Technology is profoundly changing the way we shop

Transcription

1 Technology is profoundly changing the way we shop Managing customer engagement is the biggest challenge for retailers Sponsored by Publication Date: January 2016

2 Contents Executive summary... 3 Introduction... 4 Key observations... 5 Technology has a profound impact on the shopping experience... 5 Retailers are adopting diverse technologies for better customer engagement... 8 Speed-to-market is critical for retailers Conclusion Appendix Methodology Ovum Consulting Copyright notice and disclaimer

3 Executive summary Ovum carried out a survey of 200 retailers 100 UK-based and 50 each from the US and Europe on behalf of BT, to better understand its current and future technology investments. The focus of the data and analyses provided in this whitepaper is solely on the UK market. Customers in the UK typically use three or more devices to connect to online services and hence have several touchpoints with a retailer. This proliferation of devices and instant access to information often builds consumer expectations around the experience that they expect to have when engaging with a brand. Hence, it is essential for retailers to offer a seamless experience across these touchpoints, using the data collected from these interactions to derive a single view of the customer and use that to offer customisable shopping services and an intensely personal shopping experience which is what most modern customers have come to expect from businesses in the digital world. The majority of UK-based retailers use a broad range of channels (social media, online stores, mobile apps, etc.) to reach and engage their customers. However, a vast majority of retailers (67% of respondents to Ovum s survey) continue to rely on in-house, on-premise applications and infrastructure to support their digital initiatives with no plans of moving to outsourced or cloud-based platforms, software and services in the next months. The lack of agility and flexibility, and the limited compatibility with latest technologies of many of these in-house systems and infrastructure, are the most critical issues impacting UK-based retailers ability to swiftly make course corrections to fluctuations in market demand. A meagre 5% of retailers in the UK currently use cloud-based delivery models, which hampers their ability to respond quickly to market movements. Retailers should examine the feasibility of adopting a cloud-based model, which will provide high availability, scalability, and redundancy if they have problems putting in place and managing the infrastructure required for an on-premise system. 3

4 Introduction The multifaceted systems, processes, and business needs make retail one of the most dynamic verticals in the digital economy. The rapid rise of digital consumerism, multiple touchpoints, and an omnichannel presence and the emergence of newer and increasingly disruptive technologies poses serious challenges for retailers. There is a strong focus on driving innovation across the supply chain and the IT division within the retail organisation is expected to be able to quickly switch between Run the business and Change the business modes. As new store formats, multiple sales channels, and business models emerge, there is a real need for retailers to understand customer behaviour across touchpoints and provide a seamless shopping experience to their customers across channels. To develop a greater understanding of the needs of the retail segment, Ovum and BT conducted a survey of 200 retailers across the UK, the US, and the European Union (EU). In terms of geographical splits, 50% of respondents were from the UK and the rest were split evenly between the US and the EU. More importantly, all the survey respondents have physical stores with over two-thirds having an online and/or an omnichannel presence as well (see Figure 1). However, during the course of this whitepaper, we will be focusing primarily on responses from UK-based retailers with occasional comparisons with their US and EU counterparts. Figure 1: Breakdown of survey participants by geography and sales channel, 2015 The UK-based survey respondents fall into a number of retailer types such as: department stores; fashion and apparel; food and grocery; footwear; home improvement; health and beauty; and a host of specialist retailers (see Figure 2).

5 Figure 2: Sub-vertical breakdown of UK-based survey respondents, 2015 Key observations The surveyed retailers use multiple means to reach and engage with customers. The impact of various technologies and market forces on investments and business priorities remain more or less consistent across the three geographical segments, which is testament to the fact that customers across the world are demanding similar things in their shopping experience. The major challenges that most respondents face is responding swiftly to changing demand patterns, and providing a seamless experience to customers across omnichannel touchpoints. Technology has a profound impact on the shopping experience The retail industry is undergoing significant changes. The global recession had a seismic impact on retail, the repercussions of which are still being felt. At the same time, the growing importance of technology, specifically with regards to e-commerce, is fundamentally altering the way retailers do business. The Office for National Statistics observed that in 2014 almost three quarters (74%) of all adults in the UK reported buying goods or services online, which is a dramatic increase from 53% in Furthermore, according to Google s Consumer Barometer, the average person in the UK accesses information on three different types of devices before making a purchase decision and often shops via apps on these devices. This proves that a shopping experience is now a multi-touchpoint process. For instance, customers might access information on a product via mobile phone or tablet, purchase from the online store via laptop, and choose to collect the merchandise in store. This makes it imperative for retailers to offer capture data around these interactions to deliver a seamless experience across

6 touchpoints while simultaneously making the experience memorable. However, the sheer complexity of managing such interactions and providing a seamless experience across touchpoints is a key challenge for most retailers, not just in the UK but across the globe. End-user interactions are increasingly driven via software (see Figure 3) mobile apps, social media profiles, or presence in virtual worlds and brand recognition and loyalty relies on how well the retailer is able to engage the customer through these different channels. Retailers or brands are no longer distinguished by the products or services they sell. Rather, the differentiation lies increasingly in how they sell by the experiences that are created as a part of the product discovery, trial, and purchase process. The emphasis is increasingly on delivering an experience and making a connection with the consumer rather than selling a product. Figure 3: Software drives interaction across customer touchpoints Source: Ovum report The Market for Outsourced Software Product Development Services Heats Up, 2015 Technology continues to rapidly evolve and, in the process, it exercises tremendous influence on customers buying behavior. Social media has turned into one of the prime hunting grounds for retailers seeking better customer engagement, with 55% of survey respondents stating that they were regularly and actively engaging customers over social media. There is also a high level of awareness that this type of engagement must increase in the future; and technology or budget were not perceived as holding social media engagement back - with 74% of global respondents saying that there were no barriers to exploiting social media (although this figure was much lower in the EU) (see Figure 4).

7 Figure 4: Social media as a tool for customer engagement is widely accepted and adopted Which of the following best describes your current approach to social media as a channel for engaging with customers? We respond to all queries and complaints and send proactive notifications 32% We listen to and review customer trends 26% We respond to all queries and complaints 23% We respond sporadically 19% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Are there organisational / technological / budgetary inhibitors obstructing you exploiting social media customer engagement opportunities that you are not currently doing? Global UK US EU Yes No For instance, while social media has been used as a means of marketing products, engaging in conversations with customers, and pushing targeted promotions, new developments are quickly turning social media websites into sales platforms cases in point are Facebook and Twitter s Buy buttons and Curalate s Like2Buy platform for Instagram. Retailers such as Nordstrom and Target are testing Instagram s Like2Buy platform, while Home Depot and Burberry are testing Twitter s Buy button. Newer and better technological advancements will continue to crop up at faster rates than ever before, and in the process will intrinsically change the way we shop at a mindboggling pace (see Figure 5).

8 Figure 5: Shopping in the future Jane receives a message on the app from her favourite clothing store that there is a special discount on some of the items she and a personal shopper had placed on a wish-list at her last visit. A few days later, Jane heads to the shopping centre the store is located. The proximity sensors in her mobile app remind her of the waiting discount on the new bag she put at the top of her wish-list. Jane decides to go to the store to buy the bag and as she enters the area that the shop is located in the proximity sensors alert the personal shopper that Jane is near the store. The personal shopper brings the bag to the register, pleasantly surprising Jane when she enters the store by having her item already waiting for her at the counter. The personal shopper also reminds Jane of a couple of other items on her wish-list and the special offers that are available for her and Jane decides to purchase the bag and one other item on the list. While looking around, Jane sees a pretty dress on a hanger and decides to take a better look at it. The hanger is connected to Facebook and displays the number of likes that dress has garnered online. There is a QR code on the hanger that Jane scans on her smartphone and she is able to look up online reviews from others who have bought the same dress. The personal shopper helps Jane try on the dress and matching accessories on a virtual makeover mirror and Jane saves the images from the virtual mirror and also shares them with her friends for their feedback on the look. Jane gets a reminder from her husband s profile that a shirt he put on his wish-list is on sale and she decides to also purchase the shirt for her husband. Jane goes to the checkout counter where her payment is processed through a contactless POS terminal that already has her items in a checkout basket and also applies her discount codes automatically at checkout. Source: Ovum Technology remains a key component of the retailers strategy as they try to balance the steady growth of online sales with ways to breathe new life into physical stores. Retailers have begun to realise that focusing narrowly on digital commerce often does not capture customer interactions in the store and they are turning to technology to bridge the divide between online and in-store experiences. Retailers are adopting diverse technologies for better customer engagement Retail brands continue to both adopt and experiment with new technologies to improve the shopping experience. The technologies that are anticipated to have the most impact on customer experience (see also Figure 6) include: Cloud-based point-of-sale (POS) technology that offers better performance, functionality, and efficiencies than traditional POS terminals by offering the ability to offer the same checkout experience across online and physical stores. It also offers the ability to map customer profiles and shopping behaviour across store formats, thereby enabling the retailer to push targeted offers and messaging. Beacon technology which provides in-store analytics and marketing solutions for brick-and-mortar retailers. This technology is also useful to monitor customer behaviour in-store, keep track of merchandise and employees on the shop floor, as well as offer services such as loyalty, payments, and digital-marketing programs. Wearables such as smart watches, glasses, and fitness monitors and using these to deliver highly targeted offerings. Services like Apple s ipay and Google Wallet are also significant in that they offer contactless payment solutions using wearable technology such as smart watches.

9 Augmented reality technologies such as virtual fitting rooms, online make-over assistants, and interactive window displays to enhance the personalisation of products. Inventory management technologies such as RFID sensors and automated ordering systems to better manage stocks and predict demand patterns. Risk mitigation and data security solutions to devise better ways to protect customer data. Figure 6: Technology will profoundly change the shopping experience by 2020 However, the majority of IT spending will continue to focus heavily on the integration of core retail IT systems and orchestrating the business-it connect to deliver the seamless omnichannel experience. This is mirrored in our survey and a majority of our respondents are increasing investments in technology to improve customer experience over the next months (see Figure 7). Of the investments being made, technology to deliver the single view of the customer is of prime importance with 85% of survey respondents planning to invest in the area in the next year or so. Investments around promotion management (74%), fraud detection (67%), and demand forecasting (65%) are other top investment areas for retailers in the UK. Given the range of technologies that are being evaluated, it is clear that UK retailers are exploring avenues to make the retail experience more pleasurable by ensuring that inventory and stocks are managed efficiently on the back-end while the digital efforts are focused on visually improving the front end.

10 Figure 7: Technology investment is being driven by the need to improve customer experience There is a distinct difference in the top technology priorities for retailers in the UK when compared with those in the US and rest of Europe. For UK-based retailers, promotion management is the top area of spending with 29% of respondents choosing it as one of their top three technology projects; for US retailers demand forecasting and RFID technologies are top spending areas; while transport and logistics management was the top priority for retailers based in the EU. Most of the future investment in the retail segment across the geographies surveyed revolves round getting the basics right (i.e. investing in many of the hidden elements contributing to a positive customer experience rather than directly into customer experience). The only exception is the single customer view, which ranks highly for future investment but was only ranked by 6% overall as the top technology project at the moment (8% in the UK; 6% in the US but not on the priority list at all in the EU see Figure 8). A closer look at the overall spending patterns suggests that UK retailers are

11 slightly behind the curve in spending on POS technologies, loss prevention/fraud detection, and workforce management all of which have a strong influence on the business. Figure 8: UK-based retailers lag behind in spending around several key areas of technology The above figure highlights the fact that most of future investment in the retail segment across the geographies surveyed revolves round getting the basics right - i.e. investing in many of the hidden elements contributing to a positive customer experience rather than directly into customer experience. The only exception is 'single customer view' (which ranks highly for future investment but was only ranked by 6% overall as the top technology project at the moment (8% UK; 6% US but not on the

12 priority list at all in the EU). This is an area which needs immediate attention since having a single view of the customer provides critical data and insights that can be used by retailers to optimise supplier networks, create better cross-business processes, enhance customer retention, and implement continuous process improvements. A majority of spending in the UK remains focused on mobile and online channels rather than physical stores. On the other hand, the US plans to spend more while the EU plans to spend less on the physical store format compared with the UK (see Figure 9). A large part of this spending, across geographies, is geared towards blending the in-store and online experiences and, in doing so, attracting and retaining customers. For instance, in the US, Toys R Us allows orders to be placed online and provides the option of holding the items in store for pick-up at a later date, especially around the Christmas holidays. Similarly, in the UK, supermarket chain Waitrose offers a variety of self-service options from scan as you go (called Quick Check) to self-checkouts, while elsewhere in the EU, retailers are offering mobile POS systems and using real-time customer data to push targeted promotions. Figure 9: Mobile shopping remains the largest area of investment for retailers globally One thing that remains common across geographies is that, to implement these technologies, retailers need to have the ability to deploy the right software at the right time and make updates on a frequent and rapid basis. Speed-to-market is critical for retailers The imperative to offer an unmatchable customer experience is placing greater emphasis on speedto-market as retailers use software to win, serve, and retain customers. Speed is also an essential factor when catering to the millennial generation which is used to having everything at their fingertips. This demographic tends to be restless and impatient, demanding fast and excellent customer service at all times, and has the capability to take innovation into its own hands when it sees a gap between expectation and reality. Moreover, the current environment is one where information is freely shared and collaboration is no longer bound by physical or geographical limits, so retailers have to reinvent themselves to remain relevant to their customers.

13 Retailers have come to realise that change is the only constant in a rapidly evolving marketplace and they need to constantly invest in technology to make their operations (and, by extension, the customer experience) more efficient and their products and services (and, by extension, their brand) unique and remarkable. To do this, they have to find newer ways of reaching and engaging customers, do it quickly and effectively, and, in the process, change the dynamics that influence buyer behaviour in their respective categories. Discount sales and promotional activities like Black Friday and Cyber Monday that were concepts traditionally limited to the US are becoming increasingly popular in the UK. This places further pressure on the ability of retailers to respond to demand spikes: Over a third of the survey respondents believe that this pressure is intensifying year-on-year as these promotional activities gain greater traction among customers (see Figure 10). Figure 10: Demand spikes continue to have a major impact on technology investment Building this agility, adaptability, and flexibility into the business requires systems that are lightweight and scalable on demand. They must contain in-built analytic capabilities that on-premise systems often lack. However, 66% of retailers contacted in our survey continue to use on-premise systems that often lack the elasticity and cross-compatibility that are needed from modern applications (see Figure 11).

14 Figure 11: Most retailers continue to use on-premise solutions Herein lies one of the major challenges for many a retailer these on-premise systems require frequent updates, patches, and fixes to ensure that they are able to support rapidly evolving requirements: Over 80% of the respondents indicated that a majority of their IT budget and time is spent in maintaining and updating these systems leaving few resources for actually transforming the applications for the digital age (see Figure 12). Figure 12: Maintenance and upgrades take up the majority of IT budgets Another major drawback of these orthodox systems is their ineffectiveness to offer functionalities that support strategic initiatives in a rapidly evolving business environment. The survey results indicate that most retailers consider their existing systems incapable of providing key functionalities to augment fast-paced changes in requirements (see Figure 13).

15 Figure 13: Existing systems are unable to provide the desired functionalities The survey findings indicate that most existing systems offer little or no comprehensive view of the customer across product, departments, and channel which directly impacts the retailers ability to offer a consistent, personalised, and satisfying customer experience. This has resulted in a steady increase in shadow IT spending from business departments (see Figure 14). According to the BT research report Art of connecting Creativity and the modern CIO, on average, shadow IT accounts for 30% of a retailer s IT spend, compared with an international average for all sectors of 25% globally. This places a huge strain on budgets and resources that could otherwise be used to deliver the innovation that the business needs.

16 Figure 14: Shadow IT remains a concern for retailers worldwide Source: Ovum s ICT Enterprise Insights 2014/15 Survey It is obvious that technology is rapidly erasing the once sharp line between in-store retail and e- commerce. Tech-savvy shoppers demand the ability to research products and transact online from whichever device they own and from wherever and whenever they please. Retailers have to embrace sophisticated technology that can help predict demand, manage and move inventory, and provide customers with a seamless experience across channels. In the process, they need to seek out and work with providers that can bring the right formula of technology skills, processes, and tools to enable this. Conclusion Retail is one of the most rapidly changing verticals across the world and is often at the forefront of technological advancement to keep pace with the evolving needs of a 24/7 customer base. Social media has become prime hunting grounds in the search for better customer engagement and retailers are exploiting platforms such as Facebook, Pinterest, Instagram and others to, not just collect information and feedback, but also as a channel to sell and engage. Investments in technologies that leverage social media to provide data and insights in almost real-time are critical aspects for retailers planning the store of the future as they can be leveraged to optimise the supply chain and offer a consistent experience across touchpoints. However, legacy systems often hold retailers back from exploring the full value that these new technologies can deliver and from developing the adaptable enterprise that can change direction based on market fluctuations.

17 In this scenario, it is highly viable to opt for off-the-shelf, pre-built, cloud-enabled solutions that offer plug n play features, are elastic and scalable, and have in-built BI/analytics capabilities that help reduce overall maintenance costs. There is a clear and obvious case for retailers to work with the service providers that maintain these cloud environments, thereby freeing up their own time and resources to focus on delivering the ultimate customer experience. Appendix Methodology This whitepaper was sponsored by BT and includes results from an extensive telephone-based primary research survey comprising responses of 200 senior decision makers in the retail industry to understand the voice of the customer. The views expressed in this whitepaper are based on Ovum s ongoing research into customer experience and technology markets, which takes into account the opinions of vendors and retailers. Ovum Consulting We hope that this analysis will help you make informed and imaginative business decisions. If you have further requirements, Ovum s consulting team may be able to help you. For more information about Ovum s consulting capabilities, please contact us directly at consulting@ovum.com. Copyright notice and disclaimer The contents of this product are protected by international copyright laws, database rights and other intellectual property rights. The owner of these rights is Informa Telecoms and Media Limited, our affiliates or other third party licensors. All product and company names and logos contained within or appearing on this product are the trademarks, service marks or trading names of their respective owners, including Informa Telecoms and Media Limited. This product may not be copied, reproduced, distributed or transmitted in any form or by any means without the prior permission of Informa Telecoms and Media Limited. Whilst reasonable efforts have been made to ensure that the information and content of this product was correct as at the date of first publication, neither Informa Telecoms and Media Limited nor any person engaged or employed by Informa Telecoms and Media Limited accepts any liability for any errors, omissions or other inaccuracies. Readers should independently verify any facts and figures as no liability can be accepted in this regard - readers assume full responsibility and risk accordingly for their use of such information and content. Any views and/or opinions expressed in this product by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Informa Telecoms and Media Limited.

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