CHICAGO — As innovative self-service technologies move to the forefront of the fast-paced retail environment, the vending industry’s strategic position as the pioneer in retail automation should give it a clear competitive advantage. By embracing new technology and seeking innovative applications for existing ones, operators can help drive the transformation from vending as it has been perceived for decades to a revolutionary new interactive retailing method. “VendZing” is the term coined by Michael Kasavana, Ph.D., NCE, NAMA-endowed professor of hospitality business at Michigan State University, to describe this concept.
VendZing, according to Dr. Kasavana, can only be achieved by turning the point of sale into a “point of service,” characterized by three vital components: “interaction, transaction and satisfaction.”
The MSU professor, renowned for his expertise in electronic commerce, information technology and transaction processing systems applied across the hospitality industry – the cornerstone of his “v-Commerce” curriculum – shared his insights into areas in which today’s vending industry is lagging, and its opportunities for future success, at a presentation titled “Competitive Advantage Through Innovative Self-Service Technologies” at the NAMA National Expo in Chicago.
Ever since the advent of vending more than a century ago, consumers’ concerns have centered on payment reliability, product freshness, variety, availability and pricing, assured delivery, the need for a specific payment medium (often exact change) and, in general, machine appearance. As the industry has matured, it has worked diligently to improve the customer experience in all these regards. But simply addressing consumers’ concerns in the way that operators have done for decades sells the industry short of its full contemporary capabilities.
The pace of change shows no sign of slowing down, the speaker observed. “Do you remember television channel selectors? Film cameras? Typewriters?” he asked. “That list is growing, to include payphones and magnetic-stripe credit cards. We don’t want it to include vending machines!” The goal of the operationally focused procedures that built the industry half a century ago were summarized as “Clean, Filled and Working,” or CFW. Dr. Kasavana suggested that the next step requires redefining that as “Cashless, Flexible and Wireless.”
Developments in “V-commerce” that have been working to the industry’s advantage in finding more comprehensive answers include the growing use of debit and credit cards for microtransactions, spurred by changes in card association processing rules. Fee adjustments that favor small cashless payments have made it practical to permit multiple product purchases with a single payment. A surge in self-service applications, many of them novel Internet-based options offered to consumers through “kiosks,” also is familiarizing the public with the technology.
Other positive trends that enhance vending’s potential include growth in the implementation of contactless-media payment terminals, real-time transaction and event data visibility and renewed interest in selling nontraditional products, often of rather high value, through vending machines.
Many factors are accelerating customer demand for cashless vending while improving operators’ ability to respond. First and foremost is the emergence of a self-service economy, in which patrons are increasingly accustomed to paying at an unattended gas pump, doing most of their banking at an automated teller machine and using express self-checkout at the supermarket.
“E-commerce is also exerting a positive influence on the move to cashless vending,” remarked Dr. Kasavana. “The Internet is the world’s largest vending machine.” While the vending industry and the credit-card associations are moving cautiously toward a transaction fee structure that can accommodate low-value purchases, “Apple iTunes is selling a lot of songs at 99¢ apiece, and people are paying for them with credit cards,” he added.
At present, only an estimated 5% of vending machines accept cashless payment, but paving the way for more implementation is the widespread adoption of the MDB (multi-drop bus) architecture that simplifies the connection of peripheral equipment to the machine controller board, the speaker explained. This standard bus structure has encouraged the development and use of less expensive and more versatile systems for transaction processing.
Similarly, the cost of hardware for electronic data capture through combination bill validators/card terminals and contactless (RFID) readers has come down, and modular design with standard harnessing has expedited quick installation of diverse payment options.
The advent of fixed transaction fees lower than 5% is helping to defray the added cost of cashless payment processing across a variety of microtransaction types, and fees are expected to continue declining, according to Dr. Kasavana. Micropayment options for credit and debit transactions at lower costs, without the need for the user to enter a personal identification number or signature, are further incentives to implementing cashless vending.
Additionally, the ability to enable the immediate transfer of transaction data from the vending machine to a remote processing center at a subscription fee of $7 to $10 per machine has facilitated cashless payment authentication over wireless data networks, and these costs also should continue to decrease.
“The fact that data is being moved from the machine to a remote processing center will enable the movement of other machine-captured data at minimal or no additional expense,” Dr. Kasavana pointed out. “Receiving data in real time can help you improve your operations.”
Operators will be well-advised not to overlook competitive influences when considering the value of equipping vending machines to accept cashless payment. “The ability to conduct cashless transactions at convenience stores and quick-service restaurants conditions consumers to expect to use credit/debit cards for microtransactions,” noted the professor. “Consumers seek the same settlement everywhere. Another benefit is that with cashless purchasing, consumers tend to spend more and make multiple purchases,” he added.
Moreover, cashless systems can be programmed to apply predetermined credit limits, and control the number of items purchased or the allowable number of transactions per card per machine, giving the operator extensive control. Cashless vending also tightens management oversight by reducing auditing requirements, deterring internal and external theft and reducing overall cash-handling requirements.
Dr. Kasavana walked participants through the evolution that has led to cashless vending, beginning with the establishment of a data transfer standard for transactional and event data collection, extraction and transmission. This is a superset of the Data Exchange Uniform Communication Standard (DEX/UCS) developed by the retailing industry a quarter of a century ago. Equally instrumental is MDB, the multi-drop bus standard with its internal communication protocol allowing easy interfacing between controller and a wide range of peripherals. (Multi-drop bus serial peripheral connectivity is similar to USB connectivity in personal computers. MDB provides the medium through which the vender controller recognizes, identifies and communicates with any compliant peripheral device, from payment systems to temperature and energy control circuits. Like USB, MDB allows the addition of peripherals with “plug and play” ease.)
He then conducted a quick tour of the V-commerce generations. In the late 1970s, the “intelligent” multi-price coin mechanism/changer – which became the brain of an otherwise “dumb” electromechanical vending machine – revolutionized the industry. The microprocessor-controlled vending machine arrived on the scene in the early 1980s, and computer control was prevalent by mid-decade. The vender controller was equipped with a serial interface, and became the brains of the machine, interpreting credit information transmitted to it by a “dumb” coin mech compatible with the controller’s interface.
With the advent of DEX and MDB in the late 1990s, operators gained the ability to electronically record transaction and functional data in a standard format, and retrieve it with the handheld computer of their choice – or transmit it to a remote destination, if they wished.
The open architecture of the mid-2000s is the outcome of these trend lines, and provides both “plug and play” convenience in installing and upgrading compliant peripheral equipment and automatic capture of minutely detailed audit, sales and functional information.
Practical remote machine monitoring is one result of this capability, and is able to enhance accuracy, efficiency and interactivity.
Operators became concerned with settlement – the reconciliation of payments with the removal of merchandise from the machine – half a century ago. Until recently, the mainstream approach to this task was manually recording cash meter readings on each service (and on spot-check between services), and comparison of receipts with inventory, typically the inventory on the route truck. The first application of electronic data processing involved entering the information returned to the office on paper route tickets.
Handheld computers made it possible for drivers to bring back electronic “route tickets,” which eliminated the time, effort and transcription errors involved in manually keying data into the office computer. The next step was to use a DEX-compliant controller to capture the transaction information, so the driver could upload it directly to a handheld route computer without any data entry at all.
Once machines could store and transmit this information, it became possible to move beyond audit and settlement and start improving route efficiency. Curbside polling allows a driver to inventory the machines at each stop right from the truck, then pull the products needed to fill the machine without the need to “walk past” the machines first. This saves considerable time and effort. Web-based polling takes the technology a step further by extending two-way communication from each machine beyond the route truck, right to the office.
“Remote machine monitoring lets you know what’s in the machine before you get there, and lets you solve problems before they escalate,” Kasavana remarked. Its capabilities range from tracking machine temperature, reporting coin and bill validator malfunctions and monitoring electrical fluctuations and outages, to providing inventory readings for route management, and tracking product and brand performance for category management and automated inventory control (what other retailers call “efficient customer response”).
Customers are increasingly accustomed to self-service technologies. This is demonstrated by e-commerce accounting for $211.4 billion in sales in 2006, with 71% of Americans making online purchases. More than 880,000 kiosks, used for self-checking, self-registration and self-ordering, deployed over the past decade, drove $438 billion in sales in 2006. “V-commerce,” which includes some seven million vending machines, will benefit by becoming more cashless, flexible and wireless. Vending recorded an estimated $46 billion in sales in 2006.
“Putting ‘self’ in self-service means customer service that focuses on convenience, consistency and connectedness; a customer interface that is intuitive, interactive and informative; and customer relations through recognition, rewards and retention,” Dr. Kasavana emphasized.
The “hidden” benefits of self-service technology are many, including the ability to upsell by offering add-ons or bundling products. “When you purchase online, you’ll often see when you put an item in your ‘cart’ that ‘people who buy that also buy this,’” the speaker noted. Internet commerce also enables the retailer to monitor shoppers’ purchase histories, facilitating loyalty rewards programming.
“Your expenses are lower with self-service technology because it’s all electronic, without human intervention, and productivity improves by design. You also have the ability to increase revenues without physical expansion,” added the technology expert.
In comparing e-commerce, “k-commerce” (kiosks) and V-commerce, Dr. Kasavana underscored the need for vending to take the next great step forward in order to remain competitive.
The customer interface for e-commerce is a mouse click, and k-commerce typically offers a touchscreen – but vending still lags, clinging to using pushbutton product selection. Internet users often can “drill down” as far down as they desire when searching for a product, and kiosk users usually have the ability to conduct limited product and service searches – but vending consumers have no access to information beyond what’s in the machine.
“Online product variety is virtually unlimited, and kiosks often feature a catalog or registry, but vending is limited to the number of facings the machine can accommodate,” emphasized Kasavana. “And the Internet shopping experience is completely cashless; kiosks generally provide for both cashless and cash purchases – but vending remains primarily dependent on cash. Visually, product presentation is dynamic on the Internet and kiosk displays, but far from that in closed-front and even glassfront machines. Product packaging is infinite online, allowing shoppers to build to order. Kiosks offer limited customization – but vending limits packaging to a fixed format.”
While the Internet provides worldwide product access and kiosks allow remote access to a wide range of goods, v-commerce product availability remains location-specific. Product replenishment is a non-issue with e-commerce, which has the advantage of zero onsite inventory, and is a more or less limited challenge with kiosks depending upon what products are sold, but remains labor-intensive with vending.
“Sales are increasing every year in e-commerce and we’re seeing unbelievable growth with kiosks, but v-commerce is flat or stagnant,” emphasized Kasavana.
Other stumbling blocks to vending’s reaching its retail potential include its proprietary technical platform, compared with the Internet to which any computer can connect and to the nearly universal appeal of Windows-based kiosks. Likewise, kiosks offer USB and Windows-based plug-and-play connectivity, while DEX and MDB technology provide limited connectivity in vending.
Real-time accessibility of data is a benefit of both e-commerce and k-commerce, while vending lags with its delayed aggregation of data, the MSU professor pointed out. And, while e-commerce is conducted over a “network of networks” and kiosks use local- and wide-area networking, networks are still considered optional, and so are sporadic (at best) in vending.
Still, vending’s tremendous advantage is that it can deliver a tangible product immediately, at any hour of the day or night. No other practical retailing method can do that.
“Why revolutionize?” Kasavana asked. “To enhance the customer experience, innovative solutions are needed, and as they are developed, vending will have a competitive advantage. The current labor-intensive system needs to be retooled to enhance productivity. And proprietary components lead to an unnecessary dependence on vendors, a limited number of available enhancements and frustration when seeking to expand.”
The speaker cautioned that laboring to maintain business practices to fit the existing operational model may adversely affect profitability. “The final reason to revolutionize? Because the growing trend across the economy is self-service applications. Remember, the original self-service industry is vending!” he reminded operators. “The goals are to enhance the industry image, change the customer experience, improve operating profitability, establish a competitive advantage, improve productivity and create auxiliary revenue sources.”
Dr. Kasavana’s “V-Commerce Revolution,” which he envisions as effecting the shift from vending to VendZing, begins with the progression from today’s predominantly cash acceptance to hybrid payment technology, and a move from glassfront and closed-front machines to digital signage that attracts consumers and more dynamically markets the offerings.
Customer interfaces should move from pushbutton selection to touchscreen activation, he continued. Touchscreens can serve a variety of profit-building and customer service functions. “A touchscreen on the machine can provide consumers access to information about the products, including a graphic of the back of the package for nutritional information or a list of low-salt or low-fat products,” he added.
The industry can also benefit by using technology to create an “avatar” interface, a virtual personality, that speaks to consumers, much as Microsoft’s “Clippy” (the animated paperclip that offers help with Microsoft Office applications) adds a personal touch to the computer user’s experience.
Dr. Kasavana envisions product variety being further refined beyond category management through “V-engineering,” following the example of menu engineering in foodservice to determine the profitability of each item offered within each category, and working continually to give the customer a reason to buy the more profitable ones. This is attainable with systems available today, but it still is a good deal more complicated than it can be.
“Technology must move from proprietary architecture to non-proprietary systems that you can buy at any computer store and that give you more freedom,” he stressed. “And route-wide networking will be increasingly important, as will the remote machine monitoring that those networks can support, giving you data in real time.”
Kasavana’s vision of VendZing includes a platform that enables multiple product purchases, built to order, rather than limiting the value that consumers can escrow. Vending operators can also become more customer-centric by instituting affinity programs that track purchases and reward consumers for their loyalty. Dynamic pricing is another underutilized customer-centric strategy that can create excitement and boost sales. The industry has made limited use of time-of-day pricing, especially on fresh-food machines (the pioneers called the afternoon price drop a “Blue Light Special”), but much more can be done.
There are also infinite marketing opportunities awaiting the astute vending operator beyond point-of-sale static-cling transparencies and signs. The addition of direct digital signage not only catches consumers’ eyes, but can provide a new revenue stream through advertising.
“How many of your locations have an intranet – a privatized network for people in that building – that you could use to market your vending?” asked Kasavana.
Other unique marketing applications worth exploring include online social networks. “MySpace has 110 million accounts that get 36 hits a day each,” noted the speaker. “There is a lot of potential to provide a new level of customer service and convenience by linking the Web to the vending machine. Can you envision a way for your customers to order from your machines from their desktops?” asked the technology expert. “Connecting the machine to the Internet can allow remote purchasing and ‘concierge shopping,’ where they can order things through you – and you earn royalties. Make the breakroom a WiFi hot spot; why not create a website – myvending.net – to offer coupons and let people find the nearest local machine at which to redeem them? Why can’t I order flowers from a touchscreen on the side of the machine? Why can’t I buy things that are not in the machine? Why not allow customers to get coupons for the machine with their cellphones? With the Redbox Automated Retail DVD program, you can order online and pick it up at the machine in the participating store nearest to you.”
In closing, Kasavana recommended that vending operators co-invest with their suppliers to move forward to the next generation of automatic retailing, and suggested the establishment of a technology certification program that holds operators to a certain standard and recognizes those in the technological vanguard.