Near field communication (NFC) – an innovation in wireless technology – is about to make the jump from the bleeding edge to the leading edge, as I recently wrote.
Why will consumers buy in now? Why will merchants truly adopt this system? What does this mean for marketers?
Consumer behaviour
As with any attempt at technology mass adoption, consumers must first be ready – truly ready.
We have seen examples of consumers intonating a readiness for technological change in the past that turned out not to be true, such as living room device convergence a few years ago. Yet, consumers still prefer to compartmentalize and have a computer and a cable box.
That is not the case in mobile, though. Mobile behaviour in North America has developed quite drastically over the past three years, since smart phones really hit the mainstream. They have trained us to make decisions and carry out transactions on the go, which only a few years ago would have been performed sitting at a desk.
At the same time, consumers have become very comfortable with Internet shopping and banking. So mobile payment is no longer a stretch from a consumer perspective.
Many of us are now dependent on our phones. We count on them to serve many functions and store all of our private information. The dependency we have placed on phones has granted it a nightstand position beside our wallets and house keys. Truly game-changing technology always puts function ahead of form, and, in this case, NFC will slowly make wallets and keys obsolete.
It is not farfetched to believe that, one day – likely sooner than later – consumers will use their mobile phones to pay for groceries and unlock their cars.
An NFC-enabled phone is a step in that direction in that it builds the technology into an already understood and widely accessible device. It will attract consumers who value simplicity and convenience, and don't mind centralizing all their information on a device.
Consumers will be able to integrate their credit cards, loyalty programs, gift cards and coupons on their device, and apply them all at the same time with one tap during checkout.
That is phase one. Although we don't see our clients or many tech writers making the connection between NFC and social media, we feel it is inevitable this dot on the map will eventually be connected as well. The social media tie-in, for example with Facebook, will be "smart" real-time offers, history tracking, etc., since these sites are rich with consumer behaviour data.
However, there will be skeptics. There will inevitably be a segment of consumers concerned with security (what if I lose my phone?) and privacy (what will banks and retailers do with my transaction data?), among other issues.
This is to be expected, and so airtight technology surrounding NFC (such as the ability to shut off or wipe out a phone remotely) and policies (such as transparency about the use of transaction information by banks) will also be an expectation from many consumers. This lag, along with the to-be-played-out value battle between carriers and financial institutions means retailers and marketers still have some time to sort out their strategies.
Retailers
From a retailer's perspective, NFC-enabled phones can be extremely beneficial.
Faster checkout times, reduced congestion and streamlining of in-store traffic are just a few improvements that will stem from NFC mobile payments. NFC represents a customer-experience enhancement opportunity. And improving shopping experiences for customers generally leads to more store visits, positive word of mouth and improved customer loyalty.
More sophisticated models may emerge once NFC is entrenched. Smart couponing (where the retail offer matches the consumer behaviour and history associated with the device in range) and dynamic pricing (prices that change depending on time of year/month/day, or depending on customer transaction history) are not out of the question as an extension of NFC technology.
Finally, there may be cost advantages as well. In the shorter term, productivity of workers will likely increase without having to give exact change or deal with magnetic swiping. And in the longer term, customer enquiries and checkout may be fully automated, leading to reduced staffing needs and cost savings.
Marketers
From a marketer's perspective, NFC-enabled phones should move business decision-making to a whole new level.
Having access to data that tracks everything from the duration of store visits to purchase behaviour will improve the richness of databases used for pricing, merchandising, etc.
If we think about the value of this information and the analytics we can conduct to drive strategic decision-making, revenue optimization through segmenting, targeting and positioning will be a common practice for many businesses.
Based on historical data, marketers will be able to better predict shopping behaviour and sharpen positioning and offers. We are getting closer to the panacea of true segment-of-one marketing, and NFC will take us one more step in that direction.
Satov Consultants associate Ontai Lai contributed to this article.
Mark Healy, P.Eng, MBA, is a partner at Satov Consultants – a management consultancy with practice areas in corporate strategy, customer strategy and operations strategy. Mark's focus areas inside the customer strategy practice include consumer insights, customer experience, innovation and go-to-market strategy. He is a regular speaker and media contributor on topics ranging from marketing to strategy, in telecom, retail and other sectors. Mark is known as much for his penchant for loud socks and a healthy NFL football obsession as he is for his commitment to Ivey and recent Ivey grads. He currently serves as chair of the Ivey Alumni Association board of directors. Mark lives with his wife Charlotte and their bulldog McDuff in Toronto.
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Mark Healy