Self-service Retail Formats Evolve, Impacting Vending

While self-service applications from banking, to travel, to foodservice, to ticketing, to hotels are booming, many have forgotten that the original self-service applications were in the vending industry. The fact that vending was the first form of unassisted retailing (referred to as v-commerce) appears to have been lost as a result of implementation elsewhere.

Although the vending industry has been comparatively slow in adoption of innovative hardware, robust software, wireless networking, and enhancements to the customer experience, an opportunity for the vending industry to reinvent itself looms in the near future as self-service technologies continue to evolve and converge.

An effective self-service application should be a benefit to both the customer and vending operator. For the customer, the gain is in convenience, efficiency, and ability to control aspects of the transaction (e.g., product selection and payment). From an operator perspective, it involves reducing administrative expenses while providing quality service with meaningful customer relationship management (CRM).

Self-service has evolved into an operational mode that no longer should be viewed as merely a device-based channel for selling snacks and beverages. The placements of non-traditional products with connectivity to external goods and services are increasing in popularity.

When executed correctly, self-service technology can allow consumers a range of product choices with an assortment of methods of payment. The capabilities and features that are becoming so popular in Web-based businesses such as e-commerce and kiosk operations should be considered viable candidates for upgrading v-commerce functionality.

As consumer surveys continue to reveal that customers seek more self-service deployments throughout the business world, the vending industry needs to reignite the innovative spirit that originated unassisted retailing more than a century ago.

‘Generation P' arrives

Consumers aged 18 to 29, often referred to as “Generation P” for their preference for plastic (electronic) cashless settlement, grew up with advanced technology (cell phones, high-definition television, instant messaging, social networking, video podcasting, and interactive gaming) unlike any previous generation. As a result, researchers postulate, Gen P has a greater desire to exercise control over purchase decisions, which helps explain the explosion in self-service applications.

The vending industry must recognize the future isn't what it used to be as high-tech self-service applications are expected to permeate the business landscape for several years to come. Industry leaders need to consider changes in the way v-commerce is planned, managed, coordinated, and controlled. Especially since the number of Gen P consumers is projected to reach 91 million by 2017.

Several industries are transitioning to self service

An increasing number of industries are choosing to provide self-service technology options for their customers. Self-check-out at retail stores and supermarkets, pay-at-the-pump gas stations, self-check-ins at airports and hotels, online banking and stock trading, self-order entry at restaurants, and an array of dedicated devices (photo kiosks, DVD rentals, ticket machines, etc.) are becoming commonplace.

In most businesses, the transition from customer service to self service is an undeniable trend. As Web-based searches and touchscreen kiosks become more user-friendly and thereby capable of handling more complicated tasks, health care providers, fast-food chains and other businesses are trading face-to-face encounters for face-to-monitor transactions. It is expected to improve speed, accuracy, and operational efficiencies in unattended sales.

For example, in banking, the phrase “full service” used to refer to a teller capable of handling transactions affecting checking and savings accounts as well as safety deposit box access, and the processing of mortgage and loan applications. Now, full service means that the bank provides a wide range of services that avoid contact with the bank's tellers almost entirely.

Such self-service applications as Internet banking, online financial lending, extensively networked ATM machines, and interactive voice response systems have become the norm. It appears that customers value the convenience, consistency and control of automated transactions over assisted transactions.

Consumers have become increasingly impatient with inexperienced salespeople, long waiting lines, or closed stores when they want to conduct business. As a result, opportunities to conduct transactions online or using a kiosk have become a welcome alternative.

As experts proclaim, an effective self-service technology has to either make a process faster, cheaper, or better for customers to perceive it as worthwhile. There are at least three self-service application areas that can benefit from a collaborative effort in technology development. These application areas are online (e-commerce), kiosk (k-commerce), and vending (v-commerce).

Simply stated, the world's largest vending machine is the Internet. It is primarily responsible for laying the groundwork leading to the economic movement toward self-service. The fact that the Internet has become a universally accepted platform for product search, product information, and product procurement is having a profound impact on the way business is redefining the customer interface, customer service, and customer relationship management.

The Internet leads self service applications

The Internet represents the ultimate form of self-service. A majority of consumers use the Internet as part of a shopping process, even if they eventually go to a store to purchase or pick up an item.

Researching product features and conducting price comparisons online, before actually shopping, appears to empower customers while creating a more informed buying experience. As a result, domestic online sales grew from $47.8 billion in 2002 to more than $130.3 billion in 2006 with 71 percent of Americans engaged in shopping online. Annual spending per purchaser increased from $457 to $784 during this same time period. Many industry observers have commented that any company that does not take advantage of Internet-like capabilities will fall behind its online competitors.

Efficient e-commerce companies provide a platform that allows customers to research products, order products, process payments, and/or access customer support online. The success of Web-based self-service depends upon the quality and quantity of information available and the ease with which it can be located.

Internet facilitates customer relationships

Online self-service has been shown to have a more positive return on investment than other customer-facing technologies. Known for cost savings, Web-based self-service also fosters customer relationship management since customers are routinely required to create an account to initiate a transaction. In addition, incremental revenue can be gained through upselling or cross selling related products.

While the vending industry has yet to parallel online capabilities, such as Web-based customer interfacing or digital signage, to any great extent, some considerations may be appropriate. Since online purchasing tends to be more convenient, accurate, and timely, it can provide a better purchase experience than conventional shopping.

One company that has made strides in this direction is Zoom Systems (zoomsystems.com). Its Website aptly describes how its robotic stores work: “(it's) like shopping online, but with instant gratification.”

‘K-commerce' evolves

The kiosk has become an effective point-of-sale option that is rapidly being adopted; sometimes in place of a standard vending machine. In North America, the number of installed kiosks has quadrupled in the past four years.

In its recent report, Summit Research Associates estimated 800,000 customer kiosks (not including ATMs) will be installed by the end of 2007. This number is expected to exceed 1.2 million by 2009. In 2007, consumers are projected to spend more than $525 billion at self-checkout lanes, ticketing kiosks, and other unattended retail outlets, according to the IHL Consulting Group; this is a large increase from $438 billion in 2006 revenues. This figure is forecasted to exceed $1.3 trillion by 2011.

Payment accepting kiosks are usually divided into three broad categories: self-check kiosks, ticketing kiosks, and self-ordering kiosks. Self-check kiosks are dedicated to linking both check-in (registration) and check-out (settlement) activities associated with airline travel, hotel accommodations, events and meetings.

Ticketing kiosks primarily print or transmit information authorizing entry to an event or transportation venue. Self-ordering kiosks primarily focus on goods (and services) at a quick service or family style restaurant or access to a takeout location or delivery center.

Another example of a self check kiosk is the Freedom Shopping kiosk that has been used by some vending operators. It is a self checkout retail kiosk that uses radio frequency identification technology. Fast Track Convenience markets the kiosks.

The kiosk consists of a checkout station where products are scanned by an RFID reader. Products in the immediate area are displayed in baskets, racks or in refrigerated or frozen coolers.

To assist multiple purchases, all products are scanned simultaneously, unlike in a supermarket self checkout, where items must be individually scanned. The customer selects items and takes them to the checkout area. An RFID reader beneath the touchscreen scans the RFID codes and lets the customer know the price of each item. The customer then authorizes the transaction on the touchscreen. The transaction takes six to 12 seconds.

McDonald's, Burger King, Subway and other eateries are testing self-service kiosks in preparation for widespread utilization by 2010. These quick service restaurants (QSRs) implement kiosk solutions using standard PC hardware running Windows or Linux operating systems.

Basic QSR kiosks allow customers to self-order and pay with credit, debit and gift cards, while full-service models are capable of Internet connectivity, coupon processing, and coin and currency acceptance. In addition, kiosks are also being tested outside the restaurant for drive-through and drive-up self-service applications.

Web and kiosk applications

Web and kiosk applications typically include tools for centralized remote monitoring and network management. Most applications serve multiple purposes. For example, a Website or kiosk can present a detailed product catalog and gift registry for customers and a job or loan application center for prospective employees.

For most Web-based and kiosk applications, there are several appealing features embedded in the self-service programming that may not be obvious. Consider these hidden capabilities:

1) Upselling – The ability to suggestively “upsell” at the point of purchase by offering add-ons, modifiers, and/or bundling options. For example, in addition to flight registration, airlines are also using the Web and self-check-in kiosks to “upsell” preferred seating based on fees or reward points as well as promoting single-day airport club memberships.

2) History – Constructing the application to track, store, and recall prior purchases by customer account. For example, recalling a customer's last purchase can help accelerate order entry and/or settlement as retrieved data remains accurate. The feature strengthens customer relations and customer loyalty

3) Affinity – The account creation and administration of a loyalty reward program to track purchases for points, rewards, discounts or special promotions to be applied at Website and kiosk locations.

4) Savings – The development of intuitive programming that enables processes to be completed without human intervention. It is estimated that customer check-in with an airline agent costs about $3 per transaction versus about 14 cents at a kiosk and less at a Website. In fact, both the Web and kiosk are more effective at upselling than a live agent.

The business aspects of vending technology are included in the concept of v-commerce. The fact that a vending machine is likely to feature a glassfront that permits the customer to view physical products, but not handle them, is somewhat like the digital product display available over the Internet. The ability to further differentiate a vending machine from a Web-based application is not difficult as immediate product delivery sets the two modes of operation apart.

Vending and kiosks: What's the difference?

Differentiating between a vending machine and a kiosk, however, is not so easy. The distinction has been blurred as placements and applications seem to overlap.

According to a recent article on ePay.com, there are approximately 8 million vending machines in the U.S. compared to 800,000 kiosks cited by kiosk.com. Despite the fact that the vending industry has existed for more than a century and the kiosk industry just passed its tenth anniversary has not simplified the process.

The three most popular self service platforms are: vending, kiosk, and Web applications. While vending focuses on product presentation and delivery, kiosks typically are limited to dispensing information and relayed services, while the Web provides unparalleled search and e-procurement capabilities. The fact that more kiosk applications are being built with product distribution in mind, and Web connectivity overlaps every aspect of transaction management, will likely transpose vending into a more expansive and comprehensive unattended point-of-sale application.

While most vending machines handle only cash transactions, the opposite ratio applies to kiosks which predominantly favor electronic payments; Web-based transactions are cashless. While the percent of vending machines accepting cashless payments is projected to approximate 50 percent by 2010, kiosks likely will continue to process a significant proportion of transactions as cashless.

What exactly is a kiosk?

A kiosk is defined simply as “a self-standing technology-based unmanned device” in the North American Self-Service Kiosk Survey. Couldn't this definition also describe a vending machine?

Many industry observers have sought to differentiate a vending machine from a kiosk based on the nature of transactions being handling. Some industry experts have postulated that a vending machine becomes a kiosk when it begins accepting electronic payments (regardless if it continues to accept cash).

This does not seem to be a reasonable or sufficient criterion since a payment device is merely a peripheral component added to the base of a more complex system, not the system itself. Others have proclaimed that a vending machine becomes a kiosk when it has an extended range of functionality.

But specific functionality is hard to define and also tends to fail to differentiate one device from the other. For example, when a manufacturer of a large capacity glassfront machine adds a touchscreen interface and chooses to classify the machine as a retail kiosk, folks in the vending industry have difficulty understanding this distinction.

Deciding whether a device is a vending machine or kiosk is not simple. When the vending industry categorizes a device as a vending machine, it is possible the kiosk industry classifies the same device as a kiosk.

Category distinctions: do they matter?

For example, consider the DVD rental machine. Although always considered a vending application, this device recently received an outstanding design award from the kiosk industry. Are there distinctions that delineate a vending machine from a kiosk? Is this an important distinction? Or is it just a matter of subjective division with meaningless distinction? Here are a few characteristics for consideration (with references to Web-based retailing included):

User interface – A vending machine incorporates push-buttons for product selection; kiosks rely on touch-screen monitors for selection; the Web relies on clicks and hypertext linkages.

Information – Vending machine information is limited to product pricing; kiosks and Web applications are best known for their information search and retrieval techniques that can provide detailed data about a multitude of factors.

Product display – Vending machines traditionally place products behind a glassfront; unless a kiosk supports a product delivery mechanism, there is no product delivery, only information referencing. Similarly, Websites feature a variety of products, presented in digital format, with delayed shipping requirements.

Architecture – Vending machines are governed by a vending machine controller that monitors inputs, processes, and outputs; kiosks are PC-based devices normally running a Windows or Linux operating system. The Web is a network of networks amenable to a variety of computing platforms.

Payment processing – Vending machines are equipped to primarily handle coins and currency payments and occasionally open (credit and debit card) or closed (paykey, RFID, payroll direct) payments. Kiosks are built with a high expectation of electronic payment transactions but may be equipped to handle cash payments; the web is strictly a non-cash payment business.

Marketing – A vending machine features product packaging, displayed behind a glassfront, that conforms to mechanical (spiral and coil) restrictions; kiosks and Web marketing usually involve dynamic digital displays with multiple product views as well as extensive product information. Many applications also provide a mechanism for package customization or personalized purchasing.

Products – Vending machines are limited in product offerings based on the number of columns or selection options on the machine; kiosk screens can feature a large number of products and product sizes and unless connected to a delivery mechanism are flexible in product mix. Websites can feature almost an infinite array of products through hyperlinks and search engine capabilities.

Services – Vending machines are incapable of offering concierge services and are limited to the product inventory of the machine. Kiosks and Websites can link to the power of the Internet and numerous remote sites for access to a wide variety of concierge services.

For simplicity, it may suffice to conclude that differentiation may be made based on the fact that vending tends to be product-centric while kiosks tend to be information-centric. The table on page 70 contains a comparative listing of several features from the three main self-service technology applications.

Full line vending will change

The future of vending technology will be impacted by the explosion of self-service technologies that are permeating nearly all aspects of the hospitality industry. The shift is expected to bring significant changes in how vending operators plan, control, manage, and evaluate operations.

While most in the vending industry will consider the convergence of innovative applications as evolutionary, others anticipate the changes will more likely be revolutionary. Self-service technologies are expected to revitalize an otherwise stagnant vending landscape in an effort to enhance customer experience, improve profitability, and create a more efficient management model.

In the next installment of this two-part series, we will examine some of the advances in vending technology that will be impacted by self service technologies.

About the Author
Michael Kasavana, Ph.D. is the NAMA endowed professor in hospitality management at Michigan State University in East Lansing, Mich. He has been researching vending technology for several years.

Loading