The Logic Group Blog

“The death of the high street” has been bandied about over the last eighteen months, and clearly makes for good headlines. So, it was no surprise to see the Centre for Retail Research make headlines (yet again!) with a research that claimed ‘one in five of Britain's high street shops could close by 2018 as more customers turn to the internet for their shopping’. The internet, especially mobile internet, is a driving force that is necessitating a business model rethink for some of the most established multinationals (!) – the message is clear: Innovate and adapt, or perish.

As a payment service provider and a customer interaction, loyalty and insight specialist, here are some ideas to help retailers fight back – bolster your high street presence.

It’s unimaginable to envisage a supermarket with no customers, no check outs – manned or unmanned, gondola ends with tons of offers, and even the smell of freshly baked bread. But actually, Tesco has five and walk-in customers aren’t welcome. They’re not on the high street or even on retail parks. That’s because they are ‘dark stores’. They exist to serve the ever-growing needs for online shopping.

It’s ironic really: Tesco opened its latest ‘dark store’ in January and it created 700 jobs. In contrast, BlockBuster and HMV were slow to respond to the fast moving Internet-enabled business model, leading them into the red.

Technology has rapidly changed the high street...

December retail sales have disappointed. British music industry loses the high street presence of HMV. Another few bite the dust. Britain gets a chilly welcome to 2013...

If you still need more evidence that the Internet has necessitated a rethink of customer engagement strategies, then you may as well shut shop and protect the few assets and cash-in-hand available to you. The onset of the Great Reinvention (as we’d like to refer to the economic depression that started in 2008), marked the beginnings of the evolutionary process that would be driven by the Internet and the shift to online business and shopping. To feign ignorance to the fact that we’re through the evolution phase (of four years) and are now stood at the chasm, would demonstrate poor judgement and a clear lack of understanding of the stark reality that faces us.

2012 has been a tough year for the high street, with retailers struggling to drive sales and many high street stores shutting their doors permanently. By contrast, the online high street saw resilient growth. In fact, the latest figures of the annual IMRG e-Retail Sales Index have revealed that online sales in November are up 18 per cent from last year, as the festive rush has encouraged consumers to reach into their digital pockets. So, 2012 was a year of “Bricks vs. Clicks”, but what will drive retail in 2013?

Here are some of my thoughts for starters, or perhaps predictions for 2013.

In 2012, many media and analyst reports pronounced the high street dead with a new “death of the high street” story seeming to appear every week. Well known brands such as Comet, La Senza and Clinton Cards going into administration, coupled with the recent news that two in three high street stores started their sales two weeks before Christmas suggests that bricks and mortar stores have struggled in 2012.

This doesn’t mean people are no longer buying though, with statistics showing that more people are shopping online and that, at an average spend of over £1,000 per head, the British are the biggest online shoppers in any major country. However, if we drill down deeper behind these figures, it appears that online spend only accounts for 13 per cent total retail sales [3], which begs the question is the high street really dead?

Over 50% of adults in the UK [1] already have contactless credit/debit cards, yet how many of them know what they have in their pockets? And how many would be willing to use contactless payment cards, even in an existing enabled environment? A survey from Which showed that only 54% of 158 Londoners surveyed would be willing to use contactless cards as opposed to Oyster cards, even if it gave them the same benefits [2]. Combine that with the fact that many people feel they are not protected in case of fraudulent use, and one could be forgiven for thinking that contactless cards stand no chance. Is this just a case of lack of consumer awareness and trust?

The Logic Group was delighted to attend and present at the second FStech/Retail Systems Payments Technology Conference last week. Bringing together leading figures from retail and financial services, the event showcased the latest developments, services and products in trending areas such as contactless cards, payment security, online payments, the future of cash, and social payments.

Jonathon Solomons, Solution Partner Manager at The Logic Group summarises the key messages.

In recent years, customer loyalty schemes have sought to go beyond the humdrum of price reductions and special offers. Instead, they have been keen to build emotional engagement and attachment between customer and brand but is this really what consumers want in the stagnant economic environment in which we find ourselves today?

 

In a piece of qualitative research Ipsos MORI conducted on behalf of the Logic Group on customer loyalty, we found a group of consumers who described their “loyalty” not in terms of a deep rooted emotional attachment to a brand or company but rather because of the more mundane factors which schemes have tended to shy away from. Price, convenience and even inertia were all cited as key drivers of loyalty, hardly the hallmarks of emotional attachment. With the near future promising a continuation of the economic hardships that have been facing consumers over the past few years, we can expect the drivers of customer loyalty to also stay this way.

The iPhone 5 went on sale on Friday but there was something missing that many in retail and the payments space thought was guaranteed – NFC. When the launch was announced the week before, the exclusion of NFC was somewhat surprising. It was thought that on the back of Apple unveiling Passbook (a service that pulls together loyalty cards, tickets and coupons) in June, embedding NFC would be the next natural step to complete their mobile wallet offering. Mobile wallets bring together credit and debit cards, bank accounts, loyalty cards, rewards and coupons in one place, letting shoppers pay for purchases online and in physical stores too.

NFC-enabled mobile payments only scratch the surface in terms of the services mobile technology can offer to retailers. For the true value to be recognised, businesses need to understand that it isn’t in the ability to just offer a payment service – it is in the customer interaction opportunities it creates.

 

Focusing on the mobile wallet from a pure payments perspective massively undervalues the impact mobiles can have. It could be said that tapping a phone is as useful as tapping a card, and as such, there’s no real benefit to the customer. However, if a consumer is tapping a phone for payment and simultaneously providing loyalty details and/or redeeming a money-off voucher, while using it to get additional in-store services, it is a bigger incentive for customers and retailers alike.

 

Two news stories this week have really made the retail sector in the UK stand up and take notice. The first is Tesco’s introduction of an “interactive virtual grocery store” at London’s Gatwick airport, the first seen in the UK. Meanwhile, over in the US, Starbucks has announced a deal with Square, the company behind the same-named card payment reader, which will see Starbucks invest $25 million and switch its processing of debit and credit card payments to mobile payments.

 

Last weekend there was an interesting article in The Daily Telegraph’s Your Money supplement titled, “How loyalty cards stack up” (14th July 2012, page 8). The article looks at whether loyalty schemes have become too complicated for customers and if it’s now too difficult for customers to compare which loyalty schemes are of most benefit, and which retailer they should spend their money with.  In this time of economic uncertainty, it suggests that the companies that offer the easy to understand, money-off, cash-back schemes will be the winners.

 

The Logic Group’s annual consumer loyalty survey, due for release in a few weeks, captures that the key pain point for consumers in the UK is the cost of their shopping basket; hence why money-off schemes are growing in prevalence.  These are not profitable long-term strategies though. The real challenge, then, is how to bolster consumer spending in the long term, without risking removing discounts entirely, but driving incremental profitable consumer interactions?

Here at The Logic Group we are gearing up for the release of the next Imperatives for Customer Loyalty report, the annual insight into customer loyalty here in Britain.

 

We’ve been working with Ipsos MORI over the past few months collating and analysing the data to find what it means to be loyal in 2012.

 

The full report is due to be released next month, however this past week we were able to give a sneak preview of one section which focused on the use of technology in customer loyalty, and where the mobile operators and handset manufacturers rank in terms of customer loyalty across all industries.

Following on from my last blog, the Diamond Jubilee was a celebration of the best of British - an event that showcased loyalty and the emotions behind it. While market economics have impacted consumer loyalty in recent times, the past few weeks have reinstated a sense of loyalty across Britain - making an unsaid commitment to bolstering the economy. According to the British Retail Consortium (BRC), retail sales by value were up 1.3% on a like-for-like basis in May, following a sharp 3.3% decline in April.

 

In a year that has seen many retailers shut shop and the EU facing troubles of its own, events like the Jubilee have illustrated that the British public can show great levels of loyalty. With the European Football Championships beginning and the Olympics less than 50 days away, UK retailers should now be looking to build on the feelings of loyalty and patriotism that the Jubilee has created. Working out how to best influence this new sense of loyalty in a positive and engaging way through customer loyalty schemes and interactions could be key in guaranteeing and encouraging long-term customer retention.

Recently I saw an example of a business using social media to provide outstanding customer service and enhance its brand image. The Dutch airline KLM presented gifts to customers who had mentioned KLM to the world via Twitter prior to boarding the flight. These customers seemed pleasantly surprised that KLM airport staff not only knew they had tweeted, but also knew their interests and the type of gift they would like. They knew all of this because they had a team of people monitoring social network feeds for mentions of their brand. They then looked up the social network profile of these brand advocates to establish their interests, purchased the gifts and presented them to the customer within hours of the tweet or facebook post. The fitness enthusiast was more than pleased to receive a GPS heart rate monitor watch, and the music aficionado an iTunes voucher. One would assume this then lead to more tweets about the “KLM Surprise”, and a very happy customer who would most likely pick KLM as their airline of choice in the future. So, for KLM, mission accomplished. A happy, loyal customer and free positive PR for the brand.

Any of you heard of Bitcoins?  This relatively new method of online payment has really exploded onto the world stage during 2011, thus I thought it was worth looking into what all the fuss is about.

 

Bitcoins are one of a number of digital P2P payment methods whose aim is to recreate cash for the digital age.  Bitcoin refers to three things:
1) The decentralized, peer-to-peer network that carries the transactions
2) The digital currency itself that users exchange over the above-mentioned network
3) The client software which users use to access the network and carry out transactions

Don’t you just hate it when you are rushing around town trying to do some last minute shopping when out of nowhere you are corralled by one or more young people dressed in colourful t-shirts, holding clipboards and eager to help you save the world by relieving you of some of your money.  Some refer to them as chuggers (i.e. Charity Muggers).  Whilst a tad harsh, this nickname does underline how unpopular this method of collection has become to parts of our society.  The issue is probably one of frequency – there seem to be so many that sometimes I feel like I’m tripping over them on my way to the shops.

The big news this month is that Apple has chosen not to include NFC support in the new iPhone 4S. So what does this mean to the advancement of NFC customer loyalty interactions at point of sale?

 

Right now there are a number of NFC loyalty initiatives in the UK and Europe but penetration of these so far is low. There just isn’t a clear business case for an NFC based loyalty solution in a large retail estate, yet. What will tip the balance is the convergence of other interactions around the mobile device; payment, customer loyalty, couponing, marketing alerts etc. We all see this just around the corner with the likes of Google wallet and other operator led initiatives hitting the news every day. So why aren’t these leading to widespread NFC adoption and why didn’t Apple see the need to jump on the band wagon?

I was recently sent a viral video of a baby who's used an iPad to such an extent, that she tried to use the same tablet UI gestures (swiping, clicking and pinch-zooming) when given a real (i.e. dead tree) magazine.

 

What struck me was how the video appeared to polarize opinion between the people who chastised the parents for 'ruining their child's future' and those who hailed this as a watershed moment in human evolution.

 

As with many things in life, I try to take the middle ground.

Recently I received an email offer from a retailer, 3 for 2 off reptile food…”wow” I thought, as I have a parrot, rabbit and 2 dogs but definitely no reptile. Did they know something I didn’t about me?

 

Another simple case of mass marketing and a spray and pray attitude that not only dilutes the campaign but has completely missed a great chance to engage with a customer. It got me thinking…how often does this occur and am I getting the same offer as the person next door? Does this organisation really value my business and me as a customer? On the flip side, what actually does the reptile enthusiast get and buy regularly from this retailer? The answer to the latter is a reduced price off his purchase that they would have likely bought anyway, the consumer is happy but the retailer has diluted their campaign and given away profit due to an indifferent approach to consumer focused marketing and customer loyalty.

I am looking for a new wallet. It must be leather, bi-fold, and have a space for notes...I abandoned carting around loose change a while ago! I have been wondering if in five years, or may be ten years the wallet as we know it will still exist! I only use my wallet to carry payment card, one or two loyalty cards, and a note or two just incase I have the misfortune to find somewhere that does not accept cards.

 

I am a big advocate of contactless payments. It makes life simple, and has meant that I no longer have to weigh my pockets down with coins. Working in the card payments industry, I of course always try to use a card over cash, and this has changed my requirements for my new wallet without a coin pocket.

We recently hosted a webinar on Mobile Payments (you can register to view the webinar recording here), and how for us, mobile is more about “Mobile Interactions”, rather than just payment.  Many cross channel payment methods are moving in store.  Combining multiple services such as loyalty and couponing will add further value to the checkout experience through the use of NFC Mobile phones.

 

During the webinar, the attendees were asked to contribute questions for both clarification on specific areas, as well as general industry concerns.  Due to time constraints, we were unable to answer all the questions during the session, so I wanted to spend some time outlining my answers in this blog.

Working in the multichannel payments industry and having responsibility for the Point of Interaction, including the customer journey, I am always interested in improving the retail experience through new and existing technology. I have been in a number of meetings where retailers have asked if they could replicate the experience received from a certain fruit based store!

Last week, Apple withdrew an application that asked for a 4 digit pin on startup. Unbeknown to the user, the application was storing the passcodes and transmitting them back to the developer. Fortunately this time, it was not for malicious purposes, but more out of curiosity! The developer was amazed how the same passcode was used again and again, and that half of the codes would not have been difficult to guess.

This weekend I witnessed a major breakthrough in contactless payment acceptance. Having spent a lazy sunny afternoon in a beer garden, we asked to close our tab. I watched in disbelieve as the waiter started waving my debit card back and forth over the PIN Pad for a good minute, before inserting my card into the reader looking slightly disappointed. Having noticed my quizzical look, he went on to explain that their PIN pad accepts contactless, and he had been waiting for the day that someone went to pay with a contactless card! For me this was very encouraging – Contactless has migrated from focused busy London locations, all the way to a sleepy village pub 50 miles outside the capital! This waiter not only knew that the PIN Pad supported contactless, but also must have recognised the symbol on my payment card!

Once again, my thoughts turned to mobile transactions this week. This was off the back of reading that mobile conversion rates for a retail website are 25% higher than there main site! How can this be so? How are so many people viewing an item on their mobile, and buying it in one single visit. Phones are getting bigger, faster, and many are famed for their usability – but shopping on a 3.5 inch display is a poor comparison to a large monitor!

Every man and their dog has a smartphone these days.  Whether an Android, Apple or Blackberry device, today's mobiles are as powerful as desktop PCs were only a decade or so ago.  They can browse the internet and run a countless number of applications.  As such is it inevitable that more and more people are starting to use them like they do with their main PCs – keeping increasing amounts of sensitive personal information on them and using them to make purchases and do personal banking.  The problem is that unlike their PCs, most mobile phones are not currently adequately protected against viruses.  But how many smartphones are there and do people actually use them in sufficient numbers for this to be an issue?

SMS, NFC, HTML5, Apps, smartphones, tablets, Twitter, Facebook…how do you choose what to use?

 

At the Retail Business Technology Expo last week I had the pleasure of hosting a lunchtime roundtable of executives discussing trends in mobile retailing. This group represented a wide span of retail interest from coffee shops to clothing chains, from luxury up-market department stores to brands solely trading online, but they did come to something of a common conclusion – the technology was not the important consideration.

It is estimated that 1 billion card transactions per year worth an estimated £40bn are processed by the UK’s 700,000 contact centre agents. Therefore it is not surprising that Card not Present fraud (stolen details over the phone, internet or mail order) accounts for 56% of all UK card fraud. With the vast majority of CNP fraud coming from contact centres, losses stem not only from fraudulent transactions, but also from cards that are leaked to the criminal fraternity by coerced call centre employees.

 

What can businesses that run contact centres do to prevent or stem this leak? After all they need to take payments, they need to provide effective customer relations and therefore they need their people to be on the phone to the customer.

Should retail businesses invest in developing an app or stick to improving their website?

 

I recently attended a summit on multichannel retailing. As predicted, mobile was a topic that came up again and again. It seems to be a bit of a buzz word at the moment yet it was only a year ago that I could not make it through a day without out talking about end-to-end encryption. Now that The Logic Group has multiple solutions for reducing PCI through encryption and tokenisation, it seems that like the industry, my thoughts turn to ensuring our clients can capitalise on mobile transactions.

You are a retail business. You have spent a small fortune in time and money to upgrade your systems and processes and a certified QSA has accredited you as PCI DSS compliant. Do you sit back and relax, safe in the knowledge that you have achieved security nirvana and that fraud will never show its ugly face in your business again? Well not quite.

Having recently attended a breakfast briefing in London on the subject of micropayments, I was fascinated to learn that the market opportunity for micropayments is forecasted to grow to €15bn by 2015! A massive growth from today’s estimates of €6bn, considering that most other markets are either flat, or showing minimal growth. The reason for this unprecedented growth?

As the global economy slowly emerges from the downturn in what is becoming an ever more aggressive marketplace, organisations are seeking to gain that all important edge over their rivals, with many once again turning to technology to help maximise their competitive advantage.

 

At the turn of the century it was the rise of the internet and e-commerce that led the way in providing businesses with a new channel to market to compete against, or complement, the already well established retail outlet and call centre channels. In the new decade many are looking at the rise of mobile technologies, through the development of contactless, smartphones, and tablets to drive consumer demand for mobile commerce and mobile payments. However, as with all early technology advancements one solution doesn’t fit all and there are a plethora of technology options developing through numerous pilots to allow early adopters to test the market place. With countless technology manufacturers, systems integrators and service providers touting their wares and jostling for position it’s no wonder organisations are struggling to know where to start. So what’s it all about and haven’t we been here before?

Is a retail store just a “changing room” for the web?

 

With the advancement in technology, consumers no longer have to be tied down to their local stores, or spend a weekend driving to larger cities to find the perfect pair of jeans. Many shoppers are wise to cheaper online prices, driven by the choice available online.