Four areas to watch in 2022

June 13, 2022

It’s that time of the year again – the time when we make resolutions and sign up for those ill-fated gym memberships. It’s also a time to reflect. Meanwhile, the brave attempt to divine the future so, here at SG-retail, we have put our heads together to come up with four areas of retail that we think will explode in 2022. Our predictions may prove to be as accurate as a Sybil Trelawney prophecy, but here goes!

1) Retail Media

Brands are spending big money on Facebook and Google ads so it’s no surprise they are looking for more effective ways of marketing. If I search online for “detergent”, sure, I might want to buy detergent, but I might be an eco-warrior researching the effects of detergent on the environment, or a chemistry student looking at the constituents of the product, or a member of a marketing team analysing the logos of existing laundry brands. The point is, of course, that I may not actually be buying detergent. But if I’m on the Tesco’s website and I’m searching for detergent, there’s a pretty good chance I’m in the market to buy some suds and keep my clothes smelling of roses. And, shock horror, research shows that ads at the point of purchase are extremely effective. Retail media includes areas as diverse as sponsored ads on an e-com website, radio ads in-store, well-placed ads on petrol forecourts and much else besides.

For decades, Jeff Bezos kept Amazon ad-free, instead opting to build the ultimate organic customer recommendation engine, but in 2012 Amazon began the shift towards retail media by launching Amazon Advertising. In 2018 Amazon passed Microsoft to become the third biggest digital advertiser after Facebook and Google. Many retailers have followed suit and if you search for “detergent” on almost any of the major grocery websites these days you will find several ads at the top of the search. Best Buy joined the stampede by launching Best Buy Ads earlier this year.

With low costs to implement, retail media is a highly lucrative business. Given that retailers can generate income equivalent to 5% sales revenue when this is done well, it’s no wonder that everyone is keen to start getting in on the action.

2) Customer Data Platforms

Ok, this might not be sexy, but it works. A CDP is an evolved DMP – Pokémon fans think of a Magicarp turning into a fully-fledged Gyarados. The CDP is essentially the brain behind any kind of sophisticated personalisation / customer segmentation. Feed it with all the data you can collect (loyalty data, Facebook interactions, Instagram likes, newsletter engagement, transactional data, website clicks, cookie data, anything you can collect) and watch it whirr.

The principle is that data analysis and appropriate segmentation allows for better personalisation.

What used to require a team of data scientists can now be automated. CDPs used to be the preserve of very big companies, but we see the market set to increase rapidly as costs come down.

3) Open Banking Payments

What's not to like about a 2% margin boost each time a customer pays! If you haven’t noticed, Amazon is pretty good at making moves and where they lead it seems others invariably follow. In November last year, Amazon dropped a bombshell announcing that from 19 January 2022 customers would no longer be able to make purchases using Visa credit cards issued in the UK. Wait up, that’s next week – where do I sign on for a Mastercard?

The row between Amazon and Visa (which some described as a high stakes game of chicken gone wrong) was caused by the high payment gateway fees that Visa was charging. In layman’s terms, a payment gateway fee is the money the card company charges the retailer whenever you choose to pay with your card – which is basically all the time, n’est-ce pas? This is typically a small fee plus a small percentage of the transaction value. Bigger retailers get preferential rates, which is why smaller independents sometimes refuse to take either card payments or (to my personal frustration) Apple Pay and insist on cash instead. In fact, Apple Pay is even worse for retailers with Apple also taking their cut on top of the money already going to the card company.

Retailers typically lose around 2 – 3% on each card transaction and, as you can imagine, this soon becomes a huge cost for any retailer of significant size, which is why Amazon was battling for a lower rate. Now it’s fair to say that Amazon are a reasonably big enterprise and will receive rates well below yours (even from Visa) so if it’s worth Amazon reviewing their payment gateway fees it might be high time you did too.

Open banking will be the gamechanger here. It works a bit like a bank transfer. When I send my mate a tenner by bank transfer, no money goes to a card company. Direct debit works in a similar way, hence the lower fees. While direct debit is a ‘pull action’ (the retailer is pulling the money from the customer’s bank account to their bank account), open banking will allow customers to ‘push’ money from their account to the retailers. In simple terms it’s like a bank transfer to the retailer which circumnavigates the payment gateways.

This begs a question of course – what’s in it for the consumer?

To encourage consumers to pay in this way, the retailer will need to share some of the savings with the customer and this is usually best done through a well-designed and thoughtfully integrated loyalty programme. That way everyone wins - except for the card companies.

4) Digital Wallet Passes

Apps are cumbersome. From the retailer’s perspective, they are expensive to build and need frequent maintenance and updating, adding further to the costs. Things aren’t much rosier for the end user either. If you’re anything like me (and let’s hope you’re not, but that’s another matter), you’ll download less than one app a month, because it feels like a big commitment. Personally, I’m concerned about all the notifications I’ll receive, and, in any case, I’m constantly running out of storage and don’t want another app consuming 300MB: I’d rather keep those photos from that holiday I went on, thanks. If I download a new app, I usually have to choose one to delete, log into my apple account to download, wait for the download to complete, and then enter a ton of personal info I don’t really want to give away anyway. In short, apps feel slow and heavy.

Enter the wallet pass! The wallet pass sits in the native Apple or Google wallet which comes preinstalled on almost every device worldwide – the same place my beloved Apple Pay card sits. The onboarding process to download a pass can be completed in 30 seconds and the pass takes up virtually no storage space. The geofencing ability means the pass will automatically pop up on your lock screen when you need it to (for example as you approach the stadium on gameday).

Best of all for retailers, they are as cheap as chips to execute and require no maintenance or tech teams. A wallet pass has most of the benefits of an app, occupying digital real estate on the customer’s phone, creating a digital communication channel and providing a dynamic space for links and imagery. Retention rates are currently sky-high with 93% of wallet passes never being deleted.

Wallet passes have already become mainstream in the form of boarding passes or tickets to sports events, thanks to their baked-in security, traceability and eco credentials, but retailers are beginning to realise the benefits too. Nandos, Costa, Subway and many more are now deploying this tech and, let’s be honest, it makes total sense. Like it or not, the future is on your phone and many people these days don’t bother to carry a traditional wallet or purse (and no, this is not an Apple Pay ad!). By adding my loyalty cards to the digital wallet on my phone, I have my membership cards wherever I go and can even be prompted to use them when I enter stores. No more standing at the checkout kicking myself because I left my Boots Advantage card at home AGAIN!

While the example above shows how the digital wallet pass can be used as a replacement for a physical loyalty card, the number of potential use cases is wide reaching. Costa, for example, are using the passes as coupons. Stamp cards, ticketing, vaccination passes and much else besides can be, and have been, executed through the wallet pass.

And now, if you’ve read this far, thank you and here’s your reward.

With Variable Recurring Payments (VRP) due to go live in 2022, the user experience for open banking transactions is about to get a whole lot better. VRP will enable open banking payments to run through the digital wallet pass. This means you can present your loyalty ID and transact in a single scan. Yes, you read that right, open banking payment and loyalty scanning all in one. Plus real-time loyalty offers and redemptions. A perfect frictionless customer experience with improved retailer margin. It sounds too good to be true, but it’s on its way.

The times they are a changing…

As always, if there’s anything here that you’d like to discuss, get in touch with me here at SG-retail.

Alex Knapman, SG-retail

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