The Key to Kiosks

The conventional wisdom behind multichannel marketing is that the more points of contact you have with customers, the more likely they are to buy. So in-store kiosks that enable customers to access more products or product information via a remote channel should provide considerable advantages to marketers.

A kiosk program creates a hybrid channel of sorts, as it leverages both the brick-and-mortar and direct marketing arms of a business. It relies on the direct marketing back end while providing the front-end retail location access to more SKUs and countless opportunities to offer information and customization.

Kiosks aren’t new, of course. The technology debuted in 1982; one of the earliest retail adapters was Florsheim Shoes in 1983, says Lief Larson, publisher of Kiosk magazine. Currently retailers account for 55% of the kiosk industry.

But the advent of the Internet plus enhanced technology, greater bandwidth, and improvements in supply chain management have made kiosks more attractive. Research firm Jupiter Media Metrix predicts that by 2006, retail kiosks will be generating $6.5 billion in annual sales.

Framingham, MA-based office supplies giant Staples stocks 7,000-8,000 products in each of its stores — a mere fraction of the 45,000 SKUs available through its catalogs and Website, says J.B. Lyon, vice president of the business delivery group. Staples began using kiosks in spring 2001. “The kiosks allow us to serve the customer in the store with additional items and increase incremental sales,” he says.

For example, a store may be able to stock only four conference-style chairs due to limited space, but through the kiosks customers can order as many as they need and, in most cases, have them delivered the next day. Likewise, Lyon says, Staples found it increasingly difficult to stock computers because of the breadth of product. It remedied the situation by making the build-to-order program that was already on its Website available in stores as well through kiosks. As a result, most Staples stores have been able to eliminate stocking computers, further reducing operating costs for those stores while increasing sales.

Last year, Staples’ sales from store kiosks exceeded $250 million, about 12.5% of its more than $2 billion North American retail business (total company sales for 2002 were $11.6 billion).

“We think that the majority of those [kiosk] sales are incremental, because you have a combination of sales that you would not have if an item was out of stock and sales from the computer special-order program,” says Lyon. While he won’t reveal how much Staples spent on the kiosks, he says that the company saw a return on investment earlier than predicted and “soon after the launch.”

Recreational Equipment Inc. (REI) has also seen a significant increase in sales as a result of an aggressive kiosk program, says spokesperson Mike Foley. In 1997, the outdoor gear marketer tested a single kiosk in its flagship Seattle store; it now has kiosks in all 65 of its stores. As is the case with Staples, kiosks allow REI’s stores to sell items that are difficult to stock, such as its comprehensive line of kayaks.

“The aggregate sales on all of our store kiosks combined is equivalent to the average sales of one of our stores, which is very significant,” Foley says. He adds that the sales figures — which he will not specify — more than justify the investment in both the kiosk themselves and the selling space that they occupy in the stores.

In fact, REI has already begun implementing new, redesigned kiosks. “We are working on incorporating more kiosks in each location until we have at least four kiosks in each,” says Foley. It helps that REI has discovered through surveys that its customers are comfortable with the Internet and computers: 96% have access to a home computer.

What’s more, its customers tend to look for information on its products. “The kiosk can help complement the store sales associates by outlining information and comparing products,” Foley explains.

Revenue from kiosks keeps growing at REI, with a big bump in sales — 30% — after the company introduced a store pick-up feature last year that allows customers to avoid shipping-and-handling fees.

Starting a program

Just as no two marketers are the same, no two kiosks are the same either. Some are fully transactional, allowing customers to place orders directly through the kiosk, while others are used to provide information such as gift registries and enhanced product descriptions. You might also use kiosks to drive in-store promotions, such as sweepstakes.

“Kiosks generally function in two ways,” says James Brock, partner at Chicago-based global management consulting firm DiamondCluster, “for enhanced customer service through information delivery, and for enhancing the number of SKUs via the virtual kiosk store.” DiamondCluster helped retail client FYE, which sells CDs, DVDs, and other entertainment products, create listening stations as well as kiosks for ordering items not in stock.

Beyond the measurable incremental sales, Brock says kiosks are another opportunity to capture customer data. In a comprehensive kiosk, “you can devise content programs that inspire customers to register,” he says, such as e-newsletters and loyalty programs. Even if customers do not order through the kiosk, the technology is still working to help you better target them.

Before you embark on adopting kiosks, however, there are many factors to consider. One of the most important is the goal of the kiosk. In this sense, “kiosks are not dissimilar to any other type of technology investment,” says Steven Sibulkin, vice president of retail and consumer products at Sapient, a Cambridge, MA-based business technology consulting firm.

Ron Kole, Sapient’s director of technology, retail and consumer products, agrees: “You need to think about it mechanically and consider how the customer will interact with the kiosk.” For example, if it is designed for promotions and registries, a simple touch-screen interface might suffice, but if the kiosk is content-oriented and connects with a Website or an inventory system, it should include keyboard functionality.

For Staples, the decision to use its Website to sell products through its kiosks led to the implementation of a kiosk with keyboard functionality. Lyon says that installing kiosks was an extension of the company’s existing delivery business, which enables customers to order and prepay for special orders in the retail locations. “We had the infrastructure to support the kiosks with our catalog and Web channels,” he says.

It takes money to make money

Once you consider the potential return and decide to ramp up a kiosk program, you need to look into the investment. The kiosks themselves — the hardware — are the least costly piece of the pie. According to Francie Mendelsohn, president of Rockville, MD-based Summit Research Associates, companies can expect to pay $5,000-$7,000 for each kiosk.

Karla Guarino, vice president of sales at manufacturer Kiosk Information Systems (KIS), estimates the cost of a kiosk at $3,500-$7,500. The more expensive machines include add-ons such as bar-code scanners (for bringing up product information about an item in hand), credit-card readers, and customer service phone attachments. The kiosks are generally designed for a three- to five-year life span, so investment projections should include replacement of the hardware in the future.

Then there’s the matter of software. “It is the integration with existing management systems and connectivity that is costly,” Mendelsohn explains. Depending on the operational infrastructure and the point-of-sale systems you already have in place, the complexity of the kiosk software, and of course the number of kiosks, you can expect to pay another $10,000-$50,000 to get a kiosk program up and running.

When calculating costs, Sapient’s Sibulkin adds, you should be including connectivity, content creation, training, marketing, signage, promotions, and the cost of the selling space in the store.

Not for everyone

As with any other marketing medium, some companies aren’t persuaded of the effectiveness of kiosks. Rather than kiosks, for instance, apparel cataloger/retailer The Talbots has its signature red phones in all of its stores. Spokesperson Margery Myers says that the success of those red phones, which link customers with catalog call center reps, has dissuaded the company from testing kiosks.

Outdoor gear and apparel cataloger/ retailer Orvis has a similar concept in its green phones, but it tested kiosks at several of its highest-volume stores in late 2001. The results were “disappointing,” says retail merchandising manager Joe Carpenter, who believes that customers were simply used to using the phones and that the leap to a kiosk may have been too big. Plus, many customers prefer the personalized expertise that a service representation can give them.

Orvis has not given up on kiosks altogether. The company will not unroll kiosks at any of its other stores, but it is keeping the existing machines in place. “Luckily, the investment was minimal, and while it did not meet out expectations it was not a loss,” Carpenter says. And since many of the kiosks are built into the fireplace props featured in most of the stores, they are not taking up valuable selling space.

But for Timonium, MD-based Smyth Jewelers, which has one store in addition to a catalog business, kiosks have been a boon to business. In fact, one of Smyth’s vendors, Rembrandt Charms, provided the store with a kiosk that accesses the supplier’s entire line of charms — more than the shop could possibly stock, says Smyth president Leonard Getschel.

“A woman who had a baby on Groundhog Day came in looking for a charm with a groundhog, which we typically do not stock, but she was able to buy it through the kiosk,” Getschel says. “We have seen a great customer response and a boost in sales” from the kiosk.

Kiosk magazine’s Larson says that this arrangement between Smyth and its vendor is fairly common, and he expects to see more partnerships like this in the future. The provider of the kiosk typically pays outright for the kiosk and has a revenue-share arrangement with the retailer. The goal is virtual product extension that benefits both the retailer and the vendor by allowing them to provide customers with more options. And in the end, isn’t that what multichannel marketing is about?

Working Out the Kinks

Sure, in-store kiosks can communicate product information, add SKUs, increase sales, and potentially reduce staff. But your program will fail if your customers can’t or won’t use your kiosks. It’s important to work with your software and hardware vendors to ensure the greatest chance for a successful kiosk program.

According to research firm Jupiter Media Metrix, 76% of shoppers who avoided kiosks say they did so because they could not provide them with what they needed. Kiosks therefore should be intuitive and easy to use. “Customers don’t want to spend a tremendous amount of time at the kiosks,” says J.B. Lyon, vice president of the business delivery group at Staples. When the office products marketer launched in-store kiosks two years ago it required users to register and enter a password. By year two, it had deleted the registration requirement and created an express checkout feature, reducing the number of checkout screens from five to one and the time it took to place an order from an average of 15 minutes to three minutes.

Of course, you also have to keep the kiosks in good working order. If kiosk down time exceeds 10% of your store hours, you will see a significant loss in sales, says Francie Mendelsohn, president of Rockville, MD-based Summit Research Associates.

Also, you must work with your marketing department, consultants, and vendors to ensure that the promotions and signage are driving traffic to the kiosk — particularly when you are unrolling the program. Even then, be sure that the kiosks are readily visible. Office supplies marketer Staples used to keep its kiosks in the back of its stores, but now they are centrally located with signage to direct customers to them, Lyon says. You can also increase the use of the kiosks by training your sales team to use them as well, so that they can assist hesitant or perplexed potential customers.

If you follow these practices, Mendelsohn says, you should expect to see a return on investment in your kiosk program within one year.

A Wireless Future

With technology continually evolving, some think that kiosks will become an even more important marketing channel in a few years. “In the future you will see wireless technology change unmovable terminals into wireless handheld devices where you can scan items and find similar products or the same products in different colors or sizes,” says James Brock, a partner at Chicago-based global management consulting firm DiamondCluster.

Lief Larson, publisher of Kiosk magazine, agrees, adding that wireless technology may enable kiosks to link with store video displays or to disseminate information to customers’ PDAs and other wireless devices. “The technology is there and it is developing, but it will grow at the same rate as customers embrace it,” Larson says.

Both Brock and Larson predict changes in content going forward as well and that the days of building a kiosk around a Website will wane. “I don’t think that ‘Internet in a box’ can work as well as customized content,” Brock. says “You need to offer customers more content and a different experience than they would get on their home PC.”

And many agree that co-ops and leveraging a symbiotic relationship with vendors will become increasingly popular in the future. Multichannel marketer last month became part of a co-op kiosk with kiosk marketer Cyphermint. 1-800-Flowers will offer up to a dozen floral items for sale through the kiosks at 1,000 7-Eleven convenience stores. “Customers will be able to pay by credit card or with cash, which opens the door for us to reach people who prefer to pay with cash,” says 1-800-Flowers spokesperson Ken Young. While the companies would not specify revenue arrangements, Young says that it is a “business arrangement” with a shared revenue model.