E commerce future scope

future of mobile e commerce and the future of e-commerce bricks and mortar
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Nataliebarry,New Zealand,Researcher
Published Date:13-07-2017
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      The  Future  of  E-­commerce:  The   Road  to  2026                     Contents   Executive  summary  ................................................................................................................................  3   Introduction  .........................................................................................................................................  3   Welcome  to  the  consumer  of  the  future  .................................................................................................  3   Instant  gratification  will  mean  more  than  a  quick  fix  ........................................................................  3   The  desire  for  shopping  experiences  will  intensify  ..........................................................................  4   The  pretzel-­shaped  shopping  journey  .............................................................................................  4   The  sharing  economy  is  here  to  stay  but  with  a  mixed  impact  on  retail  ..........................................  4   Pure  play  and  physical  retail:  blurring  boundaries  ..................................................................................  5   Online  moves  into  the  real  world  .....................................................................................................  5   Physical  retail  still  exists  but  not  as  we  know  it  ...............................................................................  6   An  increasingly  fragmented  physical  footprint  .................................................................................  7   Goodbye  to  silos  .............................................................................................................................  7   Fulfillment  is  a  major  battleground,  ushering  in  new  models  ..........................................................  8   The  race  to  find  new  delivery  systems  ............................................................................................  9   Toward  a  mobile-­centric  retail  experience  ..............................................................................................  9   Contextual  location  becomes  a  building  block  for  retail  ................................................................  11   Prepare  for  a  mobile  payments  boom,  driven  by  m-­commerce  ....................................................  12   Mobile  loyalty  in  the  ascendant  .....................................................................................................  13   Moving  toward  mobile-­first  advertising  ..........................................................................................  13   Context  is  king  ......................................................................................................................................  15   Moving  from  a  2-­D  to  3-­D  customer  perspective  ...........................................................................  15   The  rise  of  predictive  models  and  curated  shopping  .....................................................................  16   Consumers  take  more  control  of  personal  data  trade-­off  terms  ....................................................  17   Key  technologies  that  will  shape  retail  .................................................................................................  17   Hyperconnectivity  will  create  new  dynamics  in  retail  ....................................................................  17   Wearables  will  become  a  platform  for  m-­commerce,  albeit  with  limitations  ..................................  18   Augmented  reality  (AR)  will  be  a  strong  driver  for  online  and  physical  retail  ................................  20   Forget  the  hype  –  3-­D  printing  will  have  a  limited  impact  in  the  retail  space  ................................  20   Preparing  for  the  road  to  2026  .............................................................................................................  21   Recommendations:  actions  to  help  retailers  stay  ahead  of  the  game  ......................................  21    Executive  summary     Introduction   The  world  of  retail  is  undergoing  an  unprecedented  wave  of  innovation.  Technology,  of  course,  plays   a  major  role,  but  it  is  not  the  only  force  at  work.  New  business  models  are  appearing  that  will  have  a   profound  influence  across  the  e-­commerce  and  wider  retail  value  chain.  At  the  same  time,  consumer   behaviors  and  expectations  are  evolving.   In  this  report,  we  identify  and  examine  those  trends  that  will  shape  the  retail  landscape  over  the  next   five  to  10  years.  For  example,  what  technologies  will  have  a  transformative  influence,  and  what   technologies  are  just  hype?  How  will  the  e-­commerce  value  chain  evolve,  and  what  impact  will  this   have  on  online  and  physical  retail?   To  provide  answers  to  these  questions  and  build  a  vision  of  the  future,  we  interviewed  thought  leaders   across  the  e-­commerce  ecosystems,  including  leading  retail  brands  from  a  spread  of  market  sectors.     Welcome  to  the  consumer  of  the  future   “The  word  is  convenience  –  the  word  is  anywhere,  anytime,  however  the  consumer  wants  it.”   Colgate-­Palmolive   Instant  gratification  will  mean  more  than  a  quick  fix   Consumer  e-­commerce  today  is  largely  driven  by  price  and  convenience:  a  good  deal  on  products   that  are  delivered  quickly.  A  smaller  but  growing  number  of  consumers  are  starting  to  want  more  from   e-­commerce,  for  example,  wanting  the  ability  to  discover  unique  goods  they  will  not  find  in  big-­box   retail  chains.  By  2026,  these  fundamental  desires  will  still  exist,  but  consumer  expectations  of  the  e-­ commerce  experience  will  have  changed  drastically,  along  with  the  shopping  experience.       The  desire  for  instant  access  and  fast  turnaround,  24/7,  will  be  the  norm  by  2026,  driven  in  particular   by  millennials  (born  approximately  1980–95)  and  also  by  Generation  Z  consumers  (born   approximately  1996–2010).  Generation  Z  are  digital  natives  to  the  power  of  10,  with  technology  use   their  second  nature.  These  generations  are  constantly  connected  and  inhabit  an  online  environment   where  events  happen  in  real  time  without  them  having  to  wait,  and  where  social  media  enables  them   to  dictate  terms.     Key  takeaways   However,  by  2026,  instant  gratification  will  have  come  to  mean  something  more  sophisticated  than  a   quick  fix.  It  will  have  evolved  into  expectations  of  a  seamless  shopping  experience  across  an   increasing  range  of  connected  devices,  in  which  immediacy  and  convenience  are  paramount.     Instant  access  and  fast  turnaround  will  still  be  a  key  part  of  the  equation,  but  other  expectations  will   have  come  to  the  fore:  proactive  customer  service  and  support,  and  free  or  very  low-­cost  delivery   anytime,  anywhere.  Consumers  will  expect  goods  advertised  online  to  live  up  to  the  promise  in  every   way  –  with  no  disconnect  between  the  “fit  and  feel”  of  what  they  see  and  what  they  get.  This  places   great  pressure  on  retailers,  and  those  that  fail  to  meet  expectations  will  fall  by  the  wayside.    The  desire  for  shopping  experiences  will  intensify   By  2026,  many  consumers  will  want  retailers  to  provide  an  environment  where  shopping  is  an  event   experience  in  its  own  right.  This  will  translate  into  interactive,  highly  engaging  online  and  real-­world   retail  environments  where  augmented  reality  (AR)  plays  a  key  role.  The  provision  of  distinct  and   tangible  shopping  experiences,  online  and  real-­world,  will  become  a  key  means  to  enhance  and   differentiate  a  brand’s  value  proposition.     There  are  a  number  of  factors  driving  this  trend.  Many  consumers  today  already  treat  shopping  as  a   leisure  activity  in  its  own  right.  Consumers  are  also  increasingly  drawn  to  a  new  generation  of  lifestyle   brands.  Alongside  this  is  the  appetite  for  life-­enhancing  experiences  in  addition  to  material  things,   evidenced  by  the  strong  growth  in  “adventure”  holidays  and  “experience”  days.     Another  driver  is  the  seemingly  insatiable  need  for  people  to  showcase  their  participation  in  activities   and  experiences  on  social  media.  Retailers  will  increasingly  align  not  only  their  brands  but  also  the   shopping  experience  itself  to  this  consumer  desire  for  encounters  worth  sharing.  This  can  already  be   seen  with  the  emerging  trend  for  integrating  social  media  with  in-­store  retail,  with  the  aim  of  creating   socially  driven  shopping  experiences.  In  2015,  Victoria’s  Secret  encouraged  shoppers  to  take  selfies   in  front  of  displays  and  show  them  to  sales  assistants  in  return  for  a  free  gift  –  and  hopefully  share   their  selfies/experiences  with  friends.     Key  takeaways   The  provision  of  distinct  and  tangible  shopping  experiences,  online  and  real-­world,  will  become  a  key   means  to  enhance  and  differentiate  a  brand’s  value  proposition.  But  retail  brands  must  ensure  that  the   experience  in  question  provides  genuine  delight  and  value;;  otherwise,  there  is  a  danger  consumers   could  view  it  as  a  stunt  or  gimmick.     The  pretzel-­shaped  shopping  journey   The  traditional  notion  of  a  universal,  linear  shopping  journey  that  all  consumers  dutifully  follow  is   already  disintegrating,  and  by  2026,  the  concept  will  be  completely  outdated.     Due  to  the  proliferation  of  wearable  devices  and  technology,  smart  TVs,  connected  cars  and   household  appliances,  beacons,  and  other  technologies,  the  consumer  journey  in  2026  will   increasingly  look  like  a  pretzel  that  twists,  turns  and  loops  back  on  itself.  Consumers  can  start  and   end  their  shopping  experiences  on  a  mobile  platform,  in  store  or  online.  It  is  a  fluid  movement  that  by   2026  will  be  even  harder  for  retailers  to  keep  up  with  or  predict  because  it  will  include  a  growing   number  of  devices  and  touchpoints.     Key  takeaways   One  of  the  key  conditions  for  success  for  retailers  in  2026  will  be  their  ability  not  only  to  keep  track  of   users  across  a  growing  number  of  devices  and  touchpoints,  but  also  to  figure  out  how  to  effectively   measure  which  of  those  are  most  effective  at  driving  sales.  This  will  imply  a  growing  level  of   sophistication  in  how  sales  are  attributed  to  the  different  marketing  touchpoints.   The  sharing  economy  is  here  to  stay  but  with  a  mixed  impact  on  retail   The  trend  for  collaborative  consumption  that  is  emerging  today,  whereby  technology  is  used  to   facilitate  the  borrowing,  sharing,  lending,  renting  and  swapping  of  goods  and  services,  will  become   more  pronounced  by  2026.  The  trend  is  being  driven  partly  by  economics  and  the  drive  to  save  or   make  money,  along  with  the  diminishing  desire  to  own  digital  content  on  physical  media,  evidenced  by   the  strong  growth  of  streamed  music  and  TV  services.  The  sharing  economy  is  also  being  shaped  by  a  mindset  that  is  far  more  attuned  to  environmental  issues  and  the  need  to  maximize  existing   resources.     While  collaborative  consumption  will  have  a  strong  impact  on  hospitality,  we  expect  its  impact  on  retail   to  be  mixed.  The  popularity  of  the  Airbnb  model  means  that  others  will  follow,  and  over  time  this  could   have  a  negative  impact  on  traditional  hotel  chains  and  package  holidays.  Retailers  of  infrequently   used  or  non-­personal  products  could  also  feel  a  hit.  For  example,  hardware  retail  could  be   undermined  by  a  secondary  market  for  sharing  or  renting  higher-­value  DIY  tools.     Key  takeaways   Smart  retailers  will  need  to  learn  how  to  exploit  the  sharing  economy  to  their  benefit,  and  there  are   several  examples  of  retailers  that  have  found  innovative  and  creative  ways  to  do  this.     One  example  is  the  partnership  between  Marks  &  Spencer  (M&S)  and  the  charity  Oxfam.  For  three   years,  M&S  and  Oxfam  ran  a  program  whereby  consumers  could  donate  old  M&S  clothes  to  Oxfam   charity  shops  and,  in  return,  receive  a  discount  voucher  against  new  M&S  apparel.  This  type  of   program  has  since  been  copied  by  other  retailers,  such  as  H&M  and  Ikea.  Ikea  allows  customers  to   return  their  unwanted  Ikea  furniture  to  participating  stores,  where  it  is  resold  or  donated  to  charity.     On  a  slightly  different  but  related  note  is  an  initiative  from  Hasbro,  which  is  tapping  into  the  growing   popularity  of  homemade  crafts,  sometimes  referred  to  as  the  maker  movement.  Hasbro  has  created  a   site  called  SuperFanArt.com  that  allows  fans  of  My  Little  Pony  to  showcase  art  and  sell  3-­D  printed   designs.   Supporting  the  sharing  economy  can  also  become  part  of,  and  reinforce  retailers’  commitments  to,   wider  sustainability  and  environmental  issues,  which  sends  a  positive  message  to  consumers.  Some   retailers,  such  as  Ikea,  H&M,  M&S  and  the  Kingfisher  group,  are  members  of  the  Circular  Economy   100,  which  is  driven  by  the  Ellen  MacArthur  Foundation.  A  circular  economy  is  one  where  waste  is   minimized  through  recycling,  repairing,  repurposing  and  even  reinventing  products  and  materials.   Pure  play  and  physical  retail:  blurring  boundaries   “Physical  retail  will  still  exist,  but  it  will  need  a  good  reason  to  exist.”  Dunkin’  Brands   Online  moves  into  the  real  world   New  entrants  to  retail  will  typically  start  from  an  online  pure-­play  perspective,  moving  to  test  out   physical  retail  space  with  pop-­ups  and  then  networks  of  collection/showcase  stores.  This  is  already   the  case  in  furniture,  where  new  entrants  have  built  brands  and  a  design  aesthetic  online  but  added   little  in  the  way  of  physical  showroom  space.  For  many  customers,  one  visit  will  be  enough  to  build  the   trust  necessary  to  make  future  purchases  without  needing  to  physically  see  and  feel  each  new   product.     Existing  pure-­play  online  retailers  will  continue  to  develop  physical  presences,  mainly  to  enhance   fulfillment  and  customer  service  for  multi-­brand  sellers.  For  most,  this  will  take  the  form  of   partnerships  along  the  lines  that  are  emerging  today,  such  as  the  click-­and-­collect  models  adopted  by   UK  retailers.  The  UK  today  is  the  most  advanced  market  for  click-­and-­collect  models,  examples  of   which  include  ASOS  and  Boots,  and  eBay  and  Argos,  a  partnership  that  started  in  the  UK  and  has   been  extended  to  Ireland.    The  Argos  and  eBay  partnership  allows  all  eBay  buyers  to  pick  up  their  items  at  one  of  Argos’  750   stores,  thus  opening  the  click-­and-­collect  model.  eBay  buyers  who  choose  Argos  collection  choose  a   store  and  store  address,  including  a  unique  code  identifier.  This  is  given  to  the  seller  to  post  the  item.   When  the  item  arrives  at  the  store,  the  unique  code  is  used  to  trigger  alerts  to  the  buyer  that  his  or  her   item  is  ready  for  collection.  Argos  gets  a  small  fee  for  handling  each  parcel  and  benefits  from   increased  traffic.  While  there  was  some  concern  that  eBay  would  cannibalize  Argos’  sales  (it  is  a   general  merchandise  retailer,  selling  everything  from  electrical  devices  to  toys,  DIY  and  home   products),  the  partnership  has  been  extended  to  Ireland,  and  more  than  a  million  eBay  items  a  year   are  collected  from  Argos  stores.     Online  retailers  are  also  establishing  a  physical  presence  to  support  the  showcasing  of  brand  and   private-­label  products.  It  can  also  help  them  to  provide  the  shopping  experiences  that  many   consumers  crave,  as  discussed  earlier  Amazon  is  a  high  profile  example  here.  The  online  giant  has   opened  its  first  physical  Amazon  Books  in  Seattle  in  late  2015,  following  experiments  with  pop-­up   stores.  A  second  is  planned  at  a  mall  near  the  University  of  California,  San  Diego.  The  Seattle  store   sells  books  but  also  show  cases  Amazon’s  range  of  devices  (e.g.  Kindle  Fire  tablets,  e-­books)  along   with  the  Echo  voice-­controlled  speaker.  We  expect  Amazon  to  open  more  real  world  stores  that  will   increasingly  feature  other  “star”  products  besides  books.  In  January  2016  Alibaba,  China’s  leading  e-­ commerce  player,  opened  its  first  physical  store  in  Tianjin  (a  Free  Trade  Zone),  North  China  to  boost   sales  of  its  imported  products.   Key  takeaways   The  already  blurred  lines  between  physical-­heritage  retailers  and  Internet-­heritage  retailers  will  have   been  eradicated  by  2026.  The  former  will  continue  to  reduce  the  amount  of  physical  space  they  hold,   switching  their  investment  emphases  online,  while  the  latter  will  invest  further  in  establishing  physical   presences  to  support  the  showcasing  of  brand  and  private-­label  products.  While  the  large  pure-­play   Internet  retail  brands  will  survive,  the  term  pure  play  will  be  rendered  obsolete.     Physical  retail  still  exists  but  not  as  we  know  it     Manufacturer  brands  gain  more  power  in  retail   For  many  retail  sectors,  physical  retail  space  will  include  more  manufacturers  and  private-­label   retailers  increasingly  looking  to  showcase  products  and  build  brand  awareness  directly  with   consumers,  with  less  emphasis  on  “take  home”  product  transactions.  These  will  tend  to  be  small-­ format  stores.  Retail  store  leases  will  continue  to  shorten,  and  in  some  cases,  more  innovative  models   will  evolve  to  allow  manufacturers  and  private-­label  online  retailers  to  road-­show  new  products  or  their   brands  with  event-­driven  pop-­ups.  Nespresso,  which  makes  premium  coffee  capsules  and  machines,   is  a  master  of  the  pop-­up  boutique  model.  Smartphone  and  tablet  manufacturer  Samsung  took  a   similar  approach  for  its  flagship  Galaxy  device,  creating  a  network  of  Samsung  Galaxy  pop-­up  studios   to  showcase  and  sell  the  product.         While  pop-­ups  have  often  been  confined  in  the  past  to  vacated  space  and  therefore  less-­premium   locations,  in  the  future,  we  foresee  pop-­ups  occupying  more  desirable  locations  to  satisfy   manufacturer  demands.  Manufacturers  will  want  the  reach  of  a  large  store  network  but  not  all  year-­ round,  and  the  impact-­driven  model  means  they  will  want  to  concentrate  resources  at  a  few  locations   at  a  time.    Key  takeaways   Manufacturers  have  already  demonstrated  their  power  over  retailers,  especially  in  the  electrical   devices  market,  and  will  favor  only  those  retail  sites  where  they  have  control  over  how  their  products   are  displayed,  such  as  department  store  concessions.   An  increasingly  fragmented  physical  footprint     The  sale  of  branded  products  will  continue  to  migrate  to  the  web,  as  online  merchants  benefit  from   price-­comparison  shopping,  except  where  superior  service  and  customer  experience  can  justify  the   higher  price  points,  such  as  at  premium  department  stores.  The  “pile  them  high,  sell  them  cheap”   model  will  only  remain  viable  at  the  very  lowest  end  of  the  market,  where  the  urgency  of  attaining   products  and  the  lack  of  a  delivery  charge  supersede  a  lower  online  price.     Demand  for  large-­footprint  physical  retail  space  will  continue  to  fall,  as  the  need  to  keep  complete   inventories  in  stock  at  every  store  diminishes  due  to  improved  logistics  built  around  online  delivery   and  the  click-­and-­collect  model.  This  will  increase  the  pressure  on  the  existing  space  to  be  more   efficient  and  effective,  although  the  ability  to  understand  and  measure  the  impact  of  physical  space   becomes  more  problematic  as  channels  merge.     Key  takeaways   We  will  see  retail  move  from  an  online–physical  distinction  to  an  experience–fulfillment  distinction.   Stores  in  premium  locations  will  concentrate  on  the  experience  at  the  expense  of  the  immediate   availability  of  a  large  range  of  products,  while  less  desirable  locations  will  dedicate  space  to  housing   as  large  a  range  as  possible  to  satisfy  the  significant  part  of  the  market  that  will  still  prefer  to  buy  in   store,  or  that  will  have  an  immediate  need  or  impulse.     Temporary  pop-­up  stores,  with  retailers  and  manufacturers  moving  around  to  road-­show  products,  will   be  widespread,  giving  retail  space  a  more  dynamic,  interactive  feel.  Pop-­up  stores  will  be  integral  to   the  retail  experience  rather  than  an  opportunistic  use  of  vacant  space.     Value  and  discount  players  will  continue  to  operate,  as  some  protection  from  online  competition  will   remain  due  to  their  price  points,  product  availability  and  urgent  consumer  need,  though  more  will   move  online  as  some  of  the  larger  players  find  ways  to  make  money  from  selling  low-­value  goods   online.   Goodbye  to  silos   Today,  all  major  retailers  are  pursuing  an  omnichannel  strategy,  but  in  many  cases,  the  execution  is   proving  better  on  paper  than  in  practice.  By  2026,  this  will  no  longer  be  the  case  –  retailers  will  have   truly  mastered  omnichannel.   From  omnichannel  to  omnibrand   The  first  phase  of  the  omnichannel  evolution  that  we  see  today  is  often  characterized  by  a  silo   approach,  whereby  different  channels  have  different  marketing,  merchandising,  accounting  and   supply  chains.  This  is  essentially  a  multichannel  strategy  without  integration.  Marketing  messages,   pricing  and  product  availability  can  be  inconsistent  across  channels,  leading  to  frustration  for   consumers.  However,  by  2026,  we  expect  retailers  to  have  addressed  these  issues,  and  instead  of   thinking  and  executing  in  terms  of  channels,  they  will  instead  view  consumer  touchpoints  as  working   together  to  support  an  integrated,  consistent  omnibrand  experience.    Key  takeaways   The  retailers  that  will  thrive  will  be  the  ones  that  allow  customers  to  shop  when,  how  and  where  they   want  to.  This  requires  significant  investment  in  technology  and  logistics  and  will  be  a  struggle  for   smaller  physical-­heritage  retailers,  many  of  which  will  be  squeezed  out.  Start-­up  retailers  will  come   from  a  tech-­savvy,  Internet-­first  standpoint  and  will  be  better  equipped  to  develop  an  omnibrand   strategy.     Fulfillment  is  a  major  battleground,  ushering  in  new  models   Fulfillment  is  becoming  a  major  battleground  that  will  continue  to  develop  over  the  coming  years  as   retailers  experiment  with  different  models.  By  2026,  deliveries  will  be  on  the  same  day,  with  even   narrower  time  slots,  as  a  matter  of  course.  Amazon,  ever  a  trailblazer,  is  already  moving  toward  this   scenario  with  its  one-­hour  delivery  service  that  is  offered  as  part  of  its  subscription-­based  Amazon   Prime  premium  service.       The  rise  of  click  and  collect   Today,  the  majority  of  retailers  are  utilizing  pickup  points  in  convenience  stores,  post  offices  and   lockers,  along  with  the  more  established  own-­store  click-­and-­collect  model.  In  the  UK,  which  has  the   most  mature  click-­and-­collect  retail  market,  the  value  of  goods  collected  in  store  is  expected  to  rise  by   78  percent  by  2020,  as  shown  in  Figure  1,  with  the  value  of  goods  being  picked  up  from  lockers,   convenience  stores  and  other  locations  increasing  threefold.     .     Figure  1:  UK  click-­and-­collect  market  –  value  of  goods  collected         Source:  Verdict   Key  takeaways   We  expect  further  partnerships  to  be  made  in  order  to  allow  Internet-­based  retailers  to  build  up   physical  collection  points.  We  also  foresee  noncompeting  physical  retailers  collaborating  to  allow  the   collection  of  each  other’s  products  in  each  other’s  stores.  This  will  allow  them  to  maintain  a  virtual   geographic  presence  despite  the  need  to  reduce  their  own  physical  store  networks.  By  2026,  the  proportion  of  sales  fulfilled  in  store  that  were  ordered  online  will  be  such  that  the   emphasis  on  how  to  upsell  collecting  customers  will  be  of  much  greater  importance  than  it  is  now.   Store  formats,  layouts  and  in-­store  customer  engagement  will  need  to  be  adapted  accordingly.     However,  despite  the  rise  in  collection,  home  delivery  will  still  be  the  dominant  method  of  receiving   online  orders,  and  we  expect  to  see  increasing  efficiencies  and  improvements  in  services  from   couriers  over  the  next  10  years.     The  race  to  find  new  delivery  systems   Despite  the  reduced  costs  of  operating  online,  the  cost  of  fulfillment  has  made  even  the  largest   players  struggle  to  turn  a  profit.  The  retail  winners  of  2026  will  be  those  that  can  get  goods  to   consumers  the  fastest  and  most  cost-­efficiently.  The  largest  players  will  invest  in  their  own  delivery   systems  in  order  to  gain  differentiation,  as  Amazon  has  already  done.   However,  the  use  of  drones  and  driverless  cars  for  delivery  will  not  be  widespread  by  2026,  largely   due  to  security  and  safety  issues.  Concerns  on  this  front  will  be  a  catalyst  for  investment  in  other   models;;  for  example,  Uber-­style  delivery  will  reach  the  mass  market.   By  2026  though,  the  click-­and-­collect  model  will  be  well  established  at  all  the  major  retail  chains  in  key   markets,  and  the  other  winning  methods  of  collection  will  be  clear,  so  that  delivery  service  is  unlikely   to  continue  to  be  a  key  differentiator  at  the  retail  level.   Toward  a  mobile-­centric  retail  experience     “Mobile  is  the  glue  between  our  digital  and  physical  universe.”  House  of  Fraser   “Mobile  plays  a  part  in  every  single  customer  journey.”  New  Look   Mobile  devices  are  already  a  key  platform  for  digital  content  and  communications,  and  the  same  is   becoming  true  in  the  retail  and  commerce  domain.  This  is  being  driven  by  the  huge  growth  in   smartphone  sales  volumes,  which  will  reach  2.05  billion  by  2020,  as  shown  in  Figure  2.   Key  takeaways   The  widespread  adoption  of  increasingly  powerful  smartphones  with  larger  screens  is  improving  the   m-­commerce  experience.  Meanwhile,  more  and  more  retailers  are  optimizing  their  sites  for  mobile   shopping.  Together,  these  developments  are  turning  the  smartphone  into  a  platform  that  can  support   the  whole  shopping  journey,  from  product  search  and  discovery,  to  comparisons,  recommendations,   and  payments.    Figure  2:  Global  handset  sales  volume  –  by  segment         Source:  Ovum   At  the  global  level,  Android-­based  smartphones  will  continue  to  dominate  the  market  going  forward   and  eclipse  Apple  iOS  devices,  as  shown  in  Figure  3.  This  has  far-­reaching  implications  for  mobile   payments,  indicating  that  Android-­based  m-­payment  apps  like  Android  Pay  (Google),  Samsung  Pay,   LG  G  Pay  and  others  will  have  a  huge  opportunity  in  terms  of  potential  scale.  We  expect  to  see   intense  competition  not  only  in  terms  of  Apple  versus  Android  but  also  among  individual  Android  m-­ payment  providers.        Figure  3:  Android  vs.  Apple  iOS  sales  volumes         Source:  Ovum   Contextual  location  becomes  a  building  block  for  retail   By  2026,  contextual  location  will  be  an  integral  part  of  the  retail  experience,  driven  by  mobile   technology.  The  ability  to  identify  a  user’s  location  and  deliver  targeted,  timely,  contextually  relevant   information,  advertising  and  marketing  messages  is  a  powerful,  compelling  proposition.  Moreover,  the   real-­time  aspect  of  location  analytics  will  offer  a  more  adaptive  approach  to  marketing,  enabling   retailers  to  change  their  marketing  and  engagement  in  real  time  to  meet  an  individual  consumer’s   needs.     There  is  already  a  growing  focus  on  hyperlocal  commerce  –  precise  targeting  within  a  highly  defined   location  –  both  outdoors  and  in  building.  Today’s  efforts  are  still  largely  in  experimental  mode,  but  by   2026,  hyperlocal  commerce  applications  will  be  more  widespread,  with  Bluetooth  Low  Energy  (BLE)   beacons  being  an  important  enabling  technology.  BLE  beacons  are  tiny  units  with  built-­in  sensors  that   can  broadcast  signals  to  BLE-­enabled  devices  within  range,  triggering  corresponding  beacon   applications  on  the  device.  This  enables  retailer  brands  to  engage  with  consumers  through  targeted,   contextual,  relevant  marketing  messages  and  offers.  Another  potential  benefit  to  retailers  from  beacon   applications  is  the  ability  to  engage  their  customers  after  they  have  left  a  physical  store.  For  example,   if  a  customer  has  stood  in  an  aisle  looking  at  smart  TVs  for  more  than  15  minutes  but  left  the  store   without  buying  one,  it  suggests  the  interest  is  there  even  though  it  has  not  led  to  a  purchase.  The   retailer  could  follow  up  by  sending  the  customer  suggestions  and  promotions  related  to  the  product  he   or  she  showed  interest  in.     Key  takeaways   A  positive  scenario  for  hyperlocal  commerce  is  based  on  the  premise  that  retailers,  brands  and  other   stakeholders  proceed  with  great  care.  For  retailers  to  make  a  return  on  investment  for  hyperlocal   commerce,  widespread  consumer  acceptance  will  be  needed.  Retailers  must  therefore  tread  carefully  in  the  initial  period  until  consumers  are  comfortable  with  hyperlocal  commerce  applications,  which  will   be  a  new  experience.     Prepare  for  a  mobile  payments  boom,  driven  by  m-­commerce   We  expect  to  see  very  strong  growth  in  mobile  payments  for  online  goods  and  services  over  the  next   five  years  and  beyond,  from  an  estimated  452.78  million  global  users  in  2014  to  2.07  billion  users  in   2019,  as  shown  in  Figure  4.  Please  note  that  for  forecasting  purposes,  we  define  m-­commerce  as   remote  consumer-­to-­business  (C2B)  mobile  payments.  Consumers  are  already  gravitating  to   smartphones  and  now  tablets  for  m-­commerce,  a  trend  that  will  accelerate  going  forward  as  the  user   experience  continues  to  improve.  Moreover,  the  number  and  value  of  m-­commerce  transactions  are   increasing,  rapidly  so  in  mature  markets.  M-­commerce  is  becoming  the  largest  m-­payment  segment  in   terms  of  transaction  value,  which  we  expect  to  grow  from  50.92  billion  in  2014  to  693.35  billion  by   2019.     Mobile  proximity  payments  initially  lag  –  but  good  prospects  beckon   Mobile  proximity  payments  (i.e.,  in-­store  m-­payments)  ramp  up  far  more  slowly  and,  in  the  earlier   years  of  the  forecast,  have  only  very  modest  traction  in  most  markets,  with  an  estimated  4.47  million   global  users  in  2014.  The  low  traction  for  in-­store  payments  today  is  partly  because  Near  Field   Communication  (NFC)  still  has  not  been  universally  deployed  across  retailer  Point  of  Sale  (POS)   acceptance  infrastructure.  This  in  turn  affects  consumer  adoption,  which  in  the  earlier  years  is  also   hindered  by  low  awareness  and/or  a  perception  that  such  payments  do  not  provide  any  benefits   above  and  beyond  existing  payment  instruments.  But  we  expect  this  situation  to  change  as  both  the   aforementioned  barriers  are  addressed:  as  support  for  NFC  becomes  more  widespread  among   merchants  while  consumers  appreciate  the  speed  and  convenience  that  in-­store  mobile  payments  can   bring.  NFC  mobile  proximity  payments  are  being  given  a  further  boost  by  the  widespread  adoption  of   Host  Card  Emulation  (HCE),  which  provides  a  more  flexible  way  of  implementing  NFC  that  helps   stimulate  competition.       The  result  is  that  by  2019,  the  global  user  base  for  mobile  proximity  payments  will  have  grown  rapidly   to  1.09  billion  users.  We  expect  that  NFC  will  scale  and  become  the  dominant  enabling  technology  for   mobile  proximity  payments,  accounting  for  939.10  million  global  users  by  2019.  The  user  base  for   non-­NFC  mobile  proximity  payments  (e.g.,  QR  codes,  SMS,  USSD)  has  been  higher  than  that  of   NFC,  with  the  former  having  40.08  million  global  users  in  2014.  However,  although  this  grows  to   151.78  million  global  users  by  2019,  it  is  substantially  behind  NFC  mobile  proximity  payments.    Figure  4:  Global  m-­payment  users  by  segment       Source:  Ovum   Key  takeaways   Although  mobile  payments  will  have  become  mainstream  in  most  markets  by  2026  (i.e.,  a  penetration   rate  of  the  total  device  base  of  25-­30  percent  or  more),  they  will  still  coexist  with  other  payment   instruments.  Payments  as  a  whole  evolve  slowly,  with  new  types  supplementing  old  ones  rather  than   replacing  them  outright.  This  will  be  true  of  mobile  payments,  although  the  pace  of  technology,  service   development  and  adoption  will  be  more  rapid  than  it  has  been  for  previous-­generation  payment   instruments.  By  2026,  m-­payments  will  have  reduced  the  use  of  physical  payment  cards  but  will  not   have  displaced  them.  Mobile  payments  will  likewise  not  have  totally  eradicated  cash,  although  the  use   of  cash  will  be  radically  diminished.     Mobile  loyalty  in  the  ascendant   Mobile  will  soon  become  the  dominant  channel  for  loyalty  programs  and  rewards.  Mobile-­enabled   loyalty  programs  can  provide  levels  of  interactivity  and  engagement  that  traditional  programs  cannot   match.  Mobile  channels,  particularly  when  location-­enabled,  can  provide  rewards  in  real  time.  They   can  be  further  enhanced  by  social  and  gamification  elements,  which  can  help  foster  a  sense  of   community  around  a  program.  There  is  also  a  practical  element  to  mobile  loyalty  programs  and   rewards  –  the  convenience  of  being  able  to  load  multiple  digital  reward  cards  into  a  mobile  wallet.  We   predict  that  by  2026,  traditional  plastic  loyalty  cards,  even  smartcards,  will  have  been  absorbed  into   mobile  wallets.   Moving  toward  mobile-­first  advertising     There  is  no  doubt  that  mobile  advertising  is  already  firmly  in  the  digital  advertising  mix  and  a   significant  driver  of  advertising  dollars.  By  2026,  mobile  will  be  the  dominant  (but  not  exclusive)   channel  for  most  brands,  while  in  emerging  markets,  advertising  will  be  a  mobile-­first  experience.   Ovum’s  mobile  Internet  advertising  forecasts  project  that  global  revenues  will  increase  from  22.64   billion  in  2014  to  63.94  billion  by  2019,  making  mobile  the  fastest-­growing  Internet  advertising   category,  as  shown  in  Figure  5.    Today,  most  mobile  advertising  happens  on  the  mobile  web  because  it’s  convenient  and  scalable.  But   there  are  other  mobile  channels  that  retailers  can  draw  on,  including  application-­based  advertising   and  messaging.  Consumers  increasingly  engage  with  digital  content  and  services  on  mobile  devices   via  native  applications,  and  where  consumers  go,  advertisers  follow.  Application  advertising  is  already   widespread  and  will  become  increasingly  scalable  and  sophisticated  going  forward.  Messaging   platforms  will  also  continue  to  be  a  key  touchpoint  in  the  future.  The  popularity  of  mobile  social   messaging  applications  is  being  fueled  by  the  growing  number  of  OTT  services  (such  as  WhatsApp),   and  this  shows  no  signs  of  abating.               Figure  5:  Global  mobile  Internet  advertising  revenue     Source:  Ovum   A  key  trend  driving  the  growth  in  mobile  advertising  is  substitution  from  other  channels,  and  we  expect   this  to  accelerate.  This  trend  was  strongly  evidenced  in  the  latest  findings  from  Ovum’s  ongoing   survey  of  U.S.  advertising  executives  on  behalf  of  the  Interactive  Advertising  Bureau,  as  shown  in   Figure  6.  Figure  6:  Mobile  advertising  spend  driven  by  substitution  from  other  channels     Source:  Ovum   Key  takeaways   We  anticipate  that  by  2026,  the  current  debate  pitching  advertising  via  the  mobile  web  against  native   applications  will  have  been  replaced  with  a  more  intelligent  approach  that  uses  the  channel  most   appropriate  to  device  form  factors,  target  audience  and  campaign  objectives.  For  example,  in  the   context  of  wearable  devices,  native  applications  are  most  likely  to  be  a  more  effective  advertising   channel.             Context  is  king     Moving  from  a  2-­D  to  3-­D  customer  perspective   The  range  and  depth  of  customer  data  insight  will  proliferate  over  the  next  10  years.  There  will  be   more  digital  services,  platforms  and  devices  than  ever  before  capable  of  generating  data  insights,   including  social  media  and  messaging  apps,  location-­based  services,  and  online  and  mobile   payments.  On  the  devices  front,  smartphones,  tablets  and  connected  TVs  will  be  joined  by  wearables,   medical  appliances,  connected  cars  and  multiple  embedded  touchpoints  in  smart  homes  and  cities.     Key  takeaways   These  multiple  sources  of  data,  combined  with  the  ever-­improving  capacity  to  reconcile  data  coming   from  different  devices,  will  enable  an  increasingly  rich  view  of  the  consumer,  moving  from  today’s  still   largely  two-­dimensional  view  to  one  that  is  fully  contextually  relevant,  as  outlined  in  Figure  7.  What  will   be  even  more  important  for  retailers  to  understand  will  be  how  these  multiple  customer  insights  relate   to  touchpoints  in  the  consumer  shopping  journey,  such  as  where  they  viewed  a  product  (location  and   device).  Figure  7:  Toward  a  360-­degree,  contextual  view  of  consumers       Source:  Ovum   The  rise  of  predictive  models  and  curated  shopping   The  ability  to  leverage  multiple  data  points  to  provide  a  contextual  view  of  consumers  will  drive  the   evolution  of  predictive  analytics,  giving  retailers  models  that  will  help  them  determine  consumers’   likely  future  actions  and  needs.  This  will  not  be  a  perfect  process  by  2026,  but  it  will  certainly  be   instrumental  in  reducing  the  risk  in  R&D  for  new  product  development.   There  will  also  be  a  rise  in  business  models  that  leverage  predictive  analytics  to  take  product   recommendations  to  the  next  level  by  providing  a  fully  curated  shopping  experience.  For  example,  a   subscription-­based  health  and  beauty  service  could  use  predictive  analytics  to  create  a  customized   package  for  a  person  that  anticipates  his  or  her  individual  needs.  Such  a  service  could  provide   genuine  convenience  and  delight.     Another  element  of  the  curated  shopping  experience  will  be  the  emergence  of  the  next  generation  of   digital  assistants.  Today’s  digital  assistants,  in  the  form  of  Siri,  Cortana  and  Google,  are  just  the   beginning,  and  going  forward,  digital  assistants  will  become  far  more  sophisticated,  applying  the   cognitive  power  of  artificial  intelligence  to  e-­commerce.  This  is  already  happening  at  a  very  early   stage,  as  evidenced  by  the  work  of  IBM’s  Watson  Group  and  its  acquisition  of  Fluid.  These  advanced   digital  platforms  will  eventually  become  available  on  a  white-­label  basis  to  retailers,  making  them   affordable  and  easy  to  implement.  Key  takeaways   We  predict  that  by  2026,  curated  shopping  and  digital  assistants  will  be  widely  used,  as  consumers   receive  an  ever-­increasing  number  of  promotions  from  an  ever-­increasing  number  of  stores.  Many   consumers  will  be  happy  to  let  a  trusted  assistant  do  the  job  of  identifying  the  deals  that  are  most   likely  to  be  of  interest  to  them  at  a  given  point  in  time  (for  instance,  by  filtering  out  clothes  that  are  not   their  size  and  by  focusing  on  items  the  user  is  looking  for,  such  as  prom  dresses).     However,  curated  shopping  and  digital  assistants  will  not  appeal  to  all  consumers  because  of   questions  of  agency  –  some  people  will  ultimately  prefer  to  retain  more  control  over  the  purchasing   experience.  Also,  some  types  of  products  lend  themselves  to  digital  assistants  more  than  others  –  for   example,  while  few  consumers  would  object  to  having  an  automated  assistant  add  discounted   replacement  batteries  to  their  shopping  carts,  the  same  may  not  be  true  for  consumers  of  higher-­ involvement  product  categories,  such  as  big-­ticket  consumer  electronics.   Consumers  take  more  control  of  personal  data  trade-­off  terms   By  2026,  consumers  will  have  come  to  expect  a  high  level  of  convenience  and  personalization  in  their   interactions  with  retailers  and  brands  and  will  accept  that  this  is  enabled  by  sharing  personal  data.   However,  consumers  will  be  far  more  aware  of  the  value  of  their  personal  data  and  will  expect  more   control  and  agency  over  the  breadth  and  depth  of  what  is  shared,  and  the  entities  with  whom  the   information  is  being  shared.  Retailers  will  need  to  recognize  and  respect  this  and  accept  that  there  are   gradations  to  privacy  depending  on  the  nature  of  the  data  sought  and  what  is  being  offered  in  return.   For  example,  health  and  finance  products  are  associated  with  highly  sensitive  information  that   consumers  will  only  want  to  share  with  trusted,  expert  health  or  finance  providers.   When  it  comes  to  privacy  control,  we  predict  that  users  will  increasingly  want  centralized  control  over   data  that  is  spread  across  many  different  sites.  As  a  result,  by  2026,  initiatives  such  as  the  GSMA’s   Mobile  Connect  in  the  UK  will  have  become  standard.  Mobile  Connect  gives  consumers  a  single   digital  ID  that  they  can  use  to  securely  log  on  to  sites  and/or  authenticate  payments  from  their  mobile   phones.  More  importantly,  it  allows  consumers  to  control  how  much  personal  data  they  share  with   third  parties.     Key  technologies  that  will  shape  retail   Hyperconnectivity  will  create  new  dynamics  in  retail   By  2026,  consumers  will  be  living  in  a  hyperconnected,  high-­speed  world  where  the  Internet  of  Things   (IoT)  will  be  part  of  the  everyday  fabric  of  life.  By  2020,  there  will  be  660  million  machine-­to-­machine   (M2M)  connections,  as  shown  in  Figure  8.  Over  the  next  10  years,  M2M  connections  will  make  retail   more  efficient  and  effective.  Connected  retail  display  cabinets  and  smart  product  tags  will  be   commonplace,  enabling  retailers  to  track  demand  and  report  on  stock  levels  in  real  time,  which  in  turn   will  improve  supply  chain  effectiveness.  M2M  connections  will  also  enrich  consumer  engagement  in   retail,  for  example,  via  connected  indoor  and  outdoor  digital  signage  equipped  with  sensors.  Content   and  advertising  feeds  streamed  to  connected  displays  will  be  adapted  in  real  time  to  anticipate  and   target  the  needs  of  consumers  based  on  local  conditions,  such  as  the  location  of  the  screen,  the  time   of  day  and  even  the  weather.    Figure  8:  Total  global  M2M  connections       Source:  Ovum   M2M  will  play  out  in  adjacent  sectors  that  will  impact  retail.  For  example,  connected  driverless  cars   with  built-­in  GPS  and  video  screens  supporting  streamed  content  could  become  an  important   marketing  platform  for  brands  and  retailers.  Connected  appliances  in  smart  homes  could  also  become   part  of  the  retail  equation,  and  Amazon  is  already  exploring  the  opportunities.  A  key  part  of  Amazon’s   emerging  smart  home  strategy  is  its  Dash  Replenishment  Service  (DRS),  a  test-­phase  product   replacement  service  that  will  integrate  with  third-­party  connected  devices  to  monitor  supplies  and   automatically  reorder  them  when  they  are  getting  low.  It  also  features  an  instant-­buy  Dash  button  that   can  be  retrofitted  onto  existing  products  or  built  into  new  ones,  allowing  consumers  to  make  their  own   purchases.   Key  takeaways   At  this  point  we  remain  skeptical  about  the  potential  of  many  IoT/M2M  payment  and  commerce   services.  Just  because  connected  things  can  be  turned  into  a  payment  platform  does  not  mean  they   should  be  –  there  has  to  be  a  genuinely  compelling  use  case.  If  not,  then  IoT  payment  and  commerce   applications  will  be  a  gimmick  rather  than  a  solution  to  a  genuine  problem  or  a  service  that  provides  a   significant  improvement  in  convenience  and  utility.  For  some  consumers,  IoT  payment  and  commerce   applications  might  infringe  on  their  sense  of  control  over  their  environment  and  could  cause  frustration   if  such  a  replenishment  service  locks  them  into  a  prescribed  list  of  suppliers.     Wearables  will  become  a  platform  for  m-­commerce,  albeit  with  limitations   There  is  a  lot  of  excitement  about  wearable  technology,  and  although  the  ecosystem  is  still  emerging,   the  number  of  wearable  devices  coming  to  market  is  increasing.  Ovum  expects  the  installed  base  for   wearable  devices  to  reach  650  million  by  2020,  as  shown  in  Figure  9.  Figure  9:  Installed  base  by  wearable  device  type     Source:  Ovum   We  do  not  foresee  wearables  becoming  a  mass-­market  m-­commerce  platform  in  the  manner  of   smartphones.  This  is  because  of  the  inherent  constraints  in  the  form  factors  and  capabilities  of   wearables,  the  obvious  ones  being  tiny  screens  and  the  fact  that  most  wearables  are  companion   devices;;  although  as  the  technology  matures,  wearables  will  become  smarter.  In  the  mobile  payments   space,  we  can  see  a  viable  role  for  smart  watches  in  tap-­and-­go  mobile  proximity  payments.     Key  takeaways   For  mobile  advertising,  the  key  benefit  of  wearables  will  be  as  a  source  of  very  granular  data  insights   and  also  new  types  of  behavioral  and  usage  data.  Wearables  of  the  future  will  have  the  ability  to   capture  a  wide  array  of  data  related  to  a  user’s  contextual  activity,  health  and  emotional  state.  This   information  can  be  used  to  enhance  and  tailor  both  products  and  marketing  messages  to  a  very  high   degree,  providing  it  is  within  acceptable  privacy  boundaries.  Indeed,  marketers  are  already  mindful  of   this  potential,  as  revealed  by  findings  in  the  Ovum  mobile  marketer  survey  shown  in  Figure  10.    Figure  10:  The  value  to  mobile  marketing  of  data  insights  from  wearables           Source:  Ovum   Augmented  reality  (AR)  will  be  a  strong  driver  for  online  and  physical  retail     We  think  that  going  forward,  augmented  reality  (AR)  rather  than  virtual  reality  (VR)  will  have  the   greatest  impact  on  the  retail  experience.  Our  definition  of  AR  describes  normal  views  of  reality  that   have  been  enhanced  by  digitally  generated  information  or  graphics  superimposed  on  that  view.  This  is   in  contrast  to  VR,  which  describes  fully  immersive  digital  environments  of  the  kind  being  developed  by   Facebook-­owned  Oculus  Rift.   AR  has  the  ability  to  blur  the  boundaries  between  the  physical  and  digital  worlds  and  with  it  the   boundaries  between  online  and  in-­store  shopping.  AR  will  give  online  customers  an  in-­store   experience,  addressing  the  fit-­and-­feel  issue  that  can  deter  consumers  from  making  online  purchases,   particularly  in  apparel.  For  example,  AR  will  allow  consumers  to  virtually  try  on  clothes  and  jewelry.   This  could  significantly  help  lower  returns  on  products  that  do  not  fit  one’s  body  or  personal  space,   such  as  clothes  and  home  furnishings.  According  to  a  survey  by  the  U.S.  National  Retail  Federation,   returned  merchandise  cost  U.S.  retailers  284  billion  in  potential  sales.  AR  apps  will  also  allow   consumers  to  view  products  in  their  homes,  which  can  then  be  purchased  on  the  spot  from  their   mobile  devices.   AR  will  also  be  widely  used  to  enhance  the  in-­store  experience,  particularly  for  concept  and   showroom  stores  that  we  are  starting  to  see  today  with  certain  high-­end  brands,  such  as  Burberry.     Forget  the  hype  –  3-­D  printing  will  have  a  limited  impact  in  the  retail  space     3-­D  printing  will  grow  but  only  if  it  can  provide  genuine  benefits,  quality  outputs  and  speed  at  a   reasonable  cost.  However,  even  if  3-­D  printing  does  manage  to  deliver  on  all  these  parameters,  it  will   still  have  a  limited  role  in  mainstream  retailing.  The  scenarios  in  which  we  can  expect  3-­D  printing  to   have  an  impact  relate  to  highly  personalized  products,  such  as  gifts.  It  could  also  be  used  for  spare   parts  in  more  complex  products,  such  as  cars  and  motorbikes.  For  more  simple  items,  such  as  DIY   goods  like  screws  and  hammers,  the  cost  is  already  so  low  that  the  benefit  of  production  via  3-­D   printing  would  be  minimal.  We  can  see  a  stronger  role  for  community-­run  3-­D  fabrication  shops,  which   ties  in  with  the  trend  for  collaborative  consumption  discussed  earlier.          

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