Retail is an industry where the old 80/20 rule certainly applies. Many retailers make most of their money from a relatively small group of core customers. Loyalty programs were created as a way to make those customers feel more special -- and get them to spend more money.
Yet few retailers use such programs to their advantage, says Greg Buzek, president of the IHL Consulting Group, in an August eWEEK article. Buzek says most stores simply offer customers discounts on products they already purchase instead of trying to analyze patterns in their buying behavior to find out new ways to appeal to them.
A desire to gain greater visibility into their customers' behavior is leading retailers to adopt business intelligence. Nearly 70 percent of retailers recently surveyed by the Aberdeen Group already use BI tools while another 26 percent plan to invest in BI. The ability to react quickly to changes in customer demand was the number-one reason for adopting BI cited by survey respondents, according to a CIO.com article about the research.
Compared to their more average peers, the companies Aberdeen Group identifies as best-in-class tend to use BI tools and technologies to obtain a more long-term view of their customers' behavior. From the Aberdeen report (which may be downloaded for free through the end of March) :
Best-in-Class retailers are almost twice as likely to focus efforts on improving the lifetime value of their customers as a business intelligence strategy. This involves understanding customer profitability, the offers and incentives that draw customers back for repeat business, and the ability to take advantage of opportunities for cross-selling and up-selling customers on subsequent visits.
British retail chain Sainsbury's is one company that appears to want to move in a more proactive direction. As detailed in a Computerworld UK article, it is undertaking a multi-stage BI initiative with partner the Loyalty Management Group.
In phase one, Sainsbury's will analyze sales data from its stores to monitor the performance of selected brands and determine when and where sales are strongest. Analysis will also yield information on which products consumers purchase together and, if sales drop, which products shoppers buy instead. The second phase will offer information on how promotions affect sales and how well new products sell in stores. A proposed third phase would analyze data to determine which kinds of media are most effective for sales promotions.
According to LMG's development and support manager, the system can get quite granular with data from members of Sainsbury's loyalty program. He says:
We'd be able to show information like: women aged 18-30 in a certain part of the country are buying a lot of Diet Cola.