Smart Retail: Digital ethics and the trust advantage of brick-and-mortar retail
The coronavirus crisis shows that shopping is more than a rational activity. In this joint interview, Cornelia Diethelm, owner of Shifting Society AG and manager of the Digital Ethics programme at the University of Applied Sciences in Business Administration Zurich, and Melanie Tschugmall, Head of Commerce at Zühlke, discuss why it is important for retailers to have a moral compass in order to be successful in the long term.
Insight in brief
- Joint interview with Cornelia Diethelm, owner of Shifting Society AG and manager of the Digital Ethics programme at the University of Applied Sciences in Business Administration Zurich, and Melanie Tschugmall, Head of Commerce at Zühlke
- Moral compass is an important success factor for retailers.
Cornelia, you believe that brick-and-mortar retail has the upper hand in terms of trust compared to online retail. Why?
Cornelia Diethelm: Intrusion into private spheres, lack of transparency within data-based business models and automated decisions that can lead to discrimination fuel mistrust in corporations. The bag of tricks includes non-comparable offers, hidden costs or free offers that are then converted into fee-based offers without forewarning. In a store, however, customers can see all of the products in front of them. They can hold them, compare them and then know what they are getting for their money. Knowing all the facts and making a decision independently provides a sense of security that creates trust. This trust is becoming more and more important in an increasingly digital world.
Melanie Tschugmall: Unethical practices are referred to as ‘dark patterns’ in UX. They compel customers to do something they don’t want to do. Measures like these might lead to a short-term increase in profits, but they have a negative effect on the long-term customer relationship. Companies must be aware that new technologies could have an unethical character. They must always make the added value clear to customers. This might merely take the form of simplifying existing processes, for example.
What can brick-and-mortar retail do to capitalise on this trust advantage?
Cornelia Diethelm: It requires committed employees who identify with the retail brand and treat customers as equals. New technologies such as self-scanning and self-checkout machines can also definitely improve the shopping experience. Alternatives like these strengthen the autonomy of the individual because they allow each person to decide if this is a boom to comfort or not. Cashless payment is also a positive example. It accelerates the payment process and will probably enjoy even greater popularity because of the coronavirus crisis. Those are classic win-win situations for customers, employees and retailers. It is often the ordinary things that provide customers with true added value in brick-and-mortar retail.
Melanie Tschugmall: In addition to targeted improvement of the shopping experience by simplifying processes, the use of new technologies such as artificial intelligence (AI) can definitely provide new momentum and create numerous opportunities. In this way, brick-and-mortar retail and consumer goods companies can implement AI applications to improve the product range and inventory management for each store and continuously optimise their supply chains. They can thus always ensure that the right product is at the right place at the right time, which ultimately results in increased customer satisfaction and loyalty.
Digitalisation raises many new questions concerning the handling of data and emerging technologies such as AI. How are companies dealing with these and what internal prerequisites must be in place to ensure trust and acceptance?
Cornelia Diethelm: To answer this question, customer-oriented retailers need a moral compass, as the use of technology is never neutral. It is always people, who decide which data serves as the foundation of a technology and what this data is used for. Is it used to benefit the customer? Or is it more of a technological game, maybe even one with unintended consequences? For customer-oriented retailers, the question is not what is legally possible, but what is sensible. In this way, they fulfil the growing expectations of their customer base, employees and other stakeholders. This is why more and more companies have created ethical guidelines aligned with their values. They are then implemented via responsible data management known as data governance. Larger companies also employ ethics boards to evaluate projects in terms of their opportunities and risks at an early stage and across disciplines.
Melanie Tschugmall: It is important that the responsible handling of data and new technologies becomes an integral part of the innovation process at companies. It is precisely here that there is a danger of taking an isolated perspective. Instead, the following three pillars should be considered together: human-centred AI, data governance and data ethics. These topics will become increasingly important for companies. That’s because only those companies that create rules for the responsible handling of data will gain the acceptance and trust of their customers.
Where does the use of new technology become delicate and perhaps regarded as unethical?
Cornelia Diethelm: There are many examples of this. One example is geotargeting. Here, people allow themselves to be located via GPS or Bluetooth in real time, which makes location-based advertising possible. However, such geotargeting only leads to a positive customer experience when the displayed advertisement or offer is actually tailored to the needs of the particular person. Studies show that the lack of relevance can cause such measures to be perceived as more of an annoyance, and that customers view it as an intrusion into their privacy if their location and behaviour are constantly being recorded.
Dynamic pricing is also currently a hot topic; however, retailers should carefully consider whether or not to implement such a model. Customers are used to standard prices. However, data-based business models allow prices to be dynamically adjusted during the day or tailored to the individual based on their data profile or behaviour. Is it fair that a customer has to pay more for a book than their neighbour simply because they are classified by the system as having more spending power? Who verifies that the data used for this decision is accurate? And most importantly, can this personalised price be verified by the customer? Does the customer know how it was arrived at and can they rectify incorrect data? We often read about price variations for flights and hotels booked online. However, it doesn’t tend to be common practice, because initial studies show that acceptance of it is low. An experiment with 2,000 consumers showed that they consistently viewed price differences as unfair, regardless of whether or not they profit from them.
Why? Consumers assume that they will suffer long-term disadvantages. They are also afraid that other consumers will be offered better terms, which causes dissatisfaction. This, in turn, leads to a decline in the willingness to make subsequent purchases and to a basic loss of trust in the retailer, regardless of the economic price advantage.
Customer relevance, micromoments in the customer journey and hyperpersonalisation are hot topics in marketing, and are all based on data and new technologies. How do retailers use these solutions in a sensible and ethical way?
Cornelia Diethelm: Those who use data as a strategic resource should ask themselves what they specifically do and don’t do with the data. In this way, companies create trust and increase acceptance of digital innovations. Consumers are entitled to be sufficiently informed about which of their data is used for which purpose. But at the same time, they also have to take responsibility themselves, such as by adjusting privacy settings to their own needs.
Melanie Tschugmall: Responsible action does not end in the real world. It has never been easier for companies to collect private and personal data. Users must be able to control who knows what about them and what happens with their data. This has a significant influence on the ability to make a decision and act. Digitalisation must also be based on values – and transparency from companies and personal responsibility of users play a decisive role in this.