The Rewired Customer has been saved
How can companies shape and sense consumers’ rapidly evolving modes of engagement—with retailers and with each other—to support future growth?
Neuroplasticity describes the capacity of the human brain to “rewire” itself in response to injury and dramatically changed circumstances. This phenomenon provides a powerful metaphor for understanding how consumers continuously and fluidly adapt their behaviors in the face of new technologies, challenging economic realities, and shifting cultural norms.
“Things that one day seemed impossible seem inevitable in retrospect.”1
—Condoleezza Rice
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What a difference 30, 20, or even 10 years makes when it comes to consumer behavior.
Go back 30 years to 1983. 24x7 shopping means mail-order catalogs and telemarketing. Commercial access to the Internet will take another 12 years, and AOL’s online service, based on a proprietary dial-up network, has yet to launch. Self-service means you go to a supermarket and fill your cart before going to a cashier who rings you up and bags your groceries. You may belong to newly launched loyalty programs from an airline or a hotel, and carry a retailer-specific credit card in your wallet. Call centers are starting to implement interactive voice response capabilities, but you shudder when you encounter them because they seem so unnatural.
Move forward 10 years to 1993. You have more and different shopping alternatives. Cable channels, such as Home Shopping Network, and “big box” stores are the rage. AOL’s signature greeting, “You’ve got mail,” will be featured in a movie starring Tom Hanks. Amazon will soon ship its first product, and consumers will have widespread access to the Internet.
One more leap forward, this time to 2003. Although the iPhone and iPad have yet to appear, Apple has opened its first retail stores, which will soon generate the highest sales per square foot of any retailer in the country. Self-service and 24x7 gain new meaning with a broad array of Internet-based shopping alternatives and proliferating self-service options, ranging from automated ticketing machines in airports to self-checkout in supermarkets. Mobile phone use is high, with the shift from 2G to 3G and smartphones. While Mark Zuckerberg is still a Harvard student, the launch of MySpace signifies the arrival of social networks.
Now back to today. Your 2013 shopping choices include real-time price checking, daily deals, self-designed rewards programs, mobile phone-based payment systems, ubiquitous rating sites, and more than a billion people and companies you can “friend” via social media.
What happened? Clearly, there has been an astonishing stream of innovations in retail, as well as in health care, financial services, and other consumer-oriented sectors. But are changes in consumer shopping behavior simply the inevitable response to innovation? Or are there other factors that help explain the seismic shifts in consumer behavior that have taken place?
Through extensive research, Michael Merzenich and other neuroscientists have observed that the human brain is incredibly plastic, even in adulthood, constantly adapting to shifts in our circumstances and experiences.2 Although the research originally described how brains adapt to trauma, scientists now believe that it has broader applications.
“We have learned that neuroplasticity is not only possible but that it is constantly in action,”3 writes Mark Hallett, head of the Medical Neurology Branch of the National Institutes of Health. “That is the way we adapt to changing conditions, the way we learn new facts, and the way we develop skills.”4 “Plasticity,” says Alvaro Pascual-Leone, a Harvard Medical School researcher, is “the normal ongoing state of the nervous system throughout the life span. Our brains are constantly changing in response to our experiences and our behavior, reworking their circuitry with each sensory input, motor act, association, reward signal, action plan, or [shift of] awareness.”5
If smartphones, tablets, and social media were not part of the discussion 10 years ago, how can we plan for what’s on the horizon in the next two or three years, let alone the next decade? Are there factors other than technology that contribute to these radical shifts in behavior that we need to understand, as well? There are indeed.
Over the past 30 years, American consumers have become consummate devotees of do it yourself (DIY) across wide-ranging elements of the shopping and consumption experience. The Internet and smartphones have been critical enablers of the DIY consumer. From 1990 to 2010, the percentage of the US population using the Internet grew from 1 percent to 68 percent,6 while the percentage of smartphone owners grew from 11 percent in 2007 (when the iPhone was introduced) to almost 50 percent today.7 By 2016, smartphones used as a part of a shopping experience could influence between 17 percent to 21 percent of retail sales, representing between $627 billion and $752 billion.8
Where it’s happening
Expanding consumer use of price-checking capabilities is a good example of DIY in action. Amazon’s PriceCheck mobile app allows customers to scan the barcode of a product in a store and immediately see Amazon’s price for the product—and purchase it. This app has made competitive pricing awareness a necessity for retailers, as it has made instant comparison shopping easier than ever.9
Initially, DIY in the retail environment meant allowing consumers to perform relatively simple tasks without having to involve sales associates. These tasks ranged from printing airline tickets to checking product availability to finding store locations. Over time, the complexity of DIY tasks has increased to include such activities as checking product price and availability across a number of retailers and geographies, allowing the DIY consumer to perform tasks far more efficiently than might be done by an associate.
One consequence of this shift toward DIY is that consumers who now contact associates are often:
As a result, expectations for associates are increasingly high: they now help the least competent, the most frustrated, and the most demanding consumers. Deloitte’s 2012 Annual Holiday Survey found that 56 percent of respondents are more likely to complete an in-store purchase from a retailer that offers knowledgeable store associates.10 This suggests that, even in a DIY world, selecting, training, and retaining highly skilled associates is increasingly important.
Where it’s happening
Savvy retailers are bringing anywhere-anytime concepts to their stores. British retailer Marks & Spencer (M&S) has equipped store associates with iPads to help customers find and order items online. They also offer Quick Response (QR) codes and free Wi-Fi to enable customers to access product information, including reviews, recipes, and alternative product options. These moves bring the full line of M&S products into smaller stores and demonstrate a role reversal for the usual customer interaction with a store’s website and retail location. Rather than simply using its website to help guide in-store shopping, M&S facilitates in-store research to enable an online purchase.11
Consumers are sometimes referred to as multi-channel or omni-channel customers, but it may be more appropriate to think of them as anywhere-anytime consumers.
Today’s consumers can make purchases via laptops, tablets, or smartphones at any time of day from almost any location, thanks to increasingly ubiquitous Wi-Fi and expanding 4G networks that are now available to 75 percent of the US population.12 Sixty-eight percent of smartphone owners responding to Deloitte’s 2012 Annual Holiday Survey said that they will use their phones to assist with holiday shopping. More than 90 percent of consumers who responded to Deloitte’s 2012 Hospitality and Leisure loyalty survey book their own travel via airline or travel sites.13
Technology has even allowed online retailers in certain categories to best the immediacy offered by brick and mortar stores. The collapse of bookstores, with their ample selections of CDs, is an example of what happens when the need to go to a physical location to take physical possession of a product disappears.14
To some shoppers, however, physical location is still important. It provides immediacy for many aspects of the shopping experience—the opportunity to browse, examine, compare, select, purchase, and take physical possession of the purchase. For other shoppers, a lower online price may be sufficient incentive to forego the gratification of taking home a purchase from a store, thus relegating stores to the de facto showrooms for online sites.15 And with major retailers now offering same-day home delivery for online purchases in select markets, they’re discovering that a few hours’ delay is proving to be sufficiently “immediate” for eager buyers.
The challenge for retailers is to make the shopping experience relevant to the way consumers want to shop. Whether it is exclusive products, an enhanced in-store experience, or site-to-store delivery capabilities, engaging Anywhere-Anytime consumers requires supporting the cross-channel experiences that consumers have come to expect.
We consumers have long asked for the advice of our tribes—family, friends, and colleagues—when it comes to making purchases. We also rely on third-parties that specialize in evaluating and rating products and services. What’s different today is that we now operate with a much more expansive definition of who is a member of our tribe.16
It’s hard to pinpoint exactly when this shift began. In 1979, for example, Tim and Nina Zagat surveyed their friends regarding their dining experiences and published their first guide.17 Since then, ratings sites ranging from Angie’s List to Trip Advisor to Yelp have proliferated. Amazon adopted “collaborative filtering” technology to make recommendations,18 which are now a common feature on many shopping sites.
In our 2012 surveys of consumers, 28 percent said they would “significantly increase” or “increase” reliance on online reviews prior to purchases this year compared to 2011.19 Many shoppers routinely interrupt their in-store browsing to check ratings on their smartphones. The 2011 Deloitte Shift Index found that younger consumers “generally rely less on brand names as an indicator of product reliability, turning instead to the Internet for product and service information, user reviews and feedback, as well as substitutes. Older consumers have historically relied on ‘tried and true’ brand names and consumer product assessment agencies in the absence of other forms of reliable published information.”20
Social media has been a significant enabler of this expanding definition of tribe. The average number of daily visitors on social networking sites increased from 46 million per month in 2007 to 90 million per month in 2011, while the percentage of time spent using social media increased from 7.4 percent in 2007 to 14.4 percent in 2010.21 Furthermore, executives have made it their top priority when it comes to customer engagement (figure 1).22
Our tribes and the wisdom they offer are likely here to stay. The challenge for retailers is to incorporate tribes into marketing and outreach efforts, without compromising their authenticity.
Companies can capitalize on this consumer rewiring trend in two ways. They can proactively deliver new experiences that help shape rewired behaviors—or they can react to new customer behaviors by providing experiences that take advantage of the latest developments. Innovators will likely do both.
Where it’s happening
Gamification—the use of game mechanics and game design in non-game contexts—provides an example of how the “wisdom of my tribe” can play out. Samsung worked with Badgeville’s suite of Behavior Lifecycle Management solutions to develop Samsung Nation, a “social loyalty program” aimed at fans who are already engaged with Samsung’s corporate website. Samsung Nation lets users earn badges for engaging in tribal activities, including writing reviews, watching videos, and participating in forums. Two of Samsung’s gamification goals are to increase engagement and the number of product reviews. Early reports suggest strong results on both counts.23
For those who want to proactively shape customer behaviors, an innovative culture supported by “test and learn” capabilities is important to delivering new experiences. This requires an agile approach to marketing planning rather than a traditional planned marketing calendar. It also requires deep analytics capabilities to measure which experiences are valued by customers. In addition, since social media tracking shows that experiences that combine brands tend to generate higher positive sentiment, enhanced partnerships among brands will be important.24
To reactively address the rewired customer, an advanced sensing capability is important for detecting and understanding evolving customer behaviors. By using new engagement mechanisms, such as gamification and the use of a “second screen” (e.g., smartphone), while consuming entertainment from another device,25 companies can gain new insights about how customers are rewiring. These insights are the foundation for developing new ways to interact with these customers.
Whether a company chooses to shape rewiring behaviors by experimenting with innovative concepts or react to changing trends by sensing how consumers are rewiring, new and deeper capabilities will likely be needed, including:
What developments should companies be monitoring when it comes to anticipating the next generation of consumer rewiring?
Despite the challenges of predicting how and when consumers will rewire their behaviors, companies should focus in three areas. First, strong sensing capabilities are important when it comes to detecting and interpreting the impact of new technologies, changing demographics, and shifting economics. Second, memorable and compelling customer experiences often trump whiz-bang technologies that may look dated by the time they are fully implemented. And third, given the unpredictable speed of customer rewiring, agility and nimbleness will likely be important competitive differentiators.
John Hagel III, co-chairman of the Deloitte Center for the Edge, Deloitte Consulting LLP
New digital technology infrastructures are redefining relationships across customers and vendors. As soon as we think we have it figured out, new technology capability can change the game yet again.
Let’s take just a couple of examples. Consumers are seeking more and more value from the products and services they buy and use. This is putting pressure on vendors who in the past aspired to establish a one to one relationship with each customer, building walls to prevent anyone else from coming in between them. However, with the expansion of and reliance on our “tribe” facilitated through mechanisms such as online rating sites, customers want to connect with each other and with specialized third parties to get more value both in the initial purchase and subsequent use of products and services. This will likely give rise to collaboration marketing where vendors increasingly become orchestrators, creating platforms to help connect customers with a broader array of participants that can help them to realize more value. Johnson & Johnson’s BabyCenter is an early example. It’s a rich online platform that brings together mothers who have just had babies as well as a broad array of third party specialists who can help them navigate through the challenges of rearing their babies. Instead of one to one, J&J is connecting many to many.32
These same trends are likely to drive a transformation of large swathes of physical retailing. As physical retailing faces increasing competition from Internet-based vendors that allow consumers to make purchases anytime-anywhere, we are likely to see retailers increasingly repositioning themselves as gathering spots to help connect customers with each other and relevant specialists. Some early examples include independent bookstores convening reading circles around shared interests like children’s books or science fiction, as well as providing a platform for authors to speak with their audiences. Some photography stores bring together gatherings of amateur photographers to share and compare techniques, helping them to get more value from their cameras. We’re still at a very early stage of this development, but one can speculate that, over time, storefronts may become important platforms for collaboration marketing, bringing people together to get more value from the products and services they buy.