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Winning consumers' trust on privacy vital to successful retail sector innovations

FOCUS: Retail is incredibly competitive, and innovation can be the difference between being a market leader and being an also-ran. These days innovation depends on technology and the capture, processing and analysis of customer data supported by technology. 05 Jun 2014

There is increasing convergence between the physical and virtual retail environments, with technological developments presenting businesses with fantastic new opportunities to innovate.

Using technology to improve customer interactions and personalise the shopping experience can help retailers stay one step ahead of rivals, but only if the businesses can convince consumers to give up an element of privacy and trust them with their personal information.

The latest innovations

In a presentation at a recent event hosted by Fujitsu Kate Ancketill, the chief executive and founder of retail trend and insight consultants GDR Creative Intelligence, outlined the increasing shift towards personalising the retail experience.

Shopping is becoming more about socialising and hanging out, and less about transactions, she said. Retailers that offer a cold, distant customer experience risk falling behind.

Ancketill highlighted the Amazon Dash device, which allows users to scan items at home and add them to a web-based shopping list; and the 'Live Store' scheme launched by Fiat in Brazil, where car salesmen wearing microphones and cameras conduct virtual inspections of cars from the showroom for individual potential customers. She also highlighted the partnership between Samsung and illycaffè, where Samsung delivers multimedia and communication services inside illycaffé's Regent Street store in London and which, in time, will result in illycaffé providing a coffee house environment inside some of Samsung's flagship stores.

A further initiative that Ancketill flagged was the dynamic pricing model being used by home improvements business Kingfisher in Castorama stores in France. Kingfisher, which owns B&Q in the UK, has piloted the use of so-called smart tags that display different prices for goods depending on the time of week shoppers are in store and how busy the shop is. The tags can also recognise when loyal customers are standing in front of them by communicating with the Castorama app on the shopper's smartphone. This allows the retailer to offer bespoke personalised discounts, which are not available to other customers.

At the centre of all these projects and many other initiatives in the retail sector is the customer. Technology is being used to connect to customers and personalise the shopping experience and in many cases the innovative deployment of technology is built on harnessing data and, often, customers' own personal data.

Privacy and winning consumer trust

Regulatory and cultural barriers restrict the extent to which retailers can use personal data.

From a purely legal perspective, businesses operating in the UK or elsewhere in the EU must comply with strict data protection rules that, among other things, mean consumers must be informed of their plans for using personal data when they collect it from individuals and, often, require consumers to consent to that proposed use.

However, in the UK particularly there has traditionally been a conservative attitude to new technology, scepticism over business innovations and a reluctance to waive rights to privacy. It is a cultural barrier that many retailers will need to overcome if their innovations are to succeed.

To win consumers' trust, businesses need to first demonstrate that the benefits they can offer those individuals for handing over their data outweigh any fears they have about their privacy being lost and being subject to profiling techniques.

The widespread adoption of technology has perhaps created generational differences in attitudes to privacy, with young people more ready than older adults to give companies access to their data so as to benefit from innovative new services. However, convincing the remainder of the population to do likewise is more of a challenge.

That challenge is not insurmountable, though. UK consumers have been doing this for years, though in a more low-tech way. Retailers such as Tesco have built up massive databases of consumer information, but have only managed to do so by offering clear benefits in the form of discounts.

Consumers are however increasingly aware of the value of their data, so as well as providing robust data security, retailers need to consider giving consumers greater control over the way their data is used, to effectively manipulate their data in a way to access innovative new services but manage their data and the profiling companies conduct using the information.

Initiatives such as the midata scheme and the recent ruling involving Google and the so-called 'right to be forgotten' indicate that the ability to exercise control over privacy in the big data era is the shape of things to come.

Digital strategy and investing in innovation

As well as overcoming the legal and cultural barriers to innovation, retailers face a challenge in deciding how to transform themselves into digital businesses and what technology to invest in.

The squeeze on profits during the recession has resulted in many retailers operating with out of date systems unsuitable for addressing modern day opportunities and risks.

However, there are understandable concerns about choosing the right path forward, a fear about investing heavily in technology that is fashionable today but which may be obsolete tomorrow, and an uncertainty over which direction innovation is taking the sector.

Bricks-and-mortar retailers need confidence to overhaul their revenue streams, develop their digital offerings and multi-channel presence, and change the nature of their brand in the eyes of consumers.

Retailers need a digital strategy to help them plot their way through the uncertainty. A good strategy will include a fundamental review of the legacy IT systems and software at a company's disposal, their relative importance within the business, an assessment of their functionality and a good understanding of the flexibility that exists under current contractual arrangements. It will allow businesses to outline a vision for the way they wish to operate and serve customers and highlight any legal, contractual or technical constraints that exist to prevent existing IT applications being used to support innovation.

The strategy will help retailers identify the areas of their IT infrastructure they need to improve to develop new ideas and transform their business, and highlight ways in which they can harness data whilst recognising rights to privacy.

Clive Seddon is a technology, media and telecoms law expert at Pinsent Masons, the law firm behind Out-Law.com