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Clicks-and-bricks one-up online companies with behavioral data

Physical stores and banks are closing, losing ground to more agile online competitors. Technology and data can help them fight back.

ORLANDO, Fla. -- Digital retail and finance startups have been eating brick-and-mortar businesses' lunches, causing an all-time high number of U.S. stores to close in 2017 and a similarly large number of stores to shut their doors this year.

This trend should come as no surprise, given that web giant Amazon controls 50% of online shopping revenue by some metrics and up to 60% by others. Though this may look like a dismal snapshot if you work at a store, physical retailers and banks can build better digital experiences than their born-digital competitors, said author and retail consultant Doug Stephens, along with other speakers in presentations here at Microsoft's Envision and Ignite 2018 user conferences.

They stand a chance of holding their own as clicks-and-bricks entities -- brick stores that have extended into online click business models -- because they possess bigger, richer data sets that can be used to train AI tools, such as chatbots and recommendation engines.

"Every day in America, there are hundreds of millions of interactions taking place between consumers and products in physical space," Stephens said. "We're not measuring that. If they're measuring anything, it's the feet coming in, the feet going out and the cash register in between."

Enter Erica, virtual financial assistant

But that is changing in a Darwinian process in which the companies that best use their customer data will survive. Clicks-and-bricks companies have access to far deeper data stores than online-only entities, said Christian Kitchell, head of artificial intelligence and Erica at Bank of America, based in Charlotte, N.C. Last June, the bank rolled out a virtual agent named Erica to its 26 million mobile customers and based the experience on what it already knows about customer behavior.

"We were able to see how they act on a day-to-day basis both in physical and digital locations, which is something you don't get visibility into if you're just digital," Kitchell said. The scale of the company also helped, as Bank of America was able to test Erica with 150,000 "friends and family" of employees, as Kitchell put it.

Since June, Erica features include basic tasks, such as balance checking, bill pay and money transfers. This fall, the bank plans to switch on AI-based recommendation engines to analyze a customer's input, present situation and spending trends to offer more long-term advice when asked.

The personalized recommendations tap into more complex, longer-lived data sets from each customer than an online financial tech startup could possibly access -- at least, that's the idea.

Customer experience more important than the product

In another clicks-and-bricks initiative started in 2016, the company also opened branches without employees that it calls financial centers. The bank staffs them instead with video conferencing terminals and other informational tools -- literally building a digital experience in physical spaces. The bank started with 30 last year and plans to open about 300 by next year.

We were able to see how [customers] act on a day-to-day basis both in physical and digital locations, which is something you don't get visibility into if you're just digital.
Christian Kitchellhead of artificial intelligence and Erica at Bank of America

They are popular with millennials, said Charles Liu, Bank of America's head of branch strategy and transformation, who said he wasn't sure at first if customers would even walk into a space that didn't have any people in it, let alone use them.

"When you walk in, it's going to look like there isn't anybody there, but there are plenty of people there, virtually," Liu said. "We provide a high-touch experience through video."

Good clicks-and-bricks experience matters more than the actual product sold, Stephens said -- at least to the millennial generation and younger. While that might be hard for Gen Xers and older people to comprehend, research shows that young adults are less materialistic than their parents, and they prioritize both convenience and experience.

That is one reason they've cottoned to e-commerce, which added up to $2.3 trillion in sales in 2017 and has grown about 15% year over year since 2010, according to published retail industry statistics.

Hope for physical stores, banks

Amazon, rapidly expanding e-commerce giant Walmart and Alibaba control a majority of global retail e-commerce and will for some time to come, Stephens predicted. But retailers are fighting back by streamlining in-store choices, doing more in-depth data collection on customer behavior and investing in retention strategies -- as opposed to old-school market research and relying solely on the funnel model.

They also are making in-store experiences richer and less transactional -- imagine the Apple Store, a digital playground compared to Radio Shack and its buffet of pegboard racks -- driving customer loyalty that inspires them to buy more online.

In turn, their online sites feature AI tools tapping into more in-depth data sets that guide better shopping experiences than companies that don't have the data stores owned by clicks-and-bricks retailers.

Retail store closings in the U.S. in 2017 by retail chain
Retail store closings in the U.S. in 2017 by retail chain

Stephens also predicted there will be a time some years from now where old-school brick-and-mortar retail will become fashionable again, after a painful decade of stores closing. Many will open again and be the hot new thing. That's because the physical shopping experience has -- and always will be -- visceral.

"Shopping is physiological. We get a pleasure chemical release in our brain -- dopamine -- when you have an awesome shopping experience, no different from drugs, gambling or sex," Stephens said. "Physical retail isn't going to go by the wayside, but I do believe that everything about that physical space is going to change."

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