10
The Internet Goes Shopping
“To change and improve are two different things.”
In Chapter 7, “Integrating Online and Offline Retailing,” we discussed with Peter Fader and Wendy Moe the similarities between online and offline shopping behavior. We saw how insights from e-commerce can be applied in brick-and-mortar stores. But the online and offline worlds are converging in a more direct sense through new technologies for interacting with shoppers inside the store. While consumers have gone online to shop, now the Internet is coming into the physical shopping experience. Although we are still in the early stages of this evolution, neither world will ever be the same.
There is a long history of wanting to communicate with shoppers while they are shopping in brick-and-mortar stores, but the early efforts were rather crude. Retailers placed fixed advertising and communications around the store that was contextually sensitive—placing coupons on or near the product, or near a logically related product, for example. But the true goal has long been to communicate with a specific shopper in a particular location and change the message dynamically as the shopper moves through the store (even, perhaps, influencing the shopper’s path). This would provide messages that are relevant to that shopper at a specific point in her trip in a specific store.
Entering the VideoCart Age
Online-offline retail fusion began with VideoCart and evolved to the present diverging approaches—a full cart system such as MediaCart with a large screen and Internet connection or a handheld device such as Modiv Media’s. Let’s take a quick look at this evolution.
VideoCart was developed in the early 1990s by marketing research company Information Resources, Inc. (IRI), which sells family grocery-buying statistics to clients such as Procter & Gamble and Nabisco. VideoCart, the world’s first Internet business-to-consumer start-up, operated over 20,000 carts in more than 200 U.S. grocery and chain retailers by 1992. The carts had battery-operated mobile displays about the size of an Etch A Sketch™ mounted on their handles, connected to the company’s servers through wireless LANs in stores. The interactive displays received completely new content via download every week, because prices change weekly in grocery stores, including sale items and coupons for that unique store (the same information as in the local newspaper’s weekly food section). Each device was location-sensitive, displaying only the on-sale items in the shoppers’ immediate vicinity, and changing as they went down the aisle or entered another department.
Other pilot sites for VideoCart included Wal-Mart and Toys-R-Us. The content, or weekly “show,” included what may have been the first banner ads, with animation. Coupons and banner ads were similarly location-specific. The device had an ATM screen-with-buttons, the only public digital interface then in common use, which provided coupons at checkout. The Videocart devices also offered entertainment to shoppers in the checkout line.1 The most advanced systems logged all shopping cart paths and could analyze and play back individual or aggregate paths through a store map. Ultimately, this tied the path data, time-of-day, and day-of-week to effectiveness of sales, coupons, or shelf-placement.
That effort was followed by the less successful ActivityPath, and later, Magellan by Safeway. Stop & Shop has been the most persistent retailer pressing this opportunity, first with Shopping Buddy, with a full-size interactive screen on the cart, which has evolved into a handheld device (Modiv Media). Modiv Media now is operating in more than 100 stores, so it has moved well beyond proof of concept to demonstrate the value of this approach. Building on VideoCart’s success, MediaCart now offers a computerized shopping cart that assists shoppers, delivers targeted communications at the point of purchase, and streamlines store operations. The MediaCart system accurately anticipates and responds to shopping needs—letting shoppers download a shopping list from home, plot the quickest and easiest route around the store, locate products, check prices, and scan and bag their items seamlessly while shopping. The system uses passive RFID tracking of the cart through the store and WiFi radio signals to the store’s central servers. Shoppers can press a button to ask where a product is and locate the best route there. When the product is selected, the shopper scans the barcode on the screen, and it is added to the total for the cart.
Cell Phone Invasion
So far, most of the tracking and interaction in stores requires specialized devices, either bulky “laptops” mounted on carts or handheld devices. But as iPhones and other powerful cell phones become more ubiquitous, they will play an increasingly important role in interacting with shoppers in the store. Phones already track their locations relative to cell towers and GPS systems. There are RFID reader chips going into cell phones that will permit location-specific communication with shoppers in the aisles of stores. This is not the same as VideoCart, Modiv Shopper, or MediaCart, but it could mean that consumers will carry their connection to retail stores in their own pockets.
Ten years from now, retailers will be communicating with shoppers on a regular basis as they walk around the store using some kind of electronic device, whether it’s their cell phone, PDA, or equipment the retailer provides. All retailing will occur under this cloud of electronic communication. This will promote more active participation with the shopper, taking us closer to what I have called the Holy Grail of retailing:
• To know exactly what each shopper wants, or might buy, as they come through the front door
• To deliver that to them right away, accepting their cash quickly and speeding them on their way
The bottom line is that the Internet is moving into the store, which will fully blend online and offline retailing. Retailing itself will be altered to a great extent by this. The offline store will increasingly become a “big head” enterprise (think Stew Leonard’s, HEB Central Market, and Tesco’s Fresh & Easy). But Chris Anderson’s vision of the “long tail” will take on added relevance, as, for example, supermarkets learn to distinctly manage their center-of-store long tails versus their promotional big head stores.
The wired store may also enable the long tail to hang outside the four walls of the store. This is where Internet maestros like Tesco may sweep a few dinosaurs into the dustbin of history. However, all the largest players are already working both sides of the street (online/offline) and will eventually figure out that pushing 30,000 SKUs into shoppers’ faces every time they show up in the “store,” when they only buy 200 regularly, is killing their business. (I look at the $20 million of sales of a good supermarket as “death” compared to Stew Leonard’s $100 million per store.)
The shifting relationship between the shopper and retailer is bound to further disturb their relationship with the third leg of this stool, the brand owners. Manufacturers and retailers will need to examine their relationship to see if their current systems for interacting, such as a trillion dollars in promotional fees, really serve shoppers well—or any of the three parties in this emerging world. Already these relationships are starting to change to meet the demands of a more shopper-centric world, where shoppers are king and queen. As King Louis discovered many years ago in France, it is hard to hold back such a tide of change. No matter what the current powers may think, these shoppers will not “eat cake”—unless they absolutely want to.
Implications for Retailers and Brand Owners
The primary message of our research for retailers is to manage the big head and long tail of in-store products more effectively. This will help you make better use of the 80 percent of shopper time that is wasted moving through the thousands of products in the store to get to the few hundred that shoppers actually purchase. There are many possible solutions, but retailers that don’t know how to manage the big head and long tail will not be in business long. As noted previously, online retailing offers opportunities for many new and creative solutions to this challenge.
For brand owners, the key is to improve the speed of closing. Although the retailers may control how the shopper moves through the store, the manufacturer influences the speed of closing when the shopper is within striking distance of the product. In addition to packaging, in-store digital media can help to close the sale. If brand owners want to significantly increase their sales, they need to engage with the shopper in real-time conversation through digital media at the point where the purchase is made. This significantly speeds up seconds per dollar, which, as we’ve discussed, increases overall sales. Brands need to make relevant, timely offers and close the deal quickly.
The Power of Model Makers
New technologies not only create more opportunities to interact with shoppers but also are a rich source of new information to help us understand shopper behavior. As noted previously, smart shopping carts can track consumer pathways through the store and offer insights into their reactions to specific displays or promotions along the way. These are the kind of tools that we only dreamed about having a few decades ago. As we have found with scanners and online clickstreams, however, massive amounts of data do not necessarily lead to better insights. Wharton’s Peter Fader has commented that much of the experimentation online is atheoretical. People manipulate pages and see what works, but don’t use the results to inform a broader theory.
Even in an environment that is so rich in information and offers so many channels for potential interaction as the one emerging, there will be a need to understand shopper behavior. Given that humans are still at the center of this drama and their needs and behaviors are often resistant to the tug of new technology, our past insights into how shoppers behave, as described in this book, are likely to remain very relevant in this new era. It is encouraging to see the research discussed in Chapter 7 about the parallels between online and offline behavior, which shows that while there are important differences, shoppers are shoppers.
In fact, insights and theories about shopper behavior may be even more important in our high-tech environment. If you can interact with shoppers at every moment during their trip, and in many different ways, how do you interact in just the right way? This is similar to online advertising where it may be possible to bombard a visitor to a site with a barrage of popup ads—possible, but probably not desirable. A strategy for where and when and how to interact with shoppers becomes crucial. And a solid strategy rests on solid theory tested with empirical results. That is where good models come in.
The Model Business
Online or offline, models matter. The movie The Flight of the Phoenix tells the story of an airplane that crashes in the desert, in time of war. With enemies all around, the survivors have no way to fly their damaged plane. It appears that they will perish in the hot desert through exposure and lack of food and water. But, as chance would have it, among the survivors is an aircraft design engineer with many years experience. He suggests that they can make some fundamental changes in the remains of the plane, and this “new” plane can fly them out of their peril. At the last instant before their lifesaving flight, they learn that their aeronautical design engineer has spent his entire career designing model airplanes! He is a model maker. Yet they managed to take off and fly to safety.
I have also been a model maker, but am just as confident in the knowledge we have gained from this process. I am grateful to the many retailers and brands who placed their lives—or at least their livelihoods—into the hands of our researchers. The knowledge we have gained has helped them and others improve their stores and lift their sales.
This book is the distillation of nearly forty years of a scientist spending time in stores studying shoppers, with the last decade increasingly spent on understanding the relationship of those shoppers to the store and its management, on the one hand, and to the products and their brand suppliers on the other. During the sixteen years immediately preceding the sale of my own company to a global research and information business, we grew at an annualized rate of 30 percent. I don’t need to brag, but you need to understand that I do have somewhat of a single-minded focus on growth.
A Fivefold Increase
As with the survivors of The Phoenix, attitude is everything. Attitude at retail is a factor given too little consideration, when a large share of achievement is attitude. The reason many people accomplish very little is that they set out to accomplish very little. Actually, people often start out with big ideas, but long before they are anywhere near achievement, they have really, totally forgotten what it was they were going to do.
This book has identified the principles that have allowed retailers to increase sales by a factor of five. These retailers understood better what was going on inside the black box of retail. This should be of interest to any retailer or brand owner. And if you fall short of a fivefold increase in sales, wouldn’t you be impressed if you could double your sales? The opportunities are there, but you need the right insights and attitude to seize them.