Whether
we’re considering specialty retailers, grocery chains, general merchandisers or
online retailers, the retail industry today converges around the following challenges
– post-recession growing pains (including unique challenges in mature and
emerging markets), price sensitive markets, low buyer switching costs,
challenges in customer loyalty management, and operational inefficiencies in
logistics, inventory management, shop floors, etc. Added to this is the relatively
lower level of IT implementation, compared to other industries.
Today,
there is an increasing reliance on data and insights in business decision
making. Where senior management expertise was once enough, the use of analytics
to guide strategies is on the rise. Naturally, this applies to retailers across
the globe, given the many challenges that they must overcome in the next few
years. However, when it comes to analytics, the retail industry faces an
interesting problem. While companies in other verticals may envy their evolved
data availability, the reality is that retailers struggle with simply
maintaining their data, leave aside using it meaningfully to generate business
insights. Major data
issues (even today) include:
No team players - Disaggregated, isolated data
architectures that aren’t giving retailers a comprehensive view of their
business. There’s multiple Business Intelligence (BI) tools in use, point of
sale (POS) data that doesn’t talk to inventory data (as an example), and
overall siloed systems
Short attention span - Considering large retailers deal
with billions of transactions each month, there’s bound to be a trade-off
between the cost of retaining vs. forgetting data. An undesirable ceiling on
data retention, and the granularity of data retained is a big concern when the
analytics experts show up. Some research shows that retailers save as little as
a month’s worth of POS data and a year’s worth of inventory data, making
historical analysis and trend projection extremely challenging.
While
analytics can definitely help retailers tackle their burning business problems,
for a large chunk of the market, the conversation today must start with their
data warehousing issues. This doesn’t mean that opportunities don’t exist –
according to our research, the retail industry presents the strongest market
opportunity for analytics. Retailers of all sizes are starting to experiment with undertaking analytics, albeit at a
micro-level, to improve their top-lines and bottom-lines. For smaller analytics
companies, these focused analytics initiatives are where they can look to
partner with retailers. Primary focus areas for analytics in the retail
industry are elaborated below:
It is
important to note that several mature global retailers have overcome some of the
challenges discussed here. They have in fact been benefiting from undertaking
analytics since the 1990s. For them, it is the next wave of expansion and
growth through latent opportunities that are interesting from the analytics
perspective. Emerging areas for analytics attention for mature retailers include:
Next-gen buzz
analytics -
including qualitative analysis of web chatter for multiple end objectives such
as reputation management and sentiment analysis
On the go customer
targeting –
including the potential ability to process real time POS data to suggest
tailored promotions, geo-targeting and promoting through mobile devices, the
use of video surveillance analytics to guide behaviour, etc.
What this
means is there are different types of opportunities for service providers
targeting the retail industry. Just as retailers need to evolve to offering
tailored promotions for their customers (through analytics), analytics
providers must offer differentiated solutioning for retailers too, depending on
their type! We’ve explored the scope for similar verticalized analytics
opportunities in our recently released report, “Where Offshore
Analytics is Heading in 2011” , co-authored with HfS Research.
- Reetika Joshi, Project
Manager – ValueNotes Sourcing Practice
