In this special guest feature, Jim Shea of First Insight shares his perspectives for how data analytics is transforming the retail industry past several key pain points. Jim Shea is Chief Marketing Officer at First Insight, a solution provider empowering companies to drive new product success by introducing the right products at the right price. Jim leads marketing communications, demand generation, product management and business development.
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As the retail industry has changed and evolved over the years, two goals have remained constant—to drive sales and deliver a great customer experience. A key enabler to helping retailers achieve these goals is technology, and the growing popularity of data analytics has the potential to disrupt the retail industry. As retailers continue to integrate new and innovative technology throughout their organizations, everything from the in-store experience to product design to future planning and forecasting will change.
For example, beacon technology is now being deployed in retail stores like Macy’s and Kohl’s to deliver offers on your mobile device on things immediately around you. And new stores are being built from the ground up on technological foundations. Designer Rebecca Minkoff’s new stores will feature large touchscreens to help you select items and then be notified via text when fitting rooms are ready. Inside the fitting room, another screen serves as both mirror and shopping aid.
Despite rapid technology adoption, an HRC Advisory study shows that only 9 percent of retailers are leveraging their data in a structured, usable way. It’s quite surprising considering the value that data analytics is bringing to other industries ranging from charities to delivery services. If retailers were to integrate their IT platforms and update their operational processes to create actionable data insights, the entire retail lifecycle would benefit, from initial product design to the in-store experience.
There are three key areas that the retail industry has been struggling with for years: Pricing, inventory planning and customer aspirations. Let’s explore how using data can turn these challenges into new opportunities.
New products are the lifeblood of retail: They draw new customers into the store and give existing customers a reason to come back. Unfortunately, over 50 percent of all new products fail to be successful after coming to market (Gartner). Poor pricing of new products is a key contributor: Most prices are set based on cost or historical data rather than based on what customers are willing to pay. According to McKinsey, 80 to 90 percent of poorly chosen prices are too low. Yet by mining social data and leveraging technology to create a two-way conversation with customers, retailers could learn how to price new products based on customer value. This approach to analytics has the opportunity to drive higher retail margins without creating significant change to the overall infrastructure.
Making Smart Inventory Decisions
Poor inventory planning costs the retail industry over $818 billion a year, through a combination of excess inventory on slow-moving items and stockouts on the “winners”. For years, the retail industry has looked at historical inventory performance with a sharp eye, but now it’s not enough to just look at last year’s sales and plan based on those numbers. Retailers need to look forward and use customer insights to do so. According to a recent survey, marketers are catching on and 44 percent plan to adopt predictive analytics tools compared to the 18 percent of marketers who employ them today. A smart choice, seeing how these solutions can allow retailers to use data to anticipate customer demand, ensuring the right level of inventory is available at the right place and time.
Foreseeing Customer Aspirations
Applying analytics also provides insight into your customers’ wants—when, where and for how much—that can be utilized to deliver the ultimate customer experience. Using the data as a guide, retailers can focus their displays on items customers are anticipating, rather than guessing at what to feature in the store window. Emerging technology also lets you track in-store customer activity the same as you would with customers who shop online. With advanced tools, retailers can store data on customers that visit stores or websites and sync it to a database that can then show the right advertisements or offer the right deals when they visit a location. Imagine walking into a retail store equipped with touch screens: Via video display you have instant access to your past online searches or items you had last tried on in-store. This is what the future of retail will look like, but making it a reality will take time.
Technology and growth often mean new challenges. But opportunity lies on the other side of the same coin. The use of predictive analytics will help the retail industry better understand and act on the quickly changing preferences of consumers, introducing winning products that increase profit margins while reducing product failures.