Instrumented Interconnecteds Intelligent

Katrina Read, Business Analytics Solution Architect, IBM

By Katrina Read

For retailers, the busy holiday season brings the opportunity for significant revenue, but also the added stress of making sure shelves are stocked to provide maximize returns. Which begs the question: how do you know what products should be stocked in which stores?

The use of predictive analytics in the retail industry is not new – in fact it was one of the first commercial industries to really adopt the use of mathematical algorithms to predict future sales. And yet, I often find myself standing in front of empty shelves wondering how they could get it so wrong.

While this is the giving season, my gift to you, fellow retailers, is this advice: WWW. No, I’m not talking about the World Wide Web. WWW is short for, Who, What and When – the three W’s that every retailer must focus on in this new world of smarter commerce.

WHO

First and foremost it’s important to understand who your customers are. Simple demographics such as age, gender, location, etc. are easy to come by. The most valuable information about customers is not where they shopped and what they bought, but where they are most likely to shop, what they are most likely to buy, and what offers they are most likely to accept to help increase wallet share. This kind of information is not readily available, and requires predictive technology to uncover the hidden trends and patterns in historical data to predict what is likely to happen in the future. With this predictive insight, we can make more informed decisions about what catalogues and offers to send to which customers, for which stores.

With the recent IBM Digital Analytics Benchmark reporting an increase in online sales of 20.7 percent compared with Black Friday last year, and a staggering 24 percent of consumers using mobile devices to visit a retailer’s store (up from 9.8 percent in 2011), now it’s even more important to understand intimate details about your customers’ buying patterns and habits. Knowing your customers’ preference for buying online could dramatically change the way you market your products and offers – whether it be to increase your share of wallet spend online, or find innovative and unique ways to encourage them into a store for face-to-face customer service. 

WHAT

Understanding what customers are likely to purchase is important for both the existing and potential customers. While reward programs and loyalty cards allow us to identify and understand an individual customer, the holiday season brings with it crowds of unknown and potential customers all looking for that something special. Analytics can help identify current trends and topics in social media that are related to a particular brand. This insight can then be used to identify products that are on trend and therefore need to be stocked to maximum levels before the shopping frenzy begins. For example, a store can decide which shoes to stock more or less of – positive trends in relation to “Ruby Red” shoes could identify an item that is going to be on many wish lists and should therefore dominate the shelves.

Furthermore, highlights from Black Friday 2012 showed us the pervasiveness of social media in real time, being able to tap into consumer sentiment while the promotions are unfolding to understand how they are being received and take subsequent action.

WHEN

Understanding when customers are going to purchase holiday gifts is especially important as it impacts not only stock levels and marketing campaigns, but at this particular time of the year, it also impacts store operating hours. Having greater insight into when people are likely to do their holiday shopping can help plan store opening hours, and avoid the costly “open all night” events that see more employees than actual customers. Are the customers that shop at 2:00 a.m. profitable? If not, then why open the store? 

Similarly, if your customers happen to fall within the 24 percent of consumers shopping mobile this year, they may be more interested in knowing you have round-the-clock packing and shipping to ensure their order is on the first mail run the next morning.

This post is as much about me as it is about retailers. Selfishly, I want my favorite store to be open at a time that is convenient to me and to stock the items on my holiday gift list. Is that too much to ask? Analytics say, no.

For more insight on how analytics can add value to retail organizations visit my blog.

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