Gartner - Hypecycle for Retail 2012

Industry Research G00234233

Hype Cycle for Retail Technologies, 2012 Published: 27 July 2012

Analyst(s): Gale Daikoku

Executing a seamless cross-channel shopping experience remains a critical priority for Tier 1 multichannel retailers. CIOs and IT leaders must diligently monitor customer requirements to balance the introduction of new technologies. This research features 43 technologies that should be on the radar. Table of Contents Analysis.................................................................................................................................................. 3 What You Need to Know.................................................................................................................. 3 The Hype Cycle................................................................................................................................ 3 The Priority Matrix.............................................................................................................................8 Off the Hype Cycle......................................................................................................................... 10 On the Rise.................................................................................................................................... 11 3D Printing in Retail.................................................................................................................. 11 Augmented Reality Applications................................................................................................13 Data Visualization in Merchandising.......................................................................................... 15 Multichannel Merchandise Planning.......................................................................................... 16 At the Peak.....................................................................................................................................18 E-Paper Signage...................................................................................................................... 18 Multichannel Feedback Management........................................................................................19 Real-Time Store-Monitoring Platform........................................................................................ 20 Social Media Analytics for Retail................................................................................................22 Multichannel Master Content Management for Retail................................................................ 23 Social Coupons........................................................................................................................ 25 Real-Time Customer Offer Engines........................................................................................... 26 Mobile Coupons....................................................................................................................... 27 Multichannel Loyalty................................................................................................................. 28

Biometrics for Time and Attendance......................................................................................... 29 F-Commerce............................................................................................................................ 30 Sliding Into the Trough....................................................................................................................32 Retail Mobile Shopping (Nonpayments).....................................................................................32 Web Experience Analytics.........................................................................................................34 Retail Mobile Payments............................................................................................................ 35 Integrated Demand and Replenishment Planning......................................................................39 Store Location Analysis............................................................................................................ 41 Store Replenishment Optimization............................................................................................ 42 Multichannel Order Fulfillment................................................................................................... 44 Java-Based POS Software....................................................................................................... 46 Multichannel Order Management.............................................................................................. 47 Time and Labor Optimization.................................................................................................... 49 Multichannel Master Data Management for Retail..................................................................... 50 RFID (Item)................................................................................................................................53 Contactless Payments.............................................................................................................. 54 Customer-Centric Merchandising............................................................................................. 55 In-Store Self-Service: Customer-Facing Applications................................................................ 57 Microblogging for Retailers....................................................................................................... 59 Online Product Recommendation Engines................................................................................60 Retail Biometric Payments........................................................................................................ 61 Store Task Management...........................................................................................................62 Retail Digital Signage................................................................................................................ 64 LCD-Based ESLs..................................................................................................................... 65 Climbing the Slope......................................................................................................................... 66 E-Coupons............................................................................................................................... 66 Merchandise and Category Optimization.................................................................................. 67 Unified Price, Promotion and Markdown Optimization...............................................................69 Mobile POS.............................................................................................................................. 71 Entering the Plateau....................................................................................................................... 73 Self-Check-Out.........................................................................................................................73 Community Reviews................................................................................................................. 75 In-Store Applications: Employee-Facing....................................................................................76 Appendixes.................................................................................................................................... 78 Hype Cycle Phases, Benefit Ratings and Maturity Levels.......................................................... 80 Recommended Reading.......................................................................................................................81 Page 2 of 83

Gartner, Inc. | G00234233

List of Tables Table 1. Hype Cycle Phases.................................................................................................................80 Table 2. Benefit Ratings........................................................................................................................80 Table 3. Maturity Levels........................................................................................................................81

List of Figures Figure 1. Hype Cycle for Retail Technologies, 2012................................................................................ 7 Figure 2. Priority Matrix for Retail Technologies, 2012...........................................................................10 Figure 3. Hype Cycle for Retail Technologies, 2011.............................................................................. 79

Analysis This document was revised on 6 September 2012. For more information, see the Corrections page on gartner.com.

What You Need to Know For several years, Gartner has been tracking consumer empowerment through growing use of the Web, mobile and social technologies as they take greater control of their shopping processes, including a more personal approach to their shopping experience. This consumerization of retail has resulted in major retailers continuing their investments in the specific technologies that enable them to innovate and improve their ability to execute a seamless, cross-channel shopping environment, and create meaningful interactions with customers. Multichannel retailing is becoming business as usual for Tier 1 retailers, which are defined as those with more than $2 billion and operating several channels, including stores. However, four IT forces — including cloud computing, social networking, mobility, and an explosion of information or "big data" (described by Gartner as the Nexus of Forces) — continue to elevate the hype surrounding several retail technologies. While these technologies on their own can be innovative and disruptive, the nexus highlights the convergence of these four forces, which will transform the way customers shop. Tier 1 retail IT leaders who are actively seeking guidance on the right mix of technology investments and delivery models can use this Hype Cycle to understand how these technologies can be used now and in the future to support their customers' real-time shopping journeys, regardless of touchpoints.

The Hype Cycle This Hype Cycle represents Gartner's global market view of the progress, development and evolution of the key retail technologies that affect the way Tier 1 retailers do business — that is, how

Gartner, Inc. | G00234233

Page 3 of 83

the technologies support the way customers want to interact with retailers through their shopping experiences. The technologies included in the 2012 Hype Cycle were selected and reviewed by Gartner on the basis of ongoing consumer and retailer surveys, market forecasts and analyst opinions, based on our daily conversations with large retail clients and vendors that serve the retail market. Key consideration was given to each technology's ability to affect a retailer's core business processes, to improve a retailer's ability to interact with its customers, and to improve the effectiveness and efficiency of operations. The target audience for this research includes: ■

CIOs and CTOs

■

Vice presidents of store operations

■

Vice presidents of merchandising

■

Vice presidents/heads of commerce/mobile/multichannel

■

Vice presidents/heads of application management

■

Heads of enterprise architecture

■

Vice presidents/heads of business intelligence (BI)/information management

Retail CIOs and their leadership teams must continue to diligently monitor customer requirements that arise from the actual shopping processes, and balance the introduction of new technologies to meet shoppers' needs. While the timing of implementations will vary — depending on a retailer's tier, segment and geography of operations, as well as on the maturity and ROI considerations of technologies being implemented — retail IT leaders can use this Hype Cycle as a starting point to refine technology road maps. The 43 technologies included in the 2012 Hype Cycle update are down slightly from the 47 technologies published in 2011. Here is a summary of the key changes for 2012: ■

Seven technologies were dropped and are detailed in the Off the Hype Cycle section of this research: retail mobile commerce (transactional), social software for retail employee collaboration, retail real estate portfolio management, public social networks in retail, nextgeneration retail OSs for POS, video and rich media for e-commerce, and store-based erecruitment.

■

Four technologies were renamed to more accurately reflect their inclusion in the 2012 Hype Cycle: "retail mobile phone payment" is now "retail mobile payments"; "retail mobile websites and applications — nontransactional" is now renamed "retail mobile shopping (nonpayments)"; "master data management for retail" is now called "multichannel master data management for retail"; and "multichannel retail enterprise content management" is now called "multichannel master content management for retail."

Three new profiles appear on the 2012 Hype Cycle: ■

3D printing in retail: 3D fabricating technologies have been available for some time, and have enabled the creation of one-off and customized pieces in the manufacturing environment. In the

Page 4 of 83

Gartner, Inc. | G00234233

past year, we have seen a noticeable interest in this technology that retailers could use to produce low-volume manufacturing of high-margin, custom-designed pieces to support a key customer basic: stock availability. This interest supports the addition of this profile to the 2012 Hype Cycle. ■

Data visualization in merchandising: The complexity of the multichannel merchandising process — combined with a new focus on the customer by Tier 1 retailers — has limited the potential impact of BI insights that must be translated across thousands of stores, and has become unmanageable. Data visualization tools have emerged as a must-have for Tier 1 retailers to use the knowledge that merchants rely on to drive analytic views of information from broad data sources, including social media and other contextual data points. This justifies why this profile has been added to the 2012 Hype Cycle.

■

Store location analysis: This has been around for many years, and was previously covered as a subset of retail real estate portfolio management, which was dropped from the 2012 Hype Cycle. In the past few years, store location analysis has become vitally important to multichannel retailers that need the ability to analyze an increasingly dynamic set of crosschannel variables and key determinants for store locations, particularly as the store has become the operational hub for cross-channel shoppers. This particular aspect and its importance to multichannel retailers' physical store strategy are why this technology was added to the Hype Cycle.

Three fast-moving technologies on the 2012 Hype Cycle are: ■

F-commerce: Gartner research shows that 91% of U.S. consumers surveyed report Facebook as their primary social network. As a result, we expect this technology to move quickly through the Hype Cycle over the next two to five years. The recent initial public offering and its mixed performance have increased interest and will drive new revenue generation opportunities for Facebook that will likely reinvigorate product sales activity. Facebook's recently opened App Store will also increase activity and hype surrounding F-commerce.

■

Microblogging: Twitter has become a household name. It allows retailers to connect directly with people who are interested in their products and services, as well as their sales and support activities. Microblogging is low-cost; the cost to the retailer consists of the personnel costs to create the feeds and the analytic software to monitor the microblogging feeds. This is part of the reason why this technology has accelerated through the Hype Cycle as fast as it has.

■

Community reviews: This technology advanced rapidly to plateau from the 2011 Hype Cycle position of post-trough 30% because it has become widely accepted and is considered a musthave for retailers selling on the Web. As such, Gartner expects that this technology will be retired in the next 12 to 24 months.

The following technologies have reached the plateau: ■

In-store applications: employee-facing: On the 2011 Hype Cycle, this technology had just reached the plateau stage, with less than two years to maturity, and we expected to retire it from the 2012 Hype Cycle. However, in the past 12 months, we have seen retailers keep up their interest in these solutions, while also slowly beginning to transition to newer next-

Gartner, Inc. | G00234233

Page 5 of 83

generation solutions. For this reason, we have retained this technology in its current form on this year's Hype Cycle. We expect to move it off the Hype Cycle next year and replace with a technology that describes the next-generation type of solutions. ■

Community reviews: As previously stated, this fast mover is a widely accepted part of doing business, and we expect this technology will continue to advance to the plateau and be retired within the next 12 to 24 months.

Through 2012, we expect all 43 of these technologies to have increasing relevance to multichannel retailers as they adjust to their "new normal," where multichannel retailing is becoming business as usual (see Figure 1).

Page 6 of 83

Gartner, Inc. | G00234233

Figure 1. Hype Cycle for Retail Technologies, 2012

expectations Mobile Coupons

Multichannel Loyalty

Real-Time Customer Offer Engines Social Coupons Multichannel Master Content Management for Retail Social Media Analytics for Retail Real-Time Store-Monitoring Platform Multichannel Feedback Management E-Paper Signage Multichannel Merchandise Planning

Biometrics for Time and Attendance F-Commerce

Multichannel Order Fulfillment

Retail Mobile Shopping (Nonpayments) Web Experience Analytics In-Store Applications: Retail Mobile Payments Employee-Facing Integrated Demand and Replenishment Planning Community Reviews Store Location Analysis Store Replenishment Optimization Self-Check-Out Java-Based POS Software Multichannel Order Management Mobile POS Time and Labor Optimization

Data Visualization in Merchandising Augmented Reality Applications Multichannel Master Data Management for Retail

RFID (Item)

3D Printing in Retail

Technology Trigger

Unified Price, Promotion and Markdown Optimization Merchandise and Category Optimization E-Coupons Store Task Management Retail Biometric Payments Online Product Recommendation Engines Microblogging for Retailers In-Store Self-Service: Customer-Facing Applications Customer-Centric Merchandising As of July 2012 Contactless Payments

LCD-Based ESLs Retail Digital Signage

Peak of Inflated Expectations

Trough of Disillusionment

Slope of Enlightenment

Plateau of Productivity

time Plateau will be reached in: less than 2 years

2 to 5 years

5 to 10 years

more than 10 years

obsolete before plateau

Source: Gartner (July 2012)

Gartner, Inc. | G00234233

Page 7 of 83

The Priority Matrix In the past year, key customer cross-channel processes — such as order online/pick up in store, buy online/return in store, or using a mobile device to browse — have continued to emerge as must-have capabilities for multichannel specialty retailers, such as consumer electronics, bookstores and apparel. IT decision makers in these formats need to stay focused on helping the business identify the right investments that improve the shopping process across the channels, and not overlook the importance of investing in stores in particular. For grocery and other segments that invest in stores, but may have underinvested in emerging channels (such as Web and mobile), Gartner research highlights the relative importance of all key touchpoints on cross-channel shoppers. According to Gartner's 2011 multichannel forecast, revenue through mobile channels for U.S. and U.K. retailers is expected to be less than 2% of total revenue by 2015, while e-commerce revenue in both countries is expected to nearly double by 2015 according to the published forecast figures for 2010. However, while stores' growth rates in both countries will be the lowest of all channels, the majority of retailers' revenue will continue to come through stores for some time. Also, multichannel retailers should not lose sight that, for cross-channel-enabled processes, the store becomes the operational hub for their operations. This means that stores should remain an investment priority for multichannel retailers. As Tier 1 retailers prioritize their technology investments to deliver innovation and business value to customers, Gartner reminds retailers using the Priority Matrix to start by mapping customers' shopping processes and identifying deficiencies that prohibit or constrain a seamless cross-channel shopping experience. Four benefit ratings are used to describe each technology included in this Hype Cycle: transformational, high, moderate and low. Three technologies were labeled as transformational because they have the potential to "enable new ways of doing business across industries that will result in major shifts in industry dynamics," as per the Gartner Hype Cycle definition of "transformational"; however, the time frame to deliver transformation remains several years out. Contactless payments and RFID (item) have been around for several years, but these technologies are still at least five to 10 years away from mainstream adoption of these industry payment processes. 3D printing in retail, a new profile on the 2012 Hype Cycle, is a technology that could physically deliver a 3D print out of a prototype or item for purchase at a retail location — which, for IT leaders, could potentially change the way they support how inventory is managed, merchandised, sourced and sold in stores in the future. Although these technologies have the potential to transform the industry, the customers will determine how fast they move in terms of adoption — and this is especially the case for contactless payments and 3D printing in retail. Nearly half (20) of the technologies appearing on the 2012 Hype Cycle are labeled as having a high benefit rating, which means that they will enable new ways of "performing horizontal or vertical processes that will result in significantly increased revenue or cost savings." Many of the technologies with a high benefit rating are expected to reach mainstream adoption in two to five years, and these predominantly focus on enhancing core retailers' processes in the areas of merchandising, inventory management, workforce management and other customer shopping

Page 8 of 83

Gartner, Inc. | G00234233

processes. The technologies that enhance merchandising or inventory management capabilities include customer-centric merchandising; data visualization in merchandising; integrated demand and replenishment planning; merchandise and category optimization; store replenishment optimization; and unified price, promotion and markdown optimization. The technologies that improve workforce management include store task management and time and labor optimization. The technologies that improve customer shopping include in-store self-service: customer-facing applications; retail mobile shopping (nonpayments); and social media analytics for retail. A few technologies with high benefit rating were not expected to reach mainstream adoption for five to 10 years. This reflects the very complex nature regarding the data requirements and application integration needed to execute the cross-channel processes that these technologies will enable and support. The technologies we can ascribe to this category are multichannel feedback management; multichannel merchandise planning; multichannel order fulfillment; multichannel order management; multichannel master content management for retail; and integrated demand and replenishment planning. Eighteen technologies had a moderate benefit rating. Those with this rating are defined as providing "incremental improvements to established processes that will result in increased revenue or cost savings" for retailers. Some of these had a two- to five-year maturity rating because they enable or extend existing retailer processes for the customer, such as e-coupons, mobile coupons, multichannel loyalty, self-check-out and F-commerce. Other technologies with two- to five-year maturity — including microblogging for retailers, online product recommendation engines and Web experience analytics — are investments that can enhance the cross-channel shopping experience for the customer. Several other technologies were rated five to 10 years — their ability to provide incremental improvements was constrained because they required more time to improve or replace established processes. They are biometrics for time and attendance, e-paper signage, Java-based POS software, LCD-based ESLs, mobile POS, retail biometric payments, retail digital signage and retail mobile payments. For two technologies — real-time customer offer engines and real-time store-monitoring platform — integration with established processes for real-time review/response was a factor in the years to mainstream adoption. Two technologies on the 2012 Hype Cycle received a low benefit rating, which is defined as "slightly improves processes (for example, improved user experience) that will be difficult to translate into increased revenue or cost savings" for retailers. Social coupons, which are projected to achieve mainstream adoption in two to five years, are a form of e-coupon; however, their effectiveness and efficiency for retailers are still largely unproven. Similarly, augmented reality applications — which have drawn considerable interest in the past year, particularly as retailers explore their use though mainstream adoption — are between five and 10 years away from reaching the Plateau of Productivity, because these interactive and immersive technologies are still emerging (see Figure 2).

Gartner, Inc. | G00234233

Page 9 of 83

Figure 2. Priority Matrix for Retail Technologies, 2012

benefit

years to mainstream adoption less than 2 years

2 to 5 years

transformational

5 to 10 years

more than 10 years

3D Printing in Retail Contactless Payments RFID (Item)

high

Community Reviews In-Store Applications: Employee-Facing

Customer-Centric Merchandising

Integrated Demand and Replenishment Planning

In-Store Self-Service: Customer-Facing Applications

Multichannel Feedback Management

Merchandise and Category Optimization

Multichannel Master Content Management for Retail

Retail Mobile Shopping (Nonpayments)

Multichannel Master Data Management for Retail

Social Media Analytics for Retail

Multichannel Merchandise Planning

Store Location Analysis

Multichannel Order Fulfillment

Store Replenishment Optimization Store Task Management

Multichannel Order Management

Time and Labor Optimization Unified Price, Promotion and Markdown Optimization

moderate

Data Visualization in Merchandising

Biometrics for Time and Attendance

E-Coupons

E-Paper Signage

F-Commerce

Java-Based POS Software

Microblogging for Retailers

LCD-Based ESLs

Mobile Coupons Multichannel Loyalty

Real-Time Customer Offer Engines

Online Product Recommendation Engines

Real-Time StoreMonitoring Platform

Self-Check-Out

Retail Biometric Payments

Web Experience Analytics

Retail Digital Signage

Mobile POS

Retail Mobile Payments

low

Social Coupons

Augmented Reality Applications

As of July 2012 Source: Gartner (July 2012)

Off the Hype Cycle The following seven technologies are off the 2012 Hype Cycle: ■

Retail mobile commerce (transactional): This technology has been removed, and its largely overlapping content has been incorporated into "retail mobile payments" to avoid duplication and prevent unnecessary confusion.

Page 10 of 83

Gartner, Inc. | G00234233

■

Social software for retail employee collaboration: This is a cross-industry solution and was dropped for 2012 because it is covered in the "internal community platforms" technology on the "Hype Cycle for Social Software, 2012."

■

Retail real estate portfolio management: Store location analysis, as a process, has been around for many years and was previously covered as a subset in retail real estate portfolio management. However, in the past 36 months, it has become vitally important, as well as an increasingly riskier and more complex activity, and we have seen lots of interest in this topic. This has caused us to write a separate profile called "store location analysis," which we have introduced on the 2012 Hype Cycle.

■

Public social networks in retail: This technology was dropped because it is not specific to retail only. Gartner research shows that 72% of U.S. consumers are members of at least one social network, with 91% using Facebook as their primary social network. See the F-commerce profile.

■

Next-generation retail OSs for POS: Over the past few years, the coverage of technology profiles on the Retail Hype Cycle has focused more and more on retail business applications, rather than devices or client operating systems. In light of this criterion, we have decided to remove this technology from this year's Hype Cycle. Also, it is unlikely that retailers will implement these OSs for POS as stand-alone initiatives outside of POS upgrades.

■

Video and rich media for e-commerce: This was dropped because it was not specific to retail.

■

Store-based e-recruitment: This technology was dropped because e-recruitment is now part of a broader cross-industry talent management suite, where there have been several mergers and acquisitions during the past few years. See the talent management suites profile on the "Hype Cycle for Human Capital Management Software, 2012."

On the Rise 3D Printing in Retail Analysis By: Mim Burt; Pete Basiliere Definition: 3D printing is a method of converting a 3D model — for example, created through a computer-aided design (CAD) software package, into a physical solid, detailed and potentially functional model, or salable new or replacement part. Position and Adoption Speed Justification: For a while now, 3D fabricating technologies have been available for product prototyping and short-run parts manufacturing. More recently, the technology has advanced to enable the creation of one-off and customized pieces in a much wider range of robust materials. In retail, 3D printing is an emerging technology, and we are adding this as a new technology to our Hype Cycle for Retail Technologies, 2012, because, in the past 12 months, we have seen a noticeable increase in interest in this technology from retailers and vendors

Gartner, Inc. | G00234233

Page 11 of 83

Six basic 3D printing technologies are in use or under development: extrusion, lamination, fused deposition modeling, inkjet, stereolithography and selective heat sintering. Additive 3D printers deposit ink, resin, plastic or another material, layer by layer, to build up a physical mode. Although at the low end, parts are generally produced in plastics, the same principles are also being used to create high-end parts from ceramics, stainless steel, cobalt chrome and titanium alloys. Continued quality improvements and price decreases mean enterprises can justify a modest investment that streamlines their product design and development programs. In the past 24 months, the number and type of 3D printers has increased, and printer and supply costs have decreased to a level that broadened 3D printing's appeal to a wider range of businesses, schools and consumers. 3D printers with multicolor capabilities (less than $15,000) and single, monochromatic 3D printers (approximately $10,000) are available for a wide range of applications, with simple build-your-own-printer kits costing a few hundred dollars. A sign of the market's growth is the consolidation of its technology providers. So far in 2012, we have seen 3D Systems complete its acquisition of Z Corp. (January) and Stratasys announce its intention to acquire Objet (April). Interestingly, the major 2D printer manufacturers basically remain on the sidelines, mainly conducting research or providing OEM capabilities to third parties. HP remains the only 2D printer provider with a 3D product offering, which is basically a rebranded Stratasys printer. User Advice: Advances in 3D scanners and design tools, as well as the commercial and opensource development of additional design software tools, make 3D printing technology available for a modest investment. While continuing to keep abreast of this technology, Tier 1 retailers should now take advantage of the lower cost to begin exploring the use of this technology by experimenting with low-volume manufacturing of high-margin, custom-designed pieces — for example, fashion jewelry and eyeglass frames. Feasibility studies should include finding out the most appropriate materials, printing methods and 3D model formats that will best support the ways in which you want to use 3D printing in your business model. Very importantly, retailers should ensure that they adequately manage the risk of violating or infringing copyright and patenting laws with regard to the creation of "knock-offs." Bottom line: Retailers need to think carefully about how this technology will support the customer service basics — the essential things that a customer expects when shopping with the retailer, such as stock availability. Business Impact: This technology makes it possible for the introduction of a new retail business model — a 3D "copying service." In this type of model, the retailer could use its stores for customers to bring in 3D CAD models of objects they would like to have produced, which the retailer could "manufacture" using 3D printing. Customers could also use a Web-based service, where the 3D models are emailed, and physical parts are mailed back to them. The retailer may even be able to provide a full service from using 3D scanning to scan an object and then using 3D printing technology to produce one or more copies for the customer. This technology has the potential to transform several industries, including retailing and manufacturing. For example, in retailing, as printer costs continue to come down and as they become more readily available, consumers could these 3D printers to "manufacture" their own custom-designed products.

Page 12 of 83

Gartner, Inc. | G00234233

Benefit Rating: Transformational Market Penetration: Less than 1% of target audience Maturity: Emerging Sample Vendors: 3D Systems; HP; Objet; Stratasys Recommended Reading: "Cool Vendors in Imaging and Print Services, 2012" "Innovation Insight: 3D Printing Enhancements, Low Price Bring Design Process Improvements Within Reach" "Multichannel Retailers Will Fail in Their Multichannel Strategy If They Do Not Execute Strongly on in-Store Customer Basics"

Augmented Reality Applications Analysis By: Mim Burt Definition: Augmented reality (AR) overlays real-time integration of text, graphics, audio and other virtual enhancements onto screens displaying real-world objects. Elements of AR applications are becoming social, and are increasingly centered on context-aware location-based services for mobile devices. Position and Adoption Speed Justification: AR applications are slowly, but surely, gaining more visibility in the retail market due to the exponential growth of the smartphone market, the proliferation of QR (quick response) codes and RFID tags, and the increased hype from technology vendors highlighting advancements in areas such as GPS, digital camera technology and real-time analytics. AR is also showing a convergence with the trend of gamification — the use of game mechanics in nonentertainment environments to change user behavior and drive engagement. The main usage scenarios for AR applications include discovering things in the vicinity of the user, showing a user where to go or what to do, and providing additional information about an object of interest. In retail, this translates to customers being able to find locations or products with maps and real-time directions, having access to detailed product information, being able to contextualize products and receive personalized promotions. Tier 1 retailers continue to experiment with AR applications in-store, online and on mobile devices, and this technology continues to climb steadily up the Hype Cycle. Examples of implementations include enabling customers to virtually try on clothing online or in a "virtual dressing room" in the store, seeing how furniture items look in their home or room, seeing what unconstructed models of objects look like in 3D and allowing customers to interact with animated characters. With the growth of AR applications for mobile devices, we expect to see more hype and activity in the retail market in the next 12 months, although we do not expect this to translate into large numbers of Tier 1 implementations.

Gartner, Inc. | G00234233

Page 13 of 83

User Advice: Retailers should not be dazzled by the current hype surrounding AR applications for mobile devices, because it will be a while before technology will deliver the refinements needed for a good customer experience. AR is very demanding, even for high-end smartphones. Small screens, imprecise GPS locations and inconsistent data mean that the AR user experience does not always live up to the concept. First and foremost, AR applications should be reviewed in the light of how they will support customer expectations and enhance the shopping experience in moreimmersive channels — such as the store or when shopping at home by accessing the retailer's website on a PC or laptop. Due diligence should be performed on what integration is needed at the back end, including fulfillment processes — for example, integration of the real-time offer engines to robust crosschannel content management systems. This will be the backbone for AR applications to deliver a good cross-channel experience. For example, an AR application could allow online home shoppers with webcams to place items of digital clothing over their own image, giving an experience close to an in-store fitting room. The shoppers can then check stock availability and either order online or come into the store to purchase the item. Retailers must, therefore, ensure that the AR solution is integrated with cross-channel stock management systems to ensure that items tried on are in stock, particularly in store, as on-shelf stock availability is a key basic that customers expect when shopping in store. Retailers should also remember to tie up their promotions driven by AR experiences to the other channels, because customers also expect retailers to deliver a consistent cross-channel shopping experience. Business Impact: In the more-immersive environments, such as the store, interaction with AR applications could drive conversion from interest to actual sales. For example, AR applications instore could be used to give the customer detailed information when purchasing complex products, or customers can get information when trying on apparel in a virtual dressing room, which could enhance the customer experience and drive sales. AR applications can also be used post-sale (for example, easily downloadable AR manuals for do-it-yourself projects) to increase customer satisfaction, improve loyalty and encourage positive customer recommendations to other consumers who have yet to make their purchasing decisions. Benefit Rating: Low Market Penetration: Less than 1% of target audience Maturity: Emerging Sample Vendors: GoldRun; Iryss; Layar; Metaio; Total Immersion; Zugara Recommended Reading: "Multichannel Retailing: Customers Want Consistency in Cross-Channel Shopping Processes" "Cross-Channel Consistency: Customer Expectations Vary by Product Category"

Page 14 of 83

Gartner, Inc. | G00234233

Data Visualization in Merchandising Analysis By: Robert Hetu Definition: Data visualizing enables retail buyers and planners to problem solve by dynamically creating views of business intelligence (BI) data in the best format for analysis, including autoselection of display format and trend identification, and creates temporary hierarchies on the fly. Position and Adoption Speed Justification: During the past 10 years, retailers have invested in BI and retail analytics tools to help associates make better business decisions, although they do not provide integration to core systems. The complexity of the merchandising process, combined with a renewed focus on the technology-enabled consumer, is limiting the potential impact of BI insights. Its translation into action across thousands of stores has become unmanageable without integration. The use of visualization tools will move quickly through the Hype Cycle. As business leaders are exposed to the benefits provided, the hype will accelerate and move the technology along quickly. The availability of nonstandard data that delivers a more complete picture of consumer behavior through context, or big data, now provides merchandising with the opportunity to personalize customer service on a grand scale. This promised level of personalization is reflective of the past customer experience, where all retail was local, and merchants knew their customers and anticipated their needs. The central issue preventing the transition to personalization is a lack of a set of tools that can sort through the volume to find data that make a significant difference in providing a personalized experience. User Advice: ■

■

BI and retail analytics must be integrated within the merchandising process. Sophisticated, yet simple to use, data visualization tools must be added to the analytical toolkits of retailers, because they are required to utilize the knowledge that merchants rely on to drive analytic views of information from broad data sources and drive the discovery of knowledge. Beneficial capabilities include: ■

Dynamic presentation — The application automatically determines the best method to display the data graphically or in a tabular format

■

Pattern matching — The application looks for patterns in the data and drives analysis of exceptions

■

Predictive analytics — The application attempts to model future results, allowing what-if scenarios that provide decision guidance for merchants.

Ensure applications are available to support analysis of social media and other contextual data points. Social media has predominantly been associated with marketing activities, and although there is not a well-defined science to managing social media, most C-level executives believe the activity is paying off. Most important for success here is the ability to visualize data, allowing

Gartner, Inc. | G00234233

Page 15 of 83

knowledgeable merchants to search for trends and actionable insights that drive sales and profits through more-targeted execution. ■

Evaluate core merchandising, planning and assortment tools to ensure they are capable of utilizing customer analytic information. If merchandising systems cannot integrate analytics (for example, building assortments by location cluster based on customer analytics), benefits will not be maximized.

■

Ensure speed is acceptable; the application quickly retrieves big data elements, while the user is actively performing analysis in real time. Subsecond response rates are required.

Business Impact: Without the addition of new tools that are much easier to use than traditional fare, users will find that their BI investments will pay off even less than before, potentially leading to merchandising decisions that are worse than before. For example, if a fashion buyer makes a significant investment in an unproven style for a large group of stores based on incomplete or inaccurate analysis of customer transaction data, simply due to faulty interpretation of trends, the consequences will be costly for sales, profits and the BI initiative. Benefit Rating: Moderate Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: Oracle; SAP; SAS Recommended Reading: "Integrating Analytics with Customer-Centric Merchandising" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers"

Multichannel Merchandise Planning Analysis By: Robert Hetu Definition: Multichannel merchandise planning provides the ability to simultaneously plan merchandise assortments, purchases and inventory levels across all sales channels, while taking into account various marketing and event planning calendars, as well as seasonal influences. Position and Adoption Speed Justification: Many multichannel retailers use separate and siloed merchandising and planning processes, based on the channel, to bring their product offerings to the consumer. This can result in an inconsistent customer experience, and may fail to facilitate a cross-channel sales path. In many ways, an extension of the concept of customer-centric merchandising, a key aspect of multichannel merchandise planning involves recognition of the various touchpoints that consumers experience with the retailer, when they occur during the purchase process, and how they intersect to close a transaction. The ultimate goal is to build a planning process that supports customer-centric merchandising. Multichannel merchandise planning is developing at roughly the same pace as customer-centric merchandising. Performance metrics for each channel are well-defined. However, the way the channels interact and can be used

Page 16 of 83

Gartner, Inc. | G00234233

to influence customer shopping behavior remains elusive. Once resolved, this knowledge can be utilized to maximize customer experience, transactions and the lifetime value of each customer. The fast-paced evolution of e-commerce, social media and mobile commerce (m-commerce) is driving much consolidation and acquisition within the vendor community. This technology will move to the forefront for investment as retailers continue to look for ways to personalize service. User Advice: Multichannel consumers have expressed a desire for consistency in pricing, assortments, promotions and product information, so successful cross-channel planning will provide a unique opportunity for retailers to develop a point of differentiation by providing consistency for cross-channel shoppers. Channel-based silos built into the retailer structure are a significant impediment to the development of multichannel merchandise planning. Organizational structure change, cross-channel workflows and change management have to be addressed. Software providers have picked up on the hype surrounding multichannel merchandise planning and have incorporated this into their language and capabilities. Because planning is central to the retail process, and multichannel has such a significant impact on organizational structures, a careful approach to discovery and evaluation is required to ensure that the technology solution will provide the desired impact. Retailers currently using a homegrown legacy planning system, an Excel-based approach or an aged software platform should look at packaged solutions that address the entire planning process. Others that have recently implemented a new planning suite will need to identify multichannel capabilities within the existing package and consider best-of-breed additions to supplement capabilities. In addition, multichannel merchandise planning requires the ability to analyze, share and utilize consumer information gathered from transactions, customer loyalty programs, credit cards and so on. This analysis must include channel-based data and lead to a retailerwide view of the customer. Retailers need to determine how channel growth will impact the consumer profile and which channels will lead the way to future growth. Various demand planning forecasts from different sales channels must use the cost elements and planned promotional activity to more accurately determine margin plans, develop vendor forecasts and inform key stakeholders of performance expectations. Business Impact: When done correctly, multichannel merchandise planning will provide differentiation and competitive advantage for Tier 1 retailers. Customer loyalty, service and brand perception will be enhanced, driving growth in sales and market share. A cross-channel planning workflow and business process will ensure that performance and profitability targets are achieved. Integrated demand planning activities will support better forecasting and inventory management, accurate open-to-buy planning, and supply chain information for vendors, logistics and transportation functions. Benefit Rating: High Market Penetration: Less than 1% of target audience Maturity: Emerging

Gartner, Inc. | G00234233

Page 17 of 83

Sample Vendors: Island Pacific; JDA Software; Oracle; SAS Recommended Reading: "Multichannel Pressures Drive Optimized Merchandising" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "Cross-Channel Merchandising Success Requires Consistency" "Multichannel Retailing: Customers Want Consistency in Cross-Channel Shopping Processes" "How Retailers Can Use Multichannel Customer Intelligence in Merchandising"

At the Peak E-Paper Signage Analysis By: Gale Daikoku Definition: E-paper-based signage is programmable, wireless electronic signage that can be affixed to store shelves/shelf channels and be displayed as electronic shelf labels (ESLs). It is typically used in larger form factors as a replacement for paper-based end-cap, department or category signage, and has higher-resolution displays with pixilated graphics that can appear in two or more colors. Position and Adoption Speed Justification: "E-paper" is an electronic display technology that has similar attributes to paper, but it can be written on and erased electronically. Less than 1 millimeter thick and made of plastic, e-paper does not require a projection device (unlike an LCD-based ESL). However, the labels typically require a casing to affix and power the labels on store shelves. Interest in e-paper display technology continues from retailers that are exploring it to power new types of LCD-based ESLs or as a replacement for paper signage. E-paper requires even less battery power than LCD-based ESL technology, and Gartner continues to see pricing for shelf-edge e-paper label costs dropping to be competitive with LCD ESLs at scale, with pricing around $5 per label. In the past 12 to 18 months, Gartner has seen a number of North American retailers across a variety of segments (especially nonfood) revisit the business cases for LCD-based ESLs or e-paper signage for stores. Several large retailers have trialed e-paper signs, including Tesco, Sainsbury's, Metro, Groupe Casino, Dixons, Saturn, Best Buy and Sears; however, because deployments in e-paper signage have been limited to trials, the maturity of the technology is still classified as emerging or first-generation. While it can be expected that e-paper ESLs and signage will coexist with LCD-based ESL shelflabel installations for some time, Gartner believes that the visual quality improvements of e-paper will continue to generate demand from customers with legacy installations that want to modernize the look of their signage with the newer e-paper labels. Assuming this demand remains steady, we expect that the prices of labels will continue to drop, because we have seen competitive pricing for e-paper shelf-edge labels (which are comparable in size to LCD-based ESLs) that are in the range of $5 per unit. Page 18 of 83

Gartner, Inc. | G00234233

User Advice: Ensure that e-paper improves the execution process for price changes, with readability that is comparable or better than existing formats. Retailers should also ensure that the necessary change management associated with the price execution process is not overlooked during implementation. Business Impact: This technology affects labor productivity, price accuracy and legal compliance (for example, weights and measures), and can support dynamic pricing. It can also support retailers' efforts to be more operationally green by eliminating the printing of paper signage in stores. Flexible displays using e-paper technology offer many potential benefits over other display technologies, including reduced weight, decreased thickness, improved ruggedness and nonlinear form factors. Significant improvements in the readability and usability aspects of e-paper score highly in terms of ease of consumer use. Benefit Rating: Moderate Market Penetration: Less than 1% of target audience Maturity: Emerging Sample Vendors: Altierre; Pricer; ZBD Recommended Reading: "Case Study: Groupe Casino and Electronic Shelf Labels"

Multichannel Feedback Management Analysis By: Mim Burt; Gale Daikoku Definition: Multichannel feedback management solutions provide surveying and feedback analysis tools suitable for use across a retailer's channels and brands, including mobile and social. Their use ranges from one-off, tactical surveys (for example, customers taking a brief survey about their shopping experience delivered on their point-of-sale receipt, or texting feedback via a keyword or code that appears on store signage) to ongoing strategic feedback to better understand customers, employees, products and processes. Position and Adoption Speed Justification: In retail, the shift of multichannel retailing to business as usual has heightened interest in multichannel feedback management, which can be implemented to enable consumers to give retailers instant feedback on the shopping experience in and across any of the retailer's channels. This type of engagement can create a real-time dialogue with customers as feedback is captured during the shopping experience. However, this technology has not had much upward movement on the Hype Cycle, because trials and the few implementations in Tier 1 retailers understandably focus mainly on customer feedback, whereas the technology includes other stakeholders, such as employees and suppliers, as well. Functional enhancements continue to focus on analytics (to determine what to do with the data collected), including feedback from social media. It is clear that vendors are also beginning to align with specific vertical industries, such as retail, in an attempt to provide differentiated retail-specific preconfigured solutions.

Gartner, Inc. | G00234233

Page 19 of 83

User Advice: Retailers should take a strategic view of multichannel feedback management. Data collected should be analyzed, and the results used to enable real-time decision making, such as making sure there is good product availability in the store or adjusting staffing levels in the store, or as a feed into buying or product development decisions. For example, the No. 1 topic of feedback to date is on product availability, especially in the store. Retailers can use this information to keep track of channel performance in terms of execution, to input information into merchandising decisions — for example, to fine-tune range selections. Retailers can also feed the information into the supply chain allocation process to improve product availability at the store shelf. Retailers starting out on enterprise feedback projects should follow proper best practices for survey creation to ensure good response rates and valid responses. They could start with customers in store, because today and for the near future, the store will remain the hub of the cross-channel shopping process. When assessing vendors, perform due diligence on whether the vendor has multichannel capability, because some cover only one channel — for example, online customer reviews. Business Impact: Multichannel enterprise feedback management provides an integrated view of feedback data across customers, employees and suppliers in and across the retailer's channels. If implemented correctly, these deployments will ensure that the right individuals are surveyed at the right time, in the right channel and with the right questions, thus ensuring maximum response rates and business insights. This will help you to prioritize customers' issues for attention, such as improving on-shelf availability, influencing staff motivation and performance, and also improving key marketing and merchandising decisions. Benefit Rating: High Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: Allegiance; Medallia; Mindshare; Nice Systems; QuickSearch; ResponseTek

Real-Time Store-Monitoring Platform Analysis By: Mim Burt; Gale Daikoku Definition: Real-time store-monitoring platforms are a solution that combines dashboards, business activity monitoring and a real-time data infrastructure to bring together signals from realtime data sources available in the retail store. These can include traffic counters, queue management sensors, point-of-sale transaction logs, electronic article surveillance, Internet Protocol video, Wi-Fi triangulation, mobile triangulation, remote sensors on in-store devices, pressure sensors and RFID. Position and Adoption Speed Justification: Today, most retailers that use real-time systems in the store do so in siloed applications and infrastructures (for example, closed-circuit TV [CCTV] and traffic counters). Many Tier 1 retailers have focused activity more around queue management Page 20 of 83

Gartner, Inc. | G00234233

solutions. For example, grocery retailers that have already implemented these solutions for manned check-out lanes are also implementing the solution for self-check-outs. Retailers are also starting to use digital video surveillance systems, coupled with analytics software, to measure the effectiveness of displays, signage and promotions, and to try to sell to shoppers based on their inaisle behavior. However, in the past few years, retailers have been exploring how these real-time technologies should be combined on a single platform to leverage assets to gain more intelligence in the store. These platforms can give retailers a real-time monitor of what is happening in their stores. Vendors have also released next-generation software advancements that include real-time alerts, shelf inventory monitoring, 360-degree camera integration and employee tracking. Newer solutions include the use of dual thermal imaging with digital video and stereo video replacing monocular cameras, as well as software as a service (SaaS)-based delivery models. These monitoring platforms are complemented with algorithms that can combine and analyze real-time signals to provide alerts that help retailers take action to avoid stock-outs, keep check-out queues short, support merchandising decisions and mitigate loss prevention. In the past 12 months, increased vendor activity has driven more interest around these solutions, and this is reflected in the movement of this technology nearer to the Peak of Inflated Expectations. Despite the hype, we still believe that this concept is still relatively new to the retail industry. User Advice: As retailers upgrade their customer traffic and queue management systems, or any system that monitors real-time store activity (for example, electronic article surveillance), they should also think about how to develop a real-time store-monitoring platform. Retailers should look for vendors that can tie all the real-time sources together and, more importantly, those that have the expertise to manage the huge data streams from source systems and provide simple, meaningful actions to store staff and headquarters. Retailers will also need to clearly define how this technology will aid the various functional roles in their businesses. For example, real-time conversion data can benefit store staff, even though, traditionally, conversion has been a marketing and merchandising responsibility. Joint pilots paid for and conducted with consumer packaged goods (CPG) companies can help retailers to gain insight into customer in-aisle behavior. Business Impact: At a high level, real-time store monitoring can increase sales and margins, and reduce costs in the store. More specifically, real-time monitoring with analysis of store operations can lead to the following benefits: improvement in stock availability; improved customer service; reduced loss prevention; better execution of processes, including cross-channel processes; increased sales; and increased loyalty. Benefit Rating: Moderate Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: Brickstream; Checkpoint Systems; Irisys; RetailNext; ShopperTrak

Gartner, Inc. | G00234233

Page 21 of 83

Recommended Reading: "BVI Networks Delivers Real-Time Store Monitoring" "Why Task Management is a Priority for Multichannel Retailers"

Social Media Analytics for Retail Analysis By: Robert Hetu; Gale Daikoku Definition: Social analytics for retail describes the process of collecting, measuring, analyzing and interpreting the results of interactions and associations among people, topics and ideas. These interactions occur on various social media sources and provide an important source of feedback for retailers. Social media analytics is an umbrella term that includes a number of specialized analysis techniques, such as social filtering, social network analysis, sentiment analysis and social media analytics. Position and Adoption Speed Justification: The influence of social networks is growing, and microblogs can spread news — as well as misinformation — rapidly. As a result of the growing influence of social media, and its potential to significantly disrupt or enhance business activities, retailers need to put tools in place to monitor sentiment about their businesses, as well as the products and manufacturers that they rely on for revenue generation. They have been used to track brands as marketers try to determine whether brand assets are appreciating or depreciating based on consumer statements as evidenced in social media postings, blog entries, microblogging posts and other Internet media available publicly. By applying these tools in the retail environment, retailers can not only identify sentiments associated with their brands, but also identify positive and negative trends regarding the brands that they sell and the individual products that they carry. Social media is an important source of feedback for retailers. When used by retailers, social media analytics can identify product trends that are appearing on consumer radars prior to the product entering the mainstream. These tools can also identify a product or manufacturer that has a problem in the market, allowing the retailer to adjust pending orders or shipments if necessary. Most importantly, these tools can help retailers identify potential problems they have with customer support or sales associate training that may be impacting their businesses on a daily basis more quickly than they would have if surfaced via other means. Additionally, they can identify members of social networks that are influential over other customers that may be part of their customer base, and take efforts to ensure that these influential customers are satisfied with the retailer and its product offerings; happy customers tend to be advocates for the retailer. Given the level of hype surrounding social media, we expect this technology to move through the phases of the Hype Cycle rapidly, reaching the Plateau of Productivity within five years. User Advice: A retailer that has not yet investigated the social media analytics applications available in the market should evaluate potential providers of these tools for their usability and applicability to the retailer's customer segment. When evaluating vendors for social media analytics, look for vendors that have strengths in other product offerings that involve retail so they can demonstrate competency and understanding of the retail market segment. If you have other analytics applications, assess those vendors for planned or existing social media offerings to maximize the benefits of the social media analytics. If your existing vendors do not offer social media analytics, evaluate the integration potential for these analytics with other applications that Page 22 of 83

Gartner, Inc. | G00234233

you have, such as merchandising analytics or real-time offer engines. This technology segment is also related to the multichannel feedback management entry in this Hype Cycle. Social media analytics stands on its own, but it needs to be considered with analytics from other channels/ touchpoints for example, analytics derived through solutions for multichannel feedback management, to give retailers an overall assessment of their customers' shopping experiences. Business Impact: The impact of social media analytics on your business can be substantial, especially if your existing customers are avid users of social media. Even if this is not the case, the capability to identify emerging popular products or problem products before an issue surfaces in sales figures can be valuable. These tools have the potential to decrease the inventory that may need to be discounted to sell through, or increase margins on your overall selection. For example, if a fashion buyer makes a significant investment in an unproven style for a large group of stores based on incomplete or inaccurate analysis of customer social media, simply due to faulty interpretation of trends, the consequences will be costly for sales and profits. Expect that in the future these analytics will offer some predictive insight into what should sell well, helping to manage inventory more effectively. Most importantly, these tools can deliver an early indicator of problems in the customer base and allow a retailer to be proactive in addressing the issues that surface in social media, thereby preventing damage to the retailer's brand. Benefit Rating: High Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: Alterian; Buddy Media; Klout; Kontagent; Lithium Technologies; Oracle; Radian6; SAS; Sysomos; Webtrends Recommended Reading: "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "Turn Information Into Insight With Social Analytics"

Multichannel Master Content Management for Retail Analysis By: Mim Burt; John Davison Definition: Multichannel retail enterprise content management relates to all types of structured and unstructured content for products, customers, employees and suppliers. Included in this definition is structured content, such as master data, as well as unstructured content — for example, documents, images of forms, photographs, XML components, video clips, podcasts and email messages. Having a combined, consistent view of structured and unstructured content underpins the knowledge needed to make effective multichannel business decisions.

Gartner, Inc. | G00234233

Page 23 of 83

Position and Adoption Speed Justification: There are many vendors that provide enterprise content management (ECM) and master data management (MDM) systems with components such as product information management and customer data integration. However, retailers are starting to realize that all the disciplines previously associated with the management of structured information like master data need to be applied to unstructured data as well. This is particularly so when taking into account the emerging touchpoints that the consumer has with the retailer, such as mobile and social networks. This is a major issue for multichannel retailers. However, although there has been increased interest and some hype, there have not been any implementation references in major Tier 1 retailers, and in the past 12 months, retailers have largely focused their investments on multichannel item master projects. Retailers are also coming to grips with the implications of multichannel retailing becoming "business as usual," which will, in some cases, necessitate complex projects to implement master content management across the channels. There is also a dearth of vendors that are in a position to deliver this type of truly comprehensive multichannel retail content management solution. User Advice: Before implementing a content management system, perform due diligence on identifying and mapping the "as is" position on all the sources of structured and unstructured data and information, where they are currently stored, and how they are used in the context of the core retail business processes. This will afford opportunities to streamline business processes and also helps to remove redundancies and duplication in preparation for a phased implementation of a multichannel content management system. To deliver a master content management solution across the channels also requires a merging of the metadata models for both structured content (MDM) and unstructured content (ECM), with MDM taking the governing role. Business Impact: As the multichannel shopping experience becomes more and more important, retailers are being driven to create, capture, manage, store, and deliver content and documents related to multichannel customer and business processes to provide a single view of business information across the enterprise. Supported by good master data management, multichannel retail content management solutions will enable retailers to increase efficiency in their core business processes to improve the multichannel customer shopping experience and minimize multichannel operating costs — for example, real-time feedback provided by customers through any channel that leads retailers to analyze structured data (such as store operations metrics and contact center metrics) and to adjust staffing levels "on the fly." Benefit Rating: High Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: hybris; IBM Recommended Reading: "The Multichannel Revolution Is Ending: The Consumerization of Retail Continues With Personalization and Customization" "Multichannel Retailing: Customers Want Consistency in Cross-Channel Shopping Processes"

Page 24 of 83

Gartner, Inc. | G00234233

"Cross-Channel Consistency: Customer Expectations Vary by Product Category"

Social Coupons Analysis By: Gale Daikoku Definition: Social coupons are a form of e-coupon that is delivered through a website community. Social coupons are found on membership sites that offer a local retailer's products/services to consumers at steep discounts — for example, selling a coupon at face value of $10 for $20 worth of a retailer's product/service. The purpose of these communities is to provide consumers access to discounts, and as a result, they do not typically drive customer loyalty, at times discounting purchases that might have been made by the customer without the coupon. Position and Adoption Speed Justification: Social coupon sites originally saw strong growth because they offered significant discounts — many offered up to 50% discounts to consumers that buy the coupons. Social coupons typically require a minimum number of buyers for the offer to become effective and can have a limit imposed on the number of consumers who can take advantage of the offer. The social coupon provider then shares the proceeds with the local merchant. Retailers were originally attracted to the sites because they offered the ability to attract new customers to their businesses. There were few barriers to entry for social coupon sites, and thus the market has seen hundreds of variations launched in just a couple years. This has led to a high degree of hype, creating fragmentation in a hypercompetitive environment with many sites for retailers to qualify and consumers to find. Given the continued hype surrounding social media, Gartner expects this technology will continue to advance rapidly through the Hype Cycle, reaching the Plateau of Productivity within a few years. User Advice: The greatest appeal of social coupon sites has been for small retailers needing to expand their customer bases. As such, large retailers may find that these sites are less than effective unless they are opening new locations and want to attract customers using the social coupon instrument. Large retailers may want to consider these sites to close out an end-of-life product in an overstocked position. Retailers that choose to participate in social coupons should ensure that they place limits on the promotion so they can be certain they can fulfill on the offer — particularly if in stores — to avoid upsetting and potentially losing customers. A recent Gartner survey shows that, while 41% of all U.S. consumers are currently members of a social coupon site with 15% showing interest in joining, 44% are not at all interested in joining. And just because consumers join a site does not guarantee these customers want these coupons. Given this guidance, retailers may be best-served by taking a wait-and-see attitude about social coupon sites. Business Impact: Assuming the social coupon sites continue to maintain popularity and membership, smaller retailers or large retailers entering new markets may find that they are invaluable in establishing a new business or launching new products/services. Benefit Rating: Low Market Penetration: Less than 1% of target audience

Gartner, Inc. | G00234233

Page 25 of 83

Maturity: Emerging Sample Vendors: 1SaleADay.com; Groupon; LivingSocial; Woot

Real-Time Customer Offer Engines Analysis By: Gale Daikoku; Robert Hetu Definition: Real-time customer offer engines have the ability to create personalized promotions for a specific customer or customer segment by taking real-time interactions and transactions, and using advanced analytics to determine the "best offer" in real time that can be delivered to the customer. These systems are becoming context-aware to formulate an offer — for example, consumers' locations shared by their mobile phones or consumers' social network activities can be used to create more-relevant offers. Position and Adoption Speed Justification: Gartner estimates that real-time offers have expanded slightly to between 1% and 5% of Tier 1 retailers. Three trends continue to converge and support increased interest in and adoption of real-time customer offer engines. First, the ability to access context-aware, real-time information on customers is increasing (for example, customers' locations communicated via their mobile phones). Second, advances in database and cloud computing are significantly increasing the analytical capability to produce real-time offers. Third, some consumers are becoming more receptive to receiving and requesting promotions "in the moment" (for example, on their mobile devices and via Twitter). The ability to create customized promotions has been in use in retail for a while, typically executed as an offer based on a specific item purchased and issued at the point of sale or delivered with a customer receipt. However, store offers were not determined in real time. Rather, they were determined in days/weeks prior using data that was available at the time. In fact, many customer offers and promotion analytics remain activities that are predominantly not done in real time (except on the Web). In the next few years, Gartner expects that real-time customer offer engines will converge with online product recommendation on the Hype Cycle. User Advice: Creating a compelling offer requires more than just promotional algorithms. Retailers that are considering real-time offer engines will require good customer data (ideally, across all interaction channels), context-aware data (for example, location), and a vehicle by which customers can receive and respond to offers. Real-time customer offer engines should be evaluated not only on their science, but also for their speed and their ability to be integrated into any customer process in any channel. Even if the engine is fast, the way it retrieves and delivers an offer can be constrained by the performance of the delivery systems, which defines the customer experience. Retailers should not attempt to supply customers with real-time, customized, 1-to-1 ratio offers until they are confident that they have adequate segmentation and behavioral analysis. The promise to provide meaningful, relationship-building and relevant offers can frustrate or offend consumers if they arrive late or seem irrelevant. Business Impact: Real-time customer offer engines are designed to improve sales, margins, satisfaction and frequency of visits.

Page 26 of 83

Gartner, Inc. | G00234233

Benefit Rating: Moderate Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: FICO; IBM; Infor; Oracle; SAP; SAS Recommended Reading: "Real-Time Customer Offer Engine Vendor Landscape for Retail" "Personalized Offers: Do Consumers Value Them?" "Marketing Service Provider Capabilities in Retail" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "Personalization and Context-Aware Technology's Impact on Multichannel Customer Loyalty"

Mobile Coupons Analysis By: Gale Daikoku Definition: A mobile coupon is a form of e-coupon that comes in two forms: a specialized, targeted offer delivered as a unique, identifiable serialized code, bar code or other means, sent to a mobile device via SMS, mobile application, mobile URL or other mobile technology; or the communication of an offer via SMS that might normally be available to any customer. Position and Adoption Speed Justification: The retail industry is still maturing in its distribution and redemption of mobile coupons, and in its communication of promotions via mobile phones. Gartner consumer surveys show that there is a growing willingness by consumers who use smartphones to adopt mobile coupons and promotions; however, the vast majority of these shoppers (79%) are not that interested. Many Tier 1 retailers, such as The Kroger Co., Safeway, Target and JCPenney, are trialing or using mobile coupons, which Gartner estimates has penetrated slightly more than 5% of Tier 1 retailers. Hype around mobile capabilities, utilizing context-aware technology specifically (such as location awareness on mobile phones) and print-to-mobile coupons (such as scanning a Quick Response [QR] code or bar code, or texting a code advertised on print material) continues to emerge rapidly in retail. Coupled with the desire of retailers to improve their ability to personalize and develop more relevant offers in real time, it has driven real-time offers and this technology to near the peak of hype, and we expect this hype to continue for at least the next year or so. User Advice: To get a quick start with mobile couponing, retailers can use outsourcers and mobileonly coupon technology vendors. However, in the midterm to long term, mobile coupons will have to be part of a multichannel e-coupon strategy that is aligned with how consumers are using their mobile phone as part of the shopping process. Consumers will want to be able to access and redeem coupons in any channel, so retailers will need to ensure that technology used in the mobile coupon process is multichannel-capable. Tight integration between campaign management

Gartner, Inc. | G00234233

Page 27 of 83

systems and the couponing systems of the brand manufacturers will be required. Retailers must monitor the relevancy of their offers and play an active role in managing customer opt-in and privacy settings to avoid spamming customers. Business Impact: The biggest advantage mobile coupons have over e-coupons is they are immediately execution-ready for customers and do not have to be printed or brought to a store. The benefits of mobile coupons center on increasing the frequency of visits to the store and increasing the overall transaction value. Sales, margins and customer loyalty are all targeted to increase as a result. Benefit Rating: Moderate Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: Cellfire; Coupons.com; Scanbuy; You Technology; Zavers Recommended Reading: "How Can Retailers Get Started in Mobile Commerce?" "Mobile Consumer Shopping Preferences, 2010: U.S." "Creating Real-Time Personalized Offers for Consumers" "Consumer Survey Shows What's Ahead for Retail Coupon Management"

Multichannel Loyalty Analysis By: Gale Daikoku Definition: Multichannel loyalty systems are next-generation systems that enable retailers to use loyalty functionality from one centralized management system to transact with, interact with, and reward customers across any and all channels. Providing loyalty capability to point of sale (POS), ecommerce and call centers is the minimum. Mobile and social capabilities continue to emerge in importance. Position and Adoption Speed Justification: Multichannel remains a hot topic with clients, and managing multichannel loyalty management is no exception. Most retailer loyalty programs function across one or two channels, such as the store and the Internet. However, the proliferation of customer touchpoints has forced retailers to re-evaluate their investments in legacy CRM and loyalty systems to support customer interactions across any channel. Many retailers are exploring the possibility of building a multichannel loyalty system that is capable of handling any new channel. However, most investments remain directed at improving the channels that retailers already use to transact and interact with customers. High interest from retailers in vendor multichannel capabilities — particularly around mobile and social media and context-aware technologies — continues to keep this technology up near the top of the Hype Cycle, although it has now moved just past the peak, as customers perceive mobile and social capabilities

Page 28 of 83

Gartner, Inc. | G00234233

as part of the shopping process. Guidance on market penetration for technologies that appear at this point in the Hype Cycle curve is typically 1% to 5% target penetration. However, because multichannel loyalty is an established investment priority for many retailers that sell to customers across multiple channels, Gartner estimates that penetration is actually between 5% and 20% of Tier 1 retailers. User Advice: Ensure that you are investing in supporting multichannel customer processes, including loyalty management. Look for vendors that offer Web services/API capabilities that will enable retailers to extend loyalty functionality, such as member bar codes, to any channel-specific application (for example, mobile applications). Some vendors also have channel-ready graphical user interfaces (GUIs), such as mobile websites, that retailers can use with minimal modifications. Retailers should be cautious of the hype around context-aware, real-time offers that are delivered to consumers' mobile devices. Gartner research continues to show that consumers are not interested in these types of personalized rewards, so retailers need to invest some resources in educating customers on how they could benefit from context-aware offers to improve the overall shopping experience, and to build loyalty from the small base of customers that may be interested. Until consumers trust you, their willingness to engage and remain loyal will be limited. Business Impact: Although this is likely to affect a small base of customers, increased sales because of improvements in marketing and customer services across all channels can be expected from multichannel loyalty systems. In addition, retailers will have an enhanced ability to segment customers based on improved cross-channel visibility into customer activity in channels. Customer satisfaction will also result from the ability to provide loyalty functionality in any channel. Benefit Rating: Moderate Market Penetration: 5% to 20% of target audience Maturity: Adolescent Sample Vendors: Aldata; IBM; Micros-Retail; NCR; Oracle; RedPrairie (Escalate Retail); SAP; Tibco Loyalty Lab; You Technology Recommended Reading: "Personalization and Context-Aware Technology's Impact on Multichannel Customer Loyalty" "Retail Loyalty Management: Reward Strategies That Consumers Value" "Retail Loyalty Management: Consumer Membership Trends" "Marketing Service Provider Capabilities in Retail"

Biometrics for Time and Attendance Analysis By: Gale Daikoku

Gartner, Inc. | G00234233

Page 29 of 83

Definition: Biometric technologies provide an automated determination of individuals' identities based on their biological characteristics (such as fingerprints, face or hand topology, iris structure, or retinal structure) or behavioral characteristics (such as signature dynamics, typing rhythm and voice). In retail stores, biometric implementations are being used to authenticate the identities of store-level associates punching in and out of shifts to more accurately track and manage time and attendance (T&A). Position and Adoption Speed Justification: This technology has been deployed chainwide by many large retailers (including grocers, drug chains, and apparel and specialty retailers) that manage tens of thousands of employees, and Gartner estimates that penetration has advanced as more of the world's largest retailers make investments to update their time and attendance processes. Gartner is starting to see vendors emerging with specialized software that can leverage consumer device cameras and geolocation capabilities to provide biometrics that support T&A, although we have not seen any trials or implementations with Tier 1 retail. This technology is not typically deployed as a stand-alone initiative, but part of a larger time-and-labor-management application upgrade. User Advice: Retailers that are evaluating whether to update or upgrade their store-level workforce management processes, and seeking more-effective ways to manage labor budgets — especially compliance with legal labor requirements and the accuracy of their time-keeping process — should consider the business benefits of biometric technology. In certain "dirty" environments, such as manufacturing operations and warehouse distribution environments, users should expect usability challenges. Business Impact: Fraudulent T&A practices, including "buddy punching" (employees who punch in or out for co-workers) and time spent "fooling around," can be reduced with this technology. Biometric technology has been especially effective at eliminating T&A fraud, which is estimated to be as high as 1% to 2% of payroll costs. Retailers can stop paying for unproductive or unapproved labor hours by deploying biometric technology at the point of work (that is, at a point-of-sale terminal or in the work area) so that employees sign in there, as opposed to at the back of the store, away from their responsibilities. Benefit Rating: Moderate Market Penetration: 5% to 20% of target audience Maturity: Adolescent Sample Vendors: Accu-Time Systems (ATS); CMI; Kronos; SecureTouch Retail Systems (Inducomp) Recommended Reading: "Retail Time and Labor Vendor Update, 2010" "Understanding the Fragmented Workforce Management Solutions Market"

F-Commerce Analysis By: Robert Hetu Page 30 of 83

Gartner, Inc. | G00234233

Definition: Facebook commerce (F-commerce) is the retail transaction capability offered within the Facebook social network platform. These transactional capabilities are facilitated via the utilization of Facebook APIs that allow retailers to present products, information and offers to consumers, as well as allow consumers to complete transactions within Facebook. Position and Adoption Speed Justification: Gartner research shows 91% of U.S. consumers surveyed report Facebook as their primary social network and, as a result, we expect this technology to move quickly through the Hype Cycle during the next two to five years. Its recent initial public offering (IPO), with its mixed performance, has increased interest and will drive new revenue-generation opportunities for Facebook that will likely reinvigorate product sales activity. Facebook recently opened its App Store, and this has also increased activity and hype surrounding F-commerce, resulting in rapid forward movement on the Hype Cycle. Retailers can choose to market selected featured items or replicate an entire catalog within the Facebook social network environment. Among multichannel retailers, F-commerce implementations that included the entire catalog have been unsuccessful, and most have now transitioned to selected feature items with links to the retail website for completion of shopping events. JCPenney has dropped its full store on Facebook but still incorporates featured items from its new Fair and Square marketing campaign with links to its website for purchase. Express continues to provide catalog shopping capability within Facebook; however, the check-out process is completed on its website. Retailers have learned that direct marketing in a social environment is, to a degree, a misfit, like a small business owner trying to sell products at a dinner party. However, just as a small direct seller needs to be present at the dinner party for networking and word of mouth advertising, retailers must keep an active presence on Facebook. Gartner expects retailers will continue to experiment with F-commerce as they seek to leverage the extensive market share of Facebook. User Advice: Retailers should: ■

Focus on relationship building activities on Facebook. Featured products that build interest among fans will drive commerce in a less direct manner.

■

Utilize Facebook as a tool to reinforce feel-good activities like charitable opportunities, games, contests and exclusive events.

■

Continue to enable commerce via links to their websites, where more-detailed product descriptions and content are maintained.

■

Pay careful attention to Facebook's technology road map as it becomes a public company.

Pressures to continue to grow revenue will push Facebook to provide more-successful commerce channels that could directly impact retailers. Facebook has access to a tremendous amount of consumer activity that could drive it into direct retailing. Business Impact: F-commerce has a short-term benefit of giving retailers another touchpoint within an online destination that enjoys very high use levels. It remains to be seen whether consumers will embrace commerce within the Facebook environment. Facebook is very protective of its user information, and while F-commerce offers retailers another touchpoint, it is not clear that retailers will have the same level of access to information about these customers that Facebook

Gartner, Inc. | G00234233

Page 31 of 83

enjoys and could use strategically for its own direct retail activity at some future point. Retailers should acquaint themselves with the data that Facebook makes available to retailers that engage in F-commerce to ensure that they receive critical customer data for transactions taking place in Facebook. With the launch of Timeline, retailers have gained a significant tool to analyze Facebook activity, create more-targeted advertising and evaluate demographics of their followers. Benefit Rating: Moderate Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: Adgregate Markets; Facebook; Payvment Recommended Reading: "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers"

Sliding Into the Trough Retail Mobile Shopping (Nonpayments) Analysis By: Mim Burt Definition: These applications support consumers' ability to research the market and make selections when shopping on their mobile devices. They allow retailers to provide consumers with shopping tools and promotional information that can enhance the shopping experience, and some could also support mobile payment transactions. Payment capability through mobiles is covered in "Retail Mobile Payments" elsewhere on this Hype Cycle. Position and Adoption Speed Justification: Over the past 36 months, many Tier 1 retailers have launched these applications, whether they be browser-based, message-based, downloadable to a mobile device or native applications that come preinstalled on the mobile device. The applications can support shopping activities, including the ability to find stores, browse items, build shopping lists, reserve items, "check in" to see whether their friends are in their vicinity, receive and review promotions, receive coupons, get and share in community reviews, check prices and inventory, check the status of their loyalty program points, and perform other activities. Retailers can use these applications to conduct advertising and marketing, and increase brand awareness and loyalty. Many retailers have chosen to launch these nontransactional mobile websites and applications as "first steps" before implementing a mobile payment capability. Our consumer research confirms that consumers prioritize the ability to use these informational mobile shopping tools well ahead of the ability to conduct a mobile payment transaction. In the past 12 months, the topic of mobile, in general, has been very hot with a plethora of vendors, small and large, either entering the market or consolidating their offers regarding mobile browsing and payment functionality. For example, some vendors who initially only had payment capabilities are now realizing the value of providing upstream solutions that enable shopping activities, such as checking for store stock availability.

Page 32 of 83

Gartner, Inc. | G00234233

In the past 12 months, there has been escalation of activity and concomitant raised levels of hype on solutions in this market. The following factors have contributed to this: ■

A trend toward the convergence of mobile and social, with the rise of mobile social networking — for example, native mobile social networking sites such as Foursquare and Gowalla. Social networking websites have also been creating mobile applications to give their users instant and real-time access from their devices.

■

Retailers' interest in activity around vendors' development of geofencing solutions in order that geofencing data can be used in conjunction with push notification systems — for example, to push location based offers to consumers in real time as they visit the store and use their smartphones to find and research products.

■

A trend toward consumers using mobile applications on tablets in their homes has also caught the interest of the retailers.

■

The emergence of the HTML5 standard, which is expected to have a major impact on mobile technologies, especially in terms of portability across platforms.

This, together with the increasing implementation of these types of websites and applications in Tier 1 retailers, means that this technology has accelerated quite fast to this year's position of peaktrough midpoint. User Advice: ■

Place priority on building mobile shopping tools that consumers value. Start with understanding how these applications can support the consumer service basics, such as having products in stock, making it easy to find items and making it easy to find product information. Our consumer surveys indicate that "finding a store location" is the No. 1 priority in terms of preference in the way consumers want to use their mobile devices. The ability to check stock availability, check and compare prices, read product reviews, and get promotions are also high on the list of things that consumers want to do with their mobile devices.

■

Understand that your mobile channel could have a significant impact on your other channels — in particular, the store and e-commerce — rather than being a major receiver of revenue in its own right. It is crucial, therefore, to focus on the user experience in terms of how the mobile device is used in the overall cross-channel shopping experience. An example of this is making sure that the store is ready to service a customer who is browsing and reserving items on their mobile for pick up in the store.

■

Mobile devices, particularly mobile phones, do not lend themselves to immersive experiences. Focus on improving the usability aspects of the solution. The actual process of browsing has to be easy to conduct on the mobile device — for example, minimizing the number of buttons to press to get to the essential information.

Business Impact: Our retailer research indicates that, through 2016, most retailers expect mcommerce revenue to be a little under 2% of overall revenue. However, the mobile channel will be important in driving cross-channel revenue and could influence a significant percentage of sales

Gartner, Inc. | G00234233

Page 33 of 83

(completed in other channels). For example, a mobile application used to find the nearest store that has a desired item in stock may influence a customer to go to that store and purchase the item, or a review checked on a mobile site while a customer is in a physical store may push the consumer to purchase the item. One thing that could drive consumers to purchase via mobile devices is an increased use of flash sales by retailers, which adds a time element to a product sale or promotion. If this behavior becomes commonplace, then retailers should evaluate adding commerce capabilities to all their applications and mobile websites. Benefit Rating: High Market Penetration: 5% to 20% of target audience Maturity: Adolescent Sample Vendors: Digby; mPoria; NearbyNow; Netbiscuits; Sapient; Scanbuy; Usablenet Recommended Reading: "Distinguish How Consumers Want to Shop on Their Mobile Devices for Best Investment Decisions" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "Mobile Consumer Shopping Preferences, 2010: U.S." "Mobile Consumer Shopping Preferences, 2010: U.K." "Mobile Consumer Shopping Preferences, 2010: BRIC Countries" "E-Commerce and M-Commerce: Increase Investment in Retail Store Technology"

Web Experience Analytics Analysis By: Robert Hetu Definition: Analytics tools are meant to measure consumer engagement and purchase activities in the e-commerce and m-commerce channels. Position and Adoption Speed Justification: Web experience analytics are analytics tools that measure various aspects of Tier 1 retailers' commerce sites, including websites and mobile sites, to help ascertain customer sentiment. These analytics include more-mature analytics tools, such as page load times and shopping cart abandonment rates, as well as tools that are newer, such as multivariate A/B testing, interaction sequence and navigation tracking, and sentiment indexes. These tools vary in maturity, which is why we show this technology as moving more slowly within Tier 1 retailers. The more direct measures, such as page load times, are relatively mature, while other measures, such as sentiment indexes, multivariate testing, information clarity measures and customer satisfaction, are just beginning to emerge. To some degree, some of these tools are as much art as they are science, such as neuromarketing, which measures consumer brain activity when consumers are engaged in shopping activities.

Page 34 of 83

Gartner, Inc. | G00234233

With new innovations in big data, there is a possibility to use as an information base for experience analytics. SAP, through its Hana offering, and Oracle with Exalytics both provide in-memory computing that allows for fast processing of large amounts of data. User Advice: These measures help Tier 1 multichannel retailers improve the customer experience on their sites and adjust elements of their commerce sites, such as rich-media applications, navigation and flow paths, and shopping aids to suit changing consumer tastes and preferences for e-commerce sites. Multichannel feedback technology can also provide retailers an assessment of their customers' shopping experiences — especially for cross-channel shopping processes. Deploy the straightforward measurement tools, such as page load times and shopping cart abandonment measures, if you haven't already done so, as these factors can have a significant impact on your overall revenue. As consumers grow tired of generic offers and retailers run the risk of losing customers, measures such as multivariate testing can be valuable tools for retailers in migrating toward a more personalized presentation of their website. The emergence of sentiment analysis and social media monitoring tools can give retailers insight into where changes are needed to ensure customer retention. Still, retailers should proceed with caution and confirm findings over time, rather than make changes that run a greater risk of alienating customers. Business Impact: When used appropriately, these tools can lead to improvements in the customer experience and engagement for the e-commerce and m-commerce channels for the retailer. In addition, these tools can help retailers identify the right combination of media elements and applications that lead consumers to purchase more and that attain a higher degree of satisfaction from customers. Benefit Rating: Moderate Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: Adobe Systems; Celebrus Technologies; Google; iPerceptions; IBM Coremetrics; IBM Tealeaf; Oracle; ResponseTek; SAP; SAS; Teradata; Webtrends Recommended Reading: "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "E-Commerce Websites: Features That Make Consumers Buy" "Key Challenges in Web Analytics, 2009" "Key Issues for Customer Experience Management, 2010" "Top 10 Mistakes in Web and User Experience Design Projects"

Retail Mobile Payments Analysis By: Mim Burt

Gartner, Inc. | G00234233

Page 35 of 83

Definition: Retail mobile payment applications let customers pay for products or services via their mobile device using debit and credit cards, retailer-issued store cards, and stored-value cards — excluding mobile banking and person-to-person (P2P) remittances. Some of these applications could also include nontransactional functionality, such as consumers' ability to browse for product information. Such applications are not covered here and can be found elsewhere on this Hype Cycle. Position and Adoption Speed Justification: Retail mobile payment applications can be browserbased, message-based, downloadable to a mobile device or native applications that come installed on the mobile device. Transactions are initiated or authorized through technologies such as Near Field Communication (NFC), Short Message Service (SMS), Wireless Application Protocol (WAP) and Unstructured Supplementary Service Data (USSD). The delivery of mobile payments in the retail market is a mixed bag, with the different technologies involved in mobile payments showing varying rates of adoption and growth in the different geographies. This topic has been very "hot" in the past 12 months in all the major Tier 1 retail markets, with tremendous hype and publicity regarding solutions from a multitude of vendors of hardware, software, card payment services and particularly on the NFC-based solutions, including those from Orange/Barclaycard, and the NFC-based mobile wallets from Isis and Google. Non-NFC-based solutions, such as the Starbucks mobile phone payment solution via its stored-value loyalty card and mobile bar codes, and PayPal's mobile payment solution for Home Depot stores, have also been in the headlines. It's because of the magnitude of the hype, rather than large-scale rollouts in Tier 1 retailers, that this technology has made a considerable leap forward on the Hype Cycle. Current retailer trials of NFC-based stickers for promotions, the growing use of mobile coupons, the increasing use of mobile bar codes at the point of sale (POS) and contactless payments using prepaid services for transportation applications, such as ticketing, may well speed up the general adoption of NFC technology for mobiles. Currently, for the most part, these are done through cards that customers touch on contactless readers and do not involve NFC-enabled mobile phones in the payment process. Also, some schemes may support only the front end of the process, such as downloading tickets to mobile phones for payment on the Web. However, increasingly, carriers, banks, payment card schemes and local authorities are looking at porting payment solutions onto mobile phones. Levels of adoption of browser-based payment using WAP, for example, are still relatively low, because consumers have concerns about security and data charges. More importantly, the consumer experience is called into question as the WAP-based payment tries to replicate the online purchase experience on the mobile devices, and this is subject to the constraints of a device with a much smaller user interface. USSD is mainly used in developing markets in Eastern Europe, Southeast Asia and Africa. It is compatible with most Global System for Mobile Communications (GSM) phones and has faster response than SMS or WAP. However, USSD implies strong control by the mobile operator, which limits partnerships with payment providers, and the technology itself does not support message encryption. Page 36 of 83

Gartner, Inc. | G00234233

SMS is used in the payment process because of its ease of use and ubiquity. Although we don't cover P2P remittances in this definition, it is worth noting that P2P transfers are a very popular use case of SMS. It has become popular among the "underbanked" population in developing countries, such as Kenya, where migrant workers, who are the main income earners, use SMS-based mobile money transfers to send money to their families. Also, overseas workers can buy airtime or pay tuition for their home dependents using the same service. Remittances are popular in the Indian subcontinent and in parts of Africa. However, it will be some time yet before consumers see the real value for them, and this will slow the rates of consumer adoption of mobile payment solutions, in particular those based on NFC, for the following reasons: ■

Many consumers still have a perception that mobile payments are less secure than, for example, credit or debit transactions conducted at the check-out in a physical store. In a recent Gartner consumer survey in 10 countries, the top barrier to using mobile payments was customer concerns about the security of personal and payment data with mobile payments.

■

Consumers' concerns regarding the resolution of problems are also a major barrier. Moreover, consumers also felt that the process was cumbersome and slower than using cash, checks or cards at the check-out.

■

During the past few years, Gartner surveys on mobile commerce retail consumer preferences indicate that, in general, services such as checking prices and checking store locations on mobile phones were at the top of consumers' priority lists, with ordering and payments at the bottom of the list. According to a recent Gartner retailer survey, retailers indicated that revenue generated through their mobile commerce channel is not likely to exceed 2% through 2016. However, the mobile commerce channel will have a significant impact on driving sales to the other channels.

■

Widespread adoption, especially for NFC-based mobile payments, requires the convergence of infrastructure with critical mass and the backing of financial institutions, telecommunications providers, transportation entities and major retailers, together with clear regulations and guidelines. Two major areas where collaboration needs to take place are compliance with industry data security standards, and processes and procedures to deal efficiently and effectively with customer services, such as investigation and resolution of issues relating to transaction disputes, occurrences of fraud and chargebacks.

For these reasons, we think that mass global consumer adoption (particularly for NFC-based mobile payment) could still be around five to 10 years out. User Advice: Retailers: ■

Don't let the projected rate of smartphone adoption or the hype around NFC-based contactless mobile payments drive investments in this solution. Note that, even in often-quoted examples of mobile payment adoption in Japan, adoption rates of NFC contactless mobile payment are very low. You could start with non-NFC-based solutions, for example, using a stored-value card payment solution linked to loyalty. However, you should monitor the market for signs that the

Gartner, Inc. | G00234233

Page 37 of 83

banks, carriers and payment processors are moving to a unified standard for NFC payments, because this could help accelerate the adoption of NFC-based payments. ■

From an investment point, find out the priority your customers place on using mobile devices as payment vehicles, how they want to use mobile devices for payment and how this stacks up against other ways in which mobile phones could be used to generate sales. Our research shows that the majority of payment transactions still take place in the store. Moreover, when in a store, consumers also say that manned check-outs are still their preferred choice for the check-out process (either through the main bank of tills or through the retailer-provided mobile POS terminals administered by the associates), rather than self-service using technologies such as self-check-outs or their mobile devices.

■

Investigate what types of purchases are likely to drive the adoption of payment through mobile devices (for example, micropayment and impulse purchases). Mobile wallet schemes should be able to handle more than just presentment, because consumers will want the option of having control over setting preferences — for example, prescribing a preference for using particular cards with particular retailers.

■

Pay careful attention to continuing customer concerns about the security and privacy of data and developments regarding mobile payment standards, demonstrating compliance where necessary. Work with key stakeholders — for example, banks, card payment companies and telecommunication providers — to ensure the smooth delivery of a streamlined customer process. It will be especially important to make provision for corrective action when things go wrong — for example, disputed payments.

■

Keep abreast of and assess the progress of contactless-payment transportation schemes in regions where you operate, because they will give a good idea of customer behavior in terms of acceptance and adoption of this type of mobile payment solution, and there could be some merit in taking note of any lessons learned.

■

If you are a mobile virtual network operator or offering financial services, take note of the adoption levels for all forms of mobile payment, from SMS-based transactions to mobile NFC POS-based payments.

Business Impact: Mobile payments could address the need for speed of throughput and convenience at the cash register. This is important in some retail segments (such as grocery and convenience stores), but is less important in other segments (such as luxury fashion). If payment transaction fees using mobile devices are lower than traditional credit and debit cards, then there are clear savings for the retailer. However, retailers do not see a robust business case for upgrading POS terminals to accept contactless payments that include factors such as the cost of NFC-based POS terminal readers and the cost of merchant interchange fees. However, the speed of adoption of mobile payments will be dictated by consumers, so mobile payment solutions must demonstrate how they can support a secure, hassle-free and fast check-out — the latter being a key in-store customer service basic. In emerging economies, mobile payment may act as a viable alternative to cash, because a robust banking and credit infrastructure may not exist. If mobile payment comes with the ability for

Page 38 of 83

Gartner, Inc. | G00234233

consumers to access microcredit through their mobile payment accounts, then retailers may see higher spending from transactions that used mobile payments. Benefit Rating: Moderate Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: Google; G.Cash; NTT Docomo; PayPal; Safaricom (M-Pesa); Sprint; Visa Recommended Reading: "Distinguish How Consumers Want to Shop on Their Mobile Devices for Best Investment Decisions" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "Mobile Consumer Shopping Preferences, 2010: U.S." "Mobile Consumer Shopping Preferences, 2010: U.K." "Mobile Consumer Shopping Preferences, 2010: BRIC Countries" "E-Commerce and M-Commerce: Increase Investment in Retail Store Technology"

Integrated Demand and Replenishment Planning Analysis By: Robert Hetu Definition: Integrated demand and replenishment planning (IDRP) represents the latest generation of planning engines that integrate demand forecasting and replenishment across the entire demand and supply chain. The most common examples of this are across retail stores, distribution centers and warehouses through to supplier distribution and even ex-factory. Position and Adoption Speed Justification: The characteristics of IDRP include time-phased planning, based on historical demand data, which can be altered by taking into account future plans from the stakeholders across all channels. Additionally, with the movement toward price, promotion and markdown optimization, and their reliance on demand forecasting, another demand element is available for consideration in the demand planning process. A unified demand forecast that drives merchandise planning, replenishment, price management, store operations and financial planning is seen as idealistic by some, but if there is recognition of the appropriate variations and limitations, it is a worthy goal. This integrated approach has been hard to do for many years, due to complexities in the process, lack of clean and consistent data, performance challenges in processing the necessary data, and, mainly, cultural barriers that prevent stakeholders from aligning business goals. This integrated approach is required to move retailers from a sense-and-respond stance, often boiled down to the "sell one, buy one" historical approach, to a predict-and-act stance that better anticipates future demand and maximizes inventory availability. This trend will drive sales, reduce

Gartner, Inc. | G00234233

Page 39 of 83

markdowns and enable merchandising to optimize assortments. Replenishment must be informed when prices, promotions, planograms and assortments are changed. Timely and systemic communication through the supply chain will enable the replenishment system and the vendor to more quickly react to the changes. Technology has stalled and will likely be limited to a relatively few leading retailers and suppliers, and will be restricted to pilots for the foreseeable future. If we continue to see a lack of movement, this technology may be removed from the Hype Cycle in 2013. Economic pressures are driving price increases in raw materials and transportation, having a significant impact on the cost of goods. These pressures are revitalizing interest in total supply chain visibility to support efficient sourcing, transportation and inventory planning and, therefore, offsetting cost increases. Retailers are moving production from some long-standing partner countries to new producers. Continuation of the trend to grow private-label product penetration and speed to market is driving advancements in product life cycle management (PLM) tools and retail interest in an integrated demand planning approach. The same pressures are also impacting relationships with the vendor community, where better information is required across the retail and vendor supply chain (although much less impact has been seen in this scenario). Closely linked to replenishment optimization, retailers are finding the step of optimizing replenishment a first move in the direction of IDRP. User Advice: Change management is required and should not be underestimated when IDRP is attempted. Adopting integrated demand and replenishment is a major change in how the retail operation plans, responds and executes to consumer and market conditions. It requires a significant amount of organizational, cultural and system changes, including the implementation of store replenishment optimization technology. This strategy should be undertaken only when the need has been recognized and sufficient planning has taken place. Users should also be aware that vendor hype in this area, and the maturity and completeness of what is offered are often far apart. Users may need to assemble different pieces of the solution from different vendors until the market consolidates more, or until vendors develop more-mature offerings. Business Impact: The effects of IDRP are: ■

Removal of lead time and latency from the supply chain

■

Synchronization of demand, driven by supply-optimized chains

■

Inventory and order visibility across the network

■

A high degree of automation in the supply chain response

■

Improved performance

■

Increased customer service through improved inventory availability

■

Reduced inventory

■

Reduced waste and supply chain costs

Benefit Rating: High Market Penetration: Less than 1% of target audience

Page 40 of 83

Gartner, Inc. | G00234233

Maturity: Emerging Sample Vendors: Infor; JDA Software; Oracle; RedPrairie; SAP; SAS; Teradata Recommended Reading: "Integrated Supply Chain Planning and Execution: Connecting the Retail Store to the Factory Door" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers"

Store Location Analysis Analysis By: John Davison; Mim Burt Definition: Store location analysis involves methodologically researching and evaluating optimal sites on which to develop profitable retail stores. The most prevalent tools and techniques used by leading retailers include the analog method, gravity modeling multiple regression analyses and the use of GIS. Position and Adoption Speed Justification: Store location analysis, as a process, has been around for many years and was covered as a subset of retail real estate portfolio management In previous Hype Cycle reports. However, during the past 36 months, it has become vitally important and an increasingly riskier and more complex activity, and we have seen lots of interest in this topic. This has caused us to treat this as a separate and renamed technology for this year's Hype Cycle. While "location, location and location" has been a retail mantra for some time, retailing is now entering an increasingly important phase in which retail formats are likely to become increasingly short-lived. At the same time, mobile-enabled cross-channel shopper consumer behavior has become increasingly difficult to predict, as consumers make ready use of context-aware information inside and outside stores. This has caused a number of high-profile companies (such as Best Buy, Gap and others) to rationalize their domestic store portfolios as e-commerce sales continue to grow and they feel the impact of large online retailers, such as Amazon, and traditional retailers expanding into their categories. Many retailers, rather than building new stores, are looking to downsize operations, develop shorter-lived formats, and/or are executing market exit strategies in domestic markets while they enter foreign markets. This is exacerbated because key determinants of store location — such as customer demographical analysis, trade areas analysis and competitor analysis — are becoming increasingly dynamic cross-channel variables and much more difficult to predict. As well as the use of GIS, store site location analyses are often undertaken using these models: ■

Analog method — which looks at trade areas and market penetration achieved from existing similar stores to calculate sales forecasts for new store sites.

■

Multiple regression modeling — which uses existing store performances and variables, such as demographics and competitor analyses, to predict sales at new store sites.

Gartner, Inc. | G00234233

Page 41 of 83

■

Gravity modeling — which produce store sale forecasts by analyzing store sizes, the distances and relationships between competitor sites, as well as population distribution and density.

User Advice: Retailers need to ensure that the inherent risk involved in store location is minimized at a time when the nature and role of the store in retailing are changing. The techniques and technologies associated with store location analysis need to be carefully planned, managed and executed better than ever before. While there are many solutions in this area, no one vendor has the capability to entirely support a large Tier 1 retailer's requirements for store location analysis. For example, while the use of GIS has become increasingly common for Tier 1 retailers, such systems need to be augmented by store location modeling and the application of practical retail reasoning and good "on the ground" local site knowledge. Also, store location analysis does not just impact store development teams, but also key operational areas in the context of multichannel strategies (such as marketing, merchandising and store operations). Harnessing the expertise of these business areas will help mitigate the inherent risks associated with opening, closing and/or reformatting stores. Business Impact: The impact of achieving optimal store locations for retailers has always been a crucial part of a retailer's overall strategy. However, in the current retail environment, the significance of store location has become even more important. With the advent of e-commerce and mobile channels, the importance of the store as the hub of multichannel retailing has, and will, continue to increase significantly because it will be at the store that the multichannel shopping experience will be increasingly executed. Store formats are likely to change fluidly during the next five to 10 years, and there will be greater investment in international markets, which will drive more complexity in this area. This will be a significant period of time for retailers, and one of the key success factors during this time will be having a rigorous methodology and the correct tools and technologies to determine optimum store locations domestically and abroad. Benefit Rating: High Market Penetration: 20% to 50% of target audience Maturity: Early mainstream Sample Vendors: Bricsnet; Esri; Experian; IBM; MapInfo Recommended Reading: "Multichannel Retailing: The Store Remains the Hub of Retailing"

Store Replenishment Optimization Analysis By: Robert Hetu Definition: Replenishment systems use advanced forecasting and optimization techniques to create a time-phased forecast at the store and stock-keeping unit (SKU) level. Additionally, these

Page 42 of 83

Gartner, Inc. | G00234233

systems provide economic order quantity (EOQ) calculations that incorporate many components of the cost of goods, purchase order cost, service level, and other business rules and objectives into the order process. Position and Adoption Speed Justification: This rule-based capability enhances replenishment's ability to respond effectively to business objectives. With the advances in price, promotion and markdown optimization, combined with merchandise assortments that are tailored by location, demand forecasts generated from other tools have to be integrated as part of the replenishment forecasting process. For example, understanding the impact on demand from a price decrease for a given product should be considered by the replenishment system when additional orders are generated. Multichannel activities such as in-store fulfillment of online orders will add significant complications, as retailers will need to maintain sufficient inventory to meet normal store demands in addition to online orders. Retailers need to ensure that inventory is flexible and available to meet demand without segregating into various purposes within the store — for example, stores should not be expected to keep separate storage of inventory for order fulfillment. An increasing number of Tier 1 and Tier 2 retailers have implemented store replenishment optimization systems. There has been an increased interest in demand-forecasting-based systems to drive replenishment. The technology is early mainstream, as it has a fairly well developed vendor offering. It is located on the midpoint between the Peak and the Trough due to surrounding issues impacting demand forecasting and other merchandise optimization capabilities. Retailers are trying to determine whether they should completely replace their store replenishment systems or supplement their existing replenishment systems with better forecasting capabilities. Many of the vendors in this space, especially the best-of-breed vendors, offer the ability to help retailers with either approach. This will increase adoption of store replenishment optimization in the future. User Advice: Retailers need to decide how they will include replenishment optimization in their architectures. At a high level, there are two choices: ■

They can improve their existing legacy replenishment systems by harnessing a replenishment optimization engine in the background.

■

They can use a next-generation replenishment tool to completely replace their existing systems.

Other factors retailers should evaluate are proven forecast accuracy in the types of merchandise a retailer sells; the ability to perform at scale, as store replenishment is often reforecast on a daily basis across all items in all stores; and the need for perpetual inventory as a starting point. Three to five years out, retailers must have a good sense of how demand planning and forecasting will be centralized into all merchandise and supply chain applications. The goal will be for replenishment to be aware of all demand-changing actions, such as a promotion or a change in the number of facings. Business Impact: Efficient inventory management is the main benefit. This translates into greater sales due to improved availability, increased customer satisfaction, and reduced carrying costs from having too much inventory.

Gartner, Inc. | G00234233

Page 43 of 83

Benefit Rating: High Market Penetration: 1% to 5% of target audience Maturity: Early mainstream Sample Vendors: 4R Systems; Aldata; JDA Software; JustEnough; Oracle; Predictix; Quantum Retail Technology; Revionics; SAP; Teradata Recommended Reading: "Merchandising Optimization for Multichannel Grocery Retailers" "Rethinking Retail Forecasting and Optimization Architecture" "Q&A: Price and Merchandise Optimization in Retail" "Revionics Grows Beyond Its Price Optimization Roots" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers"

Multichannel Order Fulfillment Analysis By: Mim Burt; John Davison Definition: Multichannel order fulfillment refers to the set of processes and applications that support customer order fulfillment in a multichannel business-to-consumer retail environment. This includes the physical movement of goods and resources — for example, processes such as management of the flow of goods and resources, optimization of transport by in-house or thirdparty logistics providers, shipment visibility and tracking, coordination of outbound scheduling, and reverse logistics. Position and Adoption Speed Justification: Multichannel order fulfillment requires centralized planning and management of distribution logistics and transportation activities across the channels. The continued emergence of newer channels, such as social and mobile in particular, has undoubtedly increased the complexity of multichannel order fulfillment operations. It is clear that the execution of multichannel order fulfillment is particularly important in the store that is the hub of multichannel, and where many key cross-channel processes are executed. Returns management will also become increasingly complex in the multichannel world, yet most retailers are unable to handle multichannel returns in a systematic way, and most vendors have yet to fully address this issue. Moreover, most retailers have yet to address multichannel supply chain planning and multichannel order management, both of which are important inputs into multichannel order fulfillment processes. Real-time centralized views of inventory movement across the supply chain in all channels to ensure accurate, timely and well-informed stock decisions are also vital to optimize multichannel order fulfillment. During the past 12 months, retailers and vendors have continued to focus on how to offer customers seamless fulfillment, regardless of the channels in which they shop. Retailers have been fairly successful in the "order online/pick up in store" process; however, in a Gartner survey,

Page 44 of 83

Gartner, Inc. | G00234233

customers regarded "order online/deliver anywhere" as a higher priority. There is much more work to be done across the end-to-end order fulfillment process by Tier 1 retailers, especially as the store's role as a major node in logistical network optimization with regard to fulfillment of multichannel order management continues to evolve. As a result, this technology has been positioned just past the Peak of Inflated Expectations to the midpoint of the Trough of Disillusionment. It should be noted that this technology is intrinsically linked, but not as advanced as multichannel order management. User Advice: One of the biggest challenges with multichannel fulfillment is how well retailers can manage cross-channel orders in terms of inventory visibility and order picking (for example, picking up from a store or distribution center, or providing available-to-promise responses to shoppers), because these are important inputs into the fulfillment process. Retailers will, therefore, need to improve cross-channel order management systems to optimize fulfillment in order to provide customers; for example, with the ability to buy, pick up and return goods in any channel. This also applies to the returns process, because many retailers will experience a great increase in the volume of returned goods during the coming years. Some retailers are using services-enabled applications, through service-oriented architecture, to improve fulfillment. However, retailers need to map out the cross-channel customer process and supporting business processes to ensure that their multichannel order fulfillment applications meet their customers' requirements. In this regard, retailers also need to understand the impact of multichannel order fulfillment on the various customer touchpoints, particularly the store. For example, one of the most popular ways in which customers want to shop is to order online and pick up in store. This will require the integration of information on customer orders with fulfillment processes and applications outside the store, as well as with store task management applications to deliver accurate in-store put-away, and picking the customer orders for collection. Retailers should, therefore, build robust business analysis capabilities to get a good idea of the requirements for a robust cross-channel order fulfillment process. Key skills required are the ability to understand the business and strong business process modeling skills. Business Impact: Improved multichannel fulfillment will lead to greater customer satisfaction in the multichannel shopping environment through streamlining the customer fulfillment process and will enable retailers to optimize inventory across all channels. Benefit Rating: High Market Penetration: 5% to 20% of target audience Maturity: Early mainstream Sample Vendors: IBM; Manhattan Associates; Oracle; RedPrairie; SAP Recommended Reading: "Multichannel Retailing: Customers Want Consistency in Cross-Channel Shopping Processes" "Cross-Channel Consistency: Customer Expectations Vary by Product Category"

Gartner, Inc. | G00234233

Page 45 of 83

Java-Based POS Software Analysis By: Mim Burt Definition: Java-based point of sale (POS) software applications are "open" POS applications written to the Java for Point of Sale (JavaPOS) standard. The device-independent nature of Java gives retail application developers independence from the proprietary details of the peripheral devices that they access and the POS hardware platforms and OSs on which the application runs. This language-centric platform is decoupled from any hardware or OS specifics, and gives the retailer flexibility in its choice of POS infrastructure. Position and Adoption Speed Justification: Drivers for JavaPOS applications include flexibility of choice in hardware and OSs, decreased time to market, and reduced costs for POS upgrades. During the past few years, the market for Tier 1 retailers has seen some consolidation, and a number of robust Java-based POS applications have become established parts of the POS application landscape. In the past 12 months, interest has continued unabated from retailers embarking on POS replacement projects, and attention has been focused on how to harness the multichannel capability of these solutions. Particular attention has been given to integration of POS to other applications for multichannel promotions, multichannel loyalty, and cross-channel order management systems — for example, to deliver processes such as ordering online and picking up in the store. The solutions are becoming more componentized and service-oriented, and this has given rise to much discussion and consideration on the options for centralized, decentralized or "mixed" application implementation architectures. Moreover, raised levels of interest in the market have been due to the hype around mobile payments and mobile POS in general. Vendor developments of cross-channel "hubs" and vendor acquisition activity — such as U.S.-based Micros Systems' 1H12 announcement of its intent to acquire Torex — has also contributed to the hype. All this, together with the completion of at least one major Tier 1 rollout in the past 12 months, has caused a considerable forward shift in the positioning of this technology. Retailers that have implemented these applications typically describe cost savings in areas such as training within the first 24 months. However, in the past year, we have also been able to gauge the longer-term revenue benefits gained and lessons learned from at least one large "bedded in" implementation by a Tier 1 retailer that initially completed a rollout in 2006. There is still a big opportunity in the market for this type of "open" POS application, because many major retailers still operate legacy POS applications in some or all parts of their estate, and this includes in-house-developed applications. It will, therefore, take five to 10 years for this technology to reach the Plateau of Productivity. User Advice: Retailers must make a choice based on their needs, rather than on market-driven hype. When evaluating the applications, they must consider not only the functional capability, but also the nonfunctional requirements, such as the application architecture, usability, security, support and services, and delivery model (for example, software-as-a-service-based solutions), offered by the vendor. They must also consider which assets they already possess in terms of Page 46 of 83

Gartner, Inc. | G00234233

applications, operating software, hardware and middleware; the level of experience and relationship that they have with a vendor; and the skill mix required to service these applications. Business Impact: Java-based POS software can deliver cross-platform compatibility and interoperability — therefore, reducing capital costs when retailers upgrade POS solutions and reducing the ongoing costs of enhancement. It can also reduce operational costs, such as ongoing training, thus lowering the total cost of ownership. Benefit Rating: Moderate Market Penetration: 5% to 20% of target audience Maturity: Early mainstream Sample Vendors: GK Software; Micros-Retail; Micros (Torex); Oracle; PCMS Recommended Reading: "Oracle Point of Service: Oracle's Point-of-Sale Solution" "GK Software's Point-of-Sale Solution for Tier 1 Retailers" "Advanced Retail Solution: NCR's Point-of-Sale Offering for Tier 1 Retailers" "Retail Research Brief: Point-of-Sale Applications for Tier 1 Retailers"

Multichannel Order Management Analysis By: Mim Burt; John Davison Definition: This set of processes and applications supports cross-channel customer order management processes in a multichannel business-to-consumer retail environment. It includes handling cross-channel ordering across customer touchpoints, sourcing inventory from multiple locations, providing cross-channel inventory visibility, order brokering, providing order status information to multiple channels, and handling cross-channel returns. It does not cover the physical movement of goods by in-house or third-party logistics firms. Position and Adoption Speed Justification: During the past year, social and mobile have gained prominence, and many Tier 1 retailers are looking to integrate these touchpoints, especially mobile, with the more traditional brick-and-mortar and e-commerce channels to give their customers a contiguous shopping experience. The cross-channel order management capability is critical to achieving this. During the past 12 months, there has been considerably more interest in this topic as retailers are looking to implement cross-channel ordering applications. Vendors of both enterprise and store-based applications have responded by developing and consolidating service-enabled solutions for cross-channel order management hubs, creating stronger messaging on their cross-channel order management capability.

Gartner, Inc. | G00234233

Page 47 of 83

We expect this area to continue to be hot, at least for the next 24 months. To reflect the increased interest and activity in this area, we have plotted this technology as just coming into the trough as retailers are realizing the following: ■

The cross-channel customer shopping process will have a major impact on ordering applications.

■

Managing the cross-channel ordering process across multiple touchpoints is complex.

■

Retailers will have to go through a considerable period of learning before they can successfully implement fully optimized multichannel order management.

In view of this, we believe the time to plateau for this technology could take from five to 10 years. User Advice: The lack of inventory visibility in the cross-channel ordering process will affect the processing and fulfillment of customer orders. The discipline required to execute cross-channel inventory management, which enables the customer to buy, pick up and/or return goods in any channel, has not always been readily supported by retailers' existing systems. For example, store task management technologies could be integrated with multichannel order management to manage goods that were ordered online to be picked up in the store. Retailers must map out the cross-channel customer process and supporting business processes to make sure that their multichannel order management applications meet their customers' requirements. They should, therefore, build up a robust business analyst capability to get a good idea of the cross-channel order management process. Key skills required are the ability to understand the business and strong business process modeling skills. Retailers also need to understand the impact of multichannel order management on the various customer touchpoints — particularly, the store. Business Impact: Improved cross-channel order processing and stock visibility will lead to greater customer satisfaction and cross-channel inventory optimization. The greatest benefits will be for retailers when executing complex orders involving substantial bills of materials, such as orders for kitchens and solariums. Benefit Rating: High Market Penetration: 5% to 20% of target audience Maturity: Early mainstream Sample Vendors: hybris; IBM; Oracle; SAP Recommended Reading: "Multichannel Retailing: The Store Remains the Hub of Retailing" "Multichannel Retailing: Customers Want Consistency in Cross-Channel Shopping Processes" "Cross-Channel Consistency: Customer Expectations Vary by Product Category"

Page 48 of 83

Gartner, Inc. | G00234233

Time and Labor Optimization Analysis By: Gale Daikoku Definition: These are store-level, integrated applications that automate labor planning, scheduling and time keeping for store management. Solutions are Web-based and provide greater visibility to store-level scheduling practices. Advanced time and labor (T&L) optimization incorporates many factors, including capacity, staff availability and budget constraints, to produce a schedule that maximizes store efficiency and compliance to labor laws, while minimizing budget variance. Position and Adoption Speed Justification: T&L management applications are not new to large retailers. However, the ability to automate and electronically deliver an optimized, integrated timekeeping and scheduling solution as part of a single, licensed solution for stores is not something that all retailers have widely adopted. Vendors' technologies are mainly out of the box (configuration versus customization) and proved, with an expanding list of referenceable customers. In the past 12 to 18 months, the hype around cloud computing has provided the opportunity for some vendors in the T&L space to gain some market visibility for their software as a service (SaaS) capabilities and cloud-based delivery models. This has resulted in a few proofs of concept and contractual commitments from Tier 1 retailers. However, Gartner is only aware of a few large retailers that have rolled out at least one process (time and attendance [T&A] or scheduling) from a vendor, not the vendor's entire SaaS suite to support the mission-critical capability associated with managing staffing and attendance for stores. The current position on the Hype Cycle has this technology near the Trough of Disillusionment, based on continued awareness of some large, early adopting Tier 1 retailers moving into replacement cycles, because their existing deployments and technology fell short of expectations, while some are struggling to find significant value from their T&L optimization initiatives. Gartner knows many retailers that have deployed a single-vendor solution capable of supporting an end-toend T&L management process that includes T&A, scheduling and task management capabilities, and nearly all retailers we speak with are seeking guidance about single-vendor solution suite capabilities as part of their RFPs. Yet, only a few vendors have commercially available task management applications that can support the end-to-end T&L management process, and no major retailer we are aware of has implemented a solution from a single vendor to support their end-toend T&L process. User Advice: Start by working with the business to evaluate your end-to-end, store-level labor management process to ensure stores can execute cross-channel processes that will become increasingly important to your customers. Consider the business benefits that can be gained by deploying a single vendor's Web-based T&L management solution. In addition, ensure that you have established labor standards before you deploy labor scheduling to be able to apply optimization technologies. Without labor standards in place, it is difficult to optimize or impact labor budgets, and your project will fall short of meeting your expectations for this initiative. Finally, if you are struggling with your initiative or implementation, consider getting help from workforce management specialists.

Gartner, Inc. | G00234233

Page 49 of 83

Business Impact: T&L applications will improve store productivity and labor use. Store capacity and workload to support the execution of cross-channel processes will be better matched to deliver the highest value to customers. Benefit Rating: High Market Penetration: 5% to 20% of target audience Maturity: Early mainstream Sample Vendors: Ceridian Dayforce; Empower; Infor (Workbrain); JDA Software; Kronos; Micros (Torex); Oracle; RedPrairie; Reflexis Systems; SAP; Tomax; WorkPlace Systems Recommended Reading: "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "Retail Time and Labor: Working Through the Biggest Project Challenges" "Retail Time and Labor Vendor Update, 2010" "A Quick Look at Cloud Computing in Retail, 2012"

Multichannel Master Data Management for Retail Analysis By: Andrew White Definition: Master data management (MDM) is a technology-enabled discipline in which business units and IT organizations collaborate to harmonize, cleanse, publish and semantically ensure master data that needs to be shared across the retail organization in operational applications as well as business intelligence data warehouses. In 2012 retailers are focused on MDM supporting multiple channels and spanning data related to products, customers, suppliers, assets, location and employees as well as content. Position and Adoption Speed Justification: Retail MDM drivers have, for the most part, been motivated by a supply chain focus (product data/inbound from global data synchronization), a demand chain focus (consumer/loyalty or product/sell side, increased need to integrate operations across multiple channels) or, in a few cases, an enterprisewide focus (top-down accompanying full retail system remediation). It is the latter scenario that really needs mature multidomain solutions on which to build entire new retail systems. An MDM program is a foundation for a multichannel customer experience and a key part of a retailer's commitment to information management that helps organizations break down operational barriers enabling greater enterprise agility, improved revenue, reduced IT and business costs and simplified integration activities. The market is characterized by several generations — the first of which was signaled by retailers' desire to master either consumer or product — using specific solutions focused on specific business cases such as new product introduction, supply chain efficiency, or better service or revenue across multiple channels. These first-generation implementations were focused on a single

Page 50 of 83

Gartner, Inc. | G00234233

version of product; a single version of customer, locations, assets and workforce; or a single version of hierarchy (for reporting or financial analysis). As of 2012, some innovative retailers are trying to extend their early implementations across different domains (for example, starting with customer data and then expanding to product data) but, due to complexity and volume considerations, this is proving very hard to do with some toolsets. Other retailers, taking a more strategic approach, are taking the opportunity when it arises to roll out an enterprisewide system renovation. Tackling MDM as a multidomain problem is in the minority today. This generation of MDM-enabled technology is maturing quickly but the second generation — called multidomain MDM, which is a single-technology solution that can master any number of different domains to any degree of complexity — is far less mature due to the difficulty of mastering and governing the complexities equally across all data domains in any one retail organization. Early adopters who implemented single domain solutions, and their fast followers, are now catching up. As a growing number of retailers are also focused on using content like "big data" and social data to understand and influence consumer behavior, the need for "governing content" (we call this, master content management) is growing. Consequently, MDM is correctly being seen as a prerequisite to this. Progress with MDM in retail is slow due to the effort required to sustain the change to core business processes that create, author and consume master data such as legacy merchandising, supply chain, and procurement processes. The current batch of MDM offerings, focused on product data or customer data, will be the mainstay of MDM in retail until at least 2016. After that date multidomain MDM, will start to emerge as the next focus for retailers. This technology profile is named "multichannel MDM" to highlight how the nature of multichannel integration is one of the largest drivers for MDM in retail in 2012. But this remains a hybrid profile, part generation 1 and part generation 2 technology. User Advice: Use MDM techniques and technologies to achieve consistency, accuracy and integrity of information assets in upstream operational environments. Most retailers focus on drilldown domain requirements using MDM for product data for individual departmental projects, such as in support of the Global Data Synchronization Network. Other uses include improving consumer experience via consistency in data across multiple channels, or in creating a single view of customers to support loyalty programs and customer engagement initiatives. Some of these programs link to governance of content (master content management), which really only entered the market as a (hyped) concept two years ago. There is a potential role for tactical MDM technologies in solving semantic inconsistency issues in downstream, business intelligence, analytical and corporate performance management environments. Organizations must ensure that these activities mesh with their MDM initiatives in the operational environment. They must create cross-departmental collaboration in adopting the discipline to realize and sustain the benefits. All MDM initiatives must be aligned with the objectives of the organization's enterprise information management (EIM) program, which could span master data, content, analytical data, social data and so on. When addressing MDM issues by subject or domain (such as customer or product), companies should leverage expertise to expand into other domains.

Gartner, Inc. | G00234233

Page 51 of 83

MDM efforts can originate in any function but, for maximum value, initiatives must be consolidated into a comprehensive EIM program. MDM is a discipline so don't focus only on technology. The keys to successful MDM starts in a retail organization are: ■

Line of sight to a business case

■

Business leadership

■

Governance and stewardship of master data established in a line of business

■

Metrics and analytics to guide progress

■

Viewing such initiatives as programs that are ongoing, not projects that stop

Business Impact: Retailers spread master data across many systems. It is fragmented and often inconsistent. This makes it difficult for organizations to streamline business processes and operations efficiently and to develop agile new business processes across retail channels. This also affects consumers who often will not perceive a single view or consistent experience with a given retailer across all channels. With one view of master data, retail organizations can achieve benefits in such areas as: ■

Upselling, cross-selling and leveraging CRM and other customer-facing processes

■

Operational benefits from merger and acquisition activities

■

Increased efficiencies on the buy side with deep insights into spending data and vendor analyses

■

More effective data compliance

■

More competitive new-product introduction processes

■

Increased integration across multicommerce processes for improved customer service, reduced out-of-stock instances and increased use of inventory

■

Increased productivity of human capital

■

Greater visibility of the status and performance of the value chain and master data moving through it

As retailers adopt MDM, their consumers will also see the following benefits or impacts: ■

More consistency in marketing messages from retailers

■

Improved and unified brand management and execution

■

More reliable service including more accurate store data and available-to-promise inventory

Some form of MDM is fundamental to managing every business more effectively. There is a new focus on the problem (typically referred to as "single view," or lack thereof) and a set of packaged technologies has emerged to provide a foundation for a central, shared, single view of master data.

Page 52 of 83

Gartner, Inc. | G00234233

It is suitable for early adopters and fast followers but requires architectural vision and business commitment. Benefit Rating: High Market Penetration: 1% to 5% of target audience Maturity: Adolescent Sample Vendors: Aldata; hybris; IBM; Oracle; Riversand Technologies; SAP; Stibo Systems; Tibco Software Recommended Reading: "Research Library for the Seven Building Blocks of MDM" "Should Organizations Using ERP 'Do' Master Data Management?" "Mastering Master Data Management" "Extending MDM Principles to BI Content"

RFID (Item) Analysis By: John Davison; Robert Hetu Definition: This refers to radio frequency identification (RFID) solutions that specifically target tracking inventory at the item level. Position and Adoption Speed Justification: Value from RFID will be largely hidden from most customers until a significant number of products in the supply chain are tagged at the item level. Tag costs remain the main barrier to the widespread use of RFID at the item level, but costs have steadily reduced in recent years. Recent large-scale rollout programs by J.C. Penney and increased commitments by the likes of Macy's and Walmart to ramp up item-level RFID deployments continue to prove that item-level RFID can bring business benefits in apparel retailing. However, its widescale deployment in other retail sectors, particularly food retailing, remains some time out. User Advice: Projects at the item level must focus at least as much on the potential customer benefits as on the inventory and supply chain benefits. Thus, they remain largely "leap of faith" initiatives, and the best hope of achieving an earlier ROI is when operating in a relatively closed-loop supply chain. Business Impact: This technology improves product visibility across the supply chain, particularly at the store level. It has the potential to improve availability to the consumer and to help reduce shrinkage. However, to realize the full potential of item-level RFID, retailers must use the technology in conjunction with improved in-store execution and compliance technologies, such as task management applications. Benefit Rating: Transformational

Gartner, Inc. | G00234233

Page 53 of 83

Market Penetration: 5% to 20% of target audience Maturity: Mature mainstream Sample Vendors: Checkpoint Systems; Tyco Retail Solutions; Tagsys

Contactless Payments Analysis By: Mim Burt; John Davison Definition: Contactless-payment technology enables payment transactions via a contactless chip embedded in payment cards, tags, key fobs and mobile phones. The chip can communicate with a card reader device that can use radio frequency protocols, including Near Field Communication (NFC) standards. Contactless payments are more popularly referred to as "wave and pay" or "tap and go." Position and Adoption Speed Justification: Contactless payments have been adopted in some mass-transit applications in several parts of the world, with well-documented examples in Japan, Hong Kong and the U.K., and more recent examples in the U.S. There have been several implementations of contactless payments in quick-service restaurant operators and fuel stations. Here, we focus on contactless payments in the mainstream retail industry. Although contactless payment has been one of the earliest RFID applications, implementations are thin on the ground, and no Tier 1 retailer has implemented contactless payments in its entire store estate. There has been a lot of publicity about and interest in NFC payments, especially regarding NFC for mobile wallets, and banks and card providers continue to actively promote the technology. However, this technology remains firmly entrenched in the trough, and we expect it to be five to 10 years before there is widespread adoption of contactless payments, for the following reasons: ■

These applications have yet to be enthusiastically embraced by consumers, and have not gained high levels of consumer adoption. During the past few years, Gartner surveys on mobile commerce retail consumer preferences indicate that, in general, services such as checking prices and checking store locations on mobile phones were at the top of consumers' priority lists, with ordering and payments much further down on the lists.

■

Many consumers still have a perception that mobile payments are less secure than, for example, credit or debit transactions conducted at the check-out in a physical store.

■

Widespread adoption requires the convergence of infrastructure with critical mass, including, for example, availability of NFC-enabled mobile phones; the backing of financial institutions, telecom providers, transportation entities and major retailers; a global mobile payment standard; and clear regulations and guidelines for compliance (such as compliance on antimoney-laundering regulations).

User Advice: Global retailers should take particular notice of the cash in circulation in the various geographies in which they operate, and get an accurate understanding of the proportion of cash-tocard transactions conducted by the business. Retailers should also work with banks and credit card companies to drive down the merchant interchange rates associated with each type of contactless Page 54 of 83

Gartner, Inc. | G00234233

card transaction. Giving consumers an incentive to use contactless cards, such as rewarding them with loyalty points for using contactless payments, can help quicken adoption. However, consumers' concerns around the security of transactions and the privacy of data persist. Retailers should, therefore, invest appropriately in the governance of payment processes and payment data, including compliance with industry-recognized data security standards. Business Impact: Contactless payments enable improved customer self-service and increased throughput through faster speed of transaction and convenience. The real benefits will come from convergence with co-branded multiple applications(for example, loyalty and prepaid). However, widespread adoption could occur through the increased use of contactless payments in public transportation systems, which will act as the catalyst for increased use in mainstream retailing. Benefit Rating: Transformational Market Penetration: 1% to 5% of target audience Maturity: Early mainstream Sample Vendors: American Express; MasterCard; Visa International Service Association Recommended Reading: "Business Process Solution Maps for Retail Payment-Processing Applications: What Customers Want" "Business Process Solution Maps for Retail Payment-Processing Applications: What Retailers Want" "Cashing in on Retail Payments" "Contactless Payment and Biometrics Remain Solutions Looking for a Problem"

Customer-Centric Merchandising Analysis By: Robert Hetu Definition: Customer-centric merchandising is a process that incorporates data about consumer tastes, purchase patterns, lifetime value, and loyalty, as well as context elements of time, place and social media, into the merchandising process. Position and Adoption Speed Justification: The retail industry has embraced the need for a customer-centric approach to merchandising, rather than the traditional product-centered approach. However, this technology remains firmly in the Trough of Disillusionment as retailers struggle with the foundational work and change management associated with becoming more customer-centric. The traditional approach causes retailers to use historical sales patterns, traditional retail performance measures and market trends to drive merchandising activities. With today's consumers demanding greater customization or personalization from retailers, as well as competitive pressures, retail consolidation, and e-commerce and m-commerce, retailers can become caught in a self-fulfilling cycle. A seasoned buyer for any given category has years of

Gartner, Inc. | G00234233

Page 55 of 83

experience, with numbers to back it up, claiming that the retailer cannot sell product XYZ. He or she might be right in the aggregate, but are there opportunities to grow the product in some stores? Would this product resonate with the retailer's "best customers"? Is the product an image item that the retailer needs to be seen as a player in the category? How would this product impact sales within another important category? These are just a few of the questions that customer-centric merchandising brings to the merchandising process. Retailers using customer-centric merchandising principles include Tesco, Wal-Mart Stores, Best Buy, CVS, Food Lion, Kroger, Champion and Macy's. Many retailers have experienced the pain that can be associated with running purely by the numbers. Retailers are just beginning to explore how to use new forms of customer data in their planning, such as sentiment analysis data gathered from social networks, reviews and the rest of the social Web. Why not just drive customers to the most profitable SKUs, biggest sizes, generic packages or private brands? As retailers have seen repeatedly, consumers still expect choice, identify with established brand names, and will walk away when they cannot find them. Of course, few merchants fail to take into account "newness" in their categories, and all strive to maximize their businesses. The facts are that merchandising is a complex business process, and the considerable effort of adding consumer data can seem complex and, as a result, overwhelming. The concept of customer-centric merchandising is well-understood by retailers at a high level. However, the challenge that remains is how to utilize consumer information in a meaningful way in the assortment development process, which continues to be product-driven. Further complications arise when a multichannel retailer begins the process of cross-channel customer segmentation. This is why customer-centric merchandising remains in the Trough of Disillusionment. For example, how does a category manager use customer segment and buyer behavior data to plan on a daily basis? What is the right number of customer segments to use when planning? Should customer data be used equally with other planning dimensions, such as format and sales or profit metrics, or should customer data take precedence? User Advice: Prerequisites for incorporating consumer data into the merchandising process is to categorize the current customer base, identify target segments, and understand by location and channel where they interact with the retail brand. Only after the targeted segments are identified can there be a reasonable expectation that the merchandising process can execute a customer-centric approach. This involves the practical application of the retailer's overall brand positioning, since the merchandising process is an integral part of driving the consumer perception of the brand. Customer-centric merchandising requires strong customer analytics capabilities, combined with the ability to vary assortments by store. Building assortments at the store or cluster level is required for Tier 1 and Tier 2 retailers to garner the full benefits of customer-centric merchandising. Few commercially packaged solutions are available that can merge these two capabilities. Often, a professional services firm or strong internal customer analytics group is required to bring these capabilities together. The major planning solutions have evolved, but each has its own definition of "customer-centric" capabilities. Retailers should clearly understand how vendors are approaching customer-centric merchandising. For example, retailers with loyalty data should ask how this data is used during the assortment planning process. Retailers should also look at how sentiment analysis data gathered from the social Web can impact merchandising decisions. For example, if Facebook Page 56 of 83

Gartner, Inc. | G00234233

is heavily populated with positive comments about a specific new product, then merchandising actions, such as buying, allocation, replenishment, promotion and pricing, can be adjusted. Business Impact: Customer-centric merchandising gives retailers the capability to offer better merchandise to local customers and to focus on desired customer segments. This results in increased sales and margins, as well as better management of inventory. Benefit Rating: High Market Penetration: 5% to 20% of target audience Maturity: Adolescent Sample Vendors: Data Ventures; DemandTec; Galleria; JDA Software; Oracle; Revionics; SAP; SAS Recommended Reading: "Multichannel Pressures Drive Optimized Merchandising" "Optimization Strategies for Multichannel Consumer Electronics Retailers" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "DemandTec Buy Will Boost IBM Smarter Commerce but Leaves Loose Ends" "Merchandising Optimization for Multichannel Fashion and Short Cycle Clothing Retailers" "Integrating Analytics With Customer-Centric Merchandising"

In-Store Self-Service: Customer-Facing Applications Analysis By: Mim Burt; Gale Daikoku Definition: This technology includes both informational and transactional customer-facing, selfservice applications (excluding self-check-outs). These have been typically deployed on retailerowned wired and wireless in-store devices, such as kiosks, self-scanning devices and mobile devices, such as mobile phones, tablets, shopping cart computers and personal shopping scanners. More recently, retailers have been looking at provisioning these types of self-service applications on consumer-owned mobile devices, such as smartphones. Position and Adoption Speed Justification: Customer-facing self-service applications that support information needs, such as checking whether products are in stock, looking up stock prices and browsing product catalogs, have been around for a few years. More recently, the hype around iPhones, iPads and the growth of Quick Response Code-scanning capability on mobile devices has generated a great level of interest from retailers in providing this type of capability on consumers' own mobile phones. However, from our most recent research in this area, we find that customers express a preference to use in-store self-service for informational tasks (such as checking loyalty points or customer information), rather than transactional tasks (such as ordering and paying).

Gartner, Inc. | G00234233

Page 57 of 83

In 2011's Hype Cycle, we indicated that this technology was heading to the trough, and it is now firmly in that position, because there have not been any large Tier 1 retail implementations, despite the hype around mobility. This is, in part, because retailers are beginning to understand how to prioritize investments in these types of self-service applications and also trying to figure out how these applications can be "embedded" to support the cross-channel customer shopping process. This will be with particular regard to supporting the in-store customer service basics, such as onshelf stock availability. For example, if an item is out of stock on the shelf or not carried on the floor of that particular store, then the retailer could give the customer the ability to order through an instore kiosk for home delivery. In this regard, our research shows that, when in store, in general, consumers prefer to ask for help from store associates more than using in-store technology provided by the retailer, such as a kiosk, or using their own mobile devices. Retailers are, therefore, considering investing first in employee-facing applications to service the customers. User Advice: Multichannel retailers are considering "write once/run anywhere" types of applications that can easily be ported onto various employee and customer devices, given that content, user interface and usability must be tailored to specific devices. Usability is key to customer adoption of self-service applications, and all customer-facing applications, whether informational or transactional, must be simple and easy to use, with uncluttered user interfaces and clear instructions onscreen. Nonetheless, at least for store-based applications, store staff must be trained so they can solve any application or process issues when intervention is required. These front-end, in-store, customer-facing applications must also be well-integrated with back-end fulfillment processes and systems, with special attention to cross-channel process integration, as well as management of cross-channel content to maintain consistency. Business Impact: By tackling the key basic informational and transactional requirements that customers want, especially in the store, these types of self-service applications can help deliver a high-quality, in-store customer shopping experience and, thus, affect the revenue stream. However, customers will only use these applications if they are convenient and not cumbersome. These applications can also help to drive revenue if embedded sympathetically into the cross-channel customer shopping process. Store labor productivity is also improved through the full-time availability of self-service technology for customers, releasing store associates to perform more value-adding tasks, such as dealing with inquiries on complex products, with opportunities for upselling and cross-selling. Benefit Rating: High Market Penetration: 5% to 20% of target audience Maturity: Early mainstream Sample Vendors: Fujitsu; IBM; NCR; Wincor Nixdorf Recommended Reading: "Retailers Take Note: When in Store, Associates Trump Customer SelfService Technology" "Multichannel Retailing: The Store Remains the Hub of Retailing"

Page 58 of 83

Gartner, Inc. | G00234233

"An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers"

Microblogging for Retailers Analysis By: Van L. Baker Definition: Microblogging is short messages that are delivered to consumers who have chosen to follow or subscribe to a given microblogging feed. The most popular microblogging service is Twitter, but other services such as Plurk, Tumblr, Identi.ca and Weibo are popular in other areas of the world. These services focus on consumers but can be used by retailers, as opposed to enterprise-centric microblogging sites (such as Yammer and Socialcast), which focus on collaboration in the enterprise. Position and Adoption Speed Justification: Twitter has become a household name, and it allows retailers to connect directly with people who are interested in their products and services, sales and support activities. Additionally, the use of microblogging is low cost; the cost to the retailer consists of the personnel costs to create the feeds and the analytic software to monitor the microblogging feeds. This is part of the reason this technology has accelerated through the Hype Cycle as fast as it has. It is also an appealing opportunity for most businesses that want to engage customers directly. Microblogging can also be tied to a retailer's Facebook page to leverage both forms of social media in customer relationship management (CRM). If you assume that the people the retailer communicates with also pass along information to a circle of friends, the appeal of microblogging is relatively apparent. Alternatives to microblogging, such as Pinterest, have expanded the tools available to retailers with a more visually oriented approach to sharing. User Advice: Use of microblogging alone is not an advisable approach for retailers. Retailers need to remember that microblogging is part of an overall social media program, which, in turn, is part of an overall marketing and CRM strategy. Microblogging should be an element of a much larger social media effort that includes positions on social networks, search engine marketing, direct email marketing, loyalty program integration and other parts of an overall strategy. Understand how you intend to use microblogging because it can be utilized for a number of different activities (such as brand enhancement, revenue generation, support and CRM). Retailers should assess the demographic profile of a microblogging service prior to deploying their microblogs to make sure there is a customer profile fit. Retailers also need to understand that this is a two-way communication medium and that they have the ability to respond to their customers, just as the customers can respond to them. Business Impact: The use of microblogging tools can enhance a retailer's revenue, reputation and satisfied customer base. Additionally, microblogging tools can give retailers valuable insight into what their customers think about them. The use of this tool does not come without risks, and it should be deployed judiciously. However, it is important to realize that the number of active microbloggers, while growing, is still relatively low. However, the number of members is increasing, and as such, so is the number of followers. Benefit Rating: Moderate

Gartner, Inc. | G00234233

Page 59 of 83

Market Penetration: 5% to 20% of target audience Maturity: Adolescent Sample Vendors: Plurk; Tumblr; Twitter; Weibo

Online Product Recommendation Engines Analysis By: Robert Hetu; Gale Daikoku Definition: Online product recommendation engines use a retailer's product catalog and sales history to determine items for cross-sell or upsell during an online sales transaction at or before the time of check-out. Position and Adoption Speed Justification: There are a number of ways these recommendations can be created. Some of the more popular ones include using behavioral algorithms that analyze customer navigation and demographics; collaborative filtering that recommends products based on what other people bought (for example, Amazon.com); and rule-based engines that allow Web merchants to define rules such as those that recommend top sellers or recommend products based on sell-through rates. The product recommendation engines are predominantly used on e-commerce sites. However, this technology is expanding into display ads, augmented reality and context-aware applications. Ecommerce retail sites continue to implement product recommendation engines. There are many vendors in the marketplace today, best-of-breed as well as large vendors include product recommendations as part of their suites. The large vendors include e-commerce platforms, search vendors and Web analytics vendors. The ability to deliver product recommendations is increasingly becoming part of the analytics vendor offering. This technology is moving toward the Trough of Disillusionment, as retailers discover the realities of how the technology helps and doesn't help conversion. For example, some retailers using purely behavioral algorithms feel that they lack control over which products get recommended. Other retail implementations have shown that a simple "top seller" rule sometimes produces better conversion than complex algorithms. The ability for retailers to mix the results of behavioral algorithms with their own business rules is becoming increasingly important as retailers seek more control over the product recommendations. User Advice: Online merchandising is as much about merchant control as it is about algorithmically determining which product to recommend. Retailers need to look for strong capabilities in these areas: ■

The ability for merchants to control how and what is recommended

■

The ability for the recommendation engine to produce a highly relevant recommendation

The same concept may also apply to consumers. If consumers understand how a product was recommended (for example, a top seller), then they may be more likely to trust the recommendation. Retailers will need AB/multivariate testing capabilities on their sites to know if recommendations lead to increased conversion and/or increased average order value. A related solution that retailers should consider is real-time customer offer engines. For multichannel retailers this technology will

Page 60 of 83

Gartner, Inc. | G00234233

merge with real-time customer offer engines, because the goal is to increase the value of each transaction through customer-intelligence-driven offers. Typically, real-time offer engines are thought of for delivery of promotions; however, it is easy to see how the same technology can deliver product recommendations. Real-time offer engines must include business rule enforcement capability to enhance effectiveness for use as online product recommendation engines. Business Impact: The benefits of online product recommendation engines will be increased conversion, increased average order value, higher margins, better inventory management and increased customer satisfaction from receiving more relevant suggestions for items about which buyers are unsure. Benefit Rating: Moderate Market Penetration: 5% to 20% of target audience Maturity: Early mainstream Sample Vendors: Aggregate Knowledge; Amadesa; ATG; Avail Intelligence; Baynote; Certona; ChoiceStream; Coremetrics; Criteo; Loomia; MyBuys; Omniture; Oracle; prudsys; RichRelevance; SteelHouse; Strands Recommender Recommended Reading: "The New Online Merchant: Combining Product Recommendation Engines With Offline Merchandising Practices" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers"

Retail Biometric Payments Analysis By: Mim Burt; Gale Daikoku Definition: Biometric technologies provide automated determination of individuals' identities based on their biological characteristics (such as fingerprints, face or hand topology, iris structure, or retinal structure) or behavioral characteristics (such as signature dynamics, typing rhythm or voice). Biometric payment systems have been trialed at points of sale (POSs) by retailers to authenticate individuals' identities and to initiate payment using finger scans. Consumers can authorize payments via defined and registered tender preferences. Position and Adoption Speed Justification: Driven by consumer expectations for fast and secure check-out processes, retailers understand the need for faster and more accurate authentication for payment transactions, such as RFID, Near Field Communication, biometrics and contactless technologies. Interest and implementation of fingerprint biometric devices in developing economies such as Nigeria, India and Brazil have largely been driven by government identity initiatives — for example, starting with enrollment for the electoral databases. Emerging economies of countries such as Brazil and India, and in the regions of Eastern Europe and Southeast Asia, also present more opportunity for using biometrics for micropayments on mobile devices.

Gartner, Inc. | G00234233

Page 61 of 83

Apart from implementation at the POS, the potential use of biometrics for e-commerce will probably be an authentication factor, as opposed to a fully fledged biometric payment system. Most importantly, the continued lack of interest from mainstream Tier 1 retailers in all geographies, together with a dearth of biometric payment software vendors, has resulted in no verifiable activity on implementations or even trials in the past 12 months. To reflect these circumstances, the technology for biometric payments continues to remain firmly in the Trough of Disillusionment. We do not expect any Tier 1 retail implementations or trials in the next 12 months, and if that is the case, this technology will be removed from next year's Hype Cycle as being obsolete before plateau. User Advice: Biometrics should be considered as part of the business requirements for projects such as POS, time and labor management or payment processing upgrades. However, when it comes to customer-facing processes, such as payments, in particular, retailers will need to determine the barriers or opportunities to using the technology in a particular market. In an emerging retail market, where biometrics are already commonly used as the primary way for verifying identity, using the technology to reach the unbanked or illiterate could be a potential win for retailers. Although this technology is in the doldrums, we recommend retailers keep abreast of the wider discussion on biometric identification — for example, on government-led identity schemes involving biometric authentication via identity cards or travel documents. Business Impact: Biometric technology offers the promise of streamlining the payment process for consumers by eliminating the need to carry payment cards or a wallet. Because a consumer's payment options are selected during registration, and no physical payment card is presented to complete the transaction, this technology can eliminate opportunities for cashiers or customers to commit fraud. Biometric payments could also be deployed in developing economies to improve the reach and security of payment services. With no signature required, biometric identification deals with the issue of illiteracy and reduces fraudulent intermediaries. Benefit Rating: Moderate Market Penetration: Less than 1% of target audience Maturity: Emerging Sample Vendors: it-werke Recommended Reading: "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers"

Store Task Management Analysis By: Gale Daikoku Definition: Store task management applications are deployed to bridge the gap between retailers' cross-channel, sales-planning strategies and operational execution in stores. Retail management — from corporate to stores — can balance the workload sent to stores, have real-time visibility to Page 62 of 83

Gartner, Inc. | G00234233

estate compliance of key initiatives, and can quickly collect and analyze store feedback. Exception reporting and alerts enable the retailer to resolve and respond to store execution issues in a timely manner, which can be the difference between profitability and loss. Position and Adoption Speed Justification: Web-based and highly configurable, this commercial application has been around for several years and has helped many large retailers improve the design, planning, execution and monitoring of processes executed in stores. In fact, many Tier 1 retailers have deployed task management as a stand-alone workforce solution that has helped them improve their ability to execute promotions and critical recall issues on a timely basis and to corporate management satisfaction. However, although most large retailers Gartner speaks with are interested in having these capabilities integrated with time and labor solutions to deliver the promise of end-to-end store workforce processes in a single solution, no major retailer that we are aware of has integrated this application with other time and labor management solutions (such as scheduling or time and attendance) to support an integrated, end-to-end process. In addition, although several vendors offer task management capabilities, not all vendors have comparable capabilities. Because stores will continue to evolve as the operational hub for multichannel retailing, it's expected that technologies such as store task management will be even more critical to supporting cross-channel shopping processes for customers. Store task management is central to a store's labor-planning model, because the activities to be tasked in a store should be part of a labor forecast, as well as aligned with the labor budget. However until this application and the process are integrated with core time and labor management planning and budget management capabilities primarily around schedule development and labor budgets, the benefits will remain limited for retailers. Gartner expects the deployment of integrated store task management solutions will continue to be a challenge through the near term and fall short of being transformational. Because store task management will continue to be mainly deployed as a stand-alone application, it is stuck in the Trough of Disillusionment. User Advice: Work with the business to define the cross-channel vision for end-to-end workforce management business processes from a planning and store execution perspective. Understand a particular vendor's task management capabilities to determine whether their capability is suitable to your business requirements. To maximize the business impact of store task management, ensure that you have defined the potential integration points with scheduling applications in particular. Business Impact: Store task management will improve execution compliance for multichannel retailers, especially in the areas of corporate planning, staff productivity and store communications. The solution provides real-time, store-level compliance for key corporate or operational initiatives in the field and will become increasingly important to multichannel retailers. Although the promise of task management delivered as part of an integrated solution with labor scheduling could be transformational, the reality today is it is only, at best, high impact when it is deployed as a standalone initiative. Task management should be perceived as the glue that helps optimize an end-toend workforce management business process. Benefit Rating: High

Gartner, Inc. | G00234233

Page 63 of 83

Market Penetration: 5% to 20% of target audience Maturity: Early mainstream Sample Vendors: Dayforce; RedPrairie; Reflexis Systems; WorkPlace Systems Recommended Reading: "Retail Time and Labor: Working Through the Biggest Project Challenges" "Retail Time and Labor Vendor Update, 2010" "Why Task Management Is a Priority for Multichannel Retailers"

Retail Digital Signage Analysis By: Gale Daikoku Definition: Digital signage refers to applications that disseminate dynamic media content to displays or monitors on the sales floor of a retail store. It is sometimes referred to as narrowcasting, interactive signage, electronic signage networks, digital communications or digital media networks. Position and Adoption Speed Justification: Digital signage initiatives often have two goals that don't always align: (1) Create value for customers by improving the cross-channel shopping experience (for example, deliver an "endless aisle" solution that makes it easier to find and buy a product when the right style or size isn't on the store shelf or deliver interactive marketing promotions at the store shelf); and (2) create value for advertisers as a supplemental revenue stream for the retailer. Although retailers continue to show steady interest in digital signage, this technology is only beginning to move out of the Trough of Disillusionment, despite evidence of more promising proofs of concept (POCs). The main challenge for this technology to overcome, which would move it well outside of the trough, remains its ability to deliver meaningful customer value and measurable impact on the customer shopping experience. Improved access to wireless networks within the four walls of many retail stores and more consumers using their personal mobile devices as part of their cross-channel shopping process have created a perfect opportunity for hype interest in a promised convergence of display technologies used in the store setting. Gartner has seen a few POCs that are more focused on supporting customer basics in stores — for example, using digital signage to communicate realtime queue status on displays so customers know how "fast" the check-out process will be or using digital signage as part of an endless-aisle solution. Some retailers are trying to synchronize their digital signage aisle solutions for proximity-based marketing promotions delivered to customers via their Bluetooth-enabled devices. However, a key challenge retailers continue to face is the inability to synchronize their digital signage content with an orchestrated marketing effort and the store's operational realities — for example, only promoting items that are available and in stock in the store. This challenge is further exacerbated by a lack of meaningful measurement standards or analytics to support the business case for these investments. As it becomes increasingly possible for retailers to send real-time, context information to consumers while they are in (or near) a store, or as customers start to interact with products they find in a store (such as scanning a bar code to show

Page 64 of 83

Gartner, Inc. | G00234233

price and/or product information), the ability of the retailer to manage content that appears on digital signage in real time will become even more critical. User Advice: Ensure that the business case for using digital signage in stores supports the actual shopping process and what customers value most when shopping in stores. This includes the placement and content of displays in stores. In a multitouchpoint world where mobile devices and applications become increasingly prevalent and are used to enhance the shopping experience, the business case for digital signage projects may become easier to make, although the implementations become more complicated and challenging. Context-aware technologies can literally put marketing messages and offers into the customer's hands, which, ultimately, may be more influential than what the customer might see while shopping in a store. Business Impact: Retail digital signage improves retailer marketing effectiveness and communication to customers. Done effectively, it can evolve into incremental revenue for retailers. Benefit Rating: Moderate Market Penetration: 1% to 5% of target audience Maturity: Emerging Sample Vendors: Bell Canada; CBS Outernet; Cisco; Convergent Media Systems; Hughes Enterprise Solutions; Intel; PRN; Reflect; SapientNitro Recommended Reading: "Business Case Remains Challenging for Retail Digital Signage Projects" "Metrics Play Catch-Up With Media" "Forecast: Mobile Advertising, Worldwide, 2008-2015"

LCD-Based ESLs Analysis By: Gale Daikoku Definition: Liquid crystal display (LCD)-based electronic shelf labels (ESLs) are programmable, wireless electronic devices that affix to store shelves and shelf channels. Segment-based, alphanumeric displays are typically used to display item pricing or promotional pricing information at the shelf's edge in real time. Position and Adoption Speed Justification: Gartner research shows that the majority of customers (70%) value cross-channel consistency in pricing. ESLs provide an efficient way for Tier 1 retailers to execute price consistency across thousands of facings in stores for those retailers that have or are implementing price optimization technologies. During the past 12 to 18 months, Gartner has seen lots of interest in ESLs and e-paper technology from North American retailers in particular and across a variety of segments. Gartner estimates that market penetration of this technology has increased slightly because of the growing importance of executing accurate prices as a result of more retailers using price optimization technologies;

Gartner, Inc. | G00234233

Page 65 of 83

however, we believe it still hovers on the higher end of market penetration (5%). Most LCD-based ESL implementations have been, and continue to be, in Europe across a few retailers and their banners, and in new/remodeled stores. Retailers that have been using LCD-ESL technology continue to show their support by expanding its use into more of their store estate — new stores and remodeled stores, in particular. Although several large retailers with existing LCD-ESL installations continue to trial newer e-paper signage in select stores/departments, Gartner expects that LCD-ESL technology will remain the dominant form for communicating electronic pricing at the shelf level for some time because of lower per-unit costs at scale. However, Gartner has started to see e-paper, shelf-edge label costs dropping, making them more price competitive at scale. User Advice: Ensure that your decision to deploy ESLs improves the accuracy and execution of price changes in stores. Retail business models that have a large number (hundreds or thousands) of price changes on a frequent basis can benefit from a labor budget perspective by shifting to the use of ESL technology. ESLs can also be deployed to flash on a shelf when a product is out of stock, or they can be programmed with information about inventory on hand to improve replenishment at store stock availability. However, retailers should not underestimate the investment required in change management when implementing price change technologies. Business Impact: This technology affects labor productivity, price accuracy, legal compliance (for example, weights and measures) and retailers' ability to dynamically price products. It can also support retailers' efforts to be more operationally green by eliminating the printing of paper labels or channel strips in stores. Retailers can expect greater consistency, compliance and productivity from stores when it comes to mandated price changes. Benefit Rating: Moderate Market Penetration: 1% to 5% of target audience Maturity: Adolescent Sample Vendors: Pricer; Store Electronic Systems Recommended Reading: "Case Study: Groupe Casino and Electronic Shelf Labels"

Climbing the Slope E-Coupons Analysis By: Gale Daikoku Definition: Electronic coupons are the digital form of a paper coupon or voucher (also known as an "offer"), and can encompass several formats, including mobile and social coupons. An e-coupon can be part of a single-party process, where a retailer issues a coupon via its campaign management system for redemption in its stores, or it can be a multiparty process, such as digitized

Page 66 of 83

Gartner, Inc. | G00234233

brand manufacturer coupons that are distributed in a variety of ways, such as redeemed in stores or processed by clearinghouses. Position and Adoption Speed Justification: Although e-coupons have been around for many years, they represent only a small fraction of the overall coupons — less than 2% of all coupons currently redeemed in physical stores. E-coupons, which include mobile and social coupons, are highlighted as separate technologies on the retail Hype Cycle to reflect their relative maturity, given the hype of all forms of e-coupons in the market. The movement of the category of e-coupons to the current position of post-trough 20% reflects a gradual maturing of the technology category and the influence of the emerging forms of e-coupons — mobile and social — on consumer adoption. The greatest barriers impacting retailer adoption are the retailers' ability to accept these types of coupons, verifying whether they are legitimate to process, and financial settlement. For customers, key challenges include the ability to redeem coupons, easily keep track of ecoupons when saved to card, or to remember to print out an e-coupon in-store or at home to bring to a store. However, mobile phones and the practice of integrating a coupon's discount automatically onto a loyalty card are expected to continue to advance consumer use during the next few years. Online and in other direct sales channels, the use of e-coupons or promotional codes is common. User Advice: Recognize that e-coupons can come from a large number of sources, ranging from manufacturer sites and portal sites to retailer sites, group buying sites, and retailer's CRM systems. Choose a technology or technology partner that will be able to validate and redeem e-coupons (originating from any source) across channels. Evaluate store-based technologies and processes to ensure you can accept and process coupons in stores. Retailers with loyalty programs will also want to be able to "embed" the coupon onto consumers' loyalty accounts so that printed coupons, or even mobile coupons, won't need to be carried around if consumers have their loyalty cards. Business Impact: The benefits of e-coupons center on increasing the frequency of visits and transaction value. Sales, margins and customer loyalty are all targeted to increase as a result. Benefit Rating: Moderate Market Penetration: 5% to 20% of target audience Maturity: Early mainstream Sample Vendors: Cellfire; Coupons.com; SavingStar; You Technology; Zavers Recommended Reading: "Consumer Survey Shows What's Ahead for Retail Coupon Management" "Real-Time Customer Offer Engine Vendor Landscape for Retail"

Merchandise and Category Optimization Analysis By: Robert Hetu

Gartner, Inc. | G00234233

Page 67 of 83

Definition: Merchandise and category optimization technology uses advanced demand forecasting and optimization to improve merchandise planning processes. Optimization is derived from using business goals, product, location and customer intelligence data to inform the merchandising and planning decision process. Position and Adoption Speed Justification: Traditional planning applications are good at managing and automating planning tasks. Optimization takes this a step further by improving and automating decision making required to support seven optimization areas — assortment/allocation, space, replenishment, price, promotion, markdown and size/pack — to adjust assortments by store or cluster, determine buy quantities, optimize space allocation and planograms, and maximize product allocation and availability. Price, promotion and markdown optimization is directly linked to merchandise and category optimization; for apparel and footwear retailers, size and pack optimization is required. Optimization technology can come from individual modules in larger retail suites, best-of-breed vendors or advanced analytics business intelligence vendors. The market has matured to the point where most of the major merchandise planning and category management vendors offer some degree of demand forecasting and optimization as part of their offerings. Earlyadopter retailers have already implemented these advanced technologies in one or more of their merchandising processes. Space optimization is gaining popularity with grocers and discounters, while size and pack optimization is popular with apparel retailers. As retailers implement optimization capabilities into more of their merchandising processes, they are seeking an architecture that centralizes forecasting and optimization assets across all areas. For example, a retailer with promotion optimization and replenishment optimization will want a single forecasting capability feeding both applications for a consistent demand forecast. User Advice: Retailers are actively researching and implementing merchandise optimization applications. Cross-channel shopping behavior, combined with multichannel order management and in store fulfillment capabilities, are causing an acceleration of interest in this technology. Gartner recommends implementing four of the seven possible optimization capabilities based on the highest impact on customer effectiveness. Retailers must consider the following when evaluating merchandise and category optimization solutions: ■

Scalability (the ability to work with large numbers of SKUs and frequent reforecasts, such as daily reforecasts)

■

The ability to account for store execution constraints and status (such as planogram and fixture compliance)

■

Performance (the ability to provide users with real-time what-if capabilities)

■

The ability to easily manage the large number of goals and targets required to optimize decisions

■

The degree of integration between optimization and forecasting solutions, and the planning solutions

■

The delivery and pricing model (for example, software as a service versus behind the firewall)

■

An end-goal architecture that brings together common forecasting and optimization technologies into a centralized approach

Page 68 of 83

Gartner, Inc. | G00234233

■

Multichannel analytical capabilities

Business Impact: Ultimately, these technologies will help stores achieve higher sales and margins in their local markets. They facilitate the complex management that micromerchandising requires, enabling the retailer to do more-detailed planning with fewer resources. This technology is required to support customer-centric merchandising. Benefit Rating: High Market Penetration: 20% to 50% of target audience Maturity: Early mainstream Sample Vendors: DemandTec; Galleria; JDA Software; Oracle; Predictix; Quantum Retail Technology; Revionics; SAP; SAS Recommended Reading: "Multichannel Pressures Drive Optimized Merchandising" "Optimization Strategies for Multichannel Consumer Electronics Retailers" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "Merchandising Optimization for Multichannel Fashion and Short Cycle Clothing Retailers" "Multichannel Pricing: Strategically Consistent, Opportunistically Flexible" "Cross-Channel Merchandising Success Requires Consistency"

Unified Price, Promotion and Markdown Optimization Analysis By: Robert Hetu Definition: Sometimes referred to as life cycle pricing optimization, this technology (unified price, promotion and markdown optimization) uses predictive analytics and optimization capabilities to plan and manage every aspect of pricing (regular, promotion and markdown) throughout the life cycle of an item. Position and Adoption Speed Justification: Individual price, promotion and markdown optimization solutions are being combined to form a unified solution to better align with the way price is managed during the product's life. This comprehensive pricing approach involves building an integrated demand forecast to maximize inventory availability and sell-through. Pricing rules can be used to balance business strategy with pure optimization. Some solutions include deal management capabilities. Deal management is integral to the process in the food, drug and consumer packaged goods (CPG) industries. Additionally, some providers offer competitive data. Management, workflow and dashboard capabilities have been added to these solutions to offer much more than optimization. Master calendar capabilities are also showing great promise in improving the management of pricing during the entire product life cycle. The retail

Gartner, Inc. | G00234233

Page 69 of 83

industry has accepted that price, promotion and markdown optimization can coexist. All major software players in this space offer all three optimization types. A new generation of smaller players is emerging to provide retailers with more choice and different costs and contract models (for example, pay as you go). Whereas in the past, pricing optimization was in the domain of large Tier 1 retailers; today, these solutions are deployed within Tier 1, Tier 2 and even Tier 3 retailers, in segments ranging from grocery to electronics to wholesale. Some vendors have more than 50 retail or wholesale customers. Many vendors' next move is to go beyond price, promotion and markdown to offer a complete suite of optimization solutions to address all parts of merchandising. Vendors moving in this direction have started by adding optimization functionality in areas like assortment planning and replenishment. While a unified pricing approach is currently available from many vendors, individual implementations of price, promotion and markdown optimization must be weighed against the unified implementations. Gartner has detected little movement in the technology during the past year. At this point, there are many single or multiple implementations but few completely unified instances. We expect this to accelerate because of continued interest in product life cycle optimization. User Advice: Newcomers to price optimization should start with a single process and merchandise area (for example, markdown of fashion items only), and then progressively add other areas as the organization gains experience with optimization. This will build the cultural trust and acceptance the organization requires to make the most of these technologies. Ideally, it is best to start with two or more years of clean sales, a transaction log, and promotional event and inventory data. Selection of the initial optimization type will depend heavily on the business impact for sales and profitability. An apparel retailer or other highly seasonal business may find that markdown optimization is the most logical starting point, whereas an everyday-low-price, general-merchandise retailer may gain the most from price optimization. Retailers considering promotion optimization should start building causal and historical event databases (for example, knowing when an item was on promotion, and whether it was supported by an end cap, circular, and so on). Solid category and key item strategies will define the business rules required by the optimization technology. Retailers should not underestimate the effort required to develop these business rules and goals. As retailers try to become more detailed by adding price zones or even conducting store-level pricing, the definition and management of these rules can become quite cumbersome. Moreover, multichannel retailers should also take into account consumers' growing interest in cross-channel shopping. This will, for example, drive change in pricing strategies for multichannel retailers as they grapple with issues associated with pricing when the customer executes a shopping process across channels. Retailers looking for a unified price optimization solution that combines price, promotion and markdown should ask vendors to demonstrate how these areas work together. A longer-term consideration for retailers is to understand how price, promotion and markdown optimization will fit architecturally with other optimization areas in merchandising and the supply chain. Business Impact: This technology can provide improved pricing and promotion planning and management throughout the entire life cycle of the merchandise. Retailers using this technology have experienced improved margins and sales, as well as improved efficiency in pricing and Page 70 of 83

Gartner, Inc. | G00234233

promotion operations. Gartner has seen 30- to 100-basis-point improvements in gross margins in various product categories. Benefit Rating: High Market Penetration: More than 50% of target audience Maturity: Early mainstream Sample Vendors: Churchill Systems; IBM DemandTec; JDA Software; KSS Retail; Oracle; Predictix; Revionics; SAP; SAS Recommended Reading: "Multichannel Pressures Drive Optimized Merchandising" "Optimization Strategies for Multichannel Consumer Electronics Retailers" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "DemandTec Buy Will Boost IBM Smarter Commerce but Leaves Loose Ends" "Merchandising Optimization for Multichannel Fashion and Short Cycle Clothing Retailers" "Multichannel Pricing: Strategically Consistent, Opportunistically Flexible"

Mobile POS Analysis By: Mim Burt Definition: Mobile POS refers to a point of sale (POS) application that is usually delivered on a retailer-owned untethered wireless device to enable scanning, queue busting or payment processing on the store floor. Position and Adoption Speed Justification: Currently, the majority of mobile POS applications are deployed for queue busting. As POS upgrades and refreshes continue apace among Tier 1 retailers, the past 12 months have seen an appreciable rise in factoring in a full mobile POS payment capability on the "must have" list of POS requirements. This is especially with the intent to deploy mobile POS on the same device on which employee-facing applications that enable stock management, price checks, task management and communication are deployed. This consolidation of employee-facing applications will enable store associates to conduct both store operations and customer service tasks (such as line busting and check-out) more easily on the store floor. Reasons for the increased interest: ■

The escalation of hype around mobile payments: This hype is a result of increasing publicity regarding solutions from a multitude of hardware and software vendors and from card payment providers, as well as publicity for mobile wallets from the likes of Google and PayPal.

Gartner, Inc. | G00234233

Page 71 of 83

■

The continued move by many Tier 1 retailers toward multiple store formats, with a renewed focus on smaller neighborhood stores, especially for groceries: These retailers, as well as retailers with traditionally smaller-footprint convenience and drugstores, are also expressing interest in deploying mobile POS to reduce queue lengths and to release floor space for more merchandising. Other retail store models, such as pop-up stores, temporary stores (for example, at events) and concession stores (a store within a store), would also benefit from mobile wireless POS.

■

The continued trend toward the consumerization of IT: This trend focuses on how enterprises will be affected by, and can take advantage of, new technologies and models that originate and develop in the consumer space rather than in the enterprise IT sector. Mobile devices, in particular, are key players in this trend and are encouraging businesses to reconsider their traditional positions on the acquisition, management and deployment of IT. The combination of affordable consumer mobile devices, better wireless connectivity, lower costs of communication and the growing diversity of applications has contributed to the hype around deployment of mobile POS on consumer devices.

However, despite this, the growth in deployments of mobile POS will be moderated by the following factors: ■

Consumer fears and negative perceptions about the security of payments

■

Retailers' efforts to secure payment data in compliance with industry security standards, as well as to secure cash payments on the store floor

■

Some business processes at check-out for some segments not being suitable for mobile POS — for example, items of apparel requiring detagging, folding and bagging

■

Integration of third-party mobile POS applications with the retailer's main POS application running on the traditional check-outs

Gartner expects more trials and implementations in the coming 12 months as more and more retailers factor in mobile POS as an application to be included in the store associate application portfolio. However, the moderating factors called out mean that the time to plateau stands at between two and five years, although we expect this to be closer to five years. User Advice: Factor in the business case for mobile POS when looking at store-associate-facing applications — not just as a business requirement for POS upgrades at the main bank and selfcheck-outs, but also as a business requirement to be included when refreshing the traditional handheld application portfolio for store associates (for example, together with stock management and price checkup applications). Consider using mobile POS during peak periods in high-volume, straightforward payment processes (for example, for the grocery, convenience and drugstore segments). In addition, carefully consider what capabilities to deploy on mobile POS — queue busting only or with full payment. Remember to factor in cross-channel transaction processes such as reserve online and check-out or pickup in the store.

Page 72 of 83

Gartner, Inc. | G00234233

Ensure that any applications you use for payment transactions adhere to industry data security standards, such as the Payment Card Industry Data Security Standard (PCI DSS), and data protection requirements. Note that the retailer is responsible for any third-party vendor's compliance with PCI standards. When investigating third-party mobile POS applications on devices such as Apple's iPhone and iPod touch, consider how the third-party mobile POS applications that are developed specifically for those devices will integrate with the main POS application running on the fixed check-outs in the store. Business Impact: Customers cite faster check-outs as a key customer service basic and express a preference for store associate involvement in the check-out process (for example, mobile POS can improve queue management during the check-out process, especially during peak trading periods such as the Christmas holiday period). If appropriate for the business model, retailers operating smaller-footprint, compact stores should consider mobile POS to replace fixed check-out areas, thus releasing floor space for more merchandising. Benefit Rating: Moderate Market Penetration: 20% to 50% of target audience Maturity: Mature mainstream Sample Vendors: Fujitsu; Motorola; Oracle; Retalix; SAP Recommended Reading: "Retailers: Let Customers Guide Your Investment in Mobile POS"

Entering the Plateau Self-Check-Out Analysis By: Mim Burt Definition: Self-check-outs are deployed for use by customers as a self-service alternative to fullservice check-out at the point of sale. Customers can scan, bag and pay for their purchases, completely unassisted by store associates. The units are available as either belted or modular scanand-bag units and typically include a scanner, a scale and a monitor integrated with a payment mechanism. Position and Adoption Speed Justification: Over the past decade, retailers have implemented customer self-check-outs in order to reduce store labor costs and to improve throughput at checkout, particularly in high-volume or high-traffic environments such as grocery. Over that period, retailers have also been trying to implement the best possible mix of full check-out and self-service options to deliver good customer service in terms of queue management — for example, by using self-check-out to contribute to delivering the Tesco-defined "1+1" world-leading queue management check-out benchmark.

Gartner, Inc. | G00234233

Page 73 of 83

The self-service check-out process is primarily delivered through fully integrated scanning and payment check-out models. However, a few implementations of self-check-out involve splitting the scanning and payment processes — meaning that these actions are no longer integrated in one hardware unit but are performed on separate hardware units. For example, using handheld selfscanners, customers scan and bag items in the aisle and then transact the payment through a separate self-service kiosk or through the traditional till. In the past 12 months, hype and market interest have occurred around the automated tunnel scanner, which is a new version of self-checkout. This technology has already reached mainstream maturity because, to date, there have been numerous successful implementations in leading retailers, especially in grocery, hard goods, massmerchant and warehouse club stores, with good uptake in many geographies, especially North America and Europe. In the past 24 months, many Tier 1 retailers have begun refreshing firstgeneration self-check-out models and taking the opportunity to adjust the mix of self-check-out units and main bank check-outs at the front end. Although self-check-out is nearing the Plateau of Productivity on the Hype Cycle, some flex still remains in the market as retailers continue to finesse the mix of self-check-out models, including gradual replacement of belted self-check-out units with more-modular, smaller-footprint scan-andbag models. Gartner expects more implementations in segments with smaller-footprint stores, such as drug and convenience, and there is also room for growth in the Brazil, Russia, India and China (BRIC) markets. We expect this technology profile to remain in the Plateau of Productivity for the next two to five years. User Advice: Self-check-outs are now a mainstay of the mix of check-out options in stores. However, Gartner consumer surveys indicate that customers still prefer manned check-outs, and we expect retailers to continue to offer customers the choice of full-service check-outs and selfcheck-outs for the foreseeable future. In terms of implementation, our surveys show that customers prefer to have the scanning and payment processes integrated into one unit — separating those actions reinforces perceptions of queuing twice and breaks the smooth flow of the customer transaction process. Consider, too, the impact of the execution of cross-channel processes on self-check-out implementations. It could mean adjustments to store layouts in order to accommodate a dedicated customer service area for increased store pickups that are generated from customers buying online, which could have a ripple effect on the selection of the number, types and placement of self-checkout models. Self-check-out technology, by itself, will not yield revenue growth or sustainable reduction in costs. Retailers should ensure that their investment in self-check-out will enhance the shopping experience by delivering the service basics that consumers want in a retailer's particular environment, especially in light of a well-considered self-service strategy. Self-check-out is clearly more suitable for some segments than for others (for example, grocery stores rather than department stores). Therefore, retailers should consider the unique needs of their particular segments as well as the preferences of their customers. Page 74 of 83

Gartner, Inc. | G00234233

Business Impact: The primary benefits of self-check-out are better customer self-service in terms of queue management at check-out and reduction in front-end labor costs. Benefit Rating: Moderate Market Penetration: 20% to 50% of target audience Maturity: Mature mainstream Sample Vendors: Fujitsu; IBM; NCR; Wincor Nixdorf Recommended Reading: "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "E-Commerce and M-Commerce: Increase Investment in Retail Store Technology" "Retailers Take Note: When in Store, Associates Trump Customer Self-Service Technology"

Community Reviews Analysis By: Robert Hetu Definition: Community review technologies allow retailers to capture their customers' opinions of products and services that are sold. The implementations typically allow for ratings such as one to five stars, as well as reviews where the customer describes his or her opinion of the product by tagging the product with a set of suggested attributes. Position and Adoption Speed Justification: Multichannel retailers must incorporate reviews to maximize sales. Gartner research shows that consumers value ratings and reviews from other consumers over the opinions of friends and family, as well as expert reviews. Community reviews have the potential to reassure consumers that they are making good purchase choices. They also have the ability to help retailers identify products that have problems in the marketplace or have a bad reputation among consumers, and make changes to their merchandising planning or return policies to address these issues. This is done via a moderated platform, where moderation happens manually or automatically via applied business rules and. Integration with social media tools is increasing as the vendors are expanding the capabilities to include additional analytic tools for retailers and manufacturers. Gartner expects to retire customer reviews from the Hype Cycle next year, after predicting it was on a one- to two-year time frame in 2011. This technology has become an accepted part of doing business, and this is the main reason that it moved quickly to the Plateau of Productivity for 2012. User Advice: Retailers with online channels should assume that their sites must include community reviews, including rating as well as review capabilities. They should be prepared to deploy this as a service from technology providers or host the capability internally in a moderated environment. Retailers that have private-label brands should pay especially close attention to community reviews

Gartner, Inc. | G00234233

Page 75 of 83

of their in-house brands, because a negative review can have a significant financial impact on these retailers. Retailers must carefully monitor reviews and respond actively when consumers are expressing complaints or dissatisfaction. These reviews will feed other applications that measure customer effectiveness and provide context for customer sales activity. Business Impact: Community reviews have emerged as a "must have" feature for e-commerce sites. Consumers expect to be able to see what other customers think about a given product. Retailers that lack this capability run the risk that consumers will abandon them in favor of a competitor that offers community reviews. Retailers that effectively implement community reviews should experience decreased shopping cart abandonment rates, because consumers will feel more confident about their purchases. Retailers also need to use community reviews as an element of their multichannel feedback management solutions. Additional analytic tools are being offered by these providers as a means of evaluating manufacturers, brands and product categories in addition to individual products. Benefit Rating: High Market Penetration: 20% to 50% of target audience Maturity: Mature mainstream Sample Vendors: Bazaarvoice; FatWire Software; PowerReviews Recommended Reading: "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers"

In-Store Applications: Employee-Facing Analysis By: Mim Burt; Gale Daikoku Definition: This profile includes applications that enable store associates to access functionality for in-store lookup of product and item information, product location on shelf or in the stockroom, item scanning, and location-tracking capabilities to improve store operational efficiency and customer service. This profile does not cover time and labor workforce applications, such as time and attendance, scheduling and task management, which are covered in other profiles on this Hype Cycle. Position and Adoption Speed Justification: Today, this technology is largely deployed through handheld mobile terminals. Applications used by store associates over wireless communications are implemented, in general, over the 802.11x Wi-Fi LAN standard. However, increasingly, retailers are being pushed to look at deploying their own or their employees' wireless devices, such as tablets and mobile phones, to improve the customer experience — for example, for assisted service. The Apple iPad continues to push up the level of hype in the media, and has contributed to more retailer interest in these types of devices to conduct in-store operations. However, these are not ruggedized for high-volume, high-throughput environments, such as grocery, and may be more

Page 76 of 83

Gartner, Inc. | G00234233

suitable for deploying assisted-selling and clienteling applications in the fashion apparel or specialty categories. On-shelf stock availability is customers' No. 1 in-store requirement, and also a key in-store metric for retailers. For these reasons, stock management devices and applications are widely deployed by Tier 1 and Tier 2 retailers, and it is increasingly becoming more commonplace for store managers to use mobile devices for this type of functionality. Applications to manage store operations on the store floor have reached a level of maturity and market penetration that lead us to believe that this profile remains in the plateau phase, and we expect it to move off the Hype Cycle during the next 12 months. In the past several months, retailers have been considering how to incorporate employee-facing applications to enable execution of cross-channel processes in the store. This will give rise to the next generation of employee-facing store applications, and will include consolidation of everyday store associate-facing applications — for store operations and customer service — onto one mobile handheld terminal. Many Tier 1 retailers are already considering implementing this, with one notable implementation in a leading North American retailer. In this case, a common application framework enables the retailer to equip the store associates with a mobile handheld terminal that combines inventory management, analytics, phone and store walkie-talkies with payment capability by connecting to a browser-based interface to the retailer's core point of sale (POS), including a mobile receipt printer. This is in line with our recent research that stated, when shopping in store, customers expressed a clear preference for asking or speaking to a store associate to help them accomplish most of the instore tasks, before using either the in-store technology or their own mobile device. User Advice: With the latest generation of handheld hardware, including the newer consumer mobile devices, retailers should focus on equipping associates with a handheld device that can support the convergence of applications for multiple purposes — such as gap scanning and counting, price lookup, product lookup, assisted selling and task management, together with customer-facing applications. Integration with a printer would enable functionality such as markdown labeling or printing of receipts. Very importantly, retailers should use the opportunity when upgrading these applications to look at improving the integration of business processes supporting store operations to maximize efficiency. For example, integrating store task management processes into the everyday management of stock in the store. As mobile devices and applications begin to proliferate, retailers must construct an overall enterprise mobility strategy to manage current and future deployments of mobile infrastructure, which should include policies for securing access to applications deployed on these devices and tracking of their mobile assets. Business Impact: The use of these devices and applications improves in-store inventory and price management, customer service, task management, auditing and compliance with internal guidelines for standard operating procedures, as well as with external legislative requirements. Benefit Rating: High

Gartner, Inc. | G00234233

Page 77 of 83

Market Penetration: More than 50% of target audience Maturity: Mature mainstream Sample Vendors: Motorola; Oracle; RedPrairie; Reflexis Systems; SAP; Zebra Technologies Recommended Reading: "Retailers Take Note: When in Store, Associates Trump Customer SelfService Technology" "Why Task Management is a Priority for Multichannel Retailers"

Appendixes

Page 78 of 83

Gartner, Inc. | G00234233

Figure 3. Hype Cycle for Retail Technologies, 2011

expectations

Retail Real Estate Portfolio Management Retail Mobile Websites and Applications — Nontransactional Biometrics for Time and Attendance Public Social Networks in Retail Microblogging for Retailers Next-Generation Retail OSs for POS Retail Mobile Phone Payment Store Replenishment Optimization Web Experience Analytics Multichannel Feedback Management Multichannel Order Fulfillment In-Store Applications: E-Paper Signage Multichannel Order Management Employee-Facing Video and Rich Media for E-Commerce Java-Based POS Software Real-Time Store-Monitoring Platform Online Product Self-Check-Out Multichannel Merchandise Planning Recommendation Engines Master Data Management Mobile POS for Retail Social Media Analytics for Retail Unified Price, Promotion and Time and Labor F-Commerce Markdown Optimization Optimization In-Store Self-Service: Community Reviews Customer-Facing Augmented Reality Applications Applications Store-Based E-Recruitment RFID (Item) Merchandise and Category Optimization Social Coupons Contactless Payments LCD-Based ESLs Customer-Centric Merchandising E-Coupons Retail Biometric Payments Retail Digital Signage Store Task Management As of July 2011

Multichannel Loyalty Mobile Coupons Integrated Demand and Replenishment Planning Social Software for Retail Employee Collaboration Retail Mobile Commerce (Transactional) Real-Time Customer Offer Engines Multichannel Retail Enterprise Content Management

Technology Trigger

Peak of Inflated Expectations

Trough of Disillusionment

Slope of Enlightenment

Plateau of Productivity

time Years to mainstream adoption: less than 2 years

2 to 5 years

5 to 10 years

more than 10 years

obsolete before plateau

Source: Gartner (July 2011)

Gartner, Inc. | G00234233

Page 79 of 83

Hype Cycle Phases, Benefit Ratings and Maturity Levels Table 1. Hype Cycle Phases Phase

Definition

Technology Trigger

A breakthrough, public demonstration, product launch or other event generates significant press and industry interest.

Peak of Inflated Expectations

During this phase of overenthusiasm and unrealistic projections, a flurry of wellpublicized activity by technology leaders results in some successes, but more failures, as the technology is pushed to its limits. The only enterprises making money are conference organizers and magazine publishers.

Trough of Disillusionment

Because the technology does not live up to its overinflated expectations, it rapidly becomes unfashionable. Media interest wanes, except for a few cautionary tales.

Slope of Enlightenment

Focused experimentation and solid hard work by an increasingly diverse range of organizations lead to a true understanding of the technology's applicability, risks and benefits. Commercial off-the-shelf methodologies and tools ease the development process.

Plateau of Productivity

The real-world benefits of the technology are demonstrated and accepted. Tools and methodologies are increasingly stable as they enter their second and third generations. Growing numbers of organizations feel comfortable with the reduced level of risk; the rapid growth phase of adoption begins. Approximately 20% of the technology's target audience has adopted or is adopting the technology as it enters this phase.

Years to Mainstream Adoption

The time required for the technology to reach the Plateau of Productivity.

Source: Gartner (July 2012)

Table 2. Benefit Ratings Benefit Rating

Definition

Transformational

Enables new ways of doing business across industries that will result in major shifts in industry dynamics

High

Enables new ways of performing horizontal or vertical processes that will result in significantly increased revenue or cost savings for an enterprise

Moderate

Provides incremental improvements to established processes that will result in increased revenue or cost savings for an enterprise

Low

Slightly improves processes (for example, improved user experience) that will be difficult to translate into increased revenue or cost savings

Source: Gartner (July 2012)

Page 80 of 83

Gartner, Inc. | G00234233

Table 3. Maturity Levels Maturity Level

Status

Products/Vendors

Embryonic

■

In labs

■

None

Emerging

■

Commercialization by vendors Pilots and deployments by industry leaders

■

First generation High price Much customization

Adolescent

■

Maturing technology capabilities and process understanding Uptake beyond early adopters

■

Second generation Less customization

Early mainstream

■

Proven technology Vendors, technology and adoption rapidly evolving

■

Third generation More out of box Methodologies

Mature mainstream

■

Robust technology Not much evolution in vendors or technology

■

Several dominant vendors

Legacy

■

Not appropriate for new developments Cost of migration constrains replacement

■

Maintenance revenue focus

Obsolete

■

Rarely used

■

Used/resale market only

Source: Gartner (July 2012)

Recommended Reading Some documents may not be available as part of your current Gartner subscription. "Understanding Gartner's Hype Cycles, 2012" "Agenda for Retail, 2012" "An Overview of the Strategic Technology Map for Tier 1 Multichannel Retailers" "Cool Vendors in Retail, 2012" "Hype Cycle for Social Software, 2012" "Hype Cycle for Business Use of Social Technologies, 2012" "Hype Cycle for E-Commerce, 2012" "Hype Cycle for Consumer Goods, 2012"

Gartner, Inc. | G00234233

Page 81 of 83

"Hype Cycle for Manufacturing Product Life Cycle and Operations Management, 2012" "The Multichannel Revolution Is Ending: The Consumerization of Retail Continues With Personalization and Customization" "A Quick Look at Cloud Computing in Retail, 2012" "Re-Imagine IT Using Insights From Symposium's Analyst Keynote" This is part of a set of related research. See the following for an overview: ■

Gartner's Hype Cycle Special Report for 2012

Page 82 of 83

Gartner, Inc. | G00234233

GARTNER HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT 06902-7700 USA +1 203 964 0096 Regional Headquarters AUSTRALIA BRAZIL JAPAN UNITED KINGDOM

For a complete list of worldwide locations, visit http://www.gartner.com/technology/about.jsp

© 2012 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner’s prior written permission. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner’s research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner’s Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see “Guiding Principles on Independence and Objectivity” on its website, http://www.gartner.com/technology/about/ ombudsman/omb_guide2.jsp.

Gartner, Inc. | G00234233

Page 83 of 83