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YOU ARE HERE…Whether You Like It Or Not

Wednesday, August 25th, 2010

By Doug Stephens

A recent study by Forrester Research concluded that while location-based services (LBS) such as Foursquare, Gowalla and Loopt are intriguing, they are still too small for major marketers to spend much time on.  Location-based services allow users to not only share their physical location with others but also to gather and receive information relative to their location such as reviews, recommendations, other nearby venues and friends that may be in proximity.  Forester added that while current users of location-based services are very likely to be influencers within their social circles, they are also largely male and therefore better suited to marketers targeting men.  Their overall advice to marketers was a resounding “wait-and-see” on location-based services.

Then Why So Much Location-Based Marketing?

But it’s hard to reconcile the Forester report with a lot of what’s happening in the marketplace.  Large players like Starbucks have been experimenting with services like Foursquare since early 2010, giving in-store discounts and rewards to users for checking in to their stores.  The GAP recently launched a one-day 25% off promotion to Foursquare users checking-in at GAP locations.  Add to the list the Wynn Las Vegas Hotel, the City of Chicago and Tasti D-Lite and it would appear that location-based marketing is being taken very seriously by major marketers across categories.  And it all seams completely understandable.  After all, isn’t the goal of marketing to be timely and relevant?  It would seem that LBS is an ideal means of achieving both.

Recently released LB applications such as the Shopkick are making news by taking shopper rewards to entirely new and location-specific levels, literally allowing shoppers to earn rewards simply for moving through various areas of a participating store.  And with retail giants such as  Macy’s, Best Buy, Sports Authority and American Eagle Outfitters and Simon Property Group testing it, Shopkick is getting some serious attention.

And in what is perhaps the ultimate sign that LBS has arrived, Facebook recently launched its own home-grown location service, Facebook Places, allowing users to share not only what they’re doing but also where they’re doing it.

All this activity and interest around LBS begs the question, if in fact marketers follow Forester’s advice and wait on the sidelines, do they run the risk of missing the “LB boat” entirely?

Making Location Make Sense

What most agree on is that location-based marketing services are still relatively new to the mainstream and largely misunderstood by the public and marketers alike.  To that end, organizations are forming to foster discussion, education and understanding about LBS.  One such organization, the Location-Based Marketing Association of Canada hopes to not only better define LBS but also share with marketers the unique opportunities the technology represents.

In response to the Forester study, Association Founder and President Asif Khan said “What they failed to highlight was the explosive recent growth of such services. Foursquare alone has over 2.5 million users and has experienced 28% growth in just the last month, according to RJ Metrics. More and more people are beginning to utilize location-based services and as Smartphone adoption increases globally, the numbers will only continue to increase.”  Khan also points to the introduction of Facebook Places as having the potential to immediately introduce upwards of 500 million users to the concept of location based services.

As for marketers considering location-based marketing, Khan believes that those who “move to embrace LBS early-on will reap enormous rewards from proximity marketing, including attracting more first-time customers, encouraging more repeat business and increasing sales.  I also see huge opportunities for cross-brand promotion for companies that have multiple brands like Gap and Old Navy.”

Forget technology. It’s about “return on relationships”

Techno-Anthropologist Clay Shirky is quoted as saying that “Communications tools don’t get socially interesting until they get technologically boring.”   To that end, Khan sees the use of LB reaching critical mass in 18-24 months.  “I think Clay is right” said Khan. “I don’t think it’s about technology at all.  At least, I don’t think people care about which app they use.  They only care about the size and relevance of the deal.   For brands and retailers engaging with these tools, the real measurement of success will not only be ROI, but Return on Relationship (ROR).

As for the future and the continued evolution of location-based technologies, Khan suggests that the very context in which we consider the term location will also evolve.  “Today, we think of location as only the physical space.  But I see a time where we will be in virtual spaces and augmented reality where brands and content will live as well.”

Full disclosure:  Retail Prophet Consulting sits as a current member of the advisory board for the Location-Based Marketing Association of Canada.

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Posted in Marketing, Technology, The Future, Trends, social media

Privacy is Dead… and It Could Be Great

Tuesday, May 11th, 2010

By Doug Stephens

Recently Facebook announced its intentions to develop what it calls the Open Graph, a means of connecting data about an individual based on their choices, tastes and preferences by profiling  their social networking and web activity. The idea is to link all of this data and then bring it to a central point; that central point being Facebook, of course. In doing this, Facebook would be capable of graphing an intricate, accurate and ever-evolving picture of the individual consumer.

The strategy involves a few things. First, they are allowing partner sites to interface with Facebook. When a user comments on an article (on CNN.com for example), it would be shared with their social circle on Facebook and in the process, the fact that the user visited CNN.com would be noted and added to their graph. Second, they’re going to share the “like” button programming code so that any business can place the button on their site to create a social-link back to Facebook. In the process, Facebook gathers more data about that user’s preferences outside of Facebook itself. Lastly, they’re going to break from the current protocol of not storing or caching user data for more than 24 hours. They didn’t give any details about how long they intend to store this information.

 The open graph is the Holy Grail of marketing

The point in doing all this, according to Facebook’s founder and CEO Mark Zuckerberg is to “create a Web that’s smarter, more social, more personalized, and more semantically aware.” In other words, to bring all our disparate likes and dislikes together to form a unique profile of who we are and in doing so, allow the web to deliver data that’s more tailored to our needs as consumers. The subtext however is obvious. By holding the keys to the open graph, Facebook literally becomes the centre of the marketing universe and the preeminent channel for any brand that wants their message to reach consumers with unprecedented timeliness and relevance – the issues that have always been the greatest challenge for marketers.

Reaction to this announcement ranged from enthusiasm to anger. While some viewed it as a positive step toward a more connected and meaningful internet experience, others saw it as yet another step in the eradication of privacy as we know it.

In fairness to the naysayers, anyone who’s been phished on Twitter or Facebook can attest to the fact that the web can be an ugly place when you share the right information with the wrong people. What’s particularly disconcerting is the speed and scale of the damage that can be done when your information gets compromised. There’s no question that we need to be vigilant in our pursuit of improved safeguards to this sort of activity.

Privacy is outdated

Having said all that, I believe that the idea of privacy is completely outdated. To be honest, it’s a nostalgic notion that we’ll describe to our grandchildren who will no doubt wonder why it mattered so much to us. They may even speculate as to what we did that was so weird or shameful that we didn’t want other people to know about it.  

And what privacy do we really have anyway? We live in a world where your picture can be taken hundreds of times in the course of a normal day. Our cell phones are like homing beacons, tracking our whereabouts at all times. Our credit card is a trail of digital breadcrumbs a hundred miles long. And it’s now routine to Google someone before you meet, hire or do business with them. Our lives are anything but private. Good lord, talk show hosts and golfers can’t even keep a good old fashioned affair under wraps. So why should we care about handing over more of our personal information to institutions and companies? It’s not about privacy.

It’s really about trading information for value

Traditionally when we give companies information, we don’t get any real value in return and if we do get anything, it’s usually just generic offers, junk and noise. Life doesn’t become easier or less complex – just the contrary. It becomes filled with more information that we don’t need.

However, imagine if we could move to a state where the marketing messages we receive are almost completely relevant and timely. If virtually every piece of direct marketing you received made perfect sense with respect to your tastes and preferences and needs at that moment. If the advertising you were sent matched your life-stage and interests perfectly. If even new products that you’d never heard of made sense with respect to your unique needs and wants as an individual.

Would you be willing to trade a little privacy to get to this point? I know I would.

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Posted in Technology, The Future, social media

Retailing In The Absence of Recovery

Thursday, March 11th, 2010

By Doug Stephens

Recovery is a word we hear a lot these days.  It seems that each week experts sift through the tea leaves of economic indicators looking for even the faintest sign that the fabled “recovery” has begun.  We’ve taken to measuring retail performance a week at a time in search of any positive sales data.  Marketers continue to bait the consumer with discounts and promotions, hoping to get even a brief spike in foot traffic (regardless of the long-term impact on their brand).  Wall Street applauds corporate cost cutting measures and layoffs with higher share prices, while secretly wondering how much further budgets can be cut in lieu of meaningful sales growth.  Each day we wait and watch for the “bounce-back”.

 The problem with monitoring the recovery in this way is that it is as short-sighted and speculative as the behavior that brought on the recession in the first place.  Hinging decision-making on the basis of any shred of positive data is a recipe for disaster that fails to acknowledge the deep, underlying issues that led us to where we are now.  This recession is like an oak tree, with tangled roots that stretch back decades and it will take time, hard work and some sharp tools to fell it.

 Looking back to see the future

 In order to really understand our current problem, we need to look back as far as the late 1970’s.  It was then that many of the causes of our current situation were born.

 I point here to some fascinating research conducted by attorney and law professor Elizabeth Warren.  In what was an exhaustive study, she compared the relative household economic condition of the average American family (married with two children) in 1979 to the same family in 2005. All the data was meticulously scrubbed and adjusted for inflation.  Some of the key findings were as follows:

  •  Throughout the period 1979 to 2005, the average personal income of men remained virtually stagnant.
  •  Any gains in household income were a result of entry into the workforce of another wage earner, often the female of the household.
  •  Whatever gross gains were made as a consequence of the additional wage earner, were generally nullified by the enormous escalation in the cost of living though that period, particularly in the areas of home ownership (+80-100%), child care (+100%), health insurance (+103%), automobile expense (+70%) and tax rates (+25%).  This doesn’t even take into account 2005 costs that simply didn’t exist in 1979, such as cell phones.

 The net result was that the average American family in 2005 was significantly further behind economically than the same family in 1979.  

 After paying for their basic needs, the average family had less money left over at the end of the day than they had almost 30 years earlier despite having more family members working. 

 This fact, however, seems completely incongruent with the level of consumption and spending that was taking place in most parts of North America throughout that period.  Despite a few economic speed bumps along the way, consumerism was rampant, particularly from about the year 2000 on.  If in fact, consumers had less discretionary income, then where was the money coming from to fuel this spending? 

 The answer lies in a leveraging of historic proportions that began in the 1970’s but really hit stride in the mid 1980’s.  As the graph below indicates, throughout the period of 1970 to 2005, the average personal savings percentage went from 12.5% to negative 1%.  Americans were banking twelve and a half cents on every dollar earned in 1970. They were spending a dollar and one cent of every earned dollar in 2005.  By corollary, household debt outstanding grew to unprecedented levels.

 Savings Rate

And the leveraging didn’t end at the consumer.  Institutions and governments were following the same course, running up dept and deficits the likes of which were never thought possible.

 During the week of October 6, 2008 the entire house of borrowed cards collapsed and the consumer found themselves caught.  Their investments declined, including in many cases their only real nest egg… their home; they had no cash in the bank and a mountain of unforgiving debt.  And on top of it all they now had the added worry of job loss to contend with.

 The uptick you see at the far right of the graph is the instinctive hoarding of cash that took place immediately following the declines on Wall Street and the collapse of several financial institutions, where personal saving rates rebounded and continue to rise even now.  It’s that upward trend in savings that has had even the most aggressively discounting retailer scratching their head as to why their goods aren’t selling; the consumer is rebuilding their war chest.  How long the savings rate will continue to push upward is unknown but a return to a double-digit percentage isn’t inconceivable.

 The long road to recovery

 What all of this amounts to is that the economy will only begin to heal in a real way when the average consumer feels decidedly less vulnerable and scared.  This means a suitable amount of cash in the bank, relative job security and signs of sustained growth in the value of their investments and holdings.  Until these things are firmly in place, any potential recovery will be stymied. It took decades to get into this situation.  Recovery could take many years and be painfully gradual.  There is simply no cogent arguement for a fast recovery.

 For retailers the ultimate question is how to survive the waiting game.  While there’s no single correct answer, there are a few broad realities worth paying attention to and developing strategy to address.

 1.      Reckless price cuts are not effective: Consumer spending has been squarely realigned to necessities until further notice. Simply lowering the price of non-necessities will have a very minimal impact on sales but may erode margins and brand image to the point of disaster for unwitting retailers.  

 2.     Middle of the road propositions will fall flat: Bringing the consumer to spend on anything but necessities will call for remarkable propositions that either provide extraordinary value or extraordinary experiences.  For example, Apple concluded a record sales year in 2009 – the height of the recession – by providing consumers with high perceived value that they felt couldn’t get elsewhere.

 3.     Baby Boomers are receding as consumers:  According to the Bureau of Labor statistics, consumer spending declines precipitously after the age of 50.  The peak of the Baby Boomer generation is now 55 years old.  So, the generation that fuelled record consumption is sidelined, due in part to the recession but also as a consequence of their natural dénouement as consumers. 

 For this reason, retailers will have to capture new market share among younger age cohorts or pry Boomer market from competitors by addressing their evolving needs more effectively.

 4.     Generation Y are not their parents:  Many are holding out hope that Generation Y will be the catalyst for recovery. It’s true that this is a huge generation that has a solid track record for spending but they’re also different in almost every respect from their parents’ generation.  Only those retailers who truly understand and respond to their unique needs and preferences stand a chance of engaging them as consumers.  The old rules of retail no longer apply.

  Knowing all this isn’t likely to make you feel much better about our current situation but if nothing else perhaps it lends a perspective based in reality as opposed to blind optimism – although I’m hoping for the best just like everyone else.  Perhaps with a keener understanding of the root causes of the current consumer paralysis we can market and retail with a greater degree of empathy and ultimately speed the process of recovery.

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Posted in The Future, Trends

The Future Hates Mediocrity

Wednesday, February 17th, 2010

By Doug Stephens

I was reminded recently of a really good book I read several years ago called Going Shopping by Ann Satterthwaite, a city planner from Washington D.C. It’s an historical account of shopping formats through the ages- an archaeological dig, so to speak, into the evolution of retail.  Bored

It’s fascinating to see how various forms of retail moved in and out of consumer preference over the centuries.  What’s really worth noting though, is that every form of retail that has ever existed, continues to exist today, to some degree.

We still have some flea markets and bazaars in the world. The downtown department store, although not without challenges, soldiers on. The suburban mall concept continues today and is morphing into some unique and interesting lifestyle formats. Small, independent shops continue to account for a significant percentage of the total store count and of course e-commerce is thriving. So despite centuries of change and evolution, not a single form of retail trade has become extinct.

What is clear however is that only the strongest have survived and those that have managed to withstand the test of time have had one thing in common – they’ve been remarkable. Not necessarily remarkable at everything but definitely remarkable at something.

For Le Bon Marche in Paris, it may be the sheer beauty of the store design that set them apart. At Ritz-Carlton hotels, legendary service may be the differentiator. For the Grand Bazaar in Istanbul it might be its hyper-experiential environment and for the St. Lawrence market in Toronto, it could be the eclectic mix of people and products. 

Voltaire once said, “The perfect is the enemy of the good” and I’ve known some retail executives that have openly subscribed to this idea. They’ve suggested that in the pursuit of perfection we can impede progress towards an outcome that is sufficiently good. I don’t agree. I would argue that good is in fact, the enemy of survival. What’s notable about good? Good things happen to us every day and the following week we can’t recall one of them. Every day good businesses open and good businesses close. In some cases we don’t even notice that they’re gone. The truth is, good is mediocre and the future hates mediocrity. 

Try this… instead of setting out to be good at a lot of things, put your mind to being remarkable at something. The future likes remarkable.

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6 Big Ideas for a New Decade in Retail

Friday, January 8th, 2010

By Doug Stephens

I had coffee recently with a friend who works in the mobile technology sector.  We were talking about how much progress had taken place in the mobile industry in the last 6 months, when he made a comment that really struck me.  He said ”Six months is a really long time these days.” and it occurred to me how true that is.  Where we used to measure change in business by annual events and fiscal results – we now do so monthly and in some cases even weekly!  Things are changing that quickly.Eye of the Future

So, rather than add to the parade of annual prognostications, I’ve opted to share what I consider to be a few big ideas that will heavily influence retail over the next 5-10 years.  Hopefully by stepping back a little farther, we can gain a better perspective on the events of 2010 and beyond as they unfold.

1. Big Retail Will Fragment

The 25 years preceding 2008 were a retailer’s dream.  Robust and predictable demand across a relatively homogenous range of consumer preferences, fuelled by a credit splurge of historic proportions made it tough for retailers to fail.   As we move into the next decade, spending patterns are apt to become less predictable.  Consumers will become more elusive and fickle in their tastes and preferences.  The one-size fits all big box assortment simply won’t meet the needs of increasingly niche, informed and demanding customer sets.

 As a consequence, mass merchants such as Wal Mart, Home Depot, Costco and others will have to fragment their broad business models into smaller  and more specifically targeted retail concepts, each addressing diverse segments.  The vacuous power center locations of today will gradually be broken into a portfolio of smaller suburban formats, downtown stores, Main Street concepts, express stores and state-of-the-art online shops in an effort to maintain market amongst diverse demographic and psychographic consumer groups. 

2. Small Retail Will Aggregate

Meanwhile, a simultaneous aggregation will occur.  Smaller product, service and retail brands will come together to form large collective value propositions. 

 Retailers like Sears and Macy’s will relent in trying to resurrect their lethargic brands and will instead leverage the collective power of smaller brands with high consumer equity by leasing almost every square foot of their stores to branded shops.  Sephora’s existing shop-in-shop concept and kiosks in JC Penney are a perfect example of the strategy in action.  In taking this approach, large players like Penney’s will spread business risk, lower capital requirements, dramatically reduce staffing and training costs and above all, be able to change the brand dynamic in their stores in step with trends and tastes, without having to reinvent the mother-brand every time. Their ability to command premium lease rates for their space will be predicated on their ability to curate the right combinations of brands in-store and in doing so, increase sales for all.

 In addition, an emphasis on urban and mixed use development, will drive a reinvigoration of quality local retail coming together to provide pedestrian shopping venues integral to neighborhoods.  Such areas will provide fertile retail ground for unique and creative entrepreneurial store concepts that breathe life back into the industry as a whole.

3. Retailers Become Micro-Celebrities

Up until very recently, you needed distribution to drive awareness of your brand.  Increasingly it’s entirely the other way around.  The ability to easily create awareness through social media and networks will generate distribution opportunities for start-up retail brands.  Consequently, our entire concept of how brands develop awareness, distribution and loyalty will change dramatically over the next decade.  So too will our expectations of how long a brand can reasonably expect to survive, given the new and lower barriers to competitive entry.  In essence, small companies will adopt a “Perez Hilton approach” to building micro-celebrity around their brands through social media and pop-up retail concepts and in the process, fast-track their growth and penetration.

4. Products Search for People

We sit on the edge of developments in search technology that will soon make current search methods and results seem completely archaic.  Advancements will enable the personalization of web browsers that learn about their users over time to return more individualized and relevant results.  Geography, social networks, age, sex and even purchase habits will influence and personalize the results of search queries.

At the same time, marketers will be able to literally program their messages to ferret out the right consumers for specific products.  As brands and consumers become more comfortable with one another in the social space, intricate algorithms will map out paths directly to consumers who index most highly against certain products by virtue of a myriad of dimensions including friendships, occupation and even proximity to distribution.  The result will be rapid paths to connection between products and the people they’re designed for.

5. Fully Automated versus Fully Animated Store Experiences

Today, retail is stuck in a purgatory of sorts where the machines aren’t quite human and the humans aren’t quite machines.  The result is often disappointing retail experiences.  However, the days of human store staff that don’t add value to the retail proposition or the customer’s experience are coming to an end.  

Increasingly, consumers will knowingly and happily trade-off between two distinctly different in-store experiences.  The fully automated experience will take store staff out of the equation entirely.  From personal digital shopping apps, to Radio Frequency Identification (RFID) tagging and mobile payment options, shoppers will transact in 100% self-serve environments.  Product information, price checks, online help and store navigation will rest in the palm of the consumer’s hand.  Staff will only be required for short periods of time each day or week to replenish or tidy stock.  In fact, unmanned, 24 hour stores will become increasingly common.  For the majority of routine transactions – fuel, convenience items, groceries, – these types of experiences will actually be widely preferred by consumers.

At the other end of the spectrum will be fully animated experiences where skilled, well-trained staffs work to engage consumers in a rich and very “human” store experience with the highest quality products and store environments.  A concierge level of service will be delivered before, during and particularly after the sale and while technology may enhance the experience, it won’t be required to enable it.  Staff will be stringently hired and well compensated.  Those retailers capable of delivering these high calibre personal experiences will command and receive a premium price for doing so.  Make no mistake, this high-fidelity segment will be the smaller of the two from a share of market standpoint but will enjoy a disproportionate share of profit. 

6. The Data (finally) Creates Value

If the late 1990′s and early 2000′s were about advancements in consumer data collection, the new decade will be about it’s effective and meaningful deployment.  Major retailers will invest tremendously in turning their vast caches of consumer data into actionable strategy.  Fueling the surge is the fact that mobile marketing and point of sale interaction now brings real-time consumer data collection and deployment to an entirely new level.

Because each mobile device is unique, retailers will literally be able to track the patronage patterns of individuals or groups of consumers in their stores.  Near Field Communincation between mobile devices and in-store signage in displays will even reveal customer navigation patterns and product interests.  Mobile payment technology will close the loop and consumer feedback can be requested within seconds – not days or weeks – of the visit.

Astute companies will actually tell customers things about themselves that assist them in making better, more cost-effective and even healthier  purchasing decisions.  Experiencing this new recipricol benefit and added value, consumers will be far more willing to share information with their preferred retailers.

Foresight, Flexibility But Above All…Faith

So, with all this in mind I’ll offer an important caveat to retailers.  A percentage of  success will always be predicated on the ability to anticipate the future.  A greater percentage of  success will be linked to the ability to adapt and shift to what wasn’t foreseen.  But beyond all else, it’s the willingness to embrace change and hold faith in the future that promotes survival.

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Shift 2020 is a live presentation that explains the major trends affecting retailing and consumer behavior in the new decade.  If you’d like to schedule a presentation of Shift 2020 for your group, contact us.

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