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The Retail Reality Check

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Data science is blending with emerging technology to create the ultimate customer experience. While these innovations are turning the fantastic into reality, there are hidden risks that lurk behind such new technologies. Booz Allen's commercial retail experts provide cybersecurity guidance for retailers in this new digital world.

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The Retail Reality Check

  1. 1. Commercial Solutions RETAIL REALITY CHECK The Risks and Rewards of the New Digital World Order Booz Allen Hamilton Commercial Solutions combines industry knowledge and relevant experience with the right people and technologies to reduce risk, improve safety, and increase profitability for your business. Together, we can enable you to thrive today, tomorrow, and beyond.
  2. 2. 2 THE FUTURE IS HERE Data science is blending with emerging technology to create the ultimate customer experience. Advances—such as facial recognition, augmented reality, in-store location tracking, and mobile payments— have intrigued retailers for years but presented challenges because the ability to truly personalize and automate the customer experience was missing…until now. While data science is turning the fantastic into reality, there are hidden risks that lurk behind these new technologies. As hackers look to take advantage of the personal information retailers can now collect, knowing the risks and benefits of the new mobile digital world will help you out maneuver your competition. Emerging data science techniques are enabling retailers to collect and analyze information about individual consumers and deliver insights via targeted customer coupons in real-time, anywhere and to anyone. This consistent understanding of who customers are, what they want to buy, and how they want to purchase ties all of these technology innovations together, opening up incredible new opportunities but also serious risks. Innovation in the digital age brings emerging cybersecurity vulnerabilities. With the amount of information retailers are now able to collect about individuals, companies cannot separate using new waves of technology to enhance the bottom line from addressing cybersecurity. Major retailers need to be proactive in avoiding the crosshairs of potential threat actors and minimizing risk. Strong brand loyalty and consumer trust is critical to ensuring retailers thrive. Consumers want to know retailers can deliver on promises while also protecting their personal information. To do that effectively, retailers must understand the intersection of innovative technology, data science, and cybersecurity—and what to do about it. Figure 1—Strong Cybersecurity Underpins Retail Opportunities
  3. 3. 3 The Rise of Omni-Channel Inventory Retailers traditionally used different inventory channels, with online sales sourced differently than stores. Today, supply chain and data science advances are giving rise to “Omni-channel Inventory,” allowing retailers to seize new revenue opportunities and enhance customer experience through dynamic, responsive integration. THE MARRIAGE OF DATA SCIENCE & TECHNOLOGY Predictive. Adaptive. Personalized. This is the promise of blending data science with emerging technology, and it is the new mantra of retailers who seek competitive advantage. Savvy retailers are already using social media and mobile applications to engage customers. Highly innovative retailers, however, are breaking new ground—using data science to tie technologies together into one seamless, personalized customer experience. The Segment of One Marketers used to focus on segments of individuals to target key messages and engage consumers. Now, hyper- personalization emphasizes a “Segment of One” through data science that provides the ability to gather, analyze, distill, and deliver vast amounts of information in real time. And hyper-personalization pays off. Data from a Retail TouchPoints 2014 Technology Review shows that marketers who fully implement a customer-centric strategy can generate 15% to 25% higher sales and improve customer lifetime value up to 500%.1 Retailers can now blend insights from individual online and in-store purchasing habits to better understand customers—when they buy, how they buy, where they buy, preferences using social media, and past purchases using loyalty programs—to personalize promotions and tailor offerings. By matching that information with technology, such as geo-location and facial recognition, they can also deliver targeted promotions to mobile devices. Mobile devices make in-store shopping an interactive experience as never before, while generating enormous amounts of data for retailers. iBeacons, for example, wirelessly connect automatically to Bluetooth for in-store location tracking so that individual customers receive customized coupons with dynamically changing displays that meet their unique needs. Retailers can provide customers with instant online reviews and allow them to buy items as they walk rather than waiting in line. Customers can have items sent home or send gifts to family and friends—all in store, from a handheld mobile device. And if they need in-store help, representatives receive key information that is automatically transmitted, such as the customer’s name and purchasing history, to provide tailored support. In-store retail associates are also now armed with mobile devices and kiosks to provide the most up-to-date inventory information for tailored recommendations. This technological revolution isn’t just occurring in front of the customers’ eyes. It’s also happening behind the scenes, reshaping the way retailers manage inventories and supply chains. Data science is taking the just-in-time concept one step further, providing retailers with real-time inventory management. Retailers are using a combination of radio-frequency identification (RFID) tags, cameras, and data analytics to monitor inventory levels within the store aisles. As customers take stock of the shelves, alerts are sent and new items are restocked, even before the store runs out of the item. Using mobile technology to track customer movements and patterns, matched with purchasing habits and even social media trends, retailers can better anticipate inventory demands for specific stores that would never had been visible without data science. 1 2014 Technology Preview: Exclusive Predictions from 22 Retail Executives; Retail TouchPoints; 2014 Life me Sales Increase When Applying a Customer-Centric Model 500% Source: 2014 Technology Preview Figure 2 — Retailers who focus on customer experience generate 5x more sales
  4. 4. 4 CYBERSECURITY IN THE CHANGING LANDSCAPE Capitalizing on emerging technologies and data science for a customized “Segment of One” is an ideal scenario for retailers; however, it also creates an ideal scenario for hackers. Data science yields great power to collect enormous amounts of information and develop insights about customers, but it also introduces new risk, with devastating impacts if it falls into the wrong hands. Customer data—the new currency of the digital age—makes retailers a prime target for attacks. As retailers launch new technologies and apply data analytics, cybersecurity risks increase in several key ways: 1. The attack surface increases exponentially. Flowing data between online locations, mobile devices, in-store devices, and supply chains increases the opportunity for attackers to break into systems by expanding the ways in which threats can infiltrate a system. 2. New technologies inherently bring unknowns. Retailers often don’t identify vulnerabilities until after technologies are launched and are live on the network. Holes, weaknesses, and unintended consequences won’t often show themselves until after going live with customers. 3. Automation increases the impact of an attack. The sheer amount of data that systems consume and process necessitates automation. Yet, while automation may bring speed to business, it also removes the “biological” safety net and allows malware to spread malware more quickly. Even if attackers do not gain access to specific financial information, they can use stolen data for identity theft—impersonating customers to secure fraudulent credit cards, open fake bank accounts, or make other bogus purchases. Phishing attacks, which are a common way to trick individuals into sharing personal information, can now become more advanced. With access to customer movements, hackers are able to customize emails based on location or transaction history to increase their perceived legitimacy and, thereby, the success of their attacks. Other hackers conduct privacy extortion by holding personal information for ransom to a retailer or consumer for a specified amount. These examples offer a mere snapshot of the ways in which hackers can exploit retailers and customers if they obtain this critical information. The recent cybersecurity breaches of large, well-known retailers demonstrate the increased vulnerability of the retail industry. Both physical store locations and online stores are now at risk.
  5. 5. 5 Key Cyber Controls When assessing your program’s maturity, pay particular attention to:  Threat Intelligence  Security Monitoring  Privacy Policies  Identity and Access Management  Incident Response  Mobile Technologies STAYING OUT IN FRONT Retailers are in a tough spot, working to balance competitive pressures and opportunities to innovate with unknowns and new threats. Fortunately, you can get ahead of the changes, the risks, and the competition with a few smart moves. Get serious about cybersecurity Cybersecurity can no longer be an afterthought of technology development. You need a comprehensive understanding of how threat actors exploit your vulnerabilities and the cybersecurity implications that new technologies pose. Strong cybersecurity comes down to effective risk management: The better you understand your risks, the more confidently you can develop new technology. If you do not have a formal cybersecurity risk management framework, you should develop one to help you systematically identify risks, categorize risk options, and guide policy and decision-making. You should also consider leveraging a cybersecurity maturity model to assess your cybersecurity program’s controls and operations against industry best practices. You can then identify gaps and create a detailed roadmap to increase the effectiveness of your program. This is not a compliance audit, but rather a comprehensive evaluation of your program’s maturity. Compliance audits often focus on a “yes” or “no” standard and do not account for how to best evolve your program given your specific strategic goals and market circumstances. Apply a disciplined approach to technology development Technology is often pushed into the market before it is fully vetted, with the hope that the market will help shape the technology’s development and that defects can be managed via updates and patches. This approach causes issues with cybersecurity. It’s one thing to patch a minor glitch in performance; it is quite another to race to patch a major vulnerability. This is why comprehensive and robust cybersecurity testing must be part of product development. You should not only test individual aspects of your technology (e.g., specific functions or sections of code) but also test the entire technology, with all elements integrated. Integrated testing often reveals vulnerabilities that individual, “siloed” testing does not surface. Pay particular attention to the open source code. Given the incredible amount of code that must be developed for new technology, open source code is a significant time saver; however, since this code is copied from the internet, it needs extra scrutiny. If your technology interacts with other systems, particularly legacy systems, you also need to test for unintended consequences and vulnerabilities when systems interact. Testing ends with the developed technology, but all of it must function in an integrated, digital ecosystem that must be tested as a whole. Use Big Data as a big stick Retailers are also harnessing the power of data science and emerging technologies through predictive cyber threat intelligence to protect against the new that risks big data and emerging technologies create. Predictive cyber threat intelligence is transforming the retail industry’s ability to gather, mine, and analyze vast amounts of cybersecurity threat information to protect against advanced persistent threats, fraud, and insider attacks. Analysts are using new technologies like Splunk to comb social media sites to ingest and analyze terabytes of cyber threat data. By combining big data, cloud computing technologies, and analysis tools, retailers can obtain additional fidelity into current cybersecurity operations and use insights to make risk-informed and data-driven decisions. Predictive cyber threat intelligence gives you insight into cyber threat actors—including their tactics, techniques and procedures—for proactive defense. This predictive cyber threat intelligence “big data warning system’ uses the power of big data to help reinforce your organization’s cybersecurity posture. Similar to the customer experience, retailers can be more predictive, adaptive, and personalized in their response to prospective threats. And similarly, as competitive pressures propel retailers to find creative ways to outmaneuver competition, emerging technologies and data science are new weapons in your arsenal.
  6. 6. Booz Allen Hamilton has been at the forefront of strategy and technology consulting for more than a century. The firm provides business and technology solutions to major corporations in the financial services, heath, energy, manufacturing, and other markets, leveraging capabilities and expertise developed during decades of helping US government clients solve their toughest problems. Booz Allen is headquartered in McLean, Virginia, employs more than 22,000 people, and had revenue of $5.84 billion for the 12 months ended March 31, 2014. To learn more, visit www.boozallen.com. (NYSE: BAH) IT’S ABOUT TRUST Imagine a scene: As customers enter a store, they pass electronic displays. Their faces are scanned and coupons appear on Google Glass. Reality blends seamlessly with the digital world. Customers browse product reviews and compare prices via real-time apps. Items are purchased from mobile devices with automatic delivery. Now imagine a cyber-criminal hacking into this customer experience. Within an instant, personal information is gone—credit card numbers, name, home address, date of birth, even smartphone-stored apps with unpurchased products. This scenario is not science fiction. This technology exists and is fundamentally reshaping the retail industry. Leading retailers are those who can effectively manage emerging technology and instill trust and confidence in consumers. Retailers have long invested in developing brand loyalty with consumers. With the convergence of emerging technologies, data science, and cybersecurity, trust is an even more critical part of your brand. Customers need to trust you to understand their particular needs. They need to trust that you can deliver on increasing demands for convenience, flexibility, and mobility. Most of all, they need to trust that their personal information is secure and will not be wrongfully used. The amount and kind of personal information retailers collect and analyze makes most people a little uncomfortable. Companies that build the trust in their systems, while leveraging the benefits of new innovations, will win market share. To learn how Booz Allen Hamilton can help your business thrive, contact: Booz Allen Hamilton Susan Maly Commercial Solutions Washington, DC Tel +1 703-377-6448 Maly_Susan@bah.com Boozallen.com/commercial Ian Bramson Commercial Solutions Denver, CO Tel +1 240-675-0840 Bramson_Ian@bah.com Boozallen.com/commercial Sedar Labarre Commercial Solutions Washington, DC Tel +1 301-452-4996 Labarre_Sedar@bah.com Boozallen.com/commercial

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