!Store of the Future

Enhancing the Customer Experience using NFC or BLE

!by Maria Caceres, Byron Corum, Kristin Nwakobi, Jose Vides & Isabel Vordzorgbe

!Submitted to: Prof. Anand Gopal

University of Maryland Robert H. Smith School of Business

MBA Program - BUSI 621 !!I pledge on my honor that I have not given or received any unauthorized assistance on this assignment.

Introduction

In the past few decades, technology has advanced to an astonishing level with new

innovations that create products that a lot of us use on a daily basis. The telecommunications

industry has been a part of these advances in technology with many well-known companies such

as Samsung, Apple, and Google creating products from smartphones to TVs. This paper focuses

on the wireless sub-industry within telecommunications. This paper is also written to provide

investors with information about the NFC and BLE technologies and make a recommendation as

to how investors should invest their dollar in either or both technologies. The paper will be

broken up into the following sections:

- a brief history of wireless

- pitch to investors and venture capitalists about the NFC and BLE technologies

- an explanation of each technology its functionality, manufacturers, and features

- a recommendation on how an investor should invest his or her dollar

- an explanation of the “Store of the Future” and the benefits of using these technologies

- lastly an explanation of the different security issues associated with implementation of

both technologies

!A Brief History of Wireless

The wireless industry has grown significantly since the advent of phones and has had a

tremendous impact on our lives through innovation, competition, the environment, and other

societal benefits. In 1977, experimental cellular systems were launched in Chicago and the

Washington D.C./Baltimore region. By 1981, the Federal Communications Commission (FCC)

had issued the Cellular Communications Systems Order, which stated that the cellular industry

should have two carriers per market and create cellular “A” and “B” licenses for each area of the

country. In 1993, Congress adopted the Omnibus Budget Reconciliation Act that established a

national framework for wireless regulation and authorized the FCC to auction spectrum for the

first time. Shortly after, IBM released the first smartphone, called Simon, to consumers, which

gave them access to a calendar, address book, calculator, email, and games. By 1995, there were

over 33.8 million wireless subscribers, representing approximately 13% of the total U.S.

population.

With the continuing growth of the number of wireless subscribers and the new

smartphone innovations made by companies such as Apple, Samsung, and others, the wireless

industry has changed with consumer demand and the ever changing technology environment.

The wireless industry has made communication and transmission of information very versatile

for individuals and businesses. With the use of radio waves that travel through spectrum to

transmit voice calls and data from mobile devices, wireless technology has helped to improve

efficiency in a number of industries. However, wireless technology is still growing and new

advances are being made daily that go above and beyond what we consumers are able to

accomplish with these technologies.

!Investing in NFC or BLE Technologies

When most customers walk into a store to buy items whether it is clothing, groceries,

electronics, home goods, etc., they have to walk up to the cashier to complete the transaction.

There are advances being made within the wireless industry to improve the customer shopping

experience, improve store efficiency, and cut down the time it takes to complete various

transactions. Enter the Near Field Communication (NFC) and Bluetooth Low Energy (BLE)

technologies.

NFC and BLE are technologies that allow the statement above to become a possibility.

Both technologies allow customers to utilize their mobile devices as a means of communication

with other similar devices in close proximity. By implementing these two technologies in all new

smartphones and handsets, carriers can enable customers to use their phones and other devices

in contactless payment. In doing so, customers would no longer have to use their credit cards or

cash to complete transactions in different store fronts. The NFC and BLE technologies are going

to revolutionize the way we utilize our mobile devices, and with the growth of the wireless

industry, investing in these two technologies now would yield considerable returns down the road.

!!

Emerging Technologies: NFC and BLE

Even though NFC and BLE have been around for about ten years, these technologies will

continue to grow and allow users to utilize their devices in various industries, such as commerce,

health, sports, communications, and finance.

Bluetooth low energy (BLE), better known as Bluetooth Smart, is a wireless personal area

network technology developed by the Bluetooth Special Interest Group (SIG). BLE provides

reduced power consumption and cost while producing similar communication range as Bluetooth

“Classic.” The two technologies utilize the same radio frequencies which allow for dual-mode

devices to share a radio antenna. BLE, however, utilizes a simpler modulation system.

Modulation refers to the process of varying multiple carrier signals with a signal that contains

information to be transmitted.

The intended markets that will utilize this technology are in the health, sport, and fitness

sectors due to its low power requirements, small size, low cost, and compatibility with a large base

of electronics (i.e. phones, tablets, computers, etc). Within the wireless sector of

telecommunications, BLE is compatible with every smart-device, such as iOS, Windows Phone,

Android, and BlackBerry.

BLE is gaining momentum in wireless telecommunications since it can be used for home

automation, wireless medical devices, exercise sensors, retail, and mobile payments. With BLE

retail stores can detect which department a costumer is standing in and send them relevant offers.

It may boost mobile payments since it is still in its early stages. It will allow for consumers to place

their homes online, allowing them to lock doors, adjust lights, and even adjust the thermostat

from their mobile device. Major companies using BLE are Apple with its iBeacon and PayPal

with its PayPal Beacon. iBeacon is being adopted by airlines and retail stores to make the check-

in process smoother or to locate a customer within the store. PayPal Beacon allows customers to

use their PayPal app to pay, verify their transaction, and get an emailed receipt.

NFC is a short-range, low-power radio frequency communication between two NFC

compatible devices with simple setup. Communication between devices is possible between an

NFC device and an unpowered NFC chip, or “tag.” The exchange occurs by bringing the devices

within proximity or by touching them together, allowing small amounts of data to be transferred,

sent, and received, wirelessly over a short distance of usually less than 4 inches. NFC’s two-way

communication is built upon radio-frequency identification (RFID) standards, the wireless non-

contact use of radio-frequency electromagnetic fields to transfer data.

NFC’s main concepts are pairing, sharing, and transaction. It maintains interoperability

between different wireless communication methods such as Bluetooth. NFC-enabled devices can

enable, pair, and establish a Bluetooth connection to share information quickly. It can be used in

social settings to share contacts, photos, or files and enter multi-player mobile games. Companies

such as Sony, Nokia, and Samsung have used NFC to pair Bluetooth headsets and media players

with one tap in their NFC-enabled devices. Services such as Google’s Google Wallet and

MasterCard’s PayPass use NFC-enabled devices to make payments since NFC can be used in a

vast number of payment systems. Since it supports encryption, NFC-enabled devices may be

allowed to act as electronic identification cards or access tokens. NFC is currently available on all

new smartphones except for Apple’s iPhone.

!Recommendation

We recommend investing 75 cents of your dollar into the BLE technology, and the

remaining 25 cents into the NFC technology. Although the technologies are comparable and are

competitors in some respects, we recommend investing in both because we believe there is great

potential for the technologies to complement one another. We weighed the investment slightly

towards the BLE technology because we believe this is the lower risk, and potentially more

lucrative technology. In addition, BLE is currently available to a larger consumer base than NFC.

However, NFC is not far behind. By 2016, all new smartphones, with the exception of iPhones,

will be NFC compatible.

Below we will explore the “Store of the Future,” a vision of how the BLE and NFC

technologies together can revolutionize how consumers shop. Afterwards, we will discuss issues

that the industry will need to address in implementing either (or both) technologies into a store.

!Store of the Future

The NFC and BLE technologies allow customers in a brick and mortar store to have the

same facility, low hassle, in and out experience as an online shopper, with the ability to physically

encounter merchandise. For starters, when entering a shopping area (via a BLE based system),

the client would be recognized by name or unique identification settings. Searching throughout

the store for a particular item (BLE supported), availability (both), particular features (NFC), price

range (related to onsite or offsite stores - both), and final pay options (NFC).

Availability of an item is provided up front to the client with a guaranteed sense of

accuracy because inventory is tracked in real time. Furthermore, the client has the choice to place

an online order for an item that is not actually present in store.

• Pricing of each item is provided up front, to include any manufacturer’s coupons, if

need be. Upcoming sales of items, which may cause a consumer to buy in larger

quantities, will also be promoted before final purchase. This provides the customer a

more tailored and satisfying experience.

• Allowing the consumer to create save his or her own experience is key to what NFC

technology is able to offer its users. Just as an online shopper sets and saves particular

parameters on his or her virtual store, an in-store shopper is able to opt in or out of

each feature provided, at any given time.

• Through a BLE sustained system, each consumer has a unique recognized store

identity, and the store has of the consumer’s payment, product purchasing history, and

shopping preference information store for future use.

• Customers would gain wide availability to obtain particular item information via NFC.

This would lead clients to require less attention from store employees. Such a change

would allow stores to reduce payroll and shift the roles of existing staff. Some employees

may be retrained to provide higher levels of customer service and increase client loyalty

level.

Information on available discounts and deals and a price comparison tool can be made

available to the client, instead of providing them with unwanted and unsolicited notices. In other

words, a shopper, who has properly set-up his or her account with the store, will be greeted with

relevant, cost-saving offers. The popular “shoppers who purchased x product, also purchased a, b

and c items, located in specific area of store” feature would be embedded into the store

experience via BLE and NFC. This capability will increase income for the store and create a

virtual personal shopping experience that the customer could opt out of at any point.

Checkout lines will become a thing of the past. Consumers will be able to purchase items

as they go. Items not available at the time of purchase would be delivered without the consumer

having to return to the store for pick up or to receive a “rain check” voucher for future purchase.

!Ready-made CRM and ERP

!!!!!!!!!NFC and BLE technologies cannot only help customers by improving their shopping

experience; it can help companies make their internal processes more efficient. A company can

utilize the technologies to improve their workforce tasks by limiting time-consuming tasks such as

manual inventory count and any potential human errors that are associated with the task. It can

also improve their inventory management in various ways. With the scan of a tag, they will be

able to receive real-time information about their inventory needs via the cloud on the employee’s

mobile phone. Companies will be able to see information about how many times a product has

been viewed, purchased, or returned.

They can also utilize the technologies to determine where certain products may sell well

within different locations in the store (i.e. candy and magazines at the checkout lines). When a

particular product is running low, companies will be able to facilitate dynamic route optimization

and other logistic efficiencies. By recognizing their inventory needs, companies will also be able to

maximize floor-space and sales per square foot by maintaining stock of popular products. By

having an efficient inventory management process, the store will be able to see revenue growth

from fewer abandoned orders due to out of stock merchandise, an increase in brand loyalty

amongst their customers, and be able to provide greater customer service to their customers.

Combining customer resource management (CRM) with NFC and BLE technologies

gives stores access to a vast amount of information about their customers that will allow them to

make informative purchasing decisions. From the business perspective, knowing the buying habits

of their customers, in-store staff have relevant information that is of interest to a customer when

they are in the store. For example, a manager can be notified when a big spender is shopping in

the store. Another example is when a sales associate notices that a particular customer tends to

order healthier items, which will prompt the associate to inform the customer about a new salad

that is being offered. A business can also send coupons to the customer’s phone based on the

customer’s purchasing history when they are within the store. As a result, the store can then take

appropriate actions to upscale pertinent products.

!Issues with Emerging Technologies

There are a number of issues that a store will have to consider when implementing these

technologies.

!Electronic Security

In order for the “Store of the Future” to function the way we envision it, customers will

have to share their private information with the store. To get customers to consent to share their

information, the store will have to ensure them that their information is safe, and consider the

following things to make sure the information is actually safe.

• Monitor the points of contact between the customer’s smartphone and the store’s

infrastructure to prevent tampering.

• In our example, our store’s system interacts with the customer upon entry into the

store, and when the customer selects an item for purchase. If an outsider is able to

compromise any of these tether points, he or she could potentially gain access to

the private information of the customers.

• Ensure that the personal data collected from customers remain secure.

• For any given customer, the store will have access to his or her credit card number,

phone number, address, shopping habits, and many other pieces of valuable

information. Securing this information will be of paramount importance if the

store intends to earn and maintain trust.

• Design the software so that the store only collects information relevant to store

transactions.

• A customer’s smartphone saves many pieces of data that he or she would not want

to share with the store. The store’s software should be designed to restrict access to

information outside the scope of a customer’s purchase decision, such as personal

pictures or private documents.

!Physical Security

One of the goals in implementing a BLE or NFC system is to make customers more

autonomous. If they choose, customers will have the ability to shop and pay for items without

interacting with a store employee. While this works well to prevent long lines and for customers

who are in a hurry, it presents a logistical “shrink” problem for stores.

An inventory system that links a selected item to the customer and pulls it from the shelf

will need to be developed and implemented. In the extreme case, this will require each piece of

inventory to be individually marked with an NFC tag. This would allow the store to track each

item as it is viewed, moved around the store, and paid for. If an item goes missing, the store will

have a log of all customers who have handled the product.

!Consumer Awareness

A successful implementation of a BLE or NFC system will depend on consumers being

aware of the system and understanding its benefits and uses. With the exception of the recent

upswing in eCommerce, basic store-customer relationships are the same today as they have been

in the last century. A customer travels to the store, shops around, receives assistance from staff,

and pays a cashier for the products. A successful BLE or NFC system will change this, and make

the process more efficient for both the store and the shopper.

!

Implementation Costs

Implementing a BLE or NFC system in a store will come with various costs. The most

immediate cost will be the cost to set up the BLE beacons and NFC tags. Please see Exhibit 1 for

a rudimentary cost estimation based off the average K-Mart store. Beyond this, the store will

have to pay to train its employees and invest in an appropriate support structure. To maximize

the benefit of a BLE or NFC system the store will need to design both CRM and ERP systems

that can use the information.

If the store is unable to effectively use the data it collects to tailor a customer’s shopping

experience, then it is not properly using the system. Investing in a proper CRM system will allow

a store to exercise as near to first-degree price discrimination as possible. The ability to send a

coupon to a customer as he or she enters the store should help to ensure that the store extracts as

much of consumer surplus as possible.

The inventory tracking solution discussed in the physical security section will lend itself

well to a proper ERP system. Recall that the system will give a store a very accurate account on

how many times an item is viewed, bought, and returned. At an in-store level this will help the

store to keep it shelves stocked. On a broader level it can help the stores manufacturing and

ordering decisions.

!Conclusion

It is clear that benefits are found in each, the Near Field Communication (NFC), and

Bluetooth Low Energy (BLE) technologies. NFC, with its short range capability, provides strength

in the sense of personal information security for users, especially when used to making payments.

BLE provides a system for long range uses, and removes any need for interacting, BLE supported,

devices to be in closer proximity of one another. Our take, in terms of near future financial

growth in each area, is BLE will have the most momentum. NFC will also see growth, but in

smaller scale.  The success of the “Store of the Future” concept depends on both NFC and BLE

technologies to be present. One key factor, in the success of any NFC or BLE system, will depend

heavily on consumers’ awareness of product existence, learning how to actually use the

technology, and embracing the benefits each system has to provide. 

!

Citations

http://en.wikipedia.org/wiki/Near_field_communication !http://www.popsci.com/gadgets/article/2011-02/near-field-communication-helping-your-smartphone-replace-your-wallet-2010 !http://en.wikipedia.org/wiki/Bluetooth_low_energy !http://www.cio.com/article/748509/5_Things_You_Need_to_Know_About_Bluetooth_Low_Energy !http://en.wikipedia.org/wiki/Radio-frequency_identification !

!!!!!!!!!!!!!!!!!

Exhibit 1

BLE and NFC Cost Estimation

1 refer to footnote 1 below

1 This exhibit estimates the purchase price of BLE or NFC hardware, respectively for a large retailer (average K-Mart store). The tables refer to the cost of the beacon or NFC tag, but not the supporting systems. Because our recommendation is for our investor (and later stores) to use both technologies together, we assume that any system will support the technology, thus those costs will be the same for each. !2 Technically, three beacons should be sufficient to cover the store, however physical structures can affect the range. K-Mart would be wise to have multiple sections of overlap. Furthermore, we want beacons near each entrance to “greet” each customer. Therefore, we are estimating the average K-Mart will need nine beacons.