m-Commerce in the Retail Industry
By Derek Miers, Wed Nov 22 00:00:00 GMT 2000

Retailers face a struggle in discovering and implementing successful m-commerce strategies. But the rewards look promising for those that do.


Trying to gain a perspective on the market dynamics that will affect the adoption of technology to support the mobile internet (m-commerce) across the fragmented retail industry is a little like trying to divine the location of underground water (or oil) in a desert. When you do find the right approach, great returns are likely.

Astute retailers will experiment, building longer-term capabilities while realising they are unlikely to generate significant revenue in the immediate future. Creativity is the key ingredient for future success. The trick is to identify combinations of technologies that can increase convenience, save time or even capture entirely new customers.

m-commerce Opportunities

Gartner Group recently predicted "more than 40% of e-commerce transactions outside the US will be done via portable, cellular enabled devices by 2004". Our research led us to conclude that the touted benefits of m-commerce are unlikely to be felt for a few years yet. (see note 1) For the foreseeable future at least, m-commerce revenues will be dwarfed by those derived from the fixed line Internet and Interactive TV.

Certainly, if you constrain your thinking to traditional interpretations of retailing, there seems to be only limited opportunities for new value creation. On the other hand, firms are already using m-commerce technology to differentiate their current offering -- through promotional campaigns, store locator services and stock look-up facilities. To support shopping directly from mobile devices, applications will need to integrate personalisation, across multiple customer engagement channels and over time.

But firms cannot afford to adopt a wait and see policy -- as 3G technologies are deployed over the next 5 years, we will see many new business capabilities emerge, radically changing the competitive landscape. Those organisations that develop deep competencies around this disruptive technology (i.e. effectively engaging their customers and partners) will enjoy many advantages. They will be well placed for future growth in their current niche, building a competitive platform from which they will challenge slow moving incumbent firms in other segments and categories.

A New Retail Experience

In retail, the number of inventory turns, the margins charged and costs determine profitability. Taken at face value, mobile access to inventory listings and transaction mechanisms can add revenue, lower costs and increase the number of stock turns. Moreover, the ability to purchase goods from literally any location and have them delivered at an agreed time is a strong potential differentiating factor for any retail business. It provides a degree of convenience that appeals to one of the most profitable sectors of consumers -- busy professionals where time is at a premium. Research indicates that consumers in this segment are not especially price-sensitive. (2) Instead, they "outsource" some of the processes to the retailer, valuing their time and convenience over the few dollars they might save.

On the downside, the overall customer experience (selecting and purchasing items via a mobile device) is perceived as a major problem. The small screen size and numeric keypad place severe restrictions on applications design. Our research suggests that, for most retail sectors, m-commerce will only flourish where a detailed shopping profile of the customer is available (to simplify the buying process and present individually personalised pages).

The key to success here is in merging immediacy and impulse (convenience) with deep personalisation. Rather than alienating the user with endless menus and selections, winning approaches will use past shopping behaviours to customise the interaction to each individual user.

Integrated Strategy

Retailers need to treat the mobile channel as a component of their overall e-Commerce strategy. The core of that strategy should be based on engaging the customer in an ongoing relationship (purchasing goods) across a number of media and channels, over a number of years -- presenting a challenge to both the business model and the technology infrastructure.

Whilst this may seem obvious, what is surprising is the advantage of the multi-channel approach. At a recent conference on e-Retailing, JC Penney revealed that in 1999, "customers who shopped through all three channels (store, catalogue and online) spent nearly nine times as much as those who only shopped through one". Eddie Bauer claimed similar results. Going forward, the organisation that develops the deepest relationship with the customer has the greatest power. Building effective, long-term relationships with the customer implies flawless fulfilment and on-time delivery. Otherwise, early adopters will not turn into effective advocates.

Delivering against these ideals has more to do with the underlying business processes of the supply chain (and the mental models of the firms employees) than limitations of mobile technology. The combination of more sophisticated customer profiles and the ability to push made to order pages to a user, will help the organisation build more effective relationships with its customers -- but only if it controls the supporting infrastructure.

From a technology and infrastructure perspective, hosting decisions have a dramatic impact on the firm's capabilities to engage its customers and, as a result, a long-term impact on strategy.

The current value chain for mobile commerce involves several participants, all vying to ensure they receive the lion's share of competitive advantage. On the one hand, the strategy of most Mobile Network Operators (MNOs) seeks to own the customer relationship for all future commercial interactions (that use their network). To support this aim, they offer hosting and WAP gateway services to the beleaguered IT manager. This allows the MNO to dictate the terms under which the retailer can access "their" customers and the information they make available about that individual.

The danger here is that technology choices (made by the IT department) will have a significant impact on the brand itself and the underlying business model. The core issue is around who owns the customer relationship and associated profile information -- the MNO or the retailer.

The retailer has the option of running its own infrastructure, outsourcing just the dial-in facility to the MNO. In which case they are concentrating on using their own brand as the magnet and the MNO as a pipe. Whilst this might sound more problematic, it does provide security and independence for the retailer.

Conclusion

We believe that the sophistication of mobile shopping related services will increase rapidly, as companies experiment with the capabilities of WAP and personalisation technologies. Most firms will initially experiment with the potential to support promotions, gaining feedback directly from the consumer. (3) As with the banking industry, the capability to conduct commercial transactions via a WAP enabled device may become the entry ticket to do business in certain segments of the market (e.g. Auction and Catalogue based businesses). (4)

As one commentator put it: "If you're going to make hefty capital investments in procurement, merchandising, fulfilment, and customer service infrastructure, you ought to drive as much revenue as possible through the organization, regardless of front-end channel. A multi-channel approach thus helps the retailer maximize share of wallet and return on investment." (5)

These capabilities are technically possible today. Retailers that develop such systems will derive the best returns from an m-commerce investment. However, significant challenges remain for firms to integrate their systems across all channels.

Derek Miers is an industry analyst and consultant assessing business and technology strategies in the new economy for London-based Enix Consulting. He focuses upon the new capabilities enabled by the Web and mobile commerce - from both a technology strategy and business model perspective.

Enix strategic consulting services have benefited a wide range of customers including major financial services companies (banks, building societies and insurers), pharmaceutical companies, telecommunication providers, commercial businesses, governmental organisations and technology vendors.

Notes

1 - This paper is based on extensive research undertaken by Enix Consulting into the strategic implications of m-Commerce on the Retail industry. It draws on parallel research and consulting initiatives that addressed the implications of Location Based Services, (Mobile) Customer Relationship Management, Time Sensitive Content Management and opportunities for Business to Employee applications.
2 - "Seeking the Holy Grail: New Business Models in Online Grocery," Mainspring, June 2000
3 - Indeed, the mobile phone provides the only method of gaining direct feedback from consumers at the point that a promotional or advertising message is delivered.
4 - In the domestic banking market of Hong Kong all the major banks offer account enquiries and the capability to undertake funds transfers. Most include bill payment mechanisms while a few offer securities trading and foreign exchange market support. (Source: "Banking On The Device," Maude, Ragunath, Sahay and Sands, McKinsey Quarterly, Number 3, 2000, pp 89)
5 - Julian Chu, Mainspring in "Executing Well: Lessons From e-Retailing," 2000/Fall.