Technology Will Be at the Forefront of Retailing - Essay Example

Forecasting changes to the utilization and scope technology in any industry is a challenge, but retail in particular, which requires a balance of operational efficiency and customer satisfaction, must acknowledge technological shifts before they occur to maintain a competitive advantage. For reasons that will be explored here, retail companies that do not stay ahead of technological changes will be unable to cope in a highly competitive marketplace, where multiple brands seek to provide the same products or services at lower cost and through different channels. By recognizing the forms of technology that have and will make an impact on retailing, companies can work toward a goal of adapting themselves to how the retail marketplace will look in 2020. The purpose of this paper is to explore current trends in retail technology and to use those trends to preliminarily paint a picture of how the retail experience will look at the end of this decade in terms of how retail companies are using technology both on the supply chain side and the consumer side to attract customers and remain competitive. In physics, the concept of speed and acceleration are different in the sense that an object’s speed is the rate at which the location of the object is moving. Acceleration, on the other hand, is the rate at which the speed of the object is moving quicker or slower. Retail companies are used to an environment in the 20th century where the speed at which technological change occurs is high. However, an increasingly prevalent fact in retailing is the acceleration of that technological change. By 2020, one can expect that the pace of technological invention and innovation will accelerate even more to the point where it is progressively more difficult to predict the exact nature of what technology will look like. Technological trends, despite being hard to predict when the technologies themselves change rapidly, can be broken down into three general categories, including (1) understanding customers, (2) understanding the supply chain, and (3) consumer communication and connectivity. First, retail companies use emerging technologies to understand their customers. The concept of “big data” is novel to most industries in the sense that only recently have companies been able to realistically invest in and gain return from technologies that allow very high-level, data-driven analytics to understand customer behaviours. Big data is collected either purposefully or as a result of people living in a world connected to the internet. Accessing and utilizing big data is a trend in 2014 that shows no signs of slowing down in the near future, and retailers are looking to continue their use of big data to analyse patterns, create consumer demand (including cues to shop), or assorting products within a store or a website (Gildenberg, McPartlin, Marcotte, & Dugal, 2013). One might say that “big data” analytics will be the norm in 2020, if not sooner, given that companies are already moving toward mining big data to standardize the sophistication of the products and services they provide. All things equal, if two companies are competing in the same retail marketplace and only one has an understanding of customers’ behaviours, wants, and habits, clearly then the company with knowledge and abilities to capitalize on that information is going to succeed, causing businesses to shift by 2020 to a model where big data is necessary. A challenge to utilizing big data, however, is finding the staff of skilled analysts to manage and make solid recommendations using it. The skills required for such analytics varies from one project to another with regard to data storage and retrieval. In spite of the many value-adding projects made possible by big data projects, many retail companies may find themselves not ready to invest in the infrastructure and human capital requirements of big data (Research and Markets, 2013). Although these challenges are very real, they are not insurmountable, and the advantages of understanding customers, particularly through social media where sentiment analysis and text analytics are valuable tools, simply outweigh the cost barriers posed by finding and training a workforce capable of handling big data. In addition to understanding customers, retailers will try to understand their increasingly complex supply chains by 2020, making use of some very important pieces of technology to do so. Tracking the movement of product from location to location is best represented in 2014 by Radio Frequency Identification (RFID) technology. RFID, which has been cost-effective and available for many years, is growing into a business necessity for companies tracking the movement of goods within its operations or moving across the country. Relying on cost-effective, scalable chip technology has the potential to truly take hold by 2020 on a variety of retail sectors and, in the process, reducing costs, increasing safety (by relying less on human beings to track the movement of goods), and reducing losses by goods being unaccounted for. Also, in certain product categories such as pharmacy and baby foods, regulation by public agencies will intensify the need to accurately and constantly check the location and progress of progress in the supply chain. In foods particularly too, the possibility of tracking the perishability of items like fresh produce is important for increasing customer satisfaction and food safety. The primary challenge to RFID technology on the supply chain side for retail companies is that RFID must rely on a power source, which can be in close proximity to containers or pallets, but for individual items, having a power source nearby can either be prohibitively costly or infeasible. It is not clear, given the progress being made on solving the power supply problem, whether RFID technology will be applied to the individual product level by 2020, but the fact remains that RFID technology aims to be more prevalent and influential in supply chain management by the end of the decade. Like with big data, though, such challenges to the use of RFID are not intractable; in fact, given the potential and realized benefits of RFID on the supply chain side of retail even today, it is not out of the question to expect tracking tools embedded in most products by 2020. Thirdly, customer connectivity and communication is an important factor to consider. While we have considered the importance of technology on the customer insights and supply chain side of the retail model, we must also consider the importance of technology on how customers connect with the business and how customers connect with other customers in terms of talking about the brand. RFID is an important technology when it comes to tracking products moving through the company’s operation, but the supply chain does not end when a product reaches the shelves of a store. For retail checkout purposes, RFID would allow product scanning and payment with much less interaction with humans or even machines. Although retail operations have already tried experimenting with allowing customers to self-checkout at kiosks, the introduction of RFID would reduce the need for labour even further (Gildenberg, McPartlin, Marcotte, & Dugal, 2013). Stores would be left with the discretion to reduce staff to meet overall margin goals. In addition, RFID might improve a customer’s overall experience in a store by reducing the need to wait in checkout lines, which depending on time of day, may cause the shopper to spend as much time waiting in line as he or she spent looking for goods. By implementing an RFID solution, a retailer might implement a solution that does not even require the shopper to take items out of the cart if the radio frequency identification can take place without the need for an actual scan. RFID also enables higher customer satisfaction and retention in other ways. By tracking the presence of items within a store, store management can track in-stock products versus out-of-stock products, making sure that the store has enough on the shelf. Management is also able to track the success of a product, reordering it sooner and make sure it is available and carried in the store (Salmon, 2012). The net result is less inventory visibility, lower labour costs, and decreased operational expenses, which all translates into lower prices for consumers. Customer connectivity and communication is manifested in other ways as well. Consumer electronic devices have become high-use tools—many which have mobile internet connectivity according to reports on how such devices are being used (Gildenberg, McPartlin, Marcotte, & Dugal, 2013). The current trend is toward the increasing use of smartphones as enmeshed with people’s daily lives; in 2020, one can expect higher rates of smartphone utilization for buying products and services. As retail companies continue to invest resources not only in their ecommerce presence but also their mobile user interface, the shopper’s connection to the internet will gradually become more seamless and make the in-store experience more replaceable. Continuing with this line of thinking, the continued leveraging of smartphones will make their presence very important by 2020. One can conceptualize these changes in terms of the classic “4P’s” of retail marketing, which are (1) product, (2) packaging, (3) pricing, and (4) promotions (Davis Marketing Group, 2012). The technologies we will review in subsequent sections will all have some impact on each of these components of the retail value proposition to customers. Essentially, product (1) marketing will be more interactive for customers through the use of smartphones, which could mean that customers are looking up reviews on mobile devices or asking friends for recommendations on social media. Packaging (2) can facilitate this process by providing codes that link users’ smart devices to websites or mobile sites with more information about the product or to a social media page with helpful reviews and content (such as recipes that use the food product as a key ingredient). Pricing (3) will work the same way for customers shopping in a store. Mobile apps facilitate a dynamic between the asking price for a product, interactions between the customer and the store, and a final price that includes any rewards or deals offered to finalize a sale. For example, rewards programs held by various retailers push out coupons or specials to customers based on their frequency of use of a certain product or service. Finally, promotions (4) are provided by retailers in relation to the customer’s location and known preferences. A tailored, personalized shopping experience makes finding value-adding products and services easier for a customer and increases brand loyalty. Implementing technologies to capitalize on the potential of the 4P’s for retailers sounds good in theory, but the question is how a company gets to this point of finding return on investment. A case study of using RFID to improve customer experience can be found in a recent announcement by Airbus called “Bag2Go”, which is a “reinvention of baggage” (Falconer, 2013). The bag includes an RFID chip, which allows passengers to track the location of their luggage during travel. The motivation behind Bag2Go is to reduce the risk of mishandled luggage. The RFID is recognised by automated baggage systems connected to the passenger’s flight itinerary; together with GPS, the user can track the baggage on the iPhone app “Find my Bag”. The Bag2Go concept is one example of how airports, airliners, and communications networks are tending to work together to integrate services for customers in a way that adds value both for consumers and for retail companies. The problem, though, as the Chief Innovation Officer for Airbus notes, is how Airbus capitalizes on the new development. That story is shared with many examples of retail technology: how companies make use of (or cope with) the growing potential of technologies and stay relevant to customers. RFID technology is relatively new on the scene of retail technology when one compares it to technology like barcodes, which are machine-readable representations of data related to the attached object. Barcodes are universal in the sense that since the United States government adopted them for making all products sold to the military in 1981, the worldwide industrial use of barcodes has exploded in everything from mail, hospitals, and stores. Barcodes allow items to be identified quickly, merchandising changes to be monitored easily, and items to be re-priced without the need to re-mark them individually. In addition, on the supply chain side, unique identifying numbers can attached to boxes rather than individual items within the box, which is linked to a database containing information such as order number, number of items packed, destination, and so on. Because barcode scanners are low-cost and very accurate compared to human data entry, their use is pervasive. In 2020, one would expect the use of barcodes and scanners to continue to be the dominant way of tracking inventory and checking customers out at the end of their shopping experience. In that sense, barcodes help with the packaging (2) and pricing (3) aspect of retail. Even though trends are more toward self-checkout as opposed to being checked out by staff, barcodes would still be used. Despite barcodes scanners’ continued use in a retail environment, additional technologies will put pressure on the universal use of barcodes. Like RFID, new technologies in near field communication (NFC) look promising in terms of re-shaping retail experiences by 2020. NFC devices enable contactless payment systems, which could potentially replace credit card transactions with a so-called “virtual wallet” similar to the Google Wallet concept introduced in 2011. The Google Wallet is a mobile payment platform that allows users to store debit card, credit card, gift card, reward card, and loyalty card information along with promotion redemption codes on their mobile phones. Users of Google Wallet, then, are able to use NFC-enabled devices to pay at terminals that accept that form of payment. As the convenience and security of such an option becomes a better sell to a wider population of customers, retailers will be incentivized to make the up-front investment in technologies that accommodate NFC-enabled transactions. NFC ticketing systems are already common in public transport applications in various European countries as well as in India, where NFC-based transactions represent the bulk of transactions in box offices. Technologies surrounding NFC continue to evolve in such a way that makes their potential impact by 2020 hard to predict insofar as, while the technology is improving, it is not clear whether there is a strong enough push by companies and consumers to put the technology in retail stores by the end of the decade. Even if the technology will increase in prevalence by 2020, it is not clear whether it will do so significantly enough to change the way that people shop. Of course, NFC would not replace barcodes but instead the need to use an individual credit card to complete an individual transaction in a store. Like NFC, quick response (QR) codes are becoming more common in their use in the 21st century. QR codes are a form of barcode that instead of linking to a database of information about price, specifications, and so on, links to a URL for a customer to access more information about a product. QR codes can be attached to a poster, to packaging, or to any other printed object, and they are scanned by a user’s internet-enabled smartphone. It consists of square dots in a square pattern against a white background, providing enough contrast so that a camera attached to a smartphone can adequately decipher the shapes. Their use is primarily aimed at marketing for retailers, enabling consumers to get from the physical world on a box or a poster to the virtual world full of information and additional reviews and advice. It is an interactive experience between both worlds, facilitated by the use of a QR code reader app. The primary advantage of providing a QR code versus a URL is the ease with which a consumer can access a website; on that front, the QR code holds the advantage. While industry professionals know that the utilization of QR codes by businesses (particularly marketing and creative professionals), what is not clear is their future. The unanswered question for 2020 is whether QR codes are a passing fad for advertisers or whether QR codes are feasible direct response tools companies can utilize to involve and interact with their target audience on a permission-based level. That answer depends on whether companies desire to advance their marketing strategy with an investment in a mobile channel, which in turn depends on the kind of retailer that the company wants to be. A retailer engaged in the mobile channel might seek a certain kind of demographic in its customer (i.e. young, technology-driven, etc.), and then a QR code makes sense in that context. For retailers looking at demographics who are not as mobile-enabled or who are less likely to use their smartphones (if they have them) to scan a QR code, then it may not make as much sense. The biggest mistake, in this case, is the thought that a QR code is a strategy in and of itself when, in reality, a QR code is a tactical aspect of a larger marketing strategy. By defining the target customer first, companies are better able to decide whether to utilize a QR code in the first place. From a technical perspective, QR code technology is in its infancy, so it is not surprising that from 2000 and on, it has not been widely adopted. But with technological development in place and retail companies continuing to realize the future of permission-based, one-to-one marketing, QR code technology will be at the forefront of the success or failure of a retail business by 2020. Instead of placing advertisements in magazines or newspapers, which major retailers depended on greatly in the late 20th century, QR codes enable customers to see information without the need for expensive ad buys. Understanding the demographics of the target market through big data will assist companies understand whether QR technology makes sense in the marketing strategy, but ultimately with companies seeking a growing market of younger customers, their meaningfully expanded use (from the perspective of volume of scans) by the end of the decade is likely. Adding these digital features makes the product more appealing, and it connects users with the retailer on a personal level, making brand loyalty and repeat visits more likely. Another piece of retail technology poised to make an impact by 2020 is the GS1 databar code, which looks to make up for the disadvantages of standard barcodes that have been widely used since the 1980s and thus to replace existing technologies in scanning and paying for retail items. Databar codes enable GTIN identification of hard-to-mark products like fresh foods (by taking up less space), improve traceability and product authentication, variable measure product identification, and couponing. While EAN/UPC (standard barcoding) provided retailers with the foundation for solid stock management systems, GS1 databar along with RFID applications promises to provide multiple attributes related to each unit in the categories mentioned previously. Perhaps the best advantage of databar is that conversion costs are small and are limited only to changing the packaging of manufactured goods to reflect the new GS1 databar standards. Nevertheless, companies have been reluctant to adopt GS1 database codes on products, primarily due to concerns of whether scanning will work with the new technology. Given that the advantages of switching from standard barcodes may not completely outweigh the trouble of converting, one might safely say the advent of databar may not occur until after 2020 for most retail companies. Moving away from the technologies involved explicitly with in-store retailing, consider now the impact of trends on ecommerce shopping technology that will be even more apparent by the end of the decade. Experts predict that by 2020, retailers will be dealing with a “digital divide” between two categories of multi-channel shoppers who have different expectations and patterns. The first category of Generation X and Generation Y shoppers are instinctually drawn to shopping online, even for items they buy on a daily or weekly basis. The second category of shoppers use the online channel much more casually and have patterns that are harder to predict and measure using big data analytics (Gildenberg, McPartlin, Marcotte, & Dugal, 2013). Another megatrend in retail is the move toward zero-channel status. A push is occurring in large companies like Target and Best Buy toward integrating the traditionally independent channels of retail stores, outlet stores, internet, catalogue, and so on into one single experience for customers. Previously, channels had been so distinct that companies actually had separate companies to handle them. By 2020, one will see the culmination of efforts to integrate channels to accommodate customers who are mobile and taking their internet access with them. Customers who mobile-enabled are not bogged down into a single channel and actually find benefit in shopping across multiple channels or even using mobile devices while they shop in-store. Based on discussions with leaders in the retail sectors, market research analysts see many retailers as not ready for this shift toward zero-channel retailing; that shift will be paired with the recognition and attempt to develop customer value chains built around the customer rather than products and inventory management (Fenwick, 2011). That trend for retailers going toward a zero-channel experience is caused primarily by the birth of the digital consumer, which is promiscuous in terms of media consumption and has a short attention span on reviews, reports, and so on (Reul, 2012). The key for retailers in technology will not simply be to create a mobile app or to build a mobile-enabled shopping experience, but to capture and hold a customer’s attention for long enough to make a sale. A shopping-centric approach is different in the sense that it allows customers to pick the channel they want to shop within and to provide the shopper with snippets of information (such as recipes for food products or brief tweets about how the product is great) that increase the chances of closing a sale. Although the logistical complexities of delivering products is concerning for retail stores, the zero-channel, shopper-centric approach will be standard in 2020 and businesses that cannot adapt to that model may find themselves irrelevant. Lastly, adapting to new technologies emerging by the end of the decade will provide an opportunity for retailers to escape an old problem, which is commoditization. Commoditization is the process whereby goods with economic value and are distinguishable in terms of attributes end up becoming simple commodities; in other words, it is how differentiated goods become undifferentiated goods in the eyes of customers. When goods like groceries are commoditized, customers no longer consider anything other than price when making a decision on where they shop. From a retail sector perspective, what happens is that all grocery stores begin to compete on price, and the net result is that prices (thus, margins too) are low. Technology, though, offers an opportunity to differentiate goods with innovation and customer experience. Retailers who can effectively adopt technology like RFID tags or unique, efficiency-causing barcode scanners not only can compete better on price and pass those savings on to customers, but they can fundamentally improve the customer’s experience by moving them in and out of the store. Stores that are differentiable on something other than price (for example, Whole Foods as being a sustainable, nature-based niche retailer with a good sense for trends in technology) have a distinct advantage when customers plan to go out to the store to buy everyday goods (SAP, 2011). To conclude, there are many possible directions that retail technology may take between now and 2020, given that the development of technology tends to accelerate over time. Based on the direction that technology is going today, however, one can expect barcode technology to continue its widespread use, QR codes to develop and become essential marketing tools for retailers, and RFID and NFC technologies to have more of an impact than they do currently. Each of these trends is driven by an underlying movement of retailers to recognize that a zero-channel strategy is the best bet for success in the near future and that mobile-enabled customers are an increasingly important segment they need to reach in order to stay competitive. References Davis Marketing Group. (2012). The marketing mix and 4 Ps. Retrieved from Davis Marketing Group: http://thedavismarketinggroup.com/Marketing%20Mix.pdf Falconer, R. (2013, June 13). Airbus unveils RFID ‘Bag2Go’ that can be tracked from an iPhone app. Retrieved from Future Travel Experience: http://www.futuretravelexperience.com/2013/06/airbus-unveils-rfid-bag2go-that-can-be-tracked-from-an-iphone-app/ Fenwick, N. (2011, January 24). Retail 2020. Retrieved from Forrester: http://blogs.forrester.com/nigel_fenwick/11-01-24-retail_2020 Gildenberg, B., McPartlin, S., Marcotte, D., & Dugal, L. (2013). Retailing 2020: Winning in a polarized world. New York: PwC. Retrieved from http://www.pwc.com/en_US/us/retail-consumer/publications/assets/pwc-retailing-2020.pdf Research and Markets. (2013). Global big data market in the retail sector 2014-2018. New York: Research and Markets. Retrieved from http://www.researchandmarkets.com/research/ljc3sb/global_big_data Reul, M. (2012, March 16). Retailing 2020: Serving the digital consumer. Retrieved from Retail Detail: http://www.retaildetail.eu/en/retail-report/item/13844-retailing-2020-serving-the-digital-consumer Salmon, K. (2012). Transforming the customer experience with RFID. New York: Motorola Solutions. SAP. (2011). Retail 2020: A vision for the future of retail. Regensdorf: Future Retail Center. Read More