Iflexion
Reaching your Connected Customer via the IoT

The Retail Challenge: Reaching your Connected Customer via the IoT

The Retailer’s Nirvana

The Internet of Things (IoT) promises many exciting opportunities for retailers to make their brick and mortar stores exciting places to be. Using various unobtrusive devices positioned strategically around the store, can enable the retailer to understand the customer’s emotions, needs and likes. These streams of data transmitted from beacons, cameras, pressure mats in the floors, augmented reality mirrors and the like, can be interpreted immediately and used to enrich the customer experience and hopefully increase sales at the same time. Discounts, displays of the complete colour range for an article or suggested accessories can be sent to the customer’s smartphone, using data both from the current situation and the customer’s accumulated historical data.

It starts before they even get to the store: geofences around the store can recognize that the customer is in the vicinity and invite them in for a special offer. Beacons inside the store invite the customer to sample a new food product as they near the shelf, with a personalized discount. This is known as proximity marketing, and it creates an engaging experience for the customer, who is “connected” to the store via a smartphone and possibly also a mobile app. Where the store is out of stock, the customer can be directed to their online profile to purchase it. Added-value services, such as home delivery, can be offered.

For many retailers, this is still a dream; other retailers are pursuing it and realizing increased sales and better customer engagement. Although there are many other industries that are exploring the possibilities, retailers and shopping malls are still top of the list when it comes to implementing IoT solutions. Unacast’s latest Proxbook for Q1 2017 focuses on Retail and shows which industries are contracting service providers to implement a proximity solution.

Data Source: The Proximity.Directory Report, State Of The Proximity Industry, Q1 2017

There is only one problem with this ideal future; most retailers are not geared up for building a sustainable and enjoyable customer experience. This is not merely a matter of investing in some hardware and software, it requires deep introspection on how close the company is to understanding their customer’s needs.

It is also non-negotiable that a retailer who wants their stores to still be in place on the local high street or in a nearby mall will have to become digitally literate. It is not enough to have a cool website, the stores must be just as inviting. Brick and mortar stores are very far from being dead; Amazon would not be moving into physical stores if this were the case. However, your store must be a welcoming and comfortable sanctuary for your customer, which offers a personalized and unobtrusive service, both from friendly humans and from devices that are responsive to the individual needs and likes of each customer.

Here’s the Reality Check

In their twentieth annual review of Customer experience, Dimension Data emphasize the need for organizations to undergo digital transformation:

“In every geography, across all industry verticals, what was once viewed as a competitive advantage has now become an act of survival”. 2017 Global Customer Experience Benchmarking Key Findings Report, Dimension Data

They describe this as the “Digital Crisis”. While almost every industry player recognizes that digital transformation must happen, not next decade, not next year, but now, at least half of the participants in this survey were woefully unprepared to evolve. Retailers may be ahead of the pack; if they did not establish a substantial and receptive online presence, they have probably closed their doors in the last 24 months.

US retail bankruptcies
Data Source: S&P Capital IQ, an offering of S&P Global Market Intelligence

However, digital transformation is not about feverishly embracing every new technology, from beacons to chatbots; these are great devices for customer reach; but there is a fundamental truth that has to be addressed first: do you really know your customer?

Creating Great Customer Experience: Your Digital Keystone

“The SAS is ‘created’ 50 million times a year, 15 seconds at a time. These 50 million ‘moments of truth’ are the moments that ultimately determine whether SAS will succeed or fail as a company. They are the moments when we must prove to our customers that SAS is their best alternative.” (Carlzon, 1989)

All companies claim to be customer-centric; in reality few of them are even close to understanding their customers. Where initiatives have started to map customer journeys and build personas, these are often done as marketing exercises and do not touch the core of the business. To truly understand your customer, you need to design your business model and your processes around the customer experience. This is not new thinking: it was developed and used in the 1980s at Scandinavian Airways (SAS). Consultant Richard Normann was the brains behind the concept; Jan Carlzon, CEO of the airline, wrote the book, “Moments of Truth”.

A “moment of truth” (or MOT) is an interaction between a customer and the company (“customer touchpoints” is a synonym, but does not have the same emotive power of MOT). This can be person to person (P2P), machine to person (M2P) or machine to machine (M2M). Every MOT can enhance or damage the customer experience. While the idea of a MOT is not new, the significance of M2M has a new importance with the emergence of the Internet of Things (IoT). Practices such as customer journey mapping are based on finding the MOTs in the customer journey. The “Outside-In” business model is an expansion of the original idea, where the customer really is at the heart of the business.

Normann and Carlzon were way ahead of their time. In an interview in 2006 with Customerthink, Carlzon said:

In today’s global competitive world, the code I have found to success is that we must focus on customers as individuals, not as buyers of our products and services but as consumers of our products and services.

What is so remarkable about what Carlzon accomplished in the 1980s is that so many companies today are still struggling to implement similar solutions in their own businesses. If a company wants to become digitally literate, they need to understand that each time their device connects with the customer’s device of choice, that is a M2M MOT, and that the experience should be positive. The conversations between machines (in the Internet of Things) will explode in volume in the next five years. We want to engage the customer in meaningful conversation, not distracting and incessant chatter. For this we need an omnichannel architecture and predictive analytics. Dimension Data found that this was a problem among their respondents. Take a closer look at the numbers:

Ability to map the customer journey
Data Source: Dimension Data

What is the Hype about the Internet of Things?

The Internet of Things has been a hot topic for some years now. At first the focus was on IoT use in Smart Cities and Smart Grids, with some consumer experience in the Smart Home. IoT was always close to the top of Gartner’s Hype Cycle of emerging technologies, and this has not changed, in fact IoT now has its own Hype Cycle as the supporting technologies have emerged and developed. Recently IoT has been taken up by a variety of industries, ranging from airlines to event managers, and retailers were quick to pick up on the trend. The IoT potential for the retailer is an in-store experience for the customer that integrates with and complements their on-line experience.

Gartner's Hype Cycle of IoT
Data Source: Gartner

The caveat is that, in addition to building a robust customer engagement model, there are some technological changes that have to be undertaken, the first of which is ensuring that a true omnichannel environment is implemented. In order for the customer to have a truly seamless experience, he should be able to engage via any channel he wishes. This cannot be achieved in an organization with disparate systems. Dimension Data found that many companies were struggling to build their omnichannel environment.

Technology systems fall short of business needs
Data Source: Dimension Data

It’s not about Devices, it’s about the Data

The power of IoT is that it generates huge volumes of unstructured data about each customer. This means that “Big Data” databases are required, not to mention the analytics that support them. Again, most companies are struggling to get to grips with both the analytics and the velocity of such data, as well as combining it with their traditional data stores. Most companies are implementing hybrid solutions, using a mix of on-site servers and cloud storage, but this might not be enough.

It does not help that your customer is in-store and you are receiving data about them  which you are filing away to use at a later date. You need to get and analyze that data while they are in-store and use it before they leave. If you are using the cloud for your big data store, issues like bandwidth can compromise your ability to analyze that data in time, and should be considered as fog.

Making your Way through the Fog

Cisco, who are rather good at coining new names for new technology approaches, coined the name “fog” (also known as “edge”) computing specifically for IoT situations, where the data needs to be analysed before it gets to the cloud in order to get the results needed in the shortest available time. In weather terminology, fog is defined as a cloud that is very close to the ground, and fog computing happens as physically close to the IoT devices as possible. There are a number of other benefits in adopting fogging, but for a geographically widely distributed network of stores it makes sense to use the data on site, rather than transmit it to a centralised server or a 3rd party cloud and wait for a response.

It’s the Internet of Everything

The Internet of Everything is a phrase and a philosophy thought up by Cisco that makes good sense when one wants to implement an IoT environment. There are four components of the Internet of Everything:

  • People
  • Data
  • Processes
  • Things

This makes inherent sense, because the interaction between customers and devices will create data, all of which needs to be supported by underlying processes. It also represents what is required to implement a cohesive and successful digital strategy.

People – your customers, their friends, their social networking contacts and your employees are all part of the mix. There must be harmony between what your employees tell customers and what messages are being sent to their phone.

Data – huge volumes of data that needs to be processed as fast as possible as close as possible to the IoT devices generating it, and received as quickly by your customer. Connected customers want immediate answers.

Processes – you have to revisit and reinvent all your customer-facing processes, from lead generation through sales to lifecycle maintenance. This will be the hardest part of your digital journey, and if you have done it well, should totally disrupt your business.

Things – from the simplest and cheapest RFID tags costing approximately 1 cent, to expensive object-oriented cameras that can register biometrics, there are many “things” to choose from. In their report on IOT in retail, SAS and iianalytics (IIA) advise you not to become too attached to the devices available today, as there is one certainty – they will become cheaper and easier to use.

Currently beacons are well ahead of the pack at 91%, as reported by Unacast in their Q1 2017 Proxbook.

Currently beacons are well ahead of the pack at 91%
Data Source: The Proximity.Directory Report, State Of The Proximity Industry, Q1 2017

Attaining Digital Maturity

The IoT market will provide huge volumes of data from all sorts of devices and sensors, streaming to all categories of industries. Ericsson’s Mobility Report for 2016 predicts that there will be 28 billion connected devices by 2021. This does include smartphones, but they will be outstripped by IoT devices in 2018.

Connected devices (billions)
Data Source: Ericsson’s Mobility Report
IoT connected devices
Data Source: Ericsson’s Mobility Report

These connected devices will bring us zettabytes of data (a zettabyte is 1000 exabytes). Cisco estimates that by 2020 this will be 2.3 zettabytes. For those of us who have problems understanding this, Cisco has a nice infographic, where they explain that a zettabyte equates to 250 billion DVDs.

The graph below shows the expected growth in Internet traffic, most of it generated by IoT devices.

Cisco VNI Forecasts
Data Source: Cisco
The Cisco VNI Forecast
Data Source: Cisco

To round off this discussion, a sustainable digital solution is primarily about the customer. For those of you who were unconvinced by pundits from the 1980s, here are some takeaways from SalesForce’s “State of the Connected Customer” published in November 2016.

  • Put Customers at the Center of Your Business
  • Embrace the Culture of Immediacy
  • Get Smart About Personalization
  • Reinvent the Sales Process
  • Lead with Instant, Omni-Channel, and Personal Customer Service
  • Don’t Fear Disruption — Become a Disruptor

If you follow these guidelines, which we have discussed in this article, you will have a brave new company, which is well equipped for this brave new world.

 

Ekaterina Prohorchik

  • Mark Gallagher

    The graphics for this article are illuminating and great points and data are presented. It’s almost comical that 41.9% of respondents from the Dimension Data annual review say digital systems are inadequate for current needs, while 73.9% say technology won’t meet future needs. Digital Crisis indeed.

  • “Over 2 in 5 analytic systems are not meeting its requirements” – this is where I think the current expansion of AI and machine learning will play a huge role. Various products in the niche are getting better at time series, which has always been a challenge for AI. IoT could really use an analytical boost that allows predictive capabilities in real time. This way a dynamic system of interconnected devices could adapt to the outside world and fulfil its role.

    And this is the bottleneck that I think hardware experiences – we have some amazing tech, but even this tech can’t push the boundaries of the physical world and especially if it’s not accompanied by some really good software. Modern smartphones have more computing power than the computers that were used to send people to the Moon, but that power is useless in advanced applications that can really make a usability breakthrough. And this is why the analytic systems fail, I think – they’re legacy systems not fit for the new reality of advanced analytical requirements that IoT and the vast amounts of data carry.

  • Masha Marinina

    The real challenge in implementing a digital transformation is in achieving simplicity. Too many companies are just bolting on cosmetic finishes to an underlying architecture that is disconnected, filled with redundant business rules to trap the unwary and processing data that does not add any value. Data quality is generally poor; how are you going to interact with a customer’s smartphone or use the data being streamed from it if your CRM does not have the correct number loaded? Have you spelt the customer’s name correctly? Nothing like a personal message with a misspelled name to dilute the customer experience. Do you have more than one version of the truth when it comes to the customer data, because your CRM is not deduped? These are the fundamentals that need to be sorted before you place beacons in your store or offer a home delivery to an incorrect address. The Dimension Data stats reveal this clearly: only 28% of companies can track the customer journey from start to end, yet 55% use customer analytics for their marketing campaigns. This implies that the marketing campaigns are chewing up revenue on customers they do not really understand.