Retail Technology in the Next Century - Kelley School of Business ...

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Retail Technology in the Next Century - Kelley School of Business ...

Retail Technology

in the Next Century

What’s “In Store” for Consumers

INDIANA UNIVERSITY

An Indiana University–KPMG Study


Table of Contents

1 Preface

2 Introduction

5 Consumers’ Current Shopping Behavior

8 Consumers’ Experiences at Discount Stores

10 Overview of Technologies

15 Enhancing the Shopping Experience

20 One-to-One Marketing

24 Conclusion

25 Study Methodology/Participant Demographics


Today’s

retail industry must face one truly

significant reality — the consumer is in charge. Consumers enjoy more choice than ever

before and have access to an ever-increasing amount of information upon which to base their

buying decisions. Consumers today are very sophisticated and have a clear understanding of

value. What is value? Is it price? Yes. Is it quality? Yes. Is it information? Yes. But it’s also

selection, convenience, service and entertainment. Providing this value is a daunting

challenge for retailers.

The Indiana University Center for Education and Research in Retailing (IU Center) and

KPMG’s Retail Industry practice believe strongly that successful retailers in the future will be

those able to meet this challenge by understanding the

increasingly sophisticated consumer and by delivering

the value they expect. The IU Center is dedicated to

educating future retail leaders and executing leadingedge

research for the benefit of the retail industry.

KPMG, a key partner of the IU Center, delivers

understandable business advice through a wide range

of assurance, tax and consulting services.

The IU Center and KPMG are pleased to present

Retail Technology in the Next Century: What’s “In

Store” for Consumers, a research study that, true to

our mission, takes a hard look at consumers. The focus

is on consumers’ acceptance of technology, but we also present some significant findings on

shopping behavior and consumers’ reactions to one-to-one marketing strategies. We would like

to acknowledge IU’s Professor Raymond Burke as the primary researcher in this project and to

thank him for his research contributions, which included the design and analysis of the study.

We hope you find this study interesting and thought-provoking. Most important, we hope

you’re able to use the findings to help you capture the loyalty and buying power of consumers

— both today and in the future.

Theresa Williams

Director, Center for Education and Research in Retailing

Indiana University Kelley School of Business

Mark J. Larson

National Director — Retail Industry

KPMG

Preface

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Introduction

There’s

a myth about online retailing and

it goes like this: The Internet makes it as easy to shop at a store located across the country

as at one located across the street — perhaps even easier. Some consultants have gone so far

as to say that the physical store may be a liability, burdening the conventional retailer with

unnecessary overhead.

With a few exceptions, this claim is not true today. Shopping online is harder than shopping

in a conventional store. Consumers have a difficult time navigating through the vast electronic

landscape and finding stores they can trust and the brands they want. Shoppers cannot touch

and feel the merchandise. Orders can take several days to be delivered and shipping costs are

excessive. Customer service is often poor and returns are inconvenient.

So why did retail sales over the Internet jump from $520 million in 1996 to over $8 billion in

1998? Why have the market valuations of Internet retailers skyrocketed over the same period?

Because the Internet can provide certain advantages that are not delivered in the physical store:

Interactivity

Consumers can electronically search for the products, brands and prices that meet their

individual requirements.

Product information

The Internet can provide detailed, current product specifications and warranty information,

present usage suggestions and address frequently asked questions.

Product selection

Online retailers can offer a virtually unlimited assortment of merchandise.

Personalization

Online retailers can track consumers’ shopping habits and preferences and offer customized

products, product suggestions, prices and promotions.

Community

Web sites can allow customers to talk with each other, sharing personal experiences and

product evaluations.

Dynamic marketing

Products, prices and merchandising can be changed instantly in response to changes in

consumer demand, competitive activities and inventory levels.

Multimedia

Web sites can display animation, sound, video and three-dimensional graphics to capture

customers’ attention and generate product interest.


Pushbutton purchase

Online retailers can save addresses and credit card information in a database so consumers

can purchase new items more easily.

At the present time, no single Internet retailer offers all of these benefits. However, some of

the leading retail sites provide several of these advantages, and consumers have responded

positively. We can be sure that electronic retailers will work hard to fix their current

problems. Technologies will continue to evolve, allowing online retailers to display their

merchandise in more realistic and engaging ways and provide personalized customer service.

Until now, conventional retailers have been slow to react. Many are preoccupied with other,

pressing issues such as Y2K, Efficient Consumer Response (ECR), Collaborative Planning,

Forecasting and Replenishment (CPFR) and the ongoing rash of

mergers and acquisitions. Others have expressed concern that if they

go online they will cannibalize the sales of their physical stores. The

majority of those that have reacted have not used Internet shopping

sites to their full advantage. Their sites typically have limited

selections of merchandise, confusing user interfaces and minimal

advertising and promotional support.

Self scanning is an example of

the technology that is enabling

retail stores to compete with the

online channel.

What can conventional retailers do to respond to the growing threat

of Internet retailing? Should they invest precious resources to build

an online presence or focus on improving their physical stores?

Can the Internet be used to draw customers into the store, thus

magnifying the benefits of geographic location? And how can instore

technologies, like kiosks, electronic signage, body scanning

and self-checkout, be used to deliver many of the same benefits as

online shopping?

To address these issues, the IU Center and KPMG conducted a

national survey of consumers’ acceptance of retail technology. The

primary goal of this research was to provide retailers with a road

map to help guide their decisions concerning the adoption and

implementation of new online and in-store technologies. We attempted to:

◗ Measure consumers’ satisfaction with the current discount store shopping experience and

their usage of existing technologies;

◗ Test consumers’ interest in new retail technologies and assess the potential effects of these

technologies on consumer behavior;

◗ Identify which innovations build on retailers’ strengths and which address their

weaknesses;

◗ Specify which product categories benefit most from each technology.

One of the areas where technology can have a major impact on retailing is one-to-one

marketing. The goal of one-to-one marketing is to recognize the unique needs, preferences

and shopping habits of individual consumers and tailor marketing programs to their personal

requirements. Technology can play a critical role in this process, collecting consumer data,

identifying shoppers at the point of contact and customizing marketing activities. However,

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there has been relatively little research on consumers’ evaluation of one-to-one marketing

practices, particularly when they involve the use of technology. Therefore, a secondary goal

of the IU-KPMG study was to measure consumers’ willingness to share personal

information, their interest in personalized marketing programs and their acceptance of the

supporting technologies.

The following report summarizes the key findings from this research and highlights the major

implications for retail practice in the 21st century.

Raymond R. Burke

E.W. Kelley Professor of Business Administration

Director, Customer Interface Lab

Indiana University


Consumers’ Current Shopping Behavior

Store-based

formats are still

the most frequented shopping channel

Where do consumers shop?

As expected, store-based formats are the most popular shopping destinations, with 94 percent

of consumers shopping in discount stores, 89 percent patronizing grocery stores and 81

percent shopping in drug stores during the previous three months. For non-store formats,

catalog shopping is the most popular, with 49 percent of consumers saying they have

purchased from a catalog within the past three months. A higher percentage of consumers

shopped using catalogs than at clothing stores (43 percent) or warehouse clubs (42 percent)

during the same time period. Consumers are increasingly willing to shop online, with

12 percent having done so over the previous three months.

How frequently do they shop?

For shoppers (defined as those consumers who have visited a particular retail format within

the previous three months), grocery stores (15.8 trips), convenience stores (11.6 trips) and

discount stores (9.5 trips) are the most frequently visited formats. While not at the level of

these formats, the number of visits to online stores (5 trips) made during the previous three

months by online shoppers exceeded the number of trips made by shoppers to department

stores, specialty apparel stores, big-box specialty retailers or warehouse clubs.

100

90

80

70

60

50

40

30

20

10

0

Discount

stores

Grocery stores

Drug stores

Where do consumers shop?

Department

stores

Convenience

stores

Specialty stores

Clothing stores

Warehouse

Catalogs

Percentage of respondents who shopped in each retail format

at least once during the prior 3 months.

clubs

Online stores

Television

shopping

channels

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The convenience of the Internet enables shoppers to visit online stores more frequently than

these physical formats.

What tools do consumers use when they shop?

Consumers are increasingly using technology-driven tools when they shop. Eighteen percent

searched for product information and 13 percent made purchases over the Internet. Fifteen

percent used in-store kiosks and 14 percent used self-scanning or self-check-out systems.

Loyalty cards, which have been offered in the United States during the last several years, are

used by over 50 percent of consumers, suggesting a broad acceptance of this technology.

These percentages are still low when compared to the usage of traditional paper-based tools

such as store circulars (87 percent), coupons (85 percent) and shopping lists (82 percent).

Internet users versus the population at large

The study results indicate that Internet users have a greater propensity to use shopping

technologies than the general population. As one would expect, they are more likely to search

for product information and buy products online. They are also more likely to have purchased

from catalogs, which suggests that they are more comfortable with non-store-based shopping.

Internet users are more frequent users of in-store technologies, including kiosks, selfscanning/self-checkout

systems and loyalty cards. On the flip side, they are less likely to use

store circulars or coupons. This may suggest that Internet users are either less price-sensitive

or more time-pressured, or both, than the general population.

18

16

14

12

10

8

6

4

2

0

Discount

stores

Grocery stores

Drug stores

How often do consumers shop?

Department

stores

Convenience

stores

Overall

Specialty stores

Apparel stores

Warehouse

clubs

For Shoppers

Catalogs

The number of times consumers have shopped in a given

format over the previous three months.

Online stores

Television

shopping

channels


Consumers have mixed feelings about technology.

Consumers view technology as both an opportunity and a threat. This is a dynamic that

retailers must understand as they introduce any new technology. Of the consumers surveyed,

40 percent 1 like the idea of doing business via computers because they are not limited to

regular business hours, 42 percent 1 feel that technology gives them more control over their

daily lives and 47 percent 1 feel that it makes them more efficient in their job.

At the same time, consumers have significant concerns about technology, especially when it

involves shopping online. Seventy-four percent 1 of respondents do not consider it safe to

give out a credit card number online and 62 percent 1 are not comfortable doing business with

an organization that can only be reached online. About half of consumers (49 percent 1 ) feel

that if they provide information to a machine or over the Internet, they cannot be sure it will

get to the right place, and 36 percent 1 believe that new technology is often too complicated

to be useful.

1 As part of the survey, participants were asked to complete the ten-item TechQual Scale (© 1999, Rockbridge

Associates and Professor A. Parasuraman), which was used with permission.

100

90

80

70

60

50

40

30

20

10

0

Store circulars

What tools do consumers use when they shop?

(Percentage of total population vs. Internet users)

Coupons

Shopping list

Buy from catalogs

Layaway/installments

Total population

Loyalty card

Search on Internet

Kiosks

Self-scan/self-checkout

Internet users

Buy on Internet

Traditional store tools Technology-driven tools

Electronic organizer

Internet user defined as someone who uses the Internet at least one hour per week

(39 percent of those surveyed are Internet users).

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Consumers’ Experiences at Discount Stores

There

is no doubt that discount stores have

significant strengths that appeal to today’s consumer. However, the survey responses point to

some weaknesses that can make conventional discount stores vulnerable to competition from

online retailers.

According to the study, consumers are generally satisfied with their shopping experience in

discount stores, particularly for the following reasons:

Value

The stores offer an attractive combination of quality merchandise at competitive prices

(77 percent of respondents said they are satisfied with the value that discount stores provide;

only 9 percent are dissatisfied).

Convenience

The stores are easy to get to, are open when consumers want to shop and have no-hassle

return policies (72 percent satisfied; 11 percent dissatisfied).

100

90

80

70

60

50

40

30

20

10

0

Value

Satisfaction with discount store shopping experience

Convenience

Product selection

Product quality

Satisfied

Security

Fun to shop

Neutral

Privacy

Product Information

Percentage of consumers rating each attribute.

Speed of shopping

Dissatisfied

Service


Product selection

They carry a range of products that suit the needs of most consumers (71 percent satisfied;

12 percent dissatisfied).

Product quality

Items are well-made and meet consumers’ expectations of performance (67 percent satisfied;

10 percent dissatisfied).

However, there are a significant number of customers who are displeased with their

experiences at discount stores. Areas of dissatisfaction that consumers specified in the survey

are as follows:

This state-of-the-art self-checkout system allows

consumers to scan their purchases and pay for

them without assistance from a cashier.

Levels of service

Knowledgeable employees are available to provide

information about products and promotions, and

process consumers’ transactions at the point of sale

(52 percent satisfied; 23 percent dissatisfied).

Speed of shopping

The store is easy to navigate, products are easy to find

and checkout is completed in a timely manner (57

percent satisfied; 19 percent dissatisfied).

Product information

Specific product information is readily available

through the product label, store signage or a

knowledgeable sales clerk (44 percent satisfied; 18

percent dissatisfied).

Internet users

Significantly, the survey results indicate that Internet

users are less-satisfied with the key attributes of

service, speed of shopping and product information

than is the total population. These attributes,

particularly speed of shopping and product information, are considered the strengths of online

retailers. This suggests that discount store retailers may be particularly vulnerable to losing

present Internet users (39 percent of respondents) who tend to be higher-income and collegeeducated

consumers.

How can discount stores counter these challenges? First, they can emphasize, and even improve

upon, their strengths — value, convenience, product selection and product quality. Second, they

can address the weaknesses that may open the door for online retailers. Several technologies

described in the next section can help discount store retailers level the playing field.

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Overview of Technologies

Eleven

technologies, eight used in the

store and three online, were tested in the IU-KPMG study. Each of the technologies is available

today. Some are already in use in the marketplace, while others have not yet been implemented.

All of the technologies can provide some tangible benefit or combination of benefits to

consumers’ shopping experiences — for example, improved convenience, service, speed and

value or enhanced product information and selection. The technologies tested can also offer

intangible benefits such as making the shopping experience more fun or helping to protect

consumers’ privacy.

In-store technologies are preferred over online technologies.

While Internet shopping has been heralded by some as the technology that may put

conventional retailers out of business, only about half of respondents feel that it would be a

slight or big advantage for conventional retailers to sell their wares through the Internet using

a typical online shopping site (with an electronic catalog format).

100

90

80

70

60

50

40

30

20

10

0

information

Online store

Online virtual store

Online shopping site

Online

technologies

Overall advantage of retail technologies

ordering kiosk

Product information/

Frequent-shopper kiosk

Advantage

Virtual display case

In-store kiosk/display

technologies

Neither

Electronic POS

signage

Hand-held shopping

Other in-store

technologies

assistant

Body scanning

(Percentage of consumers rating each technology.)

Disadvantage

Self-scanning

Self-checkout

In-store checkout

technologies


In comparison, over 70 percent believed that they would benefit from the retailers’ adoption of six

of the in-store technologies evaluated in the survey. These include technologies for providing

more accurate and complete product information (the product information/ordering kiosk and the

hand-held shopping assistant), pricing (electronic point-of-sale signage and self-scanning) and

promotional information (the frequent-shopper kiosk). Consumers were also enthusiastic about

technologies that would expand the product selection (the product

information/ordering kiosk), allow them to purchase custom-fit clothing

(body scanning) and scan their own purchases to speed checkout (selfscanning).

Only 9 percent or less of respondents believed that these six

new retail technologies would be a disadvantage.

Body scanning takes accurate

body measurements so retailers

can tell consumers the exact size

of clothing they need.

Following is a review of the technologies that were tested, a description

of their specific features and a summary of consumers’ reactions.

Online technologies

Overview

Three different types of online technologies were tested — the

“traditional” online shopping site, the online 3-D virtual store and the

online store information site. All three require that consumers have

access to a computer and the Internet. All three provide detailed

product information — such as specifications, operating instructions,

usage suggestions and warranty information — and allow consumers

to search for specific items by entering a product category or brand

name. They differ in the way products are displayed on the screen —

in a two- or three-dimensional format — and by whether the site allows consumers to actually

purchase products online or just retrieve store, product and promotional information.

Online shopping site

The online shopping site represents the most common form of Internet-based retailing today.

Consumers shop from an electronic catalog displaying an extensive selection of merchandise,

along with product descriptions, photographs and prices. Consumers can shop at any hour

from their home or office, purchase products by adding them to an electronic “shopping

basket,” enter their billing information and have the merchandise shipped directly to them

within a few business days.

Online 3-D virtual store

The 3-D virtual store is a more visually realistic online shopping experience. It has the same

basic functionality as the online shopping site, but it allows consumers to see the layout of the

virtual store from above, “walk” down the store aisles, “pick up” products from the virtual

store shelves, rotate packages and magnify their labels for additional information, and “drop”

products into a simulated shopping basket. Fulfillment is handled in the same way as the

online shopping site.

Online store information site

The online store information site provides information about consumers’ local retail store and

the products it carries, with details about store hours, location, travel directions, product

availability and special promotions. Although products cannot be purchased through this site,

an online map shows consumers where products are located in the store. Consumers have the

option of placing a 24-hour “courtesy hold” on any product, so they can visit the store and

see the item before making a purchase. Depending on the activities in the physical store, the

site may also show video clips of new store displays, product demonstrations and other

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events. Members of frequent-shopper programs can receive personalized shopping

suggestions and a list of possible rewards.

Summary

Consumers were generally positive about all three online technologies. On average, 57

percent of shoppers rated the technologies as an advantage, 50 percent indicated that they

would be more likely to shop at a store selling or promoting their wares online, and 63

percent said they would use the technologies at least some of the time they shop. Consumers

saw the greatest advantage in online technologies that were directly tied to the in-store

shopping experience. Fifty-six percent believed it would be beneficial to show threedimensional

images of products and store aisles, and 61 percent would like to access local

store information. People cited the convenience of shopping from home at any hour and the

ability to search for product and pricing information as the most appealing features. Their

greatest concerns were the inability to touch and feel products when shopping online, the

security of their credit card information and their lack of or difficulty in using computers.

In-store kiosk and display technologies

Overview

Three different kinds of in-store kiosk and display technologies were tested. All three are

accessible in the store and do not require consumers to have a computer or Internet access.

Their differences revolve around the way products are displayed on screen — in a two- or

three-dimensional format — and whether the device allows consumers to search for product

information, purchase products, or display customer-specific promotions based on past

purchasing behavior.

For the promotional site (frequent-shopper kiosk), customers must have a frequent-shopper

card to access the system. The “buying” sites (product information/ordering kiosk and virtual

display case) provide product specifications, operating instructions, usage suggestions and

warranty information. Consumers who use the buying sites receive a purchase ticket and

need to see a cashier to pay for the product.

Product information/ordering kiosk

The product information/ordering kiosk is an easy-to-use computer and touch-screen video

display that provides shoppers with additional information about products in the store as well

as offering an expanded selection of items that can be special ordered. If a product is

available in the store, the kiosk prints a map of the store and highlights the item’s location.

Frequent shopper kiosk

The frequent shopper kiosk consists of a computer and touch-screen video display located

near the entrance of the retail store. When consumers insert a frequent shopper card into the

kiosk, it displays a customized set of products and promotions based on the shopper’s past

purchases. It can also display recipes, special offers, samples and sweepstakes opportunities.

The system automatically deducts electronic coupons at checkout.

Virtual Display Case

The “virtual display case” is a large-screen, rear-projection video display and computer

graphics system which shows realistic, three-dimensional images of shelves stocked with

products. Located near a store’s entrance, it allows customers to view and purchase a wider

selection of items than could be carried in the store itself.

Consumers wear a pair of 3-D glasses, available in a bin on the side of the display, to view

the stereo images. The device has a hand-held controller and joystick that allows consumers


to select between different product categories, zoom in on shelf displays and pick up products

and examine them from any angle. When products are selected from the virtual shelf, they

appear to float in space. To select a product for purchase, consumers simply drop it into a

simulated shopping basket.

Summary

Consumers were very positive about both the product information/ordering and frequent

shopper kiosks. On average, 76 percent rated the kiosks as an advantage, 60 percent were

more likely to shop at a store with these technologies, and 80 percent expected to use the

technologies at least some of the time they shopped. Consumers felt that the product

information/ordering kiosk would make shopping faster and easier

by helping them find what they wanted and provide detailed/current

product information. Shoppers liked the frequent shopper kiosk

because it would highlight items that were on special and eliminate

the need to clip and carry coupons, thus saving them money. The

virtual display case received lower scores because the products

shown on the screen could not be physically examined and

purchased in the store, and special glasses were required to view the

stereo images. In all three cases, consumers disliked the prospect of

waiting in line to use the machines and recommended that several

kiosks be installed in each store to accommodate demand.

This frequent shopper kiosk

provides tailored information

about products, specials,

and promotional items.

Other in-store shopping technologies

Electronic point-of-sale (POS) signage

Electronic POS signs are battery- or solar-powered liquid-crystal

displays (LCDs) which show the names and prices of merchandise

(including unit pricing and currency conversions). These signs

are attached to store shelves, peg hooks or directly to products,

replacing conventional price tags and printed shelf labels. The

information displayed on the signs is electronically transmitted

from the store’s central computer, which also feeds prices to the

checkout registers.

Hand-held shopping assistant

The hand-held shopping assistant is a lightweight palm-size device with a touch-sensitive

LCD screen and a product barcode reader. By scanning the barcodes of products located

throughout the store, shoppers can access additional product information such as

specifications, operating instructions, usage suggestions and warranty information. This

information is downloaded through a wireless modem from the manufacturer’s Web site.

Shoppers use a store-issued identification card to obtain a shopping assistant from a

dispenser rack.

Body scanning

Body scanning is a computerized system for taking body measurements, which is much more

accurate than using a tape measure. Retailers who use this technology can tell consumers the

exact size of clothing they need, as well as order custom-made products. Dimensions are

stored on a “smart card” that can be used at any time in a particular store.

Consumers enter a private scanning booth where a computer uses video cameras to take body

measurements from several angles and then generates a 3-D model. Consumers can then select

from a variety of clothing styles in assorted colors, and the computer will show them an image

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of their body wearing the finished clothing. When consumers see something they like, they

can order the clothes, which will be custom-manufactured for their unique measurements.

Summary

All three of these technologies — electronic POS signage, hand-held shopping assistant and

body scanning — received high ratings from consumers, with at least 70 percent of

respondents saying the devices improved the shopping experience. Each of the technologies

had unique benefits and drawbacks. For the electronic POS signage, consumers liked having

accurate price information on the shelf which helped them to make faster product decisions

and avoid errors and manual price checks at checkout. Their main concerns were that the

technology might be prone to failure and that hardware costs would lead to higher store prices.

For the hand-held shopping assistant, shoppers were very enthusiastic about having access to

accurate, detailed and current product information without the hassle of looking for a clerk

who may or may not be knowledgeable. They expressed concern that the device might slow

down the shopping process, especially if there are communication delays. Body scanning was

appealing because it helped consumers find clothes that fit without the time-consuming

process of trying on items. However, consumers worried about their loss of privacy and the

potentially higher cost of custom-made clothing.

In-store checkout technologies

Self-scanning

The self-scanning system is a hand-held product barcode reader, similar in size and shape to

a wireless telephone handset. It is used by consumers to scan and tally their purchases while

shopping. Consumers obtain a scanner from a dispenser rack by swiping their store-issued

identification card. The scanner allows shoppers to check an item’s price on its LCD screen to

ensure that it matches the shelf price and keep a running total of selected purchases. Items

can be added to or deleted from the order. At the end of the shopping trip, the scanner prints

out a ticket that consumers take to an express checkout counter to pay for their order.

Self-checkout

The self-checkout system consists of an automated teller machine (ATM), barcode scanner,

weighing scale and checkstand located in a special express-checkout lane in the store.

Consumers scan their purchases and bag them without assistance from a cashier, and then

insert cash, a credit card, or a debit card to pay for the transaction. A cashier is stationed near

the self-checkout to answer questions and help with coupons, checks, food stamps and gift

certificates. As a security check, the self-checkout system has an overhead surveillance

camera to confirm that each product has been properly scanned.

Summary

The self-scanning and self-checkout technologies would seem to provide similar benefits.

Yet, there are important differences in their features and operation that were reflected in

consumers’ ratings. Sixty-three percent of consumers said they would be more likely to shop

at a store with self-scanning versus 33 percent for a store with self-checkout. Eighty-three

percent of shoppers would use self-scanning at least some of the time they shop versus 63

percent who would use self-checkout. Both systems were appealing because they helped

shoppers avoid long lines and speed up the checkout process. However, consumers were more

positive about self-scanning because a human attendant accepted payment and bagged their

purchases. (Only 6 percent of consumers indicated that they liked to bag items themselves.)

Consumers also liked using the self scanner to check the prices of unmarked and sale items

and to keep a running total of their purchases. Their main concern with self-scanning was

that some shoppers would cheat the system by not scanning all items in their basket.


Enhancing the Shopping Experience

The

IU-KPMG study asked consumers (all

other things being equal) how they would rate a given store that provided these technologies on

a series of attributes versus a store that did not. These attributes were divided into two groups

for analysis:

◗ Attributes that consumers identified as being weaknesses of discount stores — service,

speed of shopping and product information;

◗ Attributes that were identified as being discount store strengths — value, convenience,

product selection and product quality.

While all the technologies were seen to enhance the shopping experience in one or more ways, a

few stood out in their ability to provide significant improvement on a combination of attributes.

How can technology improve the discount store experience?

Two technologies in the group — the electronic POS signage and the product information/

ordering kiosk — received high marks for their ability to improve each of the identified

weaknesses of service, speed of shopping and product information. Both technologies received

a positive rating from 50 percent or more of consumers on each of the three attributes.

Following directly behind these two technologies in

terms of rankings are self-scanning and the hand-held

shopping assistant. They received strong marks

(50 percent or higher) for two of the three attributes,

with both technologies improving on the service

dimension. The hand-held shopping assistant scored

well on “providing product information,” while the

self-scanning device enhanced the “speed of

shopping.”

This self-scanning system scans and tallies How can technology build on

purchases while shopping.

discount store strengths?

No one technology strongly addressed all the

attributes considered discount store strengths. The product information/ordering kiosk had the

best rating overall, driven by its rankings for “convenience” and “product selection.” The

frequent-shopper kiosk came in a close second with a strong ranking for “convenience” and

the highest ranking of all the technologies tested for enhancing “value.”

While all of the technologies, with the exception of the virtual display case, were perceived by

over 50 percent of the consumers surveyed to improve convenience, the electronic POS signage

stands out in this group as providing the highest level of convenience. None of the technologies

received a high rating for its ability to improve product quality. Body scanning had the best

score on this dimension, and was, in fact, the only technology tested that could actually

influence product quality. Yet, consumers perceived “convenience” to be its greatest strength.

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What are the implications?

The product information/ordering kiosk and the electronic POS signage improve the

attributes that consumers indicate are discount store weaknesses and support the attributes

that are perceived as strengths. The self-scanning device and hand-held shopping assistant are

additional tools that retailers should consider adding to their arsenals.

These findings mirror consumers’ ratings of the overall advantage of each technology:

Electronic POS signage was rated as an advantage by the highest percentage of consumers

(82.3), followed by self-scanning (80.6), product information/ordering kiosk (77.3) and the

hand-held shopping assistant (76.9).

How can technology improve the discount store experience?

Self-checkout

Self-scanning

Hand-held shopping assistant

Body scanning

Electronic POS signage

Frequent-shopper kiosk

Product information/ordering kiosk

Virtual display case

Online shopping site

Online virtual store

Online store information

Service

0 10 20 30 40 50 60 70

(Percentage of consumers rating each technology as improving an attribute.)

Speed of shopping

Product information


What product categories are best suited to a given technology?

Consumers were given a list of 13 broad product categories and asked to rate how likely they

would be to use a given technology when shopping for each of the types of products listed.

The ratings were on a scale from 1 (not at all likely to use) to 9 (very likely to use). The list

included all the major categories of products sold by a discount store including apparel, home

textiles, toys, groceries, health and beauty aids, books and consumer electronics.

Here we evaluate the product category suitability of the top four technologies discussed

earlier and benchmark them against the online shopping site to gauge the Internet’s strength in

selling specific product categories compared with the strength of the in-store technologies.

How can technology build on discount store strengths?

Self-checkout

Self-scanning

Hand-held shopping assistant

Body scanning

Electronic POS signage

Frequent-shopper kiosk

Product information/ordering kiosk

Virtual display case

Online shopping site

Online virtual store

Online store information

Quality

0 10 20 30 40 50 60 70 80

(Percentage of consumers rating each technology as improving an attribute.)

Selection

Value

Convenience

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Information-intensive

Replenishment

Sensory

Home

improvement

Toys

Small appliances

Consumer

electronics

Music/video/

books

Office supplies

Health/beauty aids

Groceries

Holiday/seasonal

Bed/bath/rugs

Apparel

Jewelry &

accessories

Hardware/paint

Furniture/lighting

What product categories make the most sense?

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

Rated on a scale of 1–9 where 1 = not at all likely to use and 9 = very likely to use

Online shopping site

Self-scanning

Product information/ordering kiosk

Hand-held shopping assistant

Electronic POS signage


All categories

Electronic POS signage is unique in that consumers see it as being applicable for every

category, with the greatest appeal in the frequently purchased categories of grocery and health

and beauty aid products. Consumers appreciate the convenience of having accurate pricing on

the shelf, which helps to avoid time-consuming price checks at the cashier.

Information-intensive categories

Four product categories — music/videos/books, consumer electronics, toys and small

appliances — can best be described as information-intensive categories, either because they

include an extensive selection of items (such as books and toys) or because the product is

complex in nature and the features are not necessarily apparent (such as consumer electronics

and small appliances). These are categories for which consumers are most in need of accurate

product information.

The product information/ordering kiosk and the hand-held shopping assistant received a higher

rating than the online shopping site in virtually every product category. More important, they

outranked it by a significant margin in the very information-intensive product categories that

are known to be selling strongly on the Internet — music/videos/books, consumer electronics,

toys and small appliances.

Consumers were more likely to use the hand-held shopping assistant than the product

information/ordering kiosk when shopping for small appliances and consumer electronics,

perhaps because it’s easier to carry the device with them rather than use something positioned

in a central location. However, they had a greater interest in using the kiosk when shopping

for music, videos and books.

Replenishment categories

The self-scanning device was seen as particularly beneficial in the product categories that are

replenished at regular intervals, such as groceries, health and beauty aids, office supplies and

holiday or seasonal merchandise. Because consumers are already familiar with these products

and purchase them as part of a larger shopping trip, they want to minimize the time spent

searching for items, checking prices and paying for their order.

Sensory/high-touch categories

Consumers expressed a strong interest in using body scanning and self-scanning to purchase

apparel. These technologies make it easier to find clothes that fit and then check out quickly.

Both the hand-held shopping assistant and the product information/ordering kiosk are seen as

beneficial for the category of home textiles, which includes bed, bath and rugs. The need for

more information may be driving consumers’ interest in using these technologies since such

information is scarce at the point of purchase. None of these devices was seen as suitable for

jewelry or accessories, perhaps because of the unique and personal nature of these items.

Home improvement/design categories

The hand-held shopping assistant and the product information/ordering kiosk had the highest

applicability for the home improvement categories of hardware/paint and furniture/lighting.

The need for product information is driving these product categories as well. These are not

products that consumers shop for on a regular basis — their purchase is usually driven by

some type of home improvement effort — so at the time of purchase consumers need to

acquaint themselves with the available items and their features.

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One-to-One Marketing

Perhaps

the most important asset of

conventional retailers is their current customer base. These shoppers know the retailer’s

reputation for quality, selection and value, are comfortable shopping in its stores, and feel

they have a relationship with the store, its personnel and products. Technology can play a

critical role in building and maintaining these relationships. It can be used to:

◗ Learn about the unique needs, preferences and shopping habits of individual consumers;

◗ Identify consumers at the point of communication and the point of purchase;

◗ Customize retailing activities to better meet the needs of individual shoppers.

The objective of this approach, called “one-to-one” marketing, is to create a

learning relationship with each consumer, strengthen customer loyalty and

maximize their lifetime value to the retailer.

Consultants proclaim that one-to-one marketing is nothing short of a

revolution. Yet despite this enthusiasm, there has been relatively little

research on consumers’ acceptance of these new approaches, particularly

when they involve the use of technology — until now. The following

results from the IU-KPMG study deal specifically with technology’s role

in one-to-one marketing and how consumers feel about it.

Consumers like the idea of having retailers

customize marketing activities to their unique

needs and preferences.

This hand-held shopping

Consumers are generally positive about having the retailer tailor its

assistant gives shoppers product

marketing activities to their individual requirements. Surprisingly, they

information such as

specifications, operating are most positive about merchants charging different prices for different

instructions and warranty customers, with 63 percent saying they like customized prices and 62

information.

percent liking customized promotional offers. Less than 6 percent dislike

this practice. Consumers are also favorable toward customized store

circulars and advertising (54 percent), product assortments (51 percent) and product

suggestions and recommendations (45 percent), with less than 9 percent disapproving.

And they are generally willing to share information about

themselves and their shopping habits.

According to the IU-KPMG study, most consumers are willing to share information that would

allow retailers to contact them individually: Eighty percent would provide their names and 69

percent would share their addresses. A smaller percentage is willing to give out their phone

numbers. While the overall willingness to share one’s e-mail address was low (26 percent), the

numbers are, of course, much higher for respondents who are Internet users (50 percent).

Over 60 percent of consumers are willing to provide demographic information about their

age, marital status, occupation and number of children, but consumers are reluctant to

provide financial information such as income and mortgage/rental payments.


Consumers are generally positive about sharing with retailers information about their shopping

habits, including their favorite products and brands (76 percent), the stores where they shop most

frequently (71 percent), acceptable prices for products (69 percent) and their hobbies and interests

(59 percent). Typically, this kind of information is not collected by retailers, but it could prove

valuable in designing marketing programs and competitive strategies.

However, they want to exercise control over the collection and

dissemination of this information.

How should retailers collect this information from consumers? By far the most popular

research technique among respondents was the direct mail questionnaire (53 percent approve).

While the Internet questionnaire scored lower overall (20 percent approve), it is significantly

more appealing for consumers who used the Internet (40 percent approve). Consumers are

much more negative about intrusive surveying techniques such as in-store questionnaires

(49 percent disapprove) and telephone surveys (80 percent disapprove).

Technology provides retailers with many options for covertly observing customer behavior. Of

these techniques, customers are least opposed to frequent-shopper cards (36 percent

disapprove) and the analysis of previous store purchases (41 percent disapprove), common

elements in most customer loyalty programs. They are much more negative toward other

technologies such as those that can track their online shopping and movements in the physical

store (video cameras and motion sensors). Consumers are most negative about retailers

purchasing information about them from other businesses they patronize.

100

90

80

70

60

50

40

30

20

10

0

What kinds of information would you be willing to share with

a retailer, assuming that this information is kept confidential?

Name

Address

Phone number

E-mail address

Age

Marital status

Occupation

Number of children

Income

Mortgage/rental

payments

Percentage of consumers willing to share information.

Body measurements

Hobbies and interests

Favorite products

and brands

Stores shopped most

frequently

Acceptable prices for products

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These results indicate that customers are willing to share information, but only when they can

control the data-collection process. They clearly object when the information is collected and

distributed without their knowledge.

Consumers are reluctant to share some types of personal

information unless they see a clear benefit.

It’s important for customers to receive an immediate, tangible benefit for sharing information.

This is apparent in the data concerning body measurement and the production of masscustomized

clothing. When consumers were asked if they were willing to share their body

measurements, most were decidedly negative. Shoppers did not want retailers to take their

body measurements using the low-tech tape measure or the high-tech laser scanner

(respectively, 68 percent and 63 percent disapprove).

Yet, when the concept of body scanning and mass customization was described to consumers

and they understood that these technologies could help them avoid the time-consuming

process of trying on different sizes and provide them with better-fitting clothes, they were

much more positive. Seventy-one percent of consumers rated the technology as an advantage,

60 percent said they were more likely to shop at a store with the technology, and 72 percent

said they would use the technology at least some of the time when they shop.

How do you feel about each of the following ways retailers could learn

about your unique needs, preferences, and shopping habits?

100

90

80

70

60

50

40

30

20

10

0

Mail questionnaire

Internet questionnaire

In-store questionnaire

Phone survey

Track with frequent shopper card

% Like

Past purchase analysis

Track with video cameras

Track shopping on web site

% Neutral

Track with motion sensors

Buy data from other businesses

(Percentage of consumers rating each method.)

% Dislike

Measure dimensions with tape

Measure dimensions with laser


Customers prefer being recognized by people, not technology.

Of the 12 different approaches to recognizing customers’ unique identities tested by the

survey, only one received a positive response: being recognized by a salesperson (73 percent

approve). People were generally negative about traditional card-based approaches to being

recognized, including swiping a special card through a card reader or showing some form of

identification. They also generally disliked the new Radio Frequency Identification (RFID)

technology, in which they are issued a card that transmits a unique identifying signal.

Biometric technologies have received considerable media attention, primarily as a means to

increase the security of financial transactions. However, they also can be used for customer

identification in one-to-one marketing programs, such as frequent shopper and affinity programs.

But shoppers in the IU-KPMG study didn’t like them. The four biometric methods tested —

fingerprint scanning, voice recognition, facial recognition using a video camera and eye-pattern

recognition — met with disapproval from over 57 percent of the consumers. One consumer who

encountered fingerprint scanning in a retail store “felt [he] was being treated like a criminal!”

One lesson is clear: As retailers consider the implementation of these technologies, the

challenge will be to convince consumers that there are clear, tangible benefits not only to the

retailer, but also to the consumer.

100

90

80

70

60

50

40

30

20

10

0

Caller-ID

Enter name/password in computer

How do you feel about each of the following ways a retailer

could recognize you as a frequent customer?

Store code on hard drive

Unique identifier in microprocessor

Salesperson recognizes you

Swipe special card

Special card transmits ID

Show ID card with name/photo

Device recognizes fingerprints

(Percentage of consumers rating each method.)

Device recognizes voice

% Like % Neutral % Dislike

Video camera recognizes face

Device recognizes eye pattern

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Conclusion

What

can bricks-and-mortar retailers do to

respond to the growing threat of purely online businesses? First, they can use the Internet to

make it easier for consumers to shop in their stores, thus increasing the value of their existing

locations. The IU-KPMG study found that over half of consumers felt that it would be an

advantage for conventional retailers to promote their wares online, and that consumers were

most enthusiastic about technologies that integrated online with in-store activities. A Web site

for the local store could announce new items, highlight store specials, let consumers check

what’s in stock, hold items for pickup and provide store layouts and hours of operation. By

using product photographs, video clips and 3-D models of the physical store on its Web site,

the retailer can leverage consumers’ familiarity with and loyalty to the conventional store,

making it easier for shoppers to transition between the online and in-store environments.

Once the consumer is in the store, merchants can use technology to deliver many of the same

benefits as online shopping. Information/ordering kiosks and hand-held shopping assistants can

help consumers search for the products they want and provide detailed product specifications,

usage instructions and warranty information. Body scanning lets shoppers buy merchandise

that fits correctly and avoid the time-consuming process of trying on clothes. Frequent shopper

kiosks can display personalized promotions and product suggestions and list the rewards

patrons have earned. Electronic signage and self-scanning technology can provide accurate

pricing information and speed checkout.

A key finding from this research is that consumers are willing to embrace new technologies,

both online and in the physical store, but only if they enhance the shopping experience.

Consumers didn’t ask for barcode scanners, touch-screen kiosks, liquid-crystal displays,

stereo glasses, Internet access or any other specific technology. They wanted more accurate

price information, more complete and current product information, help in finding items that

meet their needs, better selections of merchandise, fewer out-of-stocks and faster checkout.

New technologies hold the promise of delivering these benefits to consumers on a mass scale

without costly increases in staff, floor space and product inventory.

Of course, there are expenses associated with acquiring and installing new technologies,

integrating them with existing systems, and educating staff and customers to use them. To

help minimize the risk of failure, we suggest that retailers take the following precautions:

◗ Experiment with new technologies in the product categories where they deliver the

greatest value;

◗ Deploy in-store technologies in communities with a relatively high percentage of

“technology adopters”;

◗ Make the technology easy to use and provide support and training;

◗ Promote the technology benefits that consumers rated as most important;

◗ Minimize or eliminate those aspects of technology that consumers disliked;

◗ Track consumer usage of and satisfaction with technologies and make refinements

when necessary.

It’s critical that conventional retailers take these steps now, before customers become

comfortable with online shopping and loyal to online businesses. If merchants wait until they

feel the bite on profitability, it may be too late.


Study Methodology/Participant Demographics

Data

were collected from the NPD

Group’s largest consumer panel during the period from March 15 through April 2, 1999. The

eight-page survey included a monadic concept test of 11 retail technologies, an evaluation of

traditional and technology-based approaches to one-to-one marketing, and questions on

consumer demographics, shopping habits, satisfaction and technology acceptance. The survey

was mailed to 4,400 consumers, age 18 and over, and was completed and returned by 2,413

consumers, for an overall response rate of 55 percent. The demographics of the sample closely

matched the U.S. population, with a slightly higher percentage of females (59 percent vs. 51

percent) and lower income consumers (38 percent vs. 34 percent making less than $25,000 per

year), reflecting the characteristics of the discount store shopper.

Age

Under 30 13.8%

30–39 22.4%

40–49 20.2%

50–59 16.0%

60 and over 27.6%

Gender

Male 40.7%

Female 59.3%

Income level

Under $15,000 22.1%

15,000–24,999 16.3%

25,000–34,999 14.1%

35,000–49,999 16.5%

50,000 and over 31.0%

Educational level attained

Some or no HS 18.1%

HS diploma 34.6%

Some college 21.8%

College diploma 16.1%

Postgraduate 9.4%

Market size (MSA)

(in millions of inhabitants)

2.5 and over 27.8%

1 – 2.49 23.8%

Under 1 27.9%

No MSA 20.5%

Size of household

1 member 26.4%

2 members 34.0%

3 members 16.1%

4 members 13.7%

5 or more 9.8%

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Copyright © 1999 by the Trustees of Indiana University.

Copyright © 1999 KPMG LLP, the U.S. member firm of KPMG

International. All rights reserved. Printed in the U.S.A.

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