Connecting with customers by leveraging Internet of Things in retail

Devices like Amazon Dash Button shows us that IoT may help to synchronise the supply chain so tightly that we may begin to observe new levels of efficiency, says Alagu Balaraman

As the retail consumer walks through the aisle of her neighbourhood retail store, she is given recommendations on her dietary and lifestyle choices, offers on specific products and SKUs, discounted sales and expiry of products. She can get directions to the aisles in which her products are available, already uploaded from her shopping list. Welcome to the world of Internet of Things (IoT) in retail, where consumer experience is enhanced, consumer experience and data is fed real-time from devices into a central repository where algorithms make real time decisions. 

The questions that concern today’s retailers revolve around the age old questions - Who are my customers? What are their preferences? How do I satisfy them and grow? What is my competition doing? How do I sustain my business and grow profitably? Key drivers of the retail sector are still unchanged - getting the right product to the right customer at the right time. The challenges in the industry are the also same - inaccurate inventory, poor customer service, wastage and stock outs.  

 

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What has really changed is the extent to which technology has made inroads into answering these questions. How do technologies like IoT really help? What is the payback? 

In the early 2000s, the number of internet users in India was about 7 million, commerce on the internet was not a widely prevalent practice. With this number around 190 million today, the internet offers a single platform to access a wide demography of customers. 

From posting comments, reviews and suggestions, helping other consumer to make choices between brands, building user experience the internet offers exciting and unlimited possibilities. A recent McKinsey report on the trends of consumer purchases and shopping behaviour states that the propensity of the customers to purchase a premium product increases due to the instant information communication of its increased value. Providing such information to the consumer at that instant of time that she is making a decision on purchasing a product will have a huge bearing on her buying behaviour. These kind of technology interventions are at once impactful and relevant. 

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On another front, managing shelf inventory is undergoing a quiet IT led transformation. ‘Smart shelves’ are equipped with sensors, small smart displays and cameras. It tracks customer footfall, customer choice and time spent in evaluating the product. It can flash pricing change; for example if the consumer typically walks into the retail store only in the evening post work and the retailer would like to push more people to come into afternoon mid-afternoon discounts can be introduced. Making decisions based on customer behaviour data or driving consumer behaviour using various business levers is possible and is actually happening increasingly. Automated triggers on stock levels through smart shelves can greatly improve the shelf availability. A camera connected to the shelf can collect data over a period of time and can provide insights into the consumers buying preferences. Once again, it is the technology and experience that a prudent combination of devices deliver to the consumer as well as the retailer.  

Alagu Balaraman, partner and MD, CGN & Associates India

Visibility, the critical and most commonly stated problem in retail supply chains, has some direction with IoT as well. It is possible for retailers to use devices to track product movement through the supply chain - in some cases - even the condition in which the product is making the journey. Devices transmit the location, ambient conditions (like temperature), estimated time of arrival, wait times, etc to planners and retail store managers, facilitating better planning of stocks on the shelf. The supply chain becomes more efficient (by eliminating wastes as they are identified) and responsive (by aligning to consumer demand as early as possible). 

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At the consumer end, new trends are taking root. Customer engagement can be deeper, more meaningful to the customer and impactful for the retailer because technology enables interactions which were never possible earlier. Manufacturers and retailers can understand individual consumer’s preferences and design fulfilment responses which were not possible earlier. Individual technologies like GoogleMaps, TripAdvisor help connect with consumers and their preferences during travel for example. The devices carried by the consumer can talk directly to the devices at the retailer providing a frictionless experience for purchasing. Taken together, these technologies can provide insight into what is likely to be the consumer’s choice would be. 

One visible development today that spans consumer engagement and supply chain visibility is The Amazon Dash Button, a small tray-like consumer electronic device that can be placed around the house and programmed to order a consumer good. One needs to simply press the dash button and it is ensured that the product is reordered. The order goes to Amazon, the same information goes to manufacturers simultaneously and the product is delivered to one’s home. This whole process helps in avoiding the holding of the unnecessary stocks due to real time information. Devices like Amazon Dash Button shows us that IoT may help to synchronise the supply chain so tightly that we may begin to observe new levels of efficiency. 

Questions that come into our mind - Will it work? Is it really far-fetched? We have seen how the use of Internet and smart phones has changed in the past few years. Sometimes, the pace at which industry changes occur is often not anticipated. Typically, industry leaders overestimate changes that may happen over the next 2 years and underestimate those that may happen over 10 years. 

In almost 3/4th of companies that were surveyed in US, IoT projects are underway or there is a very clear strategy in the place about they are going to do with IoT. Will this take the same route in India? We are faced with a problem of skill in India. Manpower is relatively cheap, but unskilled. IoT Interventions in India will necessarily follow a different trajectory. 

Studies shows that in 2012 modern trade growth rate in India was 32 percent growth then declined by 5.4 percent in 2014. Kirana stores, which were growing with 7.1 percent, are now growing faster than modern trade. The retail industry would need to evolve solutions that are effective and efficient and address issues problems that are unique to India.
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Alagu Balaraman, partner and managing director of CGN & Associates India (P) Ltd, a management consulting firm