Mereja

Author: Jeffrey F. Rayport

  • The Rise of Virtual Brick-and-Mortars

    Ever since Amazon’s Price App appeared on the retail scene some 18 months ago, pundits have prophesized the demise of big-box retailers. There’s no question that Amazon’s innovation went right for the jugular of any volume- and price-focused retailer selling commodity goods like consumer electronics and household wares. Indeed, retailers from Best Buy and Target to Bed Bath & Beyond, PetSmart, and Toys R Us are in danger of becoming mere showrooms for Amazon and its ilk. But innovative retailers are responding to this threat by turning “showrooming” to their own advantage.

    One obvious strategic response has been to fight back with in-store experiences and proprietary merchandize that Amazon cannot match. The quintessential example is the quirky local book store, which sells antiques, unusual knick-knacks, offers free Wi-Fi, and hosts a café — an eclectic mix of experiences enriched by products, services, and community that trump online retailing. But this approach has many limitations, chief among them is that it’s hard to scale.

    A less obvious response that’s accelerating in the global marketplace is to accept that stores are showrooms — and design them accordingly. Samsung showcased an array of the company’s products from around the world that consumers could examine, play with, and admire. They just couldn’t buy them. Its retail clerks pointed consumers to nearby locations where Samsung products were for sale. It was an actual showroom. Having helped establish Samsung as a consumer electronics megabrand, the showroom served its purpose and has recently closed. By contrast, Miele, which makes and markets everything from kitchen equipment to household wares, runs 10 “Centers” in the United States. They host cooking presentations, master classes, and wine tastings, but, other than obvious accessories, they don’t sell the company’s products. They just showcase them. As Samsung demonstrated, sometimes a showroom is just a showroom.

    By contrast, the UK-based retailer, Tesco, has launched an array of “virtual” stores designed to sell products with no merchandise. The world’s first virtual store was a Tesco Homeplus opened in the Seoul Subway in August 2011. This wasn’t really a store: it was a wall that displayed over 500 of the chain’s most popular products, each with an associated barcode that users could scan to populate a shopping basket that Homeplus would deliver to their homes the same day. Since launch, the Homeplus Smartphone App has become the number one shopping app in Korea, with over a million downloads to date. Homeplus has extended this concept to bus stops. The goal? Says one Homeplus executive: “Make the shopping experience easier and more convenient for our customers.” Homeplus is now the market share leader in South Korea.

    UK-based Ocado, a pure-play online grocery retailer, has taken the Tesco innovation one step further. It’s opened physical stores — actual “high street” locations — where consumers can roam a branded space, browse products, scan barcodes, and complete their shopping task by ordering online from a physical location. One major draw: you don’t have to carry those heavy groceries home. Ocado’s first actual store, in a London mall, was a hit. (Like Homeplus, to access the service, consumers have to download a proprietary shopping app, called Ocado “On The Go.”)

    The strategy is a striking success. Nearly one in four orders at Ocado is now placed using mobile devices. According to shop2mobi, a Dutch Internet start-up that works with retailers to launch QR-code based virtual stores, over 300 virtual brick-and-mortar stores were “published” worldwide in 2012. The firm claims that 2,000 are already planned to open in 2013.

    All of which brings us back to the dilemma facing traditional retailers. Many big-box retailers are fighting back by accepting that their stores are showrooms as well as points of sale. They are using the techniques of virtual stores in their physical locations to make it easy to shop online while in store. These include Wal-Mart, Best Buy, and even Tesco itself. Offering a combination of shopping apps and QR codes, these retailers are replicating the convenience Amazon promises (many with a price-match guarantee) by enabling shoppers to use the stores to showroom their own goods — and then buy directly from them. The message is clear: in-store experience matters. The more compelling and unique — think REI with its climbing walls — the better. But the overlay of attributes associated with online shopping is also essential to survival. Otherwise, the Big Boxes that dot our retail landscape will, indeed, become an artifact of the past. (Circuit City, anyone?)

    The lesson for marketers is fundamental. Don’t count on bringing customers to your brand. Bring your brand to your customers. Place your offerings squarely in the context of your customers’ lives. Otherwise, they’ll likely take the path of least resistance — and that could mean they don’t buy from you.

    Innovations in Digital and Mobile Marketing
    An HBR Insight Center

  • Advertising and the Internet of Things

    The co-founder and executive director of MIT’s Auto-ID lab, Kevin Ashton, coined a term in the mid-1990s — the Internet of Things — that has increasingly attracted the attention of marketers. He proposed to apply the logic of the web to objects in the physical world: to connect everything that exists physically to the Internet through the application of ubiquitous tags and sensors. Like individual web pages, everything down to a single product on a grocery store shelf would have a unique digital identity — and, in effect, its own URL. Addressable as a web page, every object would naturally become an element of the media landscape, capable of interacting directly with end-users to deliver commercial messaging — including advertising.

    Fifteen years later, we are seeing Ashton’s vision play out. In some industries, machines such as aircraft engines and cars already share diagnostic and other information with humans and other machines. In the not too distant future we can expect to see refrigerators that place grocery orders when you’re running low on staples like milk and eggs; ovens that recommend a trusted repair service before they break down; dresses that are “aware” of current fashion trends and recommend alternative looks; and glucose monitors that give you recipes that best suit your type of diabetes. Arguably, outside of commercial environments like the Consumer Electronics Show or academic ones like Ashton’s lab, we are still in the early days of turning today’s “dumb” objects into “smart” ones. But for marketers, the potential value of building stronger brands through interactions between products and users is clear.

    Consider what a company called EVRYTHNG, based in the United Kingdom, did for Diageo’s spirits marketing business last year. It ran a pilot program in Brazil for Father’s Day. The company enabled consumers to use smart phones to scan product codes on individual bottles of spirits, turning each physical product into a uniquely identifiable object of digital media. In this case, the giver could use his or her smart device to create a video for Dad and upload it to the cloud; the receiver, Dad, could then download the video to receive the gifter’s message. The result: increased loyalty to the brand; increased personalization of the brand experience; and increased insight for Diageo about how its products were bought, sold, and used.

    Without resorting to high-tech augmentations of its products, such as RFID tags and Near-Field Communications (NFC), Diageo’s marketers could create new advertising experiences in which the products themselves became its media vehicles. From the moment a unique code was entered into the Cloud from a smart phone, each bottle became one of a kind; such connectivity birthed a digital avatar of that bottle, to which the company could then link customer profiles, loyalty and rewards programs, and a host of other consumer-pleasing innovations. Knowing that a product was “gifted” — between two identifiable parties — also generated a social graph of users, which may not be an asset today, but surely could become one of real value at scale, over time.

    Clearly, this is just the beginning. It’s a persuasive example, because it asks that companies like Diageo do very little differently from what they’re doing today. Marketers already print QR or bar-codes on labels, and consumers already carry smart phones. Most companies access Cloud-based infrastructures.

    What’s new is how this example reframes the definition of advertising. It does this in at least five ways: First, it places advertising messaging — where the product is the media platform — into the social flow of everyday life. Second, it calls upon the giver to create what is, in effect, the advertising message to augment the product, making this an example of participative (and, at scale, crowdsourced) creative (to which Diageo has unlimited access). Third, it enables users to personalize products, by definition, in unique ways. Fourth, it converts existing, even generic, products into functionally intelligent ones, which (with the addition of smart phones) can deliver dynamic ad messaging linked to specific physical objects. Fifth, it creates a rationale for the consumer to have an on-going relationship with the brand — by linking continuing online interactions to real world product-based experiences.

    This is a far cry from advertising as a one-way, interruptive, broadcast-style form of messaging and delivery. Indeed, it bears so little resemblance to conventional advertising as to be almost unrecognizable as such. It’s so elegantly integrated into the life of the customer. If that’s where advertising is going — my bet is that it is — then there’s plenty here from which to learn, even before we enter the brave new world of grocery store products talking to us from their shelves.

    This is the sixth in a series of posts from our March issue on the future of advertising. Stay tuned for more “Creative That Cracks the Code” over the coming weeks; topics include Variations on a Meme; Collaborating With the Crowd; The Ad as a Game; Just Enough Humor; A New Social Movement; Ads that “Go Native”; Apps as the New Ads; and Ads in the Public Sphere.

    We also want to know which ad campaigns strike you as innovative; tell us below and we could analyze your pick as part of this series.

    The Future of Advertising
    An HBR Insight Center