Retail Mobility: Consumers in ControlThe new playing field for retailers is a mobile one, and the most successful retailers are overcoming challenges to provide a compelling mobile experience for tablet- and smartphone-based shopping.

Executive SummaryThe retail industry has embraced the ubiquity of mobile devices across the consumer landscape. Studies of shopping behavior clearly indicate increased reliance on mobile devices, especially by value-driven consumers for product research and comparison.

Large retailers are responding by both acceler-ating and continuously fine-tuning their mobile commerce channel strategies. Retailers across categories have had varying levels of success in harnessing mobility, but the trend is clear: Successful retailers are those that are succeeding with mobility.

The 2011 U.S. holiday shopping season witnessed an explosion in shopping conducted using mobile devices such as smartphones and, increasingly, tablets. Various surveys revealed a sharp rise in the number of mobile devices used to research and purchase products over the previous year, especially on key shopping days like Black Friday. This indicates a fundamental shift in how consum-ers have begun to approach the mobile shopping proposition, one that is likely to be even more pro-nounced in the current holiday shopping season. The new playing field comes with its own chal-lenges, the biggest being continuously changing

technology and the rapidly evolving landscape of third-parties and their related solutions.

Mobility is one of the few areas where retail has led other industries. Most mobility investments have been driven by the ever-increasing number of consumers — existing and potential — armed with smart devices with access to high-speed Internet and the resulting demand for mobile shopping solutions. But mobility in retail has also been impacted by third-party applications and offerings such as RedLaser and Decide, which provide intelligence to customers unavailable just a short time ago.

The interplay of the various actors in this environment affects the outcome for retailers striving to build a successful mobile commerce channel. Factors include their strategies around app development and design; their understand-ing of — and response to — consumers' mobile shopping behavior; the way they leverage lessons learned from the first wave of e-commerce; and a desire to keep pace with the plethora of platforms and applications proliferating today.

Additionally, the growth of tablet usage has created an even greater impetus for retailers to develop and execute a mobile strategy.

cognizant reports | december 2012

• Cognizant Reports

cognizant reports 2

Tablet owners shop more, have a higher conver-sion rate and ultimately spend more using their tablets than do the owners of smartphones — due primarily to the improved shopping experience. Tablet customers and applications should be the highest priority for retailers today.

Mobile strategies must address capabilities through both mobile browsers and applica-tions. While customers can be attracted through the browser, many retailers feel they can best retain customers through capabilities only possible through a mobile app — thus the need for both. However, shoppers are growing more aware of the demands that mobile applications place on their smartphones, and retailers need to be careful of overloading capabilities and, subsequently, data and battery usage.

Mobile Commerce Trends Mobile-led shopping is on the rise. Moreover, mobile-empowered consumers are rewriting the rules of the retail game, compelling retail-ers to play along. Retail revenues generated by the mobile commerce channel are projected to influence 17% to 21% of all store sales by 2016.1

One reason: Consumer bargain-hunting is significantly bolstered by smartphones and tablets. With economic uncertainly abounding, shoppers who engaged in "digital deal-seeking" during the 2011 holiday season utilized their smart devices to research products, compare prices and secure the best discounts available (see Figure 1). These near-ubiquitous devices equipped buyers

Shopper Use of Smartphones Leading into the 2011 Holiday Season

Figure 1

Source: Shoppersciences.com Holiday Shopping 2011 Survey

57%

52%

47%

43%

40%

39%

30%

24%

0% 10% 20% 30% 40% 50% 60%

Looked up product information

Compared prices

Searched for coupons

Scanned a barcode or QR code

Checked inventory availability

Redeemed a digital coupon

Used shopping app to earn points

Used mobile payment

with superior tools, strengthened their purchase decisions and improved their overall shopping experience. According to a Google study, 77% of tablet owners used their devices for shopping during the 2011 holiday season.2 A National Retail Federation survey notes that 37.4% of consum-ers with tablet devices used them to conduct pre-purchase research during the 2011 Black Friday weekend, and 25.7% used them to buy products.3

Our research, conducted with over 2,000 shoppers in 2012, confirms that mobile check-out and payment are not yet embraced by the majority of consumers, but younger shoppers and high-income shoppers show the highest propen-sity to take this approach. Thus, we believe it is a matter of “when” and not “if” retailers should begin developing mobile checkout capabilities (see Figure 2, next page). (For more detail, explore our Third Annual Shopper Experience Study, conducted with RIS News, “Enabling Retail Without Boundaries.”)

The Tablet PhenomenonAccording to research from the E-tailing Group, tablet owners use their devices for shopping to a greater degree than smartphone owners. The survey found that 69% of tablet owners rated their recent shopping experiences via these devices superior to the smartphone, with 39% reporting a significantly better experi-ence. The remaining 30% rated their shopping experience as somewhat better vs. shopping with their smartphones.4

cognizant reports 3

Features that make the tablet more enjoyable for shopping include a larger screen and better user functionality for browsing. A significant amount of online shopping is done in the comfort of a living room, and with their larger display and immersive features, tablets enhance the entire shopping experience. Also, tablet owners tend to be gadget-buying early adopters — young, educated and affluent and, hence, traditionally greater spenders.

A Forrester/Bizrate survey clearly indicates that tablet owners across all age groups use these devices for shopping and prefer tablets over smart-phones for shopping-related activities (see Figure 3, next page). The trend is more prominent among the younger Gen Y and Gen X consumers, as they are early adopters of gadgets. In fact most Gen X, Gen Y and baby boomer consumers find shopping on a tablet at least as convenient as on a PC.

Adobe Digital Index analyzed the more than 16.2 billion online transactions of over 150 U.S. retailers in 2011. The research indicates that tablet

visitors are more likely to make a purchase and spend more per purchase than other visitors using other devices.5 Adobe also predicts that for the 2012 holiday season, tablets will spearhead the online sales channel. Tablets will constitute 13.5% of all online sales, followed by smartphones (6.5%) and other devices such as e-readers (1%).

The average order value (AOV) by tablet visitors was 16%, 56% higher than smartphones and laptop/PC purchases for the 2011 holiday season (see Figure 4, next page). The AOV of purchases made using tablets also remained significantly higher than smartphone and laptop/PC visitors on Black Friday and Cyber Monday.

Retailer strategies for the 2012 holiday season and beyond should focus on developing Web sites and apps optimized for the unique user experi-ence offered by tablets. This may encourage these consumers to shop more than they do when visiting sites optimized solely for smartphones or traditional computers. Further, they should develop promotions and incentives that appeal

High-Income Shoppers Show Highest Propensity to Use Mobile Checkout

Figure 2

Source: “Enabling Retail Without Boundaries,” Third Annual Cognizant Shopper Experience Study, conducted with RIS News, 2012

In-store Web site Mobile (using smartphone) Mobile (using tablet) Phone and others

0% 20% 40% 60% 80% 100%

Electronics>$150K

$75K - $149K$25K - $75K

<$25K

Apparel>$150K

$75K - $149K$25K - $75K

<$25K

Health & Beauty>$150K

$75K - $149K$25K - $75K

<$25K

Grocery>$150K

$75K - $149K$25K - $75K

<$25K

Household>$150K

$75K - $149K$25K - $75K

<$25K

cognizant reports 4

more directly to tablet visitors and/or utilize the tablet user experience.

Conversion rates from tablets are also substan-tially higher than those from smartphones. For the 2011 holiday season, the conversion rates from tablets were 1.8% higher than those of smartphones. The rate further increased on Black Friday and Cyber Monday, when they were 2.4% and 3.2% higher than smartphone visits (see Figure 5, next page).

With the number of tablet owners expected to skyrocket over the next few years, these shoppers potentially constitute the most important market segment that successful retailers will factor into their mobile and merchandising strategy in the years ahead.

Apps vs. Mobile BrowsersDedicated mobile applications have been a cornerstone of retailers' mobile strategies since the introduction of the iPhone in 2007. Our research indicates that 26 of the top 30 retailers (by revenue) have a dedicated iPhone app, and 23 have optimized their Web sites for the iPhone browser. Our study also suggests, however, that consumers, overall, do not show a preference for a dedicated app across all stages of the purchas-ing cycle. In some cases, they display a marked disinclination toward using a dedicated app over a Web site optimized for mobile browsers, accord-ing to an Adobe survey (see Figure 6, next page).

Consumers seem to prefer browsers over dedicated apps because of the convenience of simply typing their queries directly into the

Tablets Claim Higher Average Order Value

Figure 4

Source: Adobe Digital Index Report, 2011

(Average order value across devices)

$91

$100

$71

$119

$113

$96

$129

$123

$111

$0 $20 $40 $60 $80 $100 $120 $140

Black Friday

Cyber Monday

2011 HolidaySeason

Smartphone Laptop/PC Tablet

Consumers Prefer Shopping on Tablets

Figure 3

Source: Forrester/Bizrate Insights, Q2 2011 Tablet Commerce Flash Online Survey

65%

60%

73%

72%

62%

70%

67%

57%

64%

51%

42%

48%

I use my iPad/tablet morethan my smartphone for

shopping-related activities

It is as easy to visit and/or buy from retail sites on my iPad/

tablet as it is on my computer

I would buy/have boughtfrom a retail Web siteusing my iPad/tablet

Gen Y Gen X Boomers Seniors

cognizant reports 5

browser instead of having to first search for and then download apps from an app store. Given that the mobile browsing and search environments for most devices closely resemble the desktop expe-rience, it seems that desktop-based browsing behavior is being transferred to the mobile envi-ronment. Finally, most consumers are unlikely to download and maintain a large number of apps.

Retailers’ Mobile StrategiesOur study of retailers’ mobile strategies reveals significant variations in their pursuit of growth in the online and mobile channels. A major variation is the extent of sales achieved through e-commerce/mobile channels. Studies from Retail Systems Research (RSR) indicates that retail leaders (those that have grown faster than the average industry growth rate of 8.85%8)

achieved a higher percentage of sales through mobile devices than their competitors (see Figure 8, page 7).

RSR research also indicates that most retailers are looking to leverage mobile devices to increase customer interaction and intimacy and also to provide better tools to their associates. This objective was given higher priority than “save the sale,” indicating that retailers view mobility as a strategic capability (see Figure 9, page 7).

However, when retailers’ planned investments in the mobile channel are assessed, this strategic intent is less visible. Most retailers seem to be playing catch-up and are still working to develop baseline capabilities (see Figure 10, page 8). Using our annual Shopper Survey as

Tablet Conversion Rates Substantially Higher Than Smartphones

Figure 5

Source: Adobe Digital Index Report, 2011

1.0%

1.0%

0.70%

4.4%

4.8%

3.2%

3.4%

4.2%

2.5%

0% 1% 2% 3% 4% 5% 6%

Black Friday

Cyber Monday

2011 HolidaySeason

Smartphone Laptop/PC Tablets

Shoppers Prefer Browsers to Mobile Apps

Figure 6

Source: Adobe Mobile Consumer Survey

67%

33%

72%

28%

68%

32%

63%

38%

Mobile Web browser

Mobile application

Browsing and searching products Researching and reviewing products

Registering/receiving online promotions and coupons

Purchasing and order tracking

cognizant reports 6

Quick Take

a guide, most shoppers are giving retailers a reasonable timeframe in which to integrate mobile capabilities throughout their organizations; however, younger and more affluent shoppers will be most sensitive to these gaps. Thus, while retailers might be able to make it through the 2012 shopping season without true mobile integration, we don’t believe shoppers will grant them the same latitude during 2013 and beyond.

The challenges of implementing a robust mobile strategy are exacerbated by the sheer variety of technologies and platforms, the rapid pace of growth of new technologies, and uncertainty

regarding customer preferences, return on investments and technological approach.

Large Retailers’ Strategies During the first quarter of 2012, Cognizant Business Consulting’s Retail Practice compared a number of U.S. retailers’ mobile capabilities across several parameters. The intent was to study the variations, if any, in their mobile capabilities and technical platforms, as well as to assess the range of services implemented to capture the attention of the mobile-enabled consumer (see Figure 11, page 8). Findings include:

Will an App Be Apt?

Figure 7

Source: Retail Systems Research

1%

9%

7%

38%

12%

33%

51%

19%

28%

1%

0% 20% 40% 60% 80% 100%

A cut-and-paste versionof a full e-commerce

site is a viable mobile strategy

A downloadable appwill yield more engagement

than a mobile site

Strongly agree Agree Neutral Disagree Strongly disagree

To App or Not to App

Retailers lagging behind in the race to offer mobility have either been hampered by resource and infrastructure challenges, or are feeling overwhelmed by what they see as the scorching pace of adoption and the leaders’ rapidly evolving capabilities. Also, many are unable to decide whether to introduce an app or use the conventional e-commerce Web site for their offerings.

According to a survey by Adobe, despite all the attention branded apps received in 2011, the connected consumer does not like shopping via branded smartphone or tablet apps. Instead, a significant majority chose smartphone or tablet mobile browsers as their preferred platform.6 Even as investments rise, successful retailers will need to continuously evaluate how their apps integrate with the lifecycles of targeted consumers.

Another survey by RSR reveals that 33% of retailers remain “neutral” on mobile apps, and 20% do not believe apps will yield more engagement than a mobile site.7 Meanwhile, 47% think mobile apps will add value to their brand offering, and 79% feel that just creating another version of a desktop-based e-commerce site is not a viable option (see Figure 7).

cognizant reports 7

• Business capability: There was a fair degree of similarity among retailers in similar sub-segments, with some basic capabilities extending across all offerings. For example, two luxury department stores offered basic deals and in-store events that are likely to be of interest to their customers.

• Technical platform: The iPhone appeared to attract the heaviest concentration of capabilities, although the pace of Android releases is increasing.

• Implementation/release timing: Most retail-ers have implemented major functionality in fairly large releases that typically occur only once or twice a year.

• Product-related research and pricing is the most popular service that retailers provide through their mobile site/app, followed by store location services.

• Check-out services are the least popular mobile service offered by retailers. The complexity of integrating back-end supply

Retail Leaders Sell More Through Mobile Devices

Figure 8

* Retail leaders are defined as those that have grown faster than the average industry growth rate of 8.85%.

Source: Retail Systems Research

(Percent of annual sales from mobile devices)

5%

10%

5%

17%

27%

24%

55%

41%

9%

7%

0% 20% 40% 60% 80% 100%

Others

Leaders*

More Than 5% 3%-5% Less than 2% None Don’t know

The Mobile Opportunity

Figure 9

Source: Retail Systems Research Survey

16%

27%

27%

30%

40%

41%

59%

61%

61%

73%

41%

48%

44%

36%

42%

41%

34%

27%

27%

25%

43%

25%

29%

34%

18%

18%

7%

11%

11%

2%

Discourage the use of price comparisonby offering another mobile option

Disrupt other retailers by providing a mobileexperience that encourages the use of my product

Mobile in-store concierge to alleviate sales burden from store staff

Stop the decline in store sales

Mobile "save the sale" at the shelf

Empower store employees throughmobile site or app access in stores

Deeper insight into shopper behaviorthrough mobile site or app

Deeper customer engagement to drivesales through personalized offers

Identify innovative mobile use casesthat no one else is doing yet

Deeper customer engagement to buildloyalty through mobile channels

Very valuable Somewhat valuable Not valuable

cognizant reports 8

Mobile Capabilities: Investment Plans

Figure 10

Source: Retail Systems Research

28%

23%

17%

17%

17%

17%

17%

15%

19%

28%

21%

21%

21%

17%

0% 10% 20% 30% 40% 50%

Access product reviews

Receive coupons/offers

Buy merchandise

Check loyalty status

Purchase gift cards

Click to call

Register/redeem gift cards

Budgeted project Planned, not yet budgeted

Figure 11

Source: Cognizant Business Consulting, 2012

Mobile Services Offered by the Top 12 Retailers

12

11

9

9

8

0 2 4 6 8 10 12 14

Research products and pricing

Geolocation services

Loyalty/coupons

Dedicated app

Check-out

chain and payment systems is a significant challenge in providing such services.

• Services aimed at improving the shopping experience — from store location services and product locators to couponing services — are a key component of mobile app development strategies for the retailers studied.

• Coupons and discounted prices remain a significant driver for mobile shopping, and hence, most of the retailers studied provide coupons to attract customers.

Challenges Facing Retailers Despite the progress so far, retailers still need to devote a fair amount of resources to further develop and integrate mobile capabilities into

their ongoing business plans and technical release strategies. RSR found the key inhibitors for mobile commerce to be budget and ROI, closely followed by a lack of skilled mobile/ e-commerce resources (see Figures 12 and 13, next page).

Most retailers agree that quantifying the returns from mobile commerce investments is difficult, and a significant number (28%, as shown in Figure 12) also state that the fast pace of technology change makes it difficult to keep up. A key differentiator between retail leaders and other players is that leaders recognize consumer trends before others and so are better equipped to stay a step ahead of the technological curve. Because many retailers introduced price-match-

cognizant reports 9

ing policies late in 2012, they are looking to mobile to arm associates with capabilities to address shoppers’ concerns at the point of purchase.

The Road Ahead We believe successful retailers will concentrate on the following key elements for a winning mobile-device sales strategy:

• Pay obsessive attention to both content and design: Craft a user experience that goes beyond just a mobile app and Web site to a mobile-optimized Web experience.

• Leverage existing technology and intelligence where possible. Apply current investments, existing tools and technolo-gies and accumulated knowledge associated with prior desktop delivery methodologies to provide mobile-optimized experiences.

• Listen to what customers tell you and learn from their behavior. Continuously assess mobile shopping and usage behavior, satis-faction levels and expectations by leveraging the wealth of analytical data capture and analysis tools.

Organizational Obstacles for Mobile Commerce

9%

16%

16%

19%

19%

28%

37%

40%

51%

60%

The marketing organization does not understandthe digital strategies we need to support

We don’t know how to turn data gained frommobile channels into actionable business intelligence

Our executive team doesn'tunderstand the mobile opportunity

Stores are a higher technologyinvestment priority

Stores don't understand the mobile,social or cross-channel opportunities

Mobile technology changes too quicklyfor us to be able to make solid investments

Difficulty getting IT resources fore-commerce/mobile projects

We don't have enough e-commerce/mobileresources to manage all the available opportunities

Budgeting — there is littlecapital investment available

ROI is hard to quantify

Figure 12

Source: Retail Systems Research

Figure 13

Source: Retail Systems Research

Mobile Business Challenges

92%

42%

38%

38%

31%

23%

4%

81%

29%

48%

33%

24%

33%

24%

Consumers are using mobile as part of theirshopping experience and we need to be there

We're seeing significant online trafficfrom mobile sources and need to respond

Mobile technology is movingtoo quickly; we can't keep up

Store sales are gettingcannibalized; mobile can help

Our competitors don't have a mobile strategy

Our competitors have a mobilestrategy and we need to respond

Mobile price comparison at theshelf is hurting our business

OthersLeaders

cognizant reports 10

• Engage across a variety of consumer segments: Smartphone adoption will soon be ubiquitous, and differences in user engagement will narrow. Retailers must be smart about ensuring that large consumer segments are not under-served due to a narrow focus on one slice of the pie. Doing this requires:

> Integrating their mobile capabilities as part of a multichannel/omni-channel business organization, focused first and foremost on the customer experience.

> Developing and executing a technical development strategy that brings new capabilities to market at a speed that meets consumer needs.

With mobile platform-influenced revenues estimated to be about one-fifth of retail revenues by 2016,9 the choices that retailers make in

their strategies and related investments will be a key indicator of future business performance. As previously discussed, most shoppers are giving retailers some latitude in how quickly they develop mobile capabilities, but building these capabilities takes time. Retailers cannot wait to develop strategic capabilities that will impact such a large portion of their revenue.

These strategic choices will determine whether these revenues will come at the expense of existing channels or will open up a plethora of possibilities, such as deeper and more meaningful consumer engagement. Successful retailers are treating (and will continue to treat) mobile retail as a strategic imperative and not merely as an adjunct to the existing e-commerce channel. The mobile application strategy for retailers is thus a C-suite issue and not merely a to-do item on the e-commerce division's agenda.

Footnotes1 Michelle Hernandez, “The Mobile Influence Factor,” Deloitte Digital, June 27, 2012, http://www.

deloittedigital.com/blog/the-mobile-influence-factor.

2 “Tablets and Smartphones Become Holiday Shopping Assistants,” eMarketer, Dec. 8, 2011, http://www.emarketer.com/Article.aspx?id=1008725&R=1008725.

3 “Big Online Gains For Black Friday Weekend, with Help from Tablets,” eMarketer, Nov. 29, 2011, http://8.10.209.13/Article.aspx?R=1008710.

4 Lauren Freedman, “The ‘Shopping’ Mindset of the Mobile Consumer,” E-tailing Group, March 2011, http://shopcoffeetable.com/wp-content/uploads/2011/05/e-Tailing-Whitepaper-March-2011.pdf.

5 “The Impact of Tablet Visitors on Retail Websites,” Adobe Digital Marketing Insights, 2012, http://www.cmo.com/sites/default/files/Digital_Marketing_Insights_WP_FINAL.pdf.

6 “Adobe 2012 Mobile Consumer Survey,” Adobe Systems, Inc., 2011, http://success.adobe.com/en/na/programs/products/digitalmarketing/offers/1207_20860_mobile_consumer_whitepaper_generic.html?s_osc=701a0000000l9JeAAI&s_iid=70130000000l88xAAA.

7 Nikki Baird and Steve Rowen, “Keeping Up with the Mobile Consumer: 2011 Benchmark Report,” Retail Systems Research, September 2011, http://iwoorx.com/ref/Keeping%20Up%20with%20the%20Mobile%20Consumer.pdf.

8 Value Line database, January 2012.

9 “The Mobile Influence Factor,“ Deloitte Digital, 2012.

References

• Sucharita Mulpuru, “Mobile Commerce Forecast: 2011 To 2016,” Forrester Research, June 2011.

• “Winning Over the Empowered Consumer,” IBM Institute for Business Value, 2012.

• “Emerging Mobile Commerce Best Practices,” RIS-Cognizant Research, 2012.

• “Harnessing Mobile Innovation,” RIS-Cognizant Research, 2012.

About Cognizant

Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep in-dustry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 150,400 employees as of September 30, 2012, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world.

Visit us online at www.cognizant.com for more information.

World Headquarters

500 Frank W. Burr Blvd.Teaneck, NJ 07666 USAPhone: +1 201 801 0233Fax: +1 201 801 0243Toll Free: +1 888 937 3277Email: inquiry@cognizant.com

European Headquarters

1 Kingdom StreetPaddington CentralLondon W2 6BDPhone: +44 (0) 207 297 7600Fax: +44 (0) 207 121 0102Email: infouk@cognizant.com

India Operations Headquarters

#5/535, Old Mahabalipuram RoadOkkiyam Pettai, ThoraipakkamChennai, 600 096 IndiaPhone: +91 (0) 44 4209 6000Fax: +91 (0) 44 4209 6060Email: inquiryindia@cognizant.com

© Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners.

Credits

Author Nitin Bajaj, Deputy General Manager, Cognizant Research Center

Subject Matter ExpertColleen Coleman, Associate Vice President of Merchandising, Cognizant Business Consulting, Retail Practice.

AnalystAvinab Nandi, Research Analyst, Cognizant Research Center

DesignHarleen Bhatia, Creative DirectorSuresh Sambandhan, Designer