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February 7th, 2017

Mastercard’s Advice To Retailers: Personalize, Customize, Digitize And Socialize

Part of the "The Crossroads Of Ecommerce" Series

Mastercard executive vice president Linda Kirkpatrick dishes on the issues retailers face as the digital collides with the physical.

The retail industry is experiencing something of an existential conundrum. The next era of shopping, logistics, inventory, discovery and delivery is housed primarily in the digital, on-demand realm. And yet, 85% to 90% of all shopping is still done in physical stores.

As much as every retailer would love to just start over with an Amazon kind of model, the reality of consumer behavior and legacy infrastructure makes the shift nearly impossible.

The issues faced by retailers caused by the rise of the digital economy were felt at the margins or in niche segments for the last 15 years. Retailers like to say that the next five years will bring more innovation to the industry than the last 50 years combined. Some pain will be experienced.

ARC sat down with Linda Kirkpatrick, executive vice president of merchants and acceptance at Mastercard, at the National Retail Federation’s 2017 “Big Show” to discuss what retailers need to do to modernize the in-store experience in a world where the physical and digital rapidly converge.

Editor’s note: this transcript has been lightly edited for clarity and length.

The Uber-ization Of Retail And Payments

ARC: What are retailers focusing on these days? Is omni-channel still the biggest buzzword in the industry or are we evolving into new trends?

Linda Kirkpatrick: From a merchant perspective, omni-channel is a word that is overused. The way I like to look at it is, yes you have to be multi-device and engage consumers on multiple levels, but you have to think about it in the context of being personal, social, digital and custom. Really appealing to the consumer in ways that transcend the typical retail experience.

Think about personal. Communicating like a friend rather than like a brand is something that is so important. We get flooded with messages from retailers. Whether it be the traditional retail space, the digital space or the travel space. It is hard to sift through all of the offers and communications.

ARC: And a lot of those messages end up in spam. Even sometimes the ones I want end up in spam.

Linda Kirkpatrick: Right. And people say, why don’t you just take an hour and unsubscribe? Well, because these are my customers and I actually want to see what they are saying. And it is somehow rewarding when I can delete an email. So, it just works for me.

But the reality is that you need to communicate like a friend. The consumer needs to think that that message is made exclusively for them and not for the masses. To me that is first and foremost.

See also: How Mastercard Plans To End Cash

The second thing is customization. When you think about what consumers want, they don’t want to look or feel like everybody else. They want a unique experience. And that is a concept that, no matter how old you are—even if you are a Millennial—you want to be different. You want the thing that you can’t buy in the store. For the ability for the retailer to allow the consumer to curate the item and make it theirs, I think, is critical.

Digital is an enabler. The omni-channel environment enables you to customize. But the way in which you execute on it is key.

For example, this retailer coming to the keynote later on is one that allows women to customize their shoes. There is a baseline set of shoes and you are allowed to add a color, add a feature, add a texture. No pair of shoes are the same. Highly important for a consumer. If they are going to buy something from a retailer, they want it to be completely different.

The third thing is digital. And by that I don’t just mean with your mobile phone, but actually with any device that a consumer wants to leverage. We’ve had this release that every device can be a commerce device. Whether it is your jacket or your pen. Anything that can be connected, we want to enable payments to either be received or sent.

It is being able to pay however you want. But it is also about having the journey be frictionless and seamless. The search to purchase process is too cumbersome, I am going to stop. I am not going to continue, I am going to abandon my cart. So, I think there are still very few retailers that create that frictionless experience. The best experience I can point to is Uber.

Retail App Testing Learn the unique challenges and opportunities with launching winning retail apps Get It Now

We call it the Uber-ization of payments. That is what we aspire to. But I think that every retailer should be aspiring to the Uber-ization of retail.

For social … this is pretty much a no-brainer. You need to create a social buzz around your brand that no marketing agency, that no media company can replicate. The power of the consumer voice is stronger than multi-millions of dollars in a marketing contract.

The most important aspect of this and what we are talking about [at NRF] is safety and security. Because that is what we can bring to the table. We are not retailers, we are not travel companies, we are not QSRs [quick service restaurants], but we can bring safety and security to all of these partners in a way that allows for the personal, the custom, the digital and the social to exist. For us, that is paramount.

We have invested in tokenization and cryptography and the best, highest form of security that you possibly can to ensure that retailers can leverage it in a very open way through APIs. Because it is not something we can covet and keep as our own. We want to give it out to every one that wants it.

Did you know? Applause can help retailers solve ecommerce and digitization problems through product research and crowdtesting. See what Applause can do to help the retail industry here.

Understanding Data Is Foundational To The Next Era Of Retail

ARC: I am not sure there is a brand or retailer anywhere that would necessarily disagree with these four points of personal, customizable, social and digital. But I know a lot of them would say, “but how?” Not from some grand theoretical point of view, but rather from the logistical and practical implementation. It is machine learning now. A couple years ago it was social data mining or whatever. The pace of technology continues to confound retailers. How is Mastercard an example of the ability to enable these channels for retailers?

Linda Kirkpatrick: I think you nailed it. The foundation is data.

You need to use the data in order to figure out the personalized messages, how to customize the preferences, how to appeal to them in a social way and how to digitize the shopping journey. For us, we have over 2.3 billion cards globally. We collect non-personal data. So, anonymized, cleansed in a very privacy friendly way. We adjust it, we cleanse it, we spit out and we help our customers leverage purchasing behavior to do all of those things.

See also: The Inside Story Of How Apple Adopted Tokens, With A Little Help From MasterCard

One of the most recent acquisitions we made in data has been APT [Applied Predictive Technologies]. They have been working with retailers for a couple of decades to do just that. What they’ve got is a test-and-learn algorithm that is proprietary to them that allows them to adjust transaction data. They can now overlay the Mastercard data. They adjust retail transaction data. And everything can be compared to a sample set, a control set and can be defined and measured.

If you, as a retailer, want to measure the impact of a greeter at your store or what you are going to put on an endcap [a product display at the end of an aisle] or a feature in your online environment. And you want to compare that to see the impact on sales and how did it change. They’ve been doing it for Wal-Mart and McDonalds for years. And the reason they are so successful is that they do is that our customers can afford to make mistakes, but they can’t afford to make expensive mistakes. We’ve seen the retail announcements over the last couple of weeks. They are hurting. And they are trying to find ways to maximize and optimize their investments.

When you use data and you test-and-learn and you do it in a way that is smart, that allow you to make tweaks without having to invest hundreds of millions of dollars and then see the results in your sales, that is super powerful. I believe the way to do it is the data and the data is the foundation for everything that a retailer should keep top of mind for them and their strategy.

ARC: So, it is one thing to get this massive firehose of data. One of the big problems with Big Data over the last decade is how to structure it and then make decisions off of it. How do retailers, say like Macy’s that recently announced some bad news, make practical decisions on the floor level with this kind of data?

Linda Kirkpatrick: Macy’s has a million decisions to make on any given day. Right now they have to decide what stores they are going to keep open and what they are going to close.

But you need to give consumers a reason to go in the store. I order everything online, from my deodorant to my celery. If I am going to go to the store, it is only because I need to get something for that day or the next day. Because I can gets something [online] in two days, I don’t need to go to the store. If a retailer wants to stay relevant, they need to create an in-store experience that is very different from the digital experience. Very different from their competitor’s experience. Going into the store and not being able to find a sales associate. Or seeing a massive amount of inventory that you have to wade through. A massive amount of sales merchandise.

Sales are a different category. Retailers think that you discount a sale and people will come. That is not necessarily the case. Because people don’t have the time—certainly, I don’t—to sift through racks and racks of sales merchandise that are not in my size, not what I want. That’s where a retailer, to tie it back to APT and the data, can leverage the data to see where it is working. Is your customer experience that you’re offering in store working? Are you connecting your experience to categories that we know are growing.

See also: The Crossroads Of Ecommerce (Series)

If you look at or spending pulse data, the categories that are growing like gang busters are hospitality, dining, travel. If you look at airlines … airlines are making money for the first time in a decade. If you look at hotels, they are all about the heads and beds … they are able to charge rack rate during the week because of the corporate traveler and then on the weekend, you can’t find a reservation in some of the top cities. I can never find a reservation in Seattle. I have to pay $500 to stay in Seattle. So, hoteliers have figured it out.

If you look at dining establishments, whether it is QSR or fine dining, for the first time dining purchases equate to grocery purchases. People are dining out as much as they are cooking. Which is crazy.

If you are a retailer and what you want to figure out is how do I connect the in store experience to what consumer are actually spending their money on, which is hospitality, dining, travel …

You might ask how do I do that? How do I put an airline experience into a clothing store? Well, you can do it through partnerships. You can do it through coalition programs. You can do it through cards linked to offers if you are in the payment space. There are ways to do it. You have to be really creative, but there are ways to do it. You have to look at the data and you have to look beyond your own data. You know what the shoppers are doing in your store, but you don’t know what they are doing outside.

Listen to the Voice of Your Customers Improve Your Customer Experience With App Store Analytics Get It Now

Ecommerce And The Erosion Of Traditional Retail

ARC: And yet, we are beginning to see the erosion of traditional retail. All of the stores work on a high overhead, low efficiency model. In store traffic is down something like 12% to 16%. Coincidentally, depending on the source of the stats, ecommerce is now between 12% and 16% of retail sales.

Linda Kirkpatrick: 19% over the holidays.

ARC: Right. So the focus on using APT style data to improve in-store experience is just one part of this equation. How do retailers make the shift to use the APT-style of data and apply it more to the Amazon model, the digital storefront model?

Linda Kirkpatrick: Ecommerce is still only 11% of total retail sales. The in-store experience still matters. Perhaps in 10 years we will see a bit of a shift. But if you think about the consumer, the consumer still wants to go to a store. The consumer is still saying that I don’t only want to communicate with you digitally. And when you think of stores from the likes of Apple, Microsoft, Google, they lend themselves to minimalist storefronts because, once you’ve seen a product, a product is a product is a product. A iPhone 7 versus a 6S … you know what you are talking about.

This purse can help you make a payment.

When you talk about clothing, it is still a touch and feel kind of thing. When you talk about grocery, people are still going out and a major of people in the grocery category still want to look at their fruits and vegetables. Not me … but most.

ARC: Last summer I spoke to a lot of banks and financial institution types about how they build or adopt technology. For years, the banks stayed on the sidelines of innovation, partly to see what trends ultimately take place and which ones have staying power. But they also just have very little in-house experience and have trouble luring top tech talent. One answer to this conundrum has been to take a vendor-based a la carte approach. Mastercard, as an enabler through things like white-labeled Masterpass, is a very good example of this.

Now, retailers are kind of the same way. Retailers do not have the in-house tech talent and often don’t know where to look to be able to obtain the solutions and implementation they think they need or need but have no idea it exists. To a certain extent, this is one of the reasons that NRF has essentially become a tech show. What is the answer to this skill gap between retail tech needs and retail’s lack of tech expertise?

Linda Kirkpatrick: It is a fragmented market. There is no one go-to agency that is going to be the cure-all for digital engagement. But I do think that banks, historically, it is not in their wheelhouse to be digitally savvy. Merchants, not necessarily a foundational strength to understand how to engage consumers through an app. We created Mastercard Labs six years ago to create a culture of innovation inside Mastercard. We were suffering from some of the same symptoms. Well, gosh, we are experts in payments, but how do you get to the next level. We are going to see more innovation in the next five years than we have seen in the last 50. How do we embed that into our DNA?

We created this Labs function to first create that DNA within Mastercard. Hire the right people, create the culture that is OK with trying new things and failing fast. Making sure that our products and solutions appeal to Millennials. And hiring Millennials for that matter who can actually do work that will appeal to the consumer base. What is great is that we have done it. We have been there, we have done it. Now what we are doing is taking that model and exporting it to our customers: the banks and the merchants.

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