Shoppers on the go: Winning strategies in mobile commerce
A new Strategy& study highlights the growing importance of mobile commerce as a way both to understand real-time consumer behavior data and to use in-the-moment analysis to capture market share and influence consumer purchases in real time.
Shoppers on the go Winning strategies in mobile commerce
Beirut Bahjat El-Darwiche Partner +961-1-985-655 bahjat.eldarwiche @strategyand.pwc.com Düsseldorf Stefan Eikelmann Partner +49-211-3890-110 stefan.eikelmann @strategyand.pwc.com Roman Friedrich Partner +49-211-3890-165 roman.friedrich @strategyand.pwc.com
Houston Henning Hagen Partner +1-713-650-4165 henning.hagen @strategyand.pwc.com Paris Pierre Péladeau Partner +33-1-44-34-3074 pierre.peladeau @strategyand.pwc.com
São Paulo Fernando Fernandes Partner +55-11-5501-6222 fernando.fernandes @strategyand.pwc.com
Vienna Klaus Hölbling Partner +43-1-518-22-907 klaus.hoelbling @strategyand.pwc.com
About the authors
Matt Anderson was formerly a Strategy& partner. Stefan Eikelmann is a Strategy& partner based in Düsseldorf. He focuses on information and communication technologies and leads the firm’s related engagements across Europe. Fabian Seelbach was formerly a Strategy& senior associate. Nick Buckner was formerly a Strategy& associate.
This report was originally published by Booz & Company in 2010.
Joe Sims and Henning Hagen also contributed to this report.
A new Strategy& study highlights the growing importance of mobile commerce as a way both to understand real-time consumer behavior data and to utilize in-the-moment analysis to capture market share and influence consumer purchases in real time. The highest-value consumers are looking for a coherent multi-channel shopping experience that encompasses online, mobile, social, and in-store components. Successful retailers are taking real advantage of these customer preferences to create engaging experiences on mobile devices that, in turn, drive customer interaction and high levels of loyalty — all the while collecting massive amounts of data. But data is not the end — it will quickly become table stakes as creative retailers and e-tailers continue to harness these rapidly evolving technologies into a new form of real-time marketing and greater influence on shopping behavior.
Kick-starting mobile Commerce
You may have not heard of Shopkick yet, but it’s one of the best illustrations that the future is finally here. An application that runs on iPhones, Shopkick pays consumers “kickbucks” just for checking in when they enter Best Buy, American Eagle, Macy’s, and other retailers. Additional kickbucks are available for scanning, for example, a poster on a store’s dressing room wall into the iPhone via the camera. These reward points can be redeemed for gift cards and donations to charitable causes. Moreover, shoppers at Best Buy can present their iPhones with Shopkick to the cashier and receive instant discounts directly from the device screen. Merchants are drawn to accepting this new service because Shopkick’s signal technology knows whether consumers are inside the store, rather than just close to the store, thereby significantly reducing the awarding of unearned or fraudulent points. Combining the power of GPS, the ubiquity of the cell phone, and the Internet, as well as creative marketing, Shopkick and numerous other similar applications are altering the consumer landscape at a time when retailers are struggling to reach customers, who have become more and more hesitant to open up their wallets in a soft economic environment. Known generally as mobile (or m-) commerce, this approach (which includes all digital and physical goods and services marketed or sold over a smartphone) gives retailers the opportunity to influence shoppers in real time as they browse their own stores or even the shelves and aisles of a competitor. In addition, m-commerce blurs the distinction between websites and physical stores, in some cases linking disparate operations that many retailers have been unable to fully profit from.
Mobile commerce blurs the distinction between websites and physical stores.
A rapidly expanding market
Although it is a relatively new phenomenon, m-commerce is already beginning to make its mark. A recent Strategy& survey of U.S. consumers’ usage of and attitudes toward mobile commerce found that 15 to 20 percent of consumers currently use their cell phones for price discovery and product comparison. This number will surely grow rapidly as the penetration of smartphones increases from 17 percent in the U.S. and 15 percent in the E.U. today to 74 and 43 percent, respectively, by 2014. In the U.S., even budget carriers like Cricket and MetroPCS offer Android or BlackBerry smart devices. The survey also revealed that 16 percent of shoppers rely on a mobile device to augment shopping in retail channels, while 25 percent said they plan to do so in the future. We estimate that within the next two years more than 50 percent of consumers will be using a phone in the majority of their retail shopping experiences. Indeed, the survey found that in 2011, 10 to 15 percent of total bricks-and-mortar and e-commerce revenues will be influenced by mobile applications (see Exhibit 1). In all, mobile commerce is the fastest-growing sales channel, and its appeal to
Exhibit 1 Mobile influence on retail sales, 2011 (U.S. $ billions)
Notes: E.U. 3 includes the U.K., Germany, and France.
$110 $70 E.U. 3 retail influence High case Low case
U.S. retail influence
Source: Euromonitor International: Internet Retailing: Country Sector Briefing (U.S., France, Germany, and the U.K.) 2010; Booz & Company Mobile Commerce Survey 2010; Strategy& analysis
high-value customers means that the most potentially lucrative consumers are up for grabs in every smartphone-based interaction. Some retailers are already racking up impressive sales from m-commerce. In July, Amazon.com said its annual global revenues from mobile devices, including its Kindle reading device, had reached US$1 billion. Likewise, eBay expects its 2010 mobile commerce revenue to top $1.5 billion; one item is sold via eBay Mobile every two seconds. In the U.S., m-commerce sales are expected to more than triple to upward of $7 billion by 2014 from about $2 billion today (see Exhibits 2 and 3, next page). This market will continue to expand with the entry of new players such as the enormously popular social networking site Facebook. In late August, Facebook launched its “Places” service, which allows the site’s
Exhibit 2 Expected growth in mobile commerce revenue
Digital media Physical goods
$4.50 $0.75 $3.00 $0.50 $2.10 $0.35 $2.50 $1.75 $3.75 $1.15 $0.30 $0.85 $1.38 $0.38 $1.00 $1.30
$5.50 $1.78 $0.48
E.U. 3 Notes: Estimates in US$ billions. E.U. 3 includes the U.K., Germany, and France. Source: Verdict Research - Mobile Commerce Meeting the Demands of Tomorrow’s Consumers Today - Pinkerton, 2010; Euromonitor International: Internet Retailing: Country Sector Briefing (U.S., France, Germany, and the U.K.) - 2010; Strategy& analysis
Exhibit 3 Breakdown of mobile commerce
2011 forecast Electronics Apparel Music & video Food & grocery Housewares Books Health & beauty Do-it-yourself Other markets 4% 6% 6% 8% 12% 15% 14% 15-24 25-34 35-44 45-54 55+ 8% 14% 24% 2011 forecast 24% 31% 18% 17%
Mobile commerce by product category
Mobile commerce by age group
Notes: At time of publication, market size and forecasts of sales of tablet devices such as iPad and Kindle were not available. Figures may not total 100 percent due to rounding.
Source: Verdict Research - Mobile Commerce Meeting the Demands of Tomorrow’s Consumers Today - Pinkerton, 2010; Euromonitor International: Internet Retailing: Country Sector Briefing (U.S., France, Germany, and the U.K.) - 2010; Strategy& Mobile Commerce Survey 2010; Strategy& analysis
500 million users to disclose their current location on their home page. Retailers can tap this information to offer products, sales, and buying ideas. In fact, American Apparel, Best Buy, Dell, Macy’s, Sears, and Walmart are already using social sites (Twitter, Facebook, etc.) as a digital storefront. At the same time, consumers can vet pending purchases with their online network of trusted friends, compare Webbased ratings and reviews, and even check the prices at a competing store down the street. And clever new consumer commerce applications with a social networking twist, such as Bonanza, allow people to have real-time chats with sellers of products while shopping, approximating the “real world” conversations in physical shopping experiences. According to the Strategy& survey, as many as 85 percent of customers said retailers should do more to integrate social networking in their m-commerce offerings.
An integrated experience
In a truly mobile digital marketplace, no channel exists in isolation. Instead, retailers need to envision and create a fully integrated shopping experience to cater to well-informed, increasingly digital consumers — creating, in effect, a whole new electronic ecosystem from which to serve their customers. Indeed, the effectiveness of this multi-channel approach becomes substantially more powerful when shoppers can move seamlessly across purchase and support funnels on any onlineenabled mobile device — in a store or from a distance — and through more traditional dot-com portals. Amazon’s mobile offering is an apt illustration. The online retailer offers real-time cart synchronization across electronic and mobile channels: If you put a CD in your Amazon cart or wish list on your desktop computer, it will be there when you sign on to Amazon using your cell phone. The site’s personalized recommendations and your account history follow you from your desktop or laptop to your mobile home page with easy access to product ratings and reviews. Amazon’s advanced analytics dynamically reconfigure your mobile and desktop experiences based on cross-channel data. But perhaps Amazon’s most eye-catching m-commerce accomplishment is an application it calls Amazon Remembers. With this function, consumers can take a picture of a product at a store (or even an item sitting on their desk at home) and the retailer will within minutes send back a text message showing similar or identical products for sale at Amazon. Faced with such inspired, m-commerce-driven competition, bricks-andmortar retailers must recognize that shoppers with smartphones want to use them. So rather than letting consumers spend a moment of instore time browsing offers from rivals, these retailers must provide a mobile experience that keeps them focused on the store they are in. For example, Walmart allows the customer to search for ratings and reviews by scanning the barcode of in-store products into a cell phone. Walmart is onto something. In our experience with e-commerce, for orders less than $200, conversion rates increase by as much as 240 percent if a customer views ratings and reviews during the shopping process. If
Retailers need to create a fully integrated shopping experience to cater to wellinformed, increasingly digital consumers.
consumers don’t have a way to get the insight they need from a store’s ecosystem, they will find the reviews provided by a competitor’s mobile solution. That’s a risky possibility, since those reviews will come with offers and promotions powered by advanced analytics. Mobile app ShopSavvy lets shoppers take Walmart’s approach a step further in some stores, offering product pricing alternatives based on barcode scans, displayed in order of cost and proximity to where the shopper is standing. New 3-D barcodes will enhance ShopSavvy and similar services, providing rich data and content such as product reviews, special offers, and detailed manufacturer product information instantly to consumers and giving retailers an unprecedented opportunity to communicate with customers during their shopping experiences. Perhaps more ambitiously, Best Buy’s Twelpforce is a large group of employees who answer customer questions on Twitter about brands and models to aid in buying decisions and service issues. Most frequently, these Tweets are sent by consumers via cell phone while they are in the stores. With this program, Best Buy is leveraging the expertise of its national sales force to promote products in local stores all over the country. A potential killer app for a clothing retailer might allow customers to take pictures of outfits they like on the street or at work, mix and match in virtual closets that have digital photos of the clothing in their real closets, combine this with recommendations from the retailer, and share possible purchases with friends via social networks to collect real-time buzz that will help them make their decisions. As this illustrates, the retailer of the not-too-distant future will have to stay on top of customer preferences from any number of sources of data — for example, pictures, video, and chat — and serve up highly targeted offers at the right price to coax the consumer to buy that new blouse she had been thinking about or just took a picture of while sitting at a cafe enjoying an espresso. Of course, this example becomes even more powerful when it is linked to the broader ecosystem of customer experiences (see Exhibit 4). Anything that transpires on the m-commerce application — purchases, preferences, products viewed, and the like — should carry over to consumer log-ins on their desktops and laptops and even influence the types of catalogs and coupons customers receive, and vice versa. Moreover, bricks-and-mortar retailers should synchronize e- and m-commerce activities with in-store point-of-sale systems, creating new levels of potential up-selling, cross-selling, and customer service. Currently, 30 percent of consumers use three or more retail channels for any shopping transaction, according to the Strategy& survey, and 83
percent of customers said they would be more likely to do business with retailers that provide the ability to create and control a personalized shopping experience across multiple channels. In addition, 47 percent of respondents said they prefer retailers that offer account and “items viewed” history in all of their online applications. Consumers want to be emotionally connected to their retailers and e-tailers of choice; they don’t want to be seen as merely transactions.
Exhibit 4 Mobile commerce is just one part of a retail ecosystem
Catalog retailer’s mobile app is used to check ratings & reviews
Barcodes are scanned to ﬁnd additional information & color options
Purchase decision is made & transacted the next day
Order details are posted to Facebook for peer input
Customer uses mobile app to register for loyalty program
Catalog arrives at doorstep via mail
Review of apparel sparks interest in a sweater
Customer reads ratings & reviews of competitor products online
Back home, customer looks at high-resolution photos of original sweater online
Later in the day, customer looks at opinions of friends on a PC at work
Based on input from friends, customer changes color of ordered sweater
Bricks & mortar
A trip into the competitor’s retail store provides a “touch & feel” opportunity
Source: Strategy& analysis
Perhaps the least used multi-channel strategy is a well-integrated loyalty program. According to the Strategy& survey, 54 percent of consumers like the idea of online loyalty account management that provides credit, points, and promotions across all of the physical and virtual outlets. Best Buy’s Reward Zone program, which offers consumers points for purchases and targeted promotions that can be redeemed at stores or online, is one of the few that can be freely accessed in any sales channel. For any retailer, this could be a lucrative function: Returning e-commerce customers purchase items three to four times more often than new customers. Amazon’s experience with a loyalty plan called Amazon Prime, which offers free two-day shipping for a single payment of $79 per year, backs up these numbers. The program had more than 2 million members as of last year and is growing at 24 percent annually. An average Prime subscriber spends 130 percent more than other Amazon customers, according to Piper Jaffrey analysts. On average, new Prime members purchase $900 in merchandise in their first year of membership, up from $400. And an impressive 92 percent of Prime customers say they plan to renew, Piper Jaffrey noted.
Most consumers like the idea of online loyalty account management that provides benefits across all of the physical and virtual outlets.
M-commerce has had false starts in the past, particularly in the efforts associated with the early days of mobile data services in the late 1990s, which involved not particularly “smart” handsets. However, the broad adoption of smartphones, the explosive growth of developer communities, and the almost pervasive deployment of high-speed 3G/4G data networks by wireless carriers have created a perfect environment for the real emergence of mobile commerce. Retailers have a lot of options in deciding which of the dozens of potential features to highlight. The Strategy& survey offers some insight into which ones customers use the most and what impacts their decision making when they use them. Respondents were asked to provide information on the mobile commerce features they access in their home or office versus in a retail store, as well as the impact of those features on final purchase decisions. The most commonly used application in the home or office is taking a picture of a product to share with friends. In stores, customers most frequently viewed mobile ads; consumers said ads changed their purchase decisions 38 percent more often in stores than at home or the office. Also popular is the ability to compare product prices among stores via smartphone. Consumers use price comparison more often in stores than in the home or office, but the influence of this feature on the final purchase decision is consistent in either context. Researching product information via cell phone was also high on the list, regardless of location.
Factors have converged to create a perfect environment for the real emergence of mobile commerce.
Play to your strengths
A mobile strategy should not follow a one-size-fits-all mentality — it is dependent on specific core technical capabilities of a company in different commercial channels, competitor dynamics, and the current state of the art (remember, mobile technology is advancing almost daily). In most cases, retailers begin by leveraging their e-commerce capabilities on the mobile channel with little customization. This, at least, gets them into the game and achieves some parity in the market. The next phase, though, is the development of advanced m-commerce capabilities to drive revenue growth by attacking key categories, influencing shopper decision making, and shifting purchases away from competitors to claim market share. The exact shape that this phase takes will ultimately be determined by the retailer’s business model, its specific market environment, its skills, and its priorities. In other words, a mobile strategy needs to adopt the face and persona of the business behind it. There are times when it is appropriate to take an offensive strategy, with mobile programs injecting offers and product information into competitor storefronts and shopping experiences. In other situations, a more service-oriented posture is appropriate to protect market share and enrich an already top-flight customer experience. Moreover, certain critical capabilities must be developed to enter this arena, including being able to work with third-party service providers such as Shopkick, Facebook, and Web advertisement placement and analytics firms AdNetwork.net, DataXu, and AdMob. There is the very real need to integrate these outward-facing m-commerce solutions with internal systems that adeptly gather customer information and analyze business intelligence so that retailers with multiple channels and even multiple store marquees can share customer data and behaviors across brands and platforms and dynamically change the shopping experience to capture the greatest share of wallet while building loyalty. Integrating new sources of data from the unique characteristics of the mobile experience (such as proximity, location, and secure authentication) with “opt-in” consumer preferences can provide today’s physical retailers and e-merchants with unparalleled opportunities to grow their relationships with their customers.
As early adaptations show, mobile commerce implementations will be as different and unique as the businesses that launch them. But there is a common end game for all m-commerce implementations that is as critical as the technology itself: Give customers a new, enjoyable, rewarding, novel, and inventive channel in which to purchase your products and increase their loyalty. If that goal remains firmly in sight, the mobile application will before long become as much second nature to a retailer’s operation as a 50-year-old catalog or a 20-year-old website.
Mobile commerce is growing at an explosive rate. Billions of retail sales dollars are already being influenced by mobile technologies. Influencing shopper decisions across all channels is the true prize for retailers in today’s mobile market. Mobile strategy should be tailored to the unique attributes of the business and a deep understanding of the capabilities that drive value. Static, high-level segments and data are being replaced with dynamic marketing driven by real-time, personal data as the physical and the digital converge.
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This report was originally published by Booz & Company in 2010.
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