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Retailers beat the competition with business intelligence tools

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In retailing, the ability to understand customers buying patterns and spending history is vital to beating the competition. This is more complex than ever as it now includes Web and catalog sales as well as traditional brick-and-mortar store transactions.

That’s where business intelligence (BI) tools come in. These software offerings address the barrage of challenges that characterize retail settings. Which item to stock? How many? And where? BI tools can deliver a comprehensive, up-to-date and single view of each product and customer. And, according to recent research, small and midsized retailers that invest in BI capabilities are more likely to have higher profit margins.


BI capabilities increase profit potential

How important are BI tools to running a retail operation? According to a recent report from analyst firm AberdeenGroup entitled Business Intelligence in Retail: A Best-in-Class Roadmap for Performance Improvement, retailers with advanced BI capabilities routinely outperform their competitors. And profitability, says one of the report’s authors, David Hatch, AberdeenGroup’s business intelligence research director, “is directly related to whether or not a company understands the data driving their business.”

Hatch says that when it comes to implementing BI, smaller companies in the industry are beginning to catch up to their larger competitors. “The one thing that seems to be very troublesome for retailers of this size is the ability to take data from different sources, from different stores, and aggregate it for analysis,” he explains. But he continues, “The ability to collect data and use it is something that SMB retailers are starting to really wake up to.”


Patterns emerge in promotions and pricing

With BI tools, patterns that reveal the effectiveness of promotions and pricing quickly emerge. As an example, Hatch points to a midsized athletic apparel retailer’s recent use of BI tools to chart promotion performance across several retail locations.

In the past, the company had not been able to track results in real time, so by the time all the relevant information had been collected, the promotion was over. But with BI tools that collect sales information in real time, the company is now able to fine-tune promotional activities on the fly.

“They are able to start seeing where the best performance is happening during the promotion as opposed to afterwards—and able to make adjustments to the promotion accordingly,” Hatch says of retailers. “These adjustments might include decreasing activity in a certain area where they are just not seeing the performance—and simply saving money by not spending out the entire promotion budget.”

Because BI ties information about inventory to consumer demand, retailers can use the most recent information about sales activities to ensure fewer out-of-stock and back-ordered items. This lets customers find what they want when they want it, which increases the likelihood of return visits and consistent sales as well as more cross-selling and upselling opportunities.


BI sorts out complex inventory relationships

Real-time BI capabilities are critical to supply, because inventory is often retailing’s operational Achilles heel. As AberdeenGroup’s Hatch notes, managing each of the moving parts that comprise inventory management can be difficult without the most up-to-date information.

Real estate and carrying costs require keeping as little inventory on hand as possible. Yet retailers must ensure adequate inventory to keep store shelves stocked and Web sites responsive. With real-time information capture, today’s BI tools let midsized retailers gather point-of-sale data, online clicks and telephone catalog sales. This helps match inventory to consumer demand from multiple channels, which allows retailers to minimize inventory costs.

The need to understand inventory of each particular item is often linked to supplier relations. Retailers need to know how well and quickly these vendors are supplying products, as well as how much wholesale items are costing the retailer. AberdeenGroup’s Hatch says BI tools can provide the answers for understanding how well these relationships are working, which allows retailers to make smarter decisions about supplier relationships. “Relationships with the suppliers can be affected greatly by the amount of information that can be gathered, and BI plays an important role in that,” Hatch says.


The number of BI Options Increases

options increasesCustomers aren’t the only group with more choices in retail these days. Midsized retailers now can select from a variety of BI solutions tailored to specific situations. Many of these BI offerings now consist of combinations of software, which can be mixed and matched according to the needs of the individual retailer.

While many retailers opt for a modular approach to choosing BI capabilities, analytic software and data warehousing form the main pillars of most retailing intelligence tools on the market today. Their importance, says Hatch, lies in how they allow easy retrieval of information that can be used for planning and strategy.

Analytics software brings together data from across disparate sources and assimilates it, helping retailers identify patterns to support better decision making. Data warehousing solutions act as the repository for this data, bridging information from operational systems such as point-of-sale systems, Web shopping software, warehouse management systems and call centers. Many of these BI tools now can be integrated with other systems, which helps ensure that consistent data is used throughout a retailing organization.

These capabilities are important to investigate, Hatch says, because they provide SMB retailers with much more insight and consistency than the information management tools traditionally used by the retail industry. “Unfortunately, in the SMB space, spreadsheets are still the number one BI tool that companies are using to make data visible to the organization,” he says.  Spreadsheets inherently make ‘one version of the truth’ challenging; whereas Business Intelligence solutions solve this problem.

Hatch also cautions against letting data grow old and suggests that SMB retailers investigate data-cleansing tools, which ensure that information is kept fresh—and more usable. With fresh Business Intelligence data about all aspects of operations, midsized retailers can make sure customers are reached the right way—with the right prices, promotions and product launches—and manage the company’s  financial performance.

Content copyrighted by IBM Corporation.

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