The Great ecommerce Race Optimizing Online Merchandising Analytics To Create Cognitive Commerce

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1 A Forrester Consulting Thought Leadership Paper Commissioned By IBM July 2016 The Great ecommerce Race Optimizing Online Merchandising Analytics To Create Cognitive Commerce

2 Table Of Contents Executive Summary... 1 The Race Is On: Customers Are Moving Fast And Challenge Online Retail To Keep Up... 2 The Race Is Long: Facing The Technology And Organizational Challenges... 3 Moving Into The Home Stretch: Transform With An Insights To Action Approach... 5 Key Recommendations... 7 Appendix A: Methodology... 8 Appendix B: Supplemental Material... 8 Appendix C: Endnotes... 8 ABOUT FORRESTER CONSULTING Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting. 2016, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to [1-WMTIOK] Project Director: Pippa Jollie, Senior Market Impact Consultant Contributing Research: Forrester s ebusiness & Channel Strategy research group

3 1 Executive Summary Customers expect to purchase what they want, when they want, where they want. If online retailers don t meet that expectation, customers will ruthlessly move on and find someone else to meet their needs. The race is on to understand exactly what products customers want to buy and to deliver that product and related offers to the customer. Getting there first relies on using and optimizing accurate data and analytics. IBM commissioned Forrester Consulting to evaluate how merchandisers are using and mastering analytics as part of their function, as well as how the data is used predictively and prescriptively to leverage insights into action. The research uncovered how organizations are leveraging different types of analytics, major challenges in activating advanced analytics and real-time reporting, as well as the opportunities being missed by not having advanced insights into customer behavior. In conducting a survey of 137 merchandising and ecommerce professionals and interviewing six online merchandising leaders, Forrester found that despite a strong interest in advanced analytics as a competitive imperative in the age of the customer, developing and leveraging real-time, actionable insights from customer data is a relatively immature practice. Online commerce organizations are being challenged as never before to understand and respond to their customers in real time. The race is on, and this makes real-time, actionable insights for merchandisers a critical differentiator in online retail. KEY FINDINGS customer data are collaborating in most organizations, but must work to improve utilization of the data and respond to what the data tells them. Despite progress in data analytics for merchandising, there s still a long way to go. Most online retailers have matured in their approach to analytics, from gaining simple insights based on existing sales data to integrating several sources of data and creating more predictive insights. But these companies recognize that in order to gain a competitive edge, they need to evolve even further by turning insight into action, with the ultimate goal of doing it in real time. For many online commerce companies, however, the path to the next level of analytics maturity grounded in a predictive and prescriptive approach is still a work in progress. Many companies are still struggling with issues around real-time reporting, data integration, ownership of customer data, lack of tool customization, and difficulty turning insights into action. Online retail is transforming around customer needs and expectations. Respondents want to prioritize their technology strategy so that better data and insights build a 360-degree view of the customer or customer segments. In order to truly attain customer-centricity, retailers need their teams to be fully focused on leveraging these insights to better serve their customers. However, this often means personnel have less time to address certain tasks, making it difficult to respond to customers quickly and in a unified, consistent manner. By automating certain decision-making functions, online and commerce companies are positioned to better serve customers in real time across the organization and become more customer-knowledgeable and -obsessed. This, in turn, can transform the organization into a cognitive commerce entity, where the entire system (both people and technology) learn and reason from interactions and respond with relevant, timely content and offers. Forrester s study yielded three key findings: Customers are moving fast in the online retail and ecommerce space and companies must keep up. Survey respondents and interviewees felt like they had a good start in using analytics but that there is much more to do. Integration is a key enabler here not only data, but also technologies and departments must be able to work together seamlessly in order to respond completely and quickly to their customers. Functions that work with

4 2 The Race Is On: Customers Are Moving Fast And Challenge Online Retail To Keep Up Over the past few years, companies with an online sales presence have been devoting more budget to site merchandising efforts. 1 Increased use of mobile by shoppers has driven the improvement of checkouts and the redesign of sites and pages to work across channels. But even after these improvements, merchandisers must still dig deep to ensure that the path to purchase has as little friction as possible. This means understanding customers and their purchase behavior at an unprecedented level of detail in real time. In April 2016, IBM commissioned Forrester Consulting to discover how merchandisers are using and mastering analytics as part of their function and how the data is used to move from revelations to recommendations. The world of online merchandising analytics is beginning to mature in the following ways: Online merchandisers have come out of the starting blocks. The online merchandisers and ecommerce professionals we surveyed for this study felt like they had a good start in using analytics 53% of respondents reported they were able to provide some form of personalized products, offers, and promotions, and 65% FIGURE 1 Online Merchandisers Are Out Of The Starting Blocks In your role, how would you rate your ability to use customer data to provide personalized product recommendations and/or offers online? Poor 7% Adequate 20% Do not use 7% Very good 42% Excellent 23% In your role, how would you characterize your ability to gather, analyze, and respond to information about customers and their online shopping behavior? 53% can provide personalized products, offers, or promotions. Base: 137 leaders involved in online merchandising or ecommerce Source: A commissioned study conducted by Forrester Consulting on behalf of IBM, March 2016 rated their use of customer data in this regard as very good to excellent (see Figure 1). But 63% also recognized that they needed to do more work improving analytics technology, automating many of the daily reports, and making sure they had all relevant data from all channels and all functions in the company. Only 30% were very confident in their firm s ability to analyze customer data and develop accurate, valuable, actionable insights into how customers behave and shop within digital channels. Firms see the opportunity to mature their merchandising practices through better technology and use of customer data. Only 5% of our respondents felt their current system and technology provides them with what they need to understand and respond to customers in the online shopping cycle. But 42% have already gotten started with analytics automation technology for online merchandising, and another 23% are actively planning to make investments in this area. Firms see the opportunity to win, serve, and retain customers at critical purchase points through the use of merchandising analytics and automation of responses. Organizations are trying to turn data into insights faster. Technology is key in this effort, and respondents to this study report that they are already working to automate the development of actionable insights and key findings based on customer data (35%). Still others say they are expanding existing automation capabilities (31%). All this is in the service of ensuring that routine reporting and analysis can be done more quickly, both to move to actionable insights in real time, and to allow merchandisers to find deeper insights they can use in service of their shoppers. Accessing data and insights is the start of a robust merchandising analytics strategy. Forty-four percent of the merchandising and ecommerce leaders we surveyed reported that their department works closely with marketing to conduct analysis, identify opportunities, and execute online marketing and communication campaigns. On the other hand, 55% said they have to request the information they need from someone else, which slows the gathering and analysis of the data needed for action. Efforts and data must be linked across functions in order to act on insights more effectively.

5 3 Being able to recommend products or services directly to the customer is powerful. All these tools should be telling us more about the customer and how they want to shop. As these solutions come out, merchants knowledge and instinct will take a backseat to data enabled by these technologies in terms of knowing what is best for the customer. VP, ecommerce merchandising, office supply retailer Using data in real time and acting on it quickly are key to winning customers. To keep up with the breakneck pace that customers are driving online, our study s ecommerce and merchandising leaders clearly see the need for real-time analytics and response: 61% of respondents rated having analytics for insights into customer behavior in real time as very important. That being said, there is clearly more work to be done in this area. Only 10% of respondents even test different campaign structures for online promotions daily, with the majority (57%) testing monthly or less often. Retailers and their online merchandisers clearly see the possibilities that robust, real-time merchandising analytics hold for them. But the race has just started and there are hurdles to clear. The Race Is Long: Facing The Technology And Organizational Challenges In order to develop more personalized offers, promotions, and campaigns, online merchandisers collect data around customer shopping behavior from a variety of sources like social media, online purchase data, customer surveys, and loyalty programs. The amount of data is growing dramatically and is often scattered throughout the organization. Online merchandisers face both technology and organizational challenges in quickly capturing and using this data, including the following: Technology is lacking. Only 30% of the survey respondents felt the technology they use provides FIGURE 2 Firms Want More From Their ecommerce Or Merchandising Analytics Technology Base: 137 leaders involved in online merchandising or ecommerce Source: A commissioned study conducted by Forrester Consulting on behalf of IBM, March 2016

6 4 everything they need. About 60% found their tools lacking in some way, from restricting future innovation to not providing flexible enough analytics capabilities (see Figure 2). We don t know what our customers care about, where opportunities live, and how to close these gaps that would require knowing how to find the insights and then acting on them. VP, ecommerce and merchandising, national office supply retailer Data reporting is not fast enough. Given the huge and growing amount of data that needs to be tapped, that s no surprise. Most merchandisers in our study report on results on just a weekly or monthly basis reporting that drives how they will adjust content, offers, and spend on online campaigns. Providing customer information to merchandisers in real time gets content, offers, and promotions to the customer when they actually want to use them. Our survey respondents agreed: 95% felt that having analytics and insights into customer behavior in real time was important, but 48% felt their merchandising analytics tools lacked the power and ability to drive deep insights into customer relationships. We have so much data here. The problem is analyzing it and coming out with the right strategy based on it. A competitor just hired a chief analytics officer, so we need to start optimizing our analytics now. Director of ecommerce, large US clothing retailer Poor integration and lack of analytics leaves data with untapped potential. We asked respondents about the challenges they face in pursuing online, real-time, personalized ecommerce and merchandising opportunities. Many of them shared that the lack of data integration, insufficient data analytics, and the amount of time it takes to create and update dashboards are major barriers. One office supply retailer remarked that their marketing/web analytics platform and transactional data are completely siloed, and that they lack a single source of truth to populate dashboards or make business decisions. Housing data in multiple places and keeping tools unintegrated makes real-time reporting and response nearly impossible. The top four technology challenges cited by the online merchandisers in this study were (see Figure 3): Management and maintenance of databases. Cost of the technology solutions. Lack of data integration. Insufficient data analytics capabilities. FIGURE 3 Top Business Challenges For Online Merchandisers For your organization, do you agree or disagree with the following business challenges in pursuing online merchandising opportunities? (Agreed) We struggle to optimize our digital channel sales and customer engagement There s a disconnect between merchandising and other stakeholders (marketing, supply chain, channel management) Our promotions, sales, and special offers do not yield as many sales as we expect Can t get to data needed to do advanced merchandising analytics Base: 57 online merchandising leaders 40% 46% Source: A commissioned study conducted by Forrester Consulting on behalf of IBM, March % 53% Organizations are not aligned to take full advantage of the breadth and depth of data. Online merchandisers often need to request data from other groups or don t collaborate with marketing when communicating to the

7 5 customer. Decisions around messaging and offers to customers are often siloed in this way, resulting in inconsistent messaging that may not hit the right target at the right time. Critical feedback from customers via social media or other online channels can get lost, which is an opportunity lost to save the sale and re-engage a customer. Merchandising and marketing teams must collaborate closely, but struggle to do so. The merchandisers in this study sometimes see a tension between their function and marketing. For example, 28% of merchandisers in this survey said that marketing pushes to be involved in the merchandising department s online customer communications and offers, but their team prefers to do their own research and execution of online merchandising and offer campaigns. Another 15% said that merchandising leads all ecommerce initiatives and only involves the marketing team after the fact. And 14% say that marketing controls all customer-facing communications, including campaigns for offers and promotions. Encouragingly, 41% report a multifunctional effort to provide consistent messaging and offers to customers. What customers are saying about us online remains separate in marketing; we don t have any technical mechanisms in place to pull that into our group. The information is tracked, but I don t know how it s tracked or what the results are (what people are saying about us). Manager, customer experience transformation, national internet service provider These siloes and organizational disconnects clearly feed into online merchandisers top business challenges: optimizing their digital sales channels and generating sales (see Figure 4). As online merchandisers mature in their use of actionable analytics, the finish line becomes easier to cross. FIGURE 4 Technology Could Do More For Firms ecommerce Or Merchandising Analytics What technology challenges does your organization face in pursuing online, real-time, personalized ecommerce opportunities? Please select all that apply. Maintenance and management of database(s) Cost of solutions (hardware, software, cloud, etc.) Lack of data integration 25% Insufficient data analytics technology Base: 137 leaders involved in online merchandising or ecommerce Source: A commissioned study conducted by Forrester Consulting on behalf of IBM, March 2016 Moving Into The Home Stretch: Transform With An Insights To Action Approach Organizations clearly see the need for better, more organized collaboration around the use of customer data in developing insights. Improved collaboration can greatly affect the value the organization sees from its customer data, and teams need the right technologies to evolve and mature their merchandising analytics practices. Companies are thinking about technology solutions for merchandising analytics that would enable merchandisers to quickly identify customer engagement opportunities rather than deciphering buying data or manually building behavior segmentations in spreadsheets. Enter the opportunity for cognitive commerce. Cognitive commerce refers to online commerce systems that learn at scale, reason with purpose, and interact with humans naturally. Rather than being explicitly programmed, they learn and reason from their interactions with us and from their experiences with their environment. 26% 26% 25%

8 6 Making important business decisions based on gut feel is not a business strategy that drives consistent success. As the technologies that drive cognitive commerce become more powerful, online merchandisers will be able to evolve their insights to produce better revelations, leading to making recommendations to their shoppers faster. Cognitive commerce can allow merchandisers to explore an expanded set of data in a single view, making it easy to find relationships and connections that transform data into a trusted business advisor, prescribing actions and insights that have the highest probability of success. Cognitive commerce s software-driven systems will help companies collate and correlate their disparate knowledge and create systematized knowledge. The solution can also serve as an automated advisor on customer data to the groups that communicate directly with customers, augmenting what is possible for an employee to know. Adopting cognitive commerce approaches and technologies can lead to many benefits such as: Better collection and aggregation of data, resulting in deeper, richer insights into customer behavior. Merchandisers and marketers are greedy for data on customer behavior and sentiment essentially, any information on how a customer interacts with the brand. Understanding whether a customer had a positive experience, if they would continue to be a customer, and if they are sharing and either recommending or not recommending the company is all extremely valuable insight that should be used to serve that customer better. product will be able to find and buy a product on their terms, and get their needs met in the moment. Improved company bottom line. Organizations that understand exactly how their customers shop when, what they buy, and what channel they prefer can greatly reduce spend on advertising and marketing, while simultaneously improving their inventory turns and maintained margins. By knowing that a customer buys paper towels at the beginning of every month, merchandisers can send them a promotion through or app right when they re ready to order minimizing the chance the customer will explore or buy elsewhere. Organizations can also improve customer experience and in turn, customer loyalty increasing the likelihood the customer will become a repeat shopper. Armed with new technology and a more streamlined organization, companies will be in a position to lower the friction and accelerate the pace of insight discovery and execution. Turning insights into action will first show results in more intelligent customer engagement, and ultimately improve the entire organization. Less time spent wrestling reports and more time for finding deeper, more strategic insights. Merchandisers spent inordinate amounts of time and energy wrestling customer data into reports, checking the cleanliness, and reconciling anomalies that they aren t entirely sure are real or meaningful. Imagine a world where that daily grind is nearly eliminated, allowing merchandisers to not only execute routine pricing and merchandising tasks to serve shoppers, but also to analyze and anticipate larger trends and critical micromoments in the life of an online shopper. Better digital experiences for employees and customers. Employees used to working in spreadsheets or other manual tools will appreciate the ability to work with customer data in all capacities within a single automated tool that they can use independently. Correspondingly, customers searching an ecommerce site or receiving an promotion about their favorite

9 7 Key Recommendations Online customers demand an increasing level of personalized response, and the companies that win this race will move quickly and with all functions united in service of their customers. As businesses seek to gain a competitive advantage through customer obsession, the information they use to inform their merchandising practices and tactics needs to be deeper, more accurate, and delivered faster than ever before. Companies not only need to streamline their organization and establish governance around data, but also adopt solutions that allow for better and timelier analysis of customer data. To effectively evolve into a customer-obsessed organization, companies must: Integrate technology to collect, analyze, and share all customer data. Develop governance, standard operating models, and integrate technology to cover all parts of the data journey from collection to aggregation, to analysis and insights. This new structure should emphasize easy access and sharing of data providing the benefit of improving cross-channel communication, reducing time to action, and supplying relevant reports necessary for effective merchandising decisions. To do this, organizations must integrate and move together as never before. Partner with marketing and available data/analytics resources to optimize the value from available data. No matter how skillful your employees or robust your tools are, if teams aren t communicating or sharing information, business opportunities are going to fall through the cracks. Organizing and aligning employees to understand their common mission and how they can work together better will bode well not only for employee efficiency but will get the most out of the customer data you have. Having an organization that excels in multiple functional areas like ecommerce merchandising, digital experience, data analysis, and marketing and ensuring these skill sets all contribute to customer communications will truly set your organization and its customer experience apart from others. Develop insights to drive customer engagement through technology innovation. Technology innovation is essential to building out more robust data analysis capabilities and, by extension, developing broader and deeper customer insights. Systems that are slow, require lots of manual input, and don t integrate well with others will impede your organization s goal of developing a 360-degree view of its customers. Having an integrated technology approach that manages all customer data from collection to insights development will improve the lives of employees, and make it easier and less time-consuming for them to do their work. Improving technology also sets up the business for potential future innovation in the areas of data analysis (predictive analytics) and insights development (machine learning, artificial intelligence). Measure the impact of analytics innovation on customer engagement and sales. Building out a broad and deep collection of data and insights detailing customer reactions is equally as important as knowing what and when a customer wants to buy. Companies need to understand how customers are responding and reacting to campaigns, promotions, and even store design, and then use that information to act accordingly. Measuring impact is critical to making the customer-centric changes that build a sustainable, long-term relationship with your customer. Use technology to work at the speed of the customer. Organizations committed to online commerce find the speed at which their customers move breathtaking. Given the need to master data and derive actionable insights, quickly share them across the organization, and respond to customers, companies must move faster, use technology, and master the concepts of cognitive commerce. Only in doing so can companies evolve to an environment where both staff and technology can adapt and learn quickly.

10 8 Appendix A: Methodology In this study, Forrester conducted an online survey of 137 merchandising and ecommerce professionals in online retail organizations in the US. Questions provided to the participants asked about what practices and technologies they used for online merchandising analytics, how their teams worked across functions and roles, and what challenges and opportunities they saw with improved merchandising analytics capabilities, such as real-time insights and cognitive commerce. Forrester also conducted six in-depth interviews with senior leaders of online commerce, merchandising, and analytics to dig deeper into strategies, developments, and challenges in this area. The study began in March 2016 and was completed in April Appendix B: Supplemental Material RELATED FORRESTER RESEARCH The State Of Retailing Online 2015: Marketing And Merchandising, Forrester Research Inc., August 21, 2015 Defining The Online Marketing Suite, Forrester Research, Inc., October 17, 2015 Appendix C: Endnotes 1 Source: The State Of Retailing Online 2015: Marketing And Merchandising, Forrester Research Inc., August 21, 2015