Mobile Commerce: How Retailers And Brands Can Win

Marcelo Ballvé Nov. 8, 9:30 AM

Shoppers carry mobile devices everywhere they go, and they’re already using their phones to redeem coupons, research products, and pay for things online and offline.

With mobile it’s now feasible to track an individual from the beginning to the end of the consumer lifecycle — from the very first intention to shop for an item, to the actual purchase at point-of-sale.

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Total e-commerce retail spending in the U.S. (including mobile) was running at $208 billion annually as of the second quarter of this year, according to St. Louis Federal Reserve Bank data.

Mobile accounts for a small share of that amount, but marketing experts are predicting that this holiday shopping season will mark the year when mobile commerce makes its big splash. Already, mobile sales were 6.6 percent of Cyber Monday e-commerce sales in 2011, up from 3.9 percent in 2010, according to IBM. Judging by Google data, 29 percent of U.S. mobile users already have used their smartphones to make a purchase.

That said, offline sales still dominate the retail landscape (see chart above).

 

BII_mCommerce_TopRetail

 

In this report, we’ll first gauge the size of the mobile commerce opportunity in dollar terms, and then look at some of the top mobile commerce trends.

  • Mobile payments: Solutions like Google Wallet and Square are emerging as full-service shopping apps, not just transactional tools.
  • Tablet consumers: They spend more than PC users per online order. And increasingly, smartphone and tablet shoppers are different breeds.
  • SoLoMo and gamiifcation: are effective antidotes to the showrooming bogeyman. These trends are creating big opportunities for app developers.
  • Tagging and pinning: The rise of Pinterest, mobile native fashion apps — and the mobile commerce implications.

The Opportunity in Numbers

 

BII_mCommerce_Revenues

 

So how big is the opportunity — how fast is mobile commerce growing, and what are the niches where mobile commerce has carved out a significant role?

Here are ten statistics to serve as a guide. Then, in the next three sections, we’ll parse some of the opportunities in more detail.

  1. Mobile commerce revenue: Bank of America predicts $67.1 billion in revenue from smartphone and tablet retail purchasing by European and U.S. shoppers in 2015 (see chart above).
  2. Flash sales site Gilt Groupe says mobile now accounts for 40 percent of its traffic.
  3. Auction site eBay expects $10 billion in transaction volume from mobile devices in 2012.
  4. Advertising drives mobile commerce: In a 2012 IAB survey, 22 percent of mobile users said a mobile ad had prompted their mobile shopping activity.
  5. Traffic from tablet visitors to retail websites quadrupled during 2011, from one to four percent of visits. By March 2012, tablet traffic was seven percent, according to Monetate.
  6. By 2015, tablet commerce will account for 20 percent of all mobile commerce revenue.
  7. If mobile commerce can connect specific mobile ads to specific consumer purchases, that could double the $1.2 billion U.S. mobile ad industry, says Michael Collins of mobile agency Joule.
  8. On Black Friday 2011, (the day after the U.S. Thanksgiving Holiday) mobile promotions translated to a 30 percentmobile share of that day’s revenues for Gilt Groupe.
  9. Total U.S. Cyber Monday mobile sales were approximately $82.6 million in 2011, and we forecast they will nearly double to $154 million this year, based on Cyber Monday and mobile commerce growth trends.
  10. In the U.S., Pinterest saw 139 million visits in September 2012 compared to 9.2 million in the same period last year.One in five Pinterest users purchased something they have pinned.

Mobile Payments: Passbook And Beyond

There’s a reason why marketers are excited about Apple’s new Passbook — an app included with the latest version of Apple’s operating system for smartphones and tablets, iOS 6.

With Passbook, Apple wants to deliver an all-in-one shopping interface that eliminates the messy task of tracking dozens of frequent flyer numbers, loyalty cards, and electronic tickets.

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But from marketers’ points-of-view, it could identify individual consumers, track their tastes and purchases across devices, and open the door to individually-targeted marketing.

“Now, brands have a direct channel to deliver offers right into their customers’ pockets. No waste, no coupons forgotten at home, no missed opportunities,” Krishna Subramanian, chief marketing officer atVelti, recently wrote on Ad Age.

Apps like Passbook could allow mobile commerce to carve out a larger share of retailing dollars as big retailers sign on.

U.S. retailer Target, which recently integrated its app with Passbook, has total net retail sales of about $5 billion monthly. Starbucks, which also has integrated its loyalty and payment app with Passbook, has processed over 70 million mobile payments since 2011.

However, there’s one last link in the brand-to-consumer chain that Passbook hasn’t filled just yet. Right now, Passbook can’t be used to effect mobile payments.

However, since Apple has hundreds of millions of consumer credit cards on file, Passbook is a step away from emerging as a competitive mobile payments solution.

To do so, Apple would need to distribute complementary digital and offline technology that would allow third-party retailers to accept payments from Passbook, or acquire the technology of an existing company, like Square. For example, consumers in a store would open Passbook, tap a button, and see their payment confirmed by the retailer.

(Please see our recent news notes on Paypal Here and Groupon Payments services. And read our in-depth report on mobile payments for a description of leading mobile payment technologies like NFC and card readers, and how they work.)

But mobile payments are not so much about the act of effecting a “walletless” payment via a mobile device, but about the extra value such an app can create as a direct link between brands and consumers.

That’s the direction being taken by Passbook, which sidestepped payments to start with coupons, loyalty rewards, and ticketing — as well as integration with popular existing retail apps like Starbuck’s. (Though integration proved to bebuggy at first).

The established mobile payments players also have been racing to differentiate in terms of added services. They’re doing what Passbook’s done, but in the other direction: building on transactional solutions to offer shopping-related services.

Square, for example, has offered merchants the ability to design loyalty discount programs and track customers via the Pay With Square app.

The Tablet Consumer

 

BII_mCommerce_AOVtablets

 

It has long been known that consumers use their tablets to research purchases. According to comScore, over half of tablet owners used their devices to compare price, product, and store information. In a recent survey, one in five tablet users said they completed these activities, “almost every day.”

But tablets are also used to complete purchases, much more so than smartphones. And tablets drive more traffic to online retailers than smartphones.

In fact, by some measures, tablets even outperform desktop computers in generating retail revenues.

 

BII_mCommerce_Conversions

In 2011, tablet consumers spent 50 percent more per order on retail websites than smartphone shoppers — and more unexpectedly, 20 percent more than shoppers on PCs, according to a recent report fromAdobe Digital Marketing Insights

While conversion rates were still a shade higher for shoppers using PCs, the difference was not dramatic (2.5 percent for tablets, versus 3.2 percent for PCs during the 2011 holiday shopping season).

Retailers, the Adobe report concludes, can no longer afford a “one-size-fits-all” approach to mobile sites, and must optimize sites for tablet visitors. Econsultancy’s 2012 Conversion Rate Optimization report found that 64 percent of companies saw increased sales after designing their sites for tablets. But according to a Zmags study conducted in late 2011, less than one-third of the top 100 U.S. retailers had tablet-optimized sites.

The Retailer’s Toolkit: In-Store Mobile Marketing, SoLoMo And Gamiifcation

Whether online or offline, commerce has always struggled with two basic challenges:

  • Increasing consumer traffic.
  • Influencing shopping decisions just as the consumer’s about to buy.

Mobile attacks these problems head-on. With location targeting, shoppers can be enticed into stores for items they’re in the market for. With in-store mobile marketing, an indecisive consumer can be nudged toward a specific brand or product.

 

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What about “showrooming”? The mainstream business media has seized on showrooming as the main theme in the retail wars.
According to this view, bricks-and-mortar retailers such as Best Buy are locked in battle with app-savvy digital retailers like Amazon. Between them is the smartphone consumer, who evades mark-ups by “showrooming” (inspecting products in a store, while searching on smartphones for better prices online).
It’s true that with mobile devices, consumers are empowered and retailers may have less control over the shopping experience. 

But it’s also the case that many retailers have not turned the mobile opportunity to their own advantage.

Beyond the obvious solutions, like launching their own apps and mobile coupon schemes to fend off price competition (as many have already done), retailers large and small can leverage mobile to engage consumers and meld the best of digital and offline retail.

An example is the growing buzz around “gamiifcation,” which in the retail context is essentially a new approach to digital loyalty marketing (usually via apps). Gamified apps keep users engaged by offering challenges and rewards for completed tasks — just as games do.

These apps boost consumer engagement, and allow retailers to influence shopping decisions, while also producing a valuable trove of consumer data. Gamification bridges bricks-and-mortar and mobile.

Mobile shopping apps like Jingit can be seen as variations on the gamiifcation theme. Jingit has grabbed a lot of attention via its partnership with Walmart, the world’s largest retailer. Jingit users can earn cash rewards by interacting with certain products online or in stores (and by answering consumer surveys). Jingit even offers a visa debit card linked to its cash rewards.

The app touts itself to retail businesses as a way to “stay connected to, and follow, your customer through the entire lifecycle.”

 

MobileShoppingApps

Shopkick takes a similar rewards-based approach, with deals targeted by location. Shoppers can earn “kickbucks” for trying on clothes or scanning bar codes. They can also redeem rewards and coupons, and discover products — all at bricks-and-mortar stores. According to Nielsen, the average Shopkick user spends more than 3 hours a month on the app,far more than on apps like eBay’s or Groupon’s

Badgeville, a gamification start-up, has worked with retailers like Barnes & Noble to gamify retail loyalty strategies.

Another buzzword, over-hyped but important to understand in detail, is SoLoMo, or “Social Local Mobile.” Location-based services and social media have a very specific meaning for mobile commerce.

That’s because mobile users tend to use their devices to complete intentions (Where can I buy a nice umbrella? Is there a cheap cofeeshop nearby?), rather than as an in-depth research tool.

SoLoMo can be harnessed to increase foot traffic from these mobile users, but also to drive sales and engagement in the store.

Mobile payments solutions also come into play again, underscoring how central they might become to the entire mobile commerce landscape. Payment apps, like PayPal Here and Square, use location data to present users with menus of nearby stores that accept their services — in effect transforming the digital wallet into a dynamic shopping map.

And location-based services like FourSquare and Yelp double as referral sites to retailers, also sorted by location. Additionally, FourSquare and Yelp check-ins can easily be incorporated into gamification strategies (FourSquare, in fact, can be seen as having gamified retail as users competed to become the “mayor” of their favorite stores —before retailers hopped on the trend).

Once consumers are in the store, the same apps (or a specialized app like Shopkick) can be leveraged for loyalty programs or incorporated into gamification strategies.

An obvious but key stumbling block? The lack of a cell signal inside many stores, accompanied by a lack of Wi-Fi. A recent case study by Gamifixation found that a Best Buy retail store promoted FourSquare check-ins and Facebook posts via prominent in-store displays, but had neither an AT&T cell signal nor an easy way for customers to access Wi-Fi.

Tagging And Pinning

Other app categories closely tied with mobile commerce are fashion apps and scrapbook type sites such as Pinterest. Both are naturally suited to posting and tagging images of products.

study conducted in August by Bizrate Insights found that Pinterest’s strong point is discovery: 70 percent of Pinterest users said they used the site to find inspiration for what to buy, while only 17 percent of Facebook users did.

Mobile has become central to Pinterest’s growth strategy.

“Pinterest was made for tablets,” Pinterest’s founder, Ben Silbermann, recently told Fast Company. Even before Pinterest rolled out an iPad app (along with an Android phone app) in August, the iPad already accounted for 50 percent of Pinterest’s mobile traffic.

Like Pinterest, new mobile native fashion app Swaag.it takes an image-centric approach.

Swaag allows users to post photos of their outfits, tag the brands (Hanes, Uniqlo, Nike, etc.), rate each other’s posts, and face off in fashion “battles.” The surprise is that 60 percent of Swaag users are males, and the bulk of the most active users are 15- to 28-year-olds, according to CEO Peter Chun.

BII_Swaag

But even if the audience is there, and of interest to brands, how to monetize tagging and posting of images? Pinterest currently has no advertising.

According to Chun, a soon-to-be-released version of Swaag will include brand pages grouping user-generated photos of people wearing the brand’s apparel and footwear. Brands will be pitched header advertisements that link out to product pages or shopping carts. Chun sees promise in sponsorship deals with online retailers, and has inked one such partnership with street fashion retail site,Karma Loop.

While it’s still too early to tell if Pinterest and similar apps will find a pathway to monetization, it’s clear that Pinterest’s traffic is exploding, and that brands and retailers are taking notice.

THE BOTTOM LINE 

  • Purchases from mobile devices are on track to account for $154 million in Cyber Monday sales this year, and over $10 billion in 2012 sales, according to BII forecasts based on comScore data.
  • Tablet consumers spend more per transaction than PC-based shoppers. Tablets’ role in commerce will drive more brands and retailers to design tablet-optimized sites and campaigns.
  • Mobile payment apps will come to serve as full-service shopping suites, incorporating loyalty programs and couponing.
  • Gamification-influenced marketing campaigns will be increasingly influential.

Click here to download a PDF version of this report→

Click here to download the spreadsheet and charts for this report→

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