March 31, 2005

The Retail Perception Game

By Evan Schuman, eWEEK

Opinion: With contactless payment, RFID, self-checkout and biometrics, retailers have legitimate strong arguments to make but find it easier to tout false ones.

Large retail chains have always had a healthy dose of a shell game in their heritage, exemplified by the highly marketed new larger bottle of shampoo and the much higher, entirely unmarketed price tag that goes with it. A price increase by any other name still delivers fewer hair washes per dollar.

When it comes to retail technology, it seems those habits are hard to break. I was reminded of this when I spoke this week with the head of IT at the 1,200-store Ritz Camera chain as he delivered a brilliant and compelling argument for his chain's contactless payments system.

But he began his defense by saying that "the card stays in the customer's possession at all times, helping them feel a sense of security" against identify theft. You're arguing that a wireless credit card makes customers more secure against identity thieves, I had to ask? Long pause.

After an awkward moment, the exec conceded that it's truly a perception issue that very easily could be a perception based on wrong consumer impressions. He quickly backed off and proceeded to make a very strong, legitimate argument for the system, which had nothing to do with securing the customer's privacy.

Those comments stuck with me. Given the extensive truthful and powerful arguments he had to advance his position, why open with the weakest and potentially an untrue one?

Hold that thought for a moment. Let's take a look at a closely related and fast-growing payment technology: self-checkout. There are many powerful reasons why self-checkout makes a lot of sense, primarily that it takes employees away from jobs that computers can do (check out) and puts them where only humans can serve (bakery, deli, floral arrangements, helping customers get their bags packaged and to their cars, etc.). There's even the counter-intuitive reality that self-checkout is less attractive to shoplifters.

And yet, retail IT execs and self-checkout software execs invariably open their arguments with how much faster self-checkout will be for customers. There are many good things to say about self-checkout, but it simply isn't faster. A rank-and-file consumer can't possibly be as fast as a trained veteran cashier. Those execs typically concede the point and move on to more stable terrain.

Or consider biometric authentication for payments. That is also a technology that has plenty of true and compelling arguments in its favor, such as higher security and better CRM potential (one person may have several credit cards, but they'll likely only have one right index finger). But supporters often open their arguments saying that it's faster, easier and more convenient. Is it truly more convenient to hand someone a card or to place your finger onto a small panel (or into a hole) and wait while it's scanned?

It's a legitimate argument that few customers have absentmindedly left their finger at the grocery checkout lane (although I wouldn't put it past certain unnamed in-laws) and that one doesn't have to search through a wallet or purse to find a finger that hasn't maxed out its credit line. But to say that's the main reason for biometrics is a truth worthy of a presidential debate.

Getting back to contactless readers, another interesting claim is speed. There are many kinds of contactless devices. Speed is a very real argument for Mobil SpeedPass, where a flash of the fob buys a tankful of gas and for EZPass, where a car can cruise through a tollbooth at 20 MPH and effortlessly use up that tankful of gas.

But the major credit card companies—including MasterCard, Visa and American Express—are pushing credit cards with embedded RFID chips. That's what Ritz, for example, is testing out.

But unlike SpeedPass and EZPass, the credit card approach doesn't save the time of having to root through the wallet or purse to find the card and to then hold it just right in front of the reader for it to be read. A cashier works with it all day and knows precisely how to hold it, but a consumer will have to guess. If the advantage is that the card is never given to the cashier, the customer will have to make it work.

The true magic behind contactless payment readers is rarely discussed. First off, let's not discount the "gee whiz" factor. I've heard from more than a handful of IT execs—especially with retailers who see a lot of younger customers—that the curiosity factor of contactless might make paying for services a little more fun and interesting. For now, that should suffice, they rationalize.

Another critical element is that it opens the door to more advanced capabilities down the road, such as using fobs, integrating biometrics, linking in with supply-chain RFID systems, deploying smartcards, using cell phone/PDAs/smart phones as interactive devices, and integration with smart carts.

Retail technology today is one of the fastest-growing segments and is on the technology cutting edge for a reason. There are usually strategic and well-thought-out reasons for most technology initiatives. The question is whether your people understand what they are. If they don't, they'll grab the best-sounding false reason they can find. Unless you're a New Jersey politician, that's rarely a good long-term strategy.