Influence of the Internet of Things (IoT) on Retail : Part II

This is the second article of this series. In the first part of Influence of the Internet of Things on Retail, we have disccused fundamentals of IoT including the key technologies. When implementing IoT projects in retail, there are a variety of factors to consider. The technological challenges to realize these in everyday business processes are very demanding. For a widespread dissemination, it is important, on the one hand, that the costs of implementation are kept comparatively low, but the following factors also play an important role in connecting a large number of devices.

Technological challenges for IoT projects

Scalability: All cooperating things communicate both in a small-scale and in a global environment. Therefore, basic functionalities such as communication with each other must work efficiently.

Arrival and operation: When the customer uses an IoT service provided by a retailer, they should not feel they have to spend a lot of effort to make it work. The wearables should not be perceived as computers, which must first be configured and adapted before use. The use must be kept as simple as possible, otherwise the customer will not take on this effort in the future and will no longer use the service. That is, even sporadically used “things” need to configure and organize themselves to become interesting to the customer.

Interoperability: The principles and standards used in communication and cooperation should be kept as consistent as possible. This will win customers’ trust and develop a sustainable solution.

Discovery: Users receive appropriate information and search helps for products that are of interest to them. Search engines can find things or show more information about the item.

Data volume: Some application scenarios lead to the transmission of large amounts of data. It is important to transport these efficiently or to reduce the amount to a minimum.

Intelligent data interpretation: From the data obtained from the user, the right conclusions must be drawn in order to be able to offer users further smart things and services in the future and thus increase their own profits.

Security and privacy protection: The already known protection aspects of the Internet (integrity, confidentiality, etc.) must be extended. The access to certain services is not allowed to all things, but only selectively selected. Communication is not unconditional with all devices, for example, to protect business from the competition.

Fault Tolerance: An offered service must work at all times. Because the Internet of Things is very dynamic and needs to respond quickly to context changes, it is important to be robust and trustworthy.

Power Supply: Compared to the development of IoT devices and their software, battery technology is making slow progress. Most wearables are portable and not grid-connected, so improvement can be achieved either through new energy storage technologies or extremely energy-efficient components. Although RFID transponders do not require their own energy source, they are also very limited in their functionality and communication range.

Interaction: In many interactions between retailers and customers, communicating the devices over a distance of a few centimeters is already sufficient. In most cases, such a field-wide communication touches one object with another or, for example, the customer briefly holds his smartphone to an NFC terminal in order to complete the payment process via a mobile payment method. The bridging of these short distances requires little energy and almost completely excludes the monitoring by unauthorized third parties.
Radio-based communication: Radio technologies such as GSM, UMTS, LTE and WLAN are often out of the question as communication links, since they would require too much energy to permanently establish a connection and exchange data.

Applications

When looking at application areas or scenarios of IoT technologies in retail, it is usually necessary to differentiate between stationary retailing and online retailing. An intersection of the application areas can be found to some extent in the logistical processes, since these are similarly structured. For stationary retail, the application scenarios in logistics, in marketing and directly on the sales areas were considered.

Stationary retail

To implement IoT technologies in stationary retail, a variety of different concepts are available. In addition to the economic benefits, the added value for the customer is a motivation here. In addition, companies that offer innovative concepts in their businesses can benefit from a certain appeal because, especially in our highly technological world, many customers are receptive to modern ways of shopping. Ideally, this could even lead to innovation leadership.

Marketing and sales

Together with logistics, most of the areas of application of IoT technology in stationary retailing can be found in marketing and sales. Below are a few examples that are based, inter alia, on a study by the McKinsey Global Institute published in June 2015 and that are expected to offer significant economic benefits. How exactly this benefit can be quantified will be explained in more detail later.

Automated payment processes: The payment process is one of the most labor-intensive processes with which the customer comes into direct contact. As a result, there is also a high potential for frustration, which must be minimized. With the help of IoT technologies, the payment process can be fully automated in the medium term and thus significantly accelerated. To realize this, several conditions must be met:

• Each product offered must be identifiable and localizable. For this purpose, an application of RFID transponders in the form of smart labels, which can be easily attached to almost all common goods.
• There must be an RFID infrastructure to be able to assign all goods leaving the sales area to the respective customer. This can be done for example by an RFID gate at the output. Important here are therefore a high recognition rate and high accuracy. Incorrect or unassigned goods must be manually recorded by existing personnel or, in the worst case, cause an increased loss of merchandise.
• Mobile payment methods must be offered, which in total have the largest possible user base and, ideally, work completely automatically. Important features of a mobile payment method are the data security, the existing user base and the ease of use for the user.
• In the backend, a database with the respective valid prices of each product must be available, as well as, ideally, a connection to a CRM system with corresponding customer profiles. Thus, in addition to the pure payment information, further data about the buying behavior of the respective customer can be collected and further processed.

Personalized real-time offers: The McKinsey study sees another trend in the possibility of providing customers with personalized offers during the shopping process. A basic requirement for this is an identifiability of the individual customer. This can be achieved, for example, via the widely used smartphones. A very large number of customers will be clearly identifiable and thus potential targets for personalized real-time offers. Technically, this could be achieved, for example, with beacons that connect to the customer’s smartphone. The combination of a customer’s shopping history, their lifestyle and the current position in a store offers retailers the opportunity to create tailor-made offers and present them to the customer. In the long term, comprehensive customer profiles can be created which, in addition to the purchased products, can also include, for example, the willingness to pay for certain product groups. This in turn can be incorporated into the creation of individual offers. This type of marketing can increase, for example, the revenue per customer and the return on investment in the field of marketing. The more data a company has about its individual customers, the higher are the expected increases in the mentioned key figures. Extensive cooperation offers the opportunity to combine their own customer data with those of other companies.

Optimized goods arrangement: The optimization of the goods arrangement can already offer a great benefit without the use of IoT technologies, whereby this can be further increased. This is made possible by a constant analysis of the customer movement and a continuous adjustment of the goods arrangement. So far, only individual customer or smaller customer groups were selected for the analysis, because the technical effort was comparatively high. The necessary localization of individual customers is greatly simplified by the use of IoT. Ideally, these transaction data are complemented by buying behavior to create the most complete picture possible of the routes that customers use in the store. For example, a network of WLAN access points is suitable for the technical implementation. which record the paths of the customers. Similar to the personalized real-time offers, it also lends itself to the use of beacons. In addition to the purpose of optimizing the order of goods, the insights gained can also be applied to other CRM areas and, for example, combined with existing customer profiles.

The use of the Internet of Things also has the potential to support multichannel retailers’ strategies, as demonstrated by an application example from the company Cisco. For example, if the customer sees a product they would like to buy, they can use a smartphone app Retailer can read a QR code or an RFID tag and get more information about the product. In the food sector, for example, provide information about the origin or the ingredients of the product. For example, apparel can be used to verify that the item is in the correct size and color. If this is the case, the customer can be navigated directly to the correct shelf via the app. This is made possible by an indoor navigation based on beacons. If the item is not available, it can be ordered directly from the app and sent to the customer’s home. Thus, despite the lack of availability, a turnover can be generated and a customer can be satisfied. A comparable service has been offered by some of the shoe retailers. Articles that are not available in the shop can be ordered there directly in the context of the multichannel strategy. This is made possible by two separate assortments for the online shop and for the stores.

Another application scenario seen by Cisco in setting up smart vending machines. “Smart” in this context means that the device independently provides its operating parameters and associated context information. In shopping centers such machines could be set up, for example, at connecting routes between two shops or parts of buildings. A deployment at busy locations such as train stations or airports is also suitable. Such an automated system can continuously provide up-to-date information on demanded and sold products during operation and thus offers the possibility of optimizing assortment planning through continuous analysis. Due to the possibility of communication with the operator, the latter can proactively equip the machines in the event of an imminent sell-out, in order to prevent this. Even technical problems can be detected in advance and immediately resolved. On the basis of the evaluated sales data and in connection with environmental factors, for example, the prices of the respective articles can be adapted flexibly. In heavy rainfall, for example, the operator may increase the price of the product umbrella because in the past, increased demand was measured at those times.

Other use-cases has been discussed in the next part.