In 1993, if a customer strolled into a discount retail store like K-Mart, talking on a cell phone – err, mobile phone, it would likely have drawn some glances. A global positioning system device, would’ve caused some raised eyebrows. What about a camera recording video and audio and a catalog of all of K-Mart’s competitors’ offerings and prices? It would probably have gotten the shopper tossed out.
But thanks to smart phones you’re more likely to see Bluetooth devices than blue light specials in the retail world today. And banning smart phones in the retail world because they can record video is about as pointless as banning the recording of concerts (it’s still illegal) or traffic stops (it’s never was illegal). But the use of barcode-reading smart phone apps goes beyond privacy concerns, or simply annoyance. It’s created a real battleground between new and traditional sales, between internet retailers and traditional brick-and-mortar business.
Looking at Amazon as the prototype for this conflict, I have to confess that I use Amazon on a pretty regular basis. I purchase many items on Amazon that are standardized, where price is the key trait, such as K-Cups for a Keurig coffee maker. But I shy away from buying shoes online for fear of having to return them because the fit isn’t quite right. I suspect that these traits are typical. Amazon knows this as well. The online retail giant makes it easy to search for items by lowest price, and they have come a long way in taking the hassle out of their return policy. But if my experience is typical, it illustrates the pattern in the tug of war between retailers and e-tailers: Product Differentiation and Product Customization.
Product Differentiation is one of the driving forces of market innovation and causes consumers to pay a premium. Strictly speaking, the economist would say that a cheeseburger and a Big Mac are substitute goods, but there is enough difference between them that some consumers will pay more for Big Macs. Product Customization is the degree that any particular product must be customized to the consumer. Clothes, wood decks, and gold teeth are rarely “one size fits all” items. Amazon thrives on low product differentiation and low customization.
Traditional retailers tend to hold more sway with consumers when products differ from the competition or must be custom-made or custom-fit for the consumer.
Though Amazon has dominated low-price and non-customized goods, these market forces create a door that swings both ways. Bar code scanning apps have been around since at least 2008. If you haven’t used bar code scanners for smart phones, here’s how the process works. After downloading an app, such as Amazon’s iPhone app, a shopper enters a store and notices that a bottle of Dr McGillicuddy’s Root Beer Schnapps sells for $18.99. Pulling out his trusty iPhone app, the shopper uses the phone’s camera to scan the bar code on the item. Voilà! Like so much cyber-shopping magic, Amazon tells the shopper that the same item sells on Amazon.com for just $16.99. This discriminating shopper – though apparently an indiscriminate drinker – can save two whole dollars on his upscale liquor, which he will undoubtedly apply to the rental of an Adam Sandler film.
Early in the roll-out of these apps, retailers lamented the use of their expensive floor space as a mere showroom for e-tailers like Amazon. Some even tried to enact store policies to prevent customers from using the apps – a step doomed to send customers out of the store entirely. Since then many retailers have used QR codes, which use nearly identical technology.
Most QR code promotions do little more than take the consumer to a promotional website. I have never seen a QR code used effectively to influence a discrete point-of-purchase decision. QR Codes might have longevity with the extreme couponing crowd, but that’s about it.
However, the very features that make Amazon flock to give its users convenience can – and in some cases already do — help retailers compete with Amazon. There are ways for brick and mortar businesses to leverage smart phone technology.
1. Consumer Education. Imagine a consumer shopping for a new camera lens for his Nikon digital SLR. He starts online: he reads about the specs, he searches reviews of users, he browses photography websites to see what images can be captured. By the time he makes his decision to buy, he already understands more about the lens than the blue shirt kid at Best Buy who was probably just going to read the back of the box anyway. As a result, whether he buys at Best Buy or at Amazon, he doesn’t take the time of a Best Buy associate that he would have taken 20 years ago. He’s not asking product questions, waiting for the blue shirt to get his supervisor to answer the questions, and following up with warranty questions. So even though Amazon may take the sale in the end, there will be many sales that Best Buy keeps – and many of these have higher margins because Best Buy will need fewer blue shirts in the long run, driving down its cost. In a sense, Amazon – and the internet in general — has underwritten the cost of informing consumers.
2. Wish List Illustrations. This Amazon feature, now copied by many other retailer apps, allows consumers to build multiple lists for future shopping and save items to quickly review at a later time, without beginning a search anew (i.e., Christmas List, Accessories for My 1989 Chevy Nova, or Things to Send to My Secret Family in Guatemala, etc.) Consumers can access these lists through Amazon’s smart phone app. Like any shopping list, the retailer benefits because the more things that a shopper remembers she needs, the more things she will buy. If the shopper is glancing at the list while in Walmart, then Walmart will make sales thanks to this technology. But the list can also be shared. That means anybody can highlight the prices of a handful of items on Amazon and create a link to the web page of that list. A creative brick and mortar retailer could use the scanning feature of a smart phone to feature a weekly list at the front door that shows shoppers: “Items that Will Cost You More on Amazon.com” with a QR code that takes the shopper to a list of a half-dozen or so items on Amazon’s own mobile website that are more expensive than the retailer’s prices.
3. Shipping Awareness. On both its mobile and standard websites, Amazon has successfully delayed the reality of shipping costs until the end of the online purchasing process. This obscures the cost for consumers, who don’t always accurately account for the increase that shipping costs add to a purchase. Others don’t read the fine print about which items might arrive in a few days and which might take longer. Advantage: Amazon. But once again, retailers can use Amazon’s own information in the battle for the consumer mind. A retailer could identify 10 items in the store that it thinks would be the target of Amazon’s barcode-scanning app and post a display:
Amazon.com ships this item from its warehouse in Hoboken, N.J. USPS Ground Shipping for this item will take about 5 days and cost you an additional $8.00.
4. Mom and Pop Guilt. I’ve always thought that “Shop Local” campaigns were a bit of a mixed bag. Setting aside that the second word really should be an adverb – i.e., Shop Locally, I’m never quite sure about the attitude behind the phrase. Is that Shop Local “because we have quality goods at reasonable prices and it’s convenient”? Or Shop Local “because if you don’t you’re putting your neighbor out of work, you monster”? Either way, most consumers have a perception of responsibility to the local economy. Amazon does not. So what technology can press this advantage?
- Groupon and LivingSocial provide financial incentives for consumers and retailers.
- Yelp allows retailers to respond to consumer reviews.
- Twitter is a direct consumer pipeline, but consumers have to know why to follow you. After all, nobody ever willing volunteered to get junk mail. Like the dead neighbor’s cat, it just starts showing up.
- And yes, Facebook. While its popularity with the 18-25 set is declining, the coupon-cutting, cost-conscious consumer with a mild case of Shop Local isn’t in the 18-25 age group. By all means, have a Facebook account. But balance the promotional stuff with useful community-driven information. Congratulate the local little league team you sponsored, or remind your FB friends to change their clocks when Daylight Savings time starts again. It’s not enough just to remind consumers that you are local. You have to remind them why that matters.
Then again, there’s no guarantee that a mom and pop store holds sway with consumers:
– George Costanza
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