I N S I G H T S & I N N O V AT I O N

C A R AT R E D E F IN IN G S E R IE S PR E S E N T S :

RETAIL REDEFINED

W E L C O M E

Thanks for taking the time to read the first edition of Carat’s Redefining Series for 2017: Retail Redefined. This document is a transcript that amalgamates the many variations of this segment that we have presented across Australia over the last two months.

The content within is our opinion on the challenges that face Australia’s retail industry and the perspective that it needs to take to thrive over the years to come. Rather than looking at impending overseas competitors with a sense of doom and gloom, retailers should embrace the benchmark that they have set and utilise the next 12-18 months to tackle them head on.

Special thanks goes to Christine McKinnon, who has led these presentations with her considerable understanding of the consumer mindset, and whose vast experience in the retail landscape made this content so memorable.

I hope you find the content thought provoking and entertaining.

Robert TiltNational Head of InnovationCarat Australia & New Zealand

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R O B E R T T I LT

H E A D O F I N N O V A T I O N

@robert_tilt

C H R I S T I N E M C K I N N O N

H E A D O F I N S I G H T S

@chrissybluebird

C O N T E N T S

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6 T R A N S F O R M I N G E C O N O M I E S

T R A N S F O R M I N G M A R K E T C O N D I T I O N S

A T R A N S F O R M I N G F U T U R E

T R A N S F O R M I N G C H O I C E

T R A N S F O R M I N G C O N S U M E R N E E D S

T R A N S F O R M I N G I N T E R FA C E S

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T R A N S F O R M I N G M A R K E T C O N D I T I O N S

Judging by our macro economic status, everything should be rosy in Australia.

It seems that every other global retailer thinks we are the land of opportunity.

2017 got off to what appeared to be a good start. On paper, Australia is in a good position with in-line-with-expectation growth, low inflation and low interest rates.

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INFLATION WELL CONTROLLED

CONSUMER CONFIDENCE

TREND STEADY

CONSUMER SPENDING YOY +5%

GDP YOY +2.4%

LOW INTEREST RATES

BUSINESS CONFIDENCE

UPWARD TREND

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ON APRIL 1, AUSTRALIA SEIZED THE WORLD RECORD FOR THE LONGEST PERIOD OF SUSTAINED GROWTH IN THE MODERN ERA.

104 QUARTERS OF ECONOMIC GROWTH WITHOUT RECESSION.

In April, official figures proved Australia’s economic resilience as we entered our 104th quarter of growth, taking the world record of 26 years held by the Netherlands.

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So why is there retail pain? The suffering of all the retailers across the country – and the world – is no secret.

Foot traffic is down, and the trend towards online shopping is not compensating for it.

When we look past the macro economic picture to the micro, the issues start to become more obvious.

S O, W H Y ALL T H E PA I N ?

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Well, firstly, what we spend our money on is shifting. We are spending less on essentials and more on housing, leisure and entertainment.

This is largely due to the skyrocketing costs of buying – and renting – a home across capital cities, as well as spending more money on experiences rather than physical goods.

This reality hits home when you consider that real net disposable income is at the same levels as when interest rates were between 10% and 15%, and we have just had the recession we needed to have.

To add to this, wage growth is minimal across the country. Electricity prices are rising at an annual rate of 7.5%, healthcare at 3.8%, education at 3.3% and childcare at 6.1%.

We are now starting to see a significant impact on consumer confidence. It is not just the economic factors that are having an impact.

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AUSTRALIAN REAL GDP / NDI PER CAPITA

REAL GDP PER CAPITA REAL NDI PER CAPITA

IND

EX

(T

REN

D)

Source: Australian Bureau of Statistics

FOOD + NON ALCOHOL -2%

HOUSING +9%

FURNISHING/HH EQUIP -9%

RECREATION & CULTURE +4%

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F R O M 2 0 0 4 - 2 0 1 3“

INCREASE IN AND NEW STYLE OF HIGH DENSITY

SMALL HOME LIVING

REVIVAL OF THE COMMONS, COOPERATIVE AND

COLLABORATIVE SPACES

SUSTAINABILITY OVER LOW PRICES

Major societal frameworks are shifting and are contributing the assault on retail.

Across the country there is a significant shift to higher density living.

The chart to the right indicates the population growth and concentration in the inner suburbs of Melbourne over the last 10 years, vs the previous decades.

In the greater Sydney region, 40% of dwellings are medium-high density. This would be significantly higher for the inner metropolitan ring.

In Perth, we are seeing the release of ‘micro-blocks’ that are just 80sqm for sale. Importantly, smaller homes equal smaller families and less space, which equals less ‘stuff’.

It is now becoming common place for high density communities to include anchor supermarkets, restaurants and cafes. These will undoubtedly contribute to a decline in visitations of nearby shopping malls and strips.

We also have shifting attitudes toward sustainability and sharing vs traditional ownership.

S O C I E TA L S H I F T S D R I V I N G T R A N S F O R M AT I O N O F E X P E N D I T U R E

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SOCIAL MEDIA HAS REPLACED THE SOCIAL TRIP TO MALL.

SHOPPING DOESN’T GENERATE STATUS ANYMORE. SOCIAL MEDIA STATUS IS WHERE YOU ARE, NOT WHAT YOU HAVE.

THE SILENT GENERATION AND BABY BOOMER MENTALITY OF RAINY DAY STOCK PILING HAS NOT BEEN INHERITATED BY GEN X OR GEN Y.

THE MEGA TREND OF SEEKING CONVENIENCE OVER CHOICE IS THE ENEMY OF SHOPPING RITUALS.

D E C L I N E I N S H O P P I N G R I T U A L SRetail footfall and sales are also being hit by the decline in ritualistic behaviour that made shopping a weekly (or more frequent) event.

Social media and coffee shops are now our conduit to friends.

Shopping just doesn’t have the same status as it used to. Shopping has essentially become mundane.

Our throw away culture and love of fast fashion has changed that. When you think about it, social media statuses are about where you are and who you are with rather than what you have.

There is now much more of an emphasis on the benefits of decluttering rather than acquiring. The stock piling mentality of post-war generations have disappeared with the demise of the big backyards and the great Australian shed.

Of course, convenience is the greatest enemy of shopping sprees. An online shopping trip is much less likely to result in impulse purchasing, and more likely to yield the small number of items that are being required – and generally all bought at the one retailer.

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It all gets a bit scarier when we consider the competition that’s landing this year.

TK Maxx are converting all 35 existing Trade Secret stores to TK Maxx. They offer off-price, fast turn over brands with a treasure hunt appeal – one of the fast growing retail segments in the US.

John Lewis is testing the waters through their partnership with Myer and their store within a store concept.

Harris Scarfe is partnering with Debenhams, and plans to replace most of their own stock with Debenhams. Debehams is opening a store in Melbourne in 2017.

Then we have the likes of Miniso, which has plans to expand into up to 250 stores across Australia by 2020. Miniso sells Japanese-designed products, including cosmetics, homewares, accessories, fashion jewellery, stationery, electronic gadgets, food products and clothing – all at budget prices. Each store is expected to stock an inventory of about 3000 items.

I T S A L L A B O U T T O G E T T O U G H E R

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43% OF RETAIL EXECS SURVEYED NOMINATED OVERSEAS ENTRANTS AS A MAJOR THREAT FOR 2017.

IT WAS SECOND ONLY TO RENTAL OVERHEADS.

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A T R A N S F O R M I N G F U T U R E

You may be familiar with amazon.com, but Amazon actually has a variety of offerings.

Alongside their .com, they have Amazon Marketplace, which uses the same website but sells goods from third party providers.

There is Amazon Prime, which is a subscription service that enables next day delivery on the Prime range of products.

In some markets, that extends to Prime Now, which offers next hour delivery.

They have also dabbled with other offerings, such as Prime Pantry, where you pay for the delivery of a box and you choose how many packaged pantry goods will go in it; and Amazon Fresh, which is their fresh goods service.

This is ignoring their private labels ranges, their rapidly growing entertainment offering (which in 2016 spent more than NBC and HBO combined), and their extensive business technology services.

E C O M M E R C E

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S U B S C R I P T I O N D E L I V E R Y

G R O C E R Y C O N T E N T

T E C H S E R V I C E S

P R I V A T E L A B E L

D E V I C E S

+MANY MORE

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A M A Z O N I N A U S T R A L I A

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LOCALLY, CURRENTLY LIMITED TO DIGITAL VIDEO AND BOOKS.

AMAZON.COM.AU SET TO LAUNCH IN SEPTEMBER.

INITIAL FULFILLMENT CENTRE IN SINGAPORE.

PRIME & PRIME FRESH ON OFFER ONCE ESTABLISHED.

INTENDS TO HAVE FULFILLMENT CENTRES IN EACH STATE.

A M A Z O N W I L L E AT O U R B R E A K FA S T, L U N C H A N D D I N N E R …

R I C H A R D G O Y D E R ,W E S F A R M E R S

W E W I L L B E C O M P E T I T I V E W I T H T H E M C O M E H E L L O R H I G H WAT E R .

G E R R Y H A R V E Y, H A R V E Y N O R M A N

There are two main attitudes from Australian retailers on Amazon’s impending arrival.

There's the camp of Gerry Harvey, who believe that entrenched consumer behaviour and Australia's somewhat unique logistic challenges will offset any undercutting that Amazon can offer.

The other camp realise that we cannot rest on our laurels – and we at Carat align with this perspective.

To give context to this quote from Richard Goyder, “Amazon will eat our breakfast, lunch and dinner…,” if retailers don't innovate, and legislation doesn't change to allow retailers to be more competitive.

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C AT E G O R Y S H A R E E S T I M AT E

44 ELECTRONICS

19 PHYSICAL &

ELECTRONIC MEDIA

11 SPORTS & OUTDOORS

10 CLOTHING & APPAREL

5 SHOES & ACCESSORIES

5 TOOLS & GARDEN

2 OFFICE SUPPLIES

2 PHARMACY

1 AUTO PARTS

1 HEALTH & BEAUTY

*Within 5 years of introduction. Citi Research, Nov 16. 16

A M A Z O N I A N I M PA C T

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IN THE US, AMAZON ACCOUNTS FOR ONE QUARTER OF TOTAL RETAIL SALES GROWTH AND 50% OF ALL ONLINE SALES.

IN AUSTRALIA, IT IS ESTIMATED TO EARN BETWEEN $3.5 AND $4 BILLION IN SALES WITHIN FIVE YEARS OF LAUNCHING, HOLDING 14% OF ONLINE RETAIL AND 1.1% OF ALL RETAIL SALE.

Citi Research, Nov 16.

In the states, Amazon accounts for one quarter of all retail growth. Not only that, but $1 in every 2 of online sales is spent with Amazon.

To throw back to the previous slide, it's actually the second largest electronics retailer in the world, behind Best Buy. It's also set to be the largest fashion retailer in the US by the end of the year.

In Australia, it's estimated that in five years Amazon will hold a little over 1% of all retail sale, and 14% of online retail.

Remember, that's not an even splitacross all retail categories, so Amazon will have much greater penetration in some categories than others.

This isn’t going to close the doors of established retailers by any means, but it will cut into the profits of a few, especially those who offer a USP in branded good around price and convenience.

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Electronics, 67%

Books, 61%

Clothes, 59%

Shoes, 42%

Music, 36%

Videos, 32%

Packaged Groceries, 18%

Fresh Vegetables, 9%

Fresh Meat, 7%

P R O D U C T S L I K E LY T O B U Y F R O M A M A Z O N . C O M . A U

18 Nielson Omnibus Survey, 18+, Jan 17.

Nielsen ran a study earlier this year on how receptive Australians are around buying from a localAmazon, and what they'd buy.

As you'd expect, most are comfortable with buying electronics and books.

Nearly 60% are receptive to buying clothes.

At the other end of the scale, not many people like the idea of buying food online, especially fresh meat and veg.

However, can you remember 10 years ago – actually, even 7 years ago – to how you felt about buying clothes online? Nobody thought that'd be a thing. “How do you try it on? What if doesn't fit? Surely delivery will be too expensive.”

But when retailers like ASOS – and local players like The Iconic, too –removed these consumer pain points, we gravitated to it. Now there are many people who only buy clothes online.

And it's the removal of those pain points, making it easier for people to transact, that has the biggest influence on shopping behaviour.

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T H E A M A Z O N E F F E C T

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BR I CK S & MO RTAR PAI N

E CO MME RCE G AI N

When Amazon enters a market, it brings along something called the 'Amazon Effect‘.

Basically, this means that due to Amazon being such a big retailer, it effects everything around it, from other retailers to supporting industries.

More specifically, it defines a new standard in customer expectations.

This traditionally puts pressure on bricks & mortar, and they feel the pain. Amazon isn't afraid to run without a profit, and has a silicon valley mentality to retail, meaning they have deep pockets when investing in innovation.

On the flip side, we see an interesting effect on other ecommerce retailers. They often see an increase in their online sales. This is due to the behavioural change that amazon can bring on a societal scale.

People as a whole become more receptive to buying products online, and if a retailer’s e-store is relatively easy to use, then they will benefit from that shifting behaviour.

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One of Gerry Harvey's arguments against an Amazon threat was that of distribution. Australia is simply too large, and the population too smallto warrant a cost-competitive online department store. However, in reality, the majority of our population is on the Eastern seaboard - and a large portion of that again are in the capital cities. Distance aside, Amazon doesn’t sell fridges.

However, Amazon isn't unfamiliar with entering challenging markets. Their approach isn't one-size fits all, and they often use novel strategies to gain traction in a market.

A good examples of this is Amazon India. Australia may have distribution challenges, but India has connectivity challenges: only a third of the population are online.

The picture here is of an Amazon Chai Tea cart. There was a whole fleet of these, that they would take to local markets. Under the guise of free tea, they would talk to local merchants, and educate them on how they could get their products onto Amazon's marketplace.

A M A Z O N . I N

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A T R A N S F O R M I N G F U T U R E

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F O R R E TA I L E R S , T H E R E A R E S E R I O U S C H A L L E N G E S , A N D E F F O R T I N E C O M M E R C E & D I S T R I B U T I O N I S R A P I D LY N E E D E D .

F O R B R A N D S I N P R O D U C T & F M C G , T H E R E A R E N E W O P P O R T U N I T I E S .

C O N S U M E R S A R E W E L C O M I N G C H O I C E .

T R A N S F O R M I N G C H O I C E

ONLINE SPEND$21.65

BILLION

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.4%

7.1% OF BRICKS AND MORTAR SPEND

Australian online retail spend YOY, Dec 2016Source: NAB Business

6.7% OF SALES ARE NOW E-COMMERCE( 2 5 % A V E R A G E F O R O M N I C H A N N E L )

There is no question that the growth in retail will be in e-commerce.

E-commerce gain is going to further proliferate the choices available to consumer.

The explosion of e-commerce, competition and its continued growth is going to have implications for how we make choices as consumers.

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THE SHIFT TO E-COMMERCE IS AFFECTING HOW PEOPLE MAKE CHOICES.

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S P E N D I M P U L S I V E L Y I N - S T O R E

S P E N D I M P U L S I V E L Y O N L I N E25%

40%F E E D LY B R I N G S I N S TA N T S O C I A L C R E D I B I L I T Y T O

D R I V E I M P U L S E P U R C H A S E

Data Source: AT Kearney: On solid ground Brick-and-Mortar is the Foundation of Omnichannel Retailing

The brands that are dependent on impulse purchasing will be hit. They are already looking for new ways to sell.

In the US you can now order your Uber with gum, or mouth wash, or even special items for a night out.

Feedly is a an algorithm service to tempt online shoppers to buy immediately, curbing their need to research.

It sources in information about the products from social feeds, creating instant social scores and allows the buyer to see all the info that people have posted, including pictures on the product in real life situations.

Impulse choices are not the only thing affected by all this change. The way we make choices in general is changing dramatically.

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The proliferation of choice is changing the way we filter decisions and choices.

As humans, we are programmed to simplify the decision making process, to free up mind space for other things.

We have in-built subconscious shortcuts that help make decisions quickly, called heuristics. Over and above our inbuilt heuristics that we use to shortcut decision making, we employ more conscious behaviour that we apply, called learned behaviour. The internet has made this even easier and more effective for us.

But there are new values emerging that are shaping consumer choices. A study by Bain & Co has revealed just how many more filters we are applying to our choice-making, to accommodate the explosion of choices that we have to make. They break them up into those four buckets: functional, emotional, life changing and social impact.

C H O I C E O V E R LO A D I S C H A N G I N G O U R D E C I S I O N M A K I N G

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H E U R I S T I C S H O R T C U T S

FA M I L I A R I T Y

A N C H O R I N G

E F F O R T

S C A R C I T Y

S O C I A L I D E N T I T Y

L E A R N E D B E H AV I O U R

C O M P A R I S O N

S H O R T L I S T I N G

R E S E A R C H I N G

S O C I A LR E F E R R A L

T H E N E W VA L U E

F U N C T I O N A L

E M O T I O N A L

L I F E C H A N G I N G

S O C I A L I M P A C T

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This study found values existed in over 30 ways of addressing needs.

It included things like self actualization, motivation, anxiety reduction – not typical USP’s for brands – alongside others that you would expect brands to focus on, such as quality and sensory appeal.

P E O P L E A R E U S I N G M O R E F I LT E R S T O R E F I N E T H E I R C H O I C E S A N D D E T E R I N E VA L U E

26 Source: Bain & Co, The Elements of Value

BRANDS CAN USE ELEMENTS SUCH AS ANXIETY REDUCTION, HOPE AND MOTIVATIONAS A POWERFUL USPWITH CONSUMERS

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The study found that the higher the number of elements that a brand scored highly against, the more successful they were.

Companies that scored highly across four or more values had more sustained their revenue growth. They had, on average, three times the NPS of companies with just one high score, and they had much higher levels of consumer loyalty.

This all demonstrates the critical nature of emotional engagement with our shoppers. The value decision is no longer as simple as price vs quality.

321SUSTAINED REVENUE

GROWTHNET PROMOTOR SCORE

3X HIGHER HIGHER LEVELS OF

CONSUMER LOYALTY

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B R A N D S T H AT S C O R E H I G H LY O N 4 O R M O R E E L E M E N T S …

THE VALUE DECISION IS NO LONGERAS SIMPLE AS PRICE VS QUALITY

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T R A N S F O R M I N G C H O I C E

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THE PERCEPTION OF VALUE HAS TRANSFORMED AND OUR CUSTOMERS HAVE MUCH HIGHER EXPECTATIONS OF RETAILERS AND VALUE.

HOW DO YOU CREATE YOUR OWN UNIQUE VALUE DNA?

DO YOU DELIVER VALUE THAT CONNECTS EMOTIONALLY,INCREASES SOCIAL IMPACT OR CHANGES LIVES?

T R A N S F O R M I N G C O N S U M E R S ’

H U M A N N E E D S

Consumers are at a crossroads.

They themselves are at a tipping point of self transformation, and that presents extraordinary opportunities for brands and retailers that act –and risk for those that don’t.

Our Carat Insights team are continually analysing social, cultural and consumer trends.

We have selected the 4 mega trendsthat we think will have the biggest impact on Retail in the next 10 years. They are all intrinsically linked and represent a real transformation in Australian consumers.

These trends are not new, and you’ll be familiar with them. We are calling them out as mega trends because we believe that these will drive the societal shifts that redefine consumer economies.

There are two spectrums: the spectrum of self, and the spectrum of time.

C O N S U M E R T R A N S F O R M AT I O N 4 M E G A T R E N D S R E S H A P I N G R E TA I L

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A U T H E N T I C I T Y

i - S E L F

I M M E D I A C Y

L O N G E V I T Y

Source: Carat Insights

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On the self spectrum we have authenticity, which is our need to stay connected to our real or original self; and at the other end we have the i-self: our technologically enhanced and delegated self which is quickly becoming our external identity.

C O N S U M E R T R A N S F O R M AT I O NT H E S E L F

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I M M E D I A C Y

L O N G E V I T Y

Source: Carat Insights

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Authenticity is not about marketing efforts like artisan bread.

The way that retailers need to address authenticity has changed.

Consumers have become immune to the marketing claims of authenticity. They are savvier, and seek behaviour as the proof. They are also looking for brands that can help them lay claim to authentic behaviour and live their values.

A U T H E N T I C I T Y: C R AV I N G F O R T H E R E A L W O R L D

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The i-self is the other side of our potential.

It’s our enhanced self, our technologically optimised self.

It is the mastering of a world of information overload, and using it to propel ourselves forward.

With that comes the expectation that the brands we deal with cater to our need to enhance and optimize ourselves.

i - S E L F : D E S I R E F O R C O N T R O L I N A W O R L D O F I N F O R M AT I O N O V E R LO A D

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On the time spectrum we have immediacy, which is our need to hack time for life quality, because as humans we’re wired for instant gratification; and longevity, which refers to our desire to extend our quality of life for longer, as well as planning for an extended life span.

C O N S U M E R T R A N S F O R M AT I O NT I M E

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A U T H E N T I C I T Y

i - S E L F

I M M E D I A C Y

L O N G E V I T Y

Source: Carat Insights

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More and more, our time is being hacked to create space for more opportunities.

Time that we are willing to share with retailers is being compressed by the expected speed of delivery. This video demonstrates how our expectation framework is being transformed.

Watch the video here

The other transformative implication with that video is the notion of ownership, which of course is critical to the retail sector.

Previously, immediacy meant ownership or membership. This is no longer the case.

I M M E D I A C Y

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T I M E I S B E I N G H AC K E D T O C R E AT E S PAC E F O R M O R E

O P P O R T U N I T I E S

I M M E D I A C Y“

As humans, we want things to last forever – including ourselves.

Luckily for us, life expectancy is increasing every year.

Are you ready to live to 100, and retire at 80? Because that just might happen.

Watch the video here

Our extended lives will have two significant implications. We will see older generations living life with a more youthful approach, and we ourselves will be living longer. This will mean that some of our lives will be a lot less traditional across the way we work, live and play.

This also has huge implications for industries like healthcare and education, and how they integrate into retail.

Knowing this, the challenge will be for retailers on how to repurpose their spaces and integrate a wider perspective of consumers.

How are retailers going to cater for the growing elderly class, and cater to healthcare and education? Opportunities abound.

LO N G E V I T Y:T H E E X T E N D E D L I F E

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AS HUMANS WE WANT THINGS TO LAST FOREVER(INCLUDING OURSELVES).

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It’s where these trends intersect that has the biggest implication for retailers.

With the self spectrum we have the tension of the way we develop our psychological sense of self, accelerating dramatically over time. This is far more stressful because the digital windows we now view ourselves through.

With the time spectrum we see the tension of speeding up and maxing out every moment, versus living to the full extent of our possibilities, which is linked to mindful living and health.

The point at which these two spectrums intersect is one’s personal potential: maximizing ourselves in the time frame that we deem appropriate.

This is very relevant to retailers because that is what consumer centricity is all about. Retailers need to make sure everything they do is about their customers reaching their full potential.

C O N S U M E R T R A N S F O R M AT I O N S E L F / T I M E PA R A D I G M

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PERSONAL POTENTIAL

A U T H E N T I C I T Y

i - S E L F

I M M E D I A C Y

L O N G E V I T Y

Source: Carat Insights

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I’ll give you an example. “It’s ok, to not be ok” is the slogan of a new line of cafes launching within Marks and Spencer: the Frazzled Café.

Marks and Spencer have partnered with Ruby Wax to rebrand their M&SCafés. Twice a week, the Frazzled Café will become a community space where people can come and talk about their anxiety and stress with professionals.

Marks and Spencer have gone into the space of de-stigmatizing mental illness and human vulnerability.

Suddenly, you have a retailer playing a very different role in your life. It’s a powerful combination of behaviour and message.

This is significant because in a world of media fragmentation and personalisation, retailers with this level of reach have a role to play as a mass media channel.

“Ruby’s Frazzled Cafe is a simple, pressure-free way of tackling what can be a taboo subject: feeling stressed. We hope that by providing free and calm venues after the café has closed, we can help any members of the community who simply need to talk about things and what’s happening in their lives.”

SACHA BERENDJIMARKS & SPENCER RETAIL

DIRECTOR

F R A Z Z L E D C A F E

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So the question now evolves: how does our unique value DNA help our customers reach their maximum potential, even in matters that are not related to the goods or services we sell?

Consumer centricity needs to move past data and personalisation to a whole new level of intimate understanding, where we understand why our customers do what they do – or even perhaps why they are not doing certain things.

This is the understanding that will be made possible by some of the consumer interfaces that we see becoming commonplace in the next few years.

T R A N S F O R M I N G C O N S U M E R S ’ H U M A N N E E D S

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HAVE YOU EVER THOUGHT OF HELPING CUSTOMERS REACH THEIR MAXIMUM POTENTIAL?

CONSUMER CENTRICITY IS NOT JUST ABOUT COLLECTING DATA AND PERSONALISATION. WHY ARE YOUR CUSTOMERS DOING WHAT THEY DO?

CONSUMER CENTRIC INNOVATION IS DRIVING THE CREATION OF NEW INTERFACES.

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T R A N S F O R M I N GI N T E R F A C E S

When we talk about interfaces, we don't just mean user interfaces –although we'll cover those. We're using the more traditional definition of the word: how you interface with things.

Think of the dials on a stove being your interface for cooking, or a door being the interface to a room.

ATMs are an interface to our cash.

This is a chart from the Reserve Bank. ATM withdrawals are at a 15 year low, and that decline is not looking at easing anytime soon.

We all get this, right? We notice it in our own day to day behaviour. We often find it a nuisance if we can't PayPass or PayWave now.

AT M W I T H D R AW L S

41 Reserve Bank of Australia, Payments Data, March 2017.

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Some companies are exploring how we interface with our wealth.

Meniga is a white label finance management app, that has been picked up by a number of European banks.

Instead of just being a transaction record of your accounts, it analyses your finances, and recommends when you should save, or even when you should spend.

M E N I G A : W H I T E L A B E L F I N A N C E M A N A G E M E N T

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“

Lowes in the States are fortunate enough – and large enough – to have a dedicated innovation lab.

One of the initiatives to couple out of this lab is a partnership with Google and its augmented reality platform, Tango.

Lowes leveraged this technology to create an instore wayfinding system, directly to a specific product. They‘re challenging the way we interface with stores. This experimentation also blurs the lines between online interaction and the physical.

To briefly explain Tango, it’s mobile technology that leverages two cameras on an Android phone to calculate depth perception. Whilst this is only on a few handsets to date, there’s strong speculation that similar hardware will be present on the next iPhone.

LO W E S / G O O G L E : I N - S T O R E A R N AV I G AT I O N

43

“

Lowes are also exploring the way that virtual reality can be leveraged in retail, redefining how we interface with branded content.

Watch the video here

What’s interesting about this example, besides the retention rates from participants, is how they are redefining customer experiences. This is the key takeaway here: they’re elevating the experience beyond P&P.

Not only are they educating and entertaining, Lowes are aligning themselves with contemporary, innovative technology, which helps redefine their USP.

LO W E S : M I X E D R E A L I T Y I N T E R FA C E S

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“

Amazon has always been willing to experiment with interfaces.

This is the Amazon Dash Button. It came out four years ago. It's a physical device about two inches long, connects to your wifi, and is linked to one product only. When you push the button, it orders that product off Amazon Prime. A simple concept.

Whilst Amazon has been secretive on sales numbers with the Dash, it launched with about a dozen variants, and now there's over 200. Whilst it costs US$5, once you press it you get $5 Amazon credit, so it's basically free.

Amazon’s intent with this product most likely isn't about sales, it's to get a better understanding of consumers.

With traditional shopping habits, it’s hard to understand the specific usage habits of the items consumers buy. But with the Dash Button, Amazon can get a clear understanding of when a customer wants that product and how frequently they want it.

A M A Z O N D A S H B U T T O N

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“

The Dash was an earlier experiment on intercepting and changing consumer shopper behaviour.

Amazon later released a Dash 'wand', which had a microphone and could scan barcodes. This voice capability evolved in their Alexaplatform. Alexa's first physical incarnation is the Echo, a range of physical speakers that were connected to Alexa and can understand you voice.

Watch the video here

A couple of things need particular attention.

Firstly, this isn’t a concept video, it’s a TVC. Notice when the woman orders paper towels? With Alexa, Amazon has an exclusivity over purchasing. All orders are done seamlessly through talking to it, and fulfilled through Amazon Prime.

The other part I want to point out is where the Uber and Dominos references. These are what Amazon are calling 'skills' – think of them as apps – that third parties can create and publish in the Alexa App Store.

T H E R I S E O F V O I C E

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“

Here are some stats on how the Echo is faring.

On the left we have unit sales, on the right we have Skills – those third party apps on the platform.

Some clarifications: these sales numbers are pre-Christmas, and the term 'worldwide' is a bit of a misnomer: Echo is currently only available is the US, UK and Germany.

So, whilst sales aren't mainstream, they've easily doubled year on year.

Skills, on the other hand, have been dramatically increasing in number. This chart isn’t year on year, but quarter on quarter.

The pull out stat at the bottom reveals the key goal for Amazon: Echo owners increased their spend on Amazon by 10% after purchasing the device.

A M A Z O N E C H O : S A L E S & ‘ S K I L L S ’

47 Consumer Intelligence Research Partners, Statista DMO, Amazon.com, NPD Group. Dec 16.

2.4m

5.2m

2015 2016

ESTIMATED WORLDWIDE UNIT SALES

1,000

3,100

5,100

0

1,000

2,000

3,000

4,000

5,000

6,000

Q2 '16 Q3 '16 Q4 '16

SKILLS AVAIL ABLE IN THE ALEXA STORE

ECHO OWNERS INCREASED THEIR SPENDING ON AMAZON BY ROUGHLY 10% AFTER PURCHASING THE DEVICE

“

So how popular is voice? Pretty niche, right? It's actually a lot more popular than you'd think.

These numbers from Accenture are not just using more advanced platform like Alexa or Google's Assistant, but cover more rudimentary voice interfaces like Siri as well.

As you can see, there's some pretty clear generational splits here. The vast majority of teens are interested in using voice in some way, and over half are already using it. This obviously decreased as the demo gets older, but even for boomers, whilst not many use it, half are interested by the thought.

There's probably still a bit of a cultural barrier in place – we still think people look weird ordering their phones about, after all – but the tech is pretty much there.

As a sidenote, Google's voice systems now have a 96% accuracy rate. Given how many times I get people to repeat themselves, I think that’s better than me!

7%

14%

23%

31%

8%

13%

15%

20%

35%

35%

32%

33%

50%

38%

30%

16%

55+ years old

35-55 years old

18-34 years old

14-17 years old

ARE YOU CURRENTLY USING EMBEDDED VOICE-ENABLED DIGITAL ASSISTANTS?

H O W P O P U L A R I S V O I C E ?

48 Accenture, Nov 16. Sample of 25,996 over 26 countries inc. Australia.

YES, REGULARLY YES, JUST STARTED NO, BUT AM INTERESTED NO, NOT INTERESTED

“

What's also interesting here is the data potential at play with voice.

As you're aware, you can get a decent insight into a consumer when they're on your owned platforms, like your app or your website, but it's harder beyond those walls.

By having an interface like Alexa, Amazon can capture behaviour of their users throughout the day –literally listening to their every word –creating a much more holistic view of their consumer, and a much deeper understanding of them.

D ATA P O T E N T I A L

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“

T R A N S F O R M I N G I N T E R FA C E S

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HOW AUSTRALIANS HANDLE, STORE AND USE MONEYIS CHANGING RAPIDLY.

MOBILE IS NOT THE END GAME. VOICE AND THE INTERNET OF THINGS WILL PROVIDE AN EVER-PRESENT INTERCONNECTED TOUCHPOINT.

PERSISTENT ECOSYSTEMS PROVIDE RICH CONTEXTUAL DATA THAT ARE WAITING TO BE CAPITALISED.

T R A N S F O R M I N G E C O N O M I E S

What we’ve seeing is evidence that consumers want to buy differently and retailers are already selling differently.

We see this creating a new, three cell economy that retailers will have to adapt to.

Within that economy there are three currencies.

Emotional currency, which is trading in anything above the functional eg: loyalty, wellbeing, hope.

Cognitive currency, which is trading data that consumers want paid back with intuitive utility and self enhancement.

And the on-demand currency, which is meeting customers’ time-needs before they even they know they need it.

T H E E M E R G E N C E O F T H E T H R E E C E L L E C O N O M Y

52

THREE CELL

ECONOMY

1EMOTIONAL CURRENCY

2COGNITIVE CURRENCY

3ON-DEMAND CURRENCY

Carat Insights

“

This three cell economy follows the attention economy.

The attention economy was where we saw people re-tribalise.Empowered by convergence and the internet, we saw the birth of companies like Amazon, Airbnb and Facebook.

In the three cell economy, we see divergence, that must inevitably follow convergence, and the power shifting to the digitally empowered individual.

We will see de-tribalisation as we become much more reliant on the highly personalised networks that are created in exchange for data.

This will result in the age of the individual network, not the social network.

These empowered individuals will expect brands to be two steps ahead of them, and be willing to trade for emotional meaning, self enhancement and time.

This will create an evolution of the consumer journey. Smart brands will be able to create or change the consumer journey rather than simply following it.

I N D U S T R I A L A G E I N F O R M AT I O N A G E A I - M A G I N AT I O N A G E

M A S S P R O D U C T I O N E C O N O M Y

C O N V E R G E N C E D I V E R G E N C E

DRIVEN BY MACHINERY

G L O B A L I S AT I O N

K N O W L E D G E /AT T E N T I O N E C O N O M YDRIVEN BY THE INTERNET

R E - T R I B A L I S AT I O N

T H R E E C E L L E C O N O M YDRIVEN BY THE INDIVIDUAL

D E - T R I B A L I S AT I O N

D I V E R G E N C E I N T H E A I - M AG I N AT I O N AG E

53 Carat Insights

“

Here we look at how brands are trading with emotion in the new three cell economy.

The first is the Marks and Spencer loyalty scheme.

Reward points are gained in three tiers. The lowest tier is actual purchases. The middle tier is brand engagement, earning twice as many Sparks points for reviewing a product as when they buy.

Plugging into a growing philanthropic shopping urge among today’s consumers, donating to the M&S Schwop scheme – which donates unwanted clothing to low income communities – unlock the maximum level of rewards.

The second example is Scotland’s Tesco supermarkets, in partnership with Alzheimer’s Scotland. They have developed a pilot program of “relaxed” checkout lanes to help shoppers with dementia. The idea was developed as a way of addressing the challenges vulnerable people face in modern supermarkets, where speed can be prioritised over service.

E M O T I O N

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T E S C O S C O T L A N D S L O W L A N E SS P A R K S L O Y A L T Y S C H E M E

“

Next we have some examples in the cognitive space.

The example on the left is Lemonade Insurance. This is awesome. It's a contents insurance app that has two key propositions: using it's custom AI, users create a tailored insurance plans for exactly what they need, and pay custom premiums based on that. The second is that you can redeem a claim in not months, but minutes, directly in app.

The other example here is Starbucks Barista. What started as a conversational interface for ordering coffee has evolved into a custom, personalised recommendation engine. Not only does it suggest appropriate cross-sell products based on your previous purchase behaviour and time of day, it tracks your commute to pickup to make sure your coffee is made at the right time. It can even entertain you with games whilst you commute to your local store.

C O G N I T I V E

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M Y S TA R B U C K S B A R I S TAL E M O N A D E I N S U R A N C E

“

These are two brands that are meeting the demands of convenience.

The first example is Walgreens. Their app allows users to renew their prescriptions simply by scanning the bottle or box. Over and above that, the app changes when customers are near a store, and then again when they’re in the store, offering tailored features in each situation.

The largest pharmacy chain in the United States is pulling out all the stops and taking full advantage of mobile technology to make life easier and better for its customers.

The second example is Getir. Operating in Istanbul, its proposition is clear: order products in its app and they will deliver them within 10 minutes at any time of day.

Ice Cream at 3am within 10 minutes. It seems so obvious now.

O N - D E M A N D

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G E T I RW A L G R E E N S

“

T H R E E C E L L E C O N O M Y

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EMOTION, SELF ENHANCEMENT AND TIME ARE THE NEW CURRENCIES.

THE RISE OF THE UNLIMITED INDIVIDUAL.

SMART RETAILERS WILL CREATE OR CHANGE THE CONSUMER JOURNEY.

W H E R E T O N E X T ?

E X T E R N A L F O R C E S A R E C H A N G I N G

59

YOUR MARKET IS CHANGING.

YOUR COMPETITORS ARE MORE COMPETITIVE.

THE DIGITAL STORE FRONT IS TRANSFORMING.

YOUR BRAND PROPOSITION IS AT RISK OF BECOMING DATED.

YO U R C U S T O M E R S A R E C H A N G I N G

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THEY WANT BRAND EXPERIENCES MIRRORING THEIR OWN VALUES.

THEY WANT BRAND RELATIONSHIPS THAT TURN THEIR DATA INTO SELF ENHANCING OUTCOMES.

TRADING EMOTIONAL MEANING, SELF ENHANCEMENT AND TIME.

Business transformation is the only way forward.

Consumer centricity needs to be focused on your customers’ personal potential rather than just their potential to spend.

Understand all the elements of value that can be meaningful to your consumers. A one dimensional USP is no longer sufficient, take the opportunity to examine your consumer facing value DNA.

Consider how other brands and partnerships can extend your relevance along the consumer journey, and help you on your mission to empower your customers to reach their maximum potential.

Good luck in the three cell economy and we are here to help you navigate it!

3

2

1CENTRE YOUR BUSINESS AROUND THE CUSTOMER AND THEIR POTENTIAL.

REDEFINE YOUR USP FOR THE THREE CELL ECONOMY.

CONSIDER PARTNERSHIPS TO EXTEND YOUR OPPORTUNITY ALONG THE CONSUMER JOURNEY.

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S T E P S T O T R A N S F O R M AT I O N “

First published June 2017.

The material contained in this documentation is proprietary and confidential to Carat. Copies are made available on the basis that use is limited to the sole purpose of a pre-agreed scope with Carat. It is not permissible to use, modify, copy or disclose any information contained in this presentation document for any other purpose without the express written permission of Carat. If you are not the intended recipient of this material you are requested to take immediate steps to destroy it.

Copyright 2017 Carat. All rights reserved.