Through a special arrangement, what follows is an excerpt of a current article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
The amount of information available to retail about customers and products has been growing steadily (some would say explosively) over the last decade. But I think that 2013 will be the year when the remaining gaps in customer understanding will be closed by leading retailers, setting the bar for followers in years to come.
Will retailers be able to turn all of that information into useful insights? I see three main opportunities for retailers to transform their enterprises in 2013 based on new ways of measuring their operations:
Customer insights into merchandising via social media: Retailers can now look back at historical social media interactions with customers and trace correlations through to product purchase. That means that 2013 may well be the year that leading retailers turn to social media, not for its customer service or promotional opportunities, but for its predictive potential. How many product "likes" does it take to move the needle on customer demand? How do customer reviews — positive or negative — impact product sales over time? Can customer sentiment be used to predict store traffic, ad campaigns, or product assortment?
Hidden demand in the supply chain: Not only is flexible inventory fulfillment changing the game, it is demonstrating that the demand mismatch problem is costing retailers way more in lost sales than they suspect even in their wildest dreams. Some of the initial work that RSR did in estimating the value of lost sales — of capturing those lost sales through inventory flexibility — underscores that just leveraging store inventory to fill online out of stocks can generate massive sales numbers. Think about what retailers could do if they could capture the same kind of demand that is going unmet in stores where, for some retailers, more than 90 percent of transactions still occur.
No more store black box: What retailers really need is the store equivalent of online analytics, and some will get it in 2013 whether through video analytics or some kind of mobile phone tracking technology. Having this kind of information will be game-changing. Retailers have long-held assumptions about the role of store associates, about traffic, about conversion rates, and all of these assumptions will now be able to be questioned, examined, and proven right or wrong, thanks to store tracking technologies. At a time when the store is on the ropes, retailers are in a position where they might be far more open to examining their long-held assumptions about stores — a perfect storm of opportunity.
There are so many questions that should be asked and answered by these new data sources, far beyond "How many fans do I have on Facebook?", but if no one asks the right questions, no one will get the game-changing answers.
BrainTrust
Discussion Questions
What notable advances do you suspect retailers will make in 2013 around harnessing data around customers and inventory flow? What is still a few years away?
Poll
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There is a flood of data available to retailers: POS, social media, credit card, coupon usage…the list goes on. The question is whether retailers believe that the data is valuable enough to divert cash resources towards gathering and analyzing it. The majority of retailers would answer that question, “No”.
Those retailers who devote the time and resources to gathering and analyzing data will find a dizzying array of information. From consumer opinions to actions, data exists.
Data can be used to track sales, preferences, engage consumers in meaningful dialogue and up-sell. It takes time and, most of all, money.
Notable advances or ‘outcomes’ is the key word here.
Outcomes have degrees of difficulty depending on where they sit on the value chain, and that drives the implementation model. Let’s look at two outcomes: Easy/Profitable and Hard/Profitable.
Easy/Profitable – If through harnessing data I discover that a certain micro-audience is engaging with me and can be directly targeted via Facebook advertising (say they Liked a brand or are fans of a lifestyle), that’s easy — it’s digital. Digital outcomes (aka manipulating words and bits) are the lowest hanging fruit.
Hard(er)/Profitable – Let’s say that by harnessing social conversational data (online reviews or other versions of big data) we discover that there is a particular aspect of engagement that is driving negative sentiment: simply put, people are saying that they ‘hate’ something about your brand. And let’s say that hatred is derived from some complexity in buying or using the things you sell. This scenario may lead you to consider improved informational services. An easier outcome would be the production of training videos or FAQ’s; a more difficult outcome is the implementation of Apple-like ‘Genius’ Services.
Hard/profitable – If the outcome is a new partnership or changes in format, you get the drift.
So what will be the notable advances? I would say it would be a big win for retailers if they can nail something in each of the quadrants above. Each of these have a different ideation, prototyping and execution models.
Insights are great (you’ll have more than you can deal with once you study customers beyond quant) but execution is everything. Execution means choice and choice is a process. Our challenge will be mastering this sequence, and doing that will be a notable advance. That may seem boring, but we are still in a boring process-driven low margin business; the focus has just changed from the supply side to the demand side. Our execution know-how is a huge untapped cultural advantage.
There is such a deluge of data that the industry has responded with a buzz word – “Big Data.” Data is ubiquitous and cheap. However, what is not ubiquitous is the ability to synthesize large amounts of data into actionable intelligence and true information. Advances in retail, and other industries for that matter, are going to be made by organizations that embrace innovative, advanced analytics and are able to action the intelligence derived from data. Retailers that do not embrace what analytics can do for them will go the way of Blockbuster when confronted by game changers like Netflix.
There is a reason that statisticians and data scientists are considered the sexy jobs of the next decade; they can transform organizations and drive higher profits. They are particularly needed in the low margin retail space. 2013 will see a continuation of that trend. More organizations will have a deeper adoption of analytics and organizations resistant to change and analytics will continue to falter. More specifically, I think 2013 will see more organizations embracing marketing attribution analysis to determine how to better spend their marketing dollars across demand generating channels.
There still are no programs that enable customers to participate in the management of their “accounts” with retailers. They’re never asked in a consistent, ongoing way, “How do you want to be treated?” “What do you want?” “What should your shopping profile be?” “Here’s how we see you – what changes would you make?”
Instead, we manage customer relationships strictly on their purchase behavior in our store. The problem with that is cross-shopping. Customers shop elsewhere, too, and we have no idea what they’re buying “over there.”
In 2013 I’d like to see customer self-management added to the mix of measured retail.
The key “loop” we see retailers wanting to close is connecting customer data and sales. There’s a lot of data around inventory and “units” but we expect that the most significant advances will include the ability to tie sales transactions to actual (addressable) customers.
Before a client meeting, I asked the CEO of a multi-billion retail company how business was. He replied, “our comps are down two [%]…I think it’s [demographic segment] of customers.” The key reveal here is that he was speculating and had no definitive insight into which segment of customers was driving the sales decline.
Unless or until retailers can identify, address and track a majority of their customers, they’ll never be able to answer such fundamental questions.
We are seeing retailers invest in CRM and loyalty technology which will not only provide insights such as these, but also provide answers to even better, more actionable questions that will meaningfully grow their businesses.
One of the drawbacks of the internet is the ability of individuals and/or marketing types to create an army of identifications all over the world. This fact by itself greatly dilutes reliability test methods used to validate sample opinions and inquiries from the internet consumer base. Any attempt to prevent this with preselected participants carries with it the inherent questions of quality and abuse by pollsters since web participants can also be created many times by a single person.
Actual sales data with regards to product and vendor performance is abundant and very accurate. Inventory details in close to real time availability are saving companies using the information millions of overhead and warehouse dollars by greatly reducing the need to guesstimate new order and especially reorder needs. Social media is far from ready to provide accurate information so long as one person can initiate any number of likes or dislikes from as many locations as needed to sway results. Reliability is and always will be the most important factor weighing in support of any information used to justify a spend or investment decision. For now the most reliable information we have from the NET is about actual sales results.
The challenge for retailers is the prioritization of resources to analyze the data and drive to actionable insight and then execute on the insights. Once retailers can get a holistic data-to-execution plan together, then they can create a competitive advantage.