IBM Institute for Business Value

Executive Report

Greater expectations:
Consumers are asking for tomorrow, today
Australian insights from the 2014 Smarter Consumer Study

Retail

Greater expectations: Consumers are asking for tomorrow, today

Overview
The IBM Smarter Consumer Study, now in its fifth year,
is based on surveys conducted by the IBM Institute for
Business Value. For this years study, IBM researchers
surveyed 30,554 consumers in 16 countries, including 1,822
from Australia. Shoppers spanned ages 18 to 60+ with
substantial representation of every age group in between.

The strong Australian dollar has seen a remarkable number

of new entrants to the local retail market. H&M, Hollister,
Uniqlo, Williams-Sonoma and Zara are just a few of the big
international brands that have set up shop in the past two
years, causing existing retailers considerable anxiety. These
local retailers also face serious challenges from the
comparably higher costs of labour, property and utilities.
Tech-loving customers expect more than ever from
retailers. Are you keeping up?
The Australian findings of this years IBM Smarter Consumer
Study will be an eye-opener for local retailers, who for years
have faced considerable pressure from consumers whose
increasingly online lives have exposed them to best-practice
online retail and loyalty practices from around the world.
Empowered by a range of technologies including mobile
access, social networks, advanced analytics for customer loyalty
and the disruptive nature of cloud-based services consumers
are increasingly comfortable with online purchasing.
Many retailers see this as a significant opportunity but there
is a downside. Research shows that todays Australian
consumers are far less forgiving of retailers that cannot offer
an optimised online retail experience and seamlessly link it
to their offline retail networks. Retailers that fail to meet these
expectations can expect not only a short-term loss of business,
but a longer-term loss of relevance as customers vote with
their feet and take their business to retailers that can provide
the service they want.
This is a seismic shift for many Australian retailers, which over
the years have responded to online retail with everything from
enthusiastic engagement to grudging acceptance. Yet there is
more at stake than perceptions of technological advancement:
retailers conservative management structures have seen
business executives slowly opening the doors to online

opportunities, but study after study confirms that companies

that actively embrace digital transformation outperform the
laggards financially.
The new customer empowerment has changed the rules of
retailing forever. As customers embrace new innovations and
tap into powerful social networks to share their good and bad
experiences they will reward retailers that keep up and
ignore those that dont.
Analysis of the Australian results identified five important
messages that every retailer should heed:
1. Consumers wont let themselves be taken for granted.
2. There is a gap in consumer expectations.
3. Consumers are embracing new technologies faster than
retailers.
4. Trailblazers are setting the pace, and are the group
retailers need to satisfy first.
5. Retailers need to close the gap.

1. C
 onsumers wont let themselves be
taken for granted
It wasnt too long ago that customer brand loyalty was for
life. Whether due to convenience, habit or a genuine
fondness for a particular retail experience, customers would
gravitate towards particular stores on a regular basis.
More important still, they would share their good and bad
experiences with friends over coffee, around the water cooler
or at playgroup and other social situations. This culture of
sharing has carried into the online world, with specialised
websites and social-media giants encouraging online
consumers to share their experiences with others.
This type of sharing has become entrenched online,
particularly as consumers do more and more of their retail
decision-making on the spot, using mobile devices often
while standing in a physical retail store.
If they get a bad shopping experience in that store, it is likely
to have already been documented online before the customer
starts their car in the parking lot. As the 2014 Smarter
Consumer Study found, this sort of continual feedback loop
has dramatically changed notions of customer loyalty.

IBM Institute for Business Value

For retailers which often spend millions to build durable

brand loyalty, the 2014 findings are of significant concern. In
this study, the rate of advocates customers who
recommend brands and retailers to others, buy more from
their primary retailer when given the opportunity, and
remain loyal to the retailer even when new competitors
enter the market dropped from 32 percent in 2013 to just
13 percent in 2014 (Figure 1). At the same time, the rate of
antagonists surged from 5 percent to 24 percent.

Figure 1: Shifting attitudes of Australian

consumers 201014

2014 study
2013 study
2012 study

24%

63%

5%

13%

63%

12%

32%

54%

34%

2011 study

46%

28%

26%

2010 study

42%

35%

23%

0%

20%
Antagonists

40%

60%

Apathetics

80%

100%

Advocates

Source: IBM 2014 Smarter Consumer Study,

IBM Institute for Business Value.

There is a clear indication that consumers expectations have

risen and they are now even less forgiving of retailers. What
used to be considered satisfying is now seen as a minimum
requirement. Consumers are judging retailers even more
frequently and publicly. Nearly one-third of Australian
respondents indicated they have posted to their social
network about a retailer they have shopped with.

2. T
 here is a gap in consumer
expectations
The ever-present reputational threat posed by empowered
consumers should motivate retailers to deliver a consistently
good customer experience. However, actually doing so is
complicated by the fact that many consumers have a
different understanding to retailers of what constitutes an
acceptable experience.

Consumers expect retailers to offer seamless omnichannel

capabilities that can provide consistency, better visibility and
the ability to self-serve. The 2014 study identified five key
omnichannel capabilities that are most important to
Australians when choosing where to shop:
1. Price consistency across channels. Consumers want
visibility of pricing across all channels, and explanations as
to why prices may differ. They dont necessarily expect an
item to cost the same in a physical store as it does online.
But they do expect retailers to explain why the prices may
differ they dont want to be surprised. Its up to retailers
to be completely transparent.
2. In-store, locate out-of-stock item and have it shipped
home. If a retail store is out of stock on an item that a
customer wants, the store must be able to order it and
have it shipped to the customers home. This involves
giving in-store staff members access to current and
accurate inventory figures, as well as allowing them to take
payment and remotely order goods for delivery as though
they had been ordered online. Delivering such logistical
arrangements often requires improvements to inventory
handling and changes to retailers back-end systems.
3. Consistent assortment across channels. Consumers
are not necessarily saying they expect retailers to have
every product in store that they sell online, and vice versa.
Instead, its about visibility and the need for retailers to
explain why product ranges may differ, and why these
differences ultimately benefit consumers.
4. Loyalty program benefits, both online and in-store.
Recent years have seen an explosion of loyalty programs
at Australian retailers, but many fail to take full advantage
of the relationship by productively extending those
programs online. Australian consumers expect retailers to
be online-savvy and ready to make special offers both
online and offline as part of the ongoing loyalty
relationship. As these programs are extended to mobiles
and the offering of location-based specials becomes more
common, retailers can expect to turn this loyalty
investment into increased sales and customer retention.

Greater expectations: Consumers are asking for tomorrow, today

5. In-store return of online purchases. Returns systems

and policies have been a challenge for as long as retailers
have been selling online. Established mail-order cultures
in the United States and other countries simplified their
transition to online returns, but many Australian retailers
have struggled to do the same. While managing returns
may seem simple to customers, fulfilling their
expectations requires a significant rethink of existing
retail practices.

Top five omnichannel capabilities

expected of Australian retailers
1. Price consistency across channels
2. In-store, locate out-of-stock item and have it
shipped home
3. Consistent assortment across channels

Yet, as they embrace SoLoMo (social, location-based and

mobile) technologies, they are exposing problematic gaps in
retailers capabilities. Australias predilection for mobiles is
well known, with Googles Our Mobile Planet report
pegging the country as having the worlds sixth highest
penetration of smartphones, at 64.6 percent1. This figure
was mirrored in IBMs 2014 findings, which put smartphone
penetration at 64.4 percent up from 47 percent in 2013.
Even more important than the rise in smartphone
penetration is consumers comfort levels with the
increasingly smart technology they have in their hands. For
example, 34 percent of Australian consumers are now more
willing to share location information, compared with just
18 percent two years ago (Figure 2).

Figure 2: Two years on, Australians are

more willing to provide all types of

information, except identification

4. Loyalty program benefits, both online and in-store

5. In-store return of online purchases.
Source: IBM 2014 Smarter Consumer Study,
IBM Institute for Business Value.

100%
80%
64%

56%

60%
46%

Consumers take such capabilities for granted, but retailers

know that actually delivering them can be far more
complicated than shoppers realise. Nonetheless, in todays
competitive environment Australian retailers must ensure
they eliminate any barriers between online and offline
shopping. Every business change must be weighed in terms
of its effect on that seamless shopping experience: keep the
magic happening behind the curtain and customers will have
no reason not to come back.

3. C
 onsumers are embracing new
technologies faster than retailers
The early days of mobile commerce were marked by concern
over the sharing of location-based information which can
be of great value to retailers but consumers are rapidly
getting over their concerns.

48%

41%

40%

21%

20%

34%

29%

31%

22%

18%
14%

Media
usage
(media
channels)

Demographic
(age, ethnicity)

Lifestyle Identication Location

Medical
(number of (name, address) based
cars, home
2012
2014
ownership)

6%

10%

Financial

Source: IBM 2014 Smarter Consumer Study,

IBM Institute for Business Value.

Nineteen percent of consumers have posted on social media

sites about items they have purchased, while 32 percent of
consumers have posted online about a retailer with whom they
have shopped (Figure 3). And, with 48 percent of Australians
visiting a social site multiple times a day, its a safe bet that
posts about products or retailers are going to be rapidly shared.

SoLoMo
expected

SoLoMo
used

SoLoMo
limited

38%

Traditional

39%

5%

Trailblazers

18%

IBM Institute for Business Value

Uses SoLoMo
extensively; including
as a Retailer
evaluation tool

Tech-intrigued

Uses SoLoMo from

browsing through
buying

Transitioning

Uses technology
mostly for research
and information

Uses least amount

of technology while
shopping

Figure 3: Social networking saw a

frequency increase with more

posting about purchased items
Social activities year on year

As customers comfort levels with online shopping rise,

retailers must find new ways of securely protecting
personally identifiable information while leveraging it to
provide new opportunities. If they use it to deliver a superior
shopping experience either in-store or online that meets
the expectations of SoLoMo-loving customers, Australian
retailers will reap the rewards in increased revenues and
customer loyalty.

4. T
 railblazers are setting the pace, and
retailers need to satisfy them first

Australian consumers in the 2014 study indicated they

32%ofposted
about a retailer they had shopped with

Source: IBM 2014 Smarter Consumer Study,

IBM Institute for Business Value.

Retailers are benefiting as this increased comfort translates

into new customer engagement possibilities. For example,
31 percent of respondents to the 2014 study said they were
willing to share their mobile number with retailers, while
15 percent are willing to share their social handle and
14 percent are willing to share their location.
With new Australian Privacy Principles now in effect and
offering substantial penalties for breaches, retailers need to
be careful how they store and utilise such information. As
too many retailers have recently experienced, failing to
secure and protect personally identifiable information can
have drastic consequences not least of which is tarnishing
carefully cultivated customer relationships.
Survey results confirm that online shopping is growing, with
15 percent of customers saying that their last purchase was
made online up from just 5 percent in 2013. Similarly,
while 85 percent of respondents said their last purchase was
made offline, this is a significant change from the 94 percent
reported in 2013.

Not all customers are created equal, and each has their own
expectations of retailers online and offline capabilities.
While it may be hard to satisfy all customers at once, the
2014 study findings suggest that retailers should
progressively target different customer segments based on
their own capabilities.
The study identified four classes of consumers based on their
expectations of retailers omnichannel maturity (Figure 4).
These include trailblazers (5 percent of consumers), techintrigued (18 percent), transitioning (39 percent) and
traditional (38 percent).

Greater expectations: Consumers are asking for tomorrow, today

Figure 4: Four classes of consumers

differentiated by their
omnichannel maturity

5. Retailers need to close the gap

The history of business in Australia is littered with examples
of companies that have failed to adapt to the demands of
omnichannel retailing, match the expectations of the
consumers they seek to attract and retain, and face the reality
of a competitive retailing landscape that now extends to
every corner of the globe.
Customers are still spending money with retailers and
despite conventional wisdom, physical retailing is a long way
from dead. However, Australian consumers are smarter than
ever when it comes to using a range of technologies to tilt
the scales in their favour.

n = 1,572

Source: IBM 2014 Smarter Consumer Study,

IBM Institute for Business Value.

While traditional and transitioning customers represent

the largest proportion of the population, the study
suggests that retailers will gain the most traction by
satisfying trailblazers first.
Trailblazers, after all, are the most vocal consumers and
place the greatest importance on a retailers omnichannel
capabilities when choosing where to shop. They use
SoLoMo technologies extensively to evaluate retailers. And
they are more affluent, more social and have a much more
positive spending outlook than those in the other groups.
While they represent a small proportion of the customer
base today, technology adoption trends and omnichannel
attitudes suggest that the trailblazers group will grow
rapidly in the future.
Trailblazers social proclivities and culture of engagement
ensure that members of other groups will be informed by
their feedback as they explore the retail and loyalty
capabilities of the retailers they frequent. This should
translate into a trickle-down effect for retailers, who can
anticipate strong rewards if they successfully build a
technology-enabled retail experience that satisfies the
most demanding members of their customer base.

Whether it be using mobiles to find better prices for

products; scouring social media sites for retailer and product
reviews, both good and bad; or sharing new forms of
personal data that can enhance the shopping experience,
shoppers want better service. Retailers that provide a
superior customer experience will be rewarded.
Keeping up with customers technological capabilities and
behaviours is critical. The most successful retailers will be
those that use technology to both eliminate the delivery gaps
between online and offline retailing experiences, and to
improve their strategies for customer engagement and
long-term retention.
Such an approach will also help retailers to tap into the new
capabilities of enterprise software and logistical operations to
reduce costs and inefficiencies. Closing the gap between
surging customer expectations and back-end operational
realities will enable retailers to keep up with their eversmarter customers and cement their place in the
omnichannel world of the future.

IBM Institute for Business Value

Case Study

Macys is dressing each customer with data2

In the world of retail, Macys is one of the very few brands that can
credibly be called an icon. When Macys wanted its online store,
macys.com, to offer a more personalised shopping experience,
they worked with IBM to establish the foundation for a more
engaging and data-driven website.
The result, called My Macys, is a sweeping initiative designed to
embed a customer-centric philosophy into every aspect of the
companys operations. With IBM Big Data & Analytics, customer
preferences can be combined with their recent purchase histories
to create personalised recommendations and promotions. My
Macys reflects the way Macys wants its customers to view their
relationship with the company. It is a relationship marked by a level
of personalisation that manifests and grows stronger each time
customers interact with the brand, whether online at macys.com, at
a local store or travelling in another city. The aim is consistency and
the key is data.
Customers want to feel like individuals. Macys has to serve
individuals. We cant do that without data. We need to be where
our customers shop mobile, online or in-store and provide an
individualised experience. Terry Lundgren, CEO, Macys Inc.

Conclusion
The survey results confirm that Australian retailers are
operating in a time of rapid change and increasing pressure to
deliver. It is also, by extension, a time of possibility as rapidly
improving technology delivers enormous opportunities to
improve operational efficiency and customer engagement.
Seizing those opportunities may have been optional in the
past. However, given the now rapid shifts in loyalty and the
greater potential for two-way engagement online, it is vital for
retailers to engage with customers in the way they want to
engage online and off, irrespective of channel or device.
The window of opportunity for complacency is rapidly
closing. The survey results showed a strong trend towards
omnichannel retailing, and given current adoption trends its
likely that future iterations of the survey will bring the trends
identified this year into even greater relief.
These trends will further divide the market between those
retailers that successfully transition into the omnichannel
world of the future, and those that are tripped up by their own
failure to change. With consumers already hunting for the
best shopping experience they can find, it wont be long before
the casualties begin to mount up as the global market
separates the retail winners and losers.

Capturing customer information at a variety of brand touch points

enables Macys to interact with its customers on a more personal
level. Macys Service Oriented Architecture-based integration
framework is enabling macys.com to move toward a comprehensive,
360-degree view of the customer. The ability to use real-time site
information at the customer level enables the company to develop

Recommended next steps for retailers

Study insight

Key points to consider

Use SoLoMo to
energise the
store

Consumers

Execute the
new omnichannel
requirements

Consistently

Audit yourself
against the
trailblazers
expectations
and act quickly

Instigate

more targeted and ultimately more profitable pricing and

promotional programs.
Business benefits:
Expected increase in sales and revenue per customer due to
closer engagement, stronger retention and targeted promotions
Strengthening of brand via a more consistent and integrated
cross-channel customer experience
Increase in macys.com volume facilitated by distribution centre
optimisation
Improved decision making via the seamless integration of
consistent, high-quality data from across the enterprise.

are open to SoLoMo but the retail

benefits must be clear
Other industries can inspire new applications, for
example mobile boarding passes (airlines) and
mobile payment functions (banks, coffee shops
and now some retail first adopters)
deliver Australian consumers top
five requirements
Ensure there is consistent coordination of
fulfilment and returns between channels
Mitigate or eliminate negative surprises in pricing
and assortment
self-service capabilities and multiple
fulfilment options
Empower shoppers with on-demand
personalised communication
Ensure consistency in the execution of
promotions and loyalty programs

How can IBM help?

Business Consulting and Delivery Services: IBM helps

retailers formulate, implement and make operational the

programs they need to respond to changing customer buying
behaviours, align organisational structure and metrics, and
transform customer-centric processes.
Retail Industry Solutions: IBM offers a comprehensive

portfolio of retail solutions comprising merchandising and

supply chain management, multi-channel retailing, retail
performance analytics and TotalStore solutions to help
retailers deliver the fastest time to value at the lowest risk.
Retail Centre of Competency: IBM helps retailers make the

best use of technology to streamline costs, reduce

inefficiencies, aid product development and speed go-tomarket activities. It also helps retailers build new capabilities
to better understand, track and respond to consumer
preferences, drawing on its team of highly skilled experts
from around the world.

Key contacts
Ian Wong: ianwong@au1.ibm.com
Nick Salem: nsalem@au1.ibm.com
Jill Puleri: jpuleri@us.ibm.com

Authors
Kali Klena: kklena@us.ibm.com
Matina Zervos: matina.zervos@au1.ibm.com

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Produced in Australia
May 2014

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* This customer story is based on information provided by the customer
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contributed to the results and benefits described. IBM does not guarantee
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GL_15726

1 Google, Our Mobile Planet Study, 2013.

2 www.ibm.com/smarterplanet/us/en/madewithibm/stories/#!story/20 This
client story is based on information provided by Macys and illustrates how one
organisation used IBM products. Many factors have contributed to the results
and benefits described; IBM does not guarantee comparable results elsewhere.