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Software helps retailers bank on holiday shopping success

A customers pays for purchases using a Bank

A customers pays for purchases using a Bank of America credit card at a Best Buy store in Houston, Texas. (Nov. 26, 2010) Photo Credit: Aaron M. Sprecher

As Long Islanders prepare for the competitive sport that is shopping on Black Friday, the major store chains have been doing their own homework, blending science and Big Data with the art of retailing, in a high-tech plan to ensure they make the most of the biggest selling season of the year.

Gut feeling once guided holiday strategies for large merchants. Now they are turning to sophisticated software tools to analyze consumer behavior and shape their prices and marketing plans.

But consumers also are benefiting from technology. Armed with mobile devices and apps for shopping, they have "more information than they ever had, and they can buy anything at any time at almost any price," said Marshal Cohen, chief industry analyst with The NPD Group, a Port Washington market research firm.

"However, I still think the retailer has the upper hand because they already know what the magic price point is going to be and what the hot items are going to be, because retailers are going to dictate it," Cohen said.

Several companies -- including The NPD Group -- offer software products and services allowing retailers to crunch information such as their customer's purchases, searches on their e-commerce sites, general online inquiries for products on search engines like Google and customer feelings about a certain brand or item expressed through various social media venues.

"There's a lot of science about how they [retailers] set promotions," said Kurt Kendall, retail strategist at consulting firm Kurt Salmon. "You are seeing a pretty big transformation in how retailers are looking at pricing so the consumer has to be more disciplined about what's a good promotion. It's a cat-and-mouse game between retailers and consumers."

Big retailers have turned to these tools as pressures on them have grown. "Drugstores now have convenience products and Amazon carries everything and is ubiquitous and scares the bejesus out of" retailers, said Kathy Beck, senior director of product marketing for Revionics, a retail analysis company. "The only way to maintain shopper loyalty is to give them what they want, when they want it, where they want it and at the price they want it."

The pressure is even higher lately. The recession and slow recovery have tightened consumers' wallets. And this holiday season -- which has six fewer days between Thanksgiving and Christmas and the Jewish holiday of Hanukkah starting on Nov. 27 -- leaves little room for error.

Much smaller mom-and-pop operations, which are prevalent on Long Island, are closer to their customers and often know a lot about customer preferences and transactions personally without relying on software programs, retail experts said.

 

Insights from analyticsBut larger retailers have come to rely on the new software analysis, known as retail analytics, over the last decade to more accurately gauge demand, consumers' price expectations and the optimal promotion or discount that will stimulate consumers to buy.

Now, the use of these software programs to churn through information has enabled big retailers to mimic the decision-making process of mom-and-pop stores, which have a more intimate relationship with customers, experts said.

In the past, large chains would determine which promotions to run on a national level and often allow individual store managers to make local changes based on what they knew about the local market, said Iain Watson, executive vice president of product marketing for Predictix, an Atlanta-based company specializing in retail analysis to plan everything from the assortment of products to pricing strategies.

"Nowadays you are not only doing analytics for individual locations, you are doing analytics down to customers and customer groups," said Watson.

He said he doesn't think of the relationship between retailer and customer as a cat-and-mouse game, as some other analysts liken it; instead, he said, the merchants who thrive offer convenience and a fair price to consumers, so the relationship should be a "win-win." The level of analysis "has gone from very broad to very, very specific," he said.

 

More mobile marketingFor instance, a retailer, using software analysis of a customer's shopping history, could send an alert about an item on sale to a customer as she is walking down a particular aisle. If done well, shoppers will perceive that sort of marketing as a service rather than spam, experts said.

Behind that type of targeted marketing is the explosion of e-commerce and the use of mobile devices, which have added to the information that software programs can analyze. Retailers have their own data collected from every transaction, including items purchased together and, with the help of loyalty or reward cards, the shopping patterns of their customers. Merchants can use software to gather information about competitors' prices and promotions, and their own e-commerce sites provide information about customers' product searches.

Retailers use software analysis of this historical data to determine what mix of items to order for the following season, how much and at what price in order to generate the most profit. They also rely upon it to figure out whether to offer steep discounts and make less profits on certain items to entice customers to come into their store and, they hope, spend on other products. Or, perhaps they decide to make less profit per item, but sell more of the product.

 

Getting the word outThe analysis also helps guide how they market these promotions.

"It's not just understanding the optimal price but bridging the gap and starting to automate how I push out the marketing messages via email or mobile, and what messages I show on the website," said Jay Henderson, strategy director for IBM Smarter Commerce, an IBM initiative offering services to help businesses engage with customers.

Advancements in the speed of software analysis have made retailers more nimble, enabling them to interpret information very quickly, said Diana McHenry, director of global retail marketing for SAS, a Cary, N.C., business analytics company. For example, retailers can readjust after the first few days of the holiday season, positioning and pushing out merchandise to stores where the items are selling.

The science can also determine the right style of shoes and the right size to get to the right store. "Analytics has gone from months to hours to seconds in terms of accessibility of the data," McHenry said. "What changed for us is the speed of the computing hardware to do things faster and cheaper and in a more accessible way."

But software analyses of all this information can only go so far, experts warn. How much analytics is used depends on the retailer.

P.C. Richard & Son, for example, uses analysis from The NPD Group, but only as one of many tools, said Gregg Richard, president and CEO of the Farmingdale electronics and appliance chain. "Technology makes everybody a little bit smarter," he said. "But a big piece of the puzzle is the merchant being in tune with the business and really making a judgment call on what is going to work."

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