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V-Engineering 2014: Technology Experts Examine Fast-Evolving Patron Interaction

Posted On: 6/10/2014

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TAGS: vending technology, vending machine business, cashless vending, vending machine networks, Dr. Michael L. Kasavana, Michigan State University, National Automatic Merchandising AssociationNAMA endowed professor of hospitality business, Enhancing Vending Technology Performance, Glenn Butler, CTO Services, Jim English, Sprout Retail, Brian Godwin, Crane Merchandising Systems, Justin Grant, Cantaloupe Systems, Mike Lawlor, USA Technologies, Gene Ostendorf, InOne Technology, Ron Spinella, Apriva

 v-commerce, vending, Dr. Michael L. Kasavana CHICAGO -- "Television sets no longer have dials on them," said Dr. Michael L. Kasavana, Michigan State University (E. Lansing, MI). "And vending machines no longer require you to establish credit before making a selection." Kasavana, who is the National Automatic Merchandising Association endowed professor of hospitality business at MSU's Eli Broad College of Business, moderated a panel session on "Enhancing Technology Performance" at the 2014 NAMA OneShow. Panelists included Glenn Butler, CTO Services; Jim English, Sprout Retail; Brian Godwin, Crane Merchandising Systems; Justin Grant, Cantaloupe Systems; Mike Lawlor, USA Technologies; Gene Ostendorf, InOne Technology; and Ron Spinella, Apriva.

photo | V FOR VENDING: Dr. Michael L. Kasavana opens technology session on April 9 at the National Automatic Merchandising Association's OneShow in Chicago.

Dr. Kasavana, who became the NAMA endowed professor in 1999, recalled that he had coined the term "v-commerce" to describe the convergence of data processing and data communications on the emerging generation of vending equipment at the turn of the millennium. Today, he said, it's time to replace that summary with the term "v-engineering" to describe the emergence of advanced self-service technology. The industry continues to change rapidly, he noted, affected by a profusion of alternate payment systems, digital media, touchscreens and network applications. Especially noteworthy has been the arrival of enhanced consumer interfaces that, among many benefits, can help in product marketing.

Security Challenge

The cashless transaction field is seeing an ever wider range of payment concepts, and is grappling with security concerns in the wake of well-publicized hacking exploits against major retailers. Vending and micromarkets have not been involved in any of them, but there is increased pressure for American retailers to adopt the security standards developed by EMV (Europay, MasterCard and Visa), which are maintained by EMVCo LLC. Increasingly popular payment applications for users of smartphones with a near field com­munication (NFC) feature also can employ the EMV security standard, which accommodates both contact and contactless media.

Gene Ostendorf of InOne Technology offered an update on the advent of the EMV security standard in the United States. He led off by pointing out that the United States always has been an "online" environment, because we have enjoyed a durable and reliable telecommunications system. In other parts of the world, ways to improve the security of cashless payments were more essential, and the EMV standards were one response. Because the U.S. telecommunications infrastructure is robust, implementation of EMV will have little impact, he predicted.

PHOTOS: Pictured, from left, are Gene Ostendorf, Brian Godwin, Ron Spinella, Justin Grant, Glenn Butler, Jim English and Mike Lawlor.

To date, the InOne founder observed, implementation of EMV in the United States has been minimal, but this is about to change. "In October 2015, liability for fraud will shift from banks to merchants," he reported. "After that date, a merchant who is not EMV-compliant will be liable for fraudulent transactions, for example those made with copied data."

The EMV standard includes provision for "card verification methods" of which the most common is "chip and PIN," in which the device embedded in the customer's card is read by the terminal and the customer enters a personal identification number. This typically is not required for low-ticket transactions, Ostendorf reported, so it has had little effect on vending.

"So talk to your cashless system provider," he recommended. "Some devices can be upgraded, and some can't. And ask them about their experience with EMV."

Operators also should stay up to date on the emergence of new payment media, Ostendorf continued. Well-publicized systems include Google Wallet, which creates an "electronic wallet" on an NFC-equipped smart device. The user can store credit, debit and loyalty card information on a secure website, then use a suitable smartphone or tablet to make purchases at NFC-capable terminals, using a personal identification number.

Another well-supported NFC-based mobile payment initiative is Isis, a joint effort by the major wireless network operators and card networks to deploy a mobile payment system that enables its users to store their payment and loyalty card data on a SIM card (subscriber identification module) in an NFC-capable smart device.

Systems offering "wallets" can allow the user to assign and store the value online, for use at networked merchant terminals, or on the medium itself, as with a prepaid card. The advantage of online storage is that audit information is available; a drawback is that it requires a network.

The speaker added that many other cashless programs have found application in vending, including the OneCard from Sprout Retail.

Ostendorf concluded by observing that new forms of currency are being explored, such as bitcoins. These are securely-encrypted digital tokens that are bought and sold with the currency in use by the parties to the transaction, at prices varying with market demand, and that can be attractive for international purchases because a bitcoin bought by a seller in one country can be converted into the payee's national currency at a very low exchange cost. The speaker observed that it is not likely that digital encrypted currency will find widespread application in vending any time soon, although a vending machine that sells bitcoins has been reported in Asia.

Brian Godwin of Crane Merchandising Systems observed that the introduction of more sophisticated customer interfaces on vending machines has given the industry new tools for studying consumer behavior. A primary reason to do this is to determine whether implementing new technology actually is making it easier for consumers to find an attractive product, get information about it and then make a purchase.

The speaker noted that interactive customer interfaces make it possible to test the effect of a change by making it, and watching the effects, very quickly.

Crane has done this, Godwin reported. Its model for assessing the results of changes is "retail efficiency," a measure of the number of consumer "touches" that are converted into sales. A prospective customer will "browse," perhaps moving merchandise into a "cart," and then either complete the transaction ("buy") or walk away ("abandon"). This is true for websites -- large online retailers like Amazon pay very close attention to it -- and it now can be tracked in vending machines, too.

Visual Appeal

Godwin pointed out that new-generation vending machines with touchscreen customer interfaces have some similarity to websites and, like them, will benefit from user-friendly layout. "The design of the display does affect sales," the speaker emphasized. "Operators need to increase same-store sales, and part of doing that is converting those 'touches' into purchases."

Effective design of the screen display can make it easier for patrons to find a desired product and the information about it that they want, he said. It also can encourage customers to take advantage of options like multiple purchases in a single transaction, or promotional incentives, to increase the size of the transaction. Interactive screens allow the development of a wide variety of customer incentives, giving operators access to merchandising tools that previously were confined to manual retail outlets.

"And we have to embrace interaction with mobile devices," the CMS executive concluded. "This will enable us to engage consumers even when they're away from the machine."

Apriva's Ron Spinella observed that we are living in an exciting time. He believes the catalyst of the communications and computer transformation that has been changing the landscape dramatically over the past five or six years was Apple's original iPhone, which appeared in 2007.

"The iPhone wasn't the first smartphone, but it was transformational because it drove adoption," he recalled. "It drove adoption because it was simple."

The use of mobile devices for payment is not new either, but the popularity of the iPhone and its widespread adoption sparked general interest in moving it out of an enthusiast niche and into the mainstream.

Spinella praised Visa for recognizing the potential of mobile payment and providing material assistance with the development of needed security features like tokenization, making a mobile transaction difficult to break into. The technology now offers security, safety and profitability, he said.

Enabling consumers to use their smartphones and tablets to make payments also offers operators the opportunity to benefit from other capabilities of consumers' wireless smart devices. Not only can contemporary mobile payment systems offer the convenience of use with debit and stored-value cards, but also the promotional power of loyalty and reward programs, "social vending" (gifting), and more.

"The technology is not all on the machine anymore," the Apriva executive pointed out. "A smart device might help you to find a vending machine -- and it might enable a vending machine to find you." It is not difficult to imagine a wireless network across which vending machines can invite nearby consumers to stop by. Current developments suggest that those invitations also might be received by "wearable tech," like smart watches.

The present situation is dynamic, Spinella emphasized, and it is easy to imagine a future in which the vending industry can create a community of users who will recognize vending machines as "destinations." An important step toward developing repeat or "return" customers would be to offer them "any app will do"convenience.

There are many ways in which the machine can be "associated" with a patron's device: an optically scanned quick-response (QR) code, a Bluetooth or NFC personal-area network, sending a text message with a code, using geolocation (either by means of the device's global positioning system or by a Wi-Fi local-area network), or by a combination of methods.

"Imagine that, when you walk up to a machine, it knows you," the speaker said. "It knows what you usually want, and how you're likely to pay."

While pondering the marketing advantages that this "intelligence" can confer, and the further possibilities of leveraging analytics ("big data"), it is important to keep in mind that it has to build sales and profits, and deliver a return on investment.

Justin Grant of Cantaloupe Systems addressed a parallel development: the steady migration of computing power from mainframes in air-cooled rooms communicating over local teleprinter terminals to minicomputers accessible to local groups of users with video display terminals to desktop "personal" computers to servers allowing those PCs to share files and collaborate within application software.

The next step is now underway, he said: the computing power has moved into "the cloud" (a remote server network) and the users are taking advantage of it with their mobile devices.

"What's in the cloud now? Business services like invoicing; a phone system; sales tax computation; data entry capabilities; security camera feeds; expense reporting -- hundreds of services," Grant emphasized. "Today, about 70% of people are using smartphones and tablets, and they want to use them in business." The new age of cloud computing allows them to do that.

Grant suggested that, when looking for a good supplier of cloud-based mobile software, the benefits to look for include "any time, anywhere" availability of the service to salespeople, technicians, drivers -- "and to you." One objective of switching to cloud-based software is the elimination of paper data entry when later action by the office staff is needed. For example, technicians can be dispatched, and service tickets processed, online; and the technician has easy access to service manuals and other reference material.

Grant summarized the argument for "software as a service" by contrasting the old model, in which the user purchases software to install on an office computer, as "hard: it requires formal training and imposes a long learning curve," with the new cloud-based model, which is "easy -- as easy as a phone -- and supported by continual, seamless upgrades."

He concluded by recommending that operators avoid "retrofit tech" by seeking out software specifically written for tablets and smartphones.

Glenn Butler of CTO Services pointed out that modern vending machine design intersects with "digital media," a fast-growing and diverse category that ranges from the digital menu boards now in use by Burger King restaurants through video advertising displays in malls and other high-traffic locations. Versatile video displays have made their way onto vending machines and micromarket terminals as well, he noted, and they do attract users.

The increasingly widespread use of video displays that interact with consumers, primarily through touchscreens, increases their effectiveness by producing an immediate impact on customers' purchasing decisions, Butler said.

Only The Beginning

In vending, these interactive displays are being employed for advertising, to publicize promotional offers and to provide nutritional and other product information to patrons. This use of digital media is most effective when the content can be tailored to individual customers based on their past purchases, the speaker reported; that history can be used to send coupons to patrons by text messaging or email.

"What are these media worth?" he asked. "Most people already have screens on their smartphones, which can interact with a machine through Bluetooth or another short-range communication method. But you've got to get the consumer to download the app." Starbucks has been very successful at this task, and their approach is worth studying.

"The consumer's world is media-focused," Butler pointed out. He traced the progression from people buying prerecorded VHS videotapes in stores through renting them at Blockbuster outlets, then through Redbox machines, then by online ordering from Netflix with "snail mail" fulfillment and return, and now online with immediate download. While all this has been going on, the speaker pointed out, "Our industry hasn't changed all that much -- but the change is out there."

Expediting that change is increased interoperability, the speaker observed. The VDI (Vending Data Interchange) standards catalyzed by the National Automatic Merchandising Association have simplified the task of transferring information among different software systems and various types of machines. Progress, to date, has included provisions for cash and cashless transaction reconciliation and master file integration, allowing the database assembled in an earlier VMS to be imported into a new one; and the integration of alerts. Micromarket manufacturers have made real strides in integrating their remote accounting and inventory reporting structures with the vending management systems widely used in the industry.

This progress will continue, Butler predicted, and access to increasingly sophisticated tools will speed and simplify the ongoing transformation of vending into a mainstream retailing channel.

Jim English of Sprout Retail identified four "big ideas" that are changing everything, outside the vending industry and in it, too. They are "location-based content," "augmented reality," "convergence" and the "Internet of things."

Location-based content is information delivered to consumers about products and services right where they are. Ways to deliver this include Apple's new "iBeacon," a little transceiver that can be placed on a store shelf and, when it detects a nearby iPhone, "push" a message to it about what's available on that shelf, using a low-energy Bluetooth connection.

Intelligent "things" can determine where such a consumer is, and what he or she is doing there, English pointed out. Augmented-reality devices can display "signage" appropriate to that consumer and that location without the need to put up physical signage. As these technologies continue to converge and ramify, the forward-thinking operator can envision ways to provide that consistent consumer experience.

English observed that, over the years, the vending industry has followed consumer trends, as other retailers have; "but we were first with unattended points of sale." Everyone is talking about "virtualization" now, but vending has been doing it from the beginning: a vending machine can be seen as a virtual sales clerk. This history gives the vending industry a head start in adapting to the emerging world of connected consumers. "The trend today is moving in our direction," he said.

And the transformation is occurring very quickly. The pace of smartphone adoption has been remarkably brisk; today, 89% of mobile phones used in the United States have some Internet connection capability.

"Vending machines will deliver content to customers through their phones," the speaker predicted. "And the machine can 'talk' to patrons when they're somewhere else. The future of mobile is the future of everything."

The Sprout Retail founder concluded by observing that these developments provide new methods that operators can use to address the two perennial challenges that operators face: increasing "same-store" volume at each machine, and attracting people who presently don't use vending machines at all. "The only thing you really can do wrong today is to do nothing," he concluded.

Cashless Payment Surge

Mike Lawlor of USA Technologies concluded the session by updating the audience on the progress of cashless payments in vending, as he has been doing since a technology seminar became a regular feature at NAMA OneShows. USAT has been collecting information on the progress of cashless vending sales since it launched its ePort program more than a decade ago.

Lawlor reported that the volume of sales made with cashless media continues to increase; on machines equipped to take cash or cards, the percentage of transactions made without cash has risen from 13% in 2007 to 28% today, and it continues to rise steadily. Average annual sales made with credit and debit cards have increased from $1,174 (per cashless machine) in 2007 to $2,265 at present. And the average cash transaction today is $1.16, while the average card transaction is $1.56.

"Incremental spend" -- the spread between the average amount a consumer spends when paying with cash and with a cashless instrument -- has increased from 21% in 2009 to 34% this year. Lawlor attributes this to a perceived price ceiling in vending, which tends to inhibit sales at prices much above $1. For this reason, he predicted that the percentage of cashless sales will continue to grow as vending prices inevitably increase.

He also observed that the growth in cashless usage has increased as more and more people have become aware that using a card now is an option, and as they have become confident in the convenience and security of the transactions. Using cashless media for small payments has become increasingly prevalent across nearly all retail channels, and vending shares in the benefits of this trend. Interestingly, he added, the card sales have not "cannibalized" cash collections; the average cash sale has held steady. This suggests that the cashless option is encouraging people who have not often patronized vending machines to do so; and the higher average ticket generated by cashless can be attributed to increased purchases of higher-priced merchandise and to the consumer's ability to buy more than one item in a single transaction.

A relatively recent development that is producing very good results for operators is "two-tier pricing," the speaker reported. Giving the customer the option of choosing to pay a lower price when paying with cash at a vending machine represented something of a leap in the dark, but customers have shown that they understand and accept it.

"At present, 789 vending companies in the United States are offering the two-tier price option on just over 34,000 machines," the USAT executive reported. The average purchase from a vender converted to two-tier pricing rose 6.5%, or about 10¢; and, despite the higher cashless price, there was no decrease in cashless sales at those machines. "Offering two-tier pricing can help your bottom line,' Lawlor said.

A strong trend to watch is the "migration to mobile," Lawlor emphasized. USAT has been working with Isis on the applicability of the Isis "mobile wallet" to vending, and the rollout has proven to be smooth and swift.

Isis is a joint venture among AT&T, T-Mobile and Verizon Wireless to insure widespread acceptance of this "mobile wallet" functionality by including the capability in the new phones they sell; and they have a combined customer base of some 200 million people.

To promote its installation by operators and its use by vending customers, Isis and USA Technologies have been offering a "fifth vend free" promotion, Lawlor explained. This is an uncomplicated offer, publicized by on-machine signage, offering customers who make four purchases with their Isis wallets to receive a fifth item, with a value of up to $5, for free.

The program has spurred acceptance, the speaker said; as of March, some 12,000 vending machines had been converted for use with the Isis mobile wallet. Lawlor sees Isis as a major opportunity for vending to attract new customers and increase machine usage by infrequent ones.

The USAT executive agreed with Butler that it is worthwhile to look closely at Starbucks' very successful smartphone- and tablet-based mobile-payment and rewards program.