March 6, 2008
Aberdeen Research: Outdated POS Systems Barrier to Good Customer Service
By Sahir Anand, Senior Retail Analyst, Aberdeen Group
An Aberdeen global survey of 175 retail companies in January 2008 has found that at least 60 percent of retailers have POS systems that are older than 5 years. Of those, 35 percent are older than 10 years.
The use of legacy POS system at retail checkout can be a frustrating experience for customers as order management, loyalty programs, and payment acceptance processes are fraught with delays.
Key procedures fulfilled at the POS include scanning of products, applying loyalty credits, and promotional offers such as coupons and payment processing. Aberdeen’s November 2007 report, The Roadmap to Successful Contactless Payment Implementation, showed that the average time taken to complete a transaction from scanning and bagging to payment by Best-in-Class companies is one to three minutes. However, complex and time-consuming transactions are resulting in longer than average wait times for customers as a result of longer payment processing times, poorly designed POS interfaces, and legacy system malfunctions. These delays cause customer dissatisfaction.
Forty-seven percent of the retailers surveyed in Aberdeen’s January study identified complex and time-consuming POS checkout procedures as the major pressure impacting the customer POS experience.
In Aberdeen’s analysis, outdated POS systems have created a large gap in the retailer’s objective of delivering customer satisfaction through three POS tenets: multi-channel order management; loyalty programs; and faster payment options for customers.
POS capabilities and technology go hand-in-hand in building a customer-centric POS environment. Aberdeen’s results show that any upgrade plan for POS systems has to include a combination of software, hardware, and peripherals.
In the area of order management, software with multi-channel functions and 2-D barcode scanning technology can make populating and processing of orders, returns, and exchange more simplified.
From a payment standpoint, more mobile POS and universal Pin-Entry Devices (PED) are likely to find their way into retail stores to broaden the payment form factors and customer checkout choices. While mobile POS should enable faster checkout, universal PEDs can facilitate wider, safer, and easier payment options for customers.
The third major cog within POS customer process management is comprised of customer loyalty programs such as rewards and targeted promotions, gift cards, and guided selling, which are also expected to see an uptake in planned use amongst retailers. It is important to note that while improvement in order management and payment technology will likely have the greatest impact on customer satisfaction, loyalty-related initiatives hold the maximum potential to directly impact future revenue growth in stores.
Discussion Questions: Do you agree that complex and time consuming procedures pose the biggest challenge to good customer service at checkout? Which areas of improvement in POS systems do you think would yield the greatest short- and long-term results for retailers?
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The last impression consumers have at any retailer is when they check out. Consumers have been saying for years that they want a faster checkout process. Any way that retailers can improve this process, making it faster and more accurate, would be welcome.
Restating the obvious: POS change is done when it’s a need-to-have vs. a nice-to-have. I could go into the hassles of POS change here but we are all from retail so that’s not necessary.
Need to haves are usually things like:
(1) Y2K; (Mark’s point)
(2) We’ll get sued if we don’t do it; (Evan’s point)
(3) The old clunker took us through 5 depreciation cycles, the original programmer just passed away, the only company that stocks spare parts on the printer just shut down, and the cooling fans for the Series One are so loud, you can hear them in the store;
(4) Our competition has improved the store experience/shopping experience, the change addresses a central reason for how people make a choice of where they shop in our category, the change is enough where our customers are defecting and if we don’t do this we will be in big trouble!
Number 1, per Mark’s prescient analysis, won’t be for a while.
Regarding number 2, if there is a work around, we will find it, or we will jump at the very last minute – I suppose.
Number 3 passes the savings on to their customer and it is really sad: Fred will be missed.
And that leaves old number 4. Who among us is brave? Who is the early adopter who at great risk and expense is going to try to change the landscape? I am sure they are out there already, with their resume polished in the hands of someone at IBM, Accenture, or LakeWest.
Meanwhile, the fast followers wait hoping that they pull the trigger on a two year project at the right moment.
My advice to the POS firms who fund research reports is: fund a report on efficient ways to test new POS systems (read: the prototype lab store). Solve the first problem; the figuring it out problem.
Retailers holding out on upgrades are not doing themselves or their customers any justice. Legacy POS systems (e.g. NCR 2127) are limited in functionality and replacement parts are getting difficult to find. Also trying to find POS dealers to support these older systems is getting limited and expensive.
In addition trying to implement fancy loyalty programs or even defining complex promotions is next to impossible on these older systems. The new POS systems offered by the three major US distributors give retailers new functionality once limited to the big chains. In addition the systems can grow with the business since most new features/functions are software modules add-ons.
With regards to training front-end staff on these new systems, this isn’t really a factor. Most front-end interfaces are so intuitive now someone with little to no cashier experience can get productive fairly quickly. These POS distributors have put a lot of R&D into creating menu driven systems to aid in improving training time. The only training concern really is the back office. In most cases replacing a legacy system with a new state of the art POS system is like trading in the VW bug for the Ferrari. There’s so much for reporting and data mining capabilities that bookkeepers/POS Coordinators get frustrated. With good dealer support & adequate training these issues diminish as the users get more familiar with the system features.
I agree 100% with this report in that customers want a faster checkout experience. Also customers these days want flexibility with payment options, loyalty programs, customer displays that show the electronic receipts/5 day weather forecast or the option of self checkout.
I predict in the next 5 years these systems will be lower cost for retailers as several international POS companies are now trying to enter in the US market. These systems are 1/2 the cost of the three leading US distributors and have essentially the same features and functionality. Time will tell….
The aging of POS is nothing new, but what is truly going to push this will be PCI and, more directly, dollars freed up by PCI. There are encryption issues that will justify retailers making the move and CFO fear-factors about PCI will give the greenlight.
All of the advantages of a modern POS system are enticing, but it doesn’t make the ROI work, given the interruptions required for the change and the fact that, as has been already said here, if it ain’t broke….
I’m a *shopper* who:
1) Always pays with cash or credit (for speed),
2) Early swipes at the pinpad (for speed),
3) Tries to anticipate the cashier’s needs (for speed),
4) Firmly declines most unsolicited offers @ POS (for speed),
5) Prefers self-checkout (for speed),
6) Gets well clear of the checkout when done.
It all comes to naught, however, if the customer *in-front* decides to gum up the works! That’s what I find most frustrating. Either the cashier can’t or won’t deal with those “exceptional” customers (who are really are quite common, btw).
It’s caused by a combination of factors:
a) Old technology @ POS (some systems can’t suspend/resume),
b) Poor training (cashier can’t finesse the difficult customer),
c) Poor checkout flow. I like single-queue arrangements (Border’s, Fry’s, USPS) where the impact of a line-blocking customer is less painfully obvious.
But why are there only three tenets? Seems like premature oversimplification.
Ultimately, POS delays may be a result of retailers offering consumers too many payment options. Years ago, you could pay for your groceries by cash, check, or credit card and all parties were knowledgeable and prepared to handle those limited types of transactions. Now, consumers can choose to pay by debit card, receive cash back with their purchases, go through a self-service aisle, or a myriad of other POS options.
While consumers may value these choices, their inclusion ultimately adds more time and complexity to the POS process. Every time a clerk reviews these options with a consumer, or each time a consumer needs assistance with the POS procedure, it adds time to the checkout process for that consumer and all others in line behind her.
The challenge for businesses is to present the various POS options in a manner that allows the consumer to select the best option for herself. Reestablishing the cash only check out lane, suggesting that parties with more than, say, two dozen items not use the self-service aisle, and providing written explanations of the check out options would all allow consumers to make informed decisions regarding their check out options and would speed the check out process for all.
At the recent Euroshop I have noted a very interesting shift in approach at the back end of retailers. Open web based system approaches with APIs, etc, are entering an area that was closed for a long time.
The POS is indeed a last fortress of the old system approach but needs to be updated in such a way towards being able to make connections to loyalty systems, etc; eventually evolving into a thin-client POS with all sorts of APIs to internal and external systems.
I see many new business opportunities with these kinds of POS systems but know retailers long enough to realise that the industry first needs a couple very successful business cases before starting to invest in new POS systems.
Many retailers only replaced their POS systems because of the Y2K problem. Since a similar problem won’t be coming around for another 992 years, how many retailers will keep their current systems until Y3K? Very few retailers know how to effectively prove return on investment for major new systems requiring major new capital. Without a good “ROI lawyer”, no capital spending takes place. The retailer stays in “Obsolete Systems Penitentiary”. This is located only a few steps from the Sales Prevention Institute.
Some of the commentators above may have supermarket checkouts in mind when thinking there are other more important factors than the POS technology. It should be noted that the research sample was comprised of only 20% supermarket/grocery, with the rest split between specialty, GM, apparel, department store, c-store, gas, drug store, CE, furniture, hardware, fast food, hospitality and other outlets.
Consider instead the delays when waiting for a product return or exchange at say a department store. Or waiting for the associate to upsell a customer on a new loyalty program at a consumer electronics store. Or trying to work out complications between store and manufacturer coupons at a drug store. I’d say the POS systems play a huge role in customer satisfaction, but the needs vary greatly from channel to channel.
I agree with Professor Fader on this one. Sure, time is valuable and reducing time in checkout lines is a valuable goal. But given the enormous number of issues other than the POS system that retailers have let languish and which have much greater impact on the customer experience, updated POS should not, in my opinion, be at the top of the list.
That doesn’t mean that sooner or later, each retailer must make the enormous investment to upgrade (which includes the downtime to get the new POS working properly, training, etc., etc.). It does mean that retailers need to address the other issues because, without doing so, having a fancy up-to-date POS system won’t do much good. I have yet to hear a customer say they are shopping at a particular retailer because that retailer has a great POS system and you can check out in 2 minutes rather than 3 minutes.
I can understand why there is hesitation among retailers to upgrade their POS systems. The adage “don’t fix what ain’t broke” comes to play here. Imagine a cashier at your local Publix on a Saturday morning standing there with a beautiful new POS station with LCD screens blazing the latest promos and about 100 people waiting in line because the new system is frozen.
On the other hand, many systems out there resemble Commodore PETs and do not do the brand justice. Add all the complexities of loyalty programs and postal code/zip code harvests and it may be advisable to get new systems. One thing retailers need to remember is that the cash is the last thing the customer sees so it’s a good idea to invest in a smooth and seamless process.
I agree with Peter. The problem isn’t so much a long and complicated process from the customer’s perspective. The problem is that with legacy POS, it is a long and complicated process to change anything to add customer service innovations. When it takes a year to implement a new payment method (which is not much different from simply enabling a different card to swipe, from the customer’s perspective), as a retailer you’re going to be highly disadvantaged.
We’ve had POS systems for long enough now that I personally feel the transaction management itself is a commodity. Retailers aren’t going to differentiate by shaving a second here or there off of the checkout process. The ones who are fundamentally rethinking the process – think Stop & Shop with their Modiv Media implementation (which, by the way, has very little to do with POS) – are the ones that will change the game.
Sure this is an issue, but it pales in comparison to other aspects of the checkout process: the logistics of unloading the cart, bagging items after scanning, the employee’s attitude/competence, and many other atmospheric considerations. Those are the things that the shopper remembers, not the speed/quality of the scanning, per se.
I think there are a tremendous amount of things that can be done to make the checkout process more efficient. The first thing that comes to mind is that ongoing training of your store personnel is a key issue, especially given the turnover in this segment.
Secondly, technology can play a big part in speeding up the process. For example converting your cc systems from dial up to IP based systems can reduce your authorization timeframe 15 to 30 seconds to 2 seconds.
There a few exciting RFID/NFC technologies that show promise. For example imagine having RFID customer loyalty cards that work with the POS register.
In conclusion the checkout process is a critical aspect of the shoppers experience and anything that the retailers can do to improve this WILL produce a positive ROI.
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The last impression consumers have at any retailer is when they check out. Consumers have been saying for years that they want a faster checkout process. Any way that retailers can improve this process, making it faster and more accurate, would be welcome.
Restating the obvious: POS change is done when it’s a need-to-have vs. a nice-to-have. I could go into the hassles of POS change here but we are all from retail so that’s not necessary.
Need to haves are usually things like:
(1) Y2K; (Mark’s point)
(2) We’ll get sued if we don’t do it; (Evan’s point)
(3) The old clunker took us through 5 depreciation cycles, the original programmer just passed away, the only company that stocks spare parts on the printer just shut down, and the cooling fans for the Series One are so loud, you can hear them in the store;
(4) Our competition has improved the store experience/shopping experience, the change addresses a central reason for how people make a choice of where they shop in our category, the change is enough where our customers are defecting and if we don’t do this we will be in big trouble!
Number 1, per Mark’s prescient analysis, won’t be for a while.
Regarding number 2, if there is a work around, we will find it, or we will jump at the very last minute – I suppose.
Number 3 passes the savings on to their customer and it is really sad: Fred will be missed.
And that leaves old number 4. Who among us is brave? Who is the early adopter who at great risk and expense is going to try to change the landscape? I am sure they are out there already, with their resume polished in the hands of someone at IBM, Accenture, or LakeWest.
Meanwhile, the fast followers wait hoping that they pull the trigger on a two year project at the right moment.
My advice to the POS firms who fund research reports is: fund a report on efficient ways to test new POS systems (read: the prototype lab store). Solve the first problem; the figuring it out problem.
Retailers holding out on upgrades are not doing themselves or their customers any justice. Legacy POS systems (e.g. NCR 2127) are limited in functionality and replacement parts are getting difficult to find. Also trying to find POS dealers to support these older systems is getting limited and expensive.
In addition trying to implement fancy loyalty programs or even defining complex promotions is next to impossible on these older systems. The new POS systems offered by the three major US distributors give retailers new functionality once limited to the big chains. In addition the systems can grow with the business since most new features/functions are software modules add-ons.
With regards to training front-end staff on these new systems, this isn’t really a factor. Most front-end interfaces are so intuitive now someone with little to no cashier experience can get productive fairly quickly. These POS distributors have put a lot of R&D into creating menu driven systems to aid in improving training time. The only training concern really is the back office. In most cases replacing a legacy system with a new state of the art POS system is like trading in the VW bug for the Ferrari. There’s so much for reporting and data mining capabilities that bookkeepers/POS Coordinators get frustrated. With good dealer support & adequate training these issues diminish as the users get more familiar with the system features.
I agree 100% with this report in that customers want a faster checkout experience. Also customers these days want flexibility with payment options, loyalty programs, customer displays that show the electronic receipts/5 day weather forecast or the option of self checkout.
I predict in the next 5 years these systems will be lower cost for retailers as several international POS companies are now trying to enter in the US market. These systems are 1/2 the cost of the three leading US distributors and have essentially the same features and functionality. Time will tell….
The aging of POS is nothing new, but what is truly going to push this will be PCI and, more directly, dollars freed up by PCI. There are encryption issues that will justify retailers making the move and CFO fear-factors about PCI will give the greenlight.
All of the advantages of a modern POS system are enticing, but it doesn’t make the ROI work, given the interruptions required for the change and the fact that, as has been already said here, if it ain’t broke….
I’m a *shopper* who:
1) Always pays with cash or credit (for speed),
2) Early swipes at the pinpad (for speed),
3) Tries to anticipate the cashier’s needs (for speed),
4) Firmly declines most unsolicited offers @ POS (for speed),
5) Prefers self-checkout (for speed),
6) Gets well clear of the checkout when done.
It all comes to naught, however, if the customer *in-front* decides to gum up the works! That’s what I find most frustrating. Either the cashier can’t or won’t deal with those “exceptional” customers (who are really are quite common, btw).
It’s caused by a combination of factors:
a) Old technology @ POS (some systems can’t suspend/resume),
b) Poor training (cashier can’t finesse the difficult customer),
c) Poor checkout flow. I like single-queue arrangements (Border’s, Fry’s, USPS) where the impact of a line-blocking customer is less painfully obvious.
But why are there only three tenets? Seems like premature oversimplification.
Ultimately, POS delays may be a result of retailers offering consumers too many payment options. Years ago, you could pay for your groceries by cash, check, or credit card and all parties were knowledgeable and prepared to handle those limited types of transactions. Now, consumers can choose to pay by debit card, receive cash back with their purchases, go through a self-service aisle, or a myriad of other POS options.
While consumers may value these choices, their inclusion ultimately adds more time and complexity to the POS process. Every time a clerk reviews these options with a consumer, or each time a consumer needs assistance with the POS procedure, it adds time to the checkout process for that consumer and all others in line behind her.
The challenge for businesses is to present the various POS options in a manner that allows the consumer to select the best option for herself. Reestablishing the cash only check out lane, suggesting that parties with more than, say, two dozen items not use the self-service aisle, and providing written explanations of the check out options would all allow consumers to make informed decisions regarding their check out options and would speed the check out process for all.
At the recent Euroshop I have noted a very interesting shift in approach at the back end of retailers. Open web based system approaches with APIs, etc, are entering an area that was closed for a long time.
The POS is indeed a last fortress of the old system approach but needs to be updated in such a way towards being able to make connections to loyalty systems, etc; eventually evolving into a thin-client POS with all sorts of APIs to internal and external systems.
I see many new business opportunities with these kinds of POS systems but know retailers long enough to realise that the industry first needs a couple very successful business cases before starting to invest in new POS systems.
Many retailers only replaced their POS systems because of the Y2K problem. Since a similar problem won’t be coming around for another 992 years, how many retailers will keep their current systems until Y3K? Very few retailers know how to effectively prove return on investment for major new systems requiring major new capital. Without a good “ROI lawyer”, no capital spending takes place. The retailer stays in “Obsolete Systems Penitentiary”. This is located only a few steps from the Sales Prevention Institute.
Some of the commentators above may have supermarket checkouts in mind when thinking there are other more important factors than the POS technology. It should be noted that the research sample was comprised of only 20% supermarket/grocery, with the rest split between specialty, GM, apparel, department store, c-store, gas, drug store, CE, furniture, hardware, fast food, hospitality and other outlets.
Consider instead the delays when waiting for a product return or exchange at say a department store. Or waiting for the associate to upsell a customer on a new loyalty program at a consumer electronics store. Or trying to work out complications between store and manufacturer coupons at a drug store. I’d say the POS systems play a huge role in customer satisfaction, but the needs vary greatly from channel to channel.
I agree with Professor Fader on this one. Sure, time is valuable and reducing time in checkout lines is a valuable goal. But given the enormous number of issues other than the POS system that retailers have let languish and which have much greater impact on the customer experience, updated POS should not, in my opinion, be at the top of the list.
That doesn’t mean that sooner or later, each retailer must make the enormous investment to upgrade (which includes the downtime to get the new POS working properly, training, etc., etc.). It does mean that retailers need to address the other issues because, without doing so, having a fancy up-to-date POS system won’t do much good. I have yet to hear a customer say they are shopping at a particular retailer because that retailer has a great POS system and you can check out in 2 minutes rather than 3 minutes.
I can understand why there is hesitation among retailers to upgrade their POS systems. The adage “don’t fix what ain’t broke” comes to play here. Imagine a cashier at your local Publix on a Saturday morning standing there with a beautiful new POS station with LCD screens blazing the latest promos and about 100 people waiting in line because the new system is frozen.
On the other hand, many systems out there resemble Commodore PETs and do not do the brand justice. Add all the complexities of loyalty programs and postal code/zip code harvests and it may be advisable to get new systems. One thing retailers need to remember is that the cash is the last thing the customer sees so it’s a good idea to invest in a smooth and seamless process.
I agree with Peter. The problem isn’t so much a long and complicated process from the customer’s perspective. The problem is that with legacy POS, it is a long and complicated process to change anything to add customer service innovations. When it takes a year to implement a new payment method (which is not much different from simply enabling a different card to swipe, from the customer’s perspective), as a retailer you’re going to be highly disadvantaged.
We’ve had POS systems for long enough now that I personally feel the transaction management itself is a commodity. Retailers aren’t going to differentiate by shaving a second here or there off of the checkout process. The ones who are fundamentally rethinking the process – think Stop & Shop with their Modiv Media implementation (which, by the way, has very little to do with POS) – are the ones that will change the game.
Sure this is an issue, but it pales in comparison to other aspects of the checkout process: the logistics of unloading the cart, bagging items after scanning, the employee’s attitude/competence, and many other atmospheric considerations. Those are the things that the shopper remembers, not the speed/quality of the scanning, per se.
I think there are a tremendous amount of things that can be done to make the checkout process more efficient. The first thing that comes to mind is that ongoing training of your store personnel is a key issue, especially given the turnover in this segment.
Secondly, technology can play a big part in speeding up the process. For example converting your cc systems from dial up to IP based systems can reduce your authorization timeframe 15 to 30 seconds to 2 seconds.
There a few exciting RFID/NFC technologies that show promise. For example imagine having RFID customer loyalty cards that work with the POS register.
In conclusion the checkout process is a critical aspect of the shoppers experience and anything that the retailers can do to improve this WILL produce a positive ROI.