Eidtor's note: Andrew Fowkes, Head of Retail Centre of Excellence at SAS UK & Ireland, explores the factors driving some retailers to excel and others to fail in a complex environment A stark polarisation is now emerging between winners and losers on the high street. Companies that have focused on [...]
Success in the retail space boils down to one simple function: the conversion of sales. However, retailers can only do this if they have stock readily available. Missing a sales opportunity due to poor stock management just won’t cut it in today’s marketplace. How can we resolve this basic problem [...]
With today’s customers able to access rich sources of product and service information – especially pricing data – when they are mobile, retailers are being forced to innovate in the way they capture consumers’ attention. Unfortunately, attention spans are rapidly decreasing to just the few seconds that a user spends […]
Preparing for Christmas now may seem extreme to the everyday shopper – but that’s exactly what retailers are doing. Getting a head start will take the pain out of the busiest retail period of the year and deliver a degree of predictability in an otherwise unpredictable year. In the heat […]
Today’s retailers have access to vast stores of data that allow them to create the personalised retail experience that customers have come to expect. Used in the right way, analytics can be the key to bringing customers in through the door, building a better online experience, or simply helping weather slow periods by enabling faster, more efficient and nimble supply chain changes.
Interestingly, customer perceptions towards a brand can significantly change following Black Friday discounting and January sales. Pricing strategy can be confusing at the best of times. Given the option of £50 off on a high-value product compared to a 70 percent discount on a low value item: which is the better offer? Which deal do consumers trust, and why? More importantly, how does it impact the brand perception?
One thing’s for sure: brand loyalty and consumer trust are no longer guaranteed in today’s fast-changing retail environment. Retailers must find alternative ways to engage with consumers.
The dark art of forecasting
For years, retailers have collected customer data through loyalty cards, email marketing promotions, point-of-sales tills, as well as online browsing behaviour and purchase orders. What has changed over the years is the technology that allows retailers to analyse and understand data. The advent of technologies like Hadoop has enabled the development of advanced analytics solutions to produce more insightful and timely answers for retailers, which is of huge value during peak trading seasons.
Another interesting point here is that often the data collected spans the last three years of trading or more. This is traditionally used by store managers to forecast pricing and demand. Yet we know that outdated historical data, coupled with unpredictable external factors like weather conditions, regularly produce inaccurate forecasts.
As a result, retailers are still making predictions largely based on gut feel rather than objective insights. More often than not, they are also spontaneously reacting to competitors’ price cuts without carefully calculating their profits and loss potential.
Brands switch off
Another common retail pitfall is the effect of over marketing with a general blanket message. Unaware of the consequence of blasting out daily and sometimes twice-daily promotional emails in the hope of catching shoppers’ bargain hunting instincts, retailers are actually turning customers away. Consumers will easily unsubscribe from brands they previously loved, especially if they feel they are bombarded with irrelevant and unwanted product recommendations that only clog up their inboxes.
True personalisation demands an intimate understanding of the customer, and willingness from the individual to participate.
One of our retail customers has been using data analytics to deliver personalised product displays. These are highly targeted to improve conversion and avoid endless page scrolling. Instead of feeling like every other shopper each time a customer enters the site, they can now enjoy a genuinely personal engagement with the retailer. Behaviour is predicted and product recommendations are based on browsing, and a wealth of customer and transaction data.
With a more personalised customer experience, shoppers will be able to purchase products at the best price, while receiving the best in-store, online and post-sales service.
As retailers have better insights into customer behaviour and spending patterns, they will be able to personalise the experience and product recommendation. In turn, shoppers will feel they are receiving better deals and being looked after by the retailer. Some customers may also find themselves receiving extra benefits or upgrades through loyalty schemes, enhancing the overall experience with the brand.
SAS has worked for many years with dunnhumby, the power behind Tesco’s Clubcard. Today there is a need to market to customers across multiple channels. SAS has also worked with Callcredit Information Group, specialists in marketing services, analytics and data, to deliver a market leading omnichannel marketing and analytics service. This partnership has delivered a solution to ASDA. It provides an easy-to-use interface, with repeatable processes to enable organisations to deliver more campaigns – from simple to complex – in a shorter space of time.
Sail through the online retail revolution
On Black Friday alone, shoppers spent £1.1 billion with UK online retailers, setting a new internet retail record which underlines the online shopping revolution. The true impact of this year’s trading results are yet to be seen but one thing is certain – retailers can no longer rely on historical data alone to forecast pricing models or stock performance.
The cost for retailers can be drastic if they cannot accurately analyse the net profitability impact ahead of the peak trading period.
Big data enables retailers to more accurately forecast actual consumer demand, based on the very latest fashions and trends, as well as the timing and the likely location for that demand. For example, big data can be used as follows:
- Analyse the data and visualise the demand forecast on a specific product in a specific store on a specific time and day of the week. This enables the retailer to ensure they get specific stock to that location.
- Predict what else the customers might like to buy in the same transaction and personalise the product recommendations accordingly.
- Predict the behaviour of customers by channel. For example, how customers might move between online browsing and in store purchasing, or their preference for home deliveries or Click & Collect.
- Use demand insight to negotiate more effectively what the retailer buys from suppliers and when. Also, strategically plan for a more coherent and cheaper supply chain and transportation journey, allowing for external factors like extreme weather conditions.
- Understand which segment of the customer demographics are most valuable to the business and devise a more effective way to nurture their spending and relationship with the brand.
- Delight your customers by presenting them with product and brand recommendations which you already know they will want and like.
In principle, the knowledge of who wants what and when is an art form in retailing that is rooted in the golden era of advertising and knowing your customer. Retailers that have enhanced their skills in this area will continue to grow and prosper, which is why demand for data analytics technology will continue to grow over the coming years.
Find out more about how to make effective pricing decisions.
While 2015 was an unpredictable and often difficult year for many UK retailers, their customers have certainly prospered. The Christmas season, in particular, saw increased discounts for the fifth year in a row. This followed a period when changing weather patterns and price deflation had already offset predicted sales, both in-store and […]
Once upon a time, the festive countdown began when towns and cities switched on their Christmas lights. We all sat at home, eagerly waiting for Christmas adverts to debut. Retailers could plan based on the number of weekends left until Christmas. But last year, all that changed – the Black Friday phenomenon arrived in the UK and totally changed the way we shop for Christmas.
This year, Black Friday week is expected to be more popular than the week before Christmas for festive shopping. One in five British shoppers plan to go bargain hunting, with 25- to 29-years-old being the most likely group to shop during that week according to our research. Younger age groups are notoriously difficult to predict as they are the most likely to compare prices online and are more open to purchases via different channels, including mobile. It’s putting retailers on the spot as so much of their revenue will be determined by a single day’s trading. Amazon and Argos have even started their Black Friday sales three weeks early to bring some order to proceedings!
But, retailers be warned. Brits may love a good price - three in four (75 per cent) of us are primarily motivated by price and half of us (51 per cent) are motivated by getting a bargain. But just under half of us (46 per cent) by the product being in stock. Even if retailers tick all the boxes to win over consumers, long queues are one sure way to lose sales. Consumer tolerance for bargain hunting is limited to one-minute for each one per cent discount when waiting for a store to open. This ‘patience ratio’ drops to about 40 seconds for each per cent discount at the checkout.
It all means retailers are facing the most unpredictable Christmas shopping period yet. Black Friday has changed market dynamics from a fulfilment and a predictability perspective, and for many retailers it’s set to be the busiest trading day this year. Price wars are extremely difficult to forecast and cater for when squeezed into a shorter timeframe. If retailers don’t attract enough customers they lose out, but if they can’t deliver on what they promise they also lose out. It’s a difficult balancing act. And it doesn’t end there. The channel used must be evaluated – John Lewis announced earlier this year that it would now be charging for its ‘Click & Collect’ service as it was costing them too much to deliver it free of charge. Regional variations and weather patterns complicate the picture too.
Analytics can spare retailers a nerve-jangling finger-in-the-air experience this Christmas. By extracting insights from data in marketing, merchandising, supply chain, operations and more, it gives them the ability to make evidence-based decisions as to what is driving demand for which customers, when and via what channel based on their habits and preferences. Only then can they make sensible decisions about pricing, stock levels and optimising their resources and supply chain.
It’s intriguing to see what happens next and who the winners and losers are. Some US retailers, such as REI, have even pledged to remain closed on Black Friday this year – basically removing themselves from the game. One factor is that it’s a holiday period in the US, being the Friday after Thanksgiving, so there’s some feeling it should be a quiet time with friends and family rather than a time for frantic shopping.
To find out more about UK consumer spending habits this Christmas, check out the key findings from our 2015 SAS Christmas Shopper Survey.
Retailers facing most unpredictable Christmas ever was published on Customer Analytics.
In the past, the supermarket wars were fought on location and floor space. The biggest supermarkets had the most space in the best locations. Today it’s very different as battles are won and lost on price, loyalty and maintaining profit margins.
The price of milk rose to the top of the headlines recently, with some supermarkets reportedly lowering their price to the detriment of their suppliers. Politics aside, the reason supermarkets are tempted to lower prices is to attract and keep customers. If the milk is a good price, what else might a customer buy during the same shopping trip?
The rise of discount stores is seemingly a sign that customers prioritise price over range. Aldi, for example, has roughly 3,000 different products in its stores, significantly less than its UK competitors that can have around seven to 10 times more. But the milk debate and subsequent consumer commentary revealed that though customers have been voting for discounts with their pennies, their heads tell them that they wouldn’t really mind paying more. It’s about perceived price and value, rather than actual price.
This is no small issue. Earlier this year it was reported that the ‘entire structure’ of the supermarket landscape has changed because of the price war. Discount supermarkets are picking up more and more market share - Aldi now has 5.6 per cent, Lidl 4.1 per cent (a combined 9.6 per cent), pushing Waitrose down to seventh place with 5.1 per cent. This leaves a conundrum for non-discount supermarkets in which price must remain a priority, but where loyalty and range are also factors.
New games, new rules
Today’s battlegrounds are knowledge of customer preferences and behaviours and creating and keeping loyalty. The supermarket that knows its customers best can create a price point and a range that best suits them. That could even be at the hyper-local level too as high street space is at a premium and therefore must be used wisely.
At what cost? The major focus for traditional grocers has to be the ‘cost to sell’. The discounters are celebrated for their lean low cost structure, which from my vantage point is a world away from the likes of Tesco, Sainsbury’s and Morrisons. New inventive ways to retain market share are actually increasing the cost of doing business – e.g. Click & Collect. In fact, John Lewis announced recently it was now charging for this service.
Insights from real-time analysis can lead to better decisions on range. Knowing what your customers want can provide lots of useful insights for purchasing managers to decide which products to stock and at which store location, and most importantly, factoring in visibility over cost of sales and ensuring a focus on remaining profitable.
The traditional ‘points means prizes’ approach is no longer sufficient to retain customer loyalty. Instead, ask yourself this: what can you do to give them greater control over how they are rewarded; what are their shopping pain points and how can you evolve your business model to will keep them coming back for more?
Supermarket wars are no longer simply about location, floor space, or even price. It’s now data-driven and loyalty-focused, and the battles are being waged with customer knowledge and analytics.
To find out more, we worked with Northwestern University's Kellogg School of Management to explore what drives consumer loyalty. The results and recommendations are summarised in Shopper Insights to Improve Retail Loyalty Programs - download the report to learn more about what matters most to consumers with respect to loyalty, views about retail industry role models with respect to loyalty, and more.
Supermarket wars: now data-driven, loyalty-focused was published on Customer Analytics.
Black Friday might seem like a long time ago now, but the impact of this new phenomenon in the UK still ripples. Retailers such as Dixons Carphone embraced the shopping day and once the results were tallied, that turned out to be a good move. The retailer attributes the success to careful planning around promotions and supply chain in anticipation of Black Friday, which contrasts with press reports of other retailers not faring so well for the opposite reason - a lack of planning.
With all indications showing that Black Friday is in the UK to stay, it puts the pressure on for retailers to improve their planning. And considering the complexity of today's operating environment, effective planning means being able to balance multiple constraints and business goals simultaneously to consistently get the best result.
That process begins with better demand forecasting and builds from there into sensible decisions about how much of each product to have in stock and on the shelves.
The so-called ‘casualties’ of the UK’s Black Friday will need to be planning at a much more granular level. When it comes to the detail, it’s the unpredictability of the season that is proving a challenge. For example, Argos Chief Executive John Walden talks about being more strategic about what is put on sale - "balancing the things that make money versus the things that may not."
For me, this all points towards success being based on real knowledge and data. Crucially, knowing the difference between simple planning based on what happened the year before and much more accurate forecasting based on solid insights as to what will actually happen this year. Accurate forecasting based on solid insights is the difference between hindsight and the insight and foresight made possible from analytics.
This by no means applies exclusively to Black Friday. Retailers will be planning for the next big event, whether Valentine’s Day, Easter or Mother’s Day – but ask yourself and your colleagues what foresight does your organisation have? Our recent research with retail analysts Conlumino suggests nearly half of all retailers in the UK are still relying on gut instinct - certainly not the best approach.
A better way is to use historical data and current trading conditions to properly plan for future events. For even more details about the difference that analytics makes in retail, I encourage you to download this recent SAS report, EKN Report: 3rd Annual Analytics in Retail Study.
Retailers are always trying to get closer to customers. But it’s not just about improving service to those customers – it’s about understand more about what products they are demanding so as to make better forecasting decisions around, for example, how much of a particular item is needed in stock.
As this video reminded me, knowing your customers really well means you can easily know what products they will want, when and how, perhaps better than they do. Today, that knowledge is gleaned from a complex assessment of lots of online and offline data which contributes to every single buying decision by your customers.
The online element means it’s not just about attracting customers into the store. Visiting New York for the annual retail conference NRF a few weeks ago, I thought about how the value of retail space has changed. Retail giants that have been there for years, as well as the new retailers on the block, are continuing to transform the experience in-store to stay ahead of customer demand. We are enticed in-store with Wi-Fi, coffee, beer, or live DJs. But this only gets a retailer so far if they cannot capture key data about customers coming in to their stores.
The main problem, however, is not one of getting hold of data; it’s being able to forecast using that data.
We recently conducted the 3rd Annual Analytics in Retail Study, which reports that 71 per cent of retailers performed either basic or no reporting at all when it came to forecasting customer trends. Whilst a large proportion had the ability to gather data, and many were doing so, there is a clear gap in ability to analyse this data to inform business strategy. There are many possible reasons for this; a lack of in-house skills, and/or a lack of awareness of available technology that is more accessible.
At NRF it seemed clear to me that most retailers are continuing to find forecasting a problem, as they are also struggling against the volatility of promotions on stock and the lack of good data around non-traditional channels. As the view of the high street continues to change, shifting that ability to forecast for future buying trends will be the next frontier for retailers in 2015.
More and more retailers are looking at ways of capturing customer data in-store. Apple CEO Tim Cook recently declared 2015 to be the year of Apple Pay, which already makes up more than $2 out of $3 spent on purchases using contactless payment across the three major US card networks. We heard at NRF that this will be a focus for some of the UK's largest retailers. It provides an excellent opportunity to engage customers and enable them to pre-order items. Applying analytics to this data should help develop deeper customer relationships, and more personalised offers and prices. Crucially it also offers insight into customer demand so retailers can make better forecasting decisions.
You may also be interested in my colleague Alison Bolen’s take on the three big trends to come out of NRF this year. Read more about those here. In the meantime, let me know what you think. And thank you for following!