The Predictive Retailer

Wouldn't it be great to know what your best customers will be seeking the next time they're on your Web site, in your store or browsing your catalog? You can.

Consumers today have a multitude of product choices from an array of retailers and channels. Which products they seek and how they look for them often depend on such factors as the customers' age, ethnicity and attitudes.

As a result, retailers are finding that they need to know more than simply what their customers purchased in the past: They need to be able to predict what customers will want the next time they shop on the Web, in the stores or from the catalogs.

"With more than 6 billion global consumers, the complex challenge for retailers today is to efficiently locate, understand and serve those individuals who are most likely to purchase their products on an ongoing basis," according to a January 2005 retailing report by Deloitte.

Retailers who have failed to understand customers and anticipate their tastes and desires have paid a price when, for example, products go out of fashion, competitors offer cheaper knock-offs, consumer technology evolves or inventory dries up.

"At many retailers, out-of-stocks are rampant. Today, if a customer doesn't find the right product when he or she wants it, that retailer will probably lose that customer to another retailer – permanently," says Cyndy Renfrow, senior director for global market development in retail intelligence at SAS.

Shifting the focus to retail intelligence and customer-centricity
Forward-thinking retailers are increasingly relying on technology to provide the retail intelligence to support their business decisions. Retailers are using this intelligence about their customers, merchandise and supply chains to improve their operations and become customer-centric, focusing on customer expectations to drive the delivery of products and services.

Using analytics and data mining, innovative retailers can draw intelligence from a combination of their customer data and such external information as demographic and census data to segment their customers. This analysis can help these companies tailor product selections for each store, as well as strengthen their corporate brands and drive sales promotions.

"Leading retailers are using customer insights to support decisions about merchandising, marketing and promotions, things such as where they should be putting up new stores, what the store layout should be and what to stock in which store,” Jain says.

Customer-centric strategies to help meet high expectations
Meeting the high expectations of today's retail customers is a significant challenge. "Customers expect retailers to have adequate inventory on promoted items, inventory on hand for styles and sizes they want, products priced competitively, exemplary service and a pleasant shopping experience," Renfrow says.

That may be a tall order, but analysts say retail intelligence enables a variety of customer-centric strategies that can help retailers meet these expectations. For instance, some retailers are integrating all companywide information about their customers across all of their retail channels.

This integration creates a "single version of the truth," allowing store personnel to know what a customer purchased online or through the catalog, for example. This intelligence, then, can help retailers fit merchandise promotions and messaging to the individual customer and generally provide more personalized customer service.

Another strategy that requires data integration is the capability for one channel to pass a customer request to another channel. Retailers could, for example, transmit a customer's Web order to his or her local store for pick-up, as Circuit City and Lowes Foods can do.

Retail intelligence makes possible other customer-centric strategies as well, including:

• Data mining to predict which products customers will want.
• Segmenting and profiling customers to design store-specific layouts, plan and allocate the right mix of merchandise and optimize inventory replenishment.
• Targeting consumers with relevant promotions.
• Pricing appropriately to meet customer expectations, as well as planning markdowns and exit strategies for inventory that needs to be moved.
• Using radio frequency identification (RFID) for more effective tracking of merchandise to boost responsiveness to customer demand.
• Sharing performance metrics and analysis results with suppliers to improve inventory availability and deliver to high standards of customer satisfaction.

Retail analysts are encouraging and noting the use of technology to enable the shift toward customer-centricity. A Gartner report released in May 2005 states that "retailers must merge CRM (customer relationship management) technologies and processes with merchandising and store operations to become customer-centric."

In its January 2005 retailing report, Deloitte noted, "Technology solutions in use are enabling retailers to dissect customer buying data in ways that enhance customer awareness, product availability and customer-relevant promotions."

Globalization, consolidation trends necessitate technology reassessment
Besides changing consumer dynamics, a number of other trends are altering the business landscape for retailers. Many retailers are going global. For example, The Home Depot operates stores in Canada and Mexico, and Wal-Mart, which has stores in Latin America, is establishing operations in China. Other retailers are consolidating: Federated and May; Kmart and Sears; and CVS and Eckerd, for example.

As retailers take their businesses beyond their home countries and consolidate, their technology infrastructures inevitably grow and change. The challenges of unifying different systems; storing, accessing and integrating massive amounts of data from different locations and sources; and finding suitable technological solutions to bring intelligence out of that data become increasingly pressing.

Adding to the challenge are retail technology providers: The retail technology landscape is rapidly changing as technology vendors merge and acquire one another in an attempt to deliver the most comprehensive solution to retailers. This movement, in turn, affects retailers' technology infrastructures and presents them with a whole host of implementation and integration issues.

"Retailers are struggling today with the fact that the whole technology infrastructure to support their businesses – store operations, merchandising, logistics, promotions and trading partner relationships, and price management – is changing," Renfrow explains.

Technology vendors must offer the right solutions
Innovative retailers are taking advantage of changing market conditions to upgrade their technology infrastructures and include retail intelligence in their everyday decision making to improve operations, tighten supply chains and build lasting relationships with their customers and suppliers – and ultimately maximize profits.

"Retailers need a technology vendor that can bring their disparate systems and applications together, irrespective of the platform or vendor. They need a vendor who can help them get access to all of their data – customer, transaction or syndicated – from wherever it resides and then derive intelligence from that data," says Jain.

In addition, a retail intelligence vendor's architecture should provide a foundation that also adheres to newly emerging industry standards for technology. With emerging technologies playing a significant role in enabling customer-centricity, retail intelligence has to accommodate new sources of data such as RFID systems, global retail exchanges and sensor-based data management systems, Renfrow says.

"Because suppliers and retailers need to be able to communicate with one another, data exchange standards that would allow them to communicate more effectively are also evolving," Renfrow explains.

Clearly, a technology vendor that is platform-independent, that can integrate data and technologies from different sources and that complies with industry standards would be a boon to retailers in this changing retail landscape. But the bigger prize is the profitability that can result from executing a customer-centric focus.

"Retailers need to make raving fans of their customers, and they need to dominate their competition. Retail intelligence can help them do that," Renfrow says.