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How Retail Businesses Use Business Intelligence to Maximize Profitability

December 22, 2013 By Gail Gardner 6 Comments

Big Data both structured and unstructured
Click image to see The Retailers Guide to Big Data [Infographic]
Classic retail business design involves choosing a product, determining the proper price through supply and demand analyses, and setting up a distribution channel.

One of the earliest examples of a famous retail operation is the Sears, Roebuck, and Company.  They are famous for their longevity, as well as their famous catalog, which has been published for over 100 years.

Interestingly, modern marketers are stupefied when they realize that Sears delivered their voluminous catalogs free of charge, even to customers that rarely made purchases.  They immediately imagine Sears’ retail profits being eaten up in their catalog-publishing department.

Although the market environment once allowed this type of operation, modern companies must streamline every part of their marketing, including catalog advertisements.

Does this mean that Sears could have categorically stopped their catalog publications, expecting customers to transition smoothly to online catalogs?  Probably not, unless they were prepared for the kind of revolts the Greek government is experiencing.

Some Sears customers only use paper catalogs, and others still prefer it even though they have online access.  How can Sears know how to design a transition to online catalogs?  The answer lies in business intelligence for retail.

Traditional Methods for Retail Analysis

If Sears were trying to decide whether to abandon hardcopy catalogs, they might start by asking their customers through surveys.  Although this might be a good strategy, customer surveys are biased to the imagination of the customers.

Many will simply say they want catalogs because they might somehow need it.  It costs them nothing in any case.  For these reasons, a survey is not a good way to determine the true customer priority of whether they would prefer a catalog to having lower prices.

The sure way to determine customer action is to observe the customer behavior after a change.  For instance, Sears could decide to discontinue the catalog for one month and observe a single parameter: revenue during that month.

However, to keep other parameters from affecting the outcome, they would have to freeze all other marketing campaigns, including sales, promotions, or changes in product offering.

Even if they could freeze the controllable parameters, their study would still be subject to uncontrollable factors such as seasonal buying patterns, the changing economy, and changing customer demographics.

Using BI Platforms for Multivariate Analysis

The solution is to use a business intelligence (BI) platform.  These platforms use statistical analysis techniques that can take into account multiple parameters that are changing at the same time. The analysis platforms can use all of the big data from the retail outlets, and determine the sensitivity of revenue to catalog availability.

The bottom line is that some customers will miss the paper catalogs, but Sears may still be justified in discontinuing catalog publication for the best overall customer satisfaction and the best profitability. The big data can even determine the effects of a tradeoff solution, such as limiting catalogs to customers with recent purchases.

Product Focus

Product shelf space is also a critical decision in modern retail.  In decades past, stores would stock any items that customers requested.  This was sufficient for a low competition environment.

However, modern companies cannot wait for a customer to request an item.  If the industry is already supplying the item, an individual store cannot risk having a customer come to the store, then leave in disappointment to buy the item from a competitor.

Conversely, if a customer asks for a specialty item that no one else will buy, a store may need to disappoint the single customer in order to maintain low prices for remaining customers.

How can a store make such a complicated decision?  Business intelligence platforms supply the necessary algorithms to optimize profitability through product offerings.

In fact, they can accommodate a third dimension, where a particular product may have too low a demand or too big a footprint to keep in local inventory, but can alternately be offered online.

Summary

These are just a few of the examples where business intelligence for retail can take advantage of the great amount of available data to yield critical decisions.  Modern companies can use business intelligence to help optimize all of the facets of retail business design.

Related Reading:

  • Loshin: Keys to managing better business intelligence programs
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Gail Gardner

Small Business Marketing Strategist at GrowMap
Gail Gardner is the founder of GrowMap.com. She is a Small Business Marketing Strategist she mentors small businesses, bloggers, and freelancers. After 23 years in the field with IBM and 5.5 years managing AdWords accounts, her focus shifted to small business marketing strategy. GrowMap.com is listed by Cision as a Top 100 Site for Marketers and has received three Small Business Influencer Awards from Small Business Trends. Named by D&B a Top 50 SMB Influencer on Twitter, you can follow Gail @GrowMap and on LinkedIn.
My Twitter profileMy Facebook profileMy Google+ profileMy LinkedIn profileMy Pinterest profileMy Tumblr blogMy YouTube channel

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Filed Under: Small Business Advice, Uncategorized Tagged With: big data, business intelligence, retail business, small business advice

Comments

  1. Anders says

    October 2, 2017 at 6:18 am

    Very interesting read Gail! Really informative and helpful points about business intelligence you take us trough here!

    Reply
  2. Tyler Lubben says

    July 8, 2016 at 7:24 am

    Hey Gail Gardner !!

    After reading your blog its really nice to read your articles.i appreciate your blog.Retail businesses are faced with several big decisions during the holidays, from determining proper price points, choosing the right promotion outlets, setting up distribution channels, or deciding whether or not to carry a product in a store or online only. To maximize profitability, retail companies are taking advantage of BI tools to streamline every facet of the retail business.

    keep posting such articles.
    Have a great day
    Tyler Lubben would love you to read ..Tableau Mapping Home Offices & Client OfficesMy Profile

    Reply
  3. Tyler Lubben says

    June 22, 2016 at 11:02 am

    Hey Gail,

    Thanks a lot for sharing this post!!

    It helped me a lot to know about business intelligence and how it is used to maximise profitability.I will surely try business intelligence tools in order to make my organisational data more interactive and knowledgeable.

    Looking forward for more posts 🙂

    Reply
  4. subhash acharya says

    December 31, 2013 at 6:23 am

    Remarkable post, very informative and very essential for the progress of modern evolution. I expect more such information in future.

    Reply
  5. iDev says

    December 24, 2013 at 10:45 am

    Honestly, I never think before about this. After reading the post I also want to make my small business a brand. Thanks Gail 🙂

    Reply
  6. Ashish says

    December 22, 2013 at 7:30 am

    Hello Gail,

    Well as small business owner I wasn’t aware of Business Intelligence and it would be really useful to maximize profits at high levels. The points you’ve shared are really informative.

    Thanks
    Ashish would love you to read ..Spy Technology now Available to General Public.My Profile

    Reply

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