
6:2 MT3UDARPNNRUIRFNAETCTIANTIUGLRECERORSUSLINDTO 6 : 2 :1 3D printing technology will continue to improve over the next decade and will potentially reframe the economics, supply chain and customization capabilities of retail. Retailers may also become manufacturers, able to make or finish customized goods on demand. In an urbanized world of small retail spaces, 3D printing promises to be able to offer shoppers maximum choice and immediacy, all supplied from a footprint that uses the minimum amount of space. The trend towards the use of 3D printers may also be fuelled in the US and Canada by the on-shoring of manufacturing due to cheaper energy and steadily rising labor costs overseas.52 NEW MATERIALS AND NEW APPROACHES TO JUST-IN-TIME Printers will be able to handle more types of materials, will be able to create products based on mixed material types, will improve output quality, reduce in cost, and improve their production speed. Beyond 3D printers, expect to see a broader new category emerge, that of local, just-in-time manufacturing. For example, DARPA is currently investing in research to build robots that are able to assemble an entire garment without any human interaction. Expect to see printers and other automated manufacturing technology that can print or make almost anything, including makeup, electronics, food, clothing, and even houses.
6:2:2MCTHUILESLTDEOENMSNIIRIZAEELDFSOPLRREOADDUINCGTS Retailers will need to beAs described in section 5.3.6, shoppers continue to prepared to deliverdesire personalized or customized products and they an increased level of customization acrosswill soon expect at least some level of customization most categories of product. Retailers andto be offered for most categories of product in the manufacturers will need to collaborate tofuture. This trend is especially strong amongst, but not understand the ways that shoppers will wantexclusive to, the Millennial generation. to customize products and then design a supply chain able to meet those desires. AJust-in-time manufacturing technologies, including 3D decade from now a customer may expectprinters, may offer retailers solutions that enable them to to walk into a clothing store and say, “I wantmeet the demand for personalized or customized products. this shirt, but in that color, in my size, and I’ll pick it up in 10 minutes please 6:2:3CPURSODTOUMCTIZSERDEQUIRE 53NEW DESIGN THINKING Manufacturers willCustomized products may also take on a social element need to design forwith shoppers able to buy products in retail that customization. They willwere created or modified by friends or other “citizen need to make products thatdesigners” located all over the world. A shopper in can be turned into finishedTokyo might buy a teapot, based on an original Spanish goods close to point of sale, based on thedesign, but that was modified by an up-and-coming particular desires of the shopper. Designingstudent designer in London and printed at their local for customization might include thinkingstore in Ginza. about modularity, leaving design windows for customization, and collaborating with retailersThis concept inevitable calls into question the notion to wrap compelling shopping experiencesof design copyright and may be very uncomfortable around the customization process itself. Forfor designers that are used to exerting absolute example, a company making eyeglasses maycontrol over the look and feel of an end product. deliver their retailers a set of easily assembledStrong consumer demand for customized products frame fronts, hinges, bridges, and temples.could lead to a significant shift in design thinking. The shopper might enjoy an interactive,Designers and manufacturers might choose to make gesture or touch controlled augmented realitytheir products more appealing to customizers by experience to build and virtually try a set ofleaving certain design elements open and flexible. customized glasses that the retailer then puts together on the spot.
6:3LOCATIONLocation-based services have been atransformative boon to the modernsmartphone-owner. But locationtracking has largely remained anoutdoor activity. That is changing. Therace is on to use indoor location trackingto improve the customer experience andgain better insight into shopper behavior.
6 : 3 :1WHY INDOOR LOCATION?Indoor location will enable a number of new opportunities for retailers:Shopper insights Dynamic pricingRetailers will be able to gain increased insight into Retailers will be able to optimize revenue through theshopper behavior and improve their store layout and use of dynamic pricing that varies by shopper, by time,shopping experience accordingly. In-store location and by location.data can be analyzed to understand the “footstream”of shoppers, much like insight can be divined by Shopper guidance 55analyzing the “clickstream” of online shoppers. Retailers will be able deliver customer-valued, location-Location-based offers based experiences in the store, including shopping guidance, route planning (based on a personalRetailers and manufacturers will be able to push shopping list) to pick the optimal route through thelocation-based offers. store, virtual sales assistants, and more.
6:3:2ITNEDCOHONRIQLUOECSATIONA wide range of techniques are being developed to determine indoor location, each with varying prosand cons. The easiest methods to deploy have low accuracy. The more accurate technologies still requirefurther development or refinement but will become viable within the next several years.Location tracking comes in two main flavors:Passive Tracking Active TrackingIn the passive mode, the location of a shopper’s In an active mode, the customer is interacting withdevice is tracked while it is in their pocket or purse. their device and seeking some sort of information,The customer is not interacting with their device service or experience based on their location.and so this mode of tracking is considered to bevaluable only for retailers and manufacturers. Different location techniques are more or less appropriate for each of these two modes. Multiple techniques are emerging to deliver indoor location. These include:56Wi-Fi triangulation Accelerometer and inertiaThis technique is in deployment today and uses Using a known starting location outside the mallwell-established technology. It suffers from low (sourced via GPS) the accelerometer in a phoneaccuracy – around 30m. And it doesn’t work can be used to track motion once the GPS signalin big box stores that have not invested in a is lost. If the shopper holds the phone so that it iscustomer-facing Wi-Fi infrastructure. fairly stable, this approach works quite well in the short term. However is not yet accurate enoughWi-Fi fingerprint during normal use (phone jogging around in the shopper’s pocket) and over longer distancesThis is a more sophisticated version of Wi- where measurement errors add up over time.Fi triangulation tracking that uses learning The accuracy of the MEMS devices inside phonesalgorithms to map a store’s Wi-Fi profile. In early will need to improve several orders of magnitudetrials, this has yielded much better precision, before this will be a reliable approach on its own,achieving 2-5m location accuracy. however it can be used to augment other location techniques.Bluetooth LE-based beacons Semantic locationBeacons such as Apple’s iBeacon* technology cantrigger offers to a shopper’s device when they are This approach uses additional signal processingwithin range of an iBeacon transmitter. The range on Wi-Fi signals over time to help refine locationof the transmitter can be adjusted to cover a small when it is unclear which side of a wall the shopperarea (5m radius) or the entire store. is standing by looking for the telltale signal attenuation created by walls.
Ambient audio Visual triangulationDifferent stores sound different. Using a device’s When devices are in active tracking mode, visualmicrophone to sample the ambient audio is not techniques can be used to determine location byenough to determine absolute location but this figuring out the geometry of the room they are in.technique can help when used in addition to Google’s Project Tango is doing some work in thisexisting, inconclusive location information. For area.example, when near to a store’s wall in a mall, with5m accuracy, the algorithm may not be sure if the Visual fingerprintshopper is one side of the wall in Starbucks*, orthe other side of the wall in Bath & Body Works*. Similar to the Wi-Fi fingerprint approach, aThe sound signature of the store could be used database of visual fingerprints could be generatedto make that final determination by the location to help devices quickly assess their location in asoftware algorithms on a device. store based on what they can see.Active audio Magnetic fieldSome stores are experimenting with adding audio In a technique similar to Wi-Fi fingerprinting, thesignatures to their in-store piped music to help digital compass in smartphones can be used todevices understand where they are. assess location based on magnetic fields present inside the store.The best accuracy will be achieved by combining several of these approaches together. Expect thesetechniques to evolve over time.6:3:3 6:3:4 57AHCOCWUARCACTEUREANTOEUIGSH? ALONCDASTEIOCNURITYThe desired accuracy for indoor location Location is also interesting as an additionaldepends on the use case desired. security measure. For card-present transactions, smartphone location can be used as an additionalA mall guide would be fine with perhaps 5-7m verification mechanism that adds another layer ofaccuracy. Traffic flow analysis needs roughly 2m security to protect shoppers at point of sale.accuracy, enough to assess which aisle a shopperis standing in. And a customer-facing store guide Retailers should work with IT partnersmay require 1m accuracy to be truly valuable to to begin exploring and investing inthe shopper and guide them right to the product active and passive location tracking asthey are looking for. a key component of their strategy for improving the shopper experience, andHighly accurate indoor location information to provide shopper analytics services tocan be used to connect the digital and physical manufacturers.shopping experiences and delivering location-based interactions to shoppers.
6:4CDPOEERSNISSROUENMFAEOLRRIZATIONCAUNSDTOMIZATIONShoppers would like to be treated as a customerof one, with their retail experience tailored totheir exact individual tastes and desires.Shoppers are interested in products, services and experiences that have either beencustomized, personalized, or perhaps both. The difference in these two notions islargely about who controls the individualization choices.
6 : 3 :1A customized product or deliver personalized products prefer to have a customized 59experience is one that has been or shopping experiences that product.designed, modified or somehow delight. Decisions about the way afinished to conform to the specific product is personalized are made As local just-in-timechoices, or specifications of the by the retailer and manufacturer, manufacturing technologyshopper. The parameters of perhaps in partnership with (including 3D printing, see sectionthe finished product have been the shopper, but not under 6.2) evolves and enables theexplicitly shaped by the shopper shopper control. Amazon*’s speedy production of customizedthrough some sort of interaction “Recommendations for you” are goods at point of sale, shopperswhere they are in control. They personalized based on observed will grow more accustomed toselect from a set of parameters behavior on their site. Netflix* buying customized products,that are offered to them or can includes “Suggestions for you” potentially fuelling increasedchoose to include some level based on watching behavior. desire for further customization.of personal element as part And the clothes shipped by This positive feedback loop mayof the customization process, Nordstrom’s Trunk Club* are lead to customization swiftlyfor example a personal image. chosen by a human that gets to moving from a differentiator, andCustomization may make a know your personal style and more of a novelty, to becomingproduct, service, or experience makes personalized selections a standard expectation forfeel more personal, but that does based on what they think you will shoppers. “I’m not buying fromnot make it personalized per se. like. <Brand X> any more. They won’tExamples of customized products let me customize a single thing!”include: NikeID* customized While the distinction betweenshoes, Red Envelope customized customized and personalized is At the service level, the moregifts, and the cars offered from not a simple one for many people valued type of customizationmost automobile manufacturers to grasp it is an important one might be as simple as being ablethat allow you to select engine to understand. A digital sign that to specify exactly when yoursize, colors, and other options. displays images based on the products will be delivered (so you apparent age and gender of a can be home to receive them).A personalized product or shopper is supplying personalizedexperience is one that has been content while an interactive sign Customization and personalizationbuilt based on the observed that shows a shopper the location will affect different sectorsbehaviors or preferences of a of a store on a map based on in different ways, to differentshopper. Personalization requires some kind of input from the extents, and on differenta retailer or manufacturer to get shopper would be customization. timescales. But one thing is forto “know” their customers in a sure: Shoppers are going tovery intimate way if they are to According to The Cassandra desire more and more product Report, 80% of Millennials would customization and expect personalized experiences.Retailers will need to think carefully Brands should be prepared to Retailers will need to find theabout the right places to apply have a two-way conversation with right balance between meeting acustomization and personalization customers to understand what shopper’s desire for customizationcapabilities to the products they they want, and then deliver it to and overwhelming them withsell and the associated shopping them. These conversations will “choice anxiety”. Smart retailersexperiences they wrap around the need to be facilitated via easy-to- will hide many customizationshopper journey. use interfaces designed to make options behind a set of simpler customization a delight. Colorful choices that mask the trulyRetailers will need to begin touch displays can guide shoppers overwhelming number of choicesexperimenting with customization thought the customization process or permutations available. Foras soon as possible, and figure out and design products from modular example, Starbucks* doesn’thow they can upsell shoppers to components. Technologies assault customers with a hugecustomized solutions. including gesture control, customization menu yet manages augmented reality, and virtual to deliver tens of thousands of reality may be used to enhance the options in the way they prepare customization experience. their drinks.
6:5TTEHHCEEONRSOHISMAERYOINFGPrefaced by massive advances in efficiency in bothproduction and distribution we are now seeingtechnology and associated business practice changesbeing applied to consumption. The result is thatconsumption is becoming more efficient. This haspotentially profound implications for retailers andmanufacturers.The sharing economy is creating extraordinary newvalue at lightning speed, and disrupting whole industriessegments in the process. Consider Uber*, Lyft*,Sidecar* and RelayRides* versus the traditional taxi,town car, and limousine industry as a primary example.
6 : 5 :1MTOAPSRSOIVDEUECFTFIOICNIEANNCDYDAILSRTERAIBDUYTAIOPNPLIEDStarting in the 18th century, the industrial revolution brought incredible efficiencies to production. Majortechnological breakthroughs included mechanization, steam engines, automation, electricity, hydraulics,and ultimately robotics. These made manufacturing vastly more efficient, boosted productivity, andmassively reduced the cost of goods. Parallel business process innovations like mass production techniques,outsourcing, and specialization boosted production efficiency even further.The late 19th century saw the and e-commerce have provided economy, where high-value or 61beginning of a major revolution very efficient tools to connect rarely used items are used in muchin retail as innovation in both manufacturers with consumers. more efficient and sustainabletechnology and business Supply chains and inventory ways, and products are beingprocesses brought huge have been streamlined using turned into services.efficiency to product distribution. successive waves of automationThe emergence of branding and and information technology. The sharing economy would notpackaged goods shifted stores be possible without an underlyingfrom being a full service to mostly With serious efficiencies root of trust. Underpinning all ofa self-service experience. Logistics brought to production and this innovation is the fundamentalnetworks sped goods between distribution, we are now starting need for strangers to comemanufacturers and retailers, to see technology and business together as buyers and sellers,and ultimately also delivered to innovation applied to improving or renters and loaners, and toconsumers. And more recently the efficiency of consumption conduct transactions safely andthe Internet, mobile technology, itself. Hey presto, the sharing securely. 6:5:2DIGITAL REPUTATION AND TRUSTBy digitizing trust, computing technology is acting as the vital lubricant needed to enable the sharingeconomy where people share, barter, rent, or loan products in a peer-to-peer manner, bypassingtraditional retail and distribution networks. This has already brought huge efficiencies to consumption.The sharing economy is For example, most cars spend According to The Cassandraparticularly attractive to 22 hours out of every day doing Report, 37% of US Millennials sayMillennials not just because it nothing. So why own a car when that they want to rent expensivegives them a potentially better you can just rent one whenever items rather than buy them. Thedeal on a product, but because you need one? And do so by the big open question: is this anthey feel it make more efficient hour (Zipcar*), or even by the economic reality of Millennials’use of expensive resources— minute (Mercedes* Car2Go*). Or current economic status andthis could be financial expense, if you do own a car, you might buying power, or a more savvyenvironmental expense, or both. choose to rent it to others when consumption ethos that will you leave it at the airport for a trip translate to long term changes in (FlightCar*). shopper behavior?
6:5:3TFOROAMCCOEWSSNERSHIPSome shoppers are now more interested to merely have access to a product rather than ever own it.Consider the tectonic shift this report, this finding may be simplicity, efficiency, and a modelunderway in music consumption jarring or perhaps even sound of living that is more sustainable.from ownership (CDs and iTunes*) unbelievable. But it illustrates For many older Americans andto access (streaming music a fundamental difference in Europeans, a car has becomeservices like Spotify*, Rdio*, and attitudes around ownership a sign of freedom. For youngeriTunes Radio*). In a survey by between Millennials, Generation people car ownership can feel likeThe Cassandra Report, over a X, and Baby Boomers. The status the exact opposite of freedom—itthird of US Millennials reported once inferred by ownership, and needs to be insured, parked, andthat they would prefer to pay full the ambition to acquire goods as maintained.price to access a product, rather a sign of personal success, havethan own it. For older readers of been replaced by a desire for In a world where ownership is now considered gauche by some consumers, retailers will need to challenge long-held assumptions about the shopper’s desire to own.62This trend towards access vs used sharing services of some retail evolutions each respectivelyownership is led by Millennials, kind would recommend that brought to production andbut is becoming embraced by service they used. distribution. Savvy shoppers haveother generations, including already figured this out. AroundGeneration X and Baby Boomers. This trend towards sharing 45% of Millennial consumers sayFor example, according to The services could limit future they consider resale value beforeCassandra Report, the biggest consumption as people favor making a purchase, implying thatusers of the AirBNB* room- access over ownership, and the they are at least considering thesharing service are Generation X. sharing economy brings the kind option to loan, rent, or resell theirAnd 91% of consumers that have of efficiencies to consumption purchases in the future. that the industrial revolution and Retailers will need to decide how best to operate in a landscape where resale value is an important component of the purchase decision. Some may find an opportunity to differentiate themselves by including information on resale value, or the current going rates for rental, for certain products.
6:5:4UFONRCERRETTAAIINLTEYRSAHEADThe shift to a sharing economy begs many important questions.The answers to these questions could have serious consequences forthe future of the retail sector.Will the sharing economy continue come with being “an AirBnB Manufacturers 63to grow, or is it just a fad? Is person”. How long these identities and retailers willMillennials desire to have access last, and how tight-knit the need to thinkrather than own a direct result of communities surrounding these carefully about alllimited spending power that will exchanges become, will be a key the implications ofshift as they are able to afford to part of determining the longevity, the sharing economyown more goods? Or will this new breadth, and impact of the and formulate theirhabit of sharing and access prevail sharing economy. response. Those thatin the long term as Millennials see choose to fight orit as a more efficient way to use It is estimated that over a million slow the trend (whichtheir hard-earned money? How cars have not been sold as a may be akin to Kingfar will the sharing trend spread result of the car sharing schemes. Canute commandingbeyond Millennials? Will “New Could the $15 trillion retail sector the sea to turn back)only” retailers that cling to only see a broad-based reduction in will need to remakeselling brand new merchandise sales as a result of more efficient the case for ownership(and that totally ignore the consumption? and build strategies toopportunities presented by the drive shopper desiresharing economy) become a thing More disturbing data for retailers to own rather than toof the past? comes from Kantar retail. In a just be satisfied with recent survey of US consumers, “mere” access.Current evidence would suggest roughly 30% of consumers saidthat the sharing economy is here they plan to spend less in the Retailers that decideto stay. This is looking like it will coming year, and about 10% say to partially or fullybe a huge, long-term disruptive they plan to spend more. The embrace the sharingforce in consumption, and will remainder plan to spend about economy will need tospread to every sector of retail the same. When asked why they have a brave rethink ofand be embraced by every age planned to spend less, 40% their current businessgroup. People report not only of Americans with household models and lookembracing the sharing economy incomes over $60,000 said it for ways to createfor economic reasons, but also is because they are simplifying new and compellingmore complex social reasons their lives by buying fewer propositions for theirtied up in identity and a sense of things. We could see reduced customers, and newcommunity. This shift in identity consumption in mature markets ways of defining andwould imply that increased not just in the name of efficiency, thinking about theirsharing is a permanent behavioral but also as part of a broader own value (see sectionchange. For example, an individual movement to simplify, reduce, 6.5.5 for some ideas).might self-identify as being “the and refocus spending in othertype of person that stays in ways, for example on services andan AirBnB* home” rather than experiences. As people embracebeing a “hotel person”. People more efficient consumption itwith these shared identities are frees up money to spend onnow becoming part of broader services and experiences. It iscommunities of people who share estimated that by 2020, everysimilar attitudes and outlooks. American household will spendThese are a set of community $3 on services for every $1 theyexpectations and practices that spend on goods.
6:5:5 O“FSETRHVEICWIFOIRCLADTION” As shoppers shift their spending towards services and away from buying goods, manufacturers and retailers will need to find ways to wrap services around products to grow future revenues. These services not only create Manufacturers and retailers, opportunities for increased many of whom have expertise revenue and value creation, in product development but do but also can create customer not have a core competency in stickiness and increase loyalty. services, should start exploring Section 6.1.2 offers a simple service opportunities now and example of services made either hire or buy appropriate expertise that possible as products becoming will enable them to build out adjacent service smart, connected and sensing offerings in the future. courtesy of the computing capabilities coming in the next decade from Moore’s Law.64
6:5:6CSHONARCLINUGSIEOCNOSNOONMTYHEThe sharing economy does present a number of opportunities to retailers that choose to embrace it:• Retailers could experiment with • Retailers could devote a portion higher margins by assuming leasing and rental services for of their footprint to selling used some of the risk for purchasers a range of product categories products alongside new (for example Best Buy is • Retailers could facilitate loaning, shifting from selling consumer • Retailers could serve as an bartering and renting services electronics to leasing home indemnification service to and serve as a reputation theaters as a service) guarantee used products they management system between are reselling, thereby justifying customersTHE SOCIAL ECONOMY 6:5:7 65Increasingly, consumers are Retailers will need to figure out how tomore likely to trust reviews and integrate social networking throughoutproduct insights from friends the entire length of the shopper journey:on social networks than from from initial discovery, to the decision‘official’ reviews and tests. The process, through purchase and beyond touse of social networks is bringing building after sales loyalty.greater efficiency to shoppersas they pulse their networksfor advice on purchases, or forreassurance on an impulse buy.
6:6CMLEUMBBSEARNSDHIPSMembership shopping clubs have provenpopular with shoppers. For retailers theycreate customer lock-in and change shopper’sbehavior to give them “first option” advantage.From Costco* to Amazon Prime*,memberships can offer great value toconsumers. Kantar retail estimates that clubmemberships will rise 5.6% CAGR from 2014-2019. Amazon Prime is now used by almost 1in 5 US households and boasts over 20 millionmembers. It is particularly popular withMillennials. Costco membership fees make upa large part of their profits.
6 : 6 :1CLUBS CHANGESHOPPER BEHAVIORThe most important things to note about memberships is that they change people’s behavior.Amazon Prime members shop lending library etc. Members As a result of this “Amazonat Amazon at twice the rate of exhibit an “Amazon first” first” behavior, 1 in 5 Amazonnon-members. People often mentality whereby 49% of them Prime customers say they havejoin for the free 2-day shipping report that when looking for a reduced their shopping at otherthat Amazon Prime offers, but product they will go to Amazon retailers.stay for the additional benefits first before going anywhere else.afforded by being a part of the Amazon’s sales can in part be Memberships and clubs could beAmazon ecosystem: free instant attributed to their high success critical to locking in customersstreaming video, the Kindle turning these inquiries into sales. and increasing revenue in the future. 67 Retailers will need to make large investments to build out trusted platforms and programs that deliver increasing added value to shoppers if they want to compete with Amazon Prime and other emerging membership-based ecosystems. They will need to build ecosystems of value that attract members and keep them signing up year after year. Those that do will benefit from increased ability to deliver personalized value, morecross and up-selling, and enjoying much deeper insights into their customers.See section 5.2.4 for discussion on the security and privacy implications for handling all the personal data thatsuch membership schemes would generate.
6:7DNDIEESLTRIWVUEOPRRTYIKONWSONTIRLLLEINNFEGUTRHTEHNERHigh-speed delivery could totally tip thebalance in the battle between traditionaland online retail. Online retailers are keento remove one of the final major barriers tobuying from them—lack of immediacy.
Traditional retailers still have “immediacy” as a major Retailers shouldadvantage when it comes to convenience purchases and partner asimpulse buys. They are also still the obvious suppliers for needed withgoods with a short shelf life such as fresh food and flowers. existing and emerging delivery providers to assure they have aBut delivery networks are about to undergo both technology and clear line of sight to high-speedbusiness innovation. “Next hour” delivery services are already delivery services as they becomeemerging and may eventually become widespread. Traditional available.retailers should watch closely for changes to delivery networksthat could strip away one of their key advantages.A number of disruptive business and technology forces are at play:• Algorithms fed by sensors will improve transition from human labor to autonomous 69 delivery efficiency - Fleet management, route machinery will more likely be set by social management, and truck packing algorithms desires and labor policy (and union power) than will continue to improve. These will boost the technological readiness. productivity, efficiency, and speed of existing delivery networks. They may also help improve • Delivery drones may speed last mile or last the accuracy of delivery windows encouraging 10 meter delivery – once they have been more shoppers to seek home delivery. adequately tested and airspace has been cleared for their use, drones could deliver• New peer-to-peer delivery networks will many of the smaller, lighter weight items we need. This said, many regulatory and social emerge and compete with the existing hurdles still remain before this becomes giants - Companies like Uber* won’t just be a reality. Several companies already have satisfied disrupting the taxi business. Uber is development programs in this area, including already experimenting with delivery services, Amazon*, UPS*, and Google*’s Project Wing. including UberFRESH* for lunch delivery, and Drones could cut deliver times from days to Uber Corner Store* for on-demand delivery of minutes, moving many impulse purchases convenience store staples. from physical to online. Such a shift would need to be considered against a broader• Public infrastructure – Municipalities wrestling sustainability, energy efficiency, public safety, with how to supply the megacities of the future and environmental set of contexts. are already conducting delivery experiments using public infrastructure. Dedicated trains in • Click and collect – Self-delivery is on the Japanese subways deliver goods as a way to increase, mostly in Europe. Carrefour in France remove delivery trucks from surface routes in has big drive-through collection centers next to major cities. Subway trains removing waste will their hypermarket stores. surely follow. • Mobile stores – Auchan, another major French• Autonomous delivery vehicles and robots will retailer has created 3000 mobile stores that emerge slowly – beyond autonomous cars lie go to the places where they know their time- autonomous delivery vehicles, and beyond that strapped customers will be: the parking lots of robots or drones that can deliver packages the big businesses, schools, churches etc. final 10 meters from the curb. The speed of thisTo amortize the huge investment warehousing, and distribution as Retailersthey are making in delivery a service. will needinfrastructure, will we see Amazon to ensureeventually horizontalize their Home delivery is clearly a that theydelivery offering and compete growing trend. However, it is still have a strongwith existing delivery players like worth noting that home delivery brand proposition onceFedEx and UPS? This is consistent is not a panacea desired by immediacy is strippedwith the way they have monetized everyone. For some it offers great away as a differentiatortheir other major infrastructure convenience, but for others it can versus online suppliers.investments, including offering be the exact opposite, mostlycompute, storage, merchandising, driven by inconvenient and unpredictable delivery windows.
TOHFETHFUETSUHREELF
7 THE FUTURE OF THE SHELFTOHFETFHUETSUHREELFThe shelf has been with us for atleast a couple of thousand years, andprobably longer.And it’s perhaps time for it to get amake-over. It’s time for the shelf to godigital. It’s time for the smart shelf.
7:1ESDNHEFDEILNCVIAENPSGS, TRAHANECD“KSMSH,OERLEF”:When we talk about a shelf, what are we talking about exactly? As the primaryuser interface of retail for at least a couple of millennia, we have seen the shelf showup in a variety of forms: the shelf, the rail, the end cap, virtual shelves on a digitalsign, and one could even think of an Amazon product page as a shelf of sorts.In this report, we will use the term help facilitate the conversation to see that product within the“shelf” to encompass all these between the manufacturer broader context of other productsvarious forms. Shelves display and the consumer. They help and offers. And they help thewares to shoppers and try to the shopper to discover and manufacturer to move theentice them to buy. Shelves also experience the product, and often customer towards a purchase. 7:2 73REDEFINING THE ROLE OF THE SHELFAs discussed in section 6.1, within the next decade anything in our world can become smart, connected,and sensing. In this timeframe, computing will become so low cost, consume so little energy, and be sophysically small that we can think of “smart” as an ingredient for anything. Even the shelf.The opportunity for the smart process. And it can do this in a a smart shelf can create data-ledshelf is to change the shelf’s role way that is highly personalized, sales and marketing opportunitieswithin the selling process. Today including the use of personalized and help them better understandthe shelf is plays a passive role pricing and promotions. who is buying their products,in this process. But a smart shelf and who is not buying theircan fulfill a much more active role Fundamentally, the shelf can products. It can also maximizewhere it understands shopper improve the shopper experience profit for the retailer by optimizingneeds, understands the product in two fundamental ways: making pricing dynamically, and enableor products it is showcasing, and the shopping trip easier, and manufacturers and retailers touses enhanced capabilities to making the shopping trip more reward shopper loyalty, all at theparticipate more fully in the selling exciting. And for manufacturers, shelf edge.
7 THE FUTURE OF THE SHELFEBFAXRMPOEAILCDYT, ODAFIVERSESMART SHELVESThere will not be a “one shelf fits all”solution. Smart shelves will come inall shapes and sizes, and all levels ofsophistication.Shelf capabilities will vary widely, and will improve over time as computingcapabilities increase and costs reduce. The diversity of smart shelves will matchthe multiplicity of different tasks they will be asked to perform.
7:3“Good” shelves will have basic intelligently with the shopper Some of these capabilities may,sensing capabilities, very stood in front of them. This will at least initially, be leveragedlimited display and no natural require a combination of sensors from the shopper’s device. Forcommunication capabilities. (3D cameras, microphones, example, the display, touch proximity, touch) and computing capabilities, and even the“Better” shelves will be capability needed to interact microphone of a smartphonecharacterized by having more with the shopper in a way that might be used by the shelfsophisticated sensors, more is natural, comfortable, and that for shopper interaction. Aslocal intelligence, and better is fully respectful of privacy. cooperative, heterogeneouscloud connectivity and services. For example, the shelf should compute architectures evolve,Simple shelves may have process all shopper image data the shelf may even use some ofonly proximity sensors, while locally at the shelf and not the local computing capability ofpremium smart shelves might transmit any images to the cloud devices to perform its function.include the ability to see, smell, for privacy reasons.feel, understand, and intuit The bottom line is that smartthe world around them. These The “best” shelves will be able shelves will come in a wideshelves will not only know what to leverage all these capabilities, range of different types andproducts they have loaded on and also tap into cloud-based capabilities. The main dimensionsthem (whether that be by using data sources to deliver bespoke of this diversity are shown in thecameras, RFID readers, weight wisdom and guidance to the diagram below:sensors, or other technology), shopper.but also understand and interactManufacturer-facing SHOPPER RELATIONSHIP Customer-facingSensing Only Two-way Interactive 75No Display DISPLAY Simple SophisticatedRetrofit, Plug-and-play (hi-def 2D, holographic) Device as Display New Infrastructure (e-ink, lo-def 2D) INSTALLATION I/O SOPHISTICATIONNone Touch Gesture Basic Speech Artificial Intelligence VirtualPhysical FORM LOCATIONPantry/Fridge Local Store Big Box Store Warehouse
7: 3 :1MSVMSAACNURUSTFATSOCHMTEULERVREE-RSF-A–FCAINCGING Retailers will need toDifferent retailers will make different business decide how to focus their smart shelfdecisions on whether the smart shelves they deploy deployments. Some will focus themare focused toward the provision of manufacturer- on offering a differentiated shopperfacing services, customer-facing services, or both. experience, some will be more focused on data gathering as a service for their manufacturers. Many will deploy shelving infrastructure that does both.Manufacturer-facing functions a two-way relationship would product information, socialare typically a one-way sensing include the delivery of dynamic media reviews, discounts, andrelationship with the shopper. or personalized pricing, and personalized shopping guidance.These include gathering insight promotions. For example, the shelf mighton traffic, linger times, customer display or say, “Alice, this productdemographics, and success of Customer-facing functions are contains gluten”, or “Alejandro,offers and advertising. A more more likely to facilitate a two-way this product is on your daughter’ssophisticated manufacturer- interactive conversation with the birthday wish list”.facing function that would require shopper. These include providing76 SHELVES WILL SPORT A RANGE 7:3:2 OF DIFFERENT DISPLAYS, OR NO DISPLAY AT ALLShelves will vary in their display capabilities. Many will have no display. Some will have glorioushigh-end, highly engaging displays used to merchandise products. Other models will use theshopper’s device as the display.Since most retailers won’t want to turn Retailers will need to considertheir store environments into a visual shelf displays as part of theirassault resembling a miniaturized Las broader look and feel. WithVegas strip, most shelves will likely have proper attention paid to on-no display, or employ the display on a screen design, and the use ofshopper’s device. However as display more muted display technology (brightness will need totechnology continues to develop, be set optimally for the lighting levels in the store) evencapabilities increase, and costs fall, an OLED or LED display can be made to look good in asome categories of product will benefit store environment. Control and constraint on the designfrom a rich display capability. This might will be important to avoid the shelf looking like a couponinclude the use of high quality video, catalogue on steroids. Retailers that figure out this recipeand ultimately “holographic” displays. early on by engaging thoughtful designers and user experience expertise will be at an advantage.
7:3:3UPGRADES AND NEW DEPLOYMENTSInitial implementations will need to plug and play with existing shelving infrastructure. Longer term, moresophisticated smart shelving will replace existing infrastructure. This will be justified once new deployments are ableto deliver appropriate value to manufacturers, retailers and shoppers. 7:3:4VIRTUAL SHELVESSome shelving will be physical experimentation in this area with product to be showcased in their 77while other shelves will be virtual space technology. Using flagship stores where space is atvirtual, designed to enable the a set of large touch screens they a premium. Their implementationshopper to view a wider variety created a movable carousel also enabled shoppers to interactof products than is available in of virtual shelves displaying with the digital shoes, to learnthe increasingly limited physical footwear alongside physical racks more about their construction,space of the store. Adidas* has of shoes to create the illusion of a and to see the materials used toalready done some successful virtual space. This allowed more make them. 7:3:5DIFFERENT SHELVES INDIFFERENT LOCATIONSShelves will also vary depending or fridge. Shelves in a pantry or retail might make use ofon their location: A smart shelf fridge only need to sense and sophisticated sales capabilitiesin a small local grocery store gather home produce inventory to help shoppers discoverwill be different to a shelf in a levels. Shelves in a local store products and move thembig box electronics store and will likely combine inventory and towards a purchase decision.they will both be different than a some basic sales capabilities,smart shelf in someone’s pantry whereas shelving in experiential
7:3:6 BGEOSOTD,,ABNEDTTAEMRA, ZING So we should expect a broad spectrum of smart shelving. These will range from simple plug-and-play add- dynamic pricing, act as in-store billboards so retailers ons to existing shelves (basic sensors, no display, can sell advertising services to manufacturers, and assessing shopper traffic and linger times) up to super more. high-tech installations with either 2D or even 3D/ holographic displays that are able to communicate As technology continues to mature, and price with the shopper using touch, gesture, and voice and points fall, more and more capabilities will become that can see and understand the world around them. possible over time. Whatever the capability, a smart These shelves might be capable of natural language shelf must deliver value to either the shopper or the interaction with shoppers, able to make personalized manufacturer. Ideally both. After all, history shows offers, optimize retailer revenue by offering intelligent over and over again that technology for technology’s sake is an utter waste of everybody’s time. Given the rapid speed of innovation78 coming to the shelf courtesy of Moore’s Law, infrastructure manufacturers may choose to design highly modular smart shelf systems. These will allow easy extensibility and rapid experimentation with new technology as it becomes available. A platform approach such as this will help to boost competitiveness and at the same time control costs. It may also enable the capture of increased value by attracting the activity of software and services developers. Retailers will need to figure out how to capitalize on the opportunity to generate returns from manufacturers by creating data-led sales and marketing leads at the shelf. Retailers will need to think about the smart shelf as a platform for creating and delivering new services to manufacturers, including at-shelf advertising, dynamic pricing, virtual sales assistance and more.
7:4LTHAERGTIEPROICFEABMERUGCHDeploying smart infrastructure based on Internet of things (IOT) technology is relatively useless unless it’sconnected to a back-end infrastructure that can gather, analyze, and act upon all the data gathered by thesophisticated set of sensors in the shelf.Section 8 discusses data in supported by a sophisticated access to databases that storemore detail, but deploying IOT back-end server infrastructure real-time inventory data, customersolutions like the smart shelf is not able to gather and store data, profile data, and productfor the faint of heart. To unlock run the latest data analytics, information. The back-end servermaximum value, and deliver truly and deliver support services to infrastructure may also providepersonalized service to customers, the shelves as needed. These video streaming services, naturalsmart shelves will need to be support services could include computing services and more. 79 Systems architects will need to make careful architectural decisions on where best to host the intelligence needed to deliver experiences at the shelf. In some cases it will make sense to build capability into the shelf itself, but in other circumstances a cloud-based approach may be the more cost-effective approachand enable faster deployment of new services and capabilities.
7:5ECBNOEHTNWAVNEERCESINNAGTIONSAMNADNUSFHAOCPTPUERRESRSA smart shelf, bristling with sensors, should be ableto understand not only what product is displayedupon it, but also something about the shopper stoodin front of it. Like any good sales person, the idealsmart shelf will need to have a personality thatcombines knowledge and insight on the shopperwith great selling skills. The shelf should also makechoosing easier for the shopper. Again, this is justlike any good sales person.
The shelf will be able to host a conversation betweenmanufacturers/brands and consumers. Today that conversationis hosted by way of simple signage on the shelf, and also bypackaging or labelling on the product itself. But what if thatconversation could be customized based on the individualshopper, and the shelf could make enticing, customized offers tothe shopper on behalf of the manufacturer?Let’s consider the types of conversations that manufacturers andbrands need and want to have with prospective buyers:Value and differentiation – They Offers and special pricing – Social context – They want to 81want to explain why their product They want to convey any special share any salient online reviewsjustifies the price tag, offers value offers and promotions, including that might help the shopperfor money, and how it is different personalized offers that the choose. These could includeand offers better value than the manufacturer wants to make to reviews from sites that thiscompetition. the shopper to entice them to particular shopper respects and make a purchase. They might also trusts, and also reviews from theirPositioning and help choosing want to set pricing dynamically friends. They may possibly also– Is the product good, better, based on the individual shopper, want to highlight similar purchasesor best? How does it compare either to reward loyalty, or to made by friends and shared viaagainst other products in a range? optimize revenue by using social media. “Carrie has this inThe shelf should simplify the algorithms to try and set the price black, and loves it”purchase decision and make it at the highest level that will stillmuch easier for the shopper. encourage the shopper to buy. Availability – They want to show in-store, local and onlineSuitability – How well does this Queries – They want to answer availability. And if the product isproduct meet the customers’ shoppers’ questions on the out of stock, provide other optionsneeds? Not any customer. This product and remove them as a for the shopper to source theparticular customer. barrier to purchase. desired item, or a similar item.The ideal shelf will be able to handle all of these conversations with shoppers and help to move the shoppertowards making a purchase.When designing smart shelves that don’t appear to haveshelves, retailers will need to the shopper’s interest at the centerfocus on trust. The shelf will of their programming. Shoppers willneed to build trust with the flee a self-interested shelf just as fastshopper in just the same way as they will run away from a shopa human shopping assistant assistant on commission that clearly aswould. It will need to be able to demonstrate: an agenda.• Strong knowledge on products and the market Retailers will need to find ways for the shelf to help the shopper through the product discovery• Empathy for the shopper and understanding of process and move them towards purchase. What their needs if the shelf could become a trusted advisor to the shopper?• Honesty, transparency, and trustworthiness Retailers will need to find ways for the shelf• That it has the shopper’s best interests at heart to help brands establish and then strengthen relationships with shoppers.Shoppers will quickly figure it out if retailersblock poor online product reviews or deploy
7:6 SDMEVAERLTOSPHAENLVEEQS SHOULD Retailers should start A smart shelf might also assess the emotional state and thinking about what they will do context of the shopper in much the same way a human differently once they are able to shopping assistant will attempt to rapidly assess their best deploy infrastructure that can approach to interacting with a customer. assess and understand the current emotional state of a shopper. Using indoor location, cameras, eye-tracking, and other sensors, the shelf could assess whether the customer is: • Stressed, or relaxed • In a hurry, or open to a more lengthy shopping engagement • Confused and lost, or moving with purpose • Looking at multiple products (and thus in discovery mode), or focused on just one or two products (and thus perhaps in decision mode and about the move to purchase) By better understanding the emotional state of the shopper, the shelf will be able to make an intelligent decision on how best to offer assistance. For example, a shopper that looks stressed and in a hurry probably doesn’t have time or the patience for a helpful suggestion on a delicious sauce that would go perfectly with the broccoli they just put in their cart.82 7:7BCOECNOVMERESNAATTIOUNRSALWILLComputers will soon be able to communicate with people in a way that is natural to us, ratherthan in a way that is suitable for computers.Computers will be able to see and will be capable of all these things find Tikka Masala sauce on theunderstand the world. They will too. shelf above, 20% off today.”understand objects and peopleand the relationships between Imagine a future interaction with Jack then walks to aisle 3 andthem. They will be able to hear a shopper, talking to a “natural” sees the shelf area with basmatiand understand natural human smart shelf: rice lit up in yellow. The shelf tooklanguage, sense emotional states, a leap, based on Jack’s previousand understand and appreciate Jack: “Shelf, where can I find purchase history, and offered acontext. And since shelves will basmati rice?” personalized suggestion for a sell-soon become computers, shelves up item. Shelf: “Hi Jack, it’s on aisle 3, highlighted in yellow. You’ll also
For the merchandising of some Natural shelves might also Retailersproduct categories, perhaps give the shopper an option to will need to understand the rangehigh-value or newly-launched connect with a human who is of questions and concerns thatproducts, retailers may choose able to answer queries on the typically stand between a shopperto use a natural shelf with product and aid the sale. This and purchase, and ensure these arespeech or display capabilities connection could use audio, fully comprehended in the shelf’sthat could provide on-demand video, or even use avatars. This software algorithms.information on the products latter technology might be ofbeing displayed. particular interest to retailers selling products for children,A natural shelf could respond allowing the child to interactto queries like: “Show me how with their favorite cartooneasy this is to install”, or “What character as they learn about adoes this look like in orange?” new book.These types of conversationscould help move shoppers astep closer towards purchase. 7:8 83CGOONINVGERBESYAOTINODNAs well as facilitating the conversation between manufacturers and shoppers, some smart shelves will alsobe able to perform a range of other functions including:• Loss prevention – Cameras and other sensors • Asset management and Inventory in the shelf could offer closer monitoring of management – Sensors in the shelf could larcenous shoppers. constantly report inventory levels for• Sample management – Smart shelves could products they are showcasing, and also include mechanisms to offer and dispense samples to targeted shoppers. potentially for products across the aisle using machine vision technology.Once the base platform of the intelligent shelf has Retailers should find ways tobeen established, and a set of standards emerge, engage third party developerdevelopers will continue to dream up a set of communities and invite them toexciting new capabilities for retailers that will help imagine and build new applicationsimprove the shopper experience, create new value for their smart shelving platforms.for manufacturers, enable the provision of newrevenue-generating services, and that improve thecompetitiveness and profitability of the store.
7:9AOFTISEHREELDVHESIERARCHYPerhaps one of the most promising use cases for deploying smart shelves is one that connectstogether many shelves in a tiered network. A shelf network would include shelves: Shepherd’s Pie • In the home, both in the fridge and in the pantry INGREDIENTS • In the local neighborhood convenience store YOU HAVE: Chopped onion Eggs All-purpose flour • In big box stores Ground lamb Frozen peas Half-and-half Chicken broth • In distribution centers and warehouses (these could Unsalted butter Rosemary be distribution centers that feed physical stores, or Black pepper Thyme pure play online stores) Canola oil By fully instrumenting shelves, right down into AT LOCALMART STORE: the home, a new generation of algorithms could be created that would anticipate demand Russet potatoes Garlic and optimize the position of products within the supply chain, increasing availability and Carrots Tomato paste reducing spoilage and inventory mark downs. NEIGHBORSTOCK: It would then be possible to anticipate local community demand not just by looking to Kosher salt - Bob & Julie, Unit 112 Worcestershire sauce - Robin & Gary, Unit 30484 historical consumption patterns but also ONLINE FRESH: WITH YOU IN ONE HOUR! by understanding the real time in-home Ground lamb consumption of local residents. Further, if residents opted in to a secure, perhaps PRICE: $9.45 anonymized service to share their calendars, this aggregated demand forecast could also take into account the travel schedules of shoppers. High security and the guarding of privacy would be essential in this scenario. A set of networked, instrumented shelves might also enable a new set of neighborhood focused sharing services, embracing the sharing economy at the local community level. The old, “I need to borrow a cup of sugar” model of old could be facilitated as an opt-in neighborhood service for community-oriented neighbors that chose to participate. Need an onion? The system could let you know that neighbor Alice has seven and probably won’t eat them all, facilitate a request, and even handle cross-billing so that Alice got paid for her onion. A smart, connected recipe system connected into this tiered shelving system could suggest menus optimized around the ingredients available in the home, but also point out the availability of needed ingredients in other locations, including neighbor’s homes. For example, a smart, connected recipe might look something like this:
The initial idea for this tiered futurecasting scenario combines smart shelf where a networkmodel was generated out of the shelf intelligence in the home, an of intelligent infrastructure—futurecasting session where it intelligent local store, and online spanning home, store and online—was explored via a futurecasting capability to deliver an experience can optimize for efficiency atscenario and a science fiction that puts the shopper at the the system level, and also createprototype. These were covered center. exciting new value by deliveringin section 3.3 and section 3.5 a set of new shopper-centricof this report, respectively. This A model like this is perhaps the services. ultimate integration level for the Smart Warehouse High End AI Smart Shelf Community PantrySmart Fridge Big Box & Pantry Store Local 85 StoreNote: For those in thecomputing business, thisapproach is akin to a cachingarchitecture with a cascading storagehierarchy. In computing, memory caches areused to try and feed the processor with all the datait needs, as fast as it needs it. It does this using intelligentcaching algorithms to predict what data to keep in theclosest, fastest memory. If we consider retail distribution as a similarnetwork with a storage hierarchy, we can imagine the need for predictivealgorithms to analyze usage and optimize the chances of customers findingthe items they need in stock, whether that be in their pantry (L1 cache) their localstore (L2 cache), or at the hypermarket (L3 cache).A solution such as this might be of particular interest to a retirement community living in an urban environmentwhere mobility is more limited and convenience is even more prized. Major retailers should start thinking more broadly about infrastructure deployments and partner with others to deliver much greater value to shoppers and to society at large. Rather than limit the scope of their thinking to the infrastructure in their own stores they might consider engaging in partnerships with others to imagine and deploy system-level networks of smart infrastructure that improve efficiency and deliver new experiences for people. Partners could include suppliers, architects, builders, city planners, and logistics companies.
7:10SBSMHUESALIRNFTESSMODELSA wide variety of differentbusiness models could be builtaround the intelligent shelf.
A few sample business models that come to mind: An integrator builds a smart shelving solution (including all the back-end data The retailer leases a smart shelving solution from an integrator, who becomes their analytics capabilities) and sells it to a business partner. The retailer generates retailer. The retailer configures the system revenue streams by selling a range of services and deploys it in a way that delivers a to manufacturers. These might include highly differentiated shopper experience, shopper analytics services (foot traffic, boosting their revenue and margins. demographics), provisioning customized offers to shoppers, on-shelf advertising, dynamic pricing, and other services. The integrator and the retailer share revenue from these services as part of their business relationship. Manufacturers fund, develop, and 87 deploy smart shelving in their retailers’ stores. Retailers gain insight into a subset of the data gathered by the shelves to help them optimize their operations. Shopper-facing capabilities boost sales increasing revenue and margins for both retailers and manufacturers.Any number of business models could be used tobring smart shelves into retail. The key businessquestions are around who pays for deployment,how they pay, and why they will pay. So long asthe deployment creates adequate value for thoseinvolved, business models will emerge that will fuelthese installations. Designers developing smart shelves will need to consider the best way to monetize the value that they are creating for retailers, manufacturers, and shoppers.
TAITHB’SEOUADTLALTA
8 IT’S ALL ABOUT THE DATA TITH’SE ADLALTAABOUT As the front-end face and back-end infrastructure bones of retail become instrumented, a myriad of sensors will generate vast amounts of data. This data will be collected everywhere from the warehouse loading dock, though the store shelf, to point of sale and beyond. This data will fundamentally serve two main purposes: While dealing with all this new complexity, retail enterprise structures will also need to keep a close 1. Enable operational efficiency improvements based eye on security. Retailers continue to be large targets on data analytics and operational insight for cybercrime, and security will be an ongoing (and never-ending) war against ever-more sophisticated 2. Enable personalized experiences to be created and hackers and criminals. (See section 5.2.4). delivered to customers that save customers time, generate delight, and increase brand loyalty90 Retailers and manufacturers are Retailers will need to introduce Retailers will need to understand going to be faced with managing data-driven analysis into how to use the insights they a huge explosion in the amount their traditional “gut-driven” derive from data to create of data they need to collect, decision-making process. increased loyalty, brand store, manage, protect, and This combination of art and connections, greater efficiency, analyze. They will need to do science melds creativity and and ultimately translate that into this cost effectively, and in a way a deep understanding of the greater profit. To do this, they are that extracts maximum value shopper psyche to enable them likely to need help. from the data; Value for them, for to build new and innovative manufacturers, and for shoppers. retail propositions that delight customers.
8:1PAACRQUTNIREERDWAITTAHTOARLENTMoving data around costs money, and as smart infrastructure—includingsmart shelves, smart warehouses, and smart delivery networks—spews outvast amounts of data, decisions will need to be made on where and how thatdata is processed.Some data will be processed Winners will also be the fastestin the cloud, but much will be to innovate and deploy newprocessed at the edge using technology in ways that improveintelligent gateways that mitigate experience for shoppers.or reduce the need to send bits allthe way to the cloud. Optimizing Whether through buildingdata and associated computing partnerships and outsourcing dataand network architectures will be services, or through hiring andcritical to minimizing OpEx costs. acquisition, retailers will need toArchitecture will also be dictated invest in building a scalable databy privacy needs and regulations capability. This will enable retailersthat will vary from country to to differentiate by proving a bettercountry. customer experience both online and offline. 91 In some cases, retailers will need to boost their own data acumen and may need to acquire data engineering and data analytics talent. In a game where the retailer that best understands and best serves their customers wins, it may be that the retailers with the best team of mathematicians and thus the best analysis wins. Retailers will need to think carefully about the right balance of insourcing and outsourcing to optimize speed, differentiation and thus competitive advantage.Retailers will need to build strategic partnerships with experts indata management, network and data architecture, security andencryption, privacy, analytics, data hosting, cloud, and storage.
8:2AUNNIDFYOIFNFGLIONNELDINAETAUnderstanding a shopper as a “customer of one” means building a picture of them that spans rightacross the omni-channel customer journey. Today online retailers gather to a shopper’s online shopping visit. This would allow retailers data on customers in the form history, creating a piece of the to build a more holistic view of of clicks and hovers, through the unified history. But retailers would a shopper’s journey in the store purchases they make, and through love to know more. They would combining their route with details the wish lists they compile. Once love to know when shoppers of the individual interactions they sensors are deployed in physical come through their store and had with smart elements of the stores that can gather the buy nothing. They would love to store. equivalent data set for shoppers know what shoppers look at, but as wander through the store, don’t place into their basket. And And if “Shopper B” then identifies retailers will end up with two, they would love to see how they themselves at the checkout by discrete data sets. One for online moved around the store and what using a loyalty card or recognized customers, and one for in-store caught their attention. payment system, their in-store customers. behavior could then be added The identity of a shopper might to their profile and used to The challenge is to harmonize not be known, or might only improve the personalization of these two data sets and meld become known when they swipe the experience the next time them into one detailed picture of a a card at the checkout. Systems they enter the store, or go shopper’s interests, habits, needs, could be imagined that monitor online. All this will need to be and track shopper behavior in- managed within the constraints92 preferences, and likely intentions. store and label them simply as of respecting the privacy of “Shopper A”, “Shopper B”, and shoppers, allowing them to remain This is easy to say, but very “Shopper C”. A combination of anonymous if desired, and with difficult to do. location tracking and smart shelf the philosophy that any data sensing could build a profile of that is gathered on a shopper A full picture of a shopper’s a shopper without them being is done so on an “opt in” basis, in-store activity can’t begin and identified and link together with explicit permission from the end with their purchase history multiple interactions at the shelf shopper. as it does today. Loyalty cards into one single profile for their linked to online accounts help retailers add in-store purchases Retailers will need to be able Retailers will build the most accurate to clearly articulate value to understanding of their customers if they are able the shopper in tracking their to unify their customer data from both online and behavior and deliver real value offline sources. that encourages shoppers to opt in. Tracking that only serves the needs of Retailers will need to build their systems in a way manufacturers or retailers will be seen for what that respect shopper desire for privacy and that it is, and will probably be seen as a break of trust allow them to remain anonymous if they so desire. and the social contract.
8:3CVOERLLSAUBSOCROAMTPIOENTITIONIn this new world of big data, retailers have a couple of ways they canregard their new data assets.Firstly, retailers could jealously store might recommend a top 93guard their data and leverage that goes well with the skirt shethe insights they gain from it just bought in another store. Retailersas a competitive advantage. will need to determineThis might be a great strategy Third party data brokering their strategy forfor retailers that have loyal services may emerge that sharing data withcustomers that they see on a link together retailers in “data others. If they decideweekly or even more regular cooperatives”. And retailers to share they will needbasis, such as grocery stores. might perhaps collaborate in to gain the consent much the same way airlines of shoppers, buildAlternatively, retailers could club together in alliances strategic partnershipsmake deals to share their to offer their customers with other retailersinsights with other retailers. convenient services that span or data brokers, andThis might be a great strategy across airlines. A connecting determine appropriate,for retailers with low frequency flight becomes a connecting secure mechanismsinteractions with shoppers, or shopping experience that needed to share data inwho only have a small number spans retailers. Such alliances a way that fully guardsof outlets. Such retailers might may make more sense if they privacy.find other retailers willing to were to span different sectors,share customer data on a quid or were between retailers thatpro quo basis, enabling them to don’t directly compete.gain better customer insightsand deliver more personalized And of course the moment dataexperiences. This may be starts to be shared betweenwelcomed by shoppers who entities data security becomesvalue personalized services. For paramount.example, a woman’s favorite
8:4WHO PAYS: CAPEX VERSUS OPEXOne major open question for the retail sector is who will retain ownership of all this data?This question can actually be for retaining ownership of the Whoever collects and owns allsimplified and reduced to: who data? this data will be able to refine it towill pay to collect all this data? Will create value. It boils down to anretailers and manufacturers make Different retailers will have issue of control, and a discussionthe CapEx investments needed different approaches. The answer of whether manufacturers andto gather and analyze their own for each retailer will be partly retailers want to pay for this typedata, or will they give it away to a philosophical and partly a of capability out of their CapEx orthird parties that offer “free” or business decision. OpEx budgets. Retailers face twosubsidized infrastructure in return main options here:Option one: Big CapEx up front, and ownership Retailers will need toof the data. determine their data ownership strategy.Option two: Give the opportunity to a third partythat collects and analyzes the data, and then payfor analytics services on a monthly basis. Either way, manufacturers and retails will pay somehow. And they will gladly pay because this refined data will offer94 great value, both to them and to their customers. 8:5HROETRAIZILONINSVMESUTSMTELNETNGTHENOther than having to deal with long-term To maintain their competitivenessreal estate lease agreements, retailers in the second era of digital retail,have historically enjoyed very short-term retailers will need to lengthenplanning horizons when compared to their investment horizons andmany other sectors such as construction, take a much longer term viewhealthcare, or transportation. of their future. The retail evolution that’s coming will take multiple years to build out.Investment timeframes measurable in Success will require strategic investments to beyears are hard to comprehend when planned, executed, and managed over multi-yearstores are focused on takings for the timeframes. Retailers will need to think of their returnweek, designers are scrambling to decide on investment over much longer periods, perhaps fivewhat the new line will be three months or ten years, or even longer for major investments.from now, and cutthroat competition Those retailers that have a strong vision for their brandkeeps retailers focused on competitors on and their brand proposition, that are brave enough toa daily or hourly basis. set their course, and that invest for the long haul to build out the customer experience will prevail. And the sooner they start, the better.
8:6SANTAANLDYATIRCDSS, AFNODRSDMATAAR,TINFRASTRUCTURE MUST EMERGEProprietary, vertical solutions will eventually yield to lower-cost solutionsbased on open standards and horizontal building blocks.The industry will need to define and resolutions for on-shelfstandard interfaces and a advertising.set of open APIs that enabledevelopers to collaborate with This will enable developers toeach other across standardized bring waves of rapid innovationplatforms. Most every aspect to the retail sector. Retailersof the smart shelf will benefit should look for open sourcefrom standardization at some analytics engines, standards-level. For example, content based networking, storage anddelivery will benefit from computing, and an open set ofstandard screen sizes, formats APIs in any deployment they embark upon. 95 Retailers will need to take risks and begin to deploy new technology in stores before industry standards have fully emerged. Waiting is not an option. Those retailers that invest early and forge the path using more vertical and perhaps even semi-proprietary approaches will gain early-mover advantage. They will learn what works and what doesn’t, and be on their second and third generation deployments before slower competitors have even begun. Smart retailers will invest early, learn quickly, and be willing to modify or switch deployment strategies on a dime. Once standards emerge they will move to open platforms that give them access to an ecosystem of developers and service providers. This will enable them to add exciting new functionality over time, and do so in a modular way that keeps costs under control.
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9 SUMMARY AND NEXT STEPS ETRHREEATASOIELFCIDSOINGHDIETRAEL. Retailers that embrace the possibilities presented by digital retail technologies will be able to98 ride a sustained wave of innovation that will carry them through the coming decades. They will gain significant competitive advantage by vastly improving the customer experience, and delivering better quality insights and more targeted selling to their suppliers. As the physical and digital worlds collide in retail, the smart shelf will likely be at the forefront of the value proposition of computing within the shopping experience. The shelf will need a variety of different features and capabilities so it can handle all the different tasks and usages we throw its way. A decade from now, the winners in retail will be those that invest in building personalized shopping experiences based on a deep understanding of each shopper as an individual. This will require the gathering, secure storage, and analysis of vast troves of personal data. And will also see a shift in the balance of IT spend from a deployment largely focused on the back-end bones of retail, towards a more balanced approach that spans both back-end operations, and also using technology to create a range of exciting, personalized in-store experiences for shoppers at the face of retail. Welcome to the Second Era of Digital Retail where shoppers will feel the power of digital technology as a key ingredient in every form of the shopping that they enjoy, whether it be online or offline, pick-up or delivery, mission or experience shopping.
9:1SNAEVXVTYSTREEPTSAIFLOERRSSo where do retailers go from here? The possibilities afforded by the Second Era of Digital Retail can beoverwhelming.Traditional retailers will need to bring the advantages offering, including immediacy, size & fit confidence,of online into their physical stores, including breadth and touch & feel.of offering, high availability, high efficiency, and lowfriction. Additionally, omni-channel retailers will need Here are is a summary of steps that retailers shouldto bring the best of traditional shopping to their online consider taking to get started in this exciting new landscape:GENERAL • Understand the right mix of human and digital 99 investment needed at each customer touch point• Consider the face, the bones, and the brains of to ensure you are able to meet or exceed customer retail, and build a vision for the store ten years from expectations. Examine existing processes and now. Use science fiction prototyping if you would determine where humans add true value and where like. But have a clear vision for what you want to automation can remove manual, tedious, or low build, and what you don’t want to build. Strategy value activities, freeing in-store labor to do what is as much about what you are not going to do as they do best. what you are going to do. Focus. And aim high. • Start the tough conversations with investors on• Partner with both your IT suppliers the need to extend investment horizons, and and your experience designers to explain the long-term return they can expect as a brainstorm potential opportunities result. Retailers themselves will need to lengthen afforded by the smart shelf, smart investment horizons and take a 5-10 year view of the infrastructure, data analytics, future. indoor location, and natural computing. Select one or two • Optimize your speed, differentiation and projects you want to focus on and create a viable competitive advantage by carefully balancing your plan to build a proof of concept that you can test. insourcing and outsourcing strategy for innovation.• Review hiring, staff retention, and training policies • Take risks and begin to deploy and procedures in anticipation of needing to attract new technology in stores before and retain higher quality talent able to deliver industry standards have fully different types of value to customers. Value that solidified in order to gain first- transcends that which will eventually be delivered mover advantage. by technology.• Invest in the quality of your staff so your labor force can become more focused on delivering highly differentiated customer service.
9 SUMMARY AND NEXT STEPS SHOPPER EXPERIENCE • Consider how to use technology to improve the “face” of retail, boosting their in-store experience to ignite sales with shoppers. • Fit in with the new rituals and routines of • Begin experimentation with wearable the changing customer and understand the technology and devise strategies to difference between ‘fast’ and ‘slow’ shopping complement the capabilities of their existing missions. Retailers will need to figure out how to human sales teams with real-time, data-driven best meet customers’ expectations for each of insights that help them deliver better customer these missions. They should optimize operations service. Explore the benefits of giving wearables to delight experience shoppers with a high- to regular shoppers and understand what value touch, high-tech, fun experiences built around exchange would be required to encourage them the buying process, or delight mission shoppers to wear these items while shopping. with stores built for shopper efficiency, zero friction, and to get them in and out of the store • Invest in technology that reduces friction as quickly as possible. in the product selection and purchase process. Deploy RFID or visual100 • Integrate social networking recognition technology to reduce throughout the entire length checkout friction to zero, while of the shopper journey minimizing theft. from initial discovery to purchase and • Explore, develop, and beyond. deploy technology that makes shopping more social, helps • Consider building shoppers choose, helps a membership them make memories, and ecosystem that deepens emotional around your relationships with shoppers by traditional sales increasing brand and product model that interaction. delivers added value to shoppers • Involve customers in authentic, (beyond simple transparent, two-way conversations discounts) and that about operations, suppliers, the retains members year future direction of the business, and the after year. development of products to boost emotional connections between brands and shoppers. • Differentiate by wrapping origin stories around products and brands that tap into shopper’s desire to understand the provenance of products. • Provide in-store connectivity to shoppers.
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