Industry Point of View: Customer Analytics: The Bedrock of the Retail Singularity
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1 Industry Point of View: Customer Analytics: The Bedrock of the Retail Singularity Sponsored by Industry Point of View: Customer Analytics: The Bedrock of the Retail Singularity We ve called for the industry to do away with the adjective Omni-channel when describing retail; for today, there is no other kind. Retailers must be able to deliver a consistent, seamless experience to customers, with the ability to execute based on customer-centric scenarios, rather than product or channel-centric ones. We call this the Retail Singularity. Strong customer analytics, in terms of managing internal and external data, applying proprietary and use-case specific analysis models to make sense of this data, and delivering the insights contextually to the right person at the right time, is a foundational capability in this new age of retail.
2 EKN 2 For decades retailers have focused on data and its analysis to drive improvements in core business processes and to improve operational decision-making. With advances in analytical tools and an improved understanding of the value of such tools, the functions that benefitted most were Supply Chain, Finance and Merchandising. As recently as 24 months ago, Marketing s adoption of web and social media analytics was initially driven more from a channel performance measurement and improvement perspective, rather than a need to understand consumer behavior and preferences better. Not only have the volume, variety and velocity of data that a retailer needs to process through its business information systems increased exponentially over the last few years, retailers goals from the analysis of this data have also changed dramatically. From being focused on transparency, efficiency and business agility, retailers now need to focus their analytics efforts on customer insight and engagement. Knowing the customer better than competition and having the ability to orchestrate business decisions at the speed of insight is the new retail competitive battlefield. In the new normal of retailing where the consumer is value-conscious, always-on, mobile-enabled, sociallyactive and channel-agnostic, retailers are finding it difficult to differentiate themselves based on traditional factors such as price, promotions, location and assortment alone. On the other hand, with consumers themselves reliant on technology personal computers, tablets, mobile and smart phones, the Internet, and social media they are leaving behind digital breadcrumbs and displaying their digital body language. Combined with how consumers interact with retailers across their own channels, loyalty programs, promotions and customer service, this mass of consumer data offers retailers their best chance yet to really know their customer. Knowing the customer better than competition and having the ability to orchestrate business decisions at the speed of insight is the new retail competitive battlefield, and business analytics can be one of the strongest weapons in a retailer s arsenal. Retailers have an opportunity like never before to develop an intimate understanding of individual customers by integrating customer data from various sources with data from enterprise systems (e.g. CRM, supply chain, ). Sources of customer data include: Internal sources (e.g. loyalty programs, point of sale, online transaction platform, mobile apps, instore videos) External sources (e.g. social media, public sources such as the US Census) Syndicated sources such as Nielsen and IRI 3rd party partners such as telecom companies, search providers, price comparison apps and aggregators Further, insights from the analysis of such data is what can drive consumer-centric decisions across retail business functions such as marketing, merchandising, stores, ecommerce and supply chain. In EKN s view, the most critical capabilities retailers need in order to be truly customer-centric, are all driven by business analytics. At different levels of maturity and to varying degrees of success, leading retailers such as Best Buy, CVS, Amazon, Target and Wal-Mart among others are leveraging analytics to: Gain a deeper understanding of their customers behaviors, needs and preferences to build a more personal relationship.
3 3 Industry Point of View: Customer Analytics: The Bedrock of the Retail Singularity Improve marketing effectiveness through micro-targeting, personalization and delivery of context and channel sensitive promotions and offers that increase the likelihood of purchase. Optimize the supply chain to ensure the most profitable outcome in terms of demand fulfillment balanced against cost of carrying excess inventory. Determine pricing, including bundle and basket pricing, based on the value customers attach to their needs at any given time. Spot flash trends, such as a celebrity sighting in a particular pair of jeans, that have an impact on demand to be able to turn them into revenue capturing opportunities. Clearly, retailers recognize the importance of deeper customer insights towards the end goal of delivering a more personal, seamlessly integrated experience to consumers. In separate EKN studies in 2013 retailers have acknowledged the strategic nature of customer insights, rating it the #1 goal from analytics initiatives as well as the top expectation of retail marketing executives from technology solutions. The enterprise-wide analytics maturity however belies this stated intent. STRATEGIC USE ANALYTICS MATURITY 83% of retailers lag behind or are at par with competition in terms of strategic use of customer analytics 62% are only capable of basic analytics or basic reporting, forgoing the opportunity of more advanced analysis leading to deeper insight DATA AND SYSTEM INTEGRATION ORGANIZATIONAL ALIGNMENT Less than 30% integrate data from sources such as social media, mobile and public data into their customer insights initiatives 58% want to move to a shared services structure for analytics teams DELIVERY AND CONSUMPTION OF INSIGHTS INVESTMENT IN TOOLS AND TECHNOLOGIES #1 Challenge Challenges that prevent retailers from leveraging analytics more strategically #1 Delivery of insights to the right resource at the right time Nearly 70% plan to invest in Big Data solutions and predictive analytics capabilities in the next 2 years
4 EKN 4 Retailers are relatively more experienced at handling large volumes of data than at integrating a wide variety of data sources and data types, and even less adept at consistently being able to translate data into contextual insights to improve decision making across the enterprise. Further, few retailers are taking the hard steps of re-aligning the organizational structure and raising their investment profile in customer analytics to have a real shot at achieving this oft-stated goal of true customer intimacy. Rather than get caught up in the semantics of buzzwords such as Big Data, retailers must focus on putting together a detailed action plan to improve their analytics maturity. The key focus areas of such a plan should include: Maturity Assessment: To improve analytics maturity retailers should start by benchmarking their current maturity against leading retailers at an enterprise and functional level. This exercise will provide retailers the inputs they need to build a customized development path towards higher analytics maturity. This benchmarking should be done across the following parameters (An excerpt from EKN s Analytics Maturity Assessment Framework) Analytics Strategy Data Software Structure Talent Algorithms Metrics Insights Delivery And against the following groups Format based competitive set Retail leaders (Wal-Mart, Target, Amazon, Netflix, Tesco) Cross-industry leaders Organizational Restructuring: Retailers must take the following steps to ensure they are better prepared in terms of the ability to act on insights as they prepare to make investments in analytics: Training executives and analysts: Analytics training is needed across enterprise functions and levels. Without the right analytical resources and training, even the most advanced tools have no value. Invest in capability building across the board, from executive training to building a strong analytics team. Resourcing: In more than one EKN Peer Forum, smaller (<$1 billion) retailers have identified the lack of analysts, statisticians, economists and other analytics resources as being a key limiting factor of their analytics maturity. Retailers must project the resource requirements of analytics and Big Data initiatives and consider all options to shore up the analytical capability available to them, including considering hiring contractors. Restructuring: EKN s research shows that only 5% of retailers have their desired team structure for analytics in place. EKN recommends retailers move away from an analytics organization model where resources sit within each department or are centralized in any one department (for e.g. in IT or Marketing) to a shared services model for analytics teams.
5 5 Industry Point of View: Customer Analytics: The Bedrock of the Retail Singularity Executive Ownership: EKN believes it is a matter of time until retailers anoint a clear owner for analytics and customer insights at the senior executive level (VP or C-Suite). Instituting such a position is a step in the right direction for larger retailers looking to elevate the strategic importance of analytics in their organizations. Smaller retailers should also define the role, but may choose to have an existing executive position take it on as additional responsibility. Strategic Alignment: Advanced analytics or Big Data is not a technology challenge, it is a business strategy that the organization must commit to, and building proprietary analysis models based on use case and retail format are central to an effective strategy. As part of its digital strategy, Wal-Mart has set-up Global.com to coordinate the company s digital initiatives. It has also set up a board-level Technology Innovation Committee that governs its strategies in areas such as mobility and ecommerce. Investment in Analytics Toolset: Retailers will increase technology spending on analytics from 13.7% of IT budget in 2013 to 17.7% of IT budget in Retailers technology investment plans over the next 2 years: Upgrading analytics maturity: Predictive analytics tool (58% of retailers) and Big Data (47%) emerge as key areas of investment for retailers. Improving delivery of insights: Retailers will invest in digital dashboard solutions (58%) and in improving data visualization (46%). Most importantly, 70% of retailers indicate plans to implement a mobile BI solution, up from a mere 3% in Planned Intellectual Property (IP) Creation and Innovation through Analytics: The effective use of customer insights will differentiate retailers. As competition moves to the digital realm, analytics capabilities and intellectual property assets will be greater differentiators than ever before. Since its inception in 1994, Amazon has received 1,263 patents to Wal-Mart s 53. Over the last three years Wal-Mart has filed more patents than it did in the 35 years preceding it. Evolve your optimization algorithms by integrating customer insights across the business process. Create proprietary algorithms and analysis methods in the areas that you believe can differentiate you from your competition, for instance real-time allocation and fulfillment, real-time personalization. Explore using Big Data technologies and predictive algorithms to create self-correcting technology systems.
6 About EKN Our research agenda is developed using inputs from the end user community and the end user community extensively reviews the research before it is published. This ensures that we inject a healthy dose of pragmatism into the research and recommendations. This includes input of what research topics to pursue, incorporating heavy practitioner input via interviews etc., and ensuring that the bend of research takeaways are oriented towards a real-world, practical application of insights with community sign-off. For more information, visit us at EKNinfo@edgellmail.com About TCS Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery ModelTM, recognized as the benchmark of excellence in software development. A part of the Tata Group, India s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India. TCS is a strategic partner to eight of the top 10 US and five of the top 10 UK Retailers, and helps retailers build deeper and stronger customer relationships, reduce cost and increase efficiency through its integrated IT, BPO and Infrastructure services and Retail Industry Solutions. To learn more, visit or us at retail.solutions@tcs.com EKN is part of the Edgell Family Disclaimer: EKN does not make any warranties, express or implied, including, without limitation, those of merchantability and fitness for a particular purpose. The information and opinions in research reports constitute judgments as at the date indicated and are subject to change without notice. The information provided is not intended as financial or investment advice and should not be relied upon as such. The information is not a substitute for independent professional advice before making any investment decisions. Copyright 2013 EKN Registered Office: 4 Middlebury Blvd. Randolph, NJ Ph: (973)
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