How some companies are using mobile to power growth

By Eric Hazan

Mobile offers impressive opportunities for profit and growth—provided companies can overcome the three biggest hurdles in effective digitization.

Despite all the headlines around the mobile revolution, few legacy companies have consistently found a way to use mobile to grow. The good news is that there is a ready-made target group of consumers that can serve as an initial foray into this changing world. Currently, 95 percent of mobile data consumption is coming from just 35 percent of mobile users.  And while the total value of goods and services purchased via mobile in the US in 2013 was $113 billion—a relatively small slice of the retail sales pie—the figure is expected to grow by 25 percent a year through 2017,  more than twice the growth rate of total e-commerce sales.

We have analyzed three sectors that have reached a significant level of “mobile maturity” in the US: retail, banking, and travel. What we found is that, while e-commerce often results in a hit to profit margins, the same is not necessarily true for mobile commerce. Mobile offers significant opportunities for increasing revenue as well as lowering costs.

Because mobile consumers don’t need to wait to be at their computer in order to buy something, they tend to be more spontaneous and make purchases they didn’t plan, resulting in a higher average basket size. They are free to react immediately at any number of different touchpoints without waiting.

We estimate that with a little more focus on their mobile strategies, traditional players in retail, banking, and travel have the opportunity to win back $20 billion to $30 billion in annual sales that are currently being captured by the e-commerce pure players. Here’s how:

Retail

US consumers who regularly use their mobile phone to buy products end up spending 37 percent more per transaction than those who primarily shop online via a PC. This is due both to the greater spontaneity of mobile consumers and the fact that they can be tracked through many more moments of their decision journey, thus offering a rich set of consumer insights that can be used to inspire purchases.

At the same time, there is an opportunity to reduce store operating costs by as much as 8 percent. These cuts come from the fact that sales increases due to mobile do not necessarily require hiring additional staff. At Walgreens, for instance, customers order 40 percent of the chain’s total online prescription refills via the mobile app, which saves time for the pharmacists and reduces the need for additional employees. Using a mobile phone in stores as a digital wallet—something that’s expected to skyrocket as Apple Pay and other services are adopted—allows for a streamlined checkout and a reduction in staff.

Banking

In the developing world, particularly in Africa, there are at least 32 countries where mobile banking has exceeded traditional banking in terms of number of accounts. In developed markets, mobile banking is also surging. This year in the US, it is expected to exceed online banking in terms of the amount of money flowing through the system.

For banks, increased use of mobile can facilitate a reduction in operating costs through a lowering of fixed costs for physical branches and a greater focus on a pay-per-use model. Banks can also trim costs by digitizing processes like check deposits and mortgage applications. The cost of processing a check that a customer has photographed and deposited via mobile phone is dramatically lower than in-person or ATM deposits: $0.10 versus $7.50. We estimate that in the US there is a total of $10 billion in annual potential savings due to these and other measures.

At the same time, mobile banking provides financial institutions with the ability to access a greater number of customer segments. Roughly half the world’s adult population does not yet own a bank account, and nearly 80 percent of these 2.5 billion people are in West Africa, where a technological revolution is being driven by mobile phones.

Travel

The travel industry is already heavily digital, and every year mobile becomes a bigger factor in it. In the US, for instance, 57 percent of global travel bookings are made on the Internet. Within two years, American Airlines is expected to reach $1 billion in mobile-based sales, or 35 percent of its bookings.Two global hotel groups already, get the majority of same-day hotel bookings from customers using smartphones or tablets.

For airlines and hotels, mobile represents a customer experience-transformation tool that can create enormous value. Through optimized use of their mobile sites or apps, hotels can achieve up to 15 percent better room-occupation rates and a 25 percent savings on commissions due to the fact that consumers bypass online travel agencies and book directly with the brand. InterContinental Hotels Group, for instance, does almost 60 percent of its hotel-room bookings through its own apps or mobile site. We estimate that there is a potential for industrywide annual savings of $7 billion to $15 billion.

The path forward

With the real potential of both additional revenue and lower costs, mobile transformation presents an opportunity for a virtuous circle of reinvestment. Companies that funnel extra profits into improved products or enhanced production and distribution can gain a competitive advantage over their rivals. But before this can occur, organizations must overcome three key impediments that we see as major roadblocks to effective digital transformation. The biggest is organizational inflexibility. Companies in which key functions like marketing, customer service, and logistics operate in relative isolation cannot successfully embrace digital initiatives, which by their very nature cut across business lines and functions.

The second roadblock is a shortage of digital talent. By this, we don’t mean only engineering geeks. Companies must be able to hire leaders and staff throughout their organization who have the digital skills and competence to help spread a radical new mind-set within the company. We have found that 30 to 40 percent of a company’s total employees must have an understanding of the digital landscape and the skills to go along with it.

The third digital deterrent is a lack of visible involvement by the leadership team. The important word here is visible, because when others see executives become personally invested in digital initiatives, it sends a clear and inspiring message about the need for cultural change.

Yes, mobile commerce comes with unprecedented price transparency and increased competition, both of  which can have a negative impact on profit margins. And becoming a mobile-savvy organization requires significant effort, from better omnichannel data collection, to making adaptations to  the IT backbone, to support for automation and rapid deployments. But companies that embrace the growing use of mobile devices stand to make those margins back and then some.

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