Business Intelligence as a Competitive Advantage in the Retail Industry
Compared to other sectors, like finance and technology, retail can be considered a late adopter of the advantages offered by business intelligence to daily processes. This is a paradox, as the operations in retail are some of the most well adjusted for the insight provided by digital dashboards.
Questions like: “Who is your ideal client?”, “What are the products you should promote?” and “Which items should you sell as a bundle?”, “What is the preferred way of paying?” and “How do your clients engage with your brand?”, can all be answered through a BI platform that integrates point of sale data with demographics and interactions from online interfaces.
Why is Business Intelligence a solution for retail?
The value of BI comes from the evolution of retail companies from organizations based on operations to companies built on innovation. The intermediate stages are consolidation, integration, and optimization. This is a journey from ad-hoc to automation, from naïve to well-defined processes that also gain a predictive dimension. Most retailers are said to be in the integration stage, where the company has enough data to make decisions based on market signals, but the vast majority are not leveraging what they have. Most companies offer three stages of business intelligence consulting, similar to Itransition: monitoring intelligence, analytical intelligence and predictive intelligence, the most important stage.
Business Intelligence is a general name for several applications that can help a company have an integrated overview of vendors, stocks, clients, payments, and marketing. This is a new approach, in contrast to the siloed way of working, specific to the pre-dot com era. A store is like a living organism. Treating each component separately prevents the organization from seeing the bigger picture and the cross-influences that could be used as profit centers.
What are the main BI applications?
Data can show a company how to size their stocks, price products based on demand and create promotions and sales targets to maximize revenue.
Costs, Prices, and Stock Management
Net profit in retail is small, therefore pricing the product to avoid losses and remain competitive is one of the greatest challenges. All costs of doing business should be taken into consideration, including unexpected situations. Decisions are based on scenario planning and making seasonally-influenced decisions.
Stock management is one of the costliest aspects of retail and BI solutions are striving to create the perfect model for optimization based on past purchases and future trends. A great app offers stock analysis, highlights the best-selling products and creates replenishment orders for these while simultaneously advising the managers to cancel orders for the worst-performing products.
Numbers help you get into the mindset of your clients, see their path from learning about your existence to becoming advocates of your quality. You need to understand the correlations between their demographic and sociographic characteristics and the content of their shopping carts. Pinpoint the link between the ads they see and the products they buy. Drill down to find out their whereabouts, payment methods, time spent in the brick and mortar store or the online retail environment. Put all this data together to create product bundles and promotions.
Vendor Management and Evaluation
Without a vendor evaluation, there is no business growth. You need to see per product results, per vendor analysis and take decisions accordingly. A BI solution should consider things like delivery time, client’s satisfaction with the return policy and even brand perception, if applicable.
Sales, Targets and Performance Analysis
In a small neighborhood store, you might want to know what the best-selling brands are and which of the sales assistants are generating more revenue, while in a multi-national corporation you may need to know which branches are meeting their quotas and which are falling short. In fact, these problems are primarily the same; only the scale is different. In this situation, BI is a great tool due to its scalability.
Additional drill-down levels can be added to an existing solution to get to the root of problems. The BI system can be the base of strategic decisions such as the product mix offered or the bonuses and promotions given to sales agents. The numbers from the dashboard also give a great estimate for setting attainable but motivating sales targets, based on the forecasts.
Trends, Forecasting, and Planning
Even retailers in the 1960s were looking at historical performance. The difference in the smart systems is that you no longer have to wait until the end of the month to do the math and see how the business is doing. A BI system performs in real-time and can dynamically adjust actions to maximize your profit. It’s like constant course correction when sailing to your destination, instead of waiting to see where the waves will take you.
Setting the Right KPIs in Digital Dashboards
Each organization has the possibility of setting their own KPIs, depending on the activity type, strategy and business proposal, but there are a few general guidelines that can be successfully used as defined by Supply Chain Operations Reference (SCOR) Level 1 metrics. These include:
- reliability measured by order fulfillment and delivery performance;
- responsiveness, usually expressed as time;
- flexibility as a combination of vendor agility and product production
- Asset management efficiency.
When it comes to client-related metrics, you can be inspired by the sales funnel approach to select the best metrics. These include passing from one stage to the other: measuring entry point leads, computing conversions rates, the price per conversion, the value of the conversion, the price of the average sale and the time spent in the funnel. Costs of recapturing missed opportunities through re-marketing are also necessary.
Depending on your business model, you are responsible for setting up KPIs to measure the performance of the sales agents.
Where is the retail industry heading?
The retail industry is a mature market, with low net profit rates (1.5%- 5%), where every process optimization and cost cut can mean the difference between survival and being out of business. Business Intelligence offers marketers, financial advisors, and strategists a starting point in their quest for a better understanding of clients’ needs and a better anticipation of the necessary steps to remain relevant.