"Prices will be determined by algorithms in the future"

"Prices will be determined by algorithms in the future"

DusseldorfTrade in Germany will change fundamentally after the presentation of the German heads of Vodafone and Metro. "We are in the process of digitizing every point of contact with our customers," says Metro Germany boss Thomas Storck. "Looking to the future, prices are likely to be largely determined by algorithms."

In order to accelerate digitization, Metro has supplied its 103 wholesale stores in Germany with high-speed fiber-optic connections from telecommunications company Vodafone. "Infrastructure initiates innovations," says Vodafone Germany boss Hannes Ametsreiter.

In addition, Vodafone prepare further solutions. "We are currently testing product shelves with sensors, cameras and monitors," says Ametsreiter. They should monitor the product inventory and make offers tailored to the customers. The shelves in Germany will be used next year.

Read the full interview below:

Mr. Ametsreiter, how do you want to shop in ten years?
Ametsreiter: I will not go shopping for half of my shopping time. Because trivial consumer goods come to my home via a self-learning system. The other half I want to spend with buying experience. In markets that inspire me. In which I can feel, smell, taste. And that are simultaneously digitalized. With matching menu suggestions at the entrance on the smartphone, which shows me the way to the right shelf to the ingredients. I would like to visit by hologram the regional organic farm where my meat comes from. And above all, I do not want queues at the box office, with people counting money in front of me. What I take off the shelf is registered. I walk through the check-out and pay virtually.

Mr. Storck, the new supermarket Amazon Go in Seattle is already quite close to the wish of Mr. Ametsreiter. You can go to the store, take the desired products – and go. No queues, no cash registers, registration alone on the smartphone. Why is Germany lagging so far behind?
Storck: I do not think that Germany is lagging behind. The first facility for self-scanning the goods was at Metro Germany ten years ago. At that time we were just too early. Now we are reintroducing these solutions tailored to the needs of our professional customers.

But scanning is also from yesterday. At Amazon Go, an intelligent system tracks every movement of the customer and identifies which products to put in the shopping basket.
Storck: Nobody disputes that Amazon is far ahead. But we are also in the process of digitizing every point of contact with our customers.

As the?
Storck: With different approaches on all our distribution channels: in the store, mobile via our delivery and customer manager fleet, but also online. Our customers are tradesmen – they buy differently. They maintain order lists and usually have fixed shopping carts. In the future, they will be able to manage their order lists on their mobile devices and use them for self-scanning to make their purchases as fast and efficient as possible. In addition, goods availability tests will be available on the shelf. We also experiment with smart shelves that control inventories and automate reorder – and customers can be notified via push message when goods are available again or with product info. Our price tags on the shelf have been electronically controlled for several years now. Looking to the future, prices are likely to be largely determined by algorithms.

How does the algorithm decide?
Storck: When customers buy larger quantities, they get a better price today. The algorithms will help us to make the cut to customers even more precise, with individual offers that we use to the customer via an app. In addition to the IT environment, this requires above all very good customer intelligence systems (CI) with customer-group-specific trend analyzes. We expanded both of these a few years ago and set up our own CI area.

Will you also customize the price tags in the store in real time?
Storck: Still we change the prices rather in the weekly cycle. Next steps are certainly going to do this a little more often, but a daily change is not always useful. In the ultra-fresh sector, such as fish and meat, there are already daily price updates.

If a fish has to go out, will it be cheaper?
Storck: Exactly. Most of the specialist staff has this in mind. At the same time, analyzes based on algorithms are also running through our databases. On the basis of the purchase price, the usual price development and the sales forecasts as well as the sales times, these companies then calculate the optimal, even customer-specific price in the future. Bulk buyers often order similar products. On the basis of this data, we can in the future make individual special offers that match the preferences of the customer. This will increase our capacity utilization and thus reduce costs.

Will we see algorithmically driven prices at all dealers in the future?
Storck: Yes, I think that will apply to everyone.

Mr. Ametsreiter, telecommunications providers have been little innovative lately. That would be your chance now. So far, however, little is heard of Vodafone.
Ametsreiter: You will hear more in the future. For one thing, we are currently building more in-house software expertise. On the other hand, we are increasingly cooperating with external programming experts, combining the best of both worlds. Infrastructure initiates innovations. We can see that by connecting 103 metro markets with fiber optics here. But we also see that in many pilot projects that we currently have with retailers.

For example?
Ametsreiter: We are currently testing product shelves with sensors, cameras and monitors, like Amazon in the USA. The cameras monitor which products are removed and inform the warehouse as soon as supplies run low. At the same time, the shelves recognize whether a man or a woman is standing in front of them and can accordingly display advertising for products. The shelves are expected to be sold to retailers in 2019.

Mr. Storck, how much money will Metro spend on digitizing markets in the next ten years?
Storck: The digitization of our processes and services as well as digital solutions for our customers are an important element of our strategic orientation. Accordingly, we will invest.

Mr. Ametsreiter, your entire industry is facing major challenges. The basis for the fast internet of the future should be fiber optics. But with the house connections Germany hangs back in Europe. Why?
Ametsreiter: Because Germany has rested on its copper vein for far too long.

Do not too few customers book really fast lines?
Ametsreiter: No, 70 percent of our customers book speeds of 200 megabits per second and faster. We have learned that if we offer extremely fast connections, they are also bought.
Storck: Low bandwidths are a huge problem. Only now, thanks to fiber, we can change our product analysis and control to real-time. Even a restaurateur has a problem when 40 customers go to the Internet at the same time.

Why does Vodafone offer bridging techniques like Super Vectoring that tickle some more power out of old copper cables? You have criticized the Telekom for it, now you do it too.
Ametsreiter: With the planned takeover of Unitymedia we want Germany-wide gigabitschnells Internet on fiber optic cable basis. But not all households have a cable connection. Since then we are relying on Super Vectoring.

Why do not you invest much more in the fiber optic network? Deutsche Telekom has laid some 500,000 kilometers of optical fiber, you have significantly less.
Ametsreiter: We are at 400,000 kilometers, so in a similar dimension. But does it matter to the length? Or on what matters to the customer? The said 500,000-kilometer network delivers at the end of the customer only 100 to a maximum of 250 megabits. With us there are 500, in first cities already 1 Gigabit.

However, you now expect glass fiber and TV cable together. The telecom counts real fiber.
Ametsreiter: … and that is so long, because it has brought fiber optics to the cable distributor, from which then only a slow copper cable leads to the customer. Our glass fiber content in the cable network is around 100,000 kilometers, and the trend is rising. But let's face it: Customers are not interested in kilometers in the cable, but Megabit, Gigabit from the tin. And who brings more, is obvious. The Telekom comes with such speed not in the homes of people.

But you are not.
Ametsreiter: With cable very well. In addition, we invest in fiber optics and the expansion of the fast Internet based on the fiber-optic cable. If we are allowed to take over Unitymedia, we want to supply two thirds of German households with an Internet speed of one gigabit per second by 2021.

There is a lot of talk about the future mobile standard 5G. Do you also see new applications for retail via real-time mobile?
Ametsreiter: What I described in the beginning as a vision can and will make 5G possible: the supermarket, the logistics of the future. The huge amounts of data that are created not only in data centers, but in markets with their highly networked shelves, products and payment systems, must be transferred. Real time. And 5G is exactly the right technology for that.

Can your network do what it promises? In the last landline test Vodafone has cut off as the worst provider.
Ametsreiter: Read the test carefully. He actually says something else. But unfortunately there was also the following: At the time of the test, an update of our modems was carried out.

That's a weak excuse. You know when it's being tested.
Ametsreiter: No, we did not know that. But if we want to go into the test specifically: The simultaneous download and upload, we were worse by the modem bug than usual, we have to do better next time. But when comparing vendors to the promised download speed, we were the only ones who could keep their promise of speed at their best. Incidentally, this is also confirmed by the tests of the Federal Network Agency.

They only speak from "up to". Do not you want to make a promise here and now that customers really get a gigabit per second?
Ametsreiter: Like mobile radio, cable is a "shared medium". The maximum speed here always depends on how many people in a segment simultaneously use how much. Likewise, end devices can affect speed. With our latest rates, customers can surf with up to a gigabit. And thus up to four times faster than with the best possible super vectoring speed. And twice as cheap as any Gigabit fiber in the country. In the lab cable can already 10 gigabit, in the upload, as in the download. There comes in terms of price / performance certainly no more.

Mr. Storck, is this statement enough for you?
Storck: For us, the result, that is, what arrives at our sites, is important and that's right so far.

Do you assume that there will be a killer application that will soon require massively faster internet?
Ametsreiter: No. We have to say goodbye to the idea of ​​a single killer application. We do not need them either. Because there will be many applications that require significantly more bandwidth. And they will cause us to need faster internet. We will have more and more devices accessing the Internet at the same time, such as the coffee machine, the refrigerator, but also bicycles and cars. With fast infrastructure we only prepare the ground, we sow the seed for innovations that are not yet imaginable. It will always be like that and has always been like that. Would you have thought with your Wap phone 18 years ago what you can do with it in the future?

Mr. Ametsreiter, Mr. Storck, what are you both going to do concretely in the next few years to make the trade really digital?
Ametsreiter: We will build ever faster nets – in the ground as in the air. We will work with software experts who come up with solutions for the ever-growing Internet of Things with us. And we will look for partners with whom we can realize them together.
Storck: Develop solutions that enable our customers a cross-channel purchasing tailored to individual needs. Making our own processes more efficient with digital and mobile applications and helping our customers to digitalize their operations. A nationwide fiber optic connection is an important step for us – and we look forward to further innovative projects with Vodafone.

Mr. Ametsreiter, Mr. Storck, thank you very much for the interview.

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