Winning the New Digital Consumer with Hyper-Relevance In Retail, Insight Is Currency and Context Is King

Vice President, Internet of Everything Practice, Cisco Consulting Services

January 11, 2015

Joseph M. Bradley

@JosephMBradley

Study Reveals that Retailers Can Meet Rapidly Evolving Customer Expectations with ‘Hyper-Relevant,’ Streamlined Experiences

1 Exponential Change Is

Driving Unprecedented

Complexity

Exponential change =

exponential complexity

and disruption.

3

2 Hyper-Relevance Can

Capture the New Digital

Consumer

Consumers want

experiences that provide

savings and efficiency,

reflect precise context of

each shopping journey.

Hyper-Relevance Demands

New Business Models

Win the trust battle.

Let context drive innovation.

Deliver dynamic experiences,

increase agility.

Exponential Change Is Driving Unprecedented Complexity

The Internet of Everything is creating sweeping changes in the shopping journey, disrupting business models and expanding customer expectations.

Retail Disruption

Social

Apps

Mobile

Big Data

Mobile commerce grew 47% in Q2

2014, far outpacing e-commerce

(10%) and total retail (3%) [comScore, 2014]

64% of U.S. shoppers use

a mobile retail app while shopping

at least once a week [Cisco Consulting Services, 2015]

88% of retailers foresee

significant growth of data

captured by their networks [Cisco Consulting Services, 2014]

Technology and Evolving Consumer Behaviors Are Reshaping the Retail Landscape

94% of U.S. omnichannel

retailers had a company

Facebook page as of Q1 2014 [the e-tailing group, 2014]

Exponential Change Creates a Maze of Shopping Journeys

Source: Cisco Consulting Services, January 2015

To Help Retailers Navigate This Rapidly Changing Landscape, Cisco Conducted a Unique, Three-Pronged Study

1 Surveyed 1240 consumers in U.S. & U.K.* Blind survey / 627 U.S. + 613 U.K.

2

Conducted in-depth interviews with retail industry thought leaders

• Doug Stephens, Retail Prophet Consulting • Leslie Hand, IDC Retail Insights • Michael Olmstead, Plug and Play Retail

3

Drew upon lessons learned from Cisco Consulting Services customer engagements to develop economic model

42% 28% 21% 9%

Gen Y Gen X Boomers Silvers18-34 yrs old

35-54 yrs old

55-64 yrs old

65 and up

79% use

smartphone 50%

use tablet

51%

49%

Female / Male

*Global findings from 6000 consumers in 10 countries to be released in March 2015

Research Shows that Digital Shopping Is No Longer Just for Early Adopters

Q Which types of shopping apps

do you use weekly?

Source: Cisco Consulting Services, January 2015

“Über Digitals” have become mainstream

Retailer-specific apps (Amazon, Tesco, Walmart, etc.)

Independent shopping apps (Groupon, LivingSocial, Zulily, etc.)

55%

U.S. 53

%

U.K.

34%

U.S. 24

%

U.K. U.K.U.S.

7% 11%

22%

29%

2014

2012

“Über Digitals” as Percentage of Respondents

Mainstream Mobile Adoption Demands that Retailers Deliver New Shopping Journeys and Experiences

Leslie Hand Vice President, IDC Retail Insights

“The consumer’s

smartphone is one of the

most valuable tools that

the retailer has as an

interaction point.”

The New Digital Consumer Wants Hyper-Relevance

Consumers want a hyper-relevant shopping experience—convenient and contextual.

They are less interested in hyper-personalization, which may not address their needs in the moment.

Consumers Expect Hyper-Relevant Shopping Experiences, Not Just Personalization

Hyper-Relevance Defined

What It Is

A new paradigm that

enables consumers to

receive what they want,

when and how they want it.

How It Happens

Hyper-relevance is made

possible by IoE-enabled

solutions and innovative

business models that deliver

value—efficiency, savings,

or engagement—in real

time.

How It Is Different

Personalization is when the

retailer knows your name.

Relevance is when the

retailer knows your needs in

the moment.

“… if you're prepared to share some information with us as a consumer, we're prepared to give you an experience that feels very connected, very customized, very contextualized...”

Context Is King: Above All, Interactions Must Be Relevant

Doug Stephens Founder, Retail Prophet

IoE-Enabled Retail Solutions Offer Rich, Context-Aware Shopping Experiences

Illustrative Examples

favor checkout

optimization 77%

Efficiency

There Is High Demand for Shopping Experiences that Deliver Efficiency, Savings, and Engagement

interested in receiving

product recommendations

via augmented reality 57% interested in general

in-store entertainment

(not related to context or shopping) Engagement

Source: Cisco Consulting Services, January 2015

favor in-store guidance

through digital signage 67%

favor in-store guidance

through augmented reality 63%

38%

would like to view

digital signs with special

deals or promotions available to

everyone in the store

78% 73% favor receiving

special offers via

augmented reality on a smartphone Savings

SAVINGS $59M

19% of Value at Stake

While Consumers Still Want Savings, Efficiency Promises Greatest Value for Retailers

• Reviews [augmented reality] 57%

• In-store advertising 54%

• Product recommender [augmented reality] 48%

• “Top Ten” rankings and displays 45%

• In-store entertainment 38%

IoE Retail Concepts Willingness To Use*

*Percentage responding

“somewhat” or “very likely” to use

• General in-store offers [digital signage] 78%

• Special offers [augmented reality] 73%

• Targeted offers [digital signage] 67%

• Targeted offers [smartphones] 54%

• Scan QR codes 52%

$312M Gross Benefits [based on retailer with $20B annual revenue]

$45M 14% of Value at Stake

ENGAGEMENT

$208M 67% of Value at Stake

• Checkout optimization 77%

• In-store guidance [digital signage] 67%

• In-store guidance [augmented reality] 63%

• Scan-and-pay [smartphone] 60%

• Drive-thru pickup 57%

• Same-day delivery 53%

• Smart cart / automatic replenishment 50%

• Mobile payments 49%

• Secure locker 49%

EFFICIENCY

Source: Cisco Consulting Services, January 2015

39%

26%

22%

13%

Process of selecting andpurchasing goods

Quality of interactionsprovided by their store

associates

Physical environment instores

Level of personalization ofthe shopping experience

To Maximize Value at Stake, Retailers Should Focus on Improving Efficiency

The area with the

greatest Value at

Stake is also the

area most in need

of improvement

Q In which areas could retailers

make the most improvement?

Source: Cisco Consulting Services, January 2015

The Path to Creating Hyper-Relevance

Win consumers’ trust: Consumers may be willing to share personal information—for the right experience.

Turn customer data into actionable insights.

Deliver dynamic experiences to deal with complexity, increase agility, transform business models.

Real-Time Analytics Enable Actionable Insights and Better Decisions

Michael Olmstead Director, Plug and Play Retail

“The only way you can

predict inventory is if you

predict demand. And the

only way to predict demand

is to predict the right

purchase behavior ....

It’s all going to come back

to predictive analytics.”

8%

9%

11%

12%

16%

23%

25%

28%

41%

49%

51%

None of the above

Web history, social media activity

My reviews online

Family information

Personal financial information

Basic information (name, age, etc.)

Purchase history, loyalty program info

Likes/dislikes, interests, hobbies

To Benefit from Analytics, Retailers Must First Win Customer Trust

Information from connected products I am using

Purchase history from other retailers

My location

NO

MAYBE

YES

Win the battle

for trust here

Source: Cisco Consulting Services, January 2015

Repondents willing to share information “to get a more personalized shopping experience”:

Retailers Understand the Importance of Real-Time, ‘Edge’ Analytics to Maximize Value

Source: Cisco IoT Global Study, 2014

Smart store

operational analytics

Targeted offers

Checkout optimization

Retailers lead in recognizing the onset of edge computing

Respondents who believe that in the next three years,

“most data will be processed at the edge” (mobile devices, appliances, routers)

Source: Cisco Consulting Services, 2015

47%

40% 40% 38%

34% 33% 33%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

9.4%

1.8%

0.8%

Potential EBIT* profit contribution of

illustrative analytics-based concepts

*Earnings Before Interest and Taxes

By Combining Analytics with Dynamic Processes, Retailers Will Create the Foundation for Hyper-Relevance

Hyper-Aware

Mobile devices, sensors,

beacons, and RFID tags

help retailers gain true

visibility into what the

customer is experiencing in

the store

Predictive

Intelligence and analytics

provide real-time

anticipatory insight into

what is happening and

what to expect, enabling

hyper-relevant customer

connections

Agile

When retailers can change

their business processes

dynamically, they can

manage human, technology,

and product resources in

real time with tremendous

efficiency

Three Key Attributes of IoE-Optimized Retailers

Gross annual

value opportunity

Net annual

EBIT opportunity

$142M

+ $170M

= $312M

- $93M

= $219M

By Implementing Key IoE-Enabled Solutions, Retailers Can Generate Potential EBIT* Gains of ~15.6%**

Revenue

OpEx reduction

For an illustrative omnichannel

retailer…

$20 billion revenue

7% EBIT margin

900 stores

120,000+ employees

113 million square feet of retail selling space

Annual enabling costs

*Earnings Before Interest and Taxes

**Based on 19 IoE concepts featured in IoE Retail Survey, January 2015

Ingredients for Success in the IoE Era

1 Focus on innovations that deliver hyper-relevance for consumers

2 Forget everything you thought you knew about the digital consumer—traditional

customer segments are breaking down

3 Go to the edge for visibility into what customers are experiencing in the moment

4 Build a dynamic infrastructure and create agile processes that allow you to

deliver hyper-relevant experiences

5 Develop new business models that drive innovation and enable hyper-relevance

Appendix Cisco Retail Solutions

Connected Retail Solution Roadmap C

isco

Va

lue

Ca

ptu

re

Innovation Impacting Shopping Experience

• Reduce operational costs

• Drive revenue growth through targeted/ dynamic promos

• Improved, personalized engagement via Omni-Channel

Digital Media

Store

Experience

• Enhance customer satisfaction with flexible pickup schedules

• Increase foot traffic to store

• Drive cross/ upsell

• Prevent loss on customer premises

• Operational efficiencies

Smart

Locker

• On premise visibility into shopper behaviour and preferences

• Increase app and services adoption

• Improve marketing/ promo effectiveness

CMX Digital

Experience

• Enhanced shopper experience

• Connect with experts

• Increase avg basket / transaction size

• Employee productivity

Remote Expert

and Mobile

Advisor

• Checkout optimization

• Staff optimization

• Loss prevention

Store

Operations

Analytics

• App consolidation (i.e. POS, Loss prevention)

• Closet simplification

• Security & compliance

• iWAN

• Energy Management

Store in a Box

• Shopper Insights

& Personalization

• Behaviour

analytics

• Checkout

optimization

• Drive conversion

rate and increase

customer loyalty

• Increase average

basket size

Connected

Analytics for

Retail

(FY15)