As part of the 10×10 series by Method, we contributed the article “Changing Retail Currency”. It’s a companion piece to The AppLounge.

“Changing Retail Currency” is about the new role of the store, and the opportunities this creates for retailers.

Take a read: http://method.com/

As e-commerce continues to shape the retail experience, new and exciting opportunities for retailers and customers are emerging. The transactional value of the storefront has a different currency than the value that online shopping offers. We are witnessing a transformation in business models for retailers, opening up possibilities for more fluid and convergent retail experiences.

The article is build around 4 insights from different market sectors that have witnessed commoditisation and margin pressure in the recent past, and highlights a few cases that adapted successfully to new customer experience requirements.

01 Think Like an Editor

02 Learn from the Fashion Industry

03 Embrace Hospitality in Your Brand

04 Own Your Community Network

Method has co-published this piece with Fast Company’s Co.Design.

Check it out online here: http://www.fastcodesign.com/1662269/four-keys-to-surviving-the-future-of-retail

]]> http://digitalwellbeinglabs.com/dwb/changing-retail-currency/feed/ 0 http://digitalwellbeinglabs.com/dwb/location-based-services-barcode-comparison-and-other-disruptive-ideas/ http://digitalwellbeinglabs.com/dwb/location-based-services-barcode-comparison-and-other-disruptive-ideas/#comments Sun, 04 Oct 2009 23:21:20 +0000 agrunsteidl http://digitalwellbeinglabs.com/dwb/?p=402

Barcode and location based price comparison services, including augmented reality applications which overlay information on top of the physical world, are about to become mainstream. This will have a profound impact on business models in retail, will in the long run affect the way we conduct transactions in public space and will impact urban planning …

going shopping with a camera

Lets cast our imagination a few, lets say ten years forward. You walk by your local deli and your GPS enabled mobile phone, or some other piece of location aware wearable technology vibrates. A few days ago you agreed to dinner with friends and set a reminder on a service like reQall, to pick up a bottle of wine in the case you are in the vicinity of the shop. You walk into the shop and pick up a nice looking bottle. You scan the barcode  with Redlaser and confirm that this is indeed a variety you might like based on previous purchases. Whilst you are glancing at an expert review of the bottle and compare the rating with an trustworthy online forum, you notice an alert that shows the prices and locations of nearby shops offering the same bottle of wine. It turns out that another shop down the road offers a three-for-two deal and you decide it is worth to walk the couple of minutes.

T-Mobile G1 Shop Savvy Demo

In this scenario the retailer who made the effort to inspire you to consider this particular bottle of wine, loses out on the deal. You’ve been to his store before, it’s in a convenient location, the store has a great ambience and on previous visits the staff seemed knowledgeable, but in the end the deal offered at the box selling warehouse merchant around the corner is too good to let go. For various reasons the deli on the high-street has to calculate higher margins to be able to offer the level of service that attracts customers, but is unable to compete once information on price is available freely. In German there’s even a term for this: “Beratungsddiebstahl”. Loosely translated as “Customer Advice Theft”.

This scenario can be played out with a variety of products in different markets. Retailers will consistently loose out on sales and have their customers pulled away, even if they offer better services, as soon as any unfavorable price differences exist. It’s not long before the shop offering additional service will have to close. Sounds familiar?  In fact over centuries, changing availability and access to information, together with increasing mobility have been the major forces to alter the functional lay-out of our cities.

Actually this scenario is about to become reality much sooner. Most underlying technologies have been around for a while and many similar applications are expected to appear on iPhone, Android, Nokia and other platforms within the coming year.

More interestingly … I believe the above scenario will never become common place in the form described, as it becomes obsolete as soon as it is realized.

The resulting closure of shops in this scenario has unintended effects for the winemaker, affecting distribution and in succession the availability of his wine. This effect is already noticeable on the UK high street where a variety of stores are squeezed out of existence. (Sure the winemaker has the opportunity to sell his wine online, but that is a different story)

A BBC Click recently reported in an interview with a German games developer, as the amount of independent stores on the high street is shrinking, that smaller computer and console game manufacturers have diminishing opportunities to reach out to customers. According to the report less than 50 independent buyers for computer and console games are left in the UK. Smaller manufacturers find less and less outlets, few are able to set up their own branded shops and find it increasingly difficult to compete with large global brands both on and off-line.

One common strategy is to make products incomparable in retail. Companies will revert to old tricks, differentiating virtually the same product, lets say a compact camera called Gotak CS-y03 and the similar Gotak BS-09 to offer exclusive deals to different retailers. The cameras are virtually the same whilst the BS-09 includes a seldom used auto-smile-detection software feature, added on firmware level, allowing to price this product with a slightly different margin to remain competitive. A variety of similar strategies are deployed by manufacturers that produce multiple brands on top of the same product platforms to diversify margins for their retailers.

Drive by advertising

Lets look at a similar scenario, but from a slightly different perspective. Instead of the proactive case, having intentionally set a location based reminder to buy wine, we now have a more passive approach; contextual advertisements based on your location, time of day, weather, social context, your diary, mood and any other measurable patterns.

In a recent discussion amongst friends, we were talking about the soon to emerge widespread application of location based services, especially the common scenarios of GPS type location tracking together with geo-coded data. This will allow for example menus of restaurants to pop up on your mobile phone as you drive through the city, receiving alerts in the form of vouchers as you pass hotspots in synch with the preferences set in your profile. This will include time and location limited deals, offering selective access through coupons, to content and products available in your proximity. You can expect every few hundred meters yet another attempt to sell you some perfume or wet your appetite  for the latest lunchtime pizza deal. You can easily picture yourself driving down your local high-street or approaching a shopping mall from the highway, being bombarded by the same Starbucks, Pizza Express, H&M, Footlocker ect messages on your phone.

We realized that many of these location aware scenarios anticipate a variety of choices from a diversity of retailers situated in brick and mortar locations, vying for our attention. Instead we will be seeing the same messages appear repeatedly on our mobile devices whilst we traverse our homogenized public environments.

Starbuck locations in central London

Or am I wrong and these technologies will enable retailers to compete again on a local level; shops can now be “discovered” away from the well trodden paths of the high-street pavements, disperse footfall to side alleys by pointing potential customers to walk “around the corner”. This might diminish the value of “location, location, location” and level the real estate prices, so independent shops can manage their margins on a more competitive level with out of town online warehouses? The high-street will increasingly become a proxy to the online world and we expect new types of retail hospitality type of environments to start populating the the spaces vacated by retailers relying on traditional transactions.

from Flickr group

Augmented reality applications

This is not an argument against the development and commercialization of these technologies. To the contrary we are excited about for example  Augmented Reality applications, which currently start appearing on consumer level devices. for example Layar Wikitude by  Mobilizy and Delicious Monster using registration barcodes on books. cds and dvds creates a seemless link between books owned on your bookshelf and online recommendations from Amazon. These technologies and affiliated services emerge as part of the evolving nature of our networked society. Many of these applications are being realized on a “can do” basis. Relatively cheap and computationally powerful mobile platforms are now sufficiently distributed in the population. Online access to rich geo-tagged databases is rapidly growing. The time is ripe for services to come out of labs and offer opportunities for many start-ups to grab a piece of a potentially huge market.

What will happen?

It’s not surprising that retailers wont be too happy with people holding their mobiles too close to products on shelves and will want to prevent taking pictures inside their shops. Currently many places forbid photography, citing the right to “privacy” of fellow customers. But how will shops be able to enforce this? “Checking” your phone whilst taking a picture and running a price comparison app is hardly detectable by security staff. It’s a lost game similar to the early days of digital cameras, when concert visitors were told to leave their camera’s by the entrance because of possible copyright infringement. Now, a few years later, we are instead encouraged to take as many pictures as we like and upload them as soon as possible to a Facebook fan page. In the long run we will need a way of dealing with a situation were many products, including digital spectacles and brooches, will have camera type technology build-in and continuously store and compare image data online. This will lead to a situation where brand outlets will be inviting people to publish as many pictures as they want, to demonstrate brand loyalty , whilst department type stores who aggregate products through buyers who negotiate purchase and sales prices with the manufacturers and suppliers, will want to avoid people comparing prices.

Price aggregator sites serve a self defeating purpose. Once a site emerges the price differences between comparable products will run down to bare minimum levels, just about covering margins to sustain the cost of warehousing and delivery. A situation only maintainable by companies operating on sheer volume . At some point most prices will become almost similar and the reason to exist, the very purpose of the site, makes itself obsolete.

What’s next?

Location based price comparison technologies, if applied straight out of the lab to the current retail environment, are plain naive from a business point of view. We can and will not be able to run them successfully for any length of time unless we develop radically different business models that take into account how products are introduced and exposed across all communication channels and customer touch-points.

The emergence of these technologies is is unstoppable. The effect of these will be different, in different geographic locations, none the less the impact will be profound. We need to reconsider business models considering new forms of pricing, sales strategies, haggling, financing and distribution. We will need to understand the role of up- and especially cross-selling in these new sales environments. It will affect how we will encounter public spaces in the near future and we better prepare for it. Already now many traditional retail typologies are vanishing from the high street e.g. The Bookstores, Music-stores, travel agents, electric retailers are all becoming extinct. I don’t believe we should keep these types artificially alive in a wave of nostalgia. Instead we should actively encourage projects that consider how pubic space will be affected by new technologies and how we can take this massive opportunity to design appropriate solutions around innovative business models. We should not make yet again the mistake of watching and condemning something like music piracy, in the mean time ignoring to develop alternative business and experience models that match the sign of the times. Whilst these technologies will have considerable impact on the way communities interact in the near future, politicians are probably still ignorant of what is emerging. Once we planned cities for cars, now we might require complete new approaches to urban planning, based on integrating brick and mortar with an overlay of the virtual.

further reading:

ShopSavvy by Big in Japan for Google Android

The Future of Retail: Instant Price Match, Ad Lab

Stores Clueless About Mobile Barcode Scanning Applications?, Read Write Web

Barcode Shopping – The Future Of mCommerce?, Lester Madden

In the next few years we will see various types of consumer electronic devices all look like thin black boxes being defined by the size and proportions of the displays that characterise their shape. In traditional retail settings it will be increasingly hard to sell these products based on some imperceptible quality differentiations related to “improved” display or audio qualities.When towards the end of the last century products started shrinking in response to the miniaturisation of components , the old mantra “form follows function” didn’t work anymore. The outer shape of products used to be dictated by the arrangement of the internal functional components. But once mechanical components were replaced by electronics, there was not much left to follow.

In the early eighties a few designers made some last critical statements about the disappearance of the physicality of products. A good example was the radio in a bag by Daniel Weil, clinging on to components that soon were rendered invisible.

Radio in a Bag, 1982, Daniel Weil

In the eighties postmodern philosophies were brought into play to justify shapes that indicate how to interact with products. Designers sought an explanation of functions in the semantics of form, making products understandable and easier to use. Different approaches were applied to instill meaning into new behaviors enabled by electronic and soon digital functions.

One of the best examples was the Phonebook prototype by Lisa Krohn and Tucker Viemeister, which won the Neste Forma Finlandia price 1987. It is a digital phone based on the principle of a file-o-fax , combining functions like a basic phone, an address book and an answering machine. Each function is accessed by turning pages exposing only the required interface elements for each application. In retrospect these products were longing for a past, not ready for a future yet to come.

Phonebook, 1987, Lisa Krohn & Tucker Viemeister

Extreme design-sketches emerged in the quest for form at consumer electronic corporations around the world. Most impressively a personal sound system player, created during a workshop at Philips Corporate Industrial Design, in the shape of a head, called Beethoven. The expression of the design went beyond the pure functional requirements of the audio system. The mouth was to hold an audio cassette. The ears were to adjust the volume, in place of the eyes was a display, the hair hid the loudspeaker, the power switch looked not unlike Harry Potter’s scar.

Beethoven, personal audio system, Philips CID, 1980. image: past tense, future sense; bis publishers 2005

One outcome of this quest was the unexpectedly successful Philips Roller Radio, which stood out from the boxy, tech looking, metall finished appliances common amongst consumer electronic brands in those days. This radio was explicitly designed to appeal to the youth market. The loudspeakers were clearly separated from the main body holding the radio tuner and cassette player. The handle expressed portability. The back revealed bulges underneath which the batteries fitted. The bright colors and shiny plastic finish created a distinct youthful contemporary look and feel. As the story goes, the initial proposal was refused several times by top management, who couldn’t believe that such a radically different approach could sell beyond the required quantities to break even. The development team managed to secure initial orders in opposition to the opinions of management and  production began. Against all odds, sales soon exceeded the wildest expectations.

Roller Radio, Graham Hinde, Philips Corporate Industrial Design, 1981….and later versions from the Moving Sounds series,

Link kindly provided by picasaweb.google.com/vedodesign

Soon a next generation was created to jump on this success. Interestingly the second Roller Radio, a basic restyling exercise of the original, turning the cylinder shaped speakers into spheres, didn’t manage to continue the success of the first. Instead of applying this new thinking to a wider range of products, Philips lost the initial momentum they had created. Their competitor  Sony was more successful at capturing this new design spirit, creating a line of products that lasted well over a decade around the ranges of My First Sony in bright primary children’s colors, with expressive interface elements, and the Sony Sport series based on highly visible yellow hues and a rugged look and feel, products that could withstand a rough handling. One of the main decisions was to sell these products outside the common consumer electronic retailers and place them in toy and sports stores, where they could be discovered within the context of their intended use.

My First Sony, mid-eighties

Philips soon followed suit, with the Moving Sounds line, in stark yellow with brightly coloured highlights, trying to catch up in the niche they had created in the first place, but failed to keep innovating. In the end Philips never really managed to sell these products outside the established consumer electronics markets.

A decade later, with the arrival of the tiny MP3 players, opportunities for expressive physical design shrunk together with the smaller spaces left for cover art, when music media moved in succession from vinyl sleeves to CD cases and almost vanished with various digital audio formats distributed over the internet. For many years diminishing form factors and the improved portability were sales features in their own right. But as mentioned in another post ,  once the design passes a critical minimal size, one has to design around the only requirement left, in this case that of the battery.

In recent years we see products converge at two ends of the design spectrum. On the one side we find the rationalized multi-functional devices, which, like a chameleon, will change their skin to adapt to whatever context they are required to operate in. On the other side we find highly expressive appliances, quite often devices with a singular functionality, providing an entertaining one-liner for marketeers to create advertisement buzz. One of the best recent examples in this category is the Sony Rolly.

Sony Rolly, MP3 robot, 2007

The Sony Rolly is a robotic loudspeaker accessory  that can play MP3 files, streams music wirelessly via bluetooth and can be programmed to react to the music with colour changing LEDs and motion created by its wheels and ear-like sound reflection flaps. These are the products that tell a simple story, display astonishing behaviours and are easy to sell … it’s oh so cute! But it’s hard on the shop floor; these products require constant attention from a sales assistant, even when they are placed under a transparent dome by the entrance to the shop. On the other hand, once you are shown a sample, their expressiveness is so infective, that they almost sell by themselves.

Things look different at the other side of the spectrum. These products have typically an almost square shape, with few physical controls and are defined by what occurs on their displays. When their displays are switched off, as it often happens on the sales floor, there is little story to tell. When the first digital photo frames appeared in the late nineties, till well into the first years of the popular Philips and Kodak digital picture frames, around 2005, it took retailers quite some time to realize that it would be a good idea, to take a sample of a frame out of the box and have it actually switched on in the shop. When we had the dwb pilot store in 2006, we were amazed to find most retailers across Europe to have hardly any working displays in their stores for customers to experience.

Things radically changed in 2007. When the iPhone arrived in the shops, over thirty five working units were placed on the display tables in the Apple flagship store on Regents street in London. People walked in to the Apple stores to just try the iPhone and form their own opinion. Customers came to see and touch the iPhones themselves, they were amazed by the physical behaviors build into the graphic user interface, sliding windows with a flip of their fingers, page movement mimicking physical inertia, tilting the device in all directions to move virtual glass marbles around the screen. Most mobile service providers at the time (an still these days), were showing only non-working phone dummies of different brands lined up along the walls of their high-street stores. I still have the feeling that retailers are almost afraid, apart from having their samples damaged, to show the awkward interfaces that contradict the hype created in the advertisements which promote new features in each successive new phone evolution.

By now many companies bring many, virtually similar products to the market. Switched off they are almost indistinguishable. They behave quite differently under the hood.

Apple iPhone, Samsung F700, LG Prada, RIM Blackberry Storm

Computing and display technologies have reached a level of maturity that almost any product can be created out of a choice of the same set of components. The cheapest and least risky option, offering most flexibility for consumer electronic manufacturers, is to produce different appliances assembled  from the same components. These products are only set to perform particular functions once they leave the manufacturing floor. Either the functionality is locked into the product’s firmware or the user can install the desired functionality at a later stage. The introduction of cheap precision touch displays and photo realistic graphical user interfaces has taken functional flexibility even a level further. These products are the result of so called rationalisation of the manufacturing process, wrapped in neutral, often black frames, holding an LCD or other display in one of the common formats. Software will make these devices behave in any way the market requires.

It’s similar to the eighties, when United Colors of Benetton created white jeans as blanc canvasses in the manufacturing process, which then were coloured only at the last moment, to suit the demands of a particular geographical market. In the same decennium was rather costly to adapt consumer electronic products to fit market requirements . An appliance platform, for example a portable cassette player like the Walkman, retained almost the same configuration of  internal components for a few years, whilst the outside was restyled on a regular basis like a dress following the fashion of the day. Tooling costs to create the molds for the outer shell and the cost of distribution, generally required sales guaranties of at least hundred thousand units in the low to mid price segments.

iPhone skins

Now the dress is the software that creates the look and feel of the application on the surface of the display and can be exchanged at a moments notice. Development, production and distribution costs have diminished and prices can now be calculated on very different business models and in direct response to market opportunities. Little work, apart from the detailing of the back of the display and the specification of materials, is left for traditional industrial designers to do.

Tilt, shake and other interface mechanisms have emerged out of the research labs, offering alternative physical experiences, instilling a whole new sense of excitement in designers. The Wii and iPhone, and before the iPod click wheel, have created a popular introduction to gesture based interfaces, demonstrating responsive feedback behaviours, applying “natural” physical effects like flipping and inertia, similar to the ones we are accustomed to in the real world, to improve usability expectations of an interface. Minority Report type interfaces, perhaps not the most desirable, which till recently have been confined to experimental prototypes in labs, are now appearing in professional applications. We are just waiting for a few more years until the prices become low enough, that we will see them feature in consumer interfaces. As new “cultures of use” emerge we are creating opportunities to form a language of gestures, similar to the conventions of “right-clicking” and standardised keyboard shortcuts. Currently designers are coming to grips with requirements to design affordances into these gesture based interfaces which indicate how to interact with them.

These products featuring behavioral interfaces wont sell in closed boxes on shelves in supermarkets. They may be demonstrated in videos, but in the end the most convincing way to be introduced to these products is to experience them for real. More about this in another post.

At DWB we are investigating how we can create innovative physical environments to discover, learn, subscribe to, and/or purchase these new breeds of software dresses and behaviour based products. We are interested to create retail conditions in which innovative physical consumer electronics type devices can be introduced to potential customers. Conditions that normally cant be found in large “pile’em high, sell’em cheap” type retail environments.

related articles:

The state we are in …

It’s time for new “features” ?

This image signifies for me the state we have reached in the design of consumer electronic products. It is part of a national newspaper print advertisement campaign by John Lewis some time during 2007. I first thought this was meant to be ironic, unfortunately it is not. When we look at the advertisement we see “identical” black squares arranged in increasing order of price. Each representing a TV unit identified by a slapped on brand logo of the manufacturer. Underneath three numbers; a serial product identifier for the manufacturer, a price label and a stock number by John Lewis.

These products have gained such a level of commoditization that it is rather difficult to discuss differences in subtle technical features commonly used to compete between consumer electronics in the past. The image and sound quality of most products is at such a level that most users are hard pressed to tell the difference on shelves in the showroom.

There is a hint in the small print underneath stating that these displays could fullfil different roles in individual lifestyle tastes like football, tennis, films and nature. The only promise is to offer personal advice to “choose” the right product and compete on price but especially warranty. This warranty is an interesting issue especially when product ranges have matured to a point where there are less incentives to replace an item before it dies just because some technical feature has improved. On the other hand there is little in these type of products that should go wrong.

As the frame to hold the technology shrinks and the graphic content on the display dominates there is little left for an industrial designer to do. The physical aspect of the design becomes truly transparent.

I am interested to see if part of the current economic downturn is fueled by a combination of saturated markets and the simultaneous maturisation of a range of technologies. More about this another time

Most visible has been the demise of content providers; the record stores, the book shops and the news traders. The changing nature of distribution of content and the cost structures around it, have made physical locations redundant… or are they? Airline and travel agents have already virtually vanished and post and bank services are desperately seeking ways to validate their presence.

At the same time the consumer electronics industry has matured to a point that most products are sold as commodities. Retail margins have diminished, partly driven by online comparison engines and sales aggregators, such that is has become almost unfeasible to offer any customer facing sales services in brick-and-mortar environments. Consumer electronic stores and soon most mobile service provider shops will vanish in the form we have known for the past decades.

The high street is a social environment. A place where people go to discover and learn about products and services, up till recently an essential place for contact between the producers and their customers. Sure companies have always been depending on word of mouth between friends and colleagues, mail order catalogues arrived with the rise of the railroads, and a range of advertisement tools have evolved to reach customers in the most appropriate context, but the current changes are not far from a revolution.

What type of retail is still viable in brick-and-mortar setting? Over the past decennium, since the advent of the internet, the diversity of stores has been greatly reduced. An average high street is left populated with fashion and footwear stores, the odd telecom service providers and plenty of coffee-shops. One may argue that there are increasingly less incentives to visit the high-street.

Retailers and sales executives will point out that perishable goods, instant gratification, last minute orders, impulse purchases and cross-selling opportunities remain a strong incentive for maintaining a presence on the high street. We have only just arrived in the Information Society and we can see many online and mobile services in development which will directly be competing with this argument.

Recently the discussion has been heated by the news that some of the large supermarket brands in the UK are successfully starting to compete on the internet with huge online catalogues filled with “convenience” fashion articles.

Still, we hang on to business models which emerged as part of the industrial society. Industrialisation drove rapidly expanding transport and in succession communication infrastructures, followed by new distribution models for goods. Retail, in simplified terms, has always been about trading in demand and supply models, based on scarcity or basic availability, volume or quality. The department store emerged as a direct result of industrialisation, purchasing large quantities of certain products straight from factories and then repackaging these into smaller fractions which then are passed on, at added value to the customer. Continuous and transparent access to the internet in combination with modern, highly efficient distribution infrastructures make the traditional retail models obsolete. In the end online retailers like Amazon will always offer more choice at the lowest price.

We are offered more choice, but within less variety. It becomes increasingly difficult for a customer to find out what fits with their lifestyle. The highly successful iPhone Appstore is a point in case. There are already over ten thousand products on offer. How do you know which one suits you? Do you have time to test all the alternatives? How do you know if the reviewers can be trusted and match your sense lifestyle? Recommendation engines and current CRM systems are a far way off to offer trusted insights into products and allow us to form meaningful service relationships.

Future retail innovation, for example, is predicted to include 3D online shelves, in Second Life type environments, promising to offer a chance to preview, see demonstrations and learn about the use of products in the privacy of your home. Really? Shopping online, in its current form, is a solitary experience, but people are inherently social beings that enjoy shopping together with friends and family.

Only in recent years have broadband connections started offering seamless transitions, user interfaces across product and service touch points have become sufficiently integrated, that for the first time we get a hint of what continuous user experiences will be like in the future.

In this blog we investigate the rise of the experience stores, scrutinise technologies appearing to benefit the customer experience, explore the development of new types of products and services that are offering innovative product development opportunities, discuss new directions in CRM (customer relationship management), or what some call CMR (customer managed relationships) and we will make a case for a new type of lifestyle showrooms.

The High-street is an essential part of our economy and we at dwb-labs are investigating the type of hybrid environments that will emerge to replace the vacancies left by diminishing brick-and-mortar retail.