How will smartphones impact vending in the next decade?

On Jan. 9, 2007, just over seven years ago, Steve Jobs introduced one of, if not the most disruptive pieces of technology ever invented, the iPhone. Currently 56 percent of all adults in the U.S. have smart phones. In 2013, one billion smart phones were sold throughout the world. People spend two hours each day on their smart phones. Smart phone is now the most valuable real estate on the planet.

Experts are convinced that over the next seven years, “consumer engagement” with the smart phone will be the dominant trend in retailing. An article title “Buy it Now” in New York Times Magazine, reported that in the near future, there will be a significant increase in the use of digital wallets – making everything from your license to your credit card redundant.

Not only will consumers adopt the digital wallet, but at the same time, the number of merchants accepting mobile payment will increase. Also, retailers will develop apps that engage the customer, integrate with product manufactures and provide sellers with a 360 degree look at their customer.

The central fact that emerged from the responses I received from technology companies for this article, as well as from attending technology shows such as the Consumer Engagement Technology World Show was that vending and micro market operators do not have the necessary IT and marketing infrastructure to develop, and most importantly, to support these smart phone apps. Vending and micro market operators should seek out companies that will provide the technology and marketing support to initially register consumers, develop reward programs and, most importantly, support a relationship of “Constant Content Change.” If a vending or micro market company does not constantly and effectively engage the consumer, the viability of its smart phone apps will quickly diminish. After a year only 4 percent of smart phone apps are retained by the consumer, see Chart 1. Yet, if your company does not start planning now, where will your company be in the year 2020, just seven years from now when mobile payments will achieve 50 percent penetration in retail.

Vending and Smart Phone Apps

Technology in the past decade has focused on the operational side of vending. Remote machine monitoring (RMM) units were invisible to the consumer. The units were installed to improve vend operator efficiently. Consumer engagement was secondary to making sure the vending machines were not out of product. Recently such companies as Air-Vend, VendScreen and Vendors Exchange have added a video display to the RMM units to encourage consumer interaction and to provide FDA nutrition information. The companies are and will be developing smart phone apps to interact with their respective devices.

The installation of credit/debit card readers, of course, has expanded consumer interaction. Steps have been taken to try to engage vending consumers through the use of loyalty cards and programs sponsored by buying groups such as USConnect supported by Sprout, and USA Technologies’ relationship with Isis.  It is, however, unclear, as to the extent that such programs have effectively engaged the vending consumer and the numbers of vending consumers participating.

New companies such as BYNDL, LikeUs, PayLab and PayRange are and have developed smart phone marketing and payment apps to be integrated with vending machines. Apriva is featuring its newest version of Apriva Pay Plus, a mobile point-of-sale application at the NAMA OneShow. Shelfx and VendCentral are also featuring their smart phone apps.

While it is unclear at this time which platform will be acceptable to the consumer, vending has a further complication. To add another payment option to cash and credit/debit card readers will only complicate the consumer experience at the vending machine — there will now be three forms of payments.

In my opinion, the smart phone mobile wallet will only be successful if the vend operators go completely cashless. Last September, VendingMarketWatch.com hosted a Webinar, “How to Increase Sales---A Technology Roadmap.” During the Webinar, Professor Michael Kasavana asked, “What is the cost of handling cash in vending today?” There were no responses. Vend operators should now start considering the “cost of handling cash” compared to the benefits of cashless. See “7 benefits to a completely cashless vending environment” on page XX.

In addition, smart phone apps will provide the consumer with the nutrition information required by the Food and Drug Administration.  Smart phone marketing apps offered by BYNDL will engage the vending consumer 365 24/7.

Such cashless benefits should be tested against the loss of sales due to the unavailability of cash purchases. Such testing should be initially conducted at “limited” access vending locations. For example, while a hospital is identified as a “health facility location,” in reality it is a location that contains the two basic types of locations, “limited access” and “transient.” The emergency room is a transient location while the nurses’ lounge near intensive care is a limited access location. The nurses all have smart phones and work 12 hour shifts with limited breaks. Vending machines integrated with smart phone marketing and payment apps, as the only option in the nurse’s lounge, would probably increase vending sales.

Almost all office buildings and manufacturing locations are now limited access locations. All consumers, students, faculty and administration at the college and university locations would be totally engaged with the smart phone apps.

Micro markets and smart phones

For all practical purposes consumers using micro markets purchase all their products cashless either by the credit/debit card option or by a pre-paid market card. Micro market operators have already achieved many of the cashless benefits such as charging sales tax and bottle deposit fees separately, price increments in cents and improved cash flow. However, the major problem is marketing to the micro market consumer, As Professor Michael Kasavana and Brad Bachtelle observed in NAMA’s Micro Market Operational Guideline is that operators need to realize there is a much larger selection of products that could drive sales with effective promotion.

Kasavana and Bachtelle state that a micro market warehouse should handle more than 500 SKUs to be effective, substantially more than a vending warehouse carrying only about 120 plus SKUs. Marketing is key to increase same store micro market sales. Discussions with some micro markets have indicated that without such marketing, the sales seem to decline at locations over time. (These anecdotal statements should be subject to rigorous study.)

The micro market companies have promotions and discounts to market to consumers. These applications are based on gaining access to the micro market consumers’ email through the use of the pre-paid micro market cards. These applications are limited because they have no impact on the micro market consumers who only purchase by credit/debit cards, and do not engage all the consumers 365 24/7.

Avanti Markets, Microtronic US and 365 Retail Markets plan to discuss their developments to integrate smart phone apps with their micro market applications at the NAMA OneShow. During a January 29, 2014 webinar, Three Square Market encouraged their users to explore the company’s smart phone applications. In a follow-up phone conversation with Patrick McMillan of Three Square, McMillan discussed the possibility of removing the kiosk and just employing the smart phone as a complete application for payments and marketing. In addition, Nutrition Pavilion will be introducing at the NAMA OneShow a new technology that will change how consumers purchase products in a controlled environment.

Micro market operators should have several questions regarding the efficacy of such integration. First, are the micro market companies prepared to support the smart phone marketing app 365 24/7? At the 2013 Customer Engagement World Show in New York, N.Y., presenters like BYNDL and Scanbuy explained the infrastructure required for smart phone marketing apps to succeed. Promotions, couponing and consumer data mining must be based on analyzing individual consumer purchases and product manufacturers’ promotions, subject to season product changes and the introduction of new products.

The level of effective smart phone marketing apps must be tailored to each consumer’s purchases. Micro market applications have the data to identify the date, time, amount and SKU of each consumer purchase. They must ask themselves questions about this data and how it can be used to increase purchasing. Blanket generic marketing will not work. According to the NAMA Micro Market Operational Guidelines, to increase the sales, customized marketing must be made to the top 20 percent of consumers who deliver more than 64 percent of the micro market sales.

All these caveats will help the micro market operator engage each consumer and increase sales and increase profitability.

The NAMA OneShow is a good place for vending and micro market operators to start developing smart phone marketing and payment apps partnerships. Many of the companies mentioned in this article are exhibitors. Discuss the issues with your current RMM and micro market company. Seven years from now a growing vending and micro market industry will involve first, cashless vending integrated with smart phone marketing and payment apps, and second, linking vending and micro market individual consumer data to product manufacturers’ smart phone marketing apps and social media.