This is both an exciting and challenging time to be a retailer. Traditional brick-and-mortar stores face increasingly intense competition from other traditional retailers as well as competitors in the online and mobile retail channels. Consumers, armed with mobile devices, have more information than ever before about products, prices, and alternative places to buy products. A particular source of frustration for traditional retailers is the practice of showrooming, where consumers visit a store to look at merchandise, seek information and advice from salespeople, maybe even try on clothes, and then leave the store to make their purchases online from a company that offers lower prices.
Online retailers also face significant challenges. Maintaining an e-commerce website requires ongoing investment in new technologies designed to enhance the online shopping experience, increase operational and logistical efficiency, as well as maintain high levels of customer satisfaction. Thanks to social media, dissatisfied customers now have numerous forums for informing others about frustrating experiences they might have with a company. It can be difficult meeting customer expectations that seem to grow more and more demanding every day.
Companies that are branching out into mobile commerce face challenges as well. For years, industry pundits have said that mobile commerce, or m-commerce, is going to be huge. But those predictions have failed to materialize for a number of reasons, leaving some to question their investments in mobile technology. However, there are signs that mobile devices have finally begun to make an impact on retailing in noticeable ways. Nevertheless, the question still remains whether or not this emerging channel will become as big a force as some have predicted for years. In this chapter, you will read about the forces that are shaping consumer shopping behavior and the ways that traditional, online, and mobile retailers are using technology to address the many challenges they face.
Life is not easy for managers in the retail sector these days. The challenges faced by retailers have never been more complex, frustrating, and fraught with peril. Consumers are demanding, price-conscious, and easily swayed by competitors. Technology is both a blessing and a curse. Countless new and innovative technology “solutions” to retailing problems are offered by a dizzying array of vendors. Many of the newest technologies promise to give retailers a competitive edge in the marketplace but are unproven. Budgets for technology are limited, and making the wrong decision can lead to financial consequences, operational failures, and lost customers. However, because of intense competition, retailers cannot afford to be too conservative, or they risk losing out to competitors with technologies that enhance the shopping experience, reduce costs, integrate sales channels, and improve recordkeeping, data collection, and analysis of key performance indicators (KPIs).
Understanding and responding to consumer needs and behavior is the key to survival for the modern retailer. The challenge, however, is increasingly complex as retailers are confronted with a number of difficult industrywide trends and changing consumer behavior (Galgey and Pattinson, 2013).
As the retailing world began to evolve as a result of digital technology and the Internet, new channels emerged that were initially thought to be separate and distinct. Most retailers and a fairly large segment of the consumer market still view online shopping (e-commerce) and mobile commerce (m-commerce) channels as competing with traditional brick-and-mortar stores.
As you read in the opening case, Target feels threatened by customers who showroom its stores using mobile devices. However, as businesses learn about the full potential of mobile and other digital technologies, the distinction between the newer channels and in-store retailing is beginning to blur. While most businesses currently operate their e-commerce and mobile channels separately from the traditional retail channel, it is expected that strategies integrating the customer experience across channels will emerge, resulting in what the National Retail Federation (2011) refers to as the omni-channel retailing approach.
As illustrated in Figure 8.3, many businesses operate separate retail channels. For instance, in-store product prices may be different from those the customer finds on the company’s e-commerce website and direct mail catalog. Records of customer purchases from the e-commerce site may not be available to service personnel assisting the customer at the store level. But retail strategy is evolving. The ultimate goal is to offer consumers multiple brand-based “touchpoints” that leverage the strengths of each channel. For instance, a company with a truly integrated or omni-channel strategy might spark a customer’s interest using mobile advertising or direct mail catalogs. The customer then visits a brick-and-mortar store to examine the product firsthand and speak to a salesperson. In-store purchases might be made using one of the mobile payment methods discussed later in this chapter. If the store does not have the particular size or color of the product desired, the customer might order it by accessing the store’s e-commerce site with his or her smartphone by scanning a QR code placed strategically on an in-store display. The product would then be delivered through the mail. Product returns could be handled through the mail or returned to the store, depending on what is most convenient for the customer. Customer service reps in a call center would have a record of the customer’s purchase regardless of which channel the transaction had been completed through. The omni-channel strategy will also take into consideration the potential impact of social media, whereby customers interact with the brand on sites such as Facebook or Twitter and share brand experiences with others in their social network.
During the late 1990s, the idea of purchasing things online was still a novel concept. People who purchased books and other low-priced items from websites were seen as innovators. Nowadays, shopping for things online and finding the best deal by comparing online prices with those in brick-and-mortar stores are common consumer behaviors. In the past decade, the variety of goods and services available through e-commerce sites has skyrocketed. If you look through older textbooks in the IT field, you will find authors predicting that e-commerce will only be successful with low-priced consumer goods. But we now know that this is simply not the case. People today purchase everything from toothpaste to cars and diamond rings online. E-commerce in the B2B sector is even larger than it is in the B2C marketplace.
Retail sales via online channels, financial services, travel services, and digital products (e.g., music- and movie-streaming services) are widely popular forms of B2C commerce. The most well-known B2C site is Amazon.com, whose IT developments received U.S. patents that keep it ahead of competition. Many of these are described in IT at Work 8.1.
Entrepreneur and e-commerce pioneer Jeff Bezos envisioned the huge potential for retail sales over the Internet and selected books for his e-commerce venture. In July 1995, Bezos started Amazon.com, offering books via an electronic catalog from its website. Key features offered by Amazon.com were broad selection, low prices, easy searching and ordering, useful product information and personalization, secure payment systems, and efficient order fulfillment. Early on, recognizing the importance of order fulfillment, Amazon.com invested hundreds of millions of dollars in building physical warehouses designed for shipping small packages to hundreds of thousands of customers.
Amazon has continually revised its business model by improving the customer’s experience. For example, customers can personalize their Amazon accounts and manage orders online with the patented One-Click order feature. This personalized service includes an electronic wallet (e-wallet), which enables shoppers to place an order in a secure manner without the need to enter their address, credit card number, and so forth, each time they shop. One-Click also allows customers to view their order status and make changes on orders that have not yet entered the shipping process. To emphasize its large inventory of books, Amazon obtained registered trademarks for its retail slogans: “Earth’s Biggest Selection” and “If It’s in Print, It’s in Stock.”
Electronic wallet (e-wallet) A software application that can store encrypted information about a user’s credit cards, bank accounts, and other information necessary to complete electronic transactions, eliminating the need to re-enter the information during the transaction.
In addition, Amazon added services and alliances to attract more customers and increase sales. In January 2002, Amazon.com declared its first-ever profit during the 2001 fourth quarter; 2003 was the first year it cleared a profit in each quarter.
Amazon has heavily invested in its IT infrastructure and obtained patents for much of the technology that powers its website. The following list of patents gives a glimpse into the legal side of the e-commerce giant and explains why numerous major retailers, such as Sears and Sony, have used Amazon.com as their sales portal.
Amazon launched the Kindle e-reader in 2007. Its success demonstrated the viability of the e-book market and led to the entry of numerous competitors, such as Barnes & Noble’s Nook and the Apple iPad. E-books now account for about 30% of all books sold, and Amazon’s share of the e-book market is 65% (Bercovici, 2014). Since 2011, Amazon has sold more e-books than print books (Miller and Bosman, 2011).
In mid-2010, Amazon started rolling out a software upgrade for Kindle, adding the ability for users to share e-book passages with others on Facebook and Twitter. The new social networking feature in Version 2.5 adds another Web link to the standard Kindle and the larger Kindle DX, as Amazon finds itself in an increasingly competitive market because of the iPad’s features. The iPad is designed for reading digital books, watching online video, listening to music, and Web browsing, making it more of a tablet device than simply an e-reader. Amazon also created the Kindle app that can be used on a wide range of mobile devices, so now customers can purchase and read e-books from Amazon without having to purchase a Kindle reader.
Finally, as you read in Chapter 6, Amazon has been a pioneer in the development of recommendation engines designed to suggest products to customers based on their purchase history and shopping behavior. Amazon’s recommendation system is considered among the best in the industry.
Sources: Compiled from Gonsalves (2010), Rappa (2010), Bercovici (2014), Miller and Bosman (2011).
Several of the leading online service industries are banking, trading of securities (stocks, bonds), and employment, travel, and real estate services.
Online banking includes various banking activities conducted via the Internet instead of at a physical bank location. Online banking, also called direct banking, offers capabilities ranging from paying bills to applying for a loan. Customers can check balances and transfer funds at any time of day. For banks, it offers an inexpensive alternative to branch banking. Transaction costs are about 2 cents per transaction versus $1.07 at a physical branch.
Most brick-and-mortar conventional banks provide online banking services and use e-commerce as a major competitive strategy. Customers are aware that if they bank exclusively with a brick-and-mortar institution, they may be missing out on high-paying investment options or competitive loan rates that easily undercut those of many traditional banking entities. For an illustration of how online banks operate differently than traditional banks, see IT at Work 8.2.
While the first Internet-only bank, or direct bank, appeared in the mid-1980s, it wasn’t until around 2010 that these online institutions became mainstream. Some have attributed general consumer frustration resulting from the 2008 economic crisis with generating consumer interest in new, agile banking institutions that appear to be more responsive to consumer needs for convenience and customer support.
Banks have historically built their reputations on trust and consumer confidence that they would act ethically, protect consumers’ money, and make customer interests a priority. However, the financial crisis of 2008 led to large-scale consumer mistrust and frustration with traditional banks and financial services companies. Banking is now considered one of the least trustworthy industries by consumers (Edelman, 2013, O’Connell, 2013). Consumers also believe that irresponsible behavior by banking organizations was a primary cause of the economic meltdown that led to high levels of unemployment and fiscal uncertainty in the United States and across the globe (The Financial Brand, 2013).
Many banks only made matters worse during this period when they instituted a number of business practices that further alienated consumers (O’Connell, 2013). During a time when consumers were already frustrated with financial institutions because of the economic crisis, many banks hiked interest rates on loans, reduced the interest rate they paid on consumer savings and checking accounts, made it more difficult for consumers to open credit accounts, imposed new types of fees on consumer services, and oftentimes failed to transparently disclose information about fees and interest rates in promotional messages and other forms of communication with consumers. As a result, consumer confidence in the banking industry dropped to an all-time low following the 2008 financial crisis (Gallup, 2014). See Figure 8.4.
In an effort to take advantage of widespread consumer frustration and dissatisfaction with traditional banking companies, a number of new, smaller, and more agile banks are moving to offer alternative approaches to consumer banking services. Ally Bank is a popular Internet-only bank that is widely recognized for its success in developing a business model with significant appeal to retail banking customers.
Ally Bank, based in Midvale, Utah, is a subsidiary of Ally Financial, formerly GMAC, the financial unit of General Motors Corporation. Since its launch in 2009, Ally Bank has worked hard to create a public image that differentiates itself from business practices that caused consumers to mistrust and grow frustrated with traditional banks and financial service corporations. Ally’s marketing communications messages emphasize that it:
Apart from a brand image that differentiates Ally Bank from its competitors, the company uses technology to distinguish itself in three important ways:
Internet banks provide customers with the convenience of 24/7 banking services through the Web. Consumers access their account information using a computer, tablet, or smartphone. Deposits are made by scanning or photographing checks and transferring the image to the bank. Checks can also be mailed to the bank. Internet banks typically offer savings and checking accounts, certificates of deposit, retirement accounts, and various types of loans and mortgages. Because Internet banks do not bear the cost of maintaining physical branch offices, they often offer customers better interest rates and lower fees compared to traditional banks. To retrieve cash, customers use ATM machines. Many Internet banks reimburse customers for fees they incur when using the ATM machines of other banks.
Traditional banks have been reluctant to utilize social media channels for engaging consumers for fear of violating long-standing banking regulations that govern disclosures and consumer privacy. Given the current level of consumer frustration, many banks are probably also hesitant about what their customers are likely to say about them through comments, ratings, and reviews on social media. This hesitation to embrace new media has created an opportunity for upstart banking organizations such as Ally Bank. Since the Internet bank lacks a physical presence, social media is the primary channel for interacting with customers in ways that promote trust, confidence, and loyalty, key ingredients for maintaining long-term financial relationships.
Ally Bank is recognized as an industry leader when it comes to its innovative use of social media. According to Smith (2014), Ally Bank excels in three areas of social media:
Examples of Ally’s social media marketing include using Twitter to offer personal finance advice. Ally has also teamed up with Bankrate.com to sponsor a monthly, hour-long TweetChat (discussion group) called #AllyBRchat, where participants discuss a range of personal finance issues. The firm’s Facebook page is used to engage consumers with links to Ally’s “Straight Talk Blog,” opinion polls, and educational videos. On Ally Bank’s YouTube channel, visitors will find installments of financial advice programs with titles such as “Ally Bank Financial Etiquette,” “Discovering Retirement,” and “Behind the Scenes with Kiplinger.” Across all of these social platforms, Ally Bank offers consumers information, advice, and tools by posting over 1,500 pieces of content every month (Tejwani, 2012).
Ally Bank’s adoption of mobile technology follows the bank’s philosophy of putting the customer first and creating the most convenient ways for them to access and manage their money. According to Carrie Sumlin, a Digital Deposits Executive at Ally Bank, the company’s goal with both mobile and Web technology is to make sure that all applications live up to the promise of transparency, simplicity, and ease of use (Yurcan, 2014). First introduced in April 2012, Ally’s mobile apps offer a wide range of functionality including account management, bill payment, fund transfers to external banks, and a tool for finding ATM and cash-back locations. Managers at Ally Bank are constantly evaluating customer reaction to the mobile apps by monitoring how the apps are used, which devices are being used, and customer feedback collected through social media, Web-based consumer surveys, and calls to their customer service center.
In a 2015 study of the top 100 banks, Ally Bank was ranked #1 for its use of social media. The study reported that Ally demonstrated the highest level of engagement compared to other banks. Customers found a series of posts about DeEtte Sauer, who became a competitive swimmer and adopted a healthier lifestyle after retiring, particularly interesting. The company used Facebook, Twitter, and YouTube videos to tell her story. More than 60,000 people responded to the series by liking, commenting, or sharing Ally Bank’s posts. “Our goal was to engage consumers in a dialogue by featuring real-life retirees and their decisive financial turning points and actions that enabled their current retirement lifestyle,” according to a bank spokesperson (McCormick, 2016).
Ally Bank was rated among the best in the nation by the Pew Charitable Trusts for its use of best disclosure practices, evidence that the company is succeeding in its goal to be transparent about fees and other information important to consumers (Malone, 2014).
Ally Bank is regularly recognized by organizations and publications such as Money Magazine, Huffington Post, Kiplinger, Forester Research, and Bank Tracker as being among the best banks in the industry, providing the best banking website, and providing an excellent customer experience. For an extensive list of awards and recognitions, see the Media Center—Awards and Recognitions page on the Allybank.com website.
Ally Bank is clearly an innovator and a disruptive competitor in an otherwise tradition-bound industry that has not always been responsive to consumer needs. The company has distinguished itself by its innovative, technology-driven approach to providing financial services, a provocative and engaging marketing and branding strategy, and an ability to communicate with consumers through social media channels. In the short time that Ally Bank has been in business, it has attracted over 825,000 customers, manages $45 billion in retail deposits, and achieves customer satisfaction levels of over 90% (Ally Financial, 2014). It is recognized as a leader in the direct banking segment of the consumer banking industry.
International banking and the ability to handle trading in multiple currencies are critical for international trade. Electronic fund transfer (EFT) and electronic letters of credit are important services in international banking. An example of support for e-commerce global trade is provided by TradeCard (tradecard.com). TradeCard offers a software-as-a-service (SaaS) model that provides supply chain collaboration and a trade finance compliance platform.
Electronic fund transfer (EFT) A transfer of funds from one bank account to another over a computerized network.
Although some international retail purchasing can be done by giving a credit card number, other transactions may require cross-border banking support. For example, Hong Kong and Shanghai Bank (HSBC) has developed a special system, HSBCnet, to provide online banking in 60 countries. Using this system, the bank has leveraged its reputation and infrastructure in the developing economies of Asia to rapidly become a major international bank without developing an extensive new branch network.
Most companies and government agencies advertise job openings, accept résumés, and take applications via the Internet. The online job market is especially effective and active for technology-oriented jobs. While sites such as dice.com and monster.com can still be helpful, job seekers nowadays are employing a variety of social media tools, including the use of LinkedIn.com, to develop a network of contacts and establish an online reputation. A number of studies suggest that over 95% of recruiters use LinkedIn to identify prospective job candidates. Some candidates have used blogging as a way of creating a personal brand, establishing themselves as an expert in a particular area by sharing content that reflects their professional interests, expertise, and insight. For candidates that wish to employ this strategy without the hassle of maintaining their own personal blogs, LinkedIn provides a forum called LinkedIn Pulse. In many countries, governments must advertise job openings on the Internet.
Despite the tremendous growth of online retailers, many face challenges that can interfere with business growth. Major issues include the following:
Channel conflict Competition between a manufacturer’s distribution partners who sell through different channels. Channel conflict can occur at the wholesale, retail, or internal sales department level.
Online marketing planning is very similar to any other marketing plan. It is not a best practice, though, and somewhat strange, to devise separate online and offline plans because that is not how customers perceive a business. Here are several online business and planning recommendations:
In business-to-business (B2B) markets, the buyers, sellers, and transactions involve only organizations. B2B comprises about 85% of e-commerce dollar volume. It covers applications that enable an enterprise to form electronic relationships with its distributors, resellers, suppliers, customers, and other partners. By using B2B, organizations can restructure their supply chains and partner relationships.
There are several business models for B2B applications. The major ones are sell-side marketplaces and e-sourcing (the buy-side marketplace).
In sell-side B2B markets, there are basically two types of e-commerce: direct and marketplace. In direct e-commerce, organizations sell their products or services to other organizations from their own private website or one managed by a third party. This model is similar to the B2C model in which the buyer is expected to come to the seller’s site, view catalogs, and place an order. In the B2B sell-side marketplace, however, the buyer is an organization. B2B marketplace e-commerce takes place on websites where the products of many different companies can be purchased. The marketplace model creates much greater competition for the companies that sell their products on the site and therefore creates an advantage for buyers. For this reason, some sellers prefer the direct model. A recent introduction of a B2B marketplace website is Amazon Business. Alibaba is a wholesaling e-commerce site that primarily sells products from Chinese manufacturers to other companies around the world.
In an attempt to avoid the cut-throat competition that can be produced by marketplace e-commerce sites, some B2B sellers are integrating back-office solutions to their direct e-commerce sites that add extra value to their buyers and create exit barriers for customers. For example, integrated B2B solutions can include things such as digital order writing for fields sales staff, automated order sync, which integrates orders with accounting or other administrative software, and integrations with Enterprise Resource Planning (ERP) systems. These integrated solutions can streamline the procurement process, saving the buyer time and money, giving them a reason to stick with a seller that offers these benefits.
Some B2B sellers such as Dell Computer use auctions extensively. In addition to auctions from their own websites, organizations can use third-party auction sites, such as eBay, to liquidate items. Companies such as Overstock help organizations to auction obsolete and excess assets and inventories.
B2B e-commerce websites are used by hundreds of thousands of companies. This strategy can be especially powerful for companies with superb reputations. The seller can be either a manufacturer (e.g., IBM), or a distributor (e.g., avnet.com is an example of a large distributor in IT), or a retailer (e.g., Office Depot). The seller uses e-commerce to increase sales, reduce selling and advertising expenditures, increase delivery speed, and reduce administrative costs.
E-sourcing refers to many different procurement methods that make use of an electronic venue for identifying, evaluating, selecting, negotiating, and collaborating with suppliers. The primary methods are online auctions, RFQ (request for quote) processing, and private exchanges. E-sourcing also applies to many other secondary activities, which add to the cycle time and transaction costs when performed using traditional methods. Secondary activities include trading partner collaboration, contract negotiation, and supplier selection.
Corporate procurement, also called corporate purchasing, deals with the transactional elements of buying products and services by an organization for its operational and functional needs. Organizations procure materials to produce finished goods, which is referred to as direct procurement, and products for daily operational needs, which is referred to as indirect procurement. E-procurement refers to the reengineered procurement process using e-business technologies and strategies. Strategies and solutions linked to e-procurement have two basic goals:
The two goals of cost control and streamlining can be met in three ways:
Electronic data interchange (EDI) systems are typically set up by large companies for the efficient procurement of products from an assortment of established vendors. While EDI technologies predate large scale use of the Internet, most EDI systems now use the Internet as the primary method of transmitting data. EDI systems are designed as a way to efficiently exchange documents, eliminating many of the costs associated with processing paper documents. As such, they lend themselves to buyers and suppliers that need to convey information to each other in the form of purchase orders, invoices, bills of lading, customs documents, shipping status documents, payment documents, and so on. While EDIs use the Internet for data transmission, they are not accessible to the public. Instead, only approved or authorized vendors are given access to a company’s EDI system.
Exchanges are sites where many buyers and sellers conduct business transactions. They may be public or private, depending on whether or not they are open to the public. The two most common types of B2B online exchanges are vertical and horizontal exchanges. Vertical exchanges serve one industry (e.g., automotive, chemical), along the entire supply chain. Horizontal exchanges serve many industries that use the same products or services (e.g., office supplies, cleaning materials), although many exchanges sell a variety of wholesale goods, primarily to retail businesses.
Another important facet of managing procurement is demand management—knowing or predicting what to buy, when, and how much. The best procurement cost is zero, when people are not buying what they do not need.
In 1997, two Coca-Cola vending machines that accepted payment via SMS text message were installed in Helsinki, Finland. Ever since, industry experts and pundits have been predicting that mobile commerce was about to become “the next big thing” in marketing and the sale of consumer goods. Before we explore how mobile commerce has evolved since 1997, let us define some terms related to this topic:
Have you ever played popular mobile games such as Angry Birds, Candy Crush, or Pokémon Go? For years, games have been the most popular type of mobile app, second only to news apps. According to Business Insider, over 20% of the apps in Apple’s App Store were mobile games, the largest category. While many apps in this category are free, 93% of app downloaders are willing to pay for game apps, compared to 76% for news apps. While the average time that people spend playing mobile games is only about 2 minutes a day, “core gamers,” or the 20% that spend the most time playing, can log 1.6 hours a day or almost 12 hours a week. Revenue from the 2016 mobile game market is estimated to exceed $36 billion, and expect it to rise to over $52 billion by 2019.
To put this in perspective, in 2009, iOS and Android mobile gaming apps accounted for just 11% of the portable (handheld) gaming market dominated by Sony and Nintendo. By 2017, mobile games accounted for 37% of the overall gaming market. It is also the fastest growing segment (+21.3%) compared to PC games (+3.4%) and game consoles (+0.9%). Clearly, mobile gaming apps have become a disruptive force in the marketplace, displacing two historically strong companies who underestimated the potential of the mobile platform for gaming. Even more impressive is the fact that the aforementioned statistics are based on revenues produced by paid downloads and don’t reflect the millions of free games downloaded every year. But even free games make money through advertising and in-app purchases. Some games, such as Angry Birds, become so popular that they generate additional revenue through sales of game-related merchandise (Figure 8.5).
Sources: Compiled from Meola (2016), Statista.com (2016), Asante (2012).
These four terms are not mutually exclusive. Mobile e-commerce, mobile retailing, and mobile marketing are all forms of mobile commerce. Mobile e-commerce emphasizes the use of mobile apps and mobile websites for carrying out transactions and does not necessarily involve interaction with a traditional retail store. Mobile retailing, on the other hand, emphasizes in-store shopping using a mobile device but could include situations where the customer ultimately orders from a website or mobile app. Mobile marketing is the term used to describe promotional strategies and tactics that encourage both mobile e-commerce and mobile retail. See IT at Work 8.4 for examples of mobile marketing. This overlap is a reflection of the evolution toward the omni-channel retail concept discussed earlier in the chapter (see Figure 8.3).
Industry analysts expect advertising in the mobile channel to heat up. Increasing numbers of smartphones, better browsers, enhanced GPS capabilities, and better ways of measuring advertising effectiveness are all factors powering this growth. The following are a few examples of wireless advertising in action.
Foursquare.com was one of the most popular apps in the emerging field of mobile location-based marketing and mobile advertising. It used social media and gamification to encourage users to share their location through mobile check-in. However, now that many other apps and social media platforms offer similar features, Foursquare has become less popular. But the number of companies using location-based marketing continues to increase.
Mobile location-based marketing A marketing strategy that uses information from a mobile device’s GPS or customer’s mobile check-in on a social network to determine the content of marketing communications they receive on the device (e.g., advertisements, coupons, special offers).
Another location-based mobile marketing app is Shopkick. When the Shopkick app is activated, users receive points when they visit a participating retailer. Retailers use the app to encourage and reward specific kinds of shopper behavior. Shopkick points are used to reward consumers for visiting specific locations in a store, purchasing products, scanning featured products, and even participating in brief surveys. Shoppers often receive targeted discounts and promotional offers when they are in a store. Shopkick users can trade in their points for restaurant vouchers, iTunes cards, or gift cards from participating retailers.
Sources: Compiled from Williams (2016), Gevelber (2016), YellowPages.com
Although there have been some interesting and even successful examples of m-commerce since 1997, predictions about mobile technology becoming a pervasive force in consumer retailing have proven overly optimistic over the years. There are several reasons why consumers and businesses have been slow to embrace m-commerce:
However, many of these barriers have been reduced or eliminated. As you read in the previous section, the number of people who now own mobile devices, particularly smartphones, has grown dramatically. According to one widely quoted statistic, more people own cell phones today than own toothbrushes! Telecommunications carriers have expanded their coverage of populated areas using high-speed networks. Modern smartphones and tablet devices have features that make shopping via bright colorful screens fun and easy. Mobile devices have become the dominant way that people engage in some types of Internet activity, such as using social media, while other reports indicate that more people use mobile devices now than use personal computers. While security will always be an evolving concern, consumer comfort with completing transactions on mobile devices continues to grow. A number of mobile payment methods are emerging that are more convenient than traditional transaction methods. So after years of waiting, it appears that earlier predictions about m-commerce are finally starting to come true. In this section, we will describe some of the many ways businesses and consumers are using mobile technologies to buy and sell goods and services.
Integrating mobile technology with a brand’s retail and e-commerce strategy provides another important benefit to business: customer information and identification. When customers interact with a brand using a mobile device, information is collected about the customer that can be used to optimize the interaction. For instance, when customers use a brand’s mobile app to shop for products, their shopping experience can be customized based on the company’s knowledge of previous purchases, payment methods, product preferences, and even location.
Not all tracking systems rely on user smartphones. Disney uses signal emitting wristbands to make everything in the Magic Kingdom more magical. The wristbands aid guests with hotel check-ins, replace tickets for park admission, make it easy to reserve times for popular rides, and even help Disney employees to deliver the correct dinners to hungry guests in large, crowded restaurants. Still, retailers and the makers of in-store tracking systems need to be concerned about consumer backlash related to this new technology since less magical applications are considered “creepy” by many shoppers. Therefore, it is important that brands involved in mobile e-commerce and mobile retailing have clear privacy statements and use an opt-in system to obtain permission from customers before tracking their online and offline shopping behaviors.
While relatively few businesses fully utilize mobile tracking and monitoring systems at present, as brands become more sophisticated with mobile technology, it is expected they will strive to gain a competitive advantage by using this information to provide better service, convenience, and a more personalized, enjoyable shopping experience, both online and in traditional stores.
Mobile browser A Web browser that is optimized to display Web content effectively on a small mobile device such as a smartphone.
Some experts believe, however, that QR code technology is never going to be as popular in the United States as it is in Asia. They cite studies reporting that many smartphone users simply do not know what to do with a QR code. Other research suggests users think that the scanning process is inconvenient or that QR codes frequently direct users to pages that do not really contain anything of interest. For QR codes to become something American consumers use frequently, businesses will have to prove that they help mobile users find content that is interesting and valuable. Mobile visual search technology is emerging as an alternative to QR codes. See Video Case 8.3 at the end of this chapter for additional information.
Mobile visual search engine A search engine that uses an image instead of a text-based query to search for information on the Web.
Mobile entertainment is expanding on wireless devices. Most notable are music, movies, videos, games, adult entertainment, sports, and gambling apps. For more information about the most popular mobile app category, mobile gaming, see IT at Work 8.3.
Sports enthusiasts enjoy a large number of apps and services on their mobile devices. Apps exist to check game scores; track news about specific athletes, teams, or sports; take part in fantasy team contests such as fantasy football; and participate in sports-oriented social networking services. A number of sports-related games such as mobile golf and sports trivia apps are widely available. There are even apps designed to provide tips and information for improving your own athletic performance. Apps are available to record workout times, schedule training exercises, record heart rates and a variety of other information related to athletic training. The iPhone even has an app that analyzes a person’s golf swing and provides advice for improving performance.
ESPN is widely acknowledged as a leader in mobile marketing to the sports fan. It offers a number of popular branded mobile apps that deliver information and entertainment to its target audience. It also utilizes well-designed mobile websites and has a large database of fans that have opted in to receive sports-related news alerts sent to their phones via text messages.
Industry analysts predict that recent improvements in mobile devices will lead to an even bigger increase in the number of people who watch video clips, movies, and television programming on their mobile devices. The screen size of tablet computers make watching video programming more attractive than on a smartphone. However, the number of people viewing video on smartphones seems to be increasing as well as smartphone sizes increase. Popular fee-based video streaming services such as Netflix, Amazon, and Hulu now offer mobile apps for most mobile devices.
The iTunes Store, Google, and Amazon continue to be leading distributors of digital music, movies, TV shows, e-books, and podcasts available to consumers. Mobile users can also access music from digital streaming sites such as Pandora.com and Spotify.com. Both of these services offer free streaming music. Users can upgrade their accounts by paying a subscription fee, which then reduces the amount of advertising they are exposed to.
While still relatively small, the mobile gambling industry is expected to grow substantially over the next few years. Some predict that this type of mobile commerce could generate as much as $20 billion in the near future. Primary growth of this market is expected to take place in Japan and other Asian countries, such as horse racing in Hong Kong. Current laws in the United States prohibit most forms of online gambling; consequently, gambling via mobile devices is largely unavailable in the United States.
Many mobile apps are available for consumers interested in home-based entertainment activities. The Food Network offers an app with tips and recipes for fine dining and entertaining. Martha Stewart publishes articles about home entertainment and lifestyle apps while a number of bartending apps with numerous recipes for cocktails and party drinks can be found on iTunes and Google Play.
In recent years, smartphones and other mobile devices have become essential travel aids. Most major airlines, hotel chains, and Internet travel agencies have developed mobile apps to help travelers manage their arrangements. Airlines frequently give passengers the option of receiving up-to-date information about their flights through an app or via SMS text messaging. Google Maps is perhaps one of the most popular apps used by travelers, particularly those traveling by automobile. Even AAA, the automobile club, has a mobile app that helps drivers plan their trips and an app for drivers who need roadside assistance. Other interesting mobile travel tools include apps that translate voice or text when traveling abroad, apps for finding nearby Wi-Fi hotspots, and apps created by a number of popular travel guides.
Most large hotel chains, independent hotels, and inns offer guests in-room, wireless high-speed Internet connections, although this is not always a free service. Some of these same hotels offer Wi-Fi Internet access in public areas such as the lobby and meeting rooms. Larger hotel chains have apps that allow guests to make reservations, check their bills, and locate hotel services using a mobile app. Starwood, Hilton, and other hotels have mobile check-in programs whereby guests use their mobile devices to gain access to their rooms. This makes it possible to check in to the hotel without having to stop first at the front desk. Most airlines now offer travelers the option of loading a boarding pass onto their mobile devices (see Figure 8.8).
More people access social media from social apps than from personal computers now. As a result, Facebook and other popular sites have added mobile features in recent years to stay competitive. Some social media, such as the popular Snapchat platform, is entirely app based. Much as Web-based social networking, mobile social networking occurs in virtual communities. All of the most popular social networking sites offer apps that allow users to access their accounts from a smartphone or other mobile device, making social media a primary driver of growth in the mobile app industry.
Consumers use mobile devices for a wide range of shopping and other activities. As discussed in the case at the beginning of this chapter, shoppers are using mobile devices to compare prices, research products prior to purchase, and identify alternative product options and alternative retailers. Increasingly, mobile devices are becoming an attractive way to pay for products. Mobile payment is increasingly being accepted by retailers and is popular with consumers who now can use a variety of apps available on iTunes, Google Play, and from banks, credit card companies, and even smartphone manufacturers such as Samsung. Some forms of mobile payment represent an attractive option for consumers who do not have credit cards. Additionally, retailers may benefit from new payment options that carry lower transaction costs compared to what banks charge when credit cards are used. In 2016, approximately 38.4 million Americans will have used a mobile phone to purchase goods or services at least once in the preceding six months. That’s only 19.4% of U.S. smartphone users; however by 2020, the figure is expect to increase to 33.1%. Proximity mobile payments, a common method based on RFID (Radio Frequency Identification) technology, are expected to reach $62.49 billion in 2017 and increase to more than $314 billion by 2020. RFID payment systems typically allow consumers to transfer payment authorization to a vendor by simply tapping on or passing their phone over the vendor’s mobile payment terminal.
While most consumer mobile payment systems are based on the use of a smartphone and related technologies such as SMS text messaging, some companies are building mobile payment into wristbands, key fobs, watches, and similar wearables. Lyle and Scott, a Scottish knitwear brand, has even built mobile payment into a jacket (more specifically, the wrist cuff of the jacket).
As mobile commerce grows, a greater demand exists for payment systems that make transactions from mobile devices convenient, safe, and secure. A number of businesses have attempted to meet this demand using a variety of technologies. There are two basic transaction types of interest: using a mobile device for the online purchase of goods and services (e.g., ordering a book from Amazon.com) and for payment of goods and services in a traditional brick-and-mortar store. Here are examples of some approaches under development or in use today:
Almost all of the payment systems thus described are illustrated by videos on Youtube.com. Interested readers are encouraged to view these video resources for a more complete explanation of how the different mobile payment systems work.
Wireless payment systems transform mobile phones into secure, self-contained purchasing tools capable of instantly authorizing payments over the cellular network. One advantage of many mobile payment systems over traditional credit card systems is the ability to handle micropayments or transactions involving relatively small sums of money. The ability to make micropayments allows individuals to use their mobile devices to do things such as purchase a beverage from a vending machine or make a payment to a municipal parking meter. Many cities in Europe, and a growing number in the United States, have adopted mobile phone payment systems for parking and report dramatic increases in revenue because of the reduction in loss due to theft and broken meters and the reduced expense associated with collecting cash from traditional meters.
Mobile banking is generally defined as carrying out banking transactions and other related activities via mobile devices (Figure 8.9). The services offered include bill payments and money transfers, account administration and checkbook requests, balance inquiries and statements on an account, interest and exchange rates, and so on.
Banks and other financial institutions allow customers to use mobile devices for a wide range of services (see Table 8.2).
TABLE 8.2 Most Common Mobile Banking Services
Source: Mobile Marketing Association (2009).
Account alerts, security alerts, and reminders |
Account balances, updates, and history |
Customer service via mobile |
Branch or ATM location information |
Bill-pay (e.g., utility bills) and delivery of online payments by secure agents and mobile phone client apps |
Funds transfers |
Transaction verification |
People access financial services using a combination of mobile media channels including SMS, mobile Web browsers, and customized apps. Mobile banking is a natural extension of online banking services, which have grown in popularity over the last decade.
Throughout Europe, the United States, and Asia, an increasing percentage of banks offer mobile access to financial and account information. In 2009, ABI Research evaluated 29 U.S. banks on accessibility of their mobile banking services. Six of the banks received top marks: BB&T, Eastern Bank, Fifth Third Bank, Northeast Bank, USAA, and Wells Fargo. Bank of America and Chase also received positive evaluations.
In Sweden, Merita Bank has pioneered many services, and the Royal Bank of Scotland offers mobile payment services. Banamex, one of Mexico’s largest banks, is a strong provider of wireless services to customers. Many banks in Japan allow all banking transactions to be done via cell phone. Experts predict that growth in the mobile banking services sector could reach between 894 million and 1.5 billion customers globally by 2015. The Asia-Pacific region is expected to emerge as the predominant market for mobile banking services (berginsight.com, 2010, Global Industry Analysts, 2010).
Banks and financial service organizations have two basic options for providing mobile services. Smartphone users can download dedicated apps to conduct banking transactions. The other option is to provide service through SMS (text message) technology. As you know, text messaging is still widely popular, even with people who use smartphones. Many mobile financial services make use of short codes for sending SMS texts. A short code works similarly to a telephone number, except that it is only five or six characters long and easier to remember. Businesses lease short codes from the Common Short Code Association (CSCA) for $500 to $1,000 a month. The lower price is for randomly assigned codes, whereas companies that want a specific short code pay a higher monthly rate. Once a company has leased its short code, it can begin using that code in promotions and interactive exchanges with customers.
Short codes are used for a wide variety of SMS text services, not just financial services. For example, voting on the popular television show American Idol is done with short codes. Each contestant is assigned a specific short code, and viewers are encouraged to send text messages indicating which performer they like the best. The annual MTV Movie Awards also uses short code voting, which allows viewers to pick the winning entry in certain prize categories. On some telecommunications networks, ring tones are sold using short codes and SMS texts.
At present, the benefits associated with mobile banking seem to outweigh potential security threats. However, as the number of people who engage in mobile banking increases, the likelihood that criminals will target mobile financial activity is sure to grow as well. What kinds of threats exist to mobile banking? Table 8.3 lists the most common mobile banking risks.
TABLE 8.3 Mobile Banking Security Risks
Sources: Compiled from Howard (2009), McGee (2008), and Mobile Marketing Association (2009).
Cloning Duplicating the electronic serial number (ESM) of one phone and using it in second phone, the clone. This allows the perpetrator to have calls and other transactions billed to the original phone. |
Phishing Using a fraudulent communication, such as an e-mail, to trick the receiver into divulging critical information such as account numbers, passwords, or other identifying information. |
Smishing Similar to phishing, but the fraudulent communication comes in the form of an SMS message. |
Vishing Again, similar to phishing, but the fraudulent communication comes in the form of a voice or voicemail message encouraging the victim to divulge secure information. |
Lost or stolen phone Lost or stolen cell phones can be used to conduct financial transactions without the owner’s permission. |
Understand how businesses use the Internet and use the mobile web to extend their retail reach.
augmented reality
barcode
business-to-business (B2B)
channel conflict
corporate procurement
corporate purchasing
demand management
digital dependents
digital immigrants
digital natives
direct procurement
disruptive innovation
e-commerce
electronic fund transfer (EFT)
electronic wallet (e-wallet)
e-procurement
e-sourcing
horizontal exchanges
indirect procurement
in-store tracking
micropayments
mobile browser
mobile check-in strategy
mobile commerce
m-commerce
mobile display strategy
mobile location-based marketing
mobile marketing
mobile payment
mobile retailing
mobile visual search engine
MRO supplies
omni-channel retailing
quick response (QR) codes
short code
short message service (SMS)
showrooming
SMS database strategy
social commerce
vertical exchanges
Mobile technologies are considered a disruptive innovation because they have the capability of transforming traditional business practices by creating new value networks, spawning new markets, and eventually displacing earlier technologies. Popular examples of disruptive innovation include Apple’s iTunes service that replaced music CDs with downloadable digital mp3 files. Netflix and other movie-streaming services disrupted the previous model of distributing movies on DVDs through brick-and-mortar retail outlets. Several companies are now exploring the use of mobile technologies as a disruptive innovation in the college textbook market.
End users (college students) have traditionally had very little power in the college textbook market. Textbook publishers promoted their products to college professors who decided what books are required for their courses. Competition at the retail level was for the most part nonexistent—students almost always had to purchase textbooks from a college bookstore or a used textbook from another student.
All that began to change, however, with the emergence of e-commerce. Nowadays, students have a range of options for purchasing new and used textbooks, renting textbooks, reading books online, or purchasing textbooks in an e-book format. Publishers and booksellers who once held fairly secure positions in the distribution channel now face competition from a variety of nonconventional sources, including online retailers (e.g., Amazon), C2C (consumer to consumer) e-commerce sites (e.g., Craigslist, eBay, half.com), and publishers who sell directly to students (e.g., Flatworld Knowledge).
As part of this industry restructuring, Chegg.com began renting textbooks to students in 2007, creating an alternative to purchasing from college bookstores and online booksellers such as Amazon.com. While renting textbooks was an innovative approach at the time, Chegg managers realized that to remain competitive, they needed to position their company in a way that was not focused on a particular product form (e.g., printed textbook) or distribution method (e.g., retail bookstore). Instead, Chegg set out to create a learning network for students, offering a range of products and services through various channels that enhance students’ educational experience. See Table 8.4.
TABLE 8.4 The Chegg Learning Network
Source: Chegg.com (2012).
Purchase New/Used Textbooks Online, mobile app, or mobile website |
Renting Textbooks Online, mobile app, mobile website, and bookstores and rental stands at select colleges |
Homework Help Q&A Online and mobile website |
e-Textbooks Cloud-based mobile textbook reader |
Course Reviews, Grade Distributions, and Schedule Planning Tools Online and mobile website |
Mobile technology has been a key component of Chegg’s value strategy from the beginning. In 2009, just 2 years after entering the rental market, Chegg created a mobile website and an SMS-based service that made it possible for students to check rental prices for textbooks by texting the ISBN number of the book they were interested in. The following year, Chegg launched an app for iPhone and iPad users. Android users can still access services from the company’s well-designed mobile site. In 2012, Chegg launched a cloud-based e-textbook reader designed to give students access to their textbooks from a wide range of mobile devices. While Chegg is not the first company to make textbooks available online, the e-textbook reader provides powerful features for highlighting text, taking notes, and checking word definitions. Users can view Key Highlights or material crowdsourced from the highlighting activities of other students using the reader. Finally, readers can access Chegg’s Always on Q&A Service, where students ask questions about various academic subjects and often receive an answer back from subject matter experts within hours.
Despite Chegg’s innovative and customer-oriented strategy, it faces an increasingly competitive marketplace. Well-funded competitors such as Amazon.com and Barnes & Noble now offer textbook rentals and e-textbooks with some of the same features as Chegg’s reader. VitalSource is another online vendor offering digital content from major publishers such as Pearson, Cengage, McGraw Hill, and John Wiley & Sons (the publisher of this textbook). VitalSource provides a number of mobile apps for various devices as well as the capability to read texts through mobile browsers (no app download necessary). Finally, Apple has announced its desire to transform the textbook market in much the same way it changed the music business. However, the existing list of companies that are already practicing disruptive innovation may make it more difficult for Apple to have quite the same impact as it did in the music business.
Sources: Chegg.com (2010), Conneally (2012), Wired Academic (2012), Crook (2009), Eldon (2012).
Earlier in the chapter, you read that U.S. consumers were not responding to QR code marketing with the same enthusiasm as Asian consumers. In response, some companies are experimenting with an alternative to QR codes called mobile visual search (MVS) technology. MVS is an image recognition technology that proponents claim will be more attractive to consumers.
With an MVS app, users scan the pictures they find on product labels, catalogs, or advertisements. This initiates a search function that returns information to the user. Depending on the MVS app used, the search information might be general in nature, similar to what you get when conducting a search on Google. Or, the app may return specific information, for instance, a page where the user can order the product. This technology has spawned a new industry of mobile visual search services that include companies such as BuzzAR, Blippar, and, of course, Google (see Figure 8.10).
Find and watch videos of three different MVS applications on YouTube or other video-sharing sites:
MVS Application/Developer | Videos at YouTube.com |
Goggles/Google | Search for “Google Goggles Experiment Video” |
LTU Mobile | Search for “Shopgate–Mobile Shopping” |
Blippar | Search for “Unlock the world around you - #DiscoverMore with Blippar” |
You may find videos about other MVS apps by entering “mobile visual search” into the YouTube search engine. Get the latest news and information about MVS by searching on the phrase “mobile visual search” using Google or another search engine. Compare and contrast MVS with marketing strategies using QR codes.