Make sense of business intelligence
Published: August 19, 2005
This article was previously published in Retailspeak magazine.
Estimating demand and supply, avoiding out-of-stock scenarios, adopting targeted marketing strategies—retailers have a lot to think about in their efforts to optimize store performance.
In the past, management decisions were often made on the basis of a store manager's instinct. But with the advent of business intelligence and decision support systems, retailers can make more timely and informed judgments than ever before.
Over the last few years, more and more retailers have adopted technology that supports analysis into areas such as merchandising decisions, store operations, marketing strategies, and supply chain management. With integrated business intelligence solutions, retailers can react quickly to market changes and predict trends so they can better equip themselves for future events.
Boosting performance across the store
Without good business intelligence, retailers lack the ability to determine demand for a product. This is a big challenge and one that can be addressed by a range of information gathering tools.
If retailers estimate their lost sales—the number of products that could have been sold if an out-of-stock did not occur—they can tailor their strategies for future lines.
Brian Hume, managing director, Martec International, says, "If you improve your in-stock levels by one percent, like-for-like sales increase by half a percent. So the incentive is definitely there for retailers to make every effort to ensure that they have the products in store that their customers want."
"It's also important to remember that lost sales average around six percent of sales, which obviously has a direct impact on profit levels," Hume says.
A number of stores already have a classic data warehouse, which provides them with daily sales and stock data. This means they can make a historical estimate of demand, which is a big win for any retailer. Retail chains, for example, can use the information they collect to look at the sales of a particular product across its stores. If a product is moving well in some stores and poorly in others, the retail chain can apply a price markdown in the low performance stores or move the product to a store where there is greater demand.
As well as helping retailers make better buying and merchandising decisions, access to business intelligence can help them decide on issues such as store layout. For example, by understanding how product affinities work and applying the rules of suggestive selling, retailers can place low-selling products next to a related product that definitely sells to increase their conversion rates and optimize sales. Retailers can also reduce labor costs by ensuring that more employees are on the floor during busy times and less during quiet periods.
Business intelligence technology can also help retailers see what kind of promotions work best. For example, retailers can determine not just whether sales increased and whether a profit was made, but whether more profit could have been made. "Retailers need to see whether a customer would have bought a product (that was on promotion) at the full price and, consequently, whether the promotion was worthwhile," Hume says.
"In the past, retailers used their judgment and played the averages," Hume adds. "But we're beginning to understand now that you can't average retail. If you do, you're failing to exploit your successes and address your weaknesses."
Improving the customer experience
With supporting technology such as customer relationship management (CRM) solutions, retailers can gain valuable insights into their customer needs and target their marketing strategies.
"Existing and emerging business intelligence technologies help retailers in their drive to become more customer-centric," Hume says. "With detailed analysis, for example, retailers can form customer profiles and plan their ranges accordingly."
"It's not just about targeting your products in line with the catchment area of your store," Hume adds. "It's about understanding how that catchment area breaks down. With today's business intelligence solutions, retailers can gain deeper insights into specific types of customers and their buying preferences, and, as a result, create a smarter in-store experience."
Michel De Beer, managing director, Adea Solutions, Europe, says, "It's getting to the stage now where retailers can offer their customers real-time alerts and promotions in-store."
"If a customer regularly comes in to a supermarket to buy a certain size and amount of diapers, a retailer can see that this customer has a child of a particular age and perhaps offer a special deal on baby food," De Beer says. "Not only does this kind of cross-selling activity boost sales in-store, but the customer receives a more personalized service and is more likely to return in the future."
A clearer view of critical data
Most retailers understand the value of collect¬ing information about their store operations and then performing analysis on that data. But a number of businesses are finding it difficult to know how to view and use that data.
Clay Young, senior vice president of strategic marketing at ProClarity, says, "One thing retailers don't lack is data. What they need is a bite-size, accessible representation of data that they can act on. A number of retailers have made the mistake of trying to move all of their data onto a central database at once. That's a non-starter. It could take up to three years to move the data, by which time the information has lost its relevance and the investment has been wasted."
"The fundamental solution should be a data warehouse that provides retailers with everything they need to transform their business-critical information, [using] extract, transform, and load (ETL) tools, into a clear and accessible format," Young says.
Another key consideration for retailers is integration. Any large business needs to look at enterprise application integration (EAI) to help ensure it can connect and integrate data from different systems logically and easily. Retailers are no different.
"With the standardization of technology in the retail environment, retailers are now finding that getting the data they need to improve their businesses is becoming increasingly affordable," De Beer says.
"Retailers can gradually migrate their data to a centralized solution so there's no need for a big-bang implementation. And they can prioritize the areas of their businesses that will most benefit from detailed analysis. Most business intelligence products are also very scalable so retailers can start small and work their way up," De Beer continues. "There's a place for these kinds of solutions in the smallest store to the largest enterprise."
What happens next
With business intelligence playing a key role in the development of more profitable stores, retailers are increasingly looking to apply detailed analysis across their businesses as they strive to differentiate themselves from the competition. And as more tech-savvy individuals rise through the retail ranks over the coming years, business intelligence is set to be an indispensable tool for retailers who want to understand their customers and cultivate a more personalized shopping experience.
Business intelligence solutions for the retail industry from Microsoft partners
Adea Solutions
Martec International
ProClarity
