Insights on the shopping revolution

I‟ll take it! What we‟ve learned from the shopping revolution, and what‟s coming next July 2012Slide 1 © Fjord 2012 | Confidential

1890s: Stone‟s Store,in Roselle Park, NJ,becomes the firstshop to be lit byThomas Edison‟s 1916: Clarence Saunders openscarbon filament lightbulbs Piggly Wiggly, the first self-service grocery store, in Memphis, TN 1900: Mass-production of clothing becomes commonplace as department stores proliferate, selling ready-to-wear items The last shopping revolution happened over 100 years ago. Slide 2 © Fjord 2012 | Confidential

Shopping will never be the same.The High Street is changing. Where the last 50 years have seen a transition from smalllocal merchants to chains and megabrands, the next decade will bring a massive shift inthe opposite direction.• Services will become as important as objects• Shared and Pop-up retail will become commonplace• Up to 30% of retail space will permanently disappear… and even more will radically changeSlide 3 © Fjord 2012 | Confidential

We have entered a new eraSlide 4 © Fjord 2012 | Confidential

Why not „The Retail Revolution‟? Because that‟s not how people think. And if businesses are to survive the revolution, they need to understand the human perspective. Humans don‟t “visit retail establishments.” Humans shop. Shopping doesn‟t just happen in shops, either. And in order to identify opportunities, we need to be able to see the whole picture of what shopping is and can be.Slide 5 © Fjord 2012 | Confidential

Shopping: the human perspectiveSlide 6 © Fjord 2012 | Confidential

It‟s not a linear experience give upfriends fit trends deliverycool quality look wait support price service returnsSlide 7 © Fjord 2012 | Confidential

Many variables = complex challenge ? What I‟m buying Personal factors Everyday purchases Cultural context Big ticket items Age and social status Long term investments Financial comfort and Clothing and accessories confidence GiftsSlide 8 © Fjord 2012 | Confidential

Beyond retail: the shopping ecosystemSlide 9 © Fjord 2012 | Confidential

3 keys to understanding the revolution @ Online vs. offline People pay for Changing is a myth what makes them infrastructure is feel good changing the rulesSlide 10 © Fjord 2012 | Confidential

Thank you. The online/offline mythSlide 11 © Fjord 2012 | Confidential

Online/offline: there is no such thing.Online/offline has not been a meaningful distinction for some time.Digital-ness is now ubiquitous - we carry the digital world around with us in our pockets.We can access it all the time, in shops and at home and on the street. @Slide 12 © Fjord 2012 | Confidential

Nearly 50% of US smartphone owners usemobiles in-store 60% 50% 40% 30% 20% 10% 0% Call/text Compare Send Find Check Fill time in Check for Show Scan Check Not used for advice prices picture of another product check out location item to product opening mobile in product store reviews line deals personnel barcode times storeSource: GP Bullhound Research, Mobile Commerce, September 2012Slide 13 © Fjord 2012 | Confidential

…and 53% have abandoned as a result 21% Found a better item online 30% Found a better NO YES price online 47% 53% 38% Found a better price in another storeSource: GP Bullhound Research, Mobile Commerce, September 2012Slide 14 © Fjord 2012 | Confidential

From 3D to 2DGrocery shelves are displayed onscreens in subway& QR codesWindow-shopping stations. Peoplemake purchases by scanning codes.This “shop” is both online and offline – itlooks like the real, 3D thing; it‟s locatedin a real, 3D place, and yet thecommerce all takes place over InternetProtocol.Slide 15 © Fjord 2012 | Confidential

The window is the shop eBay‟s Give-a-Toy shops enabled shoppers to scan QR codes from the shop window, to donate a toy to a child in need. The window display, in this case, is the shop. Similarly, more and more retailers are including QR codes in their window displays, which enables people to make a digital „wish list‟ from real-world items in real-world places.Slide 16 © Fjord 2012 | Confidential

Shop? Who needs a shop? Like the glassware at the restaurant? Buy it. Fancy that dress Florence wore at last night‟s gig? Have it delivered to you today. The continued rise of semantic metadata and interconnected APIs mean that we‟ll be able to buy things wherever we see them – in real life, on television, anywhere.Slide 17 © Fjord 2012 | Confidential

“Online”During in thereal worldIn-store bar code scanningCustomers in brick-and-mortar shopsuse smartphones to do pricechecks, look up reviews, add items togift registries, or even purchase the itemfrom another retailer and have itdelivered straight to their home.Slide 18 © Fjord 2012 | Confidential

During “Online” in the real worldAll Saints in-store kiosk for online ordering Some retailers, including the UK-based chain All Saints, offer an in-store kiosk (or in All Saints, iPad) where customers can order articles that aren‟t in stock at that location from their online store. This takes advantage of the customer‟s in- store urge to buy, and is far more immediate and effective than sending them to another location to make their purchase. It also introduces brick-and- mortar customers to the online property.Slide 19 © Fjord 2012 | Confidential

During Augmented merchandise C&A has launched a pilot in Brazil of their “Fashion Like” in-store concept. Hangers contain a small display showing how many times that garment has been „liked‟ on facebook. Instead of scanning a code or launching an app, customers can see this data made manifest where it is most relevant.Slide 20 © Fjord 2012 | Confidential

During “Online” in the real worldPayPal HereSquare PayPal Here, Sail and Square take online payment methods into the brick and mortar world (more on this later).Slide 21 © Fjord 2012 | Confidential

Shopping goesDuringDIYApple now allows customers to shop instores without making any contact withstaff unless they want to. The conceptenables customers to explore themerchandise for as long as theylike, make a decision (assisted ornot), find the item and pay for it, all ontheir own. This gives the customerunprecedented freedom in shaping theirown experience. Apple can do thisbecause they own every piece of thesystem – the merchandise, theshop, the payment.Slide 22 © Fjord 2012 | Confidential

After Whenever, where verOnline purchases returned in-store Many retailers allow customers to return online purchases to brick-and-mortar locations. This combines the convenience of buying online without the inconvenience of having to go to the post office for returns.Slide 23 © Fjord 2012 | Confidential

Whenever, where ver The idea of buying in-store and getting home delivery is not new – appliance dealers have been using this system for decades. But the idea of buying something online and picking it up in- store is more recent, further blurring the lines between „online‟ and „offline‟Slide 24 © Fjord 2012 | Confidential

After Whenever, where verOnline registration & support for items purchased in brick & mortar shops It has become commonplace for consumer electronics, no matter where they are bought, to be registered online. Support, too, is delivered primarily through online means, with phone support often only available at a premium.Slide 25 © Fjord 2012 | Confidential

Thank you. The feel-good factor “Money, if it does not bring you happiness, will at least help you be miserable in comfort.” - Helen GurleySlide 26 © Fjord 2012 | Confidential

There are some things money can‟t buySlide 27 © Fjord 2012 | Confidential

People pay for what makes them happy.Some people are happy with simply getting the best deal, but many are willing to pay apremium for better service Recognition and Loyalty Follow-through and recommendation Reward me for repeat support Know who I am and custom Resolve my problems what I like and address my complaintsSlide 28 © Fjord 2012 | Confidential

Great technology experiences are indemand 36% Want 36% vouchers & Find mobile location purchasing based frustrating, services but do it anyway 59% Would purchase more frequently 42% if the experience Would use were better mobile 42% checkout if available Are interested in mobile wallet services 40% Want QR & barcode scannersSource: GP Bullhound Research, Mobile Commerce, September 2012Slide 29 © Fjord 2012 | Confidential

Before Nice to see you again.Amazon home page with recommendations Amazon is perhaps the best- known example of recognition and recommendation – it is definitely one of the most widely cited examples in the online world.Slide 30 © Fjord 2012 | Confidential

Before Where everybody knows your nameMessaging from local merchant/ brick & mortar store/ call from the lady at the DKNYcounter Personal service in local stores – for example, the shop owner who gives you a spontaneous 10% discount because you choose to buy two items when you only intended to buy one – can be quite powerful in driving loyalty. Services like Square, PayPal Here and Sail have the potential to facilitate and support this by giving merchants access to customers‟ purchase histories in their shops.Slide 31 © Fjord 2012 | Confidential

Where everybodyDuringknows your nameLocal merchants taking 10% off when you buy 2 pieces (because you came in onlyLocal shop owners are also more likelyintending to buy 1)to know their customerspersonally, building trust relationshipsthat enable them to advise onpurchases – this makes both partiesfeel better about the transactions, eventhough the goods may cost more.The best merchants will even call theirregular customers when new andrelevant merchandise arrives – thismakes customers feel like VIPs anddrives both store visits and loyalty.Slide 32 © Fjord 2012 | Confidential

The Starbucks app is an excellent example of tying the full customer lifecycle together – fromlocating a shop to ordering to payment to loyalty, all in one well-designed package. Slide 33 © Fjord 2012 | Confidential

VIP service, VIPAfterstatusNet-a-porter delivery service (guy in the suit, black boxes with ribbons, same day inNet-a-porter offers same-day deliveryLondon)by liveried staff – a luxurious personaltouch that makes customers feel betterabout the price tag of theirmerchandise.Slide 34 © Fjord 2012 | Confidential

With you everywhere Uniqlo has extended its relationship with customers through a widely- loved alarm app, and encouraged ongoing interaction by awarding discounts to customers who tweet about their products.Slide 35 © Fjord 2012 | Confidential

Bridging theexpectation gap20-40 year olds with less income than they‟dhoped to have are bridging the gap betweenexpectation and reality by doing theireveryday shopping at discounters and puttinga large proportion of their disposable incometoward high-end designer accessories. Theseare often purchased at outlet shops such asTK Maxx. Slide 36 © Fjord 2012 | Confidential

Thank you. Portable infrastructureSlide 37 © Fjord 2012 | Confidential

Banks take a backseat As mobile alternatives such as Square, Sail and PayPal Here gain traction in the market, virtually anyone can become a retailer. This enables proliferation of microbusinesses and also threatens more traditional infrastructure providers (banks, credit card companies) who have begun to fade into the background as these OTT players take the spotlight with consumers and merchants alike. This movement is reminiscent of the challenge faced by Telcos over the past half a decade, as manufacturers and OTT providers have captured customers‟ hearts through high-value services.Slide 38 © Fjord 2012 | Confidential

The great equaliserA street market vendor can suddenly beequal to a high street brand like Topshop –access to affordable payment infrastructureenables the quality conversation todominate, rather than the power lent bysuperior infrastructure and presence.Slide 39 © Fjord 2012 | Confidential

Geofencing allows payment without takinganything out of your pocket.Slide 40 © Fjord 2012 | Confidential

Customer ormerchant?The distinction between customer andmerchant is also blurred by this newinfrastructure – anyone can be a consumerby day and a merchant by night, or viceversa.Slide 41 © Fjord 2012 | Confidential

Reach out and touch someoneTraditional traffic drivers like vouchers and coupons have also moved into the mobile domain, withlocation based services like Groupon and Foursquare, and social curation tools such as Pinterest.Slide 42 © Fjord 2012 | Confidential

More choice, more pressureThere is now a far greater range of payment choices for retailers as well as individuals.This puts further pressure on traditional service providers to innovate to drive value.Slide 43 © Fjord 2012 | Confidential

Beautiful seams, not“seamlessness”Some new shopping experiences areunnerving for customers – the absence ofthe “the altar of commerce” that is the till isconfusing, leaving people wonderingwhether they‟ve actually paid for theirpurchases or not.This new behaviour could also cause otherproblems, as customers grow soaccustomed to skipping the till that they doit even when there is no other technology inplace.We must mitigate this by ensuring thatcustomers are aware of the transitions asthey take place. Total “seamlessness” isnot ideal here – while the transitions shouldbe smooth and not jarring, it is critical thatcustomer/users always know what‟shappening and where they stand.Slide 45 © Fjord 2012 | Confidential

Beware the uncanny valley This is a well-known concept in the robotics world, but it also applies to “smart” services. The myth is that the better a service knows me, the more conclusions it draws, the better my experience will be. But that‟s not true – beyond a certain point, the service stops being cool and starts to be creepy. It takes a huge effort to pull the service back out of the valley – and you may never regain the trust you‟ve lost.Slide 46 © Fjord 2012 | Confidential

Where people areconcerned, why is moreimportant than what.It‟s not enough to knowwhat your customers aredoing – in order to knowhow best to respond, youneed to understand why. Slide 47 © Fjord 2012 | Confidential

Why isn‟t everyone more engaged?Less than 20% of mobile users engage with online retail. Why not more? 36% 23% Credit card info security concerns 48% Not easy to view product information Awkward shopping experience 18% Product information too limited 31% 20% Slow connection Takes too longSlide 48 © Fjord 2012 | Confidential

It‟s a balancing act Single point of focus Focus on many areas at once Know „what‟ but not „why‟ Confusion The trick is to choose a framework of KPIs that work together to show you not just what your customers are doing, but why they might be doing it; not just how your business is performing, but where the opportunities lie to improve.Slide 49 © Fjord 2012 | Confidential

Look at the system (not just at one part)For customers, thewhole ecosystem workstogether to create theexperience they think ofas shopping.Slide 50 © Fjord 2012 | Confidential

Look at the system (not just at one part) Understanding how the pieces of your ecosystem work together is the key to creating the best experience possible.Slide 51 © Fjord 2012 | Confidential

Thank you. Opportunity Spaces “Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage” - Niccolo MachiavelliSlide 53 © Fjord 2012 | Confidential

From Shop to Showroom While Apple‟s new ultra-DIY shops have troubled some customers, they are indicative of an interesting shift – from „shop‟ environment to „showroom‟. The focus is no longer only on selecting product and paying for it; the focus is on experiencing the products, with or without assistance. Technology has opened the door to radical change in physical retail spaces. Without the constraints of the counter, the till, maybe even the merchandise, we are free to invent whatever kinds of space are best suited to connecting people to things they will love.Slide 54 © Fjord 2012 | Confidential

My data earns me moneyAs customers become more savvy about their data, new opportunities open for merchants to barter discounts ormerchandise to access improved information. This means opportunity for deeper, more meaningful relationships withcustomers.Slide 55 © Fjord 2012 | Confidential

Let me take mycommunity with meLocation based technology, socialgraphs and other metadata can becombined to give customers morecontrol over who influences theirbuying decisions – leavingrecommendations and reviews forfriends in specific locations, attachedto specific merchandise.Or, customers could choose to followin the fashion footsteps of the starsthey want to emulate - literally, in thephysical world. Slide 56 © Fjord 2012 | Confidential

Make it feel better to buy Many medium- and big-ticket items, from car seats to washing machines, are necessary but uninspiring purchases. Anyone who can make a more satisfying experience of these purchases will win a good deal of trust and affection from customers.Slide 57 © Fjord 2012 | Confidential

Help me to aspireThere are collections of items – such ashome theatre or hi-fi equipment – that manycustomers continually and incrementallyupgrade over longer periods of time. Forthose who are less technology-savvy, thiscan be a challenging process of readingreviews and specifications and askingfriends and acquaintances for advice.Anyone who can help customers rememberwhat they have and what it will work bestwith will certainly gain trust and goodwill.Slide 58 © Fjord 2012 | Confidential