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Blog l The Internet of Things is the Future of Retail In the past decennia we converted the physical world into the digital realm of the Internet. From entertainment and shopping to media consumption and work, everything moved online. 

Today, we are at a tipping point of a reversed transition: the digital transformation of our physical world with the Internet of Things as the main driver.


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The Internet of the physical world is basically a network of digitally enabled communicating objects, products and services. Thermostats, cars, stores, and bus stops, everything will soon have a connection to the Internet. Research firm Gartner predicts that by 2020 we will have 26 billion smart and connected products in use. This translates to an average of 3.3 devices per person (smartphones and tablets excluded).


So, what are “things,” and what are they capable of? There are “things” that simply transmit pre-programmed data, there are “things” that transmit data about what they are able to sense and there are “things” that can autonomously respond to changes in their environment. These deeper levels of connectivity present a new range of consumer touch points and opportunities for personalization and hybrid shopping in retail. This means that offline retail stores are increasingly moving towards the cloud as well. This calls for designing hybrid customer journeys that work simultaneously offline and online. Retail is destined to be one of the sectors that benefit the most from the rise of the Internet of things according to research done by PwC. We would like to put it even bolder: the Internet of Things is going to radically change retail forever:


  1. Objects in the physical world will become increasingly programmable and interactive: everything could act as a potential interface for a service.
  2. The Internet of Things equals new data streams that, in combination with real- time analytics, have the potential to revolutionize the relationship between retailers and consumers.
  3. The ability to manage data efficiently and effective has never been so critical for success.

In this article we present what this means for retailers using examples that leverage Internet of Things technology.


Extending and Enhancing Customer Journeys


Retail is increasingly less about transactions and more and more focused on the relationship between buyers and sellers. The Internet of Things emphasizes this shift with a focus on personalization. A mix of new connected touch points and real-time access to customer data allow retailers to offer better and personalized promotions and customer experiences.


Beacons are a big part of the near future of retail. Beacons are little interactive objects that can send out (personalized) messages whenever they are triggered, by a smartphone for instance.  The message could be everything ranging from a coupon to a welcome message. London’s Regent Street is currently the biggest Beacon experiment on the planet with over 80 stores that have deployed Beacons to communicate with consumers. They have Beacons in place to inform shoppers about everything from product information to campaigns and coupons. So far they have seen a 6% CTR on the Beacon-enabled communication.


Gamified loyalty programs are also well fitted for the use of Beacons. A consumer who scans a Beacon for more information on a product could be awarded a certain amount of points. These points can eventually be returned to the store for a discount on an item of choice. Shopkick, a Beacon-partner for big retailers like Macy’s and Bloomingdale’s, recently announced that their 7,500 Beacons implementations in 300 stores have generated over 50 million verified store walk-ins and over 100.000.000 product scans.


Beacons can also act as building blocks for new shopping experiences. The French store Klépierre has developed an inspiration corridor that allows shoppers to receive recommended clothing using a Microsoft Kinect to make body scans. Using Beacons the booth knows which clothes are with the customer and can tell the Kinect to show similar options on your body in real time. Ebay, in collaboration with designer Rebecca Minkhoff, created a store with magical mirrors. Shoppers tell the digital mirror which pieces of clothing they would like to try on and receive a notification on their phone as soon as the shop assistant has collected all of the requested clothing in the right size. Using embedded RFID-tags the mirror recognizes what the shopper is wearing and suggests similar options or possible additions of jewelry. Shoppers can also pay using their PayPal-credit and the goods will be home delivered, easy and convenient.


Adding connectivity to extend customer journeys to every non-digital product is not yet cost effective today. Future products however, will act as apps with over the air updates for functionality and optimization. Orbotix is a good example on how actionable data from connected products could work. Orbotix is monitoring the activation data of their products. This data is then transmitted to planning and acts as a trigger to increase or decrease production based on an analysis of activation data and the current amount of products in stock.


Tool manufacturer Black & Decker is using Salesforce as the platform for their future of connected tools. Using integrated chips in tools allows for communication between the tools and Black & Decker: wrenches could notify owners that they need a review of the current settings and drills could notify the manufacturer that the battery needs changing. Tools in general can get a layer of predictive data that can be leveraged by the manufacturer to better serve customers with support and maintenance.


The possibilities of scaleable connectivity supports business model innovation in other sectors as well. The rise of the quantified self, wearables and connected cars offer insurance companies new ways of organizing their offerings.  If a wearable health tracker shows that a customer is living a healthy life and is therefore a less risky client, their monthly fee could come down. Dutch insurer Menzis is already experimenting with this model. Similar models will have an impact on car insurance as well. Belgium car insurer Axa is working on an app that could use your driving behavior to set a variable monthly fee. Now it’s an app on your phone, it will be only your car in just a couple of years. About half of the Dutch citizens are interested in trade-offs that include swapping data for discounts.  A model that centers trading data that supports customer insights into behavior and intentions for discounts is an easy applicable model for other sectors as well.


Pilot Your Own Future of Retail


The convergence of the physical and digital world is the future of retail. In this future consumers only care about the brand and their experience interacting with the brand. In order to align your brand with next generation shopping experiences, focus on these three actions:


1. Think services, not products.


The Internet of Things enables an ecosystem around a product. Think of the connected thermostat Nest that uses all the data from individual devices to fine-tune their energy saving algorithms. Nest sells a product and provides the service of optimizing the way it works. Service thinking is as much about products as it is about customer experiences. Take Disney for example. Disney offers visitors a RFID enabled device called the MagicBand. The MagicBand acts as a room key for the hotel, an authentication for booked reservations for shows and restaurants and as a payment method for the entire park. Using this band Disney offers the service of leaving your stuff in the hotel and enjoying the park in a friction free manner.


Consumers do not make a distinction between a product and the accompanying services. This calls for thinking about services you can offer that really add value to the customer experience. This way of thinking is called Service Design Thinking, an approach that combines different methodologies and tools from several disciplines. To get started with Service Design Thinking use these five principles:


  • User-Centered: Services should be experienced through the customer’s eyes.
  • Co-Creative: All stakeholders should be included in the service design process.
  • Sequencing: The service should be visualized as a sequence of interrelated actions.
  • Evidencing: Intangible services should be visualized in terms of physical artifacts.
  • Holistic: The entire environment of a service should be considered.
  •  Start doing this by organizing a workshop with all stakeholders in order to create or improve services that support your customer experience. Use this Service Design Canvas to guide you through the process.


2. Personalize: Optimize with Data and Profiling


Customer experience should always have the highest possible level of personalization. New data streams support this goal by adding new layers of information. Context is the key concept here. Understanding when and how a customer is using your product, how a customer is moving inside the store, when a customer is most likely to be receptive to an interruption, and what kind of interruption will be experienced as the most valuable at that particular moment. Making these types of data actionable is key in creating better experiences.  As we said before, the ability to manage data efficiently and effective has never been so critical for success.


It’s crucial to get an understanding of what context means for your business.  The answer is often found in combining existing and new sources of data made available due to mobile interactions, sensors and social media. In thinking about context we can distinguish human factors and physical environment factors. Human factors related to context are about information on the user(knowledge of habits, emotional state, historic contact- and transactional data, behavioral patterns, co-location of others and social interaction). Context related to physical environment factors is about location (current position, location history, shared locations), infrastructure (surrounding resources for computation, communication, task performance) and physical conditions such as noise and light.


Start by analyzing what contextual data you are already collecting and see if you can combine different data sets to gain new insights. Also check what types of contextual data you are not gathering at all and prioritize those in your data strategy.


3. Design, Experiment, and Test Non-Linear Customer Journeys


Consumers are moving increasingly non-linear between mobile, web and physical experiences with a growing number of always-on devices. This calls for the need to keep experimenting with existing and new touch points that fit your customer journey.  Look for the digital touch within the physical experience. What can Beacons teach you about the relationship between an online purchase and a store walk-in? Look for cases and information to get creative. Take a look at this research on In-Store marketing with micro-locations for instance to learn about different types of Beacons and how they will support you goals. Work fast, iterate ideas, prototype experiences and pilot with relevant stakeholders.


The acceleration of technology-driven innovations and the growing adoption by consumers is speeding up. If your attitude is wait and see, you’re basically inviting someone to make you irrelevant. New technological possibilities present a type of digital Darwinism: adapt or die!

**This blog has also been published on MarketingFacts.