Extreme Segmentation: How Big Data is Transforming Retail

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Retailers are making use of complex algorithms that help them identify patterns in consumer spending and associated behaviour in order to increase sales.

It’s thought consumer retail spending could reach nearly $27 trillion next year, thanks to rising population and incomes in many countries.

Despite the economic turmoil that many parts of the world have recently struggled with, retail has been growing for the last few years. It’s done so with a highly competitive landscape chasing very low margins and the winners in the expanding retail market are those who can gain an edge over their competitors.

Big data and associated analytics practices are tools in the competitive arsenal that are being employed by retailers to get ahead.

Retailers are making use of complex algorithms that help them identify patterns in consumer spending and associated behaviour. Machine learning is enabling them to analyse huge data sets to identify opportunities: perhaps ones their competitors have yet to spot. For huge retail chains, real-time information processing is giving them visibility into any issues that arise and it’s helping them respond quickly to minimise losses and maximise gains.

The big data approach is revolutionising the retail industry, reorganising decision making and improving efficiencies.

Tight margins often mean that retailers need to operate at scale in order to achieve significant profits. Real-time analytics is enabling retailers to implement optimum pricing. This can be highly beneficial to retailers as it helps them adjust pricing in real time to maximise their profits. Big data analytics also helps improve the efficiency of the supply chain to reduce the likelihood of selling out of popular items.

This is helping fashion retailers respond quickly when an item proves popular, making sure the right item in the right colour and size is in store. It’s a way to make the most out of their existing capabilities to increase revenue. Scale is no longer the only element that retailers can compete on. Retailers can now introduce new efficiencies that can also help them get ahead.

Extreme segmentation

It’s already extremely common for retailers to use segmentation in their market approach. Segmentation groups the retailer’s target audience into clusters based on characteristics such as their age, gender, household income, life stage and geography.

Big data technology enables retailers to take segmentation even further.

It’s possible to add in a huge number of factors that help understand consumer behaviour with even greater precision.

This helps retailers create much more specific segments, often based on the habits and behaviours of very small numbers of consumers. These segments can be constantly tailored and updated using real-time data on how the consumer behaves.  Where data is available, it’s possible to use big data technology to combine data from online and offline sources to really get a picture of the consumer across multiple retail encounters.

These complex analytics show not only who the customer is now but also how their needs and expectations might change over time. For brands that wish to retain customers as they mature, it’s a way to understand how the individual’s needs evolve.

It’s an approach that’s changing retailers’ understanding of the consumer and deepening the relationship with them. It’s leading to a new level of personalisation, enabling retailers to suggest products to a consumer and tailor offers specifically to them.

This has the potential to assist with customer retention and increase conversion rates. Understanding which patterns of behaviour are associated with particular buying habits should also help reduce marketing costs. As brands get a better view of their customer, marketing efforts become better targeted and more effective. This should in theory help reduce the costs of marketing.

On their part, consumers increasingly expect a greater level of personalisation based on their existing relationship with a retailer.

There’s also an interactive element to this consumer profiling. Whilst Facebook gathers a huge amount of data on its users based on their behaviour, the platform also solicits information directly from them. It’s done this by dropping a module into the person’s newsfeed asking ‘how interesting is this story to you?’ to gauge the type of content it should show them in future. Other retailers are finding different ways to talk directly to the customer about what they want, in addition to gathering and analysing data about them.

Data analysis is one way for retailers to get to understand new markets they venture into. For businesses trying to reach new audiences in an unfamiliar culture and language, data analysis can be a helpful way to understand the consumer and how they interact with the business. It’s one way to get a better view of an audience that may have very different habits to what the business has previously experienced.

Competitive insights

Big data analytics is not just focused on the customer. Retailers are also using this approach to yield insights about their competitors and other forces affecting the market. Product pricing can be tracked in real time across all key competitors, helping the retailer adjust their own pricing accordingly. Retailers track other elements including offers and promotions that are being run in their market by other retailers.

Other elements can also be included in the analysis. For ice cream or seasonal clothing vendors, this might include aspects such as the weather temperature. For certain purchases, the weather is likely to affect retail behaviour. This can then be included into analysis that will inform the supply chain. For some products it is also appropriate to track the cost of other goods. Car manufacturers may find it important to consider the cost of petrol and interest rates as these are both likely to affect car sales and how customers choose to buy vehicles.

Retail remains a tough business to thrive in long-term. Big data analytics is a significant cost and organisational hurdle for retailers to implement but once embedded into the organisation it can yield results that offer significant competitive advantage.

It’s important that businesses that implement big data practices make effective use of the insights offered.

Big data can offer valuable insights but it’s only useful when these are used to inform decision making. Implementing an analytics programme needs to be accompanied by organisational change so that businesses can act effectively on the data insights they are accessing.

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