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Accenture

Silent Commerce will provide a new level of customer insight, along with the ability to better manage programs derived from that insight.

Imagine the following possibilities in the next one to five years:

o You know exactly how your consumers browse the products in your retail store — all the time, every time.
o Each one of your products interacts with customers.
o You can dynamically change the signage near your product and evaluate how that change affects consumers' interaction with your products.
o Your products can change their prices automatically — for example, as they near their expiration date, or when a specific customer looks at them.
o You can develop a planogram (a map of which products sit on which shelf) for every store and have it monitored remotely.
o You can use pay-for-performance contracts based on real shelf inventory data and merchandising effectiveness.

Welcome to the world of Silent Commerce, the business of making ordinary objects intelligent and interactive. Fueled by wireless mobile communications and sensing technologies (see sidebar), Silent Commerce will provide a level of customer insight never before available, along with the ability to better manage programs derived from that insight. It will help companies understand consumer interactions with their products, not just at the point of sale but at the shelf, at the point of decision. Making packages interactive and intelligent also will enable companies to uniquely identify, locate and track products all along the supply chain, from the manufacturer through to the consumer and even, potentially, through recycling.

Market Drivers

Though the technology behind Silent Commerce is not new, four significant drivers are hastening its development and adoption: much cheaper manufacturing, the rise of the Internet, systems improvements and greater market need.

In the past two years alone, the price of intelligence has fallen dramatically. RFID tags that used to cost $1 to $4 now cost less than 50 cents (some cost as little as 20 cents). Prices are projected to decline to five cents within the next two to three years.

In combination with cheaper chips, the Internet makes it considerably easier to connect RFID readers around the world. It used to require a private network to connect readers in the United States, Europe and Asia; today, a simple Internet connection is all you need.

ERP and supply chain systems have matured as well, creating the ability to manage and improve operations based on the information that RFID readers provide. Supply chain partners also are becoming better integrated, which increases the requirements for greater product and supply chain information.

Finally, companies aiming to reduce theft, diverting and counterfeiting find Silent Commerce especially attractive. It has the potential to improve revenues, increase margins and reduce costs. In its ability to hinder counterfeiting, for example, Silent Commerce not only helps restore a company's brand but also its investment in the intellectual property that more firms are recognizing to be an integral component of a product's value.

In addition, Silent Commerce meets the challenge of government requirements to identify and track products uniquely as they move through the supply chain.

Current Applications

For most organizations, the challenge will not be to find uses for Silent Commerce but to select which ones provide the greatest payback. In the areas of customer insight and operations management, companies are finding a wealth of applications.

Increased Customer Insight

Smart Shelf

Consumer goods manufacturers and retailers are working to develop a shelf that will know the identity, location and activity of every item in real time. This Smart Shelf also will allow loyalty programs to be managed at the shelf to reward shopping frequency, interact with products and potentially provide participating consumers with tailored messages. This approach also measures the impact of shelf advertising and promotional messages on consumer interactions and purchases.

Interactive Products

RFID and e-Ink will allow packages to interact with consumers. The RFID chip will provide a means to communicate with the package, while e-Ink will allow a package to change its appearance on demand. For consumers on special diets, for example, interactive products will help them understand if a product falls within their dietary needs. Rather than having to scrutinize a number of labels, consumers could focus on a small area of e-Ink that would act as a dynamic billboard. As they presented their loyalty card or indicated their diet, the e-Ink on each package could signal if the product were part of a particular diet, such as diabetic, kosher, vegan or high-protein.

More Granular Data

To facilitate keener customer insight and understanding, Silent Commerce will provide a whole new level of granularity in three broad areas:

Shelf Activity — Silent Commerce will allow every member of the supply chain to know the identity, location and activity of any item on a shelf. Shopping patterns will be revealed in real time, much like the click-through analyses that websites provide. Now we can tell how often people pick up products and put them down, where they start on a shelf and how they move through the items on a shelf.

This insight will have a tremendous impact on merchandising, allowing organizations to answer a host of questions they have not been able to answer before, such as: When an item goes out of stock, what other items begin selling? What is the optimal inventory level to drive sales? What impact does the number of facings have on sales? On the quality of merchandising?

Promotions will be similarly affected. What signage drives the most sales? With in-store video or dynamic signage capabilities, each location could understand what promotion and advertising activity drives the greatest amount of traffic and sales.

Finally, marketing data will become more granular. Silent Commerce will tell us when a new item has arrived — not in the store but on the shelf — and how long it takes consumers to start buying that item. This is the advantage of data received at the point of decision rather than at the point of sale.

Behavior-Based Loyalty Programs — Manufacturers and retailers can initiate programs that motivate consumers to look at new products on the shelf and then track their response through RFID-based loyalty cards. This would enable a manufacturer to create a program that rewards consumers not only for buying a product, which they can do today, but for looking at new products and/or frequenting their shelves. Further, with an interactive display (television, video or e-Ink), companies could tailor unique messages to customers based on the products they have recently bought or looked at.

Interactive Products — Based on who is using them, interactive products can change the information presented to the consumer. Products could even change their prices dynamically from one person to the next or change the price based on recent shelf activity or product features, like expiration dates.

Improved Operations Management

In addition to enhancing customer insight, Silent Commerce will allow organizations to better understand and manage programs they already have in place.

In-Store Merchandising

While manufacturers and retailers have always been able to create planograms for different store segments, they have not done so, primarily due to the challenge of enforcing the planogram in different locations. People must physically visit locations and visually assess whether products are in the right location. With Silent Commerce, the shelf itself can tell us if the desired planogram is being followed, since we know the identity and location of every item on the shelf. In fact, manufacturers and retailers could get a report every day from a segment of stores on how well they were adhering to the planogram.

Trade Funds Management

Trade funds have been one of the fastest-growing and hardest-to-control expenditures because performance can be so hard to measure. Silent Commerce can provide the insight to manage that process more effectively.

For merchandising, manufacturers can know with certainty if they are receiving the shelf space for which they are paying. They also can pay for adherence to merchandising sets, desired inventory levels and number of stores where the product is available. For in-aisle or end-cap promotional displays, manufacturers will know when the product was first available and how long the promotion ran. For volume discounts, manufacturers can provide payments based on items put on the shelf and sold, rather than on the number of cases shipped to a distribution center. This will thwart diverting and ensure that trade funds are used to put products in front of consumers in the chains and locations that manufacturers specify.

Consumer Activity

Silent Commerce will enable traditional bricks-and-mortar stores to receive consumer feedback on the same basis as websites do — on what consumers are viewing, where they are shopping, what products they are using and why. For virtually any location and category where people browse — bookstores, magazine racks, cold remedies, analgesics, baby foods — companies can collect and devise strategies to take advantage of that information. Magazine companies and advertising agencies, for example, could better understand what articles and ads consumers actually read and what pages they spend the most time on if RFID readers are installed in areas where consumers interact with the product.

Consumer Interaction

As products and packages become more interactive, companies will need to understand and develop business rules to tailor product interactions to individual customers or groups of customers. For example, packages that can change prices based on expiration date will create numerous challenges. At what point should the package start reducing its price? How much should the price be reduced? Packages that can change prices or messages based on consumer activity will provide a whole new set of challenges as well. If consumers keep picking up the product from the shelf, putting it down and not buying it, should you reduce the price? Change the message on the package? Or should you have someone check the product to make sure that it is not damaged?

Implications

Many of the same issues companies have struggled with on the Internet — huge amounts of data and the technical ability to customize virtually very image, message and price to every single customer — will be transferred to the bricks-and-mortar environment with Silent Commerce. The major difference is that it will happen in the space that represents the bulk of a company's business.

Demands to capture and act on deep consumer insight will only intensify, and the speed of decision making will increase. Today, most promotions are run with little or no insight until after they are completed. With Silent Commerce, manufacturers will be able to understand how the promotion is faring in real time. They will have to decide what could make it better and whether they should do it. Price too high? Reduce it with e-Ink. Messages not right? Create new ones and watch the shelf interactions change. Promotion working in some cities but not in others? Extend in some places and end in others.

Privacy concerns will emerge as well. However, the majority of Silent Commerce technologies are effective only in close proximity to a reader — from an inch to 10 feet — and tracking capabilities can be destroyed when customers leave the store. Indeed, consumers already have traded some privacy for greater convenience (with credit cards, for example) or safety (911 calls that can track locations). From the consumer point of view, the key will be to make the economic benefits of Silent Commerce more important than the perceived loss of privacy.

Proactive Responses

With an eye on market needs and competitive requirements, forward-thinking organizations are beginning to look at Silent Commerce opportunities from two different perspectives.

First, they are taking a holistic approach, working to understand how the technology can benefit their whole business and not just one facet. Once an object is embedded with Silent Commerce technology, a wide variety of capabilities becomes possible. For instance, rather than focusing just on product handling, successful companies also have considered the value of addressing counterfeiting, diverting, product liability and customer retention. One fertilizer company initially looked at Silent Commerce to improve product handling through automation. However, it soon realized that once the package became smart, it also could such solve other problems, such as: improve inventory management at key customers; address issues associated with paying rebates on some items twice; and make sure that the product was being used in the correct geographic region and during the correct time of year, thereby reducing product liability and product warranty issues. This approach fundamentally changed the company's economics and interest in Silent Commerce.

Second, rather than use Silent Commerce to solve a problem, organizations are focusing on how to use it to prevent the problem from occurring in the first place. As an example, many companies initially used Silent Commerce to help find things that were lost — containers, packages, cars and paper rolls. But once they began using the technology, they realized that the real benefit lies in never losing anything at all by always knowing the location of every item.

Of course, these responses barely skim the surface of Silent Commerce capabilities. A complete solution is still emerging as technologies and market needs are refined. How, then, can you know when your organization should begin looking at Silent Commerce?

The following situations provide early-warning indicators for when Silent Commerce is getting ready to explode:
o When the price of an RFID chip gets to five cents or less, it is time to jump in with both feet. If you wait for it to hit a penny, you will be too late.
o When you can pay for your lunch at a fast-food chain with your Mobil speed pass or similar system, retailers will need to make sure they offer similar payment options or lose their customers.
o When there are more automated tolls than manned tolls on your highways, then automated processing has arrived. Manual processes for checking goods in and out should be replaced.
o When your cereal box or other consumer product talks to you on special holidays like Mother's Day, New Year's and Halloween, then constantly interactive products are on their way.
o When one of the options on your refrigerator, washer or even DVD player is an RFID reader, the revolution will be over. If you are not on board, it will be hard to catch up.

Meanwhile, it is not too soon to begin asking key questions that will encourage your organization to appreciate the value of Silent Commerce:
o What is your total cost of counterfeiting and diverting (including both the lost sales and well as the potential damage to your brand)?
o How much do you spend on trade promotion and market development, and how well can you manage those dollars?
o What is the potential cost and liability to your customers when they use your product improperly?
o How much do you spend to recall products?
o How often do you give a rebate twice for the same product?
o How much do you lose in sales from out-of-stock products?
o How much better would your ERP and supply chain management systems work if they had more granular data, faster?
o How often is your bar code system a barrier to how you really want to run your business?

Like the capabilities of Silent Commerce itself, this list just begins to touch on the challenges and opportunities these new technologies pose. Taking action on the answers now, however, can deliver far deeper levels of customer insight — and far greater success — to the organizations that begin capturing the benefits of Silent Commerce.