Future Store customers can still just grab an old-fashioned shopping cart and poke around the aisles. But Extra loyalty program members who wish to take the technology plunge can collect a cart armed with a wireless, Web-enabled personal digital assistant (PDA) and enter a world of hi-tech, Minority Report-style retailing. Through the PDA, they can access their purchase histories and create personalized shopping lists. They receive alerts when approaching requested goods. They can interact with digital promotional displays and intelligent produce scales. They can self-scan items swiftly with portable bar code readers, then collect a receipt on their way out the door.

Much of the technology on display at the Future Store is in use by other retailers. But the Future Store is the first retail environment to collect all of these hot new technologies under one roof. What makes the experiment especially interesting, for our purposes, is that the store is devoted solely to customer-facing technology. Every sexy new device on display was chosen for its ability to improve customer relationships.

“Consumers increasingly want to be perceived as individuals,” Metro chairman and CEO Hans-Joachim Korber told Chain Drug Review. “We want to know exactly what opportunities are offered by those technologies in order to promote customer loyalty and individualized customer marketing. Those retailers who are able to meet these personal needs…will have a substantial competitive advantage.”

The Extra Future Store illustrates the importance of relationship-enabling technology: payment, identification and communication solutions than can facilitate sustainable, value-added interaction between a brand and its customers. These next-generation technologies will have a positive impact on customer yield, share of wallet and attrition. Operational efficiency is important, but enabling solutions are the future of retailing.

“The U.S. population and the number of expendable dollars in this economy are not increasing dramatically,” says Richard Mader, executive director of the Association for Retail Technology Standards (ARTS), a division of the National Retail Federation (NRF). “Wal-Mart, Target and Kohl’s continue to take a bigger share of those dollars. To survive, retailers need to do two things— they need to maximize their profits, and they need to retain their customers.”

Smart cards, radio-frequency identification (RFID), Real-time point-of-sale (POS) systems, wireless Web access and the next generation of loyalty “rules engines” all enter the 21st Century with proven cases of success in enabling some form of relationship marketing, somewhere in the world. But while these technologies offer great hope to enable, it is their creative and imaginative application that will win out in the end. What follows is our survey of emerging retail technology: where it’s going, why you need it and who’s using it to balance on the cutting edge of marketing creativity.

Point-of-sale: wired and wireless

At the point of sale, enabling technology means two things: Internet-based and mobile POS systems. If you’re a retailer who has yet to replace your old clunky DOS-based cash registers with snazzy Windows or Java-based systems running Web browser-based screens, then you’d better get on the stick. A recent study by IHL Consulting revealed that 58 percent of retail POS systems in the U.S. can run browser-based programs; owners of the other 42 percent are scrambling to catch up.

“Everybody wants to get there,” says Richard Mader. “There are quite a few RFP’s in play right now in retail.”

Web-based POS systems running through Ethernet ports on integrated or virtual private networks (VPNs) allow retailers to operate a single POS application in multiple channels, an ability that represents potentially huge cost savings. A retailer can run the same application online through the Web site, on a Web kiosk and at the checkout lane. Running browser-based POS software also allows a retailer to implement multiple-channel loyalty programs and provide consistent, personalized customer service at every touch point. Real-time customer relationship management (CRM) suddenly becomes a reality.

“You’ll be able to recognize me [at the point of sale],” Mader says. “You can see my purchase history. You’ll be able to make sales recommendations. You can offer me a loyalty bonus. The upgraded POS allows you to do those kinds of things.”

Just as exciting as Web-based POS systems are the new mobile systems that free cashiers from checkout lane bondage. In Hong Kong, specialty retailer The Body Shop has implemented mobile, PDA-based POS systems linked to a wireless computer network (WLAN) that allows them to check out customers and print receipts at any location in the store. Through the browser-based PDA software, store associates can recall product information, suggest clothing combinations and pare customer queue times.

“The wireless POS not only enhances customers’ shopping experience,” general manager Karin Ong told ComputerWorld, “but also the productivity of the shop associates.”

Similarly, Hong Kong cosmetics retailer SaSa International has run a non-wireless mobile POS system for two years; customers fell in love with it and the system now processes 60 percent of total sales revenue. SaSa plans to implement a loyalty program through the mobile POS to track customer purchase behavior and further personalize the shopping experience.

Whether tied to a traditional checkout lane or roaming freely around the store, the next-generation POS systems will open up entire new worlds of CRM solutions. Retailers like The Body Shop and SaSa who are already exploring enabling technologies judge them solely on how well they improve customer relationships. SaSa vice president of IT Chris Chan puts it best.

“We would not pick advanced technology just for the sake of it,” he says.

Smart cards: the future is now

Around the world, smart card adoption is proceeding at breakneck speed. Visa member banks have issued more than 60 million smart cards globally. MasterCard and its global partners have issued more than 125 million, with nearly 50 percent of those cards carrying value-added applications such as loyalty programs, digital identification, electronic ticketing, electronic coupons or personal data storage.

While much of this adoption has been driven by fraud and security concerns, to Patrick Gauthier, senior vice president for new product development for Visa USA, the true value of the smart card lies in its ability to enable customer relationships. It is this ability, he says, that will drive smart card migration in the U.S.

“Really, it’s about keeping the relationship fresh,” says Gauthier. “We think of smart cards as multi-application, multi-service delivery vehicles. Merchants and issuers have a common problem, which is the escalating cost per customer acquired. There are real questions being asked about whether providers should be marketing differently. Generally the consensus is yes, and the difference should be that you serve better the customers you have today rather than constantly try to get the next person through the door.”

Visa has certainly primed the pump for U.S. issuers. The association helped create the EMV (EuroPay, MasterCard and Visa) standards in 1993, launched their own GlobalPlatform specifications in 1999,

the Smart Visa platform in 2000 and the Smart Visa Rewards platform in 2002. Today, Visa has helped seven U.S. issuers launch smart card products and counts about 15 million cards on the market. With card and reader prices coming down and with application development ramping up, why not get on board?

The problem is that, until recently, smart cards offered no loyalty or CRM solution that couldn’t be implemented more easily and cheaply with traditional magnetic-stripe solutions. That gap is now closing. Although the chip solution cannot yet approach the real-time capabilities of a fully networked POS system and loyalty rules engine backed up by a central database, the multiple-application utopia promised by smart card evangelists may yet materialize.

For now, however, the ability to download coupons onto your Target Visa is still the state of the art in U.S. smart card loyalty. The future of smart card adoption in this country, says Gauthier, may lie in a market in which they’ve already become entrenched around the world: the multi-merchant loyalty coalition.

“If you create alliances, communities of interests, that are centered around particular groups of consumers, you have a model far more powerful [than a proprietary program] because it’s far more difficult to reproduce,” says Gauthier. “So the use of chip is really geared toward breaking into the multi-issuer, multi-merchant type of alliances and creating those communities of consumer-centric interests. It’s a long-term view.”

The long-term view may already be in sight. Launched in August 2002, the Crew Card is a chip card-based coalition program that allows college and high school students to earn discounts and rewards in four southern States from student-friendly retailers such as Dominos, Subway and U-Haul. Overseas, we like the Garanti Bank Bonus MasterCard program in Turkey, in which two million members now earn rewards with over 750 retailers; and the Bugis Junction Mizu Card in Singapore, the first chip-based credit card to offer a loyalty program from all the retail tenants in a shopping center.

So while smart cards can be valuable, enabling tools in the loyalty toolbox, their ultimate success or failure in the U.S. will depend on the value propositions attached to them, and their ability to facilitate sustainable customer dialog. Loyalty won’t be the “killer application” that drives usage— but neither will smart cards be the “killer technology” that drives customer relationships.

“We don’t believe that there’s a killer application for smart cards,” says Gauthier. “There’s no such thing as an application that fits the needs of everybody. It’s sort of common sense, but I think sometimes that the smart card industry has lost track of that.”

RFID and biometrics: the fast and the furious

The oft-delayed marriage of smart cards and loyalty in the U.S. may becalled off permanently, thanks to the arrival of a new suitor: radio frequency identification tags, or RFID. Right now, RFID-based payment and customer identification systems are the hottest thing walking. RFID proponents can point to a proven success story in ExxonMobil’s Speedpass and espouse the benefits of a technology that allows CRM tactics to break free from the point of sale.

“I would anticipate that we’ll see an explosion of innovation around RFID, because it’s an enabling technology,” says Mark Roberti, editor of the RFID Journal, an industry trade publication. “By itself, it’s not very exciting— it’s what you can do with it that’s got everybody jazzed.”

The retail use of RFID— which in its simplest form is nothing more than a tag or card that emits a high or low-frequency radio signal that can be picked up by a receiver over short distances— has been mostly relegated to trials in which warehouse pallets are tagged so that older merchandise is sold first, or in which RFID-tagged products in the store are tracked to enable better shelf management. But the advent of RFID payment systems has opened the eyes of retailers to the technology’s potential to enable CRM.

Not only is it convenient for customers to identify themselves by waving a key fob or card at a reader, but it also becomes possible to identify customers when they walk into the store, as opposed to at the point of sale. Combine the customer-identification capabilities with the “smart-tagging” of items on the shelves, and the possibilities are tantalizing.

“This is where in-store marketing is going,” says Roberti. “The people who want this kind of experience will be able to get it. You can do a lot of things that were never possible before. You’ll have interactive store displays, you can run contests or sweepstakes based on loyalty card membership, in-store CRM on your birthday, that kind of thing.”

Likewise, biometrics— a catch-all term that includes any sort of body-scanning technology such as fingerprint readers, retinal scanners and facial recognition software— offer the potential to identify customers independent of their payment preference, making true multi-tender loyalty programs a possibility. Both RFID and biometrics hold particular interest for the convenience store and quick service restaurant markets, both of which depend on maintaining sales volume during peak service periods. McDonald’s, for example, currently accepts Speedpass in its Chicago stores and has tested biometric payments in other markets. For the first time in its history, McDonald’s will be able to identify and market to its best customers.

“There’s a loyalty aspect of this that I don’t think anyone has begun to exploit yet,” Roberti says. “You can run basic frequency programs automatically with RFID, or you can get into a more sophisticated approach with cross-promotions and partner marketing.”

Two recent trials demonstrate the potential of these new identification systems. In February 2003, IBM demonstrated an RFID system at a banking CEO conference in South Africa. The system involves an embedded RFID tag in a passbook or loyalty card that alerts the bank to the presence of a high-value customer by triggering an instant text message to an employee cell phone. When the customer approaches the teller window, the bank's CRM software pulls up such information as how the customer likes to be addressed, a list of accounts and the transaction history. Several European banks are interested in piloting the technology, and IBM says it may have a pilot program in place by the end of the year.

Meanwhile, An iris-scanning program is currently running at Schiphol Airport in the Netherlands. Accessible only to members of the airport's Privium frequent travelers program, a record of the iris scan is kept on a chip-enabled membership card against which the iris is compared each time the travelers pass through immigration at Schiphol. The goal is to speed best customers through security checkpoints while allowing more time to screen infrequent flyers. Members can avail themselves of priority parking and members-only baggage check lanes as well.

Nexus and convergence

The myriad of technological choices available to retailers today can seem so daunting as to encourage inertia. If the money and time required to install smart card readers, integrated networks, Web-enabled POS systems, RFID tags and iris-scanners isn’t enough to put you off your lunch, then try this one on for size: the Tower Group estimates that a transaction routing and customer database marketing engine, linked to an enabling payment or customer identification device, could cost a company $3 million annually.

“The temptation is to do nothing,” says William Rogers, publisher of Biometrics Digest, “or to wait for the technologies to converge. Why launch a smart card program when you can wait five years and launch a contactless smart card with biometric identification that interacts with your Web-enabled POS system and kiosks? If you wait long enough, the prices come down and the technologies evolve or merge together.”

But the pace of technology migration has accelerated in this decade, and the pioneers are already out there blazing the trails. When it comes to the use of relationship-enabling technologies, retailers will have three choices: lead, follow or fall by the wayside. If you want a role model, look no farther than Metro AG and the Extra Future Store.

“The question as to what concrete benefits may arise from the application of modern technologies for customers and companies is the focus of our thinking and acting,” says Metro’s Korber.

The Future Store is a massive investment for Metro, just as Speedpass was for ExxonMobil and the Bonus Card was for Garanti Bank. But to paraphrase Robert Frost, these forward-thinking companies took the road less traveled— and that will make all the difference.