Brick and Mortar 2.0:

The recent New York Times article, “Shopper Alert: Price May Drop for You Alone” illustrates that Safeway and Kroger are now experimenting with personalized prices in their actual brick and mortar retail stores.  You might expect this at Internet sites like Amazon, but this is the latest evidence that we can expect important industry changes and new technology business models in traditional retail shopping.

Earlier this year, one of our UC Berkeley Engineering Leadership Projects* called “Brick and Mortar 2.0”, with team members from Yahoo! and Applied Materials, predicted this trend specifically.  Looking back over the past few years, we have seen a pattern of retailers losing market share to Internet models like Amazon due to factors such as cost, real-time personalization, greater selection, and cross-selling with recommendation engines.

However, our project group observed that these same technologies are starting to be repurposed for traditional brick and mortar retailers.  In particular, increased use of smart phone applications, large scale data analytics, location awareness, and call-to-action models like Groupon are all leading to a new and more competitive Brick and Mortar 2.0 model.  And this model still offers the immediacy and service characteristics that on-line retailers have struggled to achieve, perhaps with the exception of Zappos.

Why is this important?  For one, it’s a sign of a significant industry and lifestyle change.  But even more importantly, Facebook and Google are very interested to understand how effectively advertising models will work as their users migrate to mobile phones.  The answer might lie in the effectiveness of these new emerging technology business models in retail. And if so, just about everyone else in Silicon Valley will be affected by the results of these experiments.

(This post draws on the Brick and Mortar 2.0 report authored by Angel Orrantia, Michael Montesano, Patrick McCormack, Samer Banna, Srinivas D Nemani under advisement of Prof. Ikhlaq Sidhu.)

Image: New York Times

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