Edgar, Dunn & Company 2012

Ten trends in retailing in the next ten years and their impact

on consumer payments

A thought leadership paper from Edgar, Dunn & Company supported by ACI Worldwide

December 2012

Ten trends in retailing in the next ten years

Contents

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Page i

Contents

Introduction ............................................................................................................................ 1

Ten Trends .............................................................................................................................. 2

1 Simplification ................................................................................................................... 2 1.1 Payment transactions will be simplified at the point of interaction ................... 2 1.2 The impact of simplification .................................................................................. 2

2 Alternative Payments ...................................................................................................... 3 2.1 The convergence of traditional and alternative payments ................................. 3 2.2 The impact of alternative payments ..................................................................... 3

3 Social Commerce ............................................................................................................. 4 3.1 The road to genuine consumer engagement ....................................................... 4 3.2 The impact of social commerce ............................................................................ 4

4 Location-Based Services .................................................................................................. 5 4.1 Are we there yet? ................................................................................................... 5 4.2 The impact of location-based services .................................................................. 5

5 Multichannel .................................................................................................................... 6 5.1 A unified approach to customer service ............................................................... 6 5.2 The impact of multichannel ................................................................................... 6

6 Merchant Diversification ................................................................................................. 7 6.1 The price of convenience....................................................................................... 7 6.2 The impact of merchant diversification ................................................................ 7

7 Self Service ....................................................................................................................... 7 7.1 Helping customers help themselves ..................................................................... 7 7.2 The impact of self service ...................................................................................... 8

8 Cashless Payments .......................................................................................................... 8 8.1 The death of cash? Probably not ........................................................................... 8 8.2 The impact of cashless payments ......................................................................... 8

9 m-Commerce.................................................................................................................... 8 9.1 The Point of interaction will be mobile ................................................................. 8 9.2 The impact of m-commerce .................................................................................. 9

10 Loyalty .............................................................................................................................. 9 10.1 Personalising the shopping experience ............................................................. 9 10.2 The impact of loyalty .......................................................................................... 10

Conclusion ..............................................................................................................................11

ACI response ......................................................................................................................... 12

Glossary ................................................................................................................................. 13

About the authors ................................................................................................................ 14

Ten trends in retailing in the next ten years

Introduction

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Page 1

Introduction

Since the 1960s, traditional retail marketing theory has been based on the four 'pillars',

or The Four Ps: Product, Price, Place and Promotion. However, taken in isolation,

these pillars are a remnant of a different world one where the marketers and the

retailers were king. In today's world, the consumer has come to the fore, and retail

strategy must become a consumer-oriented model, rather than a retailer-oriented one.

Edgar, Dunn & Company (EDC) believes that two new factors will move to the

foreground of any successful retail strategy:

Consumer preference the focus of retail strategy has shifted to satisfying

consumer needs, and retail strategies should be built with the consumer at the

centre: obtain a single customer view through aligning data across sales channels,

optimise payments (both acceptance and process), and create a seamless shopping

experience designed around consumers' preferences.

Technology over the past few years, rapid consumer adoption of emerging

technologies has facilitated changes in shopping behaviour. From mobile commerce

and self service to social media, both retailers and consumers have had to adapt to

the new ways in which they interact with each other.

Working in concert, these two factors will drive emerging retail trends over the next ten

years. Driven by consumer preferences, technology is facilitating significant changes in

the retail landscape from enabling new sales channels, driving social interaction and

giving access to new customer analytics, to providing consumers with entirely new

ways to interact and ultimately, transact with a retailer.

EDC has found that successful retailers place the consumer at the centre of their retail

strategy in order to enhance the customer experience and provide greater speed and

convenience of service. A content-rich customer experience has become the norm in

online retailing; EDC expects that this will transcend into the physical retail

environment, creating a future where m-commerce, e-commerce and in store shopping

become a single integrated shopping experience.

This paper presents ten trends that EDC believes will significantly impact the retail

industry over the next ten years and their effects on consumer payments.

Ten trends in retailing in the next ten years

Ten Trends

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Ten Trends

1 Simplification

1.1 Payment transactions will be simplified at the point of interaction

Payment is often viewed as merely the concluding step in the purchasing process, i.e.

the closure of the sale. The payment experience should be at the heart of an integrated

retail strategy. Customer payment preferences have evolved and EDC sees potential for

a major divergence between what a retailer does and what a customer wants from their

payment experience.

EDC's client experience demonstrates that in a complex, multichannel retail

environment the customers perception of value is influenced by the perception of

service quality. Customers do care about price, but at the same time there is a rich array

of other considerations that they also take into account. Part of this is that retailers

must better understand the customer's point of view on the payment process,

recognise his/her pain points and identify areas of improvement.

With a growing mix of payment methods to accept, no clear winner can be predicted in

terms of universal adoption. Whether it is customer, mobile network operator, retailer

or card network initiated, the key to success for a retailer will be to remain flexible in

any future investments at the point of sale (POS). Retailers will want a simple and fast

payment process, overhauling the underlying principles of the POS and transforming it

into the point of interaction (POI)1.

EDC has found that retailers are keen on using the POI to simplify the customer

experience, as well as improving cost efficiency. Retailers are also being forced to

mirror this simplification in their back-office operations (e.g. reconciliation and banking

arrangements).

1.2 The impact of simplification

EDC believes the POI will represent a point of convergence for different forms of

payment, such as smartphone initiated payments, electronic couponing, loyalty and

contactless payments. In this environment, mobile POS devices will enable customers

to finalise their purchase, irrespective of where they are in the store. Consumers expect

a quick and easy checkout experience and want to avoid the traditional long lines in

store and the complicated o