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Mobile Payments: How Much Should I Care, and When?

BY CSA STAFF

By Brett Conradt, [email protected]

Mobile payments have been growing impressively, but recent estimates suggest they represent less than 1% of total global retail sales. Many retail executives may be wondering whether the technology is worth investing in right now. Before getting into the issues to consider, let’s start with some background.

Mobile payments typically involve a device such as a smartphone that houses all of a consumer’s credit cards and other information, such as store loyalty programs and shopping preferences. Instead of sliding a traditional credit card through a slot or handing over cash, they generally wave or touch their device to some type of receiver that is integrated into the cash register processing system (unlike some other free-standing technologies that may both send and receive credit card payments over smartphones)

What’s been holding mobile payments back?
A range of players are all offering competing mobile payment solutions, including credit-card issuers, payment networks like Visa and MasterCard, alternative payment systems like PayPal, social networks, as well as mobile service providers and phone technology companies. The choice of options can be overwhelming as well as inconvenient, since consumers need different payment systems for various places they shop.

A few of the mobile-payment services have started to gain critical mass. But from a user perspective, none have a clear technical advantage; each has its own pluses and minuses, and they all vary in terms of which retailers accept them. Unlike credit cards, where retailers can accept those from multiple providers because they’re all processed through the same systems, different mobile payment technologies can require different types of readers, with the new hardware further eating up already precious retail counter space.

It will ultimately come down to which service wins the broadest adoption. Adoption is a two-part, self-reinforcing cycle, as consumers and retailers nudge each other in one direction or another. From a consumer perspective, the choice starts very simply with which solution lets an individual shop at more of his or her favorite places. But there is also the question of partnerships and benefits and, to some degree, even brand cache — that elusive “cool” factor. In the same way that a credit card company might partner with an airline to develop programs designed to lure frequent fliers, we’re seeing the development of targeted reward systems offering extra services, discounts, or free items based on individual consumer preferences.

For a merchant looking to dip its toe in the water, it’s the flip side of the same question: which service will bring the most customers through my doors? That doesn’t mean simply which application has the most users. It’s a far more granular analysis of what your particular customer segments and competitors are now using or most likely to use.

A new mobile-payment offering on the horizon is being developed by retailers for retailers. Merchant Customer Exchange, or MCX for short, started with a consortium led by Wal-Mart, Target, Best Buy and CVS, and others. Many of the retail participants have been early users of other mobile-payment formats. They understand firsthand the current systems’ shortcomings and can seek to address them in their own offering. With an emphasis on consumer convenience, MCX has built a network designed to meet all the typical needs in a day of errands, from shopping, to stopping for lunch, to filling the car with gas on the way home.

Still, there is no guarantee that this approach will prove to be the magic bullet. With no clear winner in terms of how and when this race will end, what should retailers who are still on the sidelines or just dipping their toe in the water be thinking about today?

Retailer decision points

Based on our extensive work with numerous retail clients, Stax has identified several considerations that can help define how quickly you need to act:

  • Size. As a starting point, a retailer’s size might suggest a speed of adoption, as well as the appropriate mobile-payment solution. For example, technologies using mainstream devices such as iPads as receivers are relatively easy and low risk for smaller retailers to adopt, since the cost of individual receiving terminals is low. Buying those same devices for checkouts across a large retail chain would represent a meaningful investment. Conversely, solutions built around scanning a bar code may only require some programming modification to the scanning equipment that large retailers already have — and that smaller ones may not.
  • Cost. Equipment cost, logistics, and space requirements can vary among mobile payment technologies. If a chain is undecided about which technology to try, understanding these issues relative to that chain’s particular constraints can help drive decision making.
  • Tipping point. At what threshold does this start to matter to me? Each retailer will need to set its own hurdle at which it would consider mobile payments substantive, whether based on number of users, transaction volume, or share of wallet.
  • Competitors. Even if mobile-payment adoption isn’t economically attractive to specific merchant at the moment, it must be aware of what competitors or doing, to understand whether there’s a risk of losing customers to the chain down the street that’s ready and willing to take their mobiles payments today.

Customers. Most important, of course: every retailer needs to understand what’s going on with its customer base. For example, if a chain’s shoppers tend to be early adopters already using mobile-payment technology, it may have no choice but moving ahead. Similarly, weighing the relative costs of the different mobile-payment apps has little relevance if a chain’s customers have already migrated toward a particular solution. Cost may be king, but not when your core clientele is at risk.

Mobile payments are definitely something to keep an eye on over the horizon, particularly the new MCX consortium. Using the above framework and information from the signposts will let you know when you should get in to test and learn, so you can scale up to meet the customer needs.

Brett Conradt is a director in the Chicago office of Stax Inc., a global strategy consulting firm. He has expertise in consumer and retail markets and financial services (particularly in payments), as well as technical markets such as transportation, medical, software, and industrial/manufacturing. He can be reached at [email protected].


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Kroger tops consumer survey for customer service

BY Katherine Boccaccio

Toronto, Ontario, Canada — Survey results released Wednesday by customer experience management firm Empathica Inc. revealed that customer service is the key driver of brand advocacy in retail pharmacy.

In the survey, during which the Empathica Consumer Insights Panel surveyed consumers on their perception, attitude and opinion towards the retail pharmacy experience, Kroger ranked highest in customer service among both mass and small-chain pharmacies.

The top six pharmacies in terms of market share are Costco, CVS, Kroger, Rite Aid, Walgreens and Walmart. Of these pharmacies, Kroger received top marks in nearly all customer service categories, including choice, service and trust.

Four-out-of-five Kroger customers agree or strongly agree that they would recommend their pharmacy to friends and family. For other brands, only about 40% surveyed would advocate for their primary pharmacy.

“Retail pharmacies can create a ‘win-win’ relationship with consumers by providing exemplary customer service; in turn, there is an opportunity for customers to ‘work’ for their primary pharmacy as brand advocates,” said Dr. Gary Edwards, chief customer officer, Empathica. “There is little room for winning a price war in pharmacy retail. The real battlefront for pharmacies is in customer service and convenience.”

While the survey results showed a strong link between customer service and customer advocacy, there are several areas where pharmacies can make adjustments to enhance the customer experience. Of the three mass retailers (Walmart, Kroger, Costco) and three specialty drug chain retailers (Walgreens, CVS, Rite Aid), results showed that both types of pharmacies can improve by learning from the other’s best practices.

Empathica found that mass retailers are lacking in terms of providing loyalty programs. Only one-third of mass retail pharmacy customers indicated that they are aware of loyalty programs, compared to 43% of specialty drug chain retail customers.

Specialty drug chain retailers can look to mass retailers as exemplars in providing in-store promotions. While only 32% of specialty drug chain retail customers answered that they “always” find attractively-priced promotions, 44% of mass retail customers had the same response to this question. It appears that while mass retailers capitalize on buyer power to offer the best deal, specialty drug chain retailers are better suited to relying on loyalty programs.

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OPERATIONS

Target and Sam’s Club execs team up at RadioShack

BY Mike Troy

New York — Former Target EVP stores Troy Risch and former Sam’s Club senior VP and general merchandise manager Huey Long have joined RadioShack.

Risch will serve as EVP operations at RadioShack and oversee the company’s network of 4,700 stores and 1,500 wireless phone centers in the United States and 1,100 dealer and other outlets worldwide. Long will serve as EVP strategy and consumer insights and be responsible for marketing, business development and omnichannel.

Both will report to Dorvin Lively who was named RadioShack’s interim CEO after James Gooch resigned from that position several months ago.

Risch is a veteran of the operational ranks at Target where he spent 19 years before leaving the company last year. Risch began his career as a store manager and by 2006 had been elevated to the role of EVP stores. Long’s retail background is more varied. He spent the past two years in a merchandising capacity at Sam’s Club, but prior to that was director of global merchandising at Amazon for two years, president of Premier Resources International, COO of AB&T Sales various merchandising roles at Circuit City where he spent eight years.

Both men joined RadioShack in the wake of a disappointing financial performance during the third quarter ended Sept. 30, an ongoing search for a permanent CEO, unclear prospects for the future and a stock price that has sunk to the low single digits. Sales during the third quarter declined slightly to $1 billion, but the company reported a loss of $47 million, or 47 cents a share, compared with a meager profit the prior year.

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