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The decision of the British people in a referendum on 23 June (2016) to leave the European Union (EU) — known as ‘Brexit’ — promises to emerge as a most profound event in the nation’s recent history. The result of the referendum in favour of Brexit, by a majority of 52% against 48%, was decisive yet not by a large margin; moreover, the striking differences in voting patterns between England and Scotland, and even within England, between London and other parts of the country, invoke deep tensions (In Scotland and London the Remain camp had a clear majority).

The effects of Brexit are still very early to call and are hard to predict because a departure of a member country, let alone the United Kingdom, from the EU has never been experienced so far. The effects also are expected to impact multiple areas, including politics, economics, business, social welfare and standard-of-living. This article focuses on the area of retailing; it reviews and contemplates early assessments of the plausible effects that leaving the EU can have on retailers and consumers in Britain. However, due to the early stage of the process, the ambiguity that surrounds the implications of leaving the EU, and the fact that the new British government is not enacting yet an exit from the EU (i.e., Article 50 of the EU Lisbon Treaty), one should be cautious in taking these assessments as concrete predictions about the (probable) outcomes of Brexit.

Uncertainty mixed with pessimism has claimed an immediate toll on the value of the pound sterling (particularly its exchange rate against the US dollar); stock prices have also moderately declined in London Stock Exchange, but further declines are foreseen as the process unfolds. The devaluation of the British pound is a critical factor whose effect is expected to roll for several more years. Retailers are concerned that rising prices of imported goods (e.g., food, clothing) will deter consumers. In addition, increased cost of imported raw materials and components used in production is likely to contribute to rising prices of local goods, further exerting an inflationary pressure. Positive effects that may arise from this devaluation on exports will be discussed later. The sense of “bad news” is not escaping consumers either, manifested in a quick and rather sharp decline in consumer confidence as reported by GfK marketing research firm. This could mean that consumers become hesitant and more inclined to “wait and see”, thus postponing their more costly purchases, particularly of discretionary and leisure products and services.

The Centre for Retail Research (CRR) considers multiple aspects wherein retailers and consumers are likely to be affected while entering a post-Brexit era. It is suggested that a decline of 5% in the value of the pound against the euro would be enough to compensate for new tariff barriers imposed by the EU, and the steeper decline that already occurred is a very good thing — it would help exports (e.g., e-commerce), transitioning from imports to local production, and tourism. The CRR argues that the pound was already over-priced and needed correction (note that  right after the referendum the pound declined 8% against the dollar and euro, but a slide down occurred earlier, at the beginning of this year, so against values of late 2015 the pound declined by as much as 15%). But there are additional important factors with structural implications that are noteworthy: need to fulfill changing jobs and a drive for automation; need for new worker and consumer protection laws and regulations; re-settling (digital) data protection regulation and mechanisms.

There is broad agreement that in order for Britain to retain relations with the European Single Market, it will have to continue and abide to product and data protection standards of the EU. Britain will also not be able to completely restrict worker migration from the EU. The difference will be, however, that Britain will have to work by those rules but will not have a say about them — a warning the Remain campaigners continue to critically voice. Different models are contemplated for the relations of Britain with the EU in the post-Brexit era, notably by joining Norway in the European Economic Area (EEA) or replicating the special relations of Switzerland with the EU. But the EU council nervously hurried to warn Britain, or any other country that contemplates to follow, that it should not allude itself of receiving an advantageous status as of Switzerland’s.

  • Another avenue for resolution may consider the trade arrangements of Israel as a non-member country with the EU, and its participation in Horizon 2020, a programme for science and technology research and development.

References made in the media to changes in retail sales in June seem too soon and hardly indicative of a real effect of the Brexit decision, primarily given that only ten days remained to the end of the month after the referendum (some sources suggest waiting for July’s figures). Figures also vary, depending on the basis of comparison (e.g., volume or value, last month or same month last year, all or like-for-like [same stores]). For example, sales by volume decreased 0.9% in June compared with May (2016), yet compared with June of last year (2015) they increased 4.3% (by value, sales increased just 1.5% [Britain’s Office for National Statistics (ONS): Retail Industry-Sales Index]). Different figures were published by KPMG consulting firm together with the British Retail Consortium (BRC): Their Retail Sales Monitor shows that sales grew just 0.2% in June year-on-year, but when compared on a like-for-like basis they dropped 0.5%. The BRC-KPMG monitor furthermore indicates that non-food sectors, especially fashion, were hit harder than the food or grocery sector.

Recent observed changes may be attributed at most to so-called ‘Brexit-sentiment’ . If we were to look already for a more reliable indication of an immediate post-referendum shock, the KPMG’s press release reports that sales fell particularly in the last week of June. The Financial Times (13 July ’16) indicates that according to its Brexit Barometer, day-to-day spending “may have bounced back to just slightly below what it was immediately before the June 23 referendum”. The number of visits to stores (‘footfall’) declined in the week immediately after the referendum (10% year-on-year for weekdays – especially on High Street), recovered a little in early July, followed by another a drop in visits. The fluctuations are not consistent and it is hard to conclude a trend at this time. The picture for Saturdays is even less bright: “high-street footfall on Saturdays, the most important shopping day, has now fallen year-on-year for three consecutive weeks”.

The Economist Intelligence Unit published just before the referendum a special, rather negative, report on Brexit (“Out and Down: Mapping the Impact of Brexit”). It relates to key implications of Brexit in regard to retailing: a fall of the pound, inflation in line with rise of import prices, consumer purchasing hesitation, and more complex supply chains for retailers. According to their projection, the year 2017 will be the worst for retailing; recovery will be felt during 2018-2020 as growth of retail sales volume resumes, but it will happen intermittently and sales will not return to the pre-Brexit level.

In order to better grasp how Brexit may change the direction for British economy, and for the well-being of consumers and retailers in particular, it would help to take a little longer look backwards (i.e., as far as 2007) at retail sales and some additional  indicators.

The ONS Retail Sales Index by volume (seasonally adjusted, excluding fuel): After a long period, from 2006 (shortly before the financial crisis) until late 2013, when sales volume (index) was almost stagnant at just about 100, it started lifting since early 2014 and until June this year (2016) to a level of 112.5. It has been a positive sign for return to the expansion years of a previous decade (~1996-2006). But the implementation of Brexit (i.e., at least while negotiating new trade agreements) threatens to halt the climb and impede a continued recovery of the sector from the lingering effects of the financial and economic crisis of 2007-2008 (including a ‘second spell’ in 2011-2013).

Growth in pay compared with inflation (ONS: UK Perspectives 2016 Personal & Househod Finances [Section 4]): This is an indicator of the cost of living (or the purchasing power of income from work). We may notice three distinct periods: (a) A ‘shock’ response to the financial crisis ~2008-2009 included a steep rise in consumer prices while growth in regular pay dissipated, and then a ‘correction’ of slowing price increases; (b) Inflation rate higher than growth in pay ~2010-2013 — during this period of the hardest burden on consumers, growth in pay remained at a bottom level of 1-2% while inflation climbed as high as 5% (2011) and subsequently “cooled” to 2-3%; (c) Renewal of real rise in pay ~2014-2016 as inflation starts to subdue, falling to near 0%, and pay growth reaches 2-3%. Worsening market conditions due to Brexit could lead to erosion once again of  regular (weekly) pay and suppressed consumer spending.

Household spending (ONS: UK Perspectives 2016 as above [Section 5]): The average household expenditure, inflation-adjusted, decreased from 2006 through 2012 from ~£550 to about £510 per week; then spending started to recuperate in 2013 and 2014, reaching £530. Improvement may have continued up to this year: On the one hand, regular pay increased in real terms in the past two years; on the other hand, the real disposable household income in Britain has been hovering just above £17,000 since 2006 (after a climb in previous years), though lifting its head a little in 2015. Now there is higher risk that such improvement in spending will not be possible to continue.

Consumer Confidence Index (GfK): The research firm GfK conducted a one-off special survey in the week following the referendum to measure its Consumer Confidence Barometer (CCB) (normally updated on a monthly basis). It provides a sharp demonstration of the impact of ‘Brexit-sentiment’: The (net) index value dropped from -1 in the previous survey to -9 after learning of the referendum result. The last time a similar decline (8 points) in a single month was measured occurred in 2011, and only in 1994 had a larger single drop been measured. Those belonging in the Remain camp are more negative (-13) than those in the Leave camp (-5). Respondents to the barometer are asked about the current state of the economy and their expectations over the next twelve (12) months — 60% expect the economic situation to worsen (an increase of 14% from pre-referendum). Also, 33% expect prices to rise sharply.

The Financial Times presents in its Brexit follow-up a chart of the history of GfK’s Confidence Index from 2007 to 2016: The chart shows how CCB dropped from just below 0 to -40 during the 2007-2008 crisis, recovered to -20, declined again to around -30 during the ‘second-spell’ of the economic crisis in 2011-2013, and then climbed back to a little above 0 before the referendum. A decline of CCB actually already started earlier this year, and then came the steep single drop following the Brexit referendum. Consumer confidence was already at lower (net) levels and has experienced continuous descents in the past ten years; it may likewise continue to deteriorate below -20 again after the recent drop in CCB.

A map by GfK shows variation across regions and demographic segments. Interestingly, the strongest ‘demoralising’ effect was found among the young group of ages 18-29 (decline of 13 points) compared with older groups (6-8 points off), yet the younger remain overall more positive and optimistic about the economy (index +6), especially compared with those of 50-64 of age (index -21).

  • After three years of decline in the number of retail companies in the UK running into financial difficulties, since the last peak of 2012 (54), it seems to be rising again in the first half of 2016, according to data gathered and reviewed by the Centre for Retail Research (note that not all companies going into legal administration necessarily go bankrupt and cease to operate). Growing pressure on retailers during the process of leaving the EU may put even more medium and large retailers (in number and size of stores) at risk of failure.

After a significant drop last year, number of retailers in trouble looks to be rising again in 2016

The depriciation of the British pound is expected to facilitate selling and increase exports to foreign consumers in other countries through e-commerce (i.e., retailing or shopping websites) by retailers residing in the UK. Especially during the period that existing trade agreements are still valid, it would be the best time for British retailers operating online to fill their coffers with cash. They will need to refrain from updating pound-nominated prices upwards as long as possible. When new trade agreements are reached, the terms for purchasing abroad online from British retailers may also change and new adjustments will be required.

  • Ido Ariel of Econsultancy recommends three supporting marketing methods for encouraging international customers to purchase online at the interim period on UK retail websites: inducing a sense of urgency and initiating pro-active targeted prompting messages; offering targeted promotions to increase personalization (e.g., geo-targeting); and enacting limited-time discounts.

However, the condition in which the British Economy arrives to this historic junction is concerning, having reduced its manufacturing sector too much over the years and relying too heavily on a services economy. This situation may mitigate the country’s ability to exploit its currency advantage in the short- to medium-term by increasing exports of goods, and may also put it in a less advantageous position as a strong producing economy in negotiations for future trade deals. The condition of the British economy could become even weaker if, as projected by the Economist Intelligence Unit, service companies — financial and banking of most — will lose their “passport” to act from the UK in the other EU member-countries (e.g., France, Germany), and thus they will choose to cut their operations in the country or leave altogether.

  • The contribution of the production sector to the economic output (Generated Value Added [GVA]) decreased in the UK from 41% in 1948, through 25% in 1990, and down to 14% in 2013 (‘production’ includes manufacturing, oil and gas extraction, and water and energy utilities);
  • The relative contribution of the services sector grew during that period from 46% to 79% (67% in 1990);
  • The growth of the sub-sector of business and financial services is most noticeable, expanding from 13% in 1978, through 22% in 1990, and reaching 32% in 2013.
  • A World Bank comparison referring specifically to manufacturing shows that its contribution to output in Britain is 10% versus 22% in Germany (UK’s is the lowest [with France] and Germany’s the highest among all G7 countries, 2012).
  • (Source: ONS review, April 2014: “International Perspective on the UK — Gross Domestic Product”. For main points see The Guardian’s Economics blog.)

In the long-term Britain may well succeed in re-establishing a strong position in business and trade. But it will come at a high cost in the short- and medium-term (next three to five years) for the economy overall, businesses and consumers, and this process is not free of risks. Is it that much necessary? Another contentious question is: How much has the EU really held the UK back? Answers to these questions remain in deep dispute. Having stayed in the EU, the UK might have been able to help stabilise the European economy while resolving its existing failures, and then grow faster with the EU. But too many Britons stopped believing this will ever be possible, or simply lost their patience. The EU leadership in Brussels bears much responsibility for arriving to this predicament. But that matters little now.

It is now a time for taking an opportunity to resolve weaknesses in the British economy — industry and trade. It will have to prove itself as an independent viable economy, less reliant directly on the EU but more like many other countries trading with the EU. Retailers may have to make changes to their mixtures between imported and locally manufactured products; to form trading ties with different and additional countries; and more vigorously refresh and update their trading, merchandising and pricing techniques and tactics to be competitive on the local stage, and where relevant on an international stage. The Centre for Retail Research has expressed most pointedly what is expected of retailers: “Retail post-Brexit will have to be more agile, more digital, capital-intensive and more responsive to change”. Retailers and consumers will have to adjust to new market conditions and adapt to new game rules.

Ron Ventura, Ph.D. (Marketing)

Consumers evoke from the visual appearance of a product their impressions of its beauty or aesthetics. They may also interpret physical features embedded in the product form (e.g., handles, switches, curvature) as cues for a proper use of the product. But there is an additional hidden layer of the design that may influence the judgement of consumers, that is the intention of the product designer(s). The intention could be an idea or a motive behind the design, as to what a designer wanted to achieve. However, intentions, only implicit in product appearance, may not be clear or easy to infer.

The intention of a designer may correspond to the artistic creativity of the product’s visual design (i.e., aesthetic appeal), its purpose and mode of use, and furthermore, extending symbolic meanings (e.g., social values, self-image of the target users). For a consumer, judgement could be a question of what one infers and understands from the product’s appearance, and how close one understands it to be the intention of the designer. For example, a consumer can make inferences from cues in the product form  (e.g., an espresso machine) about its appropriate function (e.g., how to insert a coffee capsule in order to make a drink) — but a consumer may ask herself, is that the way the designer intended the product to be used?  These inferences are interrelated and complementary in determining the ‘correct’ purpose, function or meaning of a product. There are original and innovative products for which the answers are more difficult to produce than for others based only on a product’s appearance.

  • Note: Colours and signs on the surface of a product may be informative in regard to function as well as symbolic associations of a product.

The researchers da Silva, Crilly and Hekkert (2015) investigated if and how consumers’ knowledge of the designers’ intentions can influence their appreciation of the respective products. Yet, in acknowledgement that consumers are likely to derive varied inferences on intention (some of them mistaken) from visual images of products, the researchers present verbal statements on intentions in addition to images. Moreover, their studies show that there is important significance to the contribution of the verbal statements, explicitly informing consumers-respondents of designers’ intentions, in influencing (improving) consumers’ appreciation of products (1).

To  begin with, consumers usually have different conceptions and understanding of design than professionals in the field. Thereby, most consumers are not familiar with terminology in the domain of design (e.g., typicality/novelty, complexity, unity, harmony) and may use their own vocabulary to describe attributes of appearance; if the same terms are used, they may not have the same meaning or interpretation among designers and common consumers (2). Nevertheless, consumers have innate tastes for design (e.g., based on principles of Gestalt), and with time they may develop better comprehension, appraisal skills, and refined preferences for design of artefacts (as well as buildings, paintings, photographs etc.). The preferences of individuals may progress as they develop greater design acumen and accumulate more experience in reacting to designed objects while preferences may also be affected by one’s personality traits. Design acumen, in particular, pertains to the aptitude or approach of people to visual design, which may be characterised by quicker sensory connections, greater sophistication of preferences, and stronger propensity for processing visual versus verbal information (3). The gaps prevailing between consumers and designers in domain knowledge and experience may cause diversions when making inferences directly about a product as well as when ‘reading’ the designer’s intention from the product’s appearance.

The starting point of da Silva, Crilly and Hekkert posits that “the designer’s intention can intuitively be regarded as the essence of a product and that knowledge of this intention can therefore affect how that product is appreciated” (p. 22). The ‘essence’ describes how a product is supposed to behave or perform as foreseen by the designer; thinking about it by consumers can give them pleasure as much as perceiving the product’s features.

Appreciation in Study 1 is measured as a composite of five scale items — liking, beauty, attractiveness, pleasingness, and niceness; it is a form of ‘valence judgement’ but with a strong “flavour” of aesthetics, a seeming remainder of its origin as a scale of aesthetic appreciation adapted by the researchers to represent general product appreciation.

  • Note: The degree to which the researchers succeeded in expanding the meaning of ‘appreciation’ may have some bearing on the findings where respondents make judgements beyond aesthetics (e.g., the scale lacks an item on ‘usefulness’).

At first it is established that knowledge of explicit intentions of designers, relating to 15 products in Study 1, influenced the appreciation of the designed products for good or bad (i.e., in absolute values) vis-à-vis the appreciation based on pictures alone. Subsequently, the researchers found support for overall increase in appreciation (i.e., positive effect) following the exposure to explicit statements of the designers’ intentions.

A deeper examination of the results revealed, however, that for three products there was a more substantial improvement; for ten products a moderate or minor increase was found due to intention knowledge; and two products suffered a decrement in appreciation. Furthermore, the less a product was appreciated based only on its image, the more it could gain in appreciation after consumers were informed of the designer’s intention. Products do not receive higher post-appreciation merely because they were appreciated better in the first place. More conspicuously, for products that were more difficult to interpret and judge based on their visual image, knowledge of the designer’s intention could help consumers-respondents realise and appreciate much better their purpose and why they were designed in that particular way, considering both their visual appeal and function (but there is a qualification to that, later explained).

The second study examined reasons for changes in appreciation following to being informed of designers’ intentions. Study 2 aimed to distinguish between appreciation that is due to appraisal of the intention per se and appreciation attributed to how well a product fulfills a designer’s intention, independent of whether a consumer approves or not of the intention itself. This study concentrated on three of the products used in Study 1, described briefly with their stated intentions (images included in the article):

  • A cross-cultural memory game (Product B) — The game “was designed with the aim of making the inhabitants of The Netherlands aware of their similarities instead of their differences” (i.e., comparing elements of Dutch and Middle Eastern cultures). [Product B gained the most in post-appreciation in Study 1.]
  • A partially transparent bag (Product C) — Things that are no longer in need, but are still in good condition, can be left in this bag on the street for anyone interested: “It was designed with the aim of enabling people to be generous towards strangers.” [Moderate gain.]
  • A “fitted-form” kitchen cupboard (Product G) — In this cupboard everyday products can be stored in fitted compartments according to their exact shapes. The designer’s intention said the product “was designed with the aim of helping people appreciate the comfortable predictability of daily household task”. [Product G gained the least in post-appreciation in Study 1.]

Consistent with Study 1, these three products were appreciated similarly and to a high degree based on images alone, and their appreciation increased to large, medium and small degrees after being informed of intentions. It is noted, however, that overall just half of respondents reported that knowing an intention changed how much they liked the respective product (about two-thirds for B, half for C, and a third for G). Subsequently respondents were probed about their reasons for changes in appreciation (liking) and specifically about their assessment of the product as means to achieve the stated intention. Three themes emerged as underlying the influence of intention knowledge on product appreciation: (a) perception of the product; (b) evaluation of the intention; and (c) evaluation of the product as a means to fulfill its intention (as explicitly queried).

Knowledge of the designer’s intention can change the way consumers perceive the product, its form and features. Firstly, it can make the product appear more interesting, such as by adding an element of surprise, an unexpected insight about its form (found especially for product B). In some cases it simply helps to comprehend the product’s form. The insight gained from knowing the designer’s intention may be expressed in revealing a new meaning of the product that improves appreciation (e.g., a more positive social ‘giving’ meaning of product C). But here is a snag — if the intention consumers are told of contradicts the meaning they assigned to the product when initially perceiving its image, it may inversely decrease one’s appreciation. For example, the ‘form-fitted’ cupboard (G) may seem nicely chaotic, but the way a consumer-participant interpreted it does not agree with the intention given by the designer (it ‘steals’ something from its attraction), and therefore the consumer becomes disappointed.

Upon being informed of the designer’s intention, a consumer may appreciate an idea or cause expressed in the intention itself (e.g., on merit of being morally virtuous, products B and C). The positive attitude towards the intention would then be transferred to the product (e.g., ‘helping people is a very beautiful thing’ in reference to C). On the downside, knowing an intention may push consumers away from a product (e.g., disliking the ‘predictability’ of one’s behaviour underlying product G). A product may thus gain or lose consumers’ favour in so far as the intention reflects on its essence.

But relying on a (declared) intention for the idea, cause or aim it conveys is not a sufficient criterion for driving appreciation upper or lower. Consumers also consider, as expected of them, whether the product is an able means to implement an idea or fulfill its aim. It is not just about what the designer intended to achieve but also how well a product was designed to achieve the designer’s goal. Participants in Study 2 were found to hold a product in favour for its capacity to fulfill its intended aim, even though they did not judge it as virtuous or worthy. There were also opposite cases where appreciation decreased but participants pointed out that the fault was not in the intention, rather in its implementation (e.g., “I think it’s a good idea [intention] but this [product C] won’t really work”). The authors suggest that participants use references in their judgements, including alternative known or imagined products which they believe to be more successful for fulfilling a similar aim or alternative aims or causes they could think of as appropriate for the same product.

The researchers find evidence in participants’ explanations suggesting they see how efficiency can be beautiful (e.g., how materials are used optimally and aesthetically). They relate this notion to a design principle of obtaining ‘maximum-effect-from-minimum-means’. Participants also endorsed novel or unusual means to realise the intention behind a product. Hekkert defined the principle above as one of the goals to pursue for a pleasing design.  It means conveying more information through fewer and simpler features, creating more meanings through a single construct, and applying metaphors. Hekkert also recommended a sensible balance between typicality and novelty (‘most advanced, yet acceptable’) that will inspire consumers but not intimidate them (4).

  • This research was carried out as part of the Project UMA: “Unified Model of Aesthetics” for designed artefacts at the Department of Industrial Design, Delft University of Technology, The Netherlands. (See how the model depicts a balance in meeting safety needs versus accomplishment needs for aesthetic pleasure: connectedness-autonomy, unity-variety, typicality-novelty).

Knowledge of the intentions of designers can elucidate for consumers why a product was designed to appear and to be used in a particular way. It contributes motivation or cause (e.g., social solidarity, energy-saving) for obtaining and using the designed product. But the intention should be reasonable and agreeable to consumers, and the product design in practice has to convince consumers it is fit and capable to fulfill the intention. It is nevertheless desirable that the product is visually pleasing, as an object of aesthetic appeal and as a communicator of functional and symbolic meanings.

When marketers assess that consumers are likely to have greater difficulty to interpret a product visual design and infer the intention behind it, they may wisely accompany a presentation of the product with a statement by the designer. This would apply, for instance, to innovative products, early products of their type, or original concepts for known products. The designer may introduce the design concept, his or her intention or aim, and perhaps how it was derived; this introduction may be delivered in text as well as video in assorted media as suitable (print, online, mobile). On the part of consumers, exposure to the designer’s viewpoint would  enrich their shopping and purchasing experience, helping them to develop better-tuned visual impressions and judgements of products.

Ron Ventura, Ph.D. (Marketing)

Notes:

(1) How People’s Appreciation of Products Is Affected by Their Knowledge of the Designers’ Intentions; Odette da Silva, Nathan Crilly, & Paul Hekkert, 2015; International Journal of Design, 9 (2), pp. 21-33.

(2) How Consumers Perceive Product Appearance: The Identification of Three Product Appearance Attributes; Janneke Blijlevens, Marielle E.H. Creusen, & Jan P.L. Schoorman, 2009; International Journal of Design, 3 (3), pp. 27-35.

(3) Seeking the Ideal Form: Product Design and Consumer Response; Peter H. Bloch, 1995; Journal of Marketing, 59 (3), pp. 16-29.

(4) Design Aesthetics: Principles of Pleasure in Design; Paul Hekkert, 2006; Psychology Science, 48 (2), pp. 157-172.

For the past two years the Internet company Yahoo is under immense pressure: The management led by CEO Marissa Mayer, in office since 2012, is working hard to reinvigorate the core online business of the company with new up-to-date technologies; and furthermore, creating more value, mainly from advertising. The board of directors is seeking to give management more time to find a way out of the difficult times, however it is struggling to fend off pressures from activist investors who demand a break-up of the company in order to salvage the real value they see captured in Yahoo through its stakes in external companies — Alibaba of China and Yahoo Japan. Yahoo is in a delicate and complex situation, carrying a danger that consumers-users will be left behind in the final business outcome.

The key criticism of Yahoo concerns the poor performance of its online advertising system, lagging behind other platforms such as Google (search) and Facebook (social media). The core business of the company entails its search engine and media (news in various domains), acting as sources of income from advertising (e.g., display ads, sponsored results). Display advertising is now active also in Yahoo’s Mail (e-mail service).

Underlying the poor financial performance of the advertising system are mainly two problems: (a) inconvenient and technologically outdated utilities and tools for advertisers when placing their orders for online ads (1); (b) a relatively low volume of search queries by Internet users, particularly far behind Google, and insufficient returns by visitors to the different sections of Yahoo websites. For example, according to figures revealed by the New-York Times, only ten percent (10%) out of one billion monthly visitors of Yahoo websites return every day, suggesting weak brand attachment; the reported figure for Facebook is 65% (2). It may start from failing to persuade more Internet users to make Yahoo a start homepage on their browsers.

Yahoo may be suffering, nevertheless, from a  broader problem of generating income from its online services. That is, the company should not rely only on income from advertising but create additional schemes that can generate income from use of its online services. Yahoo could monetise services, for instance, by charging users on premium plans (e.g., allowing extended storage capacity, more advanced tools or features, increased customisation, access to extended content). Yahoo may further not have a wide enough range of services on which it can charge premiums from registered (logged-in) users. Rightfully, companies are reluctant to ask customers to pay for online services, but that may be an unaffordable privilege, as in the case of Yahoo. Moreover, charging price premiums for enhanced services is legitimate and can contribute to higher perceived quality or value to consumers.

The complexity of the situation can partly be explained by the claim of investors that a greater portion of market value of Yahoo arises from its stakes in Alibaba and Yahoo Japan than from its own activity. Yahoo originally (2005) had a stake of ~24% in the Chinese e-commerce company Alibaba. Shortly before an initial public offering (IPO) of Alibaba in September 2014, that stake was valued $40 billion. During the IPO, Yahoo sold 40% of that stake as agreed with Alibaba to the latter’s requirement. Yahoo eventually collected more than $9bn, available to award shareholders or re-invest in the company (how funds were actually used is unpublished). The remaining stake of Yahoo in Alibaba (~15%) was worth some $30bn in December 2015. Investors thought that not enough value stemmed from Yahoo’s genuine activity before Alibaba’s IPO, and some seem to believe that is nonetheless apparent after the IPO.

The first two years of Mayer as CEO enjoyed a sense of improvement and optimism. Until the IPO of Alibaba, Yahoo acquired more than forty technology companies to bring fresh methods, tools and skills to the company. The share price of Yahoo climbed from a low of under $20 to above $30 by the end of 2013 and reached $50 in late 2014. But after Alibaba’s IPO, tensions with investors, especially the activist ones, escalated as patience with Mayer as well as the board was running thin. The share price also started to decline back to $30 during 2015 (it recovered to ~$36 since January 2016).

It must be noted that the board of directors together with Mayer did try to find solutions that would satisfy the investors while saving the core business of Yahoo. One plan considered was to sell the remaining stake of Yahoo in Alibaba but that solution was abandoned due to concerns about a looming large tax liability. Another solution, championed by Mayer, was to put the core media and search business of Yahoo on sale in one piece, but that plan was also just recently suspended as the process failed to mature. The most serious prospective buyer was the US telecom company Verizon; they were thinking of merging the activity of Yahoo with that of AOL, acquired last year, but executives were worried about the company’s ability to pull together such an integration effort in a short time (3).

  • Update note (July 2016): After all, a deal was done with Verizon to buy Yahoo for $4.8bn (excluding its stakes in Alibaba and Yahoo Japan.)

In the second part of this article I examine the display and organization of Yahoo’s websites with a user-consumer viewpoint in mind — visual layout, sections and services on the website, composition of content, links, menus and other objects. The examination is focused more on the content and services Yahoo provides to its users rather than its advertising.

Yahoo runs multiple versions of its website in different countries and languages. The major part of the review is centered on the website of Yahoo in the United Kingdom as a pivot exemplar. References will be subsequently made to other versions. Nevertheless, all of the additional websites visited (8) highly resemble the UK website in appearance and composition. Through the examination I intend to argue that Yahoo has not organized and designed the homepages of its website versions appropriately to expose users to, and give them the necessary inducement to access, some of its core services that would also be important sources of income. However, beyond the homepages, I also relate to the ‘portfolio’ of media topical sections and services that comprise the websites.

Some of the graphics on the page were not captured (the title name Yahoo and news bar were supplemented)

Two services of Yahoo are primary assets: the search engine (Yahoo! Search) and the e-mail service (Yahoo! Mail). Both follow the company’s website in substance from its early days. They are essential components of Yahoo’s brand. The search facility is the gate to the enormous content on the Internet. The e-mail service with its mailbox management utilities is at the foundations of the company’s invaluable customer base. Both have advanced over the years and added features, although there is argument over the nature of progress particularly with regard to the search engine. A third additional asset of Yahoo is the media content of news stories and videos in various domains delivered on the website. On the left-hand of the homepage appears a sidebar with links to services and news topics on the website; a ‘global’ heading bar appears on top of any webpage on Yahoo’s site.

As important and interesting as the news media content may be, its preview takes grossly too much space of the homepage. Conversely, the search window for initial queries, while on top, is marginalised on the page, nearly “drowning” in the news content. It sends a message to visitors that this feature is secondary or less to media content. It is little wonder that on-face Internet users perceive Google as the universal search engine (Yahoo has been relying on the powers of search engines of Google and previously Microsoft’s Bing in recent years). The icon-link to the e-mail service is not in a much better position at the top right corner. Even though three links for Mail appear on the homepage — the icon right to the search window, on top of the vertical sidebar, and on left side of the heading bar — none of these positions is central. The allocation of space on the homepage is not reasonably proportional between these three assets. It suggests that Yahoo has become a media company and has practically discounted its two other assets.

The sidebar added to the website in the past two years is a welcome contribution as it helps to quickly familiarise with or easily find some key services and news topics on Yahoo’s site. Nevertheless, icons-links for those services and topics could receive better attention and salience in users’ eyes and minds if they were arranged in a central area of the page adjacent to the Search window and Mail icon (e.g., beneath them). It would give Yahoo an opportunity to promote services or topics with a greater income potential vis-à-vis visitors’ interests and utility in using particular services. For example, the online cloud-based service Flickr for storing, editing and showcasing photos is hardly noticed on the head-bar, and if at all on the sidebar (Flickr was acquired by Yahoo in 2005). If site users could also see more instantly and clearly what functional services (non-news) are offered by Yahoo, it might be better understood why there is a Sign-In option separate from Mail.

  • Extra feature-services such as Contacts, Calendar, Notepad and Messenger (chat) are already included in Mail.

Yahoo highlights on its homepage general news, sport, entertainment and finance. On the ‘homepage’ of the news section one can find more categories such as UK,  World, Science & Tech, Motoring and Celebrity. Links to some of them appear on the sidebar of the UK homepage (e.g., Cars [Motoring], Celebrity). Interestingly, some news/media sections do behave as more autonomous sites and some have a different layout with a visual graphic display of tiles — Parenting, Style and Movies. (In the Italian version, Beauty and Celebrity sections also exhibit a tile ‘art’ display.)

The news headlines with the snippets (briefs) are useful but those do not necessarily belong on the homepage in that long a list. The ‘ribbon’ of images for selected stories would most appropriately fit on the homepage with a focal story changing on top — that is all that needs to remain on the homepage (with some enhancements such as choice of category) while the additional headlines are delegated to the News ‘homepage’. In the final display of the homepage, a concise and elegant arrangement should include the Search window and Mail/ Sign-In icons, surrounded by a News showcase and a palette of selected services or media topics.

  • A visitor has to look deeper into the website to trace additional services that may be  interesting and useful. A few examples: (1) The Finance (news and more) section includes a personalised utility ‘My Portfolios’ for managing investments; (2) On a page enlisting more services one can find Groups (discussion forums) and Shopping. Other features or services on a sidebar or head-bar refer to Weather, Mobile (downloading Yahoo apps), and Answers (subdivision of Search — peer-to-peer Q&A exchanges).

When the homepage of UK website is compared with other country and language websites of Yahoo, it is mostly noticeable that some of the links on the sidebar and head-bar may vary, apparently accounting for regional and cultural differences in public interests. Countries may also be affiliated or in co-operation with different local content and service providers. For instance: Italy assigns more importance to Style, Beauty and Celebrity, also having more invested topical sections; France has a section on real-estate (Immobilier) in affiliation with BFM TV); Australia has a TV section affiliated with PLUS7); and in Germany the Weather and Flickr services are represented on both sidebar and head-bar. It is further observed that the sidebar in Yahoo Australia includes many more links than in other site versions.

Regarding the US website, some differences can be marked. First, subject titles of appear above each news headline. Second, a reference to the social blogspace site Tumblr appears on the head-bar (in addition to Flickr) — it appears also on the site of Australia but not on the other sites visited (Tumblr was acquired by Yahoo in 2013). Third, the US site chose to mention on its sidebar Shopping and Politics.

  • The Yahoo websites exhibit anomalies implying that the company refrains from promoting some of its own in-house or subsidiary services. For instance, Flickr and Tumblr are sidelined, and the latter is exclusive to just a couple of countries. The ‘Shopping’ product search for attractive retailer offers (powered by Nextag) is more often hidden, and Yahoo homepages provide links to eBay and Amazon.

In order to design in practice the most appropriate and effective composition and layout of the homepage, Yahoo may apply usability tests, eye tracking, and possibly also tracking of mouse movements and clicks. These three methodological approaches can be used in parallel or even simultaneously to derive findings that can support and complement each other in guiding the design process. Attention obviously should be paid to visual appeal of the page appearance in the final design. As suggested above, however, emphasis should be directed to the content and services provided by Yahoo as opposed to the advertising space.

Notwithstanding, the homepage is just the start of the journey of a visitor on the website. Of course much depends on the quality of services and content in determining how long a visitor will stay on the site. For example, how the mail, e-commerce (shopping), or photo service platform compare with competition. Particularly with respect to the search engine, continued utilisation relies on relevance, credibility and timeliness (historical to up-to-date) of results generated.

Yahoo provides specialised searches of websites and pages, images, videos, answers, products and more. Yet the company acquired in the past the Altavista engine that was advantageous in retrieving higher-quality and academic-level information sources and materials but it was apparently submerged without leaving a trace; and as indicated earlier, Yahoo has turned to stronger capabilities of competitors at the expense of developing more of their own. Marissa Mayer aims alternately to create a leverage by developing a powerful intelligent search engine for mobile devices in a mobile-friendly site/app. Even though the mobile-driven approach can be a move in the right direction for Yahoo, it may not resolve the suggested problems inherent in the online website, and skeptics doubt that the company has the skills and resources in its current state to accomplish those goals.

Yahoo has a lot at stake. It should not rely on users to know how to get to its services independently or to search for their Internet addresses. The site, online or mobile, has to give a hand and show users the way to the services it wants them most to visit and apply, and there is no better place to start than on the site’s homepage. The solutions needed are not just about technology but in the domain of marketing strategy and user-consumer online and mobile behaviour. Yet, looking at how events roll at Yahoo, the decisions made could be driven by business and financial considerations above the heads of users-consumers.

  • The lessons for Yahoo should now be learnt by Verizon as it intends to merge between functions and capabilities of Yahoo and AOL, and probably rebrand them.

Ron Ventura, Ph.D. (Marketing)

Notes:

(1) “Marissa’s Moment of Truth”, Jess Hempel, Fortune Europe Edition, 14 May 2014  pp. 38-44.

(2) “Yahoo’s Suitors Are in the Dark About its Financial Details”, International New-York Times, 16-17 April 2016.

 

 

Human thinking processes are rich and variable, whether in search, problem solving, learning, perceiving and recognizing stimuli, or decision-making. But people are subject to limitations on the complexity of their computations and especially the capacity of their ‘working’ (short-term) memory. As consumers, they frequently need to struggle with large amounts of information on numerous brands, products or services with varying characteristics, available from a variety of retailers and e-tailers, stretching the consumers’ cognitive abilities and patience. Wait no longer, a new class of increasingly intelligent decision aids is being put forward to consumers by the evolving field of Cognitive Computing. Computer-based ‘smart agents’ will get smarter, yet most importantly, they would be more human-like in their thinking.

Cognitive computing is set to upgrade human decision-making, consumers’ in particular. Following IBM, a leader in this field, cognitive computing is built on methods of Artificial Intelligence (AI) yet intends to take this field a leap forward by making it “feel” less artificial and more similar to human cognition. That is, a human-computer interaction will feel more natural and fluent if the thinking processes of the computer resemble more closely those of its human users (e.g., manager, service representative, consumer). Dr. John E. Kelly, SVP at IBM Research, provides the following definition in his white paper introducing the topic (“Computer, Cognition, and the Future of Knowing”): “Cognitive computing refers to systems that learn at scale, reason with purpose and interact with humans. Rather than been explicitly programmed, they learn and reason from interactions with us and from their experiences with their environment.” The paper seeks to rebuke claims of any intention behind cognitive computing to replace human thinking and decisions. The motivation, as suggested by Kelly, is to augment human ability to understand and act upon the complex systems of our society.

Understanding natural language has been for a long time a human cognitive competence that computers could not imitate. However, comprehension of natural language, in text or speech, is now considered one of the important abilities of cognitive computing systems. Another important ability concerns the recognition of visual images and objects embedded in them (e.g., face recognition receives particular attention). Furthermore, cognitive computing systems are able to process and analyse unstructured data which constitutes 80% of the world’s data, according to IBM. They can extract contextual meaning so as to make sense of the unstructured data (verbal and visual). This is a marked difference between the new computers’ cognitive systems and traditional information systems.

  • The Cognitive Computing Forum, which organises conferences in this area, lists a dozen characteristics integral to those systems. In addition to (a) natural language processing; and (b) vision-based sensing and image recognition, they are likely to include machine learning, neural networks, algorithms that learn and adapt, semantic understanding, reasoning and decision automation, sophisticated pattern recognition, and more (note that there is an overlap between some of the methodologies on this list). They also need to exhibit common sense.

The power of cognitive computing is derived from its combination between cognitive processes attributed to the human brain (e.g., learning, reasoning) and the enhanced computation (complexity, speed) and memory capabilities of advanced computer technologies. In terms of intelligence, it is acknowledged that cognitive processes of the human brain are superior to computers inasmuch as could be achieved through conventional programming. Yet, the actual performance of human cognition (‘rationality’) is bounded by memory and computation limitations. Hence, we can employ cognitive computing systems that are capable of handling much larger amounts of information than humans can, while using cognitive (‘neural’) processes similar to humans’. Kelly posits in IBM’s paper: “The true potential of the Cognitive Era will be realized by combining the data analytics and statistical reasoning of machines with uniquely human qualities, such as self-directed goals, common sense and ethical values.”  It is not sufficiently understood yet how cognitive processes physically occur in the human central nervous system. But, it is argued, there is growing knowledge and understanding of their operation or neural function to be sufficient for emulating at least some of them by computers. (This argument refers to the concept of different levels of analysis that may and should prevail simultaneously.)

The distinguished scholar Herbert A. Simon studied thinking processes from the perspective of information processing theory, which he championed. In the research he and his colleagues conducted, he traced and described in a formalised manner strategies and rules that people utilise to perform different cognitive tasks, especially solving problems (e.g., his comprehensive work with Allen Newell on Human Problem Solving, 1972). In his theory, any strategy or rule specified — from more elaborate optimizing algorithms to short-cut rules (heuristics) — is composed of elementary information processes (e.g., add, subtract, compare, substitute). On the other hand, strategies may be joined in higher-level compound information processes. Strategy specifications were subsequently translated into computer programmes for simulation and testing.

The main objective of Simon was to gain better understanding of human thinking and the cognitive processes involved therein. He proclaimed that computer thinking is programmed in order to simulate human thinking, as part of an investigation aimed at understanding the latter (1). Thus, Simon did not explicitly aim to overcome the limitations of the human brain but rather simulate how the brain may work-out around those limitations to perform various tasks. His approach, followed by other researchers, was based on recording how people perform given tasks, and testing for efficacy of the process models through computer simulations. This course of research is different from the goals of novel cognitive computing.

  • We may identify multiple levels in research on cognition: an information processing level (‘mental’), a neural-functional level, and a neurophysiological level (i.e., how elements of thought emerge and take form in the brain). Moreover, researchers aim to obtain a comprehensive picture of brain structures and areas responsible for sensory, cognitive, emotional and motor phenomena, and how they inter-relate. Progress is made by incorporating methods and approaches of the neurosciences side-by-side with those of cognitive psychology and experimental psychology to establish coherent and valid links between those levels.

Simon created explicit programmes of the steps required to solve particular types of problems, though he aimed at developing also more generalised programmes that would be able to handle broader categories of problems (e.g., the General Problem Solver embodying the Means-End heuristic) and other cognitive tasks (e.g., pattern detection, rule induction) that may also be applied in problem solving. Yet, cognitive computing seeks to reach beyond explicit programming and construct guidelines for far more generalised processes that can learn and adapt to data, and handle broader families of tasks and contexts. If necessary, computers would generate their own instructions or rules for performing a task. In problem solving, computers are taught not merely how to solve a problem but how to look for a solution.

While cognitive computing can employ greater memory and computation resources than naturally available to humans, it is not truly attempted to create a fully rational system. The computer cognitive system should retain some properties of bounded rationality if only to maintain resemblance to the original human cognitive system. First, forming and selecting heuristics is an integral property of human intelligence. Second, cognitive computing systems try to exhibit common sense, which may not be entirely rational (i.e., based on good instincts and experience), and introduce effects of emotions and ethical or moral values that may alter or interfere with rational cognitive processes. Third, cognitive computing systems are allowed to err:

  • As Kelly explains in IBM’s paper, cognitive systems are probabilistic, meaning that they have the power to adapt and interpret the complexity and unpredictability of unstructured data, yet they do not “know” the answer and therefore may make mistakes in assigning the correct meaning to data and queries (e.g., IBM’s Watson misjudged a clue in the quiz game Jeopardy against two human contestants — nonetheless “he” won the competition). To reflect this characteristic, “the cognitive system assigns a confidence level to each potential insight or answer”.

Applications of cognitive computing are gradually growing in number (e.g., experimental projects with the cooperation and support of IBM on Watson). They may not be targeted directly for use by consumers at this stage, but consumers are seen as the end-beneficiaries. The users could first be professionals and service agents who help consumers in different areas. For example, applied systems in development and trial would:

  1. help medical doctors in identifying (cancer) diagnoses and advising their patients on treatment options (it is projected that such a system will “take part” in doctor-patient consultations);
  2. perform sophisticated analyses of financial markets and their instruments in real-time to guide financial advisers with investment recommendations to their clients;
  3. assist account managers or service representatives to locate and extract relevant information from a company’s knowledge base to advise a customer in a short time (CRM/customer support).

The health-advisory platform WellCafé by Welltok provides an example of application aimed at consumers: The platform guides consumers on healthy behaviours recommended for them whereby the new assistant Concierge lets them converse in natural language to get help on resources and programmes personally relevant to them as well as various health-related topics (e.g., dining options). (2)

Consider domains such as cars, tourism (vacation resorts), or real-estate (second-hand apartments and houses). Consumers may encounter tremendous information in these domains on numerous options and many attributes to consider (for cars there may also be technical detail more difficult to digest). A cognitive system has to help the consumer in studying the market environment (e.g., organising the information from sources such as company websites and professional and peer reviews [social media], detecting patterns in structured and unstructured data, screening and sorting) and learning vis-à-vis the consumer’s preferences and habits in order to prioritize and construct personally fitting recommendations. Additionally, it is noteworthy that in any of these domains visual information (e.g., photographs) could be most relevant and valuable to consumers in their decision process — visual appeal of car models, mountain or seaside holiday resorts, and apartments cannot be discarded. Cognitive computing assistants may raise very high consumer expectations.

Cognitive computing aims to mimic human cognitive processes that would be performed by intelligent computers with enhanced resources on behalf of humans. The application of capabilities of such a system would facilitate consumers or the professionals and agents that help them with decisions and other tasks — saving them time and effort (sometimes frustration), providing them well-organised information with customised recommendations for action that users would feel they  have reached themselves. Time and experience will tell how comfortably people interact and engage with the human-like intelligent assistants and how productive they indeed find them, using the cognitive assistant as the most natural thing to do.

Ron Ventura, Ph.D. (Marketing)

Notes:

1.  “Thinking by Computers”, Herbert A. Simon, 1966/2008, reprinted in Economics, Bounded Rationality and the Cognitive Revolution, Massimo Egidi and Robin Marris (eds.)[pp. 55-75], Edward Elgar.

2. The examples given above are described in IBM’s white paper by Kelly and in: “Cognitive Computing: Real-World Applications for an Emerging Technology”, Judit Lamont (Ph.D.), 1 Sept. 2015, KMWorld.com

Retail banking is built on trust; it is at the core of the ‘public license’ to manage the accounts of customers. Think of phrases such as “People trust the bank with their money” or “We entrust our income in the hands of a banker”. Consumers often have a lot at stake held in the bank: their livelihoods and their hopes to use the funds accumulated to improve their quality of life in the future. They expect to have access to money in their accounts readily, before seeking more money via credit and loans from the bank. Banks are additionally expected to offer account holders means to make financial profit on their money. Since the financial crisis of 2008, depletion of consumer trust in the banking system has been troubling many countries. A question still hangs, as it was valid five years ago: How should banks regain consumer trust and improve their relationships with customers?

Digital banking and financial services are proliferating, and not from yesteryear. For example, consumers can view account information and perform by ‘self-service’ a selection of banking operations in their accounts on the Internet; practise of these activities is gradually spreading from desktop and laptop computers to mobile devices. Yet, digital financial services or features are also provided by a variety of non-banking companies, non-profit organizations and institutions, most notably in the area of digital ‘remote’ payment, whether via a debit/credit card or a third-party utility (e.g., PayPal).  The features are becoming increasingly available through mobile apps. Undoubtedly, applying digital banking services remotely and independently can smooth and facilitate for consumers everyday account follow-up and operations, save them time and increase efficiency in managing their accounts. But digital banking may prove as the opposite course of action than needed to help banks regain and rebuild their customers’ trust in them — it risks instead to increase the distance between banks and customers. For instance, is reliance on digital banking appropriate in managing an investment portfolio?

  • Complicating matters, many of the digital service tools are developed by financial technology (fintech) companies for execution online or in mobile apps. They are leading the field in developing those tools, and said to be leaving most banks lagging behind. The fintech companies allow retailers to offer shoppers different options for digital payment, and even running some form of current or expense accounts with them; investment houses and financial consultants can employ advanced tools to better update and communicate with their customers; other fintech’s work includes applications for assisting consumers to manage their personal finances and portals for mediating peer-to-peer loans.

At a conference of the central Bank of Israel, titled “The Technology Changes the Face of Banking” (3/3/16, Hebrew), the Banking Supervisor, Dr. Hedva Ber, embraced the expansion of digital banking, in vision and in action. She encouraged increased communication between banks and customers by digital means, guided by rules of conduct set by her department. Consumers less accustomed to using digital services will have to be accommodated to help them adjust through the process (e.g., by operating limited or temporary ‘pop-up’ branches where ‘fixed’ branches are to close down). But eventually a broad transition will take place and the intention is to include all parts of the population in the transformation of retail banking. The key instrument to achieve that goal will be digital education of banking customers, joined by enforcing a principle of customers’ ownership of their personal information and creating a ‘credit profile’ for each customer. There is also a plan to advance the establishment of a fully digital ‘branchless’ bank. Dr. Ber further talked in favour of computer-automated (AI) reply to customers on the phone.

This transition is likely to result in a significant reduction in the number of employees (mainly engaged in back office processes). The Supervisor projected that the digital transformation of banking will lead to better control of the customer over his or her financial situation, greater transparency, expansion of banks’ baskets of products and services, and foremost will contribute to increased efficiency. Several references to ‘efficiency’ were actually noticed in the presentation, but none regarding ‘trust’.

An initial requisite for trust is competence: the fundamental ability of the organisation to perform the tasks it took upon itself. The building blocks of the expected competence are  knowledge, skills and resources. Chaudhuri and Holbrook (2001) used the definition: “The willingness of the average consumer to rely on the ability of the brand to perform its stated function” (p. 82). The researchers studied the effect of brand trust and affect on brand performance, mediated through loyalty. In their view, brand trust is an involving process, deliberate and well thought out whereas brand affect is developed more spontaneously, immediate and less carefully reasoned. They find that trust and affect each contribute to purchase (behavioural) and attitudinal brand loyalty, whereupon purchase loyalty is positively related to market share and attitudinal loyalty contributes to higher price premiums. In particular, brand trust and commitment are both important for developing  a valued customer relationship (1).

With respect to retail banking, the key competence asked of banks is to protect the money of their customers; it is about safekeeping, or the customer’s feeling that his or her money is ‘kept in good hands’. That kind of attitude may be hard to foster if all contacts the customer has with the bank are indirect through computers. Trust is built between people, therefore customers should be able to meet at the very least a few representatives of the bank that will instill in them the notion that someone cares about them and is taking good care of their money. Such a representative could be an adviser or ‘advocate’ for the customer in the bank.

  • Taking good care of the customer’s money includes warning him when taking excessive investment risks, as the bank should act responsibly in its own risk management.

Another vital requisite for trust maintains that the organisation (bank) should be acting in the interest of its customers and not just in its self-interest. For example, it means that the bank creates and offers saving programmes that are fair and beneficial to the customer, protecting her money with a plus of a reasonable interest rate (as opposed to reducing cost by paying too low rates). The risk for self-interest of the bank may be more pronounced in offering so-called ‘structured products’ of investment that oftentimes use complex rules, obscuring from the investor in whose interest the product will work best. Peppers and Rogers offer the concept of a ‘trusted agent’: in a relationship wherein the customer trusts the enterprise to act in his own interest, “the customer perceives the enterprise to be his trusted agent, making recommendations and giving advice that furthers the customer’s interest, even when it occasionally conflicts with the enterprise’s self-interest, at least in the short-term” (p. 78). Although relationships can exist without trust, it should be obvious that they can become stronger, and grow in value, only when built on trust — trust-based relationships evoke greater dedication (2).

  • We can see how the position of a ‘customer advocate’ relates to fulfilling this requisite, ensuring that the bank is acting in the customer’s interest.

Credibility and reliability are additional important antecedents to trust. Credibility would manifest in the bank’s practice to provide correct information about products and services it offers or delivers, that it is able to provide them, and stands behind them. Furthermore, in the current state of customer relationship management, offering a financial product would be more credible if selected to be more suitable for a specific customer, based for example on his current bank assets and risk attitude. That is, the offer would be more credible if based on knowledge of the customer to fit him better. Reliability concerns more specifically aspects of the accuracy of information and execution of instructions in time as intended (i.e., predictability). Objectives of credibility and reliability can be achieved in offerings made through platforms of online or mobile digital banking, but trust is reliant on more than these two criteria alone.

Charles Green (President of Trusted Advisors Associated, 2004) formulated that credibility, reliability and intimacy enhance customer trust whereas self-orientation diminishes trust in the company (a discount factor). Green describes intimacy as follows: “Intimacy has to do with perceived safety: ‘I can trust talking with him about…'”. He associates intimacy with security and integrity (3). The aspect of intimacy is noteworthy because in banking it corresponds most closely to the kind of delicate affairs that may arise in bank-customer relationships about one’s finances. It is about the level of confidence a customer can put in the bank, based on integrity and consideration he or she can find during any dealings with it and its employees. It is hard to talk about intimacy in human-computer interactions. Integrity also is reflected in conduct of human bank representatives, much less through digital interactions.

Intimacy should not be confused with personalisation that can be achieved with analytics-based digital tools (e.g., a ‘Digital First’ strategy that puts most weight on digital channels, as suggested by Accenture). It is wrong to equate computer-based personalisation with intimacy while talking with another person. Talking with an expert adviser on more complex financial services is especially not equivalent to automated customization, though analytic tools may help the adviser in making her recommendations. Demitry Estrin (Vision Critical) addresses the eroding banks’ relationships with customers who are blaming banks for treating people as numbers. He explains: “Nothing would address the problem better than face-to-face encounter, but these are increasingly rare. In fact, the problem is self-perpetuating: the less people interact with financial services professionals, the less they value them, and the companies they work for.”

Customers are looking to combine interactions in different modes (e.g., mobile, online, phone, face-to-face), but those human and digital interactions have to be streamlined and information exchanged in them should be coordinated within the bank. In a white paper of IBM on “Rebuilding Customer Trust in Retail Banking” (Sept. 2012), the technology and consulting company claims yet that banks managed to create more competition than co-ordination between channels with their working methods (e.g., rewards, targets, metrics). Banks have taken different measures that seem to make customers feel they are treated more conveniently and friendly, efficiently, even fairly, but not necessarily feeling that the bank thinks of each like a person. In that respect, consumers see banks as falling behind other companies they interact with in digital platforms.

The paper of IBM optimistically argues: “Fortunately, trust and digital communication channels can be and are best built together.” It is true but just to a limited extent. It is possible to maintain a certain degree of trust to allow for digital communication to succeed, but trust can grow only so far. Digital banking can provide efficiency, convenience, reliability, even credibility, but that is not enough for building a high level of trust that breeds commitment and dedication. It is doubtful if digital banking can remedy the deeper problems of trust in banks. Perhaps the answer is better found in a combination of human and digital modes of delivering banking services for fostering trust.

  • Digital banking, particularly communication via Internet, raises additional issues of protecting data from cyber-attacks and securing customer data privacy. Acting on those matters to reduce threats is vital to building trust, yet it would not ease the original causes of declining trust that are not digital-related.

Even within a bank branch, the scene can change — a new model is emerging, presenting a novel form of combined digital self-service and human service. Most likely, future branches will no longer have human tellers; otherwise, however, digital and human services will be intertwined in new design concepts. In the upcoming future, a customer may find in a branch central arena with personal working posts equipped with self-service terminals where each can view account information and perform various operations; the customer will be able to proceed to talk with ‘advisers’ sitting in the periphery and settle more complex issues such as loans or investments (e.g., RBC-Royal Bank of Canada, HSBC-flagship branch in Singapore).  At RBC, customers may sit comfortably to read materials (print, online) or watch instructive videos on a large screen about financial products and related topics, thus he or she may prepare before talking with an adviser. BMO Harris Bank is experimenting with ‘video tellers’ for assisting customers; representatives in stand-by, holding tablets, are available to help with any difficulty. There is also a trend to change the visual design of branches to make them look and feel more like shops: less formal, more friendly and rejoicing in colour and form.

Customers are seeking a combination of user-friendly digital tools and human expert advisory on more complex issues. To that end, Mike Baxter and Darrell Rigby advocate a combined ‘digical’ approach: a mashup of digital technologies and physical facilities (“Rethinking the Bank Branch in a Digital World“, HBR, 15 Sept. ’14). The authors argue that combined technological and human services can be implemented on-site within a branch — as illustrated above. They note that financial products and services are often complicated, and security and trust are paramount. Baxter and Rigby conclude: “Physical banking is evolving rapidly, but not disappearing. Branches may be fewer in number, but they will be more useful and efficient, and banks without branches are likely to find themselves at a competitive disadvantage.”

Human banking and digital banking are like two arms of the retail bank. Banks have to provide digital ‘self-service’ tools to allow customers manage their accounts of different kinds more conveniently and efficiently, at an acceptable level of reliability; banks gain from this as well in efficiency and cost reduction. Digitization of banking services extends from the long-running ATMs to more advanced information ‘kiosk’ terminals and remote online and mobile banking utilities. However, digital banking is becoming a necessity, not a basis for competitive advantage for banks. If it were all about digital services, customers would find it even easier to look for more friendly and useful financial services from non-banking companies, and their commitment to retail banks could decline further.

Retail banks need the ‘human arm’ to differentiate themselves from external competition and to develop excellence in competition with other banks. It is also essential to regain and foster trust, tighten and strengthen banks’ relationships with their customers. In branches, it will be a question of creating a friendly atmosphere and balancing in a useful way between digital utilities and the assistance and expertise of human personnel.

Ron Ventura, Ph.D. (Marketing)

Notes:

1. The Chain of Effects from Brand Trust and Brand Affect to Brand Performance: The Role of Brand Loyalty; Arjun Chaudhuri and Morris B. Holbrook, 2001; Journal of Marketing, 65 (2), pp. 81-93.

2. Customer Relationships: Basic Building Blocks of IDIC and Trust (Ch. 3), Managing Customer Relationships: A Strategic Framework; Don Peppers and Martha Rogers, 2004; John Wiley & Sons, Inc.

3. The Trust Equation: Generating Customer Trust; Charles H. Green; in (2), pp. 72-77.

 

In late February the annual Mobile World Congress (MWC) 2016 took place in Barcelona, including a large festive exhibition and a conference next to it. The leading motto of the MWC declared that “Mobile Is Everything“. This motto, directed primarily at people involved in the mobile industry, on either the technology-side or the management-side, could help to increase their interest in the event, create a uniting theme, and energise them to be part of the congress and its community. But what does this ‘invitation’ tell client-companies operating mainly outside the field of mobile telecom and technology? Moreover, what does this call suggest for the lives of consumers?

A little over 100,000 people from 204 countries attended the MWC this year according to MWC official website. Some 2,200 companies were represented in the exhibition; during that time the conference hosted speeches and panel discussions by experts and business leaders. An intensive media coverage on TV, online, and in the press, made sure news from the event reach almost everyone. Everything important, it would appear, has happened that week at the MWC.

Companies were presenting in the exhibition their technological solutions, methods and products. Each company could summarily describe its areas of specialisation by classification in any of 90 different product categories (companies more frequently applied 3-5 categories). A remarkable variety of mobile-related products, applications and services were shown in the exhibition: mobile devices (i.e., latest models of smartphones and tablets); accessories and mobile-supported peripheral equipment (e.g., virtual reality [VR], 3D printing, Internet of Things [IoT]); mobile apps; equipment and services in connection with mobile communication (e.g., infrastructure, business & tech consulting, data analysis). While some companies demonstrated apps as designed to be used by consumers, most exhibitors offered  platforms for developing apps (custom or adapted) and mobile-oriented methodologies and services intended for business clients.

  • The classification appears to single out the salience of mobile apps these days. It is interesting to note that out of the ninety categories, five were dedicated to App Development: General, Film, Gaming, Music, and Shopping.

Key areas associated with digital marketing (e.g., data analysis, CRM, content management) need to be extended from online (PC-based) to smart mobile devices. Clearly, technology companies that were not originally in the mobile industry have to adapt and add digital solutions respectively for the mobile channel. Yet it is no less a challenge for companies in lines of business that only use digital technologies for improving their performance (e.g., food, cosmetics, fashion, retail) to keep pace with the latest developments — in mobile communication to this matter. Some companies may produce their solutions in-house but many others have to hire specialist companies to provide them with systems or services tailored to their needs. Those kinds of companies, offering business solutions in a mobile context, would be found most likely at the MWC.

Mobile Advertising and Marketing was one of the more crowded categories (290 companies classified). One of the issues receiving particular attention in companies’ offerings is targeted advertising on mobile devices as well as improved targeting techniques for mobile apps. This category is closely tied with data analysis (e.g., to provide input for implementing more accurate personalised targeting), and is also connected with topics of customer relationship management (e.g., loyalty clubs) and content management in the mobile environment. For example, Ingenious Technologies (Germany) is an independent provider of cloud utilities for business analytics and marketing automation (e.g., omni-channel activities, tracking customer journeys), and Jampp (UK) specialises in app marketing, offering ways to grow consumer engagement in mobile apps (e.g., combine machine learning with methods of big data and programmatic buying). Exhibitors also addressed an increasing concern of monetization, that is the ability of businesses to charge and collect payments for content or for products and services that can be ordered on mobile devices, especially via apps.

In an era that promotes digital and data-driven marketing, it becomes imperative to cover and analyse data from mobile touchpoints. The category of Data Analysis (148 companies) includes the marketing aspect, yet relates to applications in other fields as well.  Among the applications concerned: integrating predictive analytics with campaign management (e.g., Lumata [UK]); analytic database platform for IoT and processing app-based queries (e.g., Infobright [Canada]); traffic analytics for enhancing urban mobility of vehicles and people (e.g., INRIX [UK]).

In the category of Consumer Electronics (222 companies) one may find: (a) devices (e.g., Samsung Galaxy S7 smartphones); (b) accessories (e.g., SanDisk’s portable data storage solutions, fast charging [Zap-go-charger, UK] or portable power backup [CasePower, Sweden]); and (c) components (e.g., LED components by Ledmotive [Spain]). But there were also some less usual devices such as a wearable device for tracking a dog’s health and fitness, which comes with an app (Sense of Intelligence [Finland]).

  • The area of audio (music) and video playing gains special interest, and is further connected to gaming and mobile entertainment overall. A couple of examples under the heading of consumer electronics: software for audio enhancement (AM3D A/S [Denmark]; a mobile video platform, supporting live streaming and video chat (avinotech [Germany]). Video also appears in the context of content management, such as an advanced technology for accelerating display of video content in HD TV quality (Giraffic [Israel]).

This brief review would not be complete without the rising category of Location Technologies and Services (141 companies). Location technologies and their applications can be found in different areas, not just marketing or shopping. For instance, a French company (Sensineo) offers an ultra-low-GPS tracking and positioning device which may help in locating cars or dogs, but furthermore important, tracing vulnerable people who may have lost their way and need support or medical assistance — location apps and mobile alarm devices emerge as new aids to healthcare. In the context of advertising, we may refer to technologies that bridge online and offline domains (e.g., targeting by combining text analysis of consumers’  conversations in social media and intelligence on where they go in the physical world [Cluep, Canada], eliciting online-to-offline engagement in brand or retail campaigns [Beintoo, Italy]). Another technology (by Pole Star [France]) specialises in indoor location, involving analytics through precise geofencing (i.e., activation as people enter specified perimeters) and proximity detection. The last three examples have apparent relevance to consumer behaviour during shopping trips.

  • In regard specifically to development of shopping mobile apps (46 companies), there seems to be greater reference of exhibitors to technologies that may support shopping utilities but not enough examples for apps that truly connect retailers and shoppers. As an example for a more relevant app, Tiendeo Web Marketing (Spain) offers an app, working in partnership with retail chains, that informs consumers of weekly ads, deals or coupons in their area of residence.

For businesses that are client-users of technologies and associated services, the message is very clear — in order to be accessible and relevant to consumers, the business must have mobile presence. Consumer brands of products and services, and in retail, cannot afford to neglect the mobile channel. Moreover they must have a strong showing because the competition is intense and ‘mobile is everything’. The need to be present and useful via mobile devices (mobile websites and apps) is undisputed. As more consumers are engaged with their smartphones much of the time, and perform more tasks in mobile mode, companies should be there available to them. The idea, however, that this is all that matters for marketing and customer service is dubious. Companies are under endless pressure to keep to-date with continuous advances in technology. Technology and consulting companies remind their clients all the time that in order to be competitive they must apply the most advanced mobile features and tools. But companies have to be available, effective and attractive through multiple channels and the kind of pressure implied by the MWC’s motto is neither helpful nor productive.

The danger is that companies engaged in consumer marketing may neglect other important channels in attempt to develop a strong mobile presence. In fact, this kind of shift to interactions through newer technological channels has been happening for years. The latest shift advised to companies is from Web 2.0 on personal computers to mobile websites and apps. It could mean that companies would be forced to invest more in mobile compatibility of their websites, while neglecting improvement of the functionality and visual attractiveness of their usual websites. One of the implications of the shift to online and mobile touchpoints is reduction in direct human interactions (e.g., fewer brick-and-mortar service branches, fewer service hours, not enough trained and skilled personnel in call centres). But consumers continue to appeal call centres for help, and when faced with inadequate assistance they are encouraged to prefer computer-based interactions. More companies offer customers options to chat by text, audio and video, but on the other hand they also refer customers more frequently to virtual agents. The mobile facilities are not desirable for everyone, and at least not all of the time; having the most advanced technology is not always an advantage, except for tech-enthusiasts.

Companies that develop technologies and market hardware and software products and associated services are on a constant race to provide more advanced competent solutions. It starts to be a problem when too many companies are pursuing a single main course — mobile in our case. It is the kind of push induced by MWC’s organizers that should worry us. The interest of GSMA — a consortium of mobile telecom operators, joined by device manufacturers, software companies etc. (“broader mobile ecosystem”) — in putting mobile under the spotlight is clear. However, following the claim that “mobile is everything” can have negative consequences for many stakeholders in industry and also for the general public. There is a sense of rush to develop apps and all other sorts of mobile products and utilities that is concerning. It may never develop into a bubble as fifteen years ago because the conditions are different and better (i.e., stronger technological foundations, greater experience), but there are disturbing signs that should alert stakeholders.

It is hard to argue with the many conveniences that mobile phones, particularly smartphones, provide to consumers. Basically, if one is late for a meeting, wants to set a meeting point with a friend in the city, or just needs to update a colleague in the office about anything, he or she can call while being out on the way somewhere. It has become an invaluable time saver as one can settle any professional or business issues at work while travelling. Yet the elevation of mobile phones to computer-based ‘smart’ phones (and in addition tablets) has expanded greatly the number and types of tasks people can perform while being away from home or office. It is not just sending and receiving voice calls and SMS but also e-mails and various forms of updates on social media networks. Then one can check the news and stock prices, prepare shopping lists and compare products and prices while visiting shops, schedule a forgotten appointment for the doctor, order a table at a restaurant for the evening, listen to his favorite music, and far more. The point is that any minute one can find something to do with the smartphone; people cannot lose hold and sight of their smartphones. Smartphones no longer just serve consumers for their convenience but the consumers ‘serve’ the smartphones.

The motto of MWC could be right in arguing that for consumers ‘mobile is everything’, yet it is also complicit in eliciting the consumers to become even more preoccupied with their mobile devices and adopt forms of behaviour that are not honestly in their benefit. Consumers bear a responsibility to notice these effects and sanction their use of mobile devices reasonably. For instance, people not only can call others when convenient but may also be reached by others in less convenient times (e.g., by an employer). Talking and messaging while travelling on a bus, taxi or train is fine but there are stronger warnings now that people put themselves and others in greater danger if doing so while driving, because this diverts their attention from the road. Being preoccupied with their smartphones causes people in general to look less around them and be less communicative with other people. Immediately sorting every query on a website or app may get consumers hasten purchase decisions unnecessarily and also ignore other channels of resolution (e.g., consulting staff in-store). Finally, relying on mobile devices to find any information instantly online evokes people to make less effort to remember and accumulate new knowledge, to retrieve information from memory, and think (i.e., less cognitive effort).

The motto “Mobile Is Everything” sounds shallow and simplistic. Sweeping generalisations usually do no much good — they cannot be taken too seriously. Perhaps this title was meant to be provocative, so as to fuel the MWC with enthusiasm, but it can end up aggravating. The field of mobile telecom and digital technology has much to show for in achievements in recent years. There is no need to suggest that businesses and consumers cannot do without ‘mobile’ and should invest themselves even more fully into it. Using such a motto is not acting out of strength.

Mobile indeed is a great deal, yet is definitely not everything.

Ron Ventura, Ph.D. (Markting)

 

The location-based technology of beacons is a relatively recent newcomer in the retail scene (since 2013). Beacons provide an additional route for interacting with shoppers in real-time via their smartphones as they move around in stores and malls. Foremost, this technology is about marrying between the physical and the digital (virtual) spaces to create better integrated and encompassing shopping experiences.

It is already widely acknowledged that in-store and online shopping are not independent and do not happen completely separate from each other; instead, experience and information from one scene can feed and drive a shopping experience, and purchase, in the other scene. In particular, mobile devices enable shoppers to apply digital resources while shopping in a physical shop or store.  Beacons may advance retailers and shoppers another step forward in that direction, with the expectation to generate more purchases in-store. The beacon technology was received at first with enthusiasm and promising willingness-to-accept by retailers, but these subdued in the past year and adoption has stalled. A salient obstacle appears as consumers remain hesitant and cautious about letting retailers communicate through beacons with their smartphones and the implications it may have on their privacy.

In essence, beacons are small, battery-powered, low-energy Bluetooth devices that function as transmitters of information — primarily unique location signals — to nearby smartphones with an app authorised to receive the information. The availability of an authorised app (e.g., retailer’s, mall operator’s) installed on the consumer’s smartphone (or tablet) is critical for the communication technology to function properly. Upon receiving a location signal, the app is thereby triggered to display location-relevant content for the shopper in-store (e.g., product information, digital coupons, as well as store activities and services).

Additional requirements may be in force such as the retailer’s app being open during the shopping trip or that the shopper consents (opts-in) to allow the app receive information from beacons, but these do not seem to be necessary or mandatory conditions for the technology to work (e.g., an app may be set with ‘approval’ as default). Ambiguity that seemingly prevails about the extra requirements could be one of the sour points in the technology’s implementation. On one hand, the application of beacons is more ethical when setting up at least one of these requirements, and should endow it with greater credibility among consumers. On the other hand, any additional criterion for access of beacons to smartphones — assuming the app is already installed — could limit further the number of participating shoppers and reduce its marketing impact.

  • Only smartphones (and tablets) support apps, not any mobile phone. It should not be taken for granted that everyone has supporting smartphones, hence raising another possible limiting requirement on access for beacons (though in decline in developed countries). Another problem, yet, concerns the distinction between Apple iPhones operated with iOS and smartphones of other brands operated with Google’s Android — beacons have to work with either type of operating system and compatible apps but they do not necessarily do so (e.g., iBeacons are exclusive for Apple’s own mobile devices).

There are some more variations in the application of beacon technology in retail. Beacon devices may be attached to shelves next to specific product displays or to fixtures and building columns in positions aimed at capturing smartphones of shoppers moving in a close area (e.g., an aisle). If the beacon is associated with a particular product, the shopper may engage using the app by actively approaching the phone to the beacon. Otherwise, the app communicates with the beacons without  shoppers taking any voluntary action. Furthermore, some applications of beacon technology suggest sending information other than location signals from the beacon, such as product-related information, and receiving customer-related information by the beacon from the smartphone.

Reasonably, retailers would be interested first in applications of the technology for practical marketing purposes in their stores. However, beacon technology may also be utilised in research on shopper behaviour, a purpose now appreciated by many large retailers.

Marketing Practice in Retail

The instant sales-driven idea of application of beacon technology evoked by retailers is to introduce special offers, discount deals and digital coupons for selected products as shoppers get near to their displays. Notwithstanding this type of application, location-based features and services enabled via beacons can be even more creative and useful for shoppers, and beneficial for the retailers.

Relevance is key in achieving an effective application of the technology. Any message or content must be relevant in time and place to the shopper. That is, the content must be related to available products when the shopper is getting close enough to them. The content should not be too general in reference to any product in the store but to products in a section of the store where the shopper passes-by. Triggering an offer for a product just after the shopper entered a store is less likely to be effective, unless, for example, there is a special promotional activity for it in a main area of the floor. The retailer should not err in introducing an offer for a product item that is not available in the specific store at that time. Furthermore, if the app can link product information with customer information, it may be able to generate better content that is both location-relevant and personalised. The app could make use of accessible information on personal purchase history, interests and demographic characteristics. This higher-level application surely requires greater resources and effort of the retailer to implement.

The beacons’ greatest enemy could be their use for bombardment of shoppers with push or pop-up messages of offers, deals, discounts etc. This practice is suspected as a major fault in the early days of the technology that may be responsible for the slowdown in adoption lately. There could be nothing more irritating for a shopper if every few meters walked in the store he or she is interrupted by a buzz and message of “just today offer on X” that appears on the smartphone’s screen. Retailers have to be selective lest customers will avoid using their apps. It is much more important to produce adaptive, relevant and customer-specific messages and content overall (Adobe, Digital Marketing Blog, 4 February 2016).

  • The grocery retail chain Target, that launched a trial with beacons in 50 US stores in the second half of 2015, committed, for instance, to show no more than two promotional (push) messages during a store visit (TechCrunch.com, 5 Aug. ’15).

More intelligent and helpful ways exist to apply the beacon technology in interaction with the app than promotional push messages. First, content of the “front page” of the app can change as the shopper progresses in the store to reflect information that would be of interest to the shopper in that area of the store (e.g., show hyper-linked ’tiles’ for nearby product types). Second, beyond ‘technical’ information on product characteristics and price, a retailer can facilitate shopper-user access to reviews and recommendations for location-relevant products via the app. Third, if the shopper fills-in a shopping list on a retailer’s app (e.g., a supermarket), and the app has a built-in plan of the store, it can help the shopper navigate through the store to find the requested products, and it may even re-order the list and propose to the shopper a more ‘efficient’ path.

Beacons are associated mostly with stores (e.g., department stores, chain stores, supermarkets). However, beacons may also be utilised by mall operators where the ‘targets’ are stores rather than specific products. An application programme in a mall may command collaboration with the retailers (e.g., store profile and notifications, special promotional messages [for extra pay], content contributions).

In another interesting form of collaboration, the fashion magazine Elle initiated a programme with ShopAdvisor, a mobile app and facilitator that assists retailers in connecting with their shoppers through beacons. As an enhancement to its special 30th anniversary issue, Elle launched a trial project in partnership with some of its advertisers (e.g., Guess, Levi’s, Vince Camuto) to introduce their customers to location-based content with the help of ShopAdvisor (focused on promotional alerts)(1).

Consumers are concerned about tactics of location-based technologies like beacons that get intrusive and even creepy; they become adverse towards the way such apps sometimes surprise them (e.g., in dressing rooms). Indeed, only shoppers who installed an authorised app can be affected, but for customers who installed such a retailer’s app, with other benefits in mind, it can be disturbing at times. The hard issue at stake is how the app alerts or approaches its shoppers-users with location-based messages. Shoppers do not like to feel that someone is watching where they go.

The shopper may believe that if the app remains closed on the smartphone he or she cannot be approached. But if, as reported in CNBC News, a dormant app can be awaken by a beacon signal, this measure is not enough. This may happen because the shopper previously allowed the app to receive the Bluetooth signal or the app “assumed” so as default.  The shopper must take an extra step to disable the function at the app-level or device-level (Bluetooth connectivity). Retailers should let their customers opt-out and be careful in any attempt to remotely open their apps on smartphones (so-called “welcome reminders”), because imposing and interfering with customer choices may get the opposite outcome of removing the app.

The app may display ‘digital’ coupons for the shopper to “pick-up” and show later at the cashier (or self-service check-out). It is reasoned that if coupons are shown at the right time shoppers will welcome the offer, no resentment. The manner shoppers are alerted can also matter, by not being too obtrusive (e.g., “Click here for coupons for products in this aisle”). Shoppers told CNBC News that if digital coupons were offered to them by the app just when relevant, they would be glad to use this option, being more convenient than going around with paper coupons, but they would want the ability to opt-out.

Shopper Behaviour Research

The beacon technology may further contribute to research on shopper behaviour in stores or malls. Specifically, it may be suitable for collecting data of shopper traffic to be used in path analysis of the shopping journeys. The information may cover what areas of the store shoppers visit more frequently, how long one stays in a given area, and sequences of passes between areas.

Nonetheless, there are methodological, technological and ethical factors retailers and researchers have to consider. At this time, there are distinct limitations to be recognized that may inflict on the validity and reliability of the research application of beacons. Ethical issues discussed above regarding the provision of access of beacons to mobile apps furthermore apply in the research context.

This methodology involves tracking the movements of shoppers. Beacon technology may record frequency of visits in each area of the store separately or it may track the presence of a particular shopper by different beacons across the store. A beacon may also be able to send repeated signals at fixed intervals to a smartphone to measure how long a shopper remains in a given area. However, this type of research is not informative about what a shopper does in a specific location as in front of product shelves, and thus it cannot provide valuable details on her decision processes. Hence, retailers cannot rely on this methodology as a substitute for other methods capable of studying shopper behaviour more deeply, especially with respect to decision-making. A range of methods may be used to supplement path analysis such as interviewer’s walk-along with a shopper, passive observations, video filming, and possibly also in-store eye-tracking.

An implementation of the technology for research would require a comprehensive coverage of the premises with beacons, perhaps greater than needed for marketing practice. It should be compared with alternative location-based technologies (e.g., Radio Frequency Identification [RFID], Wi-Fi)  on criteria of access, range and accuracy, and of course cost-effectiveness. For example, the RFID technology employs tags ( transmitters) regularly attached to shopping carts — if a shopper leaves the cart at the end-of-aisle and goes in to pick-up a couple of products, the system will miss that; smartphones, however, are carried on shoppers all the time. Beacon technology may have an important advantage over RFID if location data is linked with customer characteristics, but this is a sensitive ethical issue and at least it is imperative to ensure no personal IDs are included in the dataset. All alternative technologies may also have to deal with different types of environmental interferences with their signals. Access would have both technical and ethical aspects.

A mixture of problems emerges as responsible for impairing the utilisation of beacon technology, according to RetailDive (online news and trends magazine), mainly consumers who do not perceive beacon-triggered features as useful enough to them and retailers troubled by technical or operational difficulties. Among the suggestions made: encourage pull of helpful information from beacons by shoppers rather than push messages, and speed-up calling staff for assistance via beacons (RetailDive, 17 December 2015). A recent research report by Adobe and Econsultancy on Digital Trends for 2016 indicates that retailers are becoming more reluctant to implement a geo-targeting technology like beacons this year compared with 2015 (a decrease in proportion of retailers who have this technology in plan or exploring it, against an increase in proportion of those who are not exploring or do not know). Conspicuously, there seems to be much more optimism about high effectiveness of geo-targeting technology at technology and consultancy agencies than among retailers, who seem to be much more in the opinion that it is too early (2). Agencies could have better understanding of the field, yet it signals an alarm of disconnect between agencies and their clients.

There is potential to beacon technology with clearly identifiable benefits it can deliver to retailers and consumers. It is still a young technology and requires more development and progress on various technical, applied and ethical aspects.  Promotional messages are  important tools but must be used in a good and sensible measure. A retailer cannot settle for a small set of fixed messages. It has to develop a dynamic ‘bank’ of messages, large enough to be versatile over products, (chain) stores, and consumer groups, and maintain regular updates. However, retailers have to develop and provide a more rich suite of clever content and practical tools based on location. Consumers will have to be convinced of the benefits enabled by beacons, yet feel free to decide when and how to enjoy them.

Ron Ventura, Ph.D. (Marketing)

Notes:

(1) “App Helps Target Shoppers’ Location and Spontaneity”, Glenn Rifkin, International New-York Times, 31 December 2015 – 1 January 2016.

(2) “Quarterly Digital Intelligence Briefing: 2016 Digital Trends”, Adobe and Econsultancy, January 2016 (pp. 24-25). The findings are considered with caution because of relatively small sub-samples of respondents on this topic (N < 200).

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