Shopper-Facing Retail Technology: A Retailer Adoption Decision Framework Incorporating Shopper Attitudes and Privacy Concerns

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Abstract

Continual innovation and new technology are critical in helping retailers’ create a sustainable competitive advantage. In particular, shopper-facing technology plays an important role in increasing revenues and decreasing costs. In this article, we briefly discuss some of the salient retail technologies over the recent past as well as technologies that are only beginning to gain traction. Additionally, we present a shopper-centric decision calculus that retailers can use when considering a new shopper-facing technology. We argue that new technologies provide value by either increasing revenue through (a) attracting new shoppers, (b) increasing share of volume from existing shoppers, or (c) extracting greater consumer surplus, or decreasing costs through offloading labor to shoppers. Importantly, our framework incorporates shoppers by considering their perceptions of the new technology and their resulting behavioral reactions. Specifically, we argue that shoppers update their perceptions of fairness, value, satisfaction, trust, commitment, and attitudinal loyalty and evaluate the potential intrusiveness of the technology on their personal privacy. These perceptions then mediate the effect of the technology on shopper behavioral reactions such as retail patronage intentions and WOM communication. We present preliminary support for our framework by examining consumers’ perceptions of several new retail technologies, as well as their behavioral intentions. The findings support our thesis that shopper perceptions of the retailer are affected by new shopper-facing technologies and that these reactions mediate behavioral intentions, which in turn drives the ROI of the new technology.

Introduction

Retail technology capabilities have never been greater; retailers are faced with an increasing array of potential technologies that is expanding in its complexity and cost. Overall spending on retail IT was projected to exceed $190 billion worldwide in 2015 (Wilson 2014). Retailers are faced with a dizzying array of technologies and terminology, including iBeacons, mobile POS, Near Field Communications, and the Internet of Things. Retailers are understandably overwhelmed by the options and may adopt technologies without a clear picture of both how they fit into their strategy and, potentially more important, how shoppers will react.

When considering adoption of a new shopper-facing technology, more sophisticated retailers’ decision calculus includes financial factors such as ROI, payback period, net present value, internal rate of return, and impact on profits. Projects that generate a sufficiently high ROI are then adopted and implemented. However, critical assumptions regarding the reaction of shoppers to the new technology are embedded in such calculations. These assumptions can either be explicit in terms of shopper metrics such as basket size and conversion or are simply implicitly assumed to be positive.

In this article, we argue that retailers’ decision calculus for evaluating the adoption of shopper-facing technology needs to be expanded beyond what the technology can potentially deliver to consider shopper reactions and assess what the technology will deliver. Managers are often excited by their own side of the value equation, forgetting that shoppers may not share their enthusiasm. While the hope for positive effects from retail technology in terms of increased basket size, share of wallet, and profit are the motivating forces underlying the adoption of new technology, there are many examples of unexpected negative outcomes. For example, the recent data breaches at major retailers have increased shopper wariness of technology. Over 70 million households had at least some of their personal information stolen in the 2013 data breach at Target, including credit card information for 40 million households. Target also was embarrassed by a report in the New York Times that its data mining efforts used to target shoppers had led to a father discovering that his teenage daughter was pregnant (Duhigg 2012). Unfortunately, Target is not an isolated case. Other major retailers have suffered data breaches as well, including Home Depot in 2013 (56 million credit card accounts) and Nieman Marcus in 2013 (1 million credit card accounts).

On top of the costs of replacing shoppers’ credit cards and the effect on the firm’s stock price, a recent survey by CNBC suggests that such instances result in a shopper backlash fueled by lost trust (Conradt 2014). Specifically, they find that almost 70% of respondents correctly identified companies that had been breached and fifteen percent reported that they stopped shopping at breached retailers. Further, 30% reported planning to pay by cash in the future when shopping at a breached retailer instead of via credit or debit card—and spending tends to be lower when paying with cash (e.g., Inman and Winer 1998).

In the face of such potential consequences, how should a retailer evaluate a new shopper-facing technology and decide whether to adopt it? Surprisingly, an interested retailer will find little guidance in the academic literature. While the literature has examined the effect of specific technologies such as self-service technologies (e.g., Meuter et al., 2000, Meuter et al., 2005), payment systems (e.g., Giebelhausen et al. 2014), and mobile coupons (e.g., Hui et al. 2013), there is currently no framework to which a retailer can avail to guide consideration of a new shopper-facing technology. That is the focus of this article.

We begin by briefly reviewing some of the major technological innovations in retail during the past 50 years. We then present our equity theory-based framework that examines retail technologies through the lens of its potential positive and negative consequences for the retailer versus its potential positive and negative consequences for shoppers. We close with a series of examples and a survey of shopper reactions to potential retail technologies that are looming on the horizon.

Section snippets

A Brief Overview Of Retail Technology: Past, Present, And Future

Many major technological innovations have revolutionized retailing over the past several decades. In this section, we describe some of them and then discuss more recent innovations as well as technologies that are beginning to be broadly introduced by retailers. We do not claim to capture every innovation, but rather focus on some of the most disruptive retail technologies that we identified from conversations with several industry experts.

Shopper-Facing Retail Technology Adoption Decision Framework

When considering adoption of new shopper-facing technology, sophisticated retailers consider the profit implications. That is, the retailer evaluates whether the benefits of the technology will outweigh the costs of purchase, installation, and maintenance. These benefits tend to result from the technology increasing revenues, decreasing costs, or both. As shown in Fig. 3, revenue increases and cost decreases can derive from various sources. Revenues can be increased by extracting greater

An Equity Theory Perspective of Retail Technology Adoption

If the benefits of a new technology accrue to the retailer at shoppers’ expense (e.g., higher prices), the ratio of shoppers’ outcomes/inputs may decrease while the ratio of retailer's outcomes/inputs increases. In this case, shoppers may perceive the situation as unfair and react negatively by complaining or even switching to another retailer. This is the centerpiece of our proposed shopper-focused decision calculus for retailers considering the adoption of a new shopper-facing technology.

Method

Our approach is similar to the recent research by Aloysius et al. (2016) and Kleijnen, Ruyter, and Wetzels (2007) that examines shopper perceptions of mobile shopping. Our study used a six cell (technology: mobile app, proximity marketing, QueVision, Scan and Go, self-checkout, smart shelf technology) between-subjects design. Participants (n = 306, 47% male, Mage = 39.9 years, Mhhincome = $56,487) were recruited on Amazon’s Mechanical Turk and completed the study in exchange for a small payment.

Discussion

Shopper-facing technology plays an important role in increasing revenues and decreasing costs. In this article, we have discussed some of the most disruptive retail technologies over the past few years, plus technologies that are beginning to gain traction in retailers today. Additionally, we presented the current decision calculus that sophisticated retailers use when considering a new shopper-facing technology and noted that new technologies provide value by either (1) increasing revenue

Acknowledgements

The authors thank Steve Brown, Paul Hunter, Todd Hale, John Totten, and the JR reviewers for their helpful suggestions.

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