Retailers Are Using Data To Improve Customer Experiences And Drive Down Prices
The world of retail may seem to be evolving faster than we can keep up, but many of the core characteristics remain the same. Retailers are using data and insights, just as they’ve done for over 100 years, plus they are relying on multichannel sales, blending physical and online catalogues, shopping carts, and delivery options. All of these efforts improve the customer experience and drive down prices with generic options:
— Retailers—both online and offline— analyze data on consumer preferences and behaviors to better serve consumers.
— The digital economy has opened up a multitude of sales channels to help small businesses reach customers, and multichannel marketing continues to see creative innovations.
— Countless retailers make their generic house brands available to appeal to price-conscious consumers.
Retailers—both online and offline—analyze data on consumer preferences and behaviors to better serve consumers.
A&P, a leading grocery chain of the 20th century, provides an historic example of using consumer insights to target specific preferences, as Timothy J. Muris and Jonathan E. Nuechterlein write in a paper. “A&P also succeeded because it did what many tech companies do today, albeit amid much controversy: use data to create greater consumer value. For example, A&P used such data to meet previously unrecognized regional preferences: ‘Philadelphians, it found, liked their butter lightly salted, with a light straw color, whereas New Englanders preferred more salt and a deeper yellow coloration.’ And the company’s ‘mass of sales data allowed A&P’s bakeries to forecast demand with a high degree of accuracy, minimizing returns of stale bread and doughnuts’ and thus reducing costs and ultimately retail prices.”
Using specialized algorithms, online retailers are providing even more value to consumers than just displaying goods—they are recommending products, making the search-and-shop experience more convenient. As the Wall Street Journal reported, “Since the coronavirus outbreak, online retailers like Wayfair, Etsy Inc. and Pinterest Inc. are ratcheting up efforts to leverage data from a surge in e-commerce to get better at helping customers find what they are looking for—even when they don’t know what that is. To do that, these Web-only stores are supercharging search-and-recommendation engines by feeding data into sophisticated algorithms, building predictive models with a level of accuracy unimaginable just a few years ago.”
— Retailers with brick-and-mortar locations also have put a renewed emphasis on data analytics and AI. “Many traditional stores with a heavy online presence are also looking to AI to ratchet up search. Walmart Inc. takes advantage of data from its physical stores and its website to build out a robust profile of customers, says Ravi Jariwala, a company spokesman. ‘Because we have a massive data set between our online and offline purchases, the algorithms are incredibly well informed,’ he says.”
— Walmart, the nation’s biggest retailer, is a key example of a brick-and-mortar store’s dependence on vast amounts of data to draw real-time insights, via its Data Café. “Here, over 200 streams of internal and external data, including 40 petabytes of recent transactional data, can be modelled, manipulated and visualized. Teams from any part of the business are invited to bring their problems to the analytics experts and then see a solution appear before their eyes on the nerve centre’s touch screen ‘smart boards.'”
Alec Stapp of Progressive Policy Institute takes a look back at 19th-century Sears to remind us that making use of industry data and business information is not a new practice, and certainly not one to raise concern. “The practice of using information about which products are selling well to develop private label goods is nearly as old as the retail industry itself. Sears launched its catalogue business in 1888. By 1927, the retailer was selling its own tools and appliances under the Craftsman and Kenmore in-house brands.”
The digital economy has opened up a multitude of physical and online sales channels to help small businesses reach customers, and multichannel marketing continues to see creative innovations.
Most small businesses diversify their sales channels, looking to both e-commerce and physical retail.
— A survey of 350 small businesses found small businesses see revenue growth from selling on the Amazon platform but don’t rely on Amazon alone for their online sales, as reported by Axios. In fact, 81% of the firms selling on Amazon use more than one digital sales channel, and sellers make more than half (54%) of their revenue from offline sales.
— eMarketer data shows that more than half (56%) of merchants on Amazon also sell on eBay, nearly half (47%) sell also on a personal website, and over one-third (35%) sell additionally on Walmart’s site. It is also noteworthy that nearly a quarter also depend on brick-and-mortar stores for sales.
Beyond online stores, up-and-coming brands are relying on social media influence to share and promote their products. “Influencer marketing” is now a key piece of many businesses’ market strategies. “93% of marketers use it. Business Insider reports that the market for influencer marketing is set to reach $15 billion by 2022.”
Countless retailers make their generic house brands available to appeal to price-conscious consumers.
As Carl Szabo points out, nearly every major retailer, from grocery to apparel, supplements its inventory with its own private label. “Today, we expect every store we walk into to have both their own branded products. Costco has Kirkland. Safeway has O Organics. Even CVS has its own line of Band-Aids. And most consumers like having these generic brands as options because they’re cheaper, force prices down of name brands, and can even push companies to improve their quality.”
Interestingly, some retailers rely very heavily on their in-house labels for revenue, notes PPI’s Alec Stapp. “These days, selling private label goods is practically de rigueur for a company competing in the retail industry. Here are the shares of revenue from private label goods for some leading retailers according to data compiled by Morgan Stanley:
— Kohl’s: 46%
— JCPenney: 44%
— Target: 33%
— Kroger: 25%
— Macy’s: 20%
— Lowe’s: 20%
— Costco: 20%
— Office Depot: 20%
— Dollar General: 20%
— Walmart: 15%
— By comparison Amazon share of total retail sales from private label goods is only 1% (excluding its proprietary electronics).”
Data from consumer insights company Nielsen shows that consumers appreciate the generally low prices of generic brands, but also recognize the high-quality of other competitors’ products.