Retail TouchPoints: Professor Tom Davenport Advises Retailers to Cultivate Potential Benefits of Analytics

By Debbie Hauss

Through a
special arrangement, presented here for discussion is an excerpt of a current
article from the Retail TouchPoints website.

Industry experts and
retailers themselves agree that most retail companies have not yet realized
the full potential of the breadth of analytics available to them today.
Economic climate aside, retailers must strategize for long-term success,
and using analytics effectively can go a long way to creating security
for businesses on the other side of the economic recovery.

Recently SAS and Teradata commissioned
a study on analytics along with Tom Davenport, professor at Babson College
and co-author of the book Competing on Analytics. The original plan
for the study was to focus on specific themes related to analytics in retail,
but Prof. Davenport quickly found out that first the industry needed to
take a step back and evaluate all possibilities and potential retail analytics
could provide. The recently published study is titled: Realizing the
Potential of Retail Analytics
.

“I was surprised
by the huge potential of retail analytics and the breadth of opportunities
retailers have to choose from,”
said Prof. Davenport. “But I was equally surprised at the lack of coordinated
approach coming from retail businesses. It was difficult to find one person
in retail who could speak to the broad range of analytical activities.”

During interviews with
33 retailers and more than 25 retail analytics experts, Prof. Davenport
noted that the same companies came up over and over again when discussing
best practices. Companies like Best Buy, Walmart, Target, Kohl’s and J.C. Penney have taken the lead
in developing successful processes using specific types of analytics. But,
he noted, none could speak to the complete realm of analytics resources.

Overall, Prof. Davenport
found “companies that have aspirations to be big and successful are
focusing most closely on analytics, including department stores, online
retailers, and probably most of the large discount retailers.”

Increasingly retailers
of all stripes are finally recognizing the potential benefits of analytics,
and some have very recently changed their outlook regarding analytics. “A
few years ago I did some work with TJX and at the time they said: ‘We are
traditional merchants and are not sure analytics relate to kind of merchandising
we do.’ But they are not saying that anymore.”

While Prof. Davenport
began the study before the most severe economic downturn, he hopes that
retailers will continue to invest in analytics. “It is pretty clear
that the really great, well managed companies continue to invest in analytics,
even in a down economy.”

Discussion Questions:
Do you agree that the retail industry has shown a “lack of
coordinated approach” in embracing analytics? If so, why have
retailers been slow to explore and capitalize on the full range of retail
analytics available? 

BrainTrust

Discussion Questions

Poll

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Jonathan Marek
Jonathan Marek
15 years ago

I agree with the idea that many retail analytics “solutions” are egg-heady, overly theoretical, and/or divorced from the way retailers think. Solutions such as SAS don’t really help; they just empower the academic types that can’t talk to the business. So in the end, business decisions do not change for the better.

The key is to deploy analytical processes and tools that are robust, retail-specific, and usable by a retailer’s own business analysts (not merely academics or consultants). The analytics should tie directly to decisions, convincing senior execs to make more profitable decisions that they wouldn’t have made otherwise. That’s what we’ve done here at APT, building software and support to help retailers Test & Learn in their networks.

Tom Davenport actually has a fantastic article in the Feb 2009 Harvard Business Review about on the use of Test & Learn in retail, highlighting the experiences of many of APT’s clients.

Bill Bittner
Bill Bittner
15 years ago

I tend to agree with the professor’s observations, but I believe retailers’ myopia is not confined to merely analytics. It extends to their whole role in the modern marketplace.

More than ever, retailers must appreciate they have two customers. They have the traditional consumer on one end and the manufacturer at the other. As consumer spending declines and retailers must scrape for more revenue, one important source is the manufacturers they serve. I don’t mean beating them over the head for cost reductions, but rather offering them the kinds of services that can only be derived from analyzing the behavioral data the retailer possesses.

By putting in place targeted promotions, special promotion events, and manufacturer specific store displays where they can have the largest impact, retailers can offer unique opportunities to their suppliers. This can get them additional service fees or special discounts that are not available to their competitors. This is particularly beneficial for the small manufacturer who does not have their own analytical capabilities. It can also help the retailer promote their own private label products.

Cathy Hotka
Cathy Hotka
15 years ago

Davenport is right. Unfortunately, retailers sabotage themselves by investing in technology slowly and reluctantly. Retailers who have embraced analytics have dramatically better results; they’ve learned that facts beat opinions nearly every time.

Camille P. Schuster, Ph.D.
Camille P. Schuster, Ph.D.
15 years ago

How can retailers create consumer strategies if they do not know what consumers are purchasing on a real-time basis?

Ron Margulis
Ron Margulis
15 years ago

I remember visiting the buyers at Wakefern when I was in college in the 1980s and every one of them had a stack of computer printouts in one (or two or three) corners of their offices. They’d be there weeks later, or maybe they would be changed out with new stacks of printouts. Either way, it was clear they were not being used all that often. The buyers used their intuition and there was a fairly large acceptable margin of error.

Fast forward about 25 years and the stacks are now sitting on large storage drives, which should make them easier to run the data through modeling programs. More importantly, there is a much smaller acceptable margin of error, so buyers should use the tools available to help optimize their decisions, but still they rely on intuition too often.

If there is one positive for retailers to be found in the current reset of the economy it is that in order to compete effectively, companies will need to understand the complexities of the marketplaces they service even more than ever before. This will mean a greater reliance on science and less use of gut intuition, which in turn will give that science a greater impact on the bottom line.

Ryan Mathews
Ryan Mathews
15 years ago

The old bromide is that retailing is more art than science. The truth is that we need to let science do the things it can do (quite a few in a retail environment) and let “art” to the things it does best–merchandising, innovation, creating a sense of excitement. Analytics are underutilized today but that shouldn’t be an excuse to maintain the status quo,

Susan Rider
Susan Rider
15 years ago

Retailers fall into the same old trap; many companies do what they’ve always done, resisting change. This won’t work for long and unfortunately, it isn’t discovered until the company is already in a head-long downward spiral. Many retailers have not seen merchandising as a strategic advantage and have simplified the approach. How many have an analytics department or person supporting merchandising, marketing and supply chain? Few. But with the changing demographic and the disparate marketing concepts reaching each demo, analytics are critical.

Phil Rubin
Phil Rubin
15 years ago

This is a great illustration of the reality that many businesses, especially in the retail industry, are still making decisions without solid analytics. They don’t know the numbers behind their business or their customers, where some of the most important data (and corresponding analytics) come from.

As retailers spray and pray with mass- or poorly-targeted marketing, imagine what they could do if they simply understood which customers were still with them (e.g., maintaining or growing their spend) versus which ones were trailing off? Not only could they then speak more relevantly to them, but they could better tailor their marketing (and merchandising) investments to the customers that presented the highest probability of returning to the store and spending incrementally.

Analytics are not a new concept. As Harold Geneen, former Chairman and CEO of ITT said nearly 40 years ago, in order to properly manage a business you’ve got to know the numbers. See http://www.leanlibrary.com/alfred_sloan.htm for more info on Geneen and his “predecessor” in this school, Alfred Sloan.

David Livingston
David Livingston
15 years ago

I’ve actually done some reading on retail analytics today and I’ve concluded why retailers have been slow to embrace them. My conclusion is that retailers don’t know what the heck these college professors are talking about. I’m going to predict we get few meaningful comments on this subject today. Perhaps I will be proven wrong. Retailers need an interpreter to have retail analytics explained to them in plain English.

Michael Boze
Michael Boze
15 years ago

What I have found over the years is that retail analytics provide meaningful insight to your business. The challenge for the management of these retailers is to embrace the data and if need be, to change their business strategy to take advantage of what they are learning through analytics.

Big retailers run under the premise that more advertising and sales promotion is the elixir for all their business problems. Tell the head merchant that you can cut your advertising and sales promotion cost and reinvest in staffing and see where that gets you. More advertising is [seen as] better.

Pass me another 20%-off coupon please….

Marge Laney
Marge Laney
15 years ago

The retailers I’m familiar with are awash in analytics. All data in the retailer’s environment are interrelated in some way and impact performance to varying degrees. Unfortunately, the information is not being presented in a useful way. Solution providers generally give very restricted views based on their product. Most retailers are struggling to integrate data from several different sources and attempting to analyze the relationships and the impact on the operation. After all that, they must develop actionable strategies that can be economically executed across their brands. A formidable task, but worth it in the long run.

Dr. Stephen Needel
Dr. Stephen Needel
15 years ago

After reading today’s comments, I’m struck by the disappointment in the tools available and by the fact that nobody is mentioning the lack of skilled people in place at the retailer. Data is data–it takes an intelligent being to turn it into useful information. If software tools are not doing the job, maybe a human is required to turn the data into information, then work backwards to systemize what that person did.

Mike Romano
Mike Romano
15 years ago

Although technology has made exponential strides the past 5 years, and the list of analytical tools and software is endless–to the point of creating confusing hype to the buyers–I’d estimate 40% of retailers have a marginal or better scorecard with analytics and 60% are poor to non-existent.

The challenge for all is that although the tools are better, the customer data sets are becoming more complex with added commerce channels, expanded micro-product sets, social network marketing, new consumer marketing channels of voice and mobile, changing marketplace with the economy, media fragmentation with TiVo, MP3, satellite, etc, etc….

The consumer world is changing, literally before your eyes, so retailers must do a better job recognizing where their customers live and their evolving lifestyles, or they risk falling further behind their competition.

There’s a reason retailers are failing, and it has more to do with analytics and connecting with their customer direct, than it does with the economy or their merchandise.

Ben Sprecher
Ben Sprecher
15 years ago

As a few other commenters have mentioned here, one of the biggest challenges facing the adoption of analytics in retail is the chasm that exists between the technical analysts who know how to use the sophisticated analytic software and everyone else who is actually running the business. Often times, the two groups just don’t know how to talk to one another.

This leads to a real fork in the road: a retailer must either invest in expensive software and people to master the data and work hard to weave analytics into corporate decision making, or else they must resign themselves to flying by the seat of their pants. Rarely does a retailer embrace analytics in a way that permeates the entire organization.

What has been missing until now is “Goldilocks” analytics–not so complex that it requires a different class of user, but not so simplistic that it isn’t relevant and actionable. My company, Incentive Targeting, is working to bring that middle ground–analytics that do less than the SASes and Teradatas of the world, but most of what’s needed–at a tiny fraction of the cost and complexity.

Only once retail analytics is used by everyone in the organization, not just the “techies,” will it have a major impact on the day-to-day operating decisions being made.

Kevin Sterneckert
Kevin Sterneckert
15 years ago

While retailers have much to learn, the solution providers need to learn more. On a daily basis I speak with solution providers who have great analytical tools, but they do not really understand the target users. For example, in retail grocery, a buyer plans promotions 12 to 15 weeks in advance. Each of those weeks are in different stages of completion with the nearest week locked down and the week furthest out at the item selection phase. That same buyer could have 10 to 15 items they are assigned to include in each of the 12 to 15 circulars. The current process for most of the available solutions is a linear step-by-step process that takes entirely too much time and forces the buyer to engage in lengthy interactions with the software.

So just as one could argue that retail has not embraced the capabilities of advanced analytics, I would argue that the solutions providers need to understand at increasing levels exactly how the solutions can be used to improve the process and increase the level of insights that drive action. If solution providers made the use of their technology focused on the real users, unwrapped the black box, and delivered actionable insights the organization can understand and wrap their heads around, believe me, retailers would run in droves to implement!

Jules Boasberg
Jules Boasberg
15 years ago

This is a great article describing the necessary marriage between retail and analytics. If you don’t know exactly who your customer is, you’ve got a high probability of missing the mark in advertising, POS, or any channel you’re communicating through.

At Bernstein-Rein, we have an approach to connecting with the consumer that intimately ties retail with analytics in order to best communicate with our clients’ customers…it’s called InsideOut Retailing (SM). Through InsideOut Retailing, we not only pinpoint exactly who we need to talk to, we also pinpoint exactly where and how to communicate with them–from the store level outward. If you’re interested in learning more about our approach, visit insideoutretailing.com.

Lori Schafer
Lori Schafer
15 years ago

I agree with Tom Davenport’s research has uncovered. Especially in this economic environment, what I am finding is that executives in retail are all recognizing they need analytics and are embracing the concept, but are still somewhat reticent to adopt no longer because the technology isn’t there and proven, but because they need help with how and where to get started with practical business applications that tie to near immediate impact on their income statement, balance sheet and cash flow. I sit on the boards of several retail companies and analytics are discussed in each and every meeting by the CEO and management teams. I also have had several CEO’s call me in over the last several months asking me to look at their operations and “how to best get started” where they can see an immediate impact such as inventory reduction or margin improvement. While I work for SAS, I’m first and foremost focused on helping executives with solutions that attack their specific business problems. In every case, its the CEOs that are embracing the need for change, but needing the guidance of how to effectively make the leap.

As an aside, I noticed one response on the blog that these types of technologies (e.g. – SAS) don’t help. I disagree with this one posting as it is a misconception. The days of analytics being addressed by the “white labcoat” gurus are over. Analytics are now embodied within business solutions and the CEOs that are leaders are recognizing that they need to get beyond this misconception and instead are embracing an analtyics framework in their company that can address specific business pain points and that allows them to not only help resolve these challenges but ultimately ‘compete on analytics’ as Professor Davenport articulates so well in his book.

Alexi Sarnevitz
Alexi Sarnevitz
15 years ago

A key message in Tom Davenports’ research is about retailers becoming more Customer Centric by “Develop(ing) close relationships with customers based on a deep understanding of their behaviors and needs.” This means transforming into a Customer Driven Enterprise that executes at a much more detailed level. Recent headlines validate this as leading retailers such as Target, Home Depot and Macy’s have all spoken to the financial markets and press about helping mitigate recession impacts with customer centric efforts such as deployment of assortments that are tailored to local market tastes.

Customer centricity takes retail back to its roots in late 19th and early 20th centuries where sole proprietors provided a preferred experience to their customers. The 21st century difference, given the scale of today’s retail operations, is that customer centricity must be delivered via significant process automation since today’s retail enterprises are too complex for manual execution. This is achieved with scalable business applications embedded with powerful analytics that automate many retail Demand Generation and Fulfillment decision processes. This automation is necessary for evolution into a Customer Driven Enterprise.

Customer Centricity is even more essential for retailers during recessionary times for the following key reasons:

1) During a recession customer buying behaviors change dramatically, customer centric retailers react to and anticipate these changes more effectively.
2)Customer centric initiatives can be rolled out in “bite size” chunks that deliver rapid ROI. Examples include Revenue Optimization, Marketing Optimization and Size Optimization.
3)These “bite size” initiatives are easily scheduled into a roadmap that, over time, will enable transformation into a Customer Driven Enterprise thereby building a strong long term competitive position.

To achieve the needed automation retailers are using ever more sophisticated analytics–simpler analyses just don’t do it. Where the results from automated processes are fed into user driven activities (there is still an “art” element to retail) Kevin Sterneckert is absolutely right that workflows need to reflect actual business processes. Given the advantages highlighted in recent headlines I suspect my colleague Lori Schafer will continue to hear about analytics in retail from fellow board members and CEOs.