Will Smartphones make for smarter shoppers? by Edgar Bernal

Will smarter phones make for smarter shoppers? A path forward for consumer product companies

Table of contents

Executive summary

Tomorrow’s Smartphone-enabled shopper

Smarter phones • Advanced mobile devices and technologies • Smartphone use and adoption

5 5 16

Smarter shoppers • Proliferation of shopper-related mobile applications • Social and demographic changes • One size does not fit all • If you build it, will they come?

21 21 29 31 34

A path forward for consumer product companies (by shopping process) • Pre-store planning • In-store experience • Post-purchase and ongoing interaction

35 35 37 38

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Executive summary

The confluence of advancing mobile device technology and shifting demographics is changing the entire shopping process — from pre-store planning and in-store experience to post-purchase interactions between businesses and their customers. As a result, consumer product companies and retailers may need to tailor their marketing strategies to account for increasingly mobile, Smartphoneequipped shoppers.

functionality and Smartphone adoption represents only the beginning of expected advances for a growing number of Smartphone users.

Combined with Moore’s Law, which describes the rapidly advancing capabilities of the circuitry within mobile devices, Millennial’s Law describes the evolving ways that consumers use mobile devices. Informed by the expectations of younger and technologically-savvy generations, mobile devices can rapidly transform how consumers see, hear, think, feel, and maintain a sense of awareness from shopping to product consumption.

Pre-store planning: First, position brands and products on the mobile-enabled shopping list and part of the planning process. Second, embrace online product comparison by cultivating a forum, commissioning your own reviews, or being an honest broker of reviews. Third, beware of too many broadly targeted price-based mobile promotions.

Consumer product companies that systematically fine-tune their connection to consumers and their marketing strategies – from brand awareness to product trial and ongoing repeated purchase – are more likely to thrive than competitors who remain static. Retailers and mobile application developers are rapidly building new mobile tools that enhance pre-store planning, in-store experience, and post-purchase interaction. Consumer product companies that dismiss the transformative power of these ever-changing mobile devices risk losing out on the financial rewards of aligning these new mobile-enabled paths with evolving consumer needs. Today, Smartphones and corresponding mobile applications enable consumers in a range of shoppingrelated activities throughout the shopping process. As part of pre-store planning, consumers are able to manage a shopping list or recipes, access coupons or special offers, and research prices or product reviews. In-store, shoppers are beginning to be able to make a mobile payment, use gift cards, purchase online, and participate in loyalty programs. Post-purchase, consumers are able to interact with retailers and with food or product manufacturers through mobile-optimized sites launched by scanning a barcode, social networks, and games. Today’s

For consumer product companies to thrive in this environment, they should not only participate in, but also shape the role of mobile throughout the entire shopping process.

In-store experience: First, enhance the in-store product experience and brand conversation to help the consumer make better decisions and save time. Second, pursue greater collaboration with retailers, shopping-related application providers, and payment companies to “help” shoppers. Post-purchase and ongoing interaction: First, extend the product experience across channels and away from home. Second, build a lifecycle view of the consumer through sophisticated data analysis. Consumer product companies that enhance the pre-store planning experience, play a prominent and helpful role in-store, and maintain a valuable conversation with consumers stand to benefit from smarter phones and smarter shoppers. The potential benefits include higher brand loyalty, more effective marketing and promotional spend, and a greater knowledge of consumer opinions and behaviors. The challenge for consumer product companies is to realize these benefits and utilize them effectively; retailers and third-party application providers are also launching mobile applications to foster connections with consumers during the shopping process.

Will smarter phones make for smarter shoppers?

Tomorrow’s Smartphone-enabled shopper

Tomorrow's Smartphone-enabled shopper will likely harness advanced mobile devices and technologies in similar ways to today's most progressive mobileempowered shopper. These emerging mobile shopping customers – ordinary consumers who have embraced mobile technology to make their lives easier, make more informed product decisions, and save money – are benefiting from the increasingly capable devices combined with a proliferation of mobile applications. For these mobile consumers, the pre-store and in-store shopping process is being redefined with a wide range of players vying for a prominent role. While today this segment of consumer mobile shopping consumers is considered limted, their attitudes and behaviors are indicative of a much larger section of the population in the future. The confluence of three trends – advanced mobile devices and technologies, social and demographic changes, and a proliferation of shopping-related mobile applications – is transforming tomorrow's shopper. Defining a path forward for consumer product companies For consumer product companies, charting the future begins with understanding the expanding possibilities of advanced mobile devices and their profound influence on the shopping process. Consumer product companies can carve out a mutually beneficial role to help the consumer along the shopping process. For consumers, mobile functionality could be additional arrows in their quiver of tactics to make better purchase decisions that could save them time and money. For consumer product companies and retailers, mobileenabled functionality can provide new routes to consumers and valuable insights into existing customers.

Retailers and third-party application developers have taken an early lead in developing mobile-enabled shopping capabilities for consumers, but it is not too late for consumer product companies to fine-tune the shopping process. On the one hand, mobile advances have the potential to empower retailers by extending their existing physical and online channels to mobile, thus expanding the in-store experience. On the other hand, mobile technologies could help shape the portfolios of consumer product companies as they adapt to changing customer preferences. As mobile technology evolves, the competition for consumer attention between consumer product companies and retailers will indubitably continue. A confluence of three trends Smarter phones and smarter shoppers

Advanced mobile devices and technologies

Social and demographic changes

Changing shopping processes

Pre-store planning

Proliferation of shoppingrelated mobile applications

In-store experience (online or physical)

Post-purchase and ongoing interaction

Tomorrow’s Smartphoneenabled shopper

Smarter phones: Advanced mobile devices and technologies

Phones can be described in many ways. You can look at the dozens of discrete physical components that make up a phone like antennas, microphones, speakers, display, and the circuitry. Or one can look at “what” a phone does or enables you to do. In many ways the “what” is an extension of the human sensory system – helping people with decision making. Just as people have external senses and internal wits, so do phones. • Five external senses. “Nature has given five senses to living beings, sight, hearing, taste, touch, and smell” – Aulus Gellius, Latin author circa 180 AD

• Five internal wits. “Common wit … imagination … fantasy … estimation … memory” – Stephen Hawes, 15th century English poet Mobile devices are broadly advancing along seven dimensions inspired by the external senses and the internal wits: hearing; seeing, touching; sharing and connecting; awareness; thinking and memory; and fantasy and imagination. This report introduces a framework that describes the impact of advanced mobile devices and technologies.

A framework to understand the impact of advancements of mobile devices on consumers

• Hearing: Microphones, speakers, and speech recognition for data capture and storage • Seeing: Cameras, displays, and lighting for pictures and videos Hearing Fantasy and imagination

Seeing

• Touching: External sensors, Touch screens, keyboards, orientation sensors for input; vibrator motor • Sharing and connecting: Multi-technology antennas and dock connector to transmit and receive information

Thinking and memory

Touching

Awareness

Sharing and connecting

• Awareness: GPS, compass (magnetic sensor), and proximity sensors, for location and movement • Thinking and memory: Application functionality via processing power, memory storage on the phone, and via cloud computing • Fantasy and imagination: Video augmented reality and gaming

Will smarter phones make for smarter shoppers?

Mobile functionality, expected advances, and implications across the seven senses This analysis began with a look at the discrete electrical components and software that makes up todayâ&#x20AC;&#x2122;s Smartphones.1 To enable hearing, mobile devices have a combination of microphones, speakers, and speech recognition software for sound communication, comprehension, and storage. To provide seeing ability, cameras, displays, and lighting come together for pictures and videos. For touching, phones have touch screens, keyboards, orientation sensors for input, external sensors, and vibrator motors. To provide sharing and connecting, phones have Multi-technology antennas and dock connector to transmit and receive information via ever-improving networks. To create a sense of spatial awareness, phones have GPS, compass (magnetic sensor) and proximity sensors for location and

movement . For thinking and memory, mobile application functionality is enabled via processing power and memory storage on the phone and through cloud computing. To provide a forum for fantasy and imagination, mobile devices use a combination of the other senses for augmented reality, often via video, and gaming. This analysis looks at how mobile devices and technologies are broadly advancing along these seven dimensions over the next one to three years. During this time frame, most Americans will have replaced their phones once or even twice. While this report does not predict specific winning and losing technologies, it considers the impact of mobile functionality today, expected advances and the implications for consumers. Source: <http://www.ifixit.com>, accessed April 25, 2011

Seeing

Technology elements include: Cameras, displays and lighting for pictures and videos

Common features today • Multiple cameras to capture and create pictures and videos

Expected advances • Higher resolution cameras and multiple cameras

• Forward and rear-facing video capture

• Improved graphics including 3D holograms

• Autofocus

• Smaller and thinner camera components

• Flash for low-light image capture

• Projection of images

• High resolution digital displays with backlights to view pictures and videos • Ambient light sensor for backlight levels • Video calls

• Better resolution and backlight capabilities to see in most ambient light conditions • Bendable screens

• Multiple displays • Horizontal and vertical video display

• Real-time image processing and pattern recognition

• 3D displays

• Lower power consumption components • Lower cost

Implications: Greater visual perception and capture and ability to project visual information

Hearing

Common features today • Capture and communicate voice, music, and other sounds • Audio recordings to capture sounds

Expected advances • Smaller and thinner components • Improved speech recognition algorithms • Improved speech-to-text and text-tospeech conversion

Technology • Speech recognition for interpreting elements include: commands Microphones, speakers, and • Codec algorithms to compress and speech recognition decompress audio for storage and for data capture and transmission storage • Speech to text algorithms, and text to speech algorithms to “read” text

• Real-time speech translation • Lower power consumption components • Lower cost

• Speakers and ear pieces to project sounds for listening • Multiple speakers to help filter out ambient (or background) noise • Push to talk for “instant” communication Implications: Greater auditory perception and more robust speech-to- text Will smarter phones make for smarter shoppers?

Case study: Midomi and the advanced hearing capability of smart phones

Underlying technology • Midomi uses Query by Humming (QbH) technology for music retrieval • The system allows users to record songs in their own voices and archives them. Whenever a new query is made, instead of trying to match it with the original song sequence, the system tries to match it with user recordings, to arrive at similar patterns

Midomi Music search tool where users can use voice patterns to search for songs. Users can sing, hum, or whistle to instantly search music and connect with a community that shares similar musical interests

Underlying technology

Potential for advancement

Potential future impact on shoppers • Sophisticated voice and voice pattern recognition in shopping applications as a more convenient alternative to barcode scanning

Potential future impact on shoppers

Potential for advancement • Additional languages: User contributions to its index in multiple languages. The top four languages are English, Japanese, Chinese and Spanish • Mobile application: Midomi launched a mobile application SoundHound • Games: Computer and mobile games such as Karaoke Callout

Sources: 1. <http://www.midomi.com>, accessed May 20, 2011 2. <http://en.wikipedia.org/wiki/Query_by_humming> , accessed May 20, 2011 3. Mims, Christopher, “Query-by-Humming Musical Search Engine Launched” Technology Review, July 23, 2010, <http://technologyreview.com/blog/mimssbits/25524/>

Touching

Technology elements include: Touch screens, keyboards, orientation sensors for input; vibrator motor

Common features today • Multi-touch user interface

Expected advances • Directional vibrations or movement of phone mass to “guide” user

• Touch screens for input and navigation and movement of visual images

• More proximity sensors and intelligent software

• Keypad and keyboards for text input • Magnetic sensor for proximity detection • Orientation sensor (3-axis gyroscope) as an input for screen orientation and interactive applications

• Smaller and more sophisticated external sensors • Lower power consumption components • Lower cost

• Proximity sensors to know if your ear is near the phone, and turn off the display • Vibrator motor; for tactile communication • External sensors for heart rate and other physiology • Swipe gesture processing

Implications: Additional tactile responsiveness as an input to the device combined with output to “guide” user

Understanding haptic technology and shopping Haptic technology uses vibrations, forces and other physical stimuli to emulate the feeling of touch. In the context of mobile devices, haptics is currently restricted to tactile feedback through vibrations. For example, vibrations are already used to enhance the mobile gaming experience or the user interface on many devices. Although primarily used in mobile gaming, the use of haptic technology extends to practical applications as well. Vibrations can be used to simulate the sense of pulling, or the phone can impart directions for movement. Another recent application of the technology has enabled touch-based maps for blind users. Haptics provides another dimension for communicating with consumers. Although still at a nascent stage of adoption, haptic technology can be integrated into shopping applications in order to enhance the user experience. For example, the mobile phone can be turned into a guiding device that takes the consumer through the store just by generating tactile feedback.

Will smarter phones make for smarter shoppers?

Sharing and connecting Common features today • Multi-technology antennas (e.g., telecom voice/data networks, Wi-Fi, Bluetooth) and circuitry to transmit and receive Technology elements information include: Multi• Plethora of networks for connectivity technology antennas remotely and in-store and dock connector • Dock connection to computer to transmit and receive information • Device-to-device communication including remote sensors Sharing and connecting

Expected advances • Faster multi-directional communication between devices in store • Faster and higher bandwidth multidirectional networks remotely and in-store • Greater in-store Wi-Fi rollout • More pervasive and higher speed mobile broadband rollouts • Lower power consumption components • Lower cost

Implications: Faster and higher bandwidth ability to share with others directly, and via networks

Awareness

Technology elements include: GPS, compass (magnetic sensor), and proximity sensors, for location and movement

Common features today • Location via GPS and location-based software including geo-fences (static, dynamic, and proximity /spatial triggers) • Magnetic sensor for proximity detection and compass • Orientation sensor (3-axis gyroscope/ accelerometer) as an input for applications

Expected advances • More precise location and greater proximity detection, for granular movement in-store and outside through a mixture of external beacons and software algorithms • Improved integration of location awareness with visual pattern recognition • More precise measurement of axial movement of phone • Lower power consumption components • Lower cost

Implications: More granular location, proximity detection, and movement detection

Location privacy and security Many shopping applications use location information to personalize the user experience. For example, retailer applications use location information to identify the nearest store and applicable weekly circular. Similarly, locationbased applications, including loyalty rewards applications, rely on location information to provide promotions and rewards. Consumers are increasingly aware of how location information is being accessed by shopping applications. While many shoppers want to enjoy the benefits of these applications, there is some skepticism about allowing unfettered access to location data. For consumers, trust between the application providers – whether it is a consumer product company, retailer or third-party – is paramount. Some consumers always allow applications to use their location information – whether as a default mode or by choice – while others selectively enable the location detection when it is to their advantage. The challenge for consumer product companies is to deliver a personalized experience that can offset any privacy concerns.

A majority of Smartphone users are concerned about how their location information is used Security and Privacy of location information

Default setting for location data in shopping apps 27%

39%

29%

61%

Yes

44%

Do not allow applications to use my location information Always allow applications to use my location information Don’t know

Survey Question: Are you concerned about the security and privacy of your location information?

Survey Question: What is your default setting for location data in shopping apps?

A majority (61 percent) of those who use smart phones or web-enabled mobile devices are concerned about the security and privacy of location information that is available for others to see and use.

44 percent of those who use smart phones do not allow shopping applications to access location information. However, a significant number (27 percent) of consumers are not aware of the default setting on these applications.

Source: Deloitte 2011 Consumer Food and Product Insights Survey, May 2011, n=705. The survey was commissioned by Deloitte and conducted online by an independent research company between May 16 - 18, 2011. The survey polled consumers in the United States. The survey results have a margin of error of plus or minus four percentage points.

Will smarter phones make for smarter shoppers?

Thinking and memory

Common features today • Multiple processors and controllers as the brains

• Memory storage for video, music, Technology elements and applications include: Application • Ability to support more complex functionality via algorithms processing power, memory storage on • Early days of cloud computing the phone, and via cloud computing

Expected advances • Greater application functionality • Faster processing power • More sophisticated functionality and data storage via cloud computing • Greater memory storage • Lower power consumption components • Lower cost

Implications: Greater application functionality on-device and extended via network connectivity

Fantasy and imagination

Technology elements include: Video augmented reality and gaming

Common features today • Plethora of interactive gaming including standalone and connected multi-player games • Augmented reality applications and games with limited technology

Expected advances • Greater ability to enhance interactive nature of games and augmented reality • More augmented reality applications and games including virtual dressing rooms • Additional harnessing improvements in mobile technologies including display, movement, network connectivity and processing speed technology

Implications: These are the early days of greater virtual interaction with users via a combination of the simulated and real

Case study: Warby Parker and augmented reality for the shopper

Underlying technology • The system uses facial recognition technology so customers can upload a photo of themselves and try on virtual glasses • The software superimposes the frames on the photograph for customers to judge the looks and try out designs

Warby Parker Customers try and order eyeglass frame designs (with prescription or non-prescription lens) by uploading a photo of themselves

Potential future impact on shoppers • ‘Real world shop’ simulation for customers, leading to enhanced online shopping experience • Low costs • Personalization

Underlying technology

Potential for advancement

Potential future impact on shoppers

Potential for advancement • Facial recognition in moving video: Panasonic is developing technologies to recognize faces of individuals in moving video. In the future, individuals are likely to be tagged with their details as soon as they walk in front of cameras • This will allow a greater level of personalized interaction in the store

Sources: <http://www.warbyparker.com>, accessed May 20, 2011 Bahrenburg, Genevieve, “In Focus: Warby Parker Eyewear” Vogue Daily, February 22, 2010, <http://www.vogue.com/vogue-daily/article/ vd-in-focus-warby-parker-eyewear> Toto, Serkan, “Panasonic Face Recognition System Detects 64 Faces Simultaneously” Crunch Gear, March 22, 2011, <http://www.crunchgear. com/2011/03/22/video-panasonic-face-recognition-system-detects-64-faces-simultaneously>

Will smarter phones make for smarter shoppers?

Case study: Tommy Hilfiger’s augmented reality fitting room

Tommy Hilfiger Features • The application launches automatically when the user is near a pop-up store • Users can view the virtual imagery inside the stores • U sers can use the phone’s camera, and superimpose clothing from the collection onto themselves • U sers can take pictures of themselves or friends interacting with the content. These pictures can be uploaded to the Tommy Hilfiger fitting room • Users can pose with virtual Tommy Hilfiger models • Currently, consumers cannot make online purchases

Source: Source: Tode, Chantal, “Tommy Hilfiger tries on augmented reality fitting room” Mobile Commerce Daily, May 9, 2011, <http://mobilecommercedaily.com/2011/05/09/ tommy-hilfiger-tries-on-augmented-reality-fitting-room>

Power management in mobile devices supports the technology features and expected advances for each of the seven senses. Don’t forget the batteries

Energy

Technology elements include: Power source for phones including batteries and power cords

Common features today • Power management chips and algorithms to optimize battery and corresponding device life • Power cords to electrical sockets, car chargers, and computers • Air interface optimization to perserve battery life • Limited solar charging devices

Expected advances • Improvements in current battery technology • New battery technologies • Wireless charging • Lower power consumption components, somewhat offset by additional components • Lower cost

Implications: Some improvement in power management that will likely power greater device functionality. Stay close to a charger

Stronger senses: Implications for consumer product companies In the future, mobile devices and technologies can provide customers with an even more acute sense of their surroundings. Most of these advances are expected to be one to two phone replacement cycles away for many mobile shoppers.

and outside. Third, advances in thinking and memory are resulting in greater application functionality on the device and through cloud computing.

While advances in seeing and hearing are important providers of foundational technology for the other senses, there are three senses that standout with respect to transforming the shopping experience in the near term.

Looking to the next set of advances for consumers, there are two senses that can play a central role in the shopping experience. First, advances in touching can enable additional tactile responsiveness as an input combined with output functionality to â&#x20AC;&#x153;guideâ&#x20AC;? users (haptics). Second, advances in fantasy and imagination can provide greater virtual interaction via augmented reality applications and games.

First, advances in awareness may provide more granular location, proximity and movement detection, both in-store and outside. Think of this as moving from a general location to an actual store to a specific aisle â&#x20AC;Ś to a particular product. Second, advances in sharing and connecting can result in faster, multi-directional communication between devices and networks, in-store

Admittedly there is a strong interplay between the senses. Advances in one area have the potential to amplify improvements others. For example, better sharing and connecting enables greater thinking and memory capabilities. Similarly, advances in seeing, hearing, awareness, sharing and connecting, and thinking and memory combine to enable fantasy and imagination.

Will smarter phones make for smarter shoppers?

Smarter phones: Smartphone use and adoption

Not only are mobile devices and technologies advancing, but also Smartphone adoption is sizeable and on the rise in the United States.

A sizeable segment of consumers – particularly those under 35 – are using Smartphones as their primary phone

In a recent online survey of 2,288 U.S. consumers, 29 percent of respondents use their Smartphone or PDA as their primary phone. There are significant differences between age groups. For example, nearly half of the younger respondents – those between the ages of 18 and 34 – have a Smartphone as their primary phone compared to 21 percent of 45–54 year olds.

Using Smartphone as primary phone

Furthermore, nearly one out of four survey respondents in the United States use their phones to connect to the Internet. Again, there are significant differences between age groups. For example, 45 percent of younger respondents – those between the ages of 18 and 34 – use their phone to access the Internet compared to 16 percent of 45–54 year olds. In aggregate, a similar percentage of men and women respondents access the Internet via their phones.1

60%

• Age differences: Younger respondents much more likely to use smartphones • Gender differences: Similar usage between men (32%) and women (27%) Use of Smartphones by age

50%

49%

50%

40% 33% 30% 21%

In another survey of nearly 2,000 U.S. consumers, 40 percent of respondents without a Smartphone showed some inclination to purchase one in the near future. When asked “How interested are you in purchasing a Smartphone (a mobile phone with advanced "computerlike" capabilities) in the near future?” 10 percent said extremely interested, 10 percent very interested, and 20 percent somewhat interested. The intent to purchase a Smartphone was much higher for the younger demographic. For example, 62 percent of 22–27 year olds without a Smartphone expected to purchase one in the near future.2

20%

10%

18-24

25-34

35-44

45-54

55+

Note: Smartphone users include PDA survey respondents Source: Global Mobile Consumer Survey – US results, Deloitte LLP (United Kingdom), Survey conducted between January to February 2011, n=2,228, *n=672 Source: 1 Global Mobile Consumer Survey – US results, Deloitte LLP (United Kingdom), Survey conducted between January to February 2011, n=2,228 Deloitte State of Media Democracy, Survey conducted between September 10, 2010 and October 8, 2010

29 percent of survey respondents in the U.S. use their smartphone or PDA as their primary phone 16

Similarly, a sizeable segment of consumers – particularly those under 35 – are using phones to connect to the Internet Using phones to connect to the Internet • Age differences: Younger respondents nearly twice as likely connect to the Internet via a phone • Gender differences: No difference between men (25%) and women (24%) • Smartphone users much more likely to access the internet • 84 percent of smartphone users access the Internet via their phone

Use of phones to connect to the Internet by age 50%

47% 42%

40%

30%

27%

20% 16% 10% 5% 0%

18-24

25-34

35-44

45-54

55+

Note: Smartphone users includes PDA survey respondents Source: Global Mobile Consumer Survey – US results, Deloitte LLP (United Kingdom), Survey conducted between January to February 2011, n=2,228

24 percent of survey respondents in the U.S. use their phones to connect to the Internet

Smartphones are not just for technology early adopters Current Smartphone adoption and usage, while sizeable and growing, represents only the beginning of what the future holds. One way to assess the likelihood of mainstream adoption is to characterize an individual’s relationship with new technology products and to look at their adoption of Smartphones by segment. Current trends show that Smartphone adoption is sizeable in the consumer segment, which typically follows or lags in technology usage, so there is a strong indicator that future adoption will also be broad. When asked about their relationship with technology, only 8 percent of survey respondents considered themselves early adopters. This group stated that “I'm always keen to use new technology products as soon as they enter the market.” As expected, a majority (72 percent) of the early adopters have Smartphones. But Smartphones are not just for the tech-hungry. The second group of technology adopters, which stated “I like to get new technology products after they’ve been out for a while,” makes up 27 percent of all survey respondents. Roughly one-third of these “late adopters” already use Smartphones. The third group of technology adopters, which stated “I sometimes buy new technology products but only when I really like them,” make up 25 percent of all survey respondents. About 37 percent of this group has Smartphones. The final group of technology adopters, which stated “I only replace technology products when they go wrong or are broken,” make up 35 percent of the group surveyed. Less than one out of five respondents (18 percent) own Smartphones. Smartphones are not just the domain of early adopters, and as functionality and utility increase, we expect adoption to escalate rapidly.

Will smarter phones make for smarter shoppers?

Smartphones are not just for technology early adopters Percent with smartphone 8%

I'm always keen to use new technology products as soon as they enter the market

72%

27%

I like to get new technology products after they’ve been out for a while

30%

25%

I sometimes buy new technology products but only when I really like them

37%

35%

I only replace technology products when they go wrong or are broken

18%

Which one of the following best describes you?

Source: Global Mobile Consumer Survey – US results, Deloitte LLP (United Kingdom), Survey conducted between January to February 2011, n=2,228, 6 percent answered “Don’t know”

A week in the life of the Smartphone Internet accessing user While Smartphone users who access the Internet make up only 24 percent of consumers in the United States, they are an important segment to consider. Their current usage is indicative of future trends. Smartphone users who access the Internet more than once a week participate in a range of activities. Most of those surveyed access their email (86 percent), search for information online (81 percent), browse the Internet (80 percent), and use social networking sites (71 percent) at least once a week. On a less frequent basis, they also stream video content (58 percent) , use online banking (51 percent) and play online games (37 percent). Each of these activities is likely to be conducted more frequently than buying goods and services (28 percent). Younger consumers tend to purchase more goods and services via mobile devices compared to older consumers, and with greater frequency.

28 percent of survey respondents in the U.S. who access the Internet via their Smartphone have purchased a good or service via their phone at least once a week Usage of Smartphones to access the Internet Weekly or more frequent activities among Smartphone users accessing the Internet*: • 86 percent access email • 81 percent search for information online

Familiarity with purchasing via a phone: Most Smartphone users who access the Internet have purchased a good or service via their mobile device Frequency of buying goods and services via a Smartphone 15%

13% 12% 9%

• 80 percent browse the Internet • 71 percent use social networking sites

14%

• 58 percent stream video content • 51 percent use online banking

• 37 percent played online games • 28 percent buy goods and services Respondents who purchased a good or service at least once a week via a smartphone 40% 35%

3-5 times a week

once a week

once once a once less than a month in six once fortnight months a year

Source: Global Mobile Consumer Survey – US results, Deloitte LLP (United Kingdom), Survey conducted between January to February 2011, n=672, *n=560

37% 33%

30%

26%

25% 20% 14%

15% 10%

5% 0%

daily

18-24

25-34

35-44

45-54

55+

58 percent of survey respondents in the U.S. who access the Internet via their Smartphone have purchased a good or service via their mobile device in the past 6 months

Source: Global Mobile Consumer Survey – US results, Deloitte LLP (United Kingdom), Survey conducted between January to February 2011, n=672, *n=560

Will smarter phones make for smarter shoppers?

Smarter phones: In summary Smarter phones for shoppers are an outcome of many factors. It is a combination of mobile devices with stronger senses, sizeable and increasing Smartphone adoption, devices that enable usage in a broad range of activities â&#x20AC;&#x201C; including purchasing.

Not just for technology early adopters: Smartphone usage has extended beyond the small segment of technology early adopters. They are being used by those who are typically technology adoption followers or even laggards, which is indicative of future mainstream adoption of Smartphones.1

Stronger senses: Mobile devices and technologies are becoming an extension of the human sensory system. They are advancing along the seven senses of hearing, seeing, touching, sharing and connecting, awareness, thinking and memory, fantasy and imagination.

Smartphones that enable usage in a broad range of activities: Most of the Smartphone users surveyed accessed their email, searched for information online, browsed the Internet, used social networking sites, streamed video content, and used online banking on a weekly or more frequent basis.1

Sizeable and increasing Smartphone adoption: Smartphones are the primary phone for a sizeable (29 percent) segment.1 And many (40 percent) of those consumers without Smartphones today indicate intention to purchase in the near future.2

Experience with using mobile phones to purchase: Most Smartphone owners (58 percent) have purchased a good or service via their phone in the past six months.1

Sources: 1 Global Mobile Consumer Survey â&#x20AC;&#x201C; US results, Deloitte LLP (United Kingdom), Survey conducted between January to February 2011, n=2,228 2

Deloitte State of Media Democracy, Survey conducted between September 10, 2010 and October 8, 2010

Smarter shoppers: Proliferation of shopperrelated mobile applications

Complementing smarter phones are smarter shoppers. These are shoppers that are increasingly enabled by a proliferation of shopper-related mobile applications and functionality from retailers, third-party application developers and consumer product companies. Underlying these mobile applications and functionality is an emerging ecosystem that also includes mobile providers and payment companies to develop and distribute mobile content. The term mobile application is used broadly to refer to not only applications, but also shopping functionality via a mobile web browser or even text messages. Increasingly, retailers and consumer product companies are building out their functionality to be more accessible via a smaller screen – whether it be for the most technology-savvy Smartphone user or for a traditional feature phone user. Not only is there a role for both application and browserbased functionality today, but both are advancing rapidly in the range of shopper use cases they support. While the focus of this report is consumer products like food, beverage, personal goods, household goods, and apparel, the findings are also applicable to other product categories. Looking at mobile functionality, applications support shopping activities in three process categories: pre-store planning, in-store experience, and ongoing and post-purchase interaction. First, consumers begin by preparing for shopping. Admittedly the amount of preparation ranges from elaborate shopping lists and coupon collections for some consumers, to mostly impulse purchases for others. Second, consumers enter the in-store shopping experience. In-store encompasses both the physical store and also the online store. This consists of activities during the shopping process and at the time of payment. Third is the postpurchase and ongoing interaction with the consumer. Interestingly, this interaction with consumer product goods companies and retailers is no longer tethered to a personal computer.

Pre-store planning: For the consumer, this consists of three primary activities centered around product choice, price and evaluation. First, the customer decides on the product/s. Functionality in this category includes updating a customizable shopping list and access to related recipes or accessories. Second, the customer might explore incentives or cost-cutting strategies. Examples of activities in this category include downloading/ redeeming coupons, identifying special offers and viewing the circular of weekly specials. Third, a customer could research the product in more detail, motivated by the need for more information or finding the lowest price. For example, scanning/ comparing product prices, searching for additional product information, viewing videos with additional product information and reading product reviews. In-store experience (online or physical): This consists of three primary activities focused on the purchase, the payment and the reward. First, the customer makes a purchase in-store or online. For example, pre-ordering products for pickup at a retailer or purchasing products for home delivery. Second, customers could use their Smartphones to make a payment for the product or even gift cards. For example, buying items online via mobileenabled electronic payments or using a “mobile wallet” by swiping a mobile-payment enabled device at the checkout counter. Third, the in-store experience can be enhanced with rewarding offers. For example, scanning retailer loyalty cards with a mobile device, receiving rewards for entering a store and accumulating product rewards information. Post-purchase and ongoing interaction: After the planning and initial purchase, mobile technology still has a role in the shopping experience. This phase of shopping consists of ongoing interaction with the retailer and/ or product manufacturer. For example, scanning a UPC or QR code to view a retailer’s or manufacturer’s social networking site, play a mobile game or gather more information. Whether the post-purchase interaction is positive or negative, the experience can feed into and influence pre-store planning for the next shopping event.

Will smarter phones make for smarter shoppers?

Categories of shopping-related mobile functionality • Managed a shopping list or recipe(s) (e.g., accessed a shopping list, downloaded recipes) Pre-store planning

• M anaged coupons or special offers (e.g., downloaded/redeemed coupons, identified special offers, viewed retailer circular of weekly specials) • R esearched prices or product reviews (e.g., scanned/compared product prices, searched for additional product information, viewed videos with additional product information, read product reviews)

• M ade a mobile payment, including gift cards (e.g., purchased via mobile-enabled electronic payment at checkout)

In-store experience (online or physical)

• M ade an online purchase (e.g., purchased via mobile-enabled electronic payment at a website, pre-ordered products for pickup at a retailer, purchased products for home delivery) • P articipated in a loyalty program (e.g., scanned retailer loyalty card, received rewards for entering a store, entered product rewards information)

Post-purchase and ongoing interaction

• I nteracted with food retailers (e.g., viewed a retailer’s website or mobile application, viewed a retailer’s social networking site, played a retailer’s mobile game, scanned a QR code for more information) • I nteracted with food or product manufacturers (e.g., viewed a manufacturer’s website or mobile application, viewed a manufacturer’s social networking site, played a manufacturer’s mobile game, scanned a UPC or QR code for more information)

A small percentage of Smartphone owners already use their mobile device for grocery shopping-related activities away from the store Use of Smartphones and web-enabled phones for grocery shopping-related activities 90% 80% 70% 60%

64%

71% 73% 73%

76% 79% 79%

57%

50% 40%

32%

30% 20%

11% 10% 8% 8% 7% 8% 7% 6%

10% 0%

Never

Managed a food shopping list or recipe(s) Participated in a loyalty program Interacted with food retailers Made a mobile payment to a food retailer, including gift cards

Once

26%

21% 19% 20% 17%

14% 15%

More than once

Managed food coupons or special offers Researched food prices or product information Interacted with food product manufacturers/growers Made an online food purchase

Survey Question: While you were not in store, how often have you used your smartphone or web-enabled mobile device for the following grocery shopping related activities? A majority of respondents do not use their smartphones or web-enabled phones for grocery shopping related activities. On an average, nearly 71 percent of respondents did not use their mobile devices for any grocery shopping related activity while not in the store. Source: Deloitte 2011 Consumer Food and Product Insights Survey, May 2011, Smartphone users, n=705 22

Currently, a small percentage of Smartphone owners already use their mobile device for grocery shoppingrelated activities in-store Use of Smartphones and web-enabled phones for grocery shopping-related activities 90% 80%

73% 74% 65% 66% 66%

70% 60%

79% 80%

56%

50% 40%

33% 25% 26% 24%

30% 20%

19% 19%

11% 10% 8% 10% 8% 7% 6% 6%

10% 0%

Never

Once

Managed a food shopping list or recipe(s) Participated in a loyalty program Interacted with food retailers Made a mobile payment to a food retailer, including gift cards

15% 14%

More than once

Managed food coupons or special offers Researched food prices or product information Interacted with food product manufacturers/growers Made an online food purchase

Survey Question: While you were in store, how often have you used your smartphone or web-enabled mobile device for the following grocery shopping related activities? A majority of respondents do not use their smartphones or web-enabled phones for grocery shopping related activities. On an average, nearly 70 percent of respondents did not use their mobile devices for any grocery shopping related activity while in store. Source: Deloitte 2011 Consumer Food and Product Insights Survey, May 2011, Smartphone users, n=705

However, nearly one in four Smartphone owners expect an increase in Smartphone use for shopping related activities in the next 12 months Future of mobile phones and shopping related activities Avg: 42%

50%

43% 42% 41%

45% 40% 35% 30% 25%

43% Avg: 28%

Avg: 24% 29% 24% 24% 23%

24%

27%

29% 29% 30%

21%

20%

Avg: 6%

15% 10%

5% 0%

44%

Activity will likely have increased

Consumer electronics Apparel Groceries

Activity will likely have decreased

Activity will likely stay the same

No activity a year ago; will not likely have activity a year from now

Personal goods Household goods

Survey Question: A year from now, how do you expect your shopping-related activities on a smartphone or other web-enabled mobile device will have changed for the following products? On an average, 24 percent of respondents felt that the use of mobile phones for shopping related activities will increase in the next 12 months Source: Deloitte 2011 Consumer Food and Product Insights Survey, May 2011, Smartphone users, n=705 Will smarter phones make for smarter shoppers?

Smartphone usage varied by type of consumer product Use of smartphones and web-enabled phones for grocery shopping related activities 80% 70% 60%

64% 52%

66%

68%

58%

50% 40%

33%

30% 15%

20% 10% 0%

Consumer electronics Apparel Groceries

11%

Never

11%

10%

31%

25%

24%

21%

11%

Once

More than once

Personal goods Household goods

Survey Question: In the past year, how often did you use your smartphone or web-enabled mobile device for any shopping-related activity for the following products? Consumer electronics are the category of consumer goods where mobile devices are most likely to be used for a shopping-related activity. About 48 percent of respondents have used their Smartphone for a consumer electronics shopping-related activity in the past year versus 32 percent for groceries. Source: Deloitte 2011 Consumer Food and Product Insights Survey, May 2011, Smartphone users, n=705

Admittedly, mobile phones have allowed many shopping activities to occur nearly anywhere, independent of physical location or time. For example, a price comparison can occur during the pre-store planning, in-store, or postpurchase phase. Therefore, the mapping of mobile phone functionality to these three categories is not perfect. That said, it is important for consumer product executives to think in terms of unique goals for each of the three process steps. They include:

In-store experience (physical and online): Play a prominent and helpful role • How to route special offers and other promotions to consumers?

Pre-store planning: Enhance the pre-store planning experience • How to help consumers with pre-store planning that promotes brands?

Post-purchase and ongoing interaction: Maintain a valuable conversation with the consumer • How to maintain a conversation that helps the individual consumer and consumers in aggregate?

• How to increase consumer awareness and consideration of brands? • How to help consumers manage to a budget? • How to help consumers compare products in such a way that is favorable to their brands?

• How to initiate product trial and protect repeated purchases of brands? • How to enrich the in-store interaction? • How to enable and ease the payment process?

As part of this report example shopping-related mobile applications - and implications to consumer product companies - were identified in each of the three shopping process steps. Pre-store planning: Example mobile applications Epicurious: Meal planning, recipes, and shopping lists • Search among repository of recipes • Create shopping lists based on ingredients required for recipes • Create personal recipes and share with others • Video content supporting recipes Kraft iFood Assistant: Meal planning, recipes, and shopping lists • Search among repository of recipes and meal planning ideas (that promote Kraft products) • Create personal recipes and share with others • Video content supporting recipes • Directions to stores and store aisle information • Checking items off the shopping list by typing or barcode scanning Goodguide: Expert product reviews • Expert assessment of health, environment and social responsibility impacts for each product based on quantitative measures by scientists. Product categories include personal care, food, household goods, apparel, and electronics • Create personal recommended lists Price Check by Amazon: Price comparison • Price comparison information for products by barcode scanning, picture capture, voice, and text • Access to Amazon.com product descriptions and customer reviews and ability to purchase via Amazon mobile application

In-store experience (online or physical): Example mobile applications Shopkick: Location-based loyalty program • Location-based loyalty rewards program for physically entering (or checking in to) stores to encourage foot traffic • Loyalty rewards program for scanning products in store to encourage product consideration • Access to special deals at stores • Loyalty rewards points can be converted to gift certificates or goods Walgreens: Multi-function mobile application • Pharmacy: Prescription refill orders via scanning barcode. Access prescription history • Photo: Manage photos for in-store or at-home delivery. Share photos • Shopping Features: Access weekly ads, purchase on line, and check product availability and pricing. Directions to store and store information Sam’s Club: Multi-function mobile application • Access product reviews and availability via barcode scanning or text search • Access store information including location and driving directions • Check loyalty program balance • Updates and alerts about membership and featured products • Purchase online Other examples: Amazon (multi-function mobile application), Cardstar, Google Checkout, Key Ring, PayPal Mobile, Swagg Sources: www.shopkick.com, www.walgreens.com, www.samsclub.com

Other examples: McCormick Recipe Finder, RedLaser, Shop Savvy, Walmart (multi-function mobile application), Whole Foods Market Recipes Sources: www.epicurious.com, http://www.kraftrecipes.com/media/ ifood.aspx, www.goodguide.com, www.amazon.com

Will smarter phones make for smarter shoppers?

Case study: Groupon and General Mills Expected benefits • By pooling users together and having them commit to the deal, Groupon negotiates better discounts with local businesses • Local businesses are assured of the breakeven even before launching the discount • Local business can manage inventory better during the scheme duration

Groupon • Groupon is website that features one dealper-day across multiple cities in the U.S. Users of the websites can subscribe for taking the deal. Once a predetermined number of users prescribe for the deal it gets activated and the users are notified accordingly • On April 21, 2011 General Mills offered 12 products in Minneapolis and San Francisco such as Fiber One bars, Cinnamon Toast Crunch and Kix cereals for $20, a discount of more than 50 percent of the value of the package, through Groupon Expected benefits

Indication of success

Implications to CP Firms • Unique way to promote and encourage sampling of new and existing products • Allows for experimentation with direct-to-consumer shipping model for consumer product companies

Implications to CP Firms

Indication of Success • As of October 2010, Groupon served more than 150 markets in North America and 100 markets in Europe, Asia and South America and has 35 million registered users • The General Mills offer was sold out on the day of release. The company had 5,000 total packages for sale under this promotion

General Mills used Groupon as sampling exercise, where customers can try a dozen of its products. According to Karl Schmidt director of product marketing at General Mills "Our goal is to get trial and penetration of our products, and get repeat purchases off that trial”

Sources: <http://www.appappeal.com/app/groupon/>, accessed May 20, 2011 <http://www.groupon.com/>, accessed May 20, 2011 Ziobro, Paul, “ Mills Offers Groupon Deal In Two Cities” The Wall Street Journal , April 21, 2011, <http://online.wsj.com/article/BT-CO-20110421713306.html>

Ongoing and post-purchase interaction: Example mobile applications Kellogg’s Special K Challenge TM : Weight management program • Select and customize meal plans, menus, and recipes based on Kellogg’s Special K products • Track progress, access weight management tips and receive daily motivations • Browse Special K products • Create shopping lists Amazon: Multi-function mobile application • Search, compare prices, and read reviews • Use the phone camera to create a visual wish list. Product identification via photo • Allows users to send and share links to interesting products • Review products • Purchase online Foursquare: Location-based social networking • “Check in” and share location with friends and retailers. Collect loyalty program points and virtual badges at check in • Redeem discounts from retailers and brands • Share pictures and get comments from friends • Share suggestions about nearby venues based on their location Other examples: Facebook Sources: http://www.specialk.com/challenge/mobile, www.amazon.com, www.foursquare.com

Implications of application proliferation for consumer product companies These shopping-related mobile applications already hint at the potential for tomorrow’s Smartphone technology. The marketplace is ripe for consumer product companies to take the plunge to reach out to consumers via mobile devices. Enhance the pre-store planning experience with mobile applications First, it is important for consumer product companies to work with shopping list and recipe planning application providers to promote their brands and products. Thirdparty application providers and retailers are often the shopping list management mobile application provider of choice, while only a few consumer product companies have created mobile applications with shopping list and recipe management functionality. Second, mobile applications represent many new routes to consumers. Use these pathways to build awareness and consideration for brands, and also to enable promotions via coupons and special offers. Third, consumer product companies should expect greater transparency of product and price information. Both expert opinions and consumer reviews can hold equal sway for consumers. Play a prominent and helpful role in-store, whether a physical store or online First, mobile applications enable virtual contact with customers right in the store – whether it is through sending store-specific promotions or providing links to additional content via the scanning of product barcodes. Consumer product companies should use this interaction to initiate product trials and to protect the repeated purchases of brands. Second, maintain the shopper’s perspective as payment technology and standards advance. For the consumer, mobile payment is just one part of enabling and easing the payment process in-store and remotely. Therefore, consumer product companies should seek a role in both in-store purchases, and purchases via mobile for home delivery or in-store pickup. Will smarter phones make for smarter shoppers?

Third, the value of the shopping application can be enhanced with increasingly precise location information. As technologies advance, consumer product companies should think about the increasing granularity of proximity data, from city … to neighborhood … to store … to aisle … to shelf … and to specific product. Maintain a valuable and on-going conversation with the consumer post-purchase First, consumer product companies should not underestimate the potential impact of retailer multifunction shopping applications. These applications could become the preferred primary mobile applications for many shoppers. Through retailer applications, consumer product companies have the opportunity to foster and build brand awareness in this mutuallybeneficial environment.

Second, consumer product companies should use their mobile presence to not only initiate, but also maintain a conversation that helps the individual consumer and consumers in aggregate. Expect a deluge of mobileenabled consumer behavior data that if leveraged correctly may allow for greater personalization and improved predicative power. In summary, mobile applications provide an opportunity for consumer product companies to enhance the pre-store planning experience, play a prominent and helpful role in-store, and maintain a valuable and ongoing conversation with shoppers.

Smarter shoppers: Social and demographic changes

Millennial’s Law: Social and demographic changes It is no secret that consumers have become more technology-savvy and comfortable with communicating and sharing information online. In particular, adult consumers in the Millennial generation – Americans born after 19801 – have uniquely embraced technology. They see technology as a positive stimulus - making their lives easier and helping them to be more efficient with their time. They are also more open to what older generations characterize as intrusive data collection, as long as they are able to manage privacy and the dissemination of data, and also have credible assurances of data protection. Furthermore, the Millennial generation tend to be very familiar with sharing information – text, pictures, and videos – and have learned through their experience with social networks what is appropriate for them to share broadly versus selectively.

While the Millennial generation represents a sizeable demographic shift of consumers which are now approaching their primary consumption years, adoption of social networking and media tools is also rising for Generation X and Baby Boomers as demonstrated by increased time spent on social media and networking sites. Much of the digital divide between the generations is closing, so what we see in Millennials today is predictive of Baby Boomers in the near future. Complementing the emergence of technology-adept consumers is the rising preference for more customized and interactive experiences with products. Sources: “Millennials: A Portrait of Generation Next”, Pew Research Center, February 2010, <http://pewsocialtrends.org/files/2010/10/ millennials-confident-connected-open-to-change.pdf> Lee, Amy, “Millennial Generation's Web Dominance On The Decline” The Huffington Post, December 16, 2010, <http://www.huffingtonpost. com/2010/12/16/milennials-web-dominance-pew_n_797647.html>

Population of Millennial vs. Generation X vs. Baby Boomer Although the Baby Boomer generation is sizeable, the Millennial and Generation X populations still form a substantial group in or near their primary consumption years. 100+ 95 to 99 90 to 94 85 to 89 80 to 84 75 to 79 70 to 74 65 to 69 60 to 64 55 to 59

Baby Boomer

26%

50 to 54 45 to 49 40 to 44 Generation X

20%

35 to 39 30 to 34 25 to 29

Millennial This report uses generation definitions consistent with the Pew Research Center. The Millennial generation covers those born after 1980. Generation X includes those born between 1965 and 1980. The Baby Boomer generation includes those born between 1946 and 1964.

21%

20 to 24

15 to 19 10 to 14 5 to 9 Under 5 0

Millions Female

Male Will smarter phones make for smarter shoppers?

The Millennial generation, and Generation X to some extent, are poised to be smarter shoppers with smarter phones as they have a unique set of characteristics.

Millennial’s Law

Sharing and connecting via social networks

First, Millennial’s are more likely to share and connect via social networks. They are more likely to have a virtual profile and visit social networking sites daily compared to Baby Boomers 1 2.

Extended adolescense: Change in family structure

Time crunch: Less time for shopping

Second, they are more likely to have grown up with a smaller family structure and likely experienced an extended period of living at home, compared to earlier generations at similar ages 1. As a result, the Millennial generation tends to have a smaller familial support structure 1.

Importance of Reviews: Trust in individuals vs. institutions

Millennials

Technology savvy

Third, they tend to be technology-savvy given that computers and the Internet have been around for most of their lives. Not surprisingly then, they have higher Internet, wireless and text-messaging use than other generations 1. Fourth, they are more likely to believe that technology makes life easier and have a positive view of the role of technology in their life 1.

Seeks interactive experiences; Expressive

Belief that technology makes like easier

Desire for personalization

Fifth, they tend to have a greater desire and expectation for personalization of products and experiences. Sixth, Millennial’s are more likely to seek virtual and interactive experiences through augmented reality or gaming.

“Millennials: A Portrait of Generation Next”, Pew Research Center, February 2010, <http://pewsocialtrends.org/files/2010/10/millennialsconfident-connected-open-to-change.pdf>

Seventh, they tend to trust reviews from individuals in addition to institutions. Online customer reviews of products are more likely to influence buying decisions 2.

Deloitte State of Media Democracy, Survey conducted between September 10, 2010 and October 8, 2010

Eighth, this generation tends to feel a time crunch and therefore would benefit from tools that make the shopping experience more convenient 3. Together, these characteristics shape the foundation for a smarter shopper.

merican Time Use Survey 2006-09, U.S. Department of Labor A Statistics, <http://www.bls.gov/tus/charts/>

Smarter shoppers: One size does not fit all

Ageing affects consumption preferences as longevity creates a host of socioeconomic challenges

Psychological

Memory/ Information processing

• D ecline in attention makes its difficult to ignore “noise” or irrelevant stimuli • Rate of learning reduces • U nfamiliarity with new things leads to cautious behavior • Reduction in pupil size affects sight

Biological

Mobility, Vision, Hearing

• Yellowing of lens reduces color perception • Poor hearing affects communication • Physiological changes affect mobility

Social

Role shifts, Lifestyle changes

Economic

Income flow shifts, Resource allocation

• R ole shifts due to grand-parenting, care giving, empty nests, retirement • R ole shifts affect lifestyle, travel patterns, daily routines

• R etirement changes resource pool of time and income • W orking past retirement age can cause problems in intergenerational collaboration

When thinking of mobile functionality, it is important to consider the social and demographic differences between younger and older consumers. If you look at the two groups – Millennials and older Baby Boomers - there are unique aspects of each group that should be considered in mobile application design. The Millennial generation is tech-savvy; they are rapidly adopting smarter phones and are open to smarter shopping. Today, older Baby Boomers and beyond are less mobile-savvy by traditional measures like Smartphone ownership and Internet usage via their phone. It could be that mobile devices and applications designed by today’s standards miss the mark on older consumers. Furthermore, ageing has introduced a number of psychological, biological, social and economic challenges unique to older consumers. These challenges – like deteriorating eyesight – have implications for user interface design and application functionality. Since older Americans represent an increasingly wealthy consumer base, they are not a group to be side-lined in the Smartphone revolution.

Pak, Cabrini and Kambil, Ajit, “Wealth with Wisdom: Serving the needs of ageing consumers” Deloitte Review, 2010

What about 55+ year old consumers? 55+ year-old vs. 18-24 year-old consumers • Only 5% of those who are 55+ access the Internet using their mobile phones compared to 47% of 18-24 year olds • Only 8% of those who are 55+ use Smartphones as their main mobile device compared to 49% of 18-24 year olds • About 66% of those who are 55+ and own Smartphones access the Internet, compared to 84% of 18-24 year olds who own Smartphones • Only 6% of those who are 55+ and who access the Internet using their Smartphones buy goods or services online at least once a week, compared to 33% of 18-24 year olds • While 25% of those who are 55+ and who surf the Internet on their Smartphones said they did not receive coupons, product recommendations based on searches, or view banners, only 6% of 18-24 year olds experienced the same

Advertisements • Amongst those who are 55+ and had received text advertisements, none had bought the goods/services advertised, 52% deleted the message and 61% asked the advertiser to stop sending messages in the future. Comparable figures for those in the 18-24 year age group are 15%, 36% and 31% respectively • While 86% of those who are 55+ and had received text advertisements said that nothing would make them accept more text advertisements, the number was much lower at 38% among 18-24 year olds • Less than 10% of those who are 55+ agreed to accept more text advertising if they were offered free access apps/games, real-time offers, location-relevant deals, exclusive bargains, and deals for favorite products. Corresponding figures for 18-24 year olds ranged from 20 to nearly 40 percent Note: Smartphone users includes PDA survey respondents Source: Global Mobile Consumer Survey – US results, Deloitte LLP (United Kingdom), Survey conducted between January to February 2011

Will smarter phones make for smarter shoppers?

Those over the age of 55 represent an increasingly wealthier consumer base • Income after taxes of those above the age of 55 has been increasing at least as fast as those under the age of 55 • Income after taxes has grown the fastest for those in the 55-64 age group • Share of overall income from those over the age of 55 increased from 2005 to 2009

Percentage share of total income after taxes 2005

37%

Income after taxes

63% 8%

$80,000

11%

$70,000 7%

$60,000

<55

55+

$50,000 8%

$40,000 $30,000

2009

-6%

$20,000

40%

$10,000 $0

2005

Under 25 years

2006

25-34 years

2007

35-44 years

2008

45-54 years

2009

55-64 years

65 years and older

60%

Percentage change in 2009 over 2005

Source: Consumer Expenditure Survey 2005-2009, Bureau of Labor Statistics, <http://www.bls.gov/cex/tables.htm> <55

55+

A case for a more nuanced mobile advertising strategy Sellers and marketers have a better chance of grabbing a younger consumer’s attention by providing free games and apps, location-specific deals, real-time offers, and exclusive offers, than they do of interesting an older consumer in their products. This is a clear indication that sellers and marketers should develop a nuanced mobile marketing strategy. Strategies to get consumers to accept more advertisements on their phones differs significantly across age groups Age differences • 17% said they would accept more advertising if they were allowed free use of the app or game 40% 35%

25% 35% 20%

30% 24%

25%

21% 17%

15%

14%

19%

20% 10%

5% 18-24

25-34

35-44

45-54

10%

14%

15%

• 12% said they would accept more advertising if it were more relevant to the location they were in

55+

5% 0%

3% 18-24

25-34

35-44

45-54

55+

• 9% said they would accept more advertising if it provided them a real-time offer

• 17% said they would accept more advertising if they got a really good exclusive bargain

25%

30%

20%

21%

15%

29%

25%

22%

20%

14%

20% 16%

15% 10%

10%

3% 18-24

25-34

35-44

45-54

55+

5% 0%

18-24

25-34

35-44

45-54

55+

Note: Smartphone users include PDA survey respondents Source: Global Mobile Consumer Survey – US results, Deloitte LLP (United Kingdom), Survey conducted between January to February 2011, n=2,288

Free access to apps and games, and real-time offers are Location specific deals and important for younger exclusivity are important for consumers younger consumers Will smarter phones make for smarter shoppers?

If you build it, will they come? Just because consumer product companies, retailers, and third-party application providers are creating shoppingrelated applications, it does not mean that the technology will be broadly adopted. There are a number of attributes of mobile functionality that researchers in academia have used to predict technology adoption. These attributes include ease of use, usefulness, consistency with subjective norms, enjoyment, expressiveness (i.e., allows user to convey personality or status), behavioral control of content, and compatibility with lifestyle. While results vary among these researchers, it seems as if ease of use, usefulness, consistency with subjective norms and an enjoyable experience are table stakes for adoption and usage. Furthermore, it seems that mobile applications that allow users to convey their personality, allow for user control of content, and are compatible with their current lifestyle stand out in terms of higher potential adoption – particularly for younger consumers. Source: Sendecka, Lenka, “Adoption of mobile services: Moderating effects of service’s information intensity”, May 16, 2006

A path forward for consumer product companies (by shopping process)

Consumer product companies should expect smarter phones and smarter shoppers due to the confluence of advanced mobile devices and technologies, a proliferation of shopping-related applications, and social and demographic changes. While each of these three trends in isolation has potential implications to consumer product companies, in aggregate these trends could result in profound changes in the shopping process. Consumer product companies should carve out a role in helping tomorrow’s shopper along the entire shopping processes – from planning to post-purchase. A path forward for consumer product companies (by shopping process) • Position your brands and products on the shopping list and part of the planning process Pre-store planning

• E mbrace online product comparison by cultivating a forum, commissioning your own reviews, or being an honest broker of reviews • Beware of too many broadly targeted price-based mobile promotions

In-store experience (online or physical)

Post-purchase and ongoing interaction

• E nhance the in-store product experience and brand conversation to help the consumer make better decisions and save time • P ursue greater collaboration with retailers, shopping-related application providers, and payment companies to “help” shoppers

• Extend the product experience across channels and away from home • Build a lifecycle view of the consumer through sophisticated data analysis

Pre-store planning Position your brands and products on the shopping list and part of the planning process. Third-party application providers, retailers, and consumer product companies have developed mobile applications to simplify the planning process for shopping. This includes applications to create and manage a shopping list, maintain a shopping cart, and identify meal plans or recipes. Many shoppers approach shopping with a list, whether the list is physically written down or mentally stored in their mind. In some cases the shopping list is simply a reminder list; in other cases it is a deliberate plan to meet a budget. Either way, the planning process for shoppers is important as it represents a starting point - where awareness and consideration become initial purchase intent. Consumer product companies should work with thirdparty applications and retailers to position their brands and products in the shopping list or recipe applications whether through advertising or inclusion in product selection lists. Additionally, consumer product companies

should consider creating their own planning or shopping list applications to promote their products. For consumer product companies, the challenge is to simplify the process of creating a list and fulfilling a list, which may mean supporting fulfillment in a range of ways across channels including in-store, online via home delivery or store pickup, and direct-to-consumer sales. Consumer product companies should harness consumer data from shopping list and meal planning applications, including demographic information and cross-channel purchase history, to recommend products for the list. For consumer product companies the potential benefits of closely supporting the planning process include greater customer loyalty as measured by repeat purchases and higher product trial rates. Additionally, mobile functionality provides a route to the consumer with the potential for greater return on marketing spend and unique crosschannel consumer data. Consumer product companies could also benefit from insight into the competitor products that shoppers consider and purchase.

Will smarter phones make for smarter shoppers?

Embrace online product comparison by cultivating a forum, commissioning your own reviews, or being an honest broker of reviews. Consumers can compare products and prices using myriad mobile applications. First, shoppers can use retailer applications that increasingly include weekly sales circulars and pricing information. Many retailer sites also list and highlight product reviews from other consumers based on their usefulness. Second, shoppers have access to thirdparty applications that provide price comparison across many online and traditional retailers. Third, shoppers can use consumer product company applications that often include product information, reviews and ratings, and highlighted recommendations. Furthermore, consumers can use third-party applications with expert product assessments (e.g., ingredients, environmental impact) and reviews. In summary, mobile provides on-the-go access to price and product information. Due to this increased transparency of product information, consumer product companies should consider three broad approaches to address comparison shopping. First, cultivate a forum to allow consumers to share opinions and reviews of your products. Second, commission independent expert reviews to help consumers with decision making. Third, become an honest broker of reviews of your products and competitor products. In each of these three approaches, consumer product companies should begin with an honest assessment of their own productâ&#x20AC;&#x2122;s strengths and weaknesses and highlight the comparison of those strengths. For consumer product companies the challenge is significant as mobile shopping applications enable greater product comparison not only with pre-shopping planning, but also in-store. Even if your product is what a consumer intends to purchase when they enter a store, reviews can play a role in defending the purchase intent during the shopping process. For consumer product companies there are several potential benefits to embracing comparisons and reviews. First, product comparison and reviews tend to encourage a closer connection with the discerning consumers that could become brand advocates and result in referrals. Brand advocacy amplifies positive reviews. Second, cultivating a forum can allow consumer product

companies to not only observe reviews, but also respond in a constructive way. Third, comparative product information can be used as an input for product development. Beware of too many broadly targeted, price-based promotions. Mobile applications and websites from retailers, thirdparties, and consumer product companies represent new routes to consumers. These routes can be used by consumer product companies to distribute coupons, place advertisements or even promote loyalty programs. While mobile devices offer a potentially effective channel for price-based promotions, excessive discounts could unintentionally encourage customers to delay purchases until the next promotion. Consumer product companies should design promotional programs so that they are narrowly targeted, based on information like location, shopper demographics and purchase history. Similar to non-mobile promotions, consumer product companies should measure the economics and effectiveness of promotions in terms of reaching new consumers and convincing undecided consumers without distributing unnecessary discounts to price insensitive consumers. Wherever usage rates of mobile promotions are uncertain, which could result in significant demand forecast errors, consumer product companies should experiment with small pilots prior to a broader rollout. For consumer product companies there are several potential benefits to reining in price-based promotions. First, narrowly-targeted promotions can spur revenue growth while reducing reliance on margin-destructive promotions. Second, reduced reliance on price-based promotions can result in more accurate demand forecasts and profit projections. Third, removing an abundance of price-based promotions from the marketing mix can result in a better understanding of brand loyalty and account profitability.

In-store experience (online or physical) Enhance the in-store product experience and brand conversation to help the consumer make better decisions and save time. Smartphones and shopping-related applications represent a new route to consumers that travels with a consumer in physical stores or online. This path can be used by consumer product companies to engage consumers in a range of ways including location-based promotions and links to video content via product barcodes. Consumer product companies should seize the physical in-store consumer connection. Location-based or QR code links to rich media and social networking should be used to embrace brand advocates and mitigate critical comments in a genuine conversation in store. Similarly, consumer product companies should build an active online presence using retailers’ mobile websites or their own direct-to-consumer efforts. They should try to enable an in-store conversation that helps the consumer in the short-term (e.g., product recommendations, product information) and in the long-term (e.g., as an input into product development). For consumer product companies there are several potential benefits of extending the in-store product experience and brand conversation. First, increased brand awareness and consideration through mobile channels. Second, higher brand loyalty as Smartphones are used more broadly to promote products. Third, stronger in-store presence can result in higher product sales whether through a retailer’s mobile channel or manufacturer’s direct-to-consumer site. Fourth, facilitating the brand conversation can improve access to consumer behavior and offer opinions as an input for product development.

Pursue greater collaboration with retailers, shoppingrelated application providers, and payment companies to “help” shoppers Advances in shopping-related mobile functionality are coming from many sources. First, many traditional and online retailers have developed multi-function mobile applications that help consumers throughout the shopping process. Similarly, third-party application providers have developed innovative shopping-related applications to help with distinct steps during the shopping process. Also underlying these mobile applications and functionality is an emerging ecosystem that also includes mobile providers and payment companies to develop and distribute mobile content.1 Along with consumer product companies, all of these players are shaping the mobile-enabled shopping landscape. Consumer product companies should try to collaborate with each of these players. With retailers this could be joint business planning efforts to align goals and identify opportunities to work together. With third-party application providers, it can be discovering new ways to position brands and products that benefit both parties. Similarly, payment companies can make the checkout process easier for consumers. For consumer product companies there are several potential benefits of greater collaboration with retailers, third-party application providers and payment companies. First, increased brand awareness and consideration through promotion via the retailers and third-party mobile applications. Second, consumer product companies collaborating with others may have greater visibility to new innovative mobile-shopping functionality to promote their brands and products. Third, consumer product companies with a seat at the table have a greater opportunity to shape the mobile shopping ecosystem.

S ource: Goswami, Divakar, “Cell me the Money: Unlocking the value in the mobile payment ecosystem”, 2011, <http://www.deloitte.com/us/ cellmethemoney> Will smarter phones make for smarter shoppers?

Post-purchase and ongoing interaction Extend the product experience across channels and away from home. Mobile technology has an ongoing role in the shopping experience. Today, the role can be viewing a consumer product companyâ&#x20AC;&#x2122;s social networking site, playing a mobile game, or scanning a QR or UPC code for more information. In the future, the role could be broader in terms of recording user experience via mobile sensors. Whether the post-purchase interaction is positive or negative, the experience influences purchase intent, actual purchase behavior and future sales. Consumer product companies should recognize the full lifecycle of product purchase and usage, and look to enhance it with conversation that can include recommendations or validation of product performance. This consumer conversation can become data for new product development including personalized products and broader improvements. For consumer product companies, there are several benefits to extending the product experience across channels and away from home. First, maintaining and growing brand awareness and consideration in existing customers. Second, extending the brand conversation across channels and away from home can help identify way unique ways to personalize products and the product experience. Build a lifecycle view of the consumer through sophisticated data analysis. Advanced mobile functionality and applications enable unique data collection and analysis across the entire shopping and consumption lifecycle including contextual information like physical location, demographics and individual buying behavior. Mobile applications have data elements from pre-store planning process, in-store movement, payment transaction and post-purchase. The view begins with awareness and consideration, and extends to trial and repeat use (or discontinued use).

Consumer product companies should begin with aggregating and modeling data. For example, shopping list data that compares what was on the list versus what was purchased, loyalty card or programs use, payment transaction history, coupon use and location-based analysis of shopper movement. Consumer product companies should pursue more advanced segmentation and focused analysis that enables predictive modeling to project the effectiveness of consumer-specific promotions. For consumer product companies there are several potential benefits of building a life-cyle view of the consumer through sophisticated data modeling and analysis. First, data analytics can result in a higher return on marketing investment by better characterizing market preferences and consumer behaviors from large amounts data. Second, the ability to detect and respond to signals more rapidly than competitors through predictive modeling. Third, advanced analytics can enable the automation of information collection and analysis to drive more fact-based decisions.1 The final word Consumer product companies that enhance the pre-store planning experience, play a prominent and helpful role in-store, and maintain a valuable conversation with consumers stand to benefit from smarter phones and smarter shoppers. The challenge for consumer product companies is to realize these benefits as retailers and thirdparty application providers launch mobile applications that also seek to better connect with consumers during the shopping process.

Source: Signal Strength: The rise of asset intelligence: moving business analytics from reactive to predictive â&#x20AC;&#x201C; and beyond, Deloitte Review, Issue 7, 2010, Doug Standley and Jane Griffin 38

Will smarter phones make for smarter shoppers?

Authors Pat Conroy Vice Chairman U.S. Consumer Products Leader Deloitte LLP +1 317 656 2400 pconroy@deloitte.com

Additional Contacts Richard Kabobjian Partner U.S. AERS Leader, Consumer Products Deloitte & Touche LLP +1 973 602 6940 rkabobjian@deloitte.com

Anupam Narula Senior Research Manager Deloitte Research Deloitte Services LP +1 404 631 2943 anarula@deloitte.com

Nick Handrinos Principal U.S. Consulting Leader, Consumer Products Deloitte Consulting LLP +1 203 905 2723 nhandrinos@deloitte.com

Rebecca Chasen Partner U.S. Financial Advisory Services (FAS) Leader, Consumer Products Deloitte FAS LLP +1 617 437 2315 rchasen@deloitte.com Vickie Carr Partner U.S. Tax Leader, Consumer Products Deloitte Tax LLP + 1 214 840 1457 vcarr@deloitte.com

Acknowledgements We are also grateful for the contributions and comments of several colleagues including from Katie Armour (Deloitte Services LP), David Fawley (Deloitte Services LP), Chandra Gajjar (Deloitte Support Services India Pvt. Ltd.), Divakar Goswami (Deloitte Support Services India Pvt. Ltd.), Ajit Kambil (Deloitte Services LP), Duleesha Kulasooriya (Deloitte Services LP), Rachel Lam (Deloitte Services LP), Dan Latimore (Deloitte Services LP), Paul Lee (Deloitte LLP, United Kingdom), Bill Michalisin (Deloitte Services LP), Vipinkumar Pillai (Deloitte Support Services India Pvt. Ltd.), Sumit Sinha (Deloitte Support Services India Pvt. Ltd.), David Smud (Deloitte Consulting LLP), Doug Standley (Deloitte Consulting LLP), and Scott Wilson (Deloitte Services LP).

Visit Deloitte.com To learn more about Deloitte’s Consumer Products Industry practice and Deloitte’s capabilities within the areas of mobile technology, visit us online at www.deloitte.com/us/consumerproducts.

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