DAY 2. Takeaways from SXSW 2017 Day 2 and RetailLoco Highlights. March 14, 2017

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1 Takeaways from SXSW 2017 Day 2 and RetailLoco Highlights DAY 2 1) The Fung Global Retail & Technology team is attending the SXSW Conference in Austin, Texas, this week. 2) Community building both online and offline is critical for brands to drive loyalty. Influencer marketing in the beauty industry is a prominent example of building authentic content and a community of followers. 3) China is transitioning from low-value-added manufacturing to design-based hardware innovation. The China innovation delegation at SXSW showcased some emerging Chinese startups that have created state-of-the-art smart hardware, including smartwatches, selfie drones, on-demand city bikes and VR headsets. 4) We generate a long trail of location data throughout our daily journey, from checking our smartphones in the morning to watching TV at night, which provides a wealth of data for retailers to analyze to understand their customers better. 5) Following the initial hype phase, beacons have finally hit their stride, and retailers can use other technologies such as gamification and the targeted use of chatbots to boost sales. 6) The Fung Global Retail & Technology team will continue to report on key points and information during the rest of the conference. 1

2 Takeaways from SXSW Day 2 1. Community Building Is Critical for Brands to Drive Loyalty Consumer loyalty is highly correlated with the sense of community that a brand builds around itself, so creating that sense, both online and offline, has become a priority for retailers. Under Armour shared an example of how the brand helped get snow cleared from the sidewalks in Chicago so runners in the city could run safely. The effort sent a targeted message to the brand s customers that Under Armour is contributing to their community. Pinterest shared how the company enables community building over shared interests based on users postings 2. Influencer Marketing Is Democratizing Marketing in the Beauty Industry The rise of influencers has transformed how beauty brands market themselves. Beauty shoppers now prefer authentic content created by peers and influencers over direct commercial appeals from brands. YouTube has become the primary channel for beauty shoppers to obtain inspiration, mostly through beauty influencers. Consumers also now demand more practical content from beauty brands, such as makeup tutorials. To meet these demands, beauty companies are working with influencers to target specific audiences. Swan Sit, VP of Global Digital at Revlon/Elizabeth Arden, shared her company s efforts to work with microinfluencers, or influencers who have only a few thousand followers on social media platforms, but whose content is perceived as being highly authentic rather than commercial. Microinfluencers followers tend to have a very specific interest in common, so brands can effectively target niche audiences through them. 3. China Is Experiencing a Smart Hardware Startup Boom The country is transitioning from low-value-added manufacturing to design-based hardware innovation. The China innovation delegation at SXSW showcased some emerging Chinese startups that have created state-of-the-art smart hardware, including smartwatches, selfie drones, on-demand city bikes and VR headsets. These startups proximity to major manufacturing bases such as Shenzhen has enabled them to quickly 2

3 develop generations of products. Mobvoi is an artificial intelligence (AI) company that has developed Chinese language recognition technology and has built its own smart consumer products with smart assistants. Zero Zero Robotics has developed a smart drone camera that helps capture meaningful moments for consumers. Mobike, the world s largest smart bike-sharing company, has designed bikes equipped with GPS and smart-lock technology. 4. AI-Based Marketing Will Make Advertising Invisible for Consumers in the Future In the future, product marketing will have to seamlessly integrate with AI assistants recommendations, which will be based on searches of customers personal lifestyle behaviors and preferences. As a result, advertising will appear less commercial, and will sometimes even be invisible to the consumer. AI-powered personal assistants will enable more consumers to shop via voice command, and many will move away from today s screen-based shopping. By 2020, 30% of web browsing will be done without a screen, said Christian Ward, Head of Media and Marketing at research firm Stylus. The challenge of AI-based marketing is that marketers will have to demonstrate that a product offers real value to consumers in their day-to-day lives in order to rank near the top in smart assistants lists of recommendations. Another popular marketing channel will be chatbots, which brands will use to generate conversations with customers and tell their brand stories. Facebook has been a leader in creating brand stories via chatbots. 5. Tiny Houses Present One Solution to Increasing Housing Costs in the US Tiny houses, those under 400 square feet, could provide a solution to increasing housing costs in the US, allowing young people to live in a well-designed house that they can afford. Only 60% of Americans can afford to purchase a house over $250,000, and most houses in urban areas far exceed that price. Tiny houses typically cost $15,000 $90,000, and living in one lowers a homeowner s carbon footprint which is important to many millennials, who tend to be environmentally conscious. Davis Richardson, a graduate student at the University of Texas at Austin School of Architecture, showcased his own tiny house at SXSW. He said the house cost about $25,000 and took him about 12 weeks to build. 3

4 Takeaways from RetailLoco Retailers Can Greatly Benefit from Weather and Location Data Mall operators have shown interest in linking data such as weather information and time stamps to consumer purchases. For example, if consumers are more likely to shop when the weather is bad, then retailers would be wise to offer promotions based on a negative weather forecast. In one example, a convenience store operator was able to analyze location data to find out where its customers ate lunch. The convenience store then targeted those lunch locations, resulting in an 83% increase in visits to the convenience store. 7. Data from the Global Positioning System (GPS) Has its Limitations There are limitations to our global positioning system (GPS), which is unable to track activity within a store as well as to resolve vertical height, i.e., which floor of a building a person is on. Brands are not yet savvy about the technical issues surrounding the placement of location devices. 8. Retailers Face a Complex Arena of Media, Technology Platforms and Formats The difficulty of reaching consumers is amplified by the fact that they view advertising on a variety of devices, such as phones and tablets, TVs and billboards. They view a variety of media, too, such as text and video, and different media offer a variety of formats, further complicating both advertising and data collection. 9. Loyalty Programs Need to Offer More than Just Discounts Retail ultimately deals with humans, so retailers seek to build consumer profiles. Historically, retailers have not been good about collecting data, one panelist said, citing the following statistics: 50% of people leave a loyalty program because it is too hard to participate; 80% will pick a loyalty program that they think benefits them; and 65% say the most important time to offer a loyalty program is when a customer makes his or her first purchase. Just offering discounts as part of a loyalty program is not enough, as millennials, in particular, value unique experiences. 4

5 March 14, Walmart Is Using Gamification to Keep its Customers Healthy Walmart is partnering with insurance provider Humana to offer promotions for Walmart customers who undergo biometric testing (such as blood-pressure measurement) and discounts at checkout for customers who purchase healthy foods. In an effort to increase loyalty and lock customers into their programs, both Walmart and Amazon have also been increasing the number of services offered to customers, especially Amazon Prime customers. 11. Beacons Have Passed the Hype Phase and Become Useful Although beacons have hit a trough following the hype phase on Gartner s hype cycle, nearly 500 new beacons are still being turned on every day. There have been recent advances in beacons and sensors, though. Beacons can now be hidden in light bulbs and sensors can monitor temperature and air quality, which are useful in documenting quality-control factors. For example, sensor data can help ensure that certain cold foods have been maintained at specific temperatures throughout their journey to the store shelf. 12. Chatbots Can Drive Traffic When Used Properly In one example cited by a panelist, Bud Light judiciously used chatbots in the time leading to a big sports event and achieved a 76% conversion rate. Although chatbots have seen success in applications such as in the credit application process, they are still unable to converse freely with humans. The most successful ones structure questions with multiple choice answers, rather than requiring consumers to type in text answers. 13. Our Apps Are Constantly Leaking Valuable Location Data The concept of data exhaust reflects that many of our smartphone apps have the location functions turned on all the time and are thus constantly leaking data to the app servers. It is technically possible for an app maker to add software that drains off location data and then sell that data to a reseller. Data is the new oil, however, although every retailer is collecting data, not all of them know what to do with it. 5

6 Deborah Weinswig, CPA Managing Director Fung Global Retail & Technology New York: Hong Kong: China: John Harmon, CFA Senior Analyst Jing Wang Research Associate Hong Kong: 8th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: London: Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0) New York: 1359 Broadway, 9th Floor New York, NY Tel: FungGlobalRetailTech.com 6