Brands and Retailers Turn to Analytics to Gain an Edge

July 19, 2012

In an era of unparalleled consumer power, multi-channel specialty retailers and brands are finding their success hinging increasingly on their ability to aggregate, analyze and act on the flood of customer data flowing through their sales channels.

And to the delight of many, big data’s biggest benefits are accruing as much to retailer’s brick-and-mortar stores as their e-commerce operations. In the last year or two, many retailing CEOs have gone from expressing alarm at the growing threat of showrooming to extolling the virtues of mobile technology — including the ability to send personalized marketing messages to customers as they step out of their cars at the mall parking lot and equipping store associates with mobile devices that enable them to better serve customers.

In a survey last year, Forrester Research found midmarket retailers were ramping up their IT budgets in a big way in a bid to compete with big box retailers. Fourteen percent of the survey’s respondents planned to invest at least 10 percent of revenues in IT capital projects. While some of this money was aimed at generating quick returns via online price optimization and promotions tools, Forrester found many mid-size retailers were setting aside significant resources to “develop deeper customer intimacy and to promote service-based competition” that will provide a long-term competitive advantage against big box specialty retailers that typically spend 5 to 7 percent of their revenue on IT projects.

In other words, the front line in today’s retailing war is coalescing around the ability to harness customer data to create more intimate bonds with their customers regardless of how they shop. It represents a huge effort to catch up with consumers’ diverse and rapidly changing shopping habits.

“The customer is in charge, and retailers and wholesalers alike need to tap in to more sophisticated ways to understand customer behavior by understanding what it is the customer values,” said Will Manzer, chairman and CEO for Eastern Mountain Sports and chair of the Outdoor Industry Association® (OIA) board of directors. “This is about knowing that the customer can purchase goods and services in ways they have never been able to do before and do it at an alarming rate of speed.”

Several trends have brought the industry to its focus on data analytics, including:

Commoditization. Multi-channel specialty retailers and brands have grown wary of the commoditization effect of major online retailers like Amazon. To sustain their business models and margins long-term, they are searching for ways to enhance the customer experience so they don’t have to compete on price. (See related story from OIA archives.)

Channel fragmentation. Consumers have adopted smartphones much more quickly than anticipated and now move effortlessly among online, mobile and brick-and-mortar channels. Yet most retailers operate these channels as separate silos that often don’t talk to one another. This sets up customers for disappointment if they arrive at a local store only to find the color and style they saw online is out-of-stock or being sold at a higher price. The bigger and more complex the retailer, the more vulnerable it is to disappointing customers. (See related story in this issue.) The need to present a uniform customer experience across all channels will only become more urgent with the aging of younger consumers — 18- to 34-year-olds — who have much higher expectations, according to some research.

Rising customer acquisition costs. Many independent retailers say they have halted their paid search advertising in the last 18 months as costs have spiraled. (See related story from OIA Archives.) As the cost of acquiring new customers rises, companies are working harder to earn more business from existing customers, who can be reached via email, social media and other low cost channels. One way to do this is to use customer data to anticipate customer needs, personalize marketing messages and create a more intimate brand experience.

Tough economy. Margin pressure and tight budgets have caused more executives to demand hard data before making or renewing investments, whether this is in a new line, a hire or an IT project. Data-driven decision making is touching virtually all aspects of organizations, from human resources to marketing and merchandizing.

Empirical evidence. Nearly nine in 10, or 86 percent, of top performing retailers use a business intelligence (BI) stack compared to 55 percent of retail followers, according to a recent report by the Aberdeen Group. The BI stack consists of data collection, analysis, reporting and dashboards that Aberdeen says can reduce decision time from 48 hours to as little as 20 minutes.