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Put knowledge into action to drive higher sales Use predictive analytics for better response Improve consumer shopping experiences
Jennifer LeClaire
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DUMmIES
by Jennifer LeClaire
These materials are the copyright of Wiley Publishing, Inc. and any dissemination, distribution, or unauthorized use is strictly prohibited.
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Publishers Acknowledgments
Were proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/. Some of the people who helped bring this book to market include the following: Acquisitions, Editorial, and Media Development Project Editor: Carrie A. Burchfield Business Development Representative: Sue Blessing Editorial Manager: Rev Mengle Custom Publishing Project Specialist: Michael Sullivan Composition Services Senior Project Coordinator: Kristie Rees Layout and Graphics: S.D. Jumper Proofreaders: Lauren Mandelbaum
Publishing and Editorial for Technology Dummies Richard Swadley, Vice President and Executive Group Publisher Andy Cummings, Vice President and Publisher Mary Bednarek, Executive Director, Acquisitions Mary C. Corder, Editorial Director Publishing for Consumer Dummies Diane Graves Steele, Vice President and Publisher Composition Services Gerry Fahey, Vice President of Production Services Debbie Stailey, Director of Composition Services
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Contents at a Glance
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Chapter 1: Understanding Business Analytics . . . . . . . .3 Chapter 2: Meeting the Demands of the Smarter Consumer . . . . . . . . . . . . . . . . . . . . . . . .11 Chapter 3: Harnessing the Power of Information . . . . .17 Chapter 4: Measuring the Impact of Decisions . . . . . . .27 Chapter 5: Using Predictive Analytics to Anticipate and Respond . . . . . . . . . . . . . . . . . . . . . .41 Chapter 6: Social Marketing and Content Analysis Made Easy . . . . . . . . . . . . . . . . . . . .53 Chapter 7: Ten Ways to Improve Shopping Experiences . . . . . . . . . . . . . . . . . . . . . . . . . .63
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Introduction
ata is the key that unlocks greater sales potential but retailers are overwhelmed with so much data that it can seem impossible to make sense (much less money) out of continuous information streams. This book offers principles and tools you can use to discover how your customers behave and how to put that knowledge into action to drive more sales. Business analytics isnt a new concept, but new technologies have emerged that make it possible for average business users from finance to marketing staff and beyond to analyze and understand the data. If youre looking to find out how to tap into the power of those technologies to discover insights that, when acted on, drive revenue growth and improve customer relations, this book is for you. If you work for a consumer product manufacturer that wants to improve the go-to-market strategy by better understanding consumer behavior or simply wants to achieve great efficiencies, this book is also for you. Welcome to Business Analytics in Retail For Dummies, IBM Limited Edition!
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Chapter 1
o you really know your customers? Do you know who they are? How likely they are to buy your products or services? Where they shop? Would you like to know? Retailers that know their customers and apply what they know about their customers preferences are finding a competitive advantage in the marketplace. Customers leave footprints whether they actually make a purchase or not. Those footprints come in the form of browsing your Web site, questioning your staff, and, of course, making purchases. Those footprints leave clues about who your customers are, what theyre buying, how often they shop, and much more. Much like a detective relies on his trusted evidence collection kit to solve a case, you can use business analytics to gather customer clues that demystify retail operations. Business analytics are technologies and applications that allow organizations to mine data to glean insights that improve decisionmaking.
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Business intelligence
The idea of business intelligence (BI) is not new. BI includes the concepts, methods, and technologies that gather and analyze data to drive better decision-making. BI has been around since 1958, when IBM researcher Hans Peter Luhn first used the term. Decades later, technologies are available that have made BI a mainstream business function. In short, BI uses querying, reporting, analysis, scorecards, and dashboards to make it easier for business users across the organization to find, analyze, and share the information they need to improve decision-making.
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Analytic applications
A new trend in BI and reporting, analytic applications include software that measures operational performance and sets the stage for better results. Analytic applications rely on historical data, along with software tools that crunch numbers and slice and dice data from different perspectives, to offer results that give decision makers the actionable insights they need to improve retail functions. Analytic applications package business analytics capabilities, data models, process workflows, and reports to address a particular domain or business problem. Examples of these areas include Buying behavior during the holiday shopping season Which stores or channels are the most productive Which suppliers are slow to deliver product Which lines are driving the greatest profits
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Advanced analytics
Advanced analytics are applications and technologies that leverage historical, current, and predictive data to help you make decisions that optimize operations. Advanced analytics are vital to delivering high-value, decision-oriented insights that lead to a competitive advantage. Advanced analytics include data mining, predictive modeling, what if simulation, statistics, and text analytics to identify meaningful patterns and correlations in data sets to predict future events and assess the attractiveness of various courses of action. Predictive analytics is an advanced analytics application. Head over to Chapter 5 to find out more about predictive analytics.
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Chapter 2
arketplace rules are changing dramatically and quickly. New technologies empower consumers to share more information more quickly with one another even strangers are making product recommendations on social networks, instant messaging applications, and e-mail. These same technologies allow retailers more chances to communicate directly with consumers than in previous generations. As a result, consumers have access to more information about retailers and their products than ever before. Comparison shopping, for example, is an earmark of todays Internet-connected consumer. Armed with knowledge they pick up from television ads, online research, word of mouth, and other sources, consumers make decisions on how best to spend their money on the products and services they value most. Add to this, major demographic and socioeconomic shifts, and the need for business analytics is vital. IBMs Institute for Business Value has identified three characteristics of 21st-century consumers: instrumented, interconnected, and intelligent. I cover these in this chapter. You also, at the end of this chapter, discover how business analytics are applied in real life.
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Instrumented Consumers
With the Internet, mobile phones, in-store kiosks, and similar technologies, many consumers now have instant access to a wealth of information about retailers and their products. Theyre using this information to decide what to buy and where to buy it. The younger generations, particularly Generation Y (20 to 30 years old) and Generation X (31 to 43 years old), embrace new technologies to enhance the shopping experience. Consumers living in the growth markets are even more enthusiastic about tapping technology for e-commerce.
Interconnected Consumers
Many consumers are also willing to use these technologies to interact with retailers and consumer products companies in new ways, but they want to use different technologies for different tasks. They want to use Web sites primarily to compare prices and print coupons, for example. They want to use instore kiosks to review product features. And they want to use mobile phones to locate the nearest store. Moreover, retailers arent the interconnected consumers only source of information. Millions of people are now interconnected via social networking sites. They listen to other consumers, which influences the purchasing decisions they make. One-third of the consumers IBM polled are likely to follow a retailer on a social network, chiefly to try new products and get preferred customer status. The worlds population is expected to grow 12.4 percent over the next decade. More people are now living in cities than rural areas, and half of the emerging worlds population is considered middle class by their countrys standards. The result: a larger pool of more prosperous, more diverse, smarter, and more demanding consumers.
Intelligent Consumers
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Consumers are becoming not only more informed and more interconnected but also increasingly intelligent. Todays consumers have more clearly defined ideas about what they want from retailers than ever before.
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IBM used Max Diff analysis where respondents compare different attributes, just as they do when shopping in real life to identify what matters most to consumers when theyre deciding where to shop and where they think retailers most need to improve. IBM discovered that consumers believe retailers should focus first on offering better promotions and prices and making product improvements. More specifically, consumers want personalized discounts and consistently available products, followed by better value, quality, and variety. Nearly twothirds of consumers also said that they would spend more money with their current retailer, if that retailer made the improvements they suggested.
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By deploying a user-friendly business analytics solution, the restaurant was able to standardize its reporting process and provide users with a single and complete view of the business. Analysis tools are used by marketing, payroll, and finance to manage labor, enforce quality and cleanliness standards, improve guest satisfaction, and manage financials. Store managers can now judge the day-to-day health of their restaurants quickly and make better decisions. They also support their growth targets and corporate objectives. This support and check-in happens through dashboards that measure sales and check performance. Staff can now manage food, labor and other controllable costs, understand customer satisfaction based on third-party surveys, and increase speed of service to maintain and grow market share. And the IT department now has time to devote to other projects.
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Chapter 3
magine harnessing the power of information to create a demand-driven merchandising and supply chain, reduce costs, and drive operational excellence to new heights to deliver a shopping experience that outdoes your competitors. In the fast-paced Information Age, the need to effectively manage retail information has never been more important. An explosion in business information is creating countless challenges for retailers. Consumers are more connected, more empowered, and more demanding. And they can choose where, how, and when they want to shop. More than ever, its a buyers market. Forward-thinking organizations armed with actionable insights are turning these challenges into profitable opportunities. Call it an information-led transformation. The change gives retailers the ability to not only understand whats happening today but also to predict future trends. In this chapter, I assess retail data challenges, dispel business intelligence (BI) complexity myths, assess the why behind performance, and look at reporting and analysis in action.
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into the information they need to make informed decisions across all departments, locations, functions, and roles.
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Betting on BI tools
By applying BI tools to the challenge, the dining groups managers can now access all the data required to understand the performance of individual restaurants within their territory and how their area is performing compared to others. This also helps drive accountability through to the area managers.
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Chapter 4
usiness analytics offers strategic, user-friendly tools to help you measure the impact of decisions youve already made and the potential impact of decisions youre planning to make in the future. These are called scorecards and dashboards. Scorecards include a collection of your important metrics, each with an associated target, thresholds for good and poor performance, and a clearly identified owner. Dashboards provide critical information in a single display, often a single computer screen image. Why use scorecards and dashboards? For the same reason that car companies build cars with fuel gauges and speedometers. Retailers deploy scorecards and dashboards to give employees an easy-to-understand view of the performance metrics that matter most so they can make decisions to keep their operations running smoothly and provide a valued shopping experience. In this chapter, you discover the deeper value of scorecards, the capabilities and limits of various types of scorecards, effective dashboard strategies, and more.
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If you understand your goals and values and use an appropriate environment to manage them, you can set up your scorecard successfully. Mixing purposes causes confusion and can delay projects. Worse yet, a poorly designed scorecard can result in a very low and declining adoption rate, which wastes corporate resources.
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Scorecards or dashboards?
Scorecards and dashboards are often used interchangeably. But there are differences. Knowing when to use each appropriately will provide the greatest chance of adoption and success. A scorecard is a framework that uses visual elements to draw attention to various levels of performance often using red, yellow, and green status indicators. To manage strategy effectively, scorecards should be heavily integrated into the management process. As a proven practice, scorecards should display KPIs and metrics at a monthly level to reinforce a regimented timeframe. A strategy map is a casual diagram that shows how the strategic objectives impact each other and the corporate mission. It becomes a communication tool for the organization, so everyone can understand strategy and what they need to do to improve performance. A dashboard typically displays operational or real-time data. KPIs and metrics are shown in various dimensions. This capability can often be provided within a single report. A dashboard can include red, yellow, and green conditional formatting to highlight problem areas similar to a scorecard. As an analogy, you can think of dashboards and scorecards in terms of driving a car. On the dashboard of your vehicle, you have a series of operational dials that provide tactical information. But this information doesnt help you determine how to get to your destination these are strategic decisions and require a scorecard.
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In this way, you enable the business to understand how each role impacts performance. In turn, you allow people to make decisions that will enhance value and make the process even more efficient or effective.
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Three applications
According to Eckerson, every dashboard contains these three applications: monitoring, analysis, and reporting. These sets of related functionalities are woven together seamlessly and built on an information infrastructure designed to fulfill user needs.
Three layers
The most distinctive feature of a dashboard, writes Eckerson, is its three layers of information. The first layer is graphical, abstracted data to monitor key performance metrics. The second layer is summarized dimensional data to analyze the root cause of problems. And the third layer is detailed operational data that identifies what actions to take to resolve a problem. Much like peeling the layers of an onion, Eckerson says a performance management system lets users peel back layers of information to get to the root cause of a problem. Each layer provides additional details, views, and perspectives that enable users to understand a problem and identify the steps they must take to address it.
Three types
Finally, dashboards come in three types. Eckerson outlines them as operational, tactical, and strategic. Each type features the three applications and layers, albeit in different ways: Operational dashboards track core operational processes and often display real-time data. These dashboards emphasize monitoring more than analysis or management. Tactical dashboards track departmental processes and projects and emphasize analysis more than monitoring or management. They are often implemented using portals and run against data marts or data warehouses. Strategic dashboards (or scorecards) monitor the execution of corporate strategic objectives at each level of the organization and emphasize management more than monitoring or analysis. They are often implemented to support a Balanced Scorecard methodology, an analysis
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Develop effective metrics: Among the many best practices in this area, Eckerson advises companies to avoid cluttering dashboards with more metrics than a user can understand or act on. If you have more than seven, writes Eckerson, you should create hierarchies using folders, tabs, or drill-downs to preserve the clarity and simplicity of the display.
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Dashboards in Action
A retail drug store needed greater insight into which beauty products were selling best. Tracking sales and monitoring demand for beauty products by different consumer groups was a key objective for the retailer to ensure it met sales targets. Daily sales data was previously fed into a spreadsheet for the purpose of reporting daily sales, but the spreadsheet had to be updated manually and the system was found to be inflexible. The retailer needed the ability to create sophisticated daily sales reports that offered actionable insights for various business users, including finance staff who had previously entered data manually to the complex spreadsheet system, analysts who needed to review the sales data and produce ad hoc reports, and, most importantly, product managers, the
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Chapter 5
hat if you could accurately predict customer demand for your merchandise? It would ripple through your entire organization, signaling where you should cut back on surplus stock and where you should double your orders. It could save your company millions of dollars a year and drive greater top line sales. Before you start looking for a crystal ball, explore the power of predictive analytics. Predictive analytics is software that mines data to understand current and historical patterns and offers predictions that help you make better decisions. Put another way, predictive analytics connects data to effective action by drawing reliable conclusions about history, current conditions, and future events. The approach is rooted in advanced mathematical analysis. But that goes on behind the scenes. As a business user, you dont need to understand exactly how the software does its magic. You just need to know how to apply predictive analytics to key business issues to deliver value.
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Predictive models can score each customer in real time and build corresponding rules. With these rules in hand, marketers can adjust program priorities to optimize cross-sell opportunities based on real customer feedback. Predictive analytics empowers a virtuous cycle in which cross-sell decisions grow more effective with each iteration. Its an open environment in which customer interactions are precisely anticipated and effective responses are planned.
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Automating decision-making
Developing this virtuous cycle demands decision management. Decision management includes all aspects of managing automated decision design and deployment that a chain uses to manage its interactions with customers, employees, and suppliers. In essence, decision management sets the stage for optimized decisions to become part of the DNA of your business processes. According to a published report by James Taylor, an expert whos written and consulted extensively on decision management, Decision management makes it possible, for the first time, to use predictive analytics as an integral part of a realtime decision process.
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You can go a level deeper with your market basket analysis by combining this information with other customer data, such as demographics, behavior, and attitudes or external data, like weather conditions. The next step is using predictive models to determine which mix of products or promotions is most effective for each customer segment, whether it be senior citizens or single moms. You might discover, for example, that younger career women tend to buy chocolates and wine whereas middle-aged men prefer to buy beer and pizza.
One-to-one marketing
Basket analysis helps you predict consumer behavior at the transaction level so you can make sure your product offers and promotions meet shopper expectations and behavior. The end goal is to develop custom offers or specific offers for highly personalized campaigns. This is the notion of oneto-one marketing, relationship marketing that treats every customer as a unique individual. This is the Holy Grail of retailing.
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The company turned to predictive analytics software known as category profit management. Category profit management forecasts demand automatically, and uses an algorithm to pursue profit maximization for retail categories. The software also offers simulation and analysis capabilities for demand forecasts to allow employees to quickly adjust operations. Predictive analytics helped the retailer uncover new insights to holistically manage the sales floor of each individual store and maximize category profits. That, in turn, allowed the retailer to move into new territories.
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Chapter 6
hat you dont know about what your customers are saying about you could hurt you. Or it could offer clues as to what the next hot trend in your niche will be. Why take the chance on missing out on any of this information? You can measure consumer sentiment from data gathered on Twitter, blogs, and other Web services and networks. By using natural language processing (NLP) retailers can now analyze everything from product names and industry jargon to slang and emoticons and its already being used by some pretty big businesses. Indeed, business analytics software is available today that lets you uncover and analyze information from social media sources, and then merge that information with vast internal data to yield faster, more accurate insights and predictive intelligence. In this chapter, you explore the new age of business analytics, how to tap into hidden information in unstructured data, and how content analytics is making positive impacts in retail settings.
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Business-Driven DecisionMaking
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Many retailers rely on BI software to uncover key data-driven insights from operational systems and data warehouses. Good managers supplement these insights with anecdotal information about external market variables by reading blogs,
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Companies put themselves at a disadvantage if they ignore the growing repository of unstructured content and the business insight it contains. Yet given the time and cost of reviewing, filtering, and interpreting this information, it is cost prohibitive for most retailers to analyze this data on their own. Even if they do, the resulting information is often subjective, anecdotal, and difficult to track. But content analytics solutions can help retailers harness unstructured content in a systematic, cost-effective way.
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concepts in a piece of text as well as the relationships among those concepts to present content relevant to data analysts and business users.
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Chapter 7
usiness analytics gives you the edge in your efforts to improve customer shopping experiences and its not all about market basket analysis. You can use business analytics to improve retail promotions, develop key financial indicators, align corporate and store operations, and much more. In this chapter, you look at ten (okay, really 11) ways to improve customer shopping experiences by using business analytics.
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Optimize Assortment
You can use predictive models and association rules to determine which group of products works best for which customers. A predictive model predicts the probability of an outcome. Association rules help you discover relationships between product purchases. Association rules are based on if-then logic if a customer buys bread, then she also buys peanut butter, for example. With business analytics tools, you can understand product affinities and quickly determine which combinations perform better among which customer sets or in which channels. This offers you the ultimate flexibility to improve customer shopping experiences for different demographics while offering you new opportunities to focus efforts on the products/product combinations that generate the greatest profits, highest margins, and strongest customer loyalty.
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Get the insights you need to find new customers, keep the customers you have, and grow your profits!
Business analytics isnt a new concept, but new technologies are emerging that make it possible for average business users to analyze and understand the data. This book offers principles and tools you can use to discover how your customers behave and how to put that knowledge into action to drive more sales. Understand the basic concepts of business analytics know what solutions are available to unlock the possibilities of discovery Dispel business intelligence myths grasp the why behind sales performance Set up scorecards and dashboards get help assessing your decision making Measure consumer sentiment through social media content analytics helps you harness the powerful information in social media today
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