'V-Engineering': A roadmap to progress for vending

There have been many prognostications of what technologies are most likely to gain traction in the vending industry in the next few years. While the exact impact of specific technologies is debatable, the following “V-Engineering” technology roadmap is intended to provide insight into advancements most likely to transform the vending industry.

While auto-retailing, mobile payments, remote management, cloud computing and digital signage are likely to lead the way, social, local, and mobile (SO-LO-MO) marketing will trail closely behind.

When faced with a challenging market, vending operators seek solutions that are cost-effective, logical, and lead to profitability while advancing the image of the industry. Can technology be relied on to be the leading accelerant to make this happen?

Will more efficient automation applications be well received? Is innovative technology cost-effective? The answer to these and related questions may lie in an emerging collection of diverse developments classified herein as “V-Engineering.”

The thrust of V-Engineering is the advancement of technologies designed to enhance the vending consumer experience while streamlining the planning, operations, management, and controls necessary for a successful business. Many of the developments contained in this article are forthcoming in the near term, and all are expected to be significant game changers within the next 18 to 24 months.

V-Engineering emerges

Interest in creating enhanced user interactivity at the point of purchase coupled with the availability of emerging payment options, as well as interest in product nutritional/ingredient disclosure information, provide a powerful basis for redefining the vending experience. The term V-engineering represents a conglomeration of several advancements currently under active development by technology suppliers and industry practitioners.

The application of roadmap strategies such as auto-retailing, digital media, cloud computing, remote management, location-based services, mobile payments, QR codes, user analytics, and dynamic servicing are expected to create a tsunami-like impact on the vending industry.

Retailing leads vending

For some time now, industry practitioners have been cognizant of the fact that a significant aspect restricting profitability in the vending channel is its failure to parallel retail transactions. This difference represents a major obstacle to industry advancement given that the vending experience works contrary to other transactions.

In a retail transaction, the consumer selects products first and pays for the products second. In a vending interchange, this sequence is reversed as the consumer first establishes credit through coin, currency, or electronic authorization, then makes an item selection.

If the vending experience more closely paralleled retail experiences, would this provide a basis for improved sales and profitability?

As the placement of video screens appear on vending machines, there is an opportunity to present a shopping cart graphic and depict product icons being placed into the cart as the consumer makes product selections for eventual payment.

For example, the consumer might select products A1, B5, and C2 and watch as iconic representations of each product are placed into a shopping cart (similar to the depiction when a computer file is copied from one location to another in MS Windows). Should the consumer change his/her mind and cancel the transaction or remove any item, these functions would process the change identically to actions used in an online shopping basket.

Once the consumer has finalized the desired set of items in the cart, payment options are presented (cash, card brand, or other media) and the chosen items are purchased and dispensed. What effects will this reversal of the vending sales process have on industry progress? Here are a few considerations:

  • More items sold – When the consumer is not constrained by a deposit or pre-authorization, there is a tendency to spend more than otherwise would be committed resulting in more items being sold per machine.
  • Multiple product purchases – Since the consumer is not constrained by a prepayment in advance of item selection, there is an opportunity to make numerous purchase selections without having to initiate additional transactions.
  • Higher average sales – Multiple product sales will result in higher average transaction amounts which will simplify machine audits and greatly reduce transaction costs for both cash handling and electronic processing fees.
  • Bundled promotions – The ability to engage the consumer in multiple product purchasing provides a foundation for promotional opportunities not otherwise available; for example, offering the consumer purchasing a cold beverage the option of receiving 15 cents off the price of a snack food item if purchased together.
  • More payment options – With payment following selection, the vending operator is able to offer more settlement choices without requiring pre-authorization or risk of exposure to mis-authorization charges based on purchase selection (e.g., cash, credit/debit card, gift/prepaid card, mobile payment, PayPal, Google Checkout, etc.).
  • Replenishment cycling – Higher sales may lead to more frequent replenishment but will enhance product freshness while improving productivity as more products will be handled each machine visit, thereby lowering the cost per product replenishment expense.
  • Data mining – Having more and better information about products with complementary sale potential (i.e., identification of which products sell well together) ensures machine menus have optimal sales mix derived from an analysis of multiple product purchases and/or bundled purchase promotions.

Altering the retail sequence in vending to closely parallel traditional retail shopping will contribute to additional advancements by providing a pathway for changing the consumer’s vending experience.

Digital media evolves

An increased level of interactivity between the consumer and digital media in most retail environments has been proven to effectively increase traffic, sales, profits and loyalty. The recent implementations of video screens and digital signage have been proven to positively impact customer purchase behavior at the point of sale (POS).

Digital signage is typically defined as high definition content containing text, graphic, and video components. As a result of advancement in video distribution and display technologies, digital signage is becoming a point of emphasis for self-service providers, including vending operators.

The fact that a video presentation screen can also serve as a touchscreen input device makes applications even more relevant by providing a platform for promotional upselling to an already engaged customer. The real opportunity for the vending channel may lie in the fact that this roadmap element has the potential for merchandising products in the machine as well as revenue sharing from saleable advertising spots.

Digital media, expected to become an integral part of the vending landscape, is currently available from machine manufacturers and industry technology suppliers for new machines as well as retrofitable for older models. Screens can range from single-line LED display to a medium-sized LCD screen to a large touchscreen design.

Despite the richness of data that can be displayed and captured by an LCD unit, it likely will be the paid advertising model, implemented so successfully at other retail locations (e.g., post offices, gas stations, and quick service eateries) that will serve as an adoption motivator for the vending industry.

The fact is incremental revenue, derived from digital broadcasting, can make a significant contribution to profitability. A second motivator is likely to be in response to impending government regulations mandating the disclosure of nutrient and ingredient product information.

Digital user interface

Similar to the objectives of other forms of media campaigns, vending machine-based digital programming should strive for three goals: 1) influencing a POS purchase decision (promotional), 2) extending brand image (informational), and 3) enhancing the customer experience (entertainment). From an operational perspective, digital media is very appealing as it enables instant updating of product availability, pricing, descriptors, add-ons, modifiers, nutritional and ingredient information, as well as upselling opportunities (bundling and coupling).

Vending operators can use digital media in an attempt to increase revenues while enhancing the consumer experience by delivering targeted messages where and when they seem to matter most; at the point of purchase. Traffic volume and sales data by time of day (often referred to as day parts) are basic elements used to evaluate media success. Generally, there are three techniques used to determine the impact of digital media on point-of-purchase behavior. These factors being:

Sales correlation

Intelligent marketing refers to providing the consumer relevant messaging at the point of purchase based on an analysis of personal profile and day part. Matching POS transaction data to digital content will generate a correlation index between sales and product-specific messaging. Different messages will likely have varying impact on purchase decisions, and understanding how unique broadcast content influences consumers from various demographics can be important to menu engineering.

Event-based couponing

Vending machine messaging that promotes a specific product or combination of products may also generate a discount coupon, or “e-coupon,” to further influence purchase decisions. Media experts claim that this form of promotion conditions the customer to pay attention to broadcast content as there may be a promotion or other benefit to be gained. Digital signage can present vending an unparalleled sales opportunity, especially in conjunction with the use of QR codes and dynamic mobile marketing campaigns.

Net impression tracking

An evaluation of the consumer’s ability to recall the content of a digital display is termed net impression tracking. When a message is broadcast, an impression is created. Measuring the consumer’s strength of recall can be used to evaluate this relationship. This is often a difficult metric to compute but can be very meaningful in terms of next step strategies.

Often, practitioners report that short messages (as short as 10 seconds) may have a higher recall rate than a longer promotional piece. Additionally, the longer the messaging at a vending machine, the more likely there will be a service slow down.

Digital signage can have a positive impact on vending as it increases the range of information available to consumers at the point of purchase. Some important performance metrics for digital signage in vending include: 1) revenue lift resulting from product promotion, 2) purchase transaction time, 3) index of customer satisfaction, and 4) increased number of customers using the vending machine.

Digital media represents a powerful tool for location specific promotions as content can be remotely managed in real time and compressed for rapid transmission. Vending operators are able to place digital screens in a bezel or slot mount on the front of a vending machine as well as to a machine side panel or away from the machine on a wall bracket.

Streaming video technology, in combination with Internet connectivity, presents a vending operator with the capability to create a powerful network for video advertising, news alerts, and product promotion. As new content is available, it can be automatically downloaded from a remote location to vending machine supported screens for immediate implementation.

In essence, the placement of digital signage can effectively transform a vending machine into a large-scale video terminal equipped to promote on-site merchandising while providing a source for product ingredient and nutrient disclosure along with incremental revenue from advertising.

Digital supports wayfinding

The use of signage to direct people in an unfamiliar area is termed wayfinding. The advent of digital signage adds a new dimension to wayfinding by enabling visual presentation of maps and schedules.

New, data-driven, wayfinding systems operate dynamically to determine the best route based on current conditions. This concept of “smart” wayfinding is expected to change how wayfinding is deployed and managed in all industries, including the vending industry.

For example, a smart phone application may identify the nearest vending machine, and category of products sold, to an inquiring consumer. Or a high definition audio-video presentation can be used to capture consumer attention and thereby drive traffic to the machine. Once in proximity to the machine, the display can promote products sold through the machine (targeting specific items for promotion based on consumer and time of day).

Nutrient and ingredient data can be presented for any item or the buyer may be able to use an on-board search engine or component filter to identify qualifying (e.g., low calorie) items for purchase. In addition to item promotion and sales, incremental revenue may result from advertisements and event promotions appearing on the machine supported digital screens.

Product recognition concerns

The need to display product nutrient and ingredient data has started taking on significant importance in the vending industry. Government regulations designed to assist consumers in making more informed product choices will soon be mandated, requiring vending operators to provide accurate item information. How can a vending operator have confidence the data provided will match the identification of each product in each facing?

These concerns can be addressed and resolved through product recognition technology to specifically determine the content of each product in each spiral in real time.

A future article will examine cloud computing, remote monitoring, hosted systems, mobile payments and location based services.

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.