Once upon a time, retailing was a fairly straightforward proposition. A company purchased products from manufacturers, had them shipped to its store, and placed them neatly on shelves. Consumers dutifully marched into their favorite retailers—or perhaps dropped in on two or three stores to look at larger ticket items—before plunking down cash or a credit card and heading home with their new purchases in hand.
But times change. The Internet, mobile technology, and social media tools have tilted the equation in a decidedly more consumer-centric way. Today, armed with smartphones, customers step into a store, scan barcodes, and compare prices around town and across the Web. Increasingly, the physical store becomes nothing more than a showroom for online buying. There’s a name for this: “showrooming.”
“Consumers have more power than ever to control the buying process. Technology is changing the way retailing takes place and creating new winners and losers,” said Jeff Green, president of Phoenix-based retailing consulting firm Jeff Green Partners, in an interview with CMO.com. The first step in addressing this trend is to recognize it exists and begin thinking about ways to adapt and make the store more interesting and fun, he said.
At present, about 6 percent of consumers are using price-comparison apps in physical stores—though the numbers will undoubtedly climb in the months and years ahead. While a few retailers have tried to block the use of price-scanning apps in stores, a growing number of companies recognize that they must adapt and create greater value. This encompasses everything from innovative incentives and geolocation-based coupons to arming sales associates with handheld devices and creating a more compelling shopping experience through the use of smartphones.
“Mobile devices dramatically change shopping behavior,” Kathryn Koegel, chief of insights for New York City-based marketing and retailing consulting firm Primary Impact, told CMO.com. “Retailers must recognize that the technology is a game changer.”
A New Order
Shopping for the best deal possible isn’t anything new. For decades, consumers have pored over newspaper ads and dropped in on retailers to check on prices. But today’s smartphones apps—including RedLaser, SnapTell, and Amazon’s price comparison tool—have ratcheted up the stakes. Scan a product barcode and you’re able to view pricing for nearby brick-and-mortar merchants, as well as online retailers. You instantaneously know where you can get the lowest price. What’s more, it’s easy to share the information with friends.
The technology is incredibly disruptive. Target recently stopped selling Amazon’s Kindle book reader in its stores—reportedly because it was contributing to lost sales. Electronics retailer Best Buy has had to confront a growing trend of customer perusing the aisles, scanning products, and then ordering them online at a lower price. And others, including Wal-Mart, Sears, and Macy’s, have begun to tweak products, services, and offerings to combat the growing power of showrooming.
Easily overlooked in all of the commotion is the fact that showrooming typically takes place when consumers perceive that an item is a commodity. The impact is most heavily felt in items such as books, DVDs, electronics, and automobiles—which are essentially the same everywhere. However, even in less susceptible categories, such as clothing and home furnishings, showrooming can have an impact. What’s more, as consumers adjust their buying habits and begin ordering more items online, they begin to think of an online retailer as the place to buy.
Joy Liuzzo, president of Washington, D.C.-based market research and consulting firm WaveCollapse, said that smartphone shoppers are often the same bargain-conscious consumers that peruse circulars and make it a point to compare prices before they buy. The technology simply makes the process easier. She found that so-called “scan-and-scram” buying often takes place in metropolitan areas, and it doesn’t automatically benefit online stores. “A lot of people like buying items in a physical store,” she told CMO.com. “They like to use their smartphone to aid in the process. In some cases, they are heading to another local store.”
What’s unsettling for retailers is that this consumer behavior “is out of the retailer’s control,” Liuzzo said. The response by a few retailers has been to block certain Web sites from the store or use barcodes that won’t scan in RedLaser and other apps. In 2011, The New York Times reported that Best Buy began using barcodes that won’t scan. Meanwhile, a major European retailer was reportedly considering blocking cellular signals in its stores. What these retailers don’t fully understand, she said, is that “you can’t modify consumer behavior through force. People will find a way to use applications and comparison shop whether or not you give them permission.”
Similarly, a growing number of chains—including Target and Best Buy—are encouraging manufacturers to develop unique products, or at least unique SKUs, to make it more difficult for consumers to engage in scan-and-scram behavior. This may or may not work. Consumers often figure out artificial barriers. What’s more, it’s only a matter of time until someone builds a database that compares SKUs for consumers, Liuzzo said. “Consumers as a group are very smart and they figure out solutions faster than retailers can develop ways to block the undesired behavior,” she said.
What’s In Store?
Navigating the new world of smartphones and barcode-scanning apps requires a focus on innovation. When WaveCollapse polled 1,000 shoppers, it found that in-store mobile users often tap their devices to gather information about the products they’re considering, and the vast majority of these shoppers are inclined to purchase in the store—if they’re able to get a good deal. In fact, 76 percent of smartphone users reported mostly browsing, not purchasing, on mobile sites. “The fact that they are in the store and looking to make a purchase can work to the merchant’s advantage,” she said.
Next Page: Ways to enhance in-store value and synchronize marketing.
Enhancing in-store value and synchronizing marketing and sales across various channels is a starting point for navigating this challenging environment, said Michael Klein, director of industry strategy for Adobe Systems, in an interview with CMO.com. This might include migrating to e-coupons and location-based messaging, improved integration with a loyalty program or credit card, arming salespeople with iPhones or iPod Touches, tying together the Internet and in-store merchandising through QR codes, and finding ways to create extra value, such as special deals or providing a free or discounted extended warranty.
For example, Lowe’s has integrated Internet and in-store purchase records so that they show up online for those with a MyLowes.com loyalty card. There’s a record of every purchase and no fuss with receipts, rebates, and returns. Lowe’s has also outfitted employees with 42,000 iPhones. Wal-Mart has created an “endless aisle” program that allocates sales to the store that’s nearest to the customer’s address. The store uses the data to allocate bonuses for meeting and exceeding sales targets. This encourages sales associates to send customer online for items that aren’t available in the store.
Of course, a growing number of retailers are also sending out text messages with daily, weekly, or periodic incentives and discounts—or using social media app Foursquare to deliver location-based coupons. But some are taking the concept further. Placecast, for instance, has developed a system that sends out an SMS based on a customer’s location. Those who opt in receive a “ShopAlert” with a coupon or incentive. Koegel said that this type of capability provides some intriguing possibilities, including delivering coupons based on behavior and notifying customers in the area when an event takes place. This might include a fashion show at a clothing store or a cooking demonstration from a celebrity chef.
A growing number of retailers are also morphing the online and in-store shopping experience. For example, earlier this year Macy’s began embedding QR codes within its star logo in stores. When a customer scans the code using a smartphone, they are sent to a Macy’s site called “Backstage Pass.” There, it’s possible to view videos and access other content from celebrity designers, including Sean “Diddy” Combs, Tommy Hilfiger, Michael Kors, Carlos Santana, and Martha Stewart. It’s also possible to view and order these products online.
Some retailers, including Macy’s, Eagle Outfitters, and Best Buy, have also experimented with location-based mobile apps, such as Shopkick, that reward customers for entering a store and completing certain tasks. Still others are migrating to electronic coupons. For instance, Safeway recently introduced a smartphone app that lets shoppers with a loyalty card register it within the app and receive personalized offers. A tap of a button adds the coupon to the card and the amount is automatically deducted from the sales receipt at check out.
Klein adds that retailers must do more to add value and differentiate themselves. This might include mobile POS and e-mailing receipts. “You have to make the customer’s life easier and better. The technology has to work to everyone’s advantage.”
Unfortunately, there’s no single template for success. The overarching focus must be on integrating channels and creating a more holistic and enjoyable shopping experience. As Green points out, “When customers feel that there’s value in a store, they will buy from the store.” Yet for many retailers, the task is complicated by legacy IT systems, departments or divisions that compete against one another, and a mélange of tools and approaches that often prove overwhelming. “Many companies wind up suffering from analysis paralysis,” Liuzzo states.
Klein said that retailers must do a better job of targeting customers and segmenting marketing and advertising methods. Organizations must get a better handle on Big Data and analytics tools, including those that tie into social media. Amazon and eBay are among only a handful of companies that send e-mail advertisements that are personalized based on past clicks and purchases. “There’s a need to use more sophisticated tools to understand who a customer is, what the person is interested in, and then personalize and optimize the experience,” he said.
There’s also a greater need to tie together social media and mobility. For instance, a recent study conducted by digital marketing agencies White Horse and Sensis found that 68 percent of Hispanic smartphone shoppers prefer to shop with at least one companion when buying expensive items, and approximately half prefer to shop with others even when buying everyday items. Many younger people, meanwhile, base buying decisions on recommendations and suggestions from friends—something that many retailers completely overlook.
In the end, retailers must view the current turmoil as an opportunity rather than a challenge, Liuzzo said. They must understand that mobility is more than the sum of SMS messages, apps, social media, location-based services, and analytics. It’s all about assembling the various pieces of the jigsaw puzzle in the right way to create new possibilities. “We are in a period of rapid and radical change,” she said. “The goal for retailers is to move beyond being a commodity provider and create value for the customer.”