Retail@ the Edge

New Opportunities for Customers and Retailers

We are surrounded by sweeping trends and volatile swings in customer behavior, technology, and the economic and political environment. Customers are adopting new technologies and communication channels faster than ever. Governments are changing overnightsuccumbing to the power of connected people. And new competitors are popping up at every corner, and at rapid rates.

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Customers have moved ahead. They expect to interact with retailers in new ways. They are shopping around for the right retailers to meet their needs. They are not interested in the methods of yesterday. Amid the whirlwind of ever-shifting trends, predicting where the customer will land is nearly impossible. So, what can a retailer do? Now is the time to be at the edge, looking out at the digital world, finding opportunities to adapt faster and ratchet up appeal to customers.

Pushing the boundaries of the retail experience

Retailers are often hampered by the burdens of infrastructure, capital and dated operating models. They are not stepping up to meet the needs of customers who long for new ways of doing business. Right now, retailers have the opportunity to push the boundaries to create new experiences for their customers and tap new value streams for their companies. This shift means out with the old and in with the newlegacy is over. Leaders will have to rethink the next dollar of investment, integrate more tightly within and across organizations, and open their minds to unconventional approaches of engaging with customers and employees. Companies will need shrewd strategies to gain insight quicker and turn it into actions that truly impact the customer. Companies also will need to reconsider platforms, technologies and operating procedures. And they will need to be prompt and disciplined about execution. To envision the right opportunities to seize in retail, look no further than the extreme customers who are setting tomorrows trends. Who are these customers? They are the ones fueling the growth of new, small entrants by flexing the power of their social network. They are using technology to overturn traditional modes of shopping. They keep a constant eye on the digital landscape, looking for new providers who can meet their needs better than traditional retailers can.

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Opportunities at the edge. Why not?

Through deep research into retail trends, Accenture identified examples of these extreme customers and envisioned the opportunities that they create for retailers. When exploring these opportunities, ask yourself the same question your customers are askingwhy not? Why cant I get it the way I want it? Why cant you offer the same products in store as online? Why cant you provide me access anywhere and at any time? Why cant I be rewarded for the influence I have on your brands? You can choose to stand still and observe the changes or ask, why not create new experiences and new value? And why not now?

Accenture sees three distinct opportunities at the edge of retail:

1 The Influence Marketplace

A world where the cost of building awareness is negligible and a companys success is predicated on whether its products and services are noteworthy enough for people to spread the word. Influence is the currency in this model.

2 Context Retailing
The context for customer interaction shifts from stores/ channels/our turf to their turf: their home, car or social setting. Companies present products and offers within a dynamic kaleidoscope of demand pockets, wherever the customer is at that moment of need. The challenge is to deliver tangible relevance in distributed, varied contexts.

3 The Streaming Environment

Retailers become the Netflix of solutions, streaming bundled solutions to meet customers specific needs. Delivered through a variety of ownership models, goods and services are relevant for the customer across channel, across time and across company.

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Keeping up with the customer

New technologies, new buying habits and newcomers to retail make keeping up with the customer an ever-changing playing field. Trends include:
Interconnectivity. In just 20 minutes on Facebook, more than 1 million links are shared, 2 million friend requests are accepted and almost 3 million messages are sent. Changing media channels. TV is no longer the primary viewing option for those under the age of 35. Digital living. By 2015, South Korean school children will have access to only digitized textbooks. Loyalty is gone. Eighty-four percent of US employees plan to change jobs within a year.1

Threat of new entrants. Pinterest drives more referral traffic than Google Plus, LinkedIn and YouTube combined.2 New paths to purchase. Eighty-three percent of shoppers make their purchase decisions before even entering a store.3 Connected empowerment. Occupy Wall Street donations increased by 301 percent in a 17-day period, growing at an average of 17.72 percent per day.4 Redefining stereotypes. Internet users over the age of 55 are driving the growth of social networking through the mobile Internet.5

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The customer experience includes

social influence that can be expressed and accessed at every stage of the buying decision and in every channel.

The role of the retailer is

to filter feedback and make connections to relevant influencers that the customer finds credible. by network value, the degree of influence on others purchases. from building awareness to creating credible products and services that generate social endorsement. insight from influencers to manage the business and enable a broad distribution of social influence. in retailers ability to integrate influence factors into operations and into marketing and merchandising decisions, such as assortment optimization, store locations, private labels, service offerings and pricing.

Loyalty is defined Investment shifts

Successful companies use

Dramatic change is required

67% of shoppers spend more when they have received a recommendation from their online community of friends.6
Recommendation

Good
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Bad

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Influence is the currency in this new world

What does loyalty mean to you? Its time to rethink the definition. Rather than focus on loyalty through total number of purchases, look at the total value of a customers influence network. The customers with the highest network value will be rewarded through discounts, free goods and incentives. Retailers might also offer incentives within the broader circle of influence. In fact, its happening already. The Palms Hotel and Casino in Las Vegas is creating the Klout Klub, which will use social media metrics to measure the influence of each patron. The Klout Score will allow visitors to experience certain amenities, not based only on their spending/betting/playing but depending on the heft of their social media footprint.7 Influence reigned king when the Dutch airline KLM was challenged by a duo of filmmakers, who wagered they could solicit enough Twitter followers to fully book a KLM direct flight from Amsterdam to Miami. In exchange, the airline would comply and offer this never-before, nonstop route. Forty hours post-challenge, the airline conceded and 426 tweeters got their seats. Influence ratings can be used as a key metric in assortment and space optimization, and even to drive inventory levels and replenishment. Based on buzz, retailers can reallocate product distribution in real time based on what influencers deem to be the hot item. Customers themselves can use influence in making decisions about products. Imagine that as a customer stands in front of a store shelf, through augmented reality, that person is able to see the ratings of influencers (including acquaintances and experts) whom he or she trusts. If your most trusted friends think a product is great, likely so will you.

Signals that customers are at the edge

Cautious consumers are thirsty for credibility in products and services. Whether it is credibility in products (such as nutrition and usage information) or credibility in communication (saying the right thing at the right time based on consumer needs). In short, customers want to believe in what they are buying. A number of wild fluctuations are compelling todays consumer to be more discriminating:

Nonbelievers are not buyers.

Consumers are often mistrusting and want to know a retailer is doing right by them. These customers may lean on feedback from influencers to identify the retailers who are delivering credible solutions. In fact, according to findings by Reevoo, more than two-thirds of consumers With consumers remaining cautious amid high unemployment rates in Western countries and with growth remaining weak globally, retailers are struggling to pass on cost price inflation. Deflation also affects consumer spending, as there is a risk in buying today what may be cheaper tomorrow. According to the 2011 Social networking and digital media can build awareness for fewer bucks. Social networking continues to dominate. Across a snapshot of 10 major global markets, social networks and blogs reach more than three-quarters of active Internet users.9 The ease with which consumers can share their views online means that if retailers have

(68 percent) trust reviews more when they see a mix of both good and bad feedback. Furthermore, 95 percent of consumers become suspicious when no bad reviews are evident, believing the site to be censored or faked.8

Volatility is the norm.

Accenture Global Consumer Survey, with uncertainty and lack of predictability becoming the norm, connecting consumers with sources and information that they can trust can help to overcome realities like the high rates of switching and price comparing that we are seeing in so many markets today. a credible product or service, consumers will advocate and market it. In fact, social networking is becoming so ingrained in our daily lives that even media consumption is becoming social. For example, Get Glue lets participants check in to their favorite shows or other media forms to let the world know what they are watching.

The people have a podium.

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Moving to the edge of the Influence Marketplace

Retailers tend to dump dollars into consumer and trade promotion. But theres a better way. The cost of creating brand awareness and generating demand generation is shifting due to alternative and lower-cost avenues. Its time to ask, where can I get the biggest bang for my marketing buck? Pioneering companies are looking for ways to capture more value from the influencers that are out there advocating for the brand. They ask, can we generate greater return if we identify top influencers, treat them differently and give them something to buzz about?

How can retailers take steps closer to the edge? Create an influence exchange.
Retailers will need to use sophisticated analytics enterprise-wide to understand who is the most influential. Then they can tantalize influencers by delivering more customized, credible and relevant messages, promotions and products. In this marketplace, companies will incentivize influencers to create buzz about their offerings call it an influence exchangeand will reward those making the most noise.

Measure social influence.

Social Q&A tools, Like buttons and refer-afriend discounts are modern-day tactics that can drive value in the Influence Marketplace. But you cant manage what you cant measure. At the edge, retailers will measure influence factors

and incorporate social influence measurements into a holistic influence management approach that connects back into the organization across all relevant areas, from merchandising to supply chain and even to areas like human resources.

Get a return on influence.

To ensure a return on their investment in influence as retailers tap new channels, they must have a clear strategy and an operating model that supports tighter integration of marketing, supply chain and merchandising functions, and

metrics. Furthermore, as the cost of creating awareness goes down, spending will shift away from capturing attention and will be reinvested in improving the offering itself.

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The customer experience includes

selecting tangible products with the option to add intangible elements that are personalized, based on context. to use insight into the consumers needs to deliver the most relevant products and services, based on the consumers context.

The role of the retailer is

Loyalty is defined

by the number and frequency of points of interaction the customer has with the retailer. from creating environments for sales to creating insight into the customers context and ways to communicate with the customer outside of the channel, from distributing to consultative selling. to derive value by adding intangible elements such as findability, verification or personalization, based on the context of the decision to buy.

Investment shifts

Successful companies are able

Dramatic change is required

in developing communication with customers that engenders trust and helps to capture or receive information about their environment.

Of the 40 percent of consumers who own smartphones, 70 percent use their smartphones while shopping in stores.10

70 %
use their smartphones while shopping in stores

US consumers who own smartphones

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40 %

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Innovation in context
Customers observe, interact with and decide on products and services in a variety of contexts at home, in the car, on the street and in the office. At the edge of retail, there is a symbiotic relationship between customer and retailer: I scratch your back, you scratch mine. Customers share information and preferences with retailers, and retailers respond by delivering a more authentic, personalized and therefore richer experience to the customer. What does your customer care about, and how can you respond in context? For example, your diabetic customers may want to use their mobile phone to certify that product ingredients comply with their dietary restrictions. Your socially aware customer may want to preview a live feed of the factory conditions where an article of clothing was made. Your soccer mom may want to see whether the rug she is considering will hold up to her familys foot traffic or whether the makeup will last throughout her busy day. Its all about the context of daily life. Can your customer see him or herself usingand enjoyingyour products?

Signals that customers are at the edge

Several trends are influencing the rise of context retailing:

Go digital or bust.

Digitization has skyrocketed as tech-savvy consumers have come to expect information at their fingertips. The appeal of paperless is apparent in the popularity of e-readers, such as the Kindle and NOOK. Furthermore, books are moving off the shelves in national libraries and Consumers reality is becoming more blended with virtual reality as they spend more time connected to digital devices, playing on gaming systems and interacting via virtual communication media. The popularity of Wii and Kinect is evidence that this trend will continue to be a part of our daily lives. In fact, in its first 60 days on the market, Kinect sold 8 million units, making it the fastest selling consumer electronics device, according to Guinness World

in schools. Look at South Korea. They plan to digitize all textbooks by 2015. Digital interactions are becoming second nature for customers who are hungry for more engaging, interactive and differentiated shopping experiences.

Very virtual.

Records. The Craftsman Experience Store creates a branded experience accessible across social and digital channels by combining hands-on work stations, a live social media studio and project demonstrations that showcase the innovation and performance of Craftsman tools. And new mobile applications like uDecore, String and Blipper let users view and manipulate products in 3-D, such as a replica of a shoe or a couch they are interested in buying.

Online and offline collide.

The online experience is being replicated offline and vice versa. Even while shopping in stores, customers are going digital. Of the 40 percent of US consumers who own smartphones, 70 percent use their smartphones while shopping in stores.10 A budding trend is being able to replicate the offline world more effectively via digital means to create new and innovative experiences for shoppers. One example, Google Streetview, is a project that allows people to explore a store just

as they would if they were physically in the store, yet do it all online. Another example, Turnhills. com, uses crowd-sourced photography to enable consumers anywhere to window shop in New York. Yet another, Meijer Find-It app, is fusing online and offline by knowing what store you are located in and providing the optimal route to purchase your shopping list.

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Moving to the edge of Context Retailing

In their marketing and merchandising plans, retailers will need to look beyond traditional digital tactics as levers for merchandising and selling. Instead, they will need to thoughtfully outline in their plans how to manifest the intangible attributes of an offering in ways that are individualized, interactive and tangible to consumers differing needs and preferences. The talent devising the marketing and merchandising plans will need expertise in the innovative technologies and tactics that can drive value through context.

How can retailers take steps closer to the edge? Understand the tactics.
Retailers will need to understand the tactics and methods used in Context Retailing and will have to train employees in how to integrate these practices into interactions with shoppers. Also critical will be educating consumers in how to use various emerging applications to examine and compare an offering in various contexts.

Take the retail and product experience virtual.

By overlaying data in a simulated world, retailers will gain speed, coordination and the ability to operate and make decisions within the context of real market conditions and operating realities. Companies will increase their visibility into real-

time supply chain occurrences, store conditions and new market realities. With that insight, retailers will be able to develop products and services with a view into how, when and where they will be used.

Invest in the technologies.

Context retailing requires both an investment in ever-evolving virtualization/visualization technologies and a test-and-learn model. Tailoring merchandising and communication according to an individual shoppers context

will require advanced intelligence engines that connect to marketing and selling channels and that can be manifested easily as the information or experience appropriate to the shopper.

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The customer experience includes

on-demand access to streaming products and services that are accessed and bundled as solutions. to be the connector and access point between the consumer and entities that provide the products and services to fill a need.

The role of the retailer is

Loyalty is defined

by the frequency and margin mix of what a customer accesses and by affiliation with a specific retailer. from buying, stocking and selling inventory to providing visibility and access based on consumers needs. the easiest access to the most relevant goods and services, earning income not only from the margin on goods, but also from the value of access.

Investment shifts

Successful companies provide

Dramatic change is required

in developing a multidirectional flow of goods, deriving value from the access model and presenting relevant solutions in innovative ways to the customer.

Grocery retailers in the US have reduced the rate at which they are adding square footage by 56 percent.

56 %

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Supply and demandon demand

I want it now. Do you have it in blue? When can you get it in stock? Regardless of trends, no one will ever take the me out of customer. Picture a multidirectional flow of goods and services that customers access on demand. Retailers will act as a conduit that brings together offerings across multiple organizations and makes them accessible to customers. This constant stream of goods will be a departure from the push model, where retailers select a finite set of products and market them to consumers. In the streaming environment, retailers will receive input and requests from consumers and will provide access to the goods and services to solve the need. How do you stream products to customers? The streaming environment will allow products and services to be sold, provided as a managed service over a period of time or rented by consumers. Retailers will pull the desired products from within their inventory or access them from others inventories. In this model, customers will receive offers for solutions at various price points based on the components. For example, a consumer requests a flow of goods for a healthy, low-carb diet to maintain a blood sugar level at or below 110. Retailers will offer products, information and services that are derived from their stores, from other retail locations, from restaurants or from medical agencies to monitor, measure and manage glucose levels. Options may include services (food preparation or nutritional counseling) or credit toward restaurant meals. Does streaming work? New entrants are finding success by adopting early iterations of this model. Look at Mine-for-Nine. This company gives pregnant women access to designer maternity clothes. But instead of purchasing items of clothing and being able to enjoy them for only a few months, customers of Mine-for-Nine can rent the clothing until they want a new style or size. Another example is ShopyCat, created by Walmart. It is a social gift finder that will recommend products from not only Walmart, but its competitors.

Signals that customers are at the edge

The streaming environment is fueled by consumers hunger for constant access to relevant products and services.

Shrinking spaces.

With urbanization occurring globally, consumers are living in smaller dwelling sizes and more confined spaces. In 2010, the average pantry held 369 SKUs, down from an average of 404 in 2007.11 Smaller spaces are driving smaller basket sizes

and on-the-go consumption. Given those factors, it is no surprise that retailers continue to invest in smaller formats. In fact, grocery retailers in the US have reduced the rate at which they are adding square footage by 56 percent.12

Temporary access.

The digital industry has trained the user to think about streaming (video, music, etc.) access, as well as usage for a period of time, not for permanent consumption. That approach has been expanded

to rent-and-return models for product categories that include apparel, handbags, jewelry and cars. For example, Spark Box is a personalized educational toy service (available by subscription).

Instant gratification.

Consumers also want real-time visibility into what products and services are availableand when. Consider San Francisco, where an application provides drivers information on where parking

spaces are available right now. The application not only helps the city cut down on traffic congestion, but also provides real-time streaming access to drivers for less time and money.

Bite-size buying.

Economic conditions, sustainability and resource constraints are driving consumers to buy in increments. Customers derive value from new funding models such as pay-as-you-go and group funding. Redbox provides customers

entertainment for $1 a day. Groups are buying in bulkwhether gifts or even consumables such as organic produce and meat products from co-ops and farms.

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Moving to the edge of the Streaming Environment

For retailers to make this opportunity a reality, they must fundamentally rethink the model by which they supply goods across their markets and invent a model that thrives on fragmentation. Fragmentation will exist in multiple formscustomers, channels, mode of distribution and acquisition type (buy, rent, exchange, etc.). Managing supply and demand will be core to differentiation and will require leading-class insights, infrastructure and collaboration capabilities.

How can retailers take steps closer to the edge? Apply customer insights.
Do you know what your customers are doing? Retailers must track, capture and interpret customers behavior across every available channel and in their life stages. The ability to bridge structured and unstructured data, and integrate it across the organization to apply the insights toward sales of solutions, will become more critical. To truly stay in tune with demand patterns and appropriately manage supply, retailersgoing beyond the traditional sources for customer insightswill need to tap into social buzz and collaborate with suppliers and maybe even competitors.

Rightsize.

Successful companies will shift investments from buying and storing inventory to creating new solutions and access models. They will manage store size and inventory flow proactively. It will also become increasingly important to leverage

the network of industry peers, suppliers, partners and customers to share assets and infrastructure in order to achieve a truly flexible, right-sized and fluid value chain.

Create multidirectional flow.

The future calls for the ability to aggregate and create dynamic delivery routes and a multidirectional flow of goods. Standard merchandising channels become more complex in the streaming environment because goods are

not coming from or going to one place. Inventory is coming from multiple places and is at various levels of use (e.g., pre-owned). Dynamic delivery can enable better forecasting accuracy and better supply chain visibility.

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are @ the edge

The physical and virtual worlds offer new channels and venues for reaching a wide range of customers. The customer is there at the edge, ready to shop, interact with and advocate your products. Are you there as well, adapting to the digital

The customers
are you there with them?
consumer, tapping social influence, selling in context and finding ways to continually feed relevant offerings to customers? Get to the edge. Because now is the time to make the leap into the exciting future of retail.

For more information on becoming a retailer at the edge, please contact: Accenture Retail Practice
Renee Sang Accenture Customer Innovation Network Director renee.v.sang@accenture.com Allison Muller Accenture Customer Innovation Network Co-Lead, North America allison.e.muller@accenture.com Karen Voelker Accenture Customer Innovation Network Co-Lead, North America karen.m.voelker@accenture.com

1 http://www.mainstreet.com/article/career/employment/more-americans-will-change-jobs-2011 2 http://blog.shareaholic.com/2012/01/pinterest-referral-traffic 3 IRI, Channel Migration: The Blurring of Shopper Loyalty, 2009 4 http://www.dailydot.com/news/new-data-occupy-wall-street-funding 5 http://blog.nielsen.com/nielsenwire/online_mobile/social-media-report-spending-time-money-and-going-mobile 6. Internet Retailer, September 2009 7 http://adage.com/article/digitalnext/marketing-las-vegas-palms-hotel-klout-scores/146189 8 http://www.bizreport.com/2012/01/bad-reviews-good-for-conversion-rates.html 9 http://blog.nielsen.com/nielsenwire/online_mobile/social-media-report-spending-time-money-and-going-mobile 10 Google & IPSOS OTX, April 2011 11 SymphonyIRI Group, New Product Pacesetters: Carving out Growth in a Down Economy, 2011 12 Kantar Research Retail @ the Edge: New Opportunities for Customers and Retailers | 19

About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 246,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, 2011. Its home page is www.accenture.com.

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