Source: AP Photo Personalization in Retailing: A Digital Solution for Each Shopper Personalization can increase conversion rates, drive up loyalty and inform business decisions such as inventory management. E- commerce heralded the first wave of retail personalization. Big Data and new technologies are driving a second wave, and are bringing personalization into physical stores. RFID, Beacons and Near Field Communication are some of the technologies that are enabling greater in- store personalization. Macy s in the US and Casino in France are among the big- name retailers using new technologies to send personalized messages to smartphone- wielding shoppers in their stores. DEBORAH WEINSWIG Executive Director Head of Global Retail & Technology Fung Business Intelligence Centre deborahweinswig@fung1937.com US: 646.839.7017 HK: 852.6119.1779 CHN: 86.186.1420.3016 1
Personalization in Retailing: A Digital Solution for Each Shopper Source: Karl Mondon EACH SHOPPER IS UNIQUE Personalization in retail is all about providing a unique shopping experience for consumers. This report focuses on how retailers can use different technologies to personalize consumers shopping experience. Personalizing consumers shopping experience can also be achieved through product customization, which will be covered in a separate report. The advent of e- commerce has substantially increased the quantity of customer information available to retailers. Retailers can track consumers online activity and use the data to create more effective and targeted marketing initiatives. Tracking consumers activity in- store is, however, much more difficult, causing industry observers to refer to stores as the black holes of multi- channel. Yet today it s possible to use technology in store to gather customer data, and retailers can combine consumer data gathered both online and offline to provide a personalized shopping experience for their customers. Technology enabled personalization to become an important tool of the digitalization of the complete customer retail experience across different channels and of retailers omni- channel strategies. 2
Personalization options have increased in tandem with the expansion of e- commerce, as transactional websites have facilitated and expanded the collection of customer information that can be used to personalise the selling approach for each individual based on their preferences. A PERSONALIZED APPROACH ENCOURAGES PURCHASES October 22, 2015 Offering a personalized customer experience can give retailers a competitive advantage and help them to tailor their marketing efforts more effectively to: Increase conversion rates: providing a personalized shopping experience encourages customers to complete a purchase, increasing conversion rates for retailers. The 2014 Digital Marketing Optimization Survey, conducted by Adobe by interrogating a sample of 1,000 companies, showed that those who invested in personalizing digital marketing for their online retailing operations had sales conversion rate of 4.5% or more compared to an average conversion rate of 2.6%. Increase shoppers' loyalty: enabling predictive marketing to tailor marketing initiatives based on customer preferences helps to capture their attention and improve their shopping experience, which increases the probability of customer retention. According to the 2014 Adobe survey on personalization, 71% of customers surveyed like receiving personalised offers. Inform other business decisions: the wealth of customer data collected and analysed by companies to provide a personalized shopping experience to their clients can be also used to inform other business decisions, for example, inventory management. TECHNOLOGY ENABLES PERSONALIZATION Technology has made it easier for retailers to provide clients with a more personalized shopping experience and enhanced the ways they can do this. Personalization options have increased in tandem with the expansion of e- commerce, as transactional websites have facilitated and expanded the collection of customer information that can be used to personalise the selling approach for each individual based on their preferences. This can take very basic forms, for example, Amazon started personalization on a large scale simply by adding the Customers Who Bought This Item Also Bought feature. E- commerce is not a prerequisite for implementing personalization. The key is access to data on consumer behaviour that can be used to tailor individual shopping experiences. A loyalty card scheme launched by British Retailer Tesco in 1995, well before the expansion of internet retailing, is a good example of this. Clubcard, a sophisticated way to gather customer data, enabled Tesco to track each customer s shopping behaviour and adapt how it approached individual clients accordingly. For example, it made it possible for them to send discount coupons on items relevant to the customer, based on their profile and shopping history. Most personalization strategies use customer data to predict and influence personal shopping behaviour. Technology can be used to analyze data on historic purchases to tailor marketing messages and highlight promotions on items related to products purchased by the client in the past. Figure 1 lists examples of in- store technology used by retailers to provide a personalized shopping experience. 3
FIGURE 1. APPLICATIONS OF OMNI- CHANNEL TECHNOLOGY FOR PERSONALIZATION Technology Description Example of Application RFID Radio Frequency Identification uses radio waves to identify and track items. Retailers use it for various reasons including stock control, but in personalization RFID is used to send information to other in- store devices in order to provide customers with a personalized shopping experience. Burberry: RFID is used to activate changing room mirrors when clients try the items on. Once activated, the mirrors start showing videos related to the garment, such as its production and appearance on the catwalk. Beacon Omni- mirror (Magic Mirror) Shopping history trackers Near field communication (NFC) Beacon is a wireless transmitter technology that can communicate with compatible software, including apps installed on smartphones, by using Bluetooth signals. In retail, beacon technology is used to send targeted marketing messages to clients. Magic mirrors allow customers to try on clothes virtually making it possible to take photos and share them on social media. This enables clients to base their buying decisions on feedback from friends and family feedback on social media. A system of tablets and other mobile devices and CRM software that integrates online and offline purchases track records, enabling sales associates to browse a client s shopping history to facilitate personalized assistance. NFC enables smartphones to communicate with wireless transmitters (NFC tags). The technology is used by retailers to provide information about the item as clients scan the related NFC tag with their NFC- enabled smartphone. Macy s: the retailer uses ibeacon (Apple s version of beacon technology) through a compatible app installed on client s phones. The system recognizes the client s device as she/he enters the store, welcomes the customer, and reminds her/him of how many items she/he liked, providing guidance on what to buy. Uniqlo: Magic Mirror is available in its Union Store shop in San Francisco. Via a tablet, the customer can virtually change the color of the garment she/he is trying on, take a photo and share it on social media. Burberry: the retailer named its system Customer 1-2- 1 and employs it in its stores to enable sales associates to provide a personalized assistance to clients based on their previous traceable online and offline shopping history. Casino: the French supermarket enables clients to access personalized product information and promotions, including alerts on specific allergies and recommendations based on personal preferences. THREE EXAMPLES OF HOW OFFLINE AND ONLINE PERSONALIZATION TECHNOLOGY IS APPLIED BY RETAILERS French grocery retailer, Casino, uses Near Field Communication (NFC) in its stores, and US department store chain, Macy s, uses beacons. These technologies have the potential to revolutionize the in- store shopping experience as we know it today by making it more interactive. In the online space, British catalogue and online retailer, Shop Direct, is aiming to turn its transactional website Very.co.uk into the most personalized online store. 4
HOW CASINO S NFC PRODUCT TAGS COMMUNICATE WITH SHOPPERS October 22, 2015 Customers at French grocery retailer, Casino, receive personalized messages on their smartphones thanks to NFC product tags. Casino was the world s first supermarket to introduce NFC tags at the end of 2012 in one of its Parisian outlets. The technology allows the transfer of information between NFC product tags and enabled smartphones. Customers can scan the tag with their smartphones to get information about the product through the retailer s app, mcasino app, installed by customers on their mobile device. The mcasino app can be personalized with a customer s information including shopping preferences and allergies, enabling the app to send personalized recommendations and alerts when the consumer scans the tag. The app can also store information about the consumer s loyalty card and relevant promotional offers. Source: rfidjournal.com Consumers with enabled smartphones receive products details including offers, lists of ingredients, supplier information, videos and pricing. The app also allows them to add and remove items to a virtual shopping basket and to keep track of the basket contents as well as the total amount due at any point during the shopping experience. At the checkout, the shopper can simply use their smartphone to scan the NFC reader attached to the cash register and save the time it would have taken to scan each item individually. NFC product tags are a useful way to engage with customers by providing them relevant information as they shop. A potential drawback of this technology is that customers might find it inconvenient to handle their phone while shopping. 5
HOW MACY S USE BEACON TECHNOLOGY TO PERSONALIZE THE SHOPPER S STORE VISIT US retailer, Macy s, pioneered the adoption of beacon technology in 2013 to personalize customers shopping experience by teaming up with app developer, Shopkick. Beacon technology uses Bluetooth to share information between devices installed in store (beacons) and the Shopkick app installed on the customer s smartphone. Source: allthatiknow.com Source: Shopkick s YouTube Page The Shopkick app reminds customers of the items they liked during previous store visits when they approaches those products again in store It also lets them know if promotions are available for those items or similar ones and provides other relevant information. This enables beacon technology to increase conversion rates by encouraging shoppers to complete their purchase and retailers to collect information about in- store shopping behaviour, e.g. what are the store s most viewed items and most frequented areas. Macy s beacon technology requires customers to download the app and enable Bluetooth. Customers then automatically receive messages, unlike with NFC technology that requires them scan the product tag with their smartphone. For beacon technology to work effectively as a personalization technology and marketing tool, customers must be convinced that using it can enhance their shopping experience. It is therefore best to avoid excessive promotional messages and focus primarily virtually assisting consumers throughout their store visit, for example by helping them find their way around the store and pinpointing where favourite items are displayed. 6
HOW SHOP DIRECT AIMS TO FORGE THE WORLD S MOST PERSONALIZED E- COMMERCE PORTAL October 22, 2015 British catalogue and internet retailer, Shop Direct, introduced an all- round strategy to turn its leading brand Very.co.uk into the world s most personalized shopping experience. Taking advantage of its large customer data bank, the data scientists at Shop Direct are use algorithms to predict consumer behaviour and preferences, resulting in a highly personalized shopping experience. Shop Direct aims to make it easier and more intuitive for its customers to shop through Very.co.uk, thanks to a customized portal layout consisting of: Personalized homepage: customers land on a tailored version of the portal based on their previous shopping behaviour and preferences, with favourite brands having higher visibility in the virtual front of shop. The retailer currently offers 1.2 million different versions of the website, which will increase to 3.5 million by the end of 2015. Personalized website navigation: visibility of different categories is prioritized according to consumers historic browsing behaviour and purchase history. Recommendations: the portal highlights categories that might be of interest to the customer based on data tracking the behaviour of similar shoppers. Source: Very.co.uk 7
Shop Direct s annual sales exceeded 1.7 billion (US$2.7 billion) in fiscal year 2014, and the retailer plans to generate sales of 20 million (US$30.8 million) extra through personalization during the current fiscal year. Personalization is particularly important in e- commerce, where the absence of face- to- face service and unlimited buying choices can be overwhelming. Personalized home pages guide shoppers toward items that are more relevant for them making an otherwise basic, functional transaction more targeted and valuable, a process likely to result in increased conversion rates for retailers. There is, however, a risk that the customer might find the navigation of the website confusing if the layout of the portal changes too often in an effort to constantly update the personalized page based on the client s latest preferences or browsing history. AN HOLISTIC, CUSTOMER CENTRIC APPROACH TO PERSONALIZATION NEEDED Today s competitive trading environment means introducing personalization is crucial for retailers in order to differentiate themselves from their competitors. There are many personalization strategies available to companies, and multi- channel technology has dramatically expanded the options. The examples of Carrefour and Macy s demonstrate the potential both NFC and beacon technology have to enhance consumers shopping experience. It is difficult to predict how popular these technologies will be or how long they will be available as it is also hard to foresee what other innovative products will be launched that could potentially make current technologies redundant. Macy s One Below Selfie Wall and charging stations Source: FBIC Our recommendation is that retailers put in place a system that uses a range of different technologies to enable the full digitalization of the shopping experience, online and offline, and the personalization that comes with it. Ideally, the consumer mind set should be that enabling retailers to track their movement in stores and online is not intrusive, but can actually help to make the time they spend shopping more effective. For example, fully digitalized stores might feature wi- fi to allow consumers to act as micro bloggers by posting updates on their store visit on social media, beacon technology and NFC to provide personalized product information and guide the client during the store visit, and mobile devices used by shopping associates to provide a more personalized service to the client based on their shopping history. Whatever the technology employed, it is important to get personalization right, as a poorly implemented strategy could be worse than having none at all. Sending irrelevant product promotions because the algorithm fails to correctly categorize a specific shopping behaviour, or changing the layout of a personalized website too often will result in frustrated consumers and ultimately defeat the main purpose of personalization, which is to encourage consumers to purchase more by providing an easier and more relevant shopping experience. 8
Deborah Weinswig, CPA Executive Director Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: 852 6119 1779 China: 86.186.1420.3016 deborahweinswig@fung1937.com Filippo Battaini filippobattaini@fung1937.com Marie Driscoll, CFA mariedriscoll@fung1937.com John Harmon, CFA johnharmon@fung1937.com Aragorn Ho aragornho@fung1937.com John Mercer johnmercer@fung1937.com Shoshana Pollack Shoshanapollack@fung1937.com Kiril Popov kirilpopov@fung1937.com Jing Wang jingwang@fung1937.com Steven Winnick stevenwinnick@fung1937.com HONG KONG: 10th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: 852 2300 2470 LONDON: 242-246 Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0)20 7616 8988 NEW YORK: 1359 Broadway, 9 th Floor New York, NY 10018 Tel: 646 839 7017 FBICGROUP.COM 9