Analytics in Retail: An Operational and Financial Mandate
April 14, 2010

The fast-paced retail industry operates around the clock, driven by the necessity of being available to consumers at every moment with the goal of converting them to profitable customers. For every role in a retail organization, marketing, selling and serving customers are critical functions. But doing them well is more difficult when retailers cannot use the data from their own operations and marketplace to determine the best actions to optimize future efforts in the most cost-effective manner. As volumes and sources of data continue to expand, the retail industry is going through a transformation in using all forms of data to advance its efforts.

I have seen retailers spend enormous amounts of time on marketing their products through pricing and promotion, but most spend far less time to understand if the right customers are being marketed to or if the proximity and travel patterns of consumers to retail locations are correlated to their propensity to spend. Retailers are just starting to realize that understanding and influencing customer conversations on the Internet in social media channels is a necessity and that it requires a new type of analytics that can process text and phrases that reveal consumer sentiment and opinions of their brands. Also the advancement of consumer and market analytics from organizations like IRI and Nielsen continue to play a key role in the knowledge how to optimize brand and categories for retailing. Being savvy about this in the front office requires a team of people working closely together to optimize the marketing-to-sale process in hopes of containing costs and maximizing volume at the right price whether in a retail location or online.

The front office is not the only place where retailers need advanced analytics. They are valuable in managing the movement of goods and services, from the demand plan and forecasts through the management of external suppliers to fulfillment and payment. These days managing that process needs analytics that can be applied not only daily and weekly but also by the minute and hour. Of course the fluid set of processes in manufacturing and logistics have long used analytics but usually piecemeal and not across the entire process. Comfortable with their own set of unique processes, retailers have been reluctant to embrace business process management; now the innovative ones have begun to use business events in a synchronized manner with complex event processing (CEP) to correlate and analyze activities along the demand and supply chain in retail stores to the back office operations.

Another vital need is financial management that engages costing and profitability at every level, from product and category to location and customer, to determine whether retailing practices are effective. In many organizations the finance department has not played a leadership role in working with operations and marketing to get mutual agreement on the metrics and analytics needed to support financial goals. This is beginning to change. This also requires a team effort in which finance collaborates with analysts. This analytics has to be applied to the workforce to reduce employee churn, train people effectively and retain the most productive. Advances in workforce analytics have made it easier to look at these processes. Applied properly, analytics can ensure that the right level of investment is made to contain costs through learning, establish flexible work hours and design incentives to keep the workforce productive and contributing to profitability. No matter if you are trying to use historical or predictive analytics the opportunity to improve is everywhere in retail organizations.

It is important to remember that you cannot take only a general or industry specific approach to improving retail analytics; you need to focus on each specific line of business and its needs, which vary from the front office and operations to finance and the workforce. I advise you to be careful in selecting tools and vendors, as many claim to provide the analytics you need for your whole retail industry but only address a handful of activities in their applications. You will have to prioritize what lines of business and processes you most want to improve; you'll consider industry-specific solutions but also examine technology that can be used across industries. Retailers will find they can learn a lot at looking at the advances in other industries, especially the manufacturers that source their goods. Just as important is to establish the right level of competencies in your analyst teams along with the right technology tools. Investing in your IT organization so it can adapt and grow with new analytic technologies is also necessary. These are examples of the critical areas that retailers need to examine to become more savvy with analytics and drive stronger business results.

If you are trying to address retail analytics across your organization, I encourage you participate in our latest benchmark research on analytics for retail. I will be assessing the needs of retailers from learning what is needed across lines of business and IT to ensure that our firm continues to drive the education and advice you demand and should receive. What you learn from the results can help drive improvement in your retail organization.

Take Analytics for Retail Benchmark Survey.

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Regards,

Mark Smith - CEO & EVP Research


 

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