Using BI to Sharpen Your Competitive Edge

Jul 07, 2009 11:13 PM  By

E-commerce is one of the few bright spots in retail today. Its predicted growth is even more encouraging: Forrester recently projected that the Web will continue to gain share of total retail sales in the next several years.

Despite the continuing innovations in e-commerce and retail technology, many retailers lag behind in effectively managing their multichannel businesses. Siloed information is a common enough problem in a single-channel business.

Add multiple channels to the mix, and the problem grows in complexity—especially given the tendency of most retailers to treat the channels as three separate businesses. For customers who shop between channels, this lack of cohesion leads to a frustrating shopping experience.

Creating a positive, consistent customer experience across all channels is essential, especially in a time when customer loyalty is shrinking. Each channel has its unique benefits—the online channel offers a richness of product information, whereas the retail store offers tactility and instant gratification.

But true multichannel success can only be achieved when the retailer has visibility into all channels separately and as a single, cohesive business. Retail-focused business intelligence (BI) and analytics can help.

Visibility into shared inventory and data
Limited visibility across channels creates problems for both customers and retailers. This issue has been exacerbated in recent years by the recent growing number of customers who regularly shop between channels.

It’s important to give customers this flexibility and to make it a fluid and seamless process. But most retailers still struggle with inventory and fulfillment for these cross-channel purchases.

What’s more, if retailers do not “share” their sales and inventory data between channels, it’s difficult to determine where the sale should be credited. For instance, if a customer researches the product and then reserves it online to pick up in-store, the sale can be wrongly attributed to the store if sales data is not integrated. Over time, this can lead to inflated sales performance data for particular stores and sales staff.

Another important benefit of business intelligence for multichannel retailers is the ability to have collaboration between distribution centers—a key to properly allocating inventory. So not only can you redistribute your inventory from store to store, but also between the store and the online channel.

If the demand for a product is high online but low in certain stores, the excess inventory from the store distribution center can be reallocated to the online channel. This practice reduces inventory bloat and increases full-price sales, and it’s only possible by having transparency and visibility into inventory across the enterprise.

Analytics can help merchants plan more effectively across channels and buy with all areas of the business in mind. Many retailers currently make multiple buys for each channel, along with accompanying safety stock—a highly inefficient process that ties up far too much capital in inventory.

Optimizing multichannel marketing and merchandising with BI
Retailers should use the insight provided by retail-focused business intelligence and analytics to become smarter about their cross-channel marketing and the merchandising mix. BI empowers retailers to get feedback early in the cycle about which products are selling and what companion sales they are bringing in online.

Retailers can then use online sales performance as an early predictor of what is likely to sell in specific store locations. This method of testing products online can be extremely valuable, especially for the products that retailers may see as riskier for rolling out to all stores.

Conversely, early detection of sales trends in the stores can help boost e-commerce revenues. BI and analytics can help retailers monitor top-selling items, as well as the average dollar purchase and number of items purchased. Web merchandisers can learn from this and group items and promotions accordingly based on market basket affinities in the store.

Business intelligence can also give retailers a better picture of customer loyalty, whether the customer is visiting online, via catalog or in the store, enabling greater accuracy in customer loyalty marketing. It is critical to maintain collaboration among marketing and merchandising personnel between channels. BI allows for metrics between these groups to be shared and provides a common language for discussing the performance of these programs.

What should you look for in a multichannel retail BI system? Data integration from any system: The ideal BI solution for multichannel should have an open structure and database and be designed from the ground-up to handle multiple channels.

Additionally, the ability to source from almost any system—including legacy and homegrown ERP and transactional platforms—can mean a longer life for the IT systems that have already been paid for. Business intelligence can extract and consolidate data from these older systems, prolonging their value and saving time-consuming and expensive replacements until they are absolutely necessary.

You also want flexibility: Look for a system that can handle a wide variety of hierarchal structures to analyze the business.

Metrics are the bread and butter of BI, and retailers need a solution that takes into account both conventional metrics (such as comp store, sales against plan, and gross margin) and dynamic calculations that combine related metrics (such as lost sales, sales at full price, and contribution). You need to look at both types of calculations in order to find balanced performers— from stores, merchandise, and classification to vendors and customers.

And you need a system that provides storage of historic data. A solution that stores historic data provides the ability to document relationships between channels—which in turn allows retailers to do more investigative work across channels.

The future of retail is undeniably multichannel. In today’s economic climate, retailers must have a holistic view of their entire business, along with the ability to manage inventory and customer data with 360° insight. Many multichannel retailers often feel as though they are running completely separate businesses stitched together precariously by spreadsheets.

The right business intelligence and analytics tools can help weave these channels together, enabling savvy multichannel retailers to continue capitalizing on the success of e-commerce and successfully implementing strategies that satisfy consumers’ demand for convenience, selection, flexibility and brand consistency.

Jeff Buck is CEO of QuantiSense, a provider of business intelligence and data warehousing applications for retailers.