clear direction on using big data to solve retail problems

We help organizations find growth opportunities as traditional and digital food retail converge.

BRICK MEETS CLICK BIG DATA UPDATE, 4Q 2014

CLEAR DIRECTION ON USING BIG DATA TO SOLVE RETAIL PROBLEMS

A look at impact vs. effort

2©2014 brick meets click BIG DATA update

3 Clear Direction on Solving Retail Problems with Big Data

4 A Look at Impact vs. Effort

5 Top-tier Opportunities and Action Plans

1Increase spending by your best customers

2Identify profitable items to promote

3Refine assortment to drive higher store sales

4Reduce out-of-stocks on promoted products

9 Second-tier Opportunities and Action Plans

1Decrease best-customer churn

2Localize assortment and pricing

11 Third-tier Opportunities and Action Plans

1Attract new customers who look like your best customers

2Increase sales per square foot with customer tracking

3Evaluate competition using social media sentiment.

14 Conclusion: Where do we go from here?

15 Contact Information

CONTENTS

PAGE


Introduction: Clear Direction on Solving Retail Problems with Big Data

Discussions about Big Data and retail often bog down in the vastness of its potential, leaving retailers with only the vaguest guidance as they try to figure out where and how to invest in this powerful tool.

Today’s retailers need clear direction on where they can focus to generate the greatest benefit for the effort expended. For this reason, Brick Meets Click decided to take its fourth Big Data survey in a practical direction and ask:

WHICH SPECIFIC RETAIL PROBLEMS/CHALLENGES CAN BIG DATA HELP TO SOLVE TODAY?

To start, we asked a panel of retailing experts to help us identify 12 specific opportunities for solving retail problems with big data (see the list at right). Then we surveyed a much larger group of nearly 150 professionals to evaluate those opportunities on two dimensions:

HOW BIG IS THEIR IMPACT ON THE BUSINESS?

HOW DIFFICULT ARE THEY TO EXECUTE?

The goal of this report is to prioritize big data opportunities by showing which ones have the greatest near-term potential, which take more effort but may be worth considering, and which are perceived as hardest to execute today and least certain to produce results.

CUSTOMER OPPORTUNITIES

1. INCREASE SPENDING BY YOUR BEST SHOPPERS

2. DECREASE BEST-CUSTOMER CHURN

3. STRENGTHEN OFFERS FOR UNDER-DEVELOPED SHOPPING OCCASIONS

4. ATTRACT NEW CUSTOMERS WHO “LOOK LIKE” YOUR BEST CUSTOMERS

5. IMPROVE PROFITABILITY OF PRICE-SENSITIVE CUSTOMERS

6. EVALUATE COMPETITION USING SOCIAL MEDIA SENTIMENT

MERCHANDISING OPPORTUNITIES

7. IDENTIFY PROFITABLE ITEMS TO PROMOTE

8. REDUCE OUT-OF-STOCKS ON PROMOTED ITEMS

9. REFINE ASSORTMENT TO DRIVE HIGHER STORE SALES

10. LOCALIZE ASSORTMENT AND PRICING

11. DRIVE SALES BY OPTIMIZING STAFFING IN SERVICE DEPARTMENTS

12. INCREASE SALES PER SQUARE FOOT WITH CUSTOMER TRACKING


REDUCE OUT-OF-STOCKS ON PROMOTED ITEMS

DRIVE SALES BY OPTIMIZINGSTAFFING IN SERVICE DEPARTMENTS*

IMPROVE PROFITABILITY OF PRICE-SENSITIVE CUSTOMERS*INCREASE SALES PER SQUARE FOOT WITH CUSTOMER TRACKINGEVALUATE COMPETITION USINGSOCIAL MEDIA SENTIMENT

IDENTIFY PROFITABLE ITEMS TO PROMOTEINCREASE SPENDING BY YOUBEST SHOPPERSREFINE ASSORTMENT TO DRIVEHIGHER STORE SALES

DECREASE BEST CUSTOMER CHURNLOCALIZE ASSORTMENT AND PRICING

STRENGTHENED OFFERS FOR UNDERDEVELOPED SHOPPING OCCASIONS*ATTRACT NEW CUSTOMERS WHO LOOK LIKE” YOUR BEST CUSTOMERS

BUSINESS IMPACT

BIG DATA AND RETAIL SCORECARD

HIGHERLOWER

EFF

ORT

EASI

ERH

ARD

ER

“

SECOND-TIER

THIRD-TIER

TOP-TIER

A Look at Impact vs. Effort

How much reward for how much effort? This is a crucial question for all managers and business owners. The chart below shows the varying levels of business impact and effort that respondents assigned to the 12 areas surveyed. We take a closer look at 9 of them in the following pages. The remaining three (marked with asterisks) didn’t generate enough meaningful information to take a deeper dive.


Increase spending by your best customers

PROBLEM How do you persuade your best customers to spend even more with you?

OPPORTUNITYTo identify your top shoppers and segment them by type: those who shop with you by choice, and those who shop with you by necessity.

ACTIONAppeal more effectively to each segment with different offers.

• For those who choose to shop with you, building on their positive attitudes is a proven way to increase spend.

• For those who shop with you out of necessity, offer additional tangible incentives.

HIGHER IMPACT, EASIER TO DO

TOP-TIER OPPORTUNITIES

SURVEY PARTICIPANTS IDENTIFIED THESE OPPORTUNITIES AS HAVING HIGHER BUSINESS IMPACT AND BEING RELATIVELY EASIER TO EXECUTE.

Top-tier Opportunities and Action Plans

1


Identify profitable items to promote

PROBLEM Today, most promoted products don’t grow category sales or store profits; and unless they attract profitable new traffic, they actually lower the store’s performance.

OPPORTUNITYTo identify which promotions make positive contributions to store performance by analyzing item and category sales and gross profit dollars over a long period of time for all promoted items (from main features to TPRs).

ACTIONBuild a list of “most-profitable promotion items” for the chain and for advertising zones where it’s possible to offer a unique ad. Increase the percentage of items from this list that are promoted each week.

2




Refine assortment to drive higher store sales

PROBLEM Most store assortments don’t reflect current customer purchasing/desires, because of the time and labor required to evaluate item sales, convert the information into new plan-o-grams, and then rearrange the shelves.

OPPORTUNITYTo identify which items are selling at a significantly different rate than suggested by the real estate they occupy in the plan-o-gram. Which items deviate most ( positively or negatively) from expectations?

ACTIONReallocate space to faster selling items when:

• The increase in facings for new items and fast-movers roughly matches the decrease in facings for slow-movers.

• The reduction in facings for slow-moving items is large enough to justify the effort.

3




Reduce out-of-stocks on promoted products

PROBLEM Studies indicate that promoted products often have twice the level of out-of-stocks compared to regularly priced products — up to 15% of sales — creating a significant loss of sales for the store and a disappointing experience for shoppers.

OPPORTUNITYAnalyze the accuracy of the promotion forecast by tracking sales for the first hours or day of a promotion to see if sales for each product match the forecast (either in total or by store).

ACTIONAdjust and refine the forecast based on the analysis, and identify and fix/correct supply chain issues that can cause products to be unavailable even when they’re in the store (like poor positioning of inventory that’s supposed to support the promotion).

4

LOWER IMPACT, EASIER TO DO



Decrease best-customer churn

PROBLEM Customer turnover is a fact of life, but can you manage it more effectively? By the time you make offers to shoppers who’ve already left you, it’s usually too late.

OPPORTUNITYTo analyze your best customers’ spending patterns so you can identify whether declines are due to changes in life stage (children leaving home, for instance) or spending at another retailer. Segment your best customers by life stage so you can anticipate how their spending is likely to shift over time.

ACTIONAddress specific customer declines in spending when they are detected.

• Talk with the shopper to learn why their behavior is changing and what you can do to win the business back or to address their changing needs.

• Develop a list of actions proven to win back lost sales for different sets of needs uncovered in the conversation.

TWO MEDIUM-DIFFICULTY OPPORTUNITIES WERE ALSO JUDGED TO HAVE RELATIVELY HIGH POTENTIAL BUSINESS IMPACT.

Second-tier Opportunities and Action Plans

1

HIGHER IMPACT, MEDIUM DIFFICULTY

SECOND-TIER OPPORTUNITIES


Localize assortment and pricing

PROBLEM Even when assortment and price differ by geographic zone or cluster, there’s a good chance that each store’s offering can be improved to better serve the needs of shoppers in that trade area.

OPPORTUNITYTo identify categories where local store sales penetration is significantly higher or lower than chain averages. Compare this with competitive price and assortment data from the area to identify changes that can improve performance.

ACTIONVisit each store to investigate and evaluate the under- and over-performing categories and plan adjustments accordingly.

• If underperforming categories aren’t being merchandised well or properly, fix the problems.

• Find out more about what’s driving over-performers and make sure they have enough inventory to avoid out-of-stocks.

• Adjust the offering to better match local sales trends.

2

HIGHER IMPACT, MEDIUM DIFFICULTY

SECOND-TIER OPPORTUNITIES


Attract new customers who “look like” your best customers

PROBLEM Most retailers don’t have a data-driven process for customer acquisition. This puts them at a disadvantage vs. online retailers and others with direct marketing capabilities.

OPPORTUNITYWith all the data now available on households located around every store, it’s beginning to be possible to identify individual households who “look like” they could find your store appealing, and to use that data to develop and implement customer acquisition strategies that increase store sales and have a measurable ROI.

ACTIONIdentify a set of stores where the trade area includes a solid base of customers that

“look like” your customers, and work with a provider of geodemographic and lifestyle data to develop and test a targeted customer acquisition strategy.

SEVERAL AREAS ARE JUDGED MORE DIFFICULT TO EXECUTE. THEIR BENEFITS ARE ALSO LESS CERTAIN TODAY, BUT WITH ADDITIONAL DISCOVERY AND WORK, THEY HAVE THE POTENTIAL TO OPEN EXCITING OPPORTUNITIES TO IMPROVE RETAIL PERFORMANCE.

Third-tier Opportunities and Action Plans

1

HIGHER IMPACT, MOST CHALLENGING

THIRD-TIER OPPORTUNITIES


$$

2 Increase sales per square foot with customer tracking

PROBLEM Retailers are watching sales-per-square-foot decline, but few tools are a capable of systematically measuring improvements in merchandising effectiveness. Translating customer tracking insights into useful actions is difficult.

OPPORTUNITYTo convert the information that’s available to every retailer from POS and tracking systems into a measure of merchandising effectiveness in the aisle. John Crimmins

of RetailNext, one of the experts we consulted early in the project, shared his formula.

(Develop each metric on a time basis, per hour or per day.)

Sales per shopper = (# of items purchased / # of shoppers) X (Sales / # of items purchased)

ACTIONIdentify a set of stores where you know that sales lag in some aisles or sections even though there’s adequate traffic. Then apply this method to:

• Establish baseline sales per shopper.

• Measure sales per shopper after merchandising changes to see if they’ve improved.




Evaluate competition using social media sentiment.

PROBLEM Every retailer wants to better understand the strengths and vulnerabilities of their competition. Now social media is creating a wealth of commentary about shopping experiences. These have the potential to increase the speed and depth of learning dramatically.

OPPORTUNITYTo analyze social media sentiment to identify and exploit the vulnerabilities of your competition and to minimize your own vulnerabilities. A number of service providers now track and store tremendous amounts of social media content.

ACTIONBegin now to evaluate suppliers who track and store social media content, and who have “cracked the code” in generating solid insights and useful information from it.

3




Where do we go from here?

It’s time to stop being intimidated by the “big” in “big data” and focus on using it to improve business performance. To build confidence in the new analytic tools, concentrate first on immediate opportunities to solve problems that you know will have a significant impact on sales and profit. Then you can move on to more complicated applications.

As retailers evaluate how these opportunities relate to current business practices, they should also make a number of adjustments to prepare for taking advantage of

“new” data opportunities.

• Start seeking out partnerships with data service providers. Learn about their capabilities and how those capabilities can support your business strategy.

• Begin to build your own organizational capabilities. Add more analytical capability to your team and identify the people in your organization who have analytical skills and talents and bring them into the process.

• Shorten the time needed to implement change and capture the benefits from that change. This may require changing the existing culture, and/or putting new capabilities in place either within the organization or outsourced to a partner.

• Adopt a test-and-learn approach to innovation so you can move from insight to action more quickly. Copy and learn from successful innovators. Adopt a fact-driven approach to decision making.

CONCLUSION


BRICK MEETS CLICK

We help organizations find growth opportunities as traditional and digital food retail converge.

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Learn more about our research and how we can help you succeed.

CONTACT Steve Bishop 773-593-3836

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