STRATEGIC PARTNERS
How is money made, or even measured, on a kiosk project? Return on investment (ROI) remains a murky calculation.
March 26, 2002
Just how do you calculate a return on investment (ROI) for a kiosk project?
"It's a touchy subject," said Rufus Connell, analyst and industry manager at Frost & Sullivan. "The problem is, if you look at the kiosk marketplace it can really be anything.
"Right now, unless you have a direct way for a kiosk to make a lot of sales, it's going to be hard to make a serious positive ROI. In many cases, for instance, if a kiosk is done right it can improve customer service, but that's more a qualitative than quantitative analysis. And if a kiosk is designed basically as a brochure, like Mercedes Benz was, it's never going to show how much it actually sells."
The nature of an ROI formula includes generalities that often leave its calculations open to criticism and debate.
"It's important to remember that almost all ROI analyses have some degree of assigning various costs of revenues to benefits. There are a lot of intangibles involved. Depending on how you weigh those and assign those, you generally wind up creating a perfectly imperfect model," Connell said.
Bad news? Not really.
While ROI may remain an elusive prey, the safari keeps growing.
Borders Bookstores, Yahoo! and Wal-Mart, among many others, have deployed kiosks in great measure. And Eastman Kodak may have bagged the elusive critter.
Kodak gets the picture
If any business has managed to create a positive ROI, it's Kodak. It has sold or leased more than 30,000 of its highly popular Picture Maker kiosks and plans on deploying 38,000 more soon.
At London's Interactive Kiosk Conference this May, Nat Yogachandra, Kodak's worldwide business development director, presented numbers that suggest a downright lucrative ROI (see "Interactive conference makes good first impression").
"At a rate of six prints per day, the average store gets its money back in six months," Yogachandra said of the kiosks, which cost $19,995 each, including installation.
Picture Maker growth--only 848 of them were in use less than seven years ago--screams profit.
In an April 2001 KIOSKmarketplace article, Kodak's worldwide marketing manager, Megan McGinn, said that retailers lease most Picture Makers over three years (see "Picture This").
"The revenue for both Kodak and the retailer is from the media that goes through the equipment," McGinn said. "To break even on your lease investment, you have to do three and a half print sheets a day. The average retailer is doing ten."
Her calculations were based on large 28-inch-by-10-inch Picture Maker print sheets. These sheets can print nine wallet size photos, three 8-inch-by-10-inch photos, and combinations in between.
Wal-Mart, with 2,300 stores in the United States and one photo kiosk in each store, averages 25 prints per day per store, with an average retail transaction price of $6.48 each. Kinkos, Wolf Cameras, and Wegmans, the "super" supermarket chain known for customer service, also show numbers well above the break-even point.
"The Picture Maker is sort of the flagship of the kiosk industry, or at least the most touted as having a clearly defined positive ROI," Connell said. "For one, if they sell one of the units, their profit's already built into that to a certain extent. It's just financing at that point. When you get to the Picture Maker, where every sale is probably an incremental sale to the store or you've leased it for three years and here are the costs, it's pretty tangible.
Famous Players is developing
Another company to watch for positive ROI is Viacom-owned Famous Players, the largest chain of movie theaters in Canada. Famous Players has installed a great number of kiosks for selling tickets in theaters, Connell said. Its ROI might be trickier to calculate than Kodak's, however.
"For instance, you've got a kiosk and specific numbers on how much the kiosk costs per hour it runs," Connell said. "So you can weigh that against a cashier. You pay the cashier minimum wage, so looking at that it may not make much sense to use a kiosk. But then you have to look at the fact that the cashier is likely some high school kid who may only work there two weeks, and then you've got training costs to consider. So you have to think of how much of the training cost you apply to make that ROI work."
Testing, one-two-three
Other industries are deploying kiosks whose benefits are harder to calculate, but the point is that they're moving forward.
"A big reason why many customers today are out doing pilot programs is because they're skeptical that there isn't enough data yet to have an accurate ROI," said Bob Ventresca, director of marketing for kiosk software maker Netkey. "But that's not a knock against the industry. It's just a fact that every customer has a different idea of what their kiosk objective is."
Ventresca saw this as a natural stage in kiosk industry development.
"From my perspective, it's a pretty standard maturity cycle for any new technology or new component," he said. "Early adopters come on board while people are still trying to understand the value of the technology and they drive it forward. You need industry leaders to move forward and make it work."
Borders, Fidelity Investment, and Yahoo! are among the companies moving forward.
Not just cash
"Certainly an ROI depends on the customer. They're driven by different needs," said Ventresca. "Some are focused on maintaining and building brand presence. For example, Yahoo! is a virtual company that wants a physical presence. They use their kiosks as a branding element and a service as well. So for them, they're not looking so much for a revenue-driven ROI, but a marketing or branding ROI that ultimately leads to customer loyalty, and, obviously, additional branding opportunities down the road."
Borders, on the other hand, has its kiosks stationed inside its bookstores-with customer service a key reason for the deployment, Ventresca said.
"Our feedback says that the Borders folks are thrilled with their kiosks. "They went from pilot to a 5,000 rollout," he said.
At Borders customers use kiosks to check if titles are in stock and to make special orders. The numbers, Ventresca said, show that customers are using them extensively and finding them valuable. But customer service is an intangible. Calculating just how many more special orders are the result of kiosk use is a fuzzy proposition. So is assigning the savings in freeing up employees to do other things than look up titles. Are there hard numbers, then, for an ROI here?
"That's tougher," Ventresca said. "But from a market perspective, if they did not feel they were getting value from these units, they wouldn't be putting more out there. So they're clearly seeing value from a whole lot of different levels."
It's intangible
Connell would agree. Intangibles such as improved customer service and branding must be considered in addition to trying to calculate an accurate ROI based on sales.
"I think an ROI is important to look at when you're considering a kiosk concept," he said, "but it certainly can't be the only metric. And some of the most important things to look at are going to be what benefit it has for the user and if it improves their general experience. It's customer service to a great extent."
Connell said that another good example of a vague return is a wedding gift registry kiosk. "Every dollar someone spends, do you associate that with the kiosk?" It's also hard to show a positive ROI for other vertical market kiosks such as those used in travel and tourism.
"Most kiosk programs I've seen tend to be cost centers where there's an expenditure but they don't have revenues directly associated with it," he said. "For instance, a ticket kiosk at Alaska Air might make me more likely to go back to them next flight than stand in line for an hour at Southwest, so you might get return sales as a result. But how you measure customer loyalty in dollars and cents is tricky."
Tricky and intangible, that is, unless you're Kodak.
"Kodak is definitely at the other end of the ROI spectrum. Its kiosk has a very definite revenue, costs are very clearly defined in terms of floor space, expendables, and support, and I've also heard that the Picture Maker in Wal-Mart stores is the most profitable square footage in the store," Connell said.
Toward accuracy
Ventresca said that the pioneer companies finding their way as they go will eventually bring about more accurate ROI measurements.
"What I don't think has happened yet in the industry is that we've been able to come up with numbers that say kiosk X is going to increase sales by Y amount over the course of a year," he said. "And that's part of the evolution of this industry as we go forward. We'll be able to capture those numbers and build those types of ROI models.
"It's hard to firm up all the data points required to fully justify and fully explain at a business level the value of an Internet kiosk, for instance, at this point. But I think more and more workable ROI formulas will happen real soon."
As more and more companies expand and hone their kiosk strategies, more data identifying what's behind successful deployments is becoming available.
"We can begin to identify the components," Ventresca said. "I'm not so sure that was the case two years ago. But we've reached the point now where it can happen quickly because a lot of organizations are at the point where they want to make it happen quickly."
Will there ever be a one-size-fits-all ROI formula for the kiosk marketplace? Not likely, Ventresca said. Not when you consider the wide variety of industries that make use of kiosks in myriad ways.
But is the value of kiosks becoming less and less a subject of debate? The ongoing growth and popularity of the kiosk marketplace suggests the answer is an emphatic yes.
