A BRICK MEETS CLICK ORIGINAL PAPER

Moving Forward with Big Data

The Future of Retail Analytics
By Bill Bishop, Chief Architect, Brick Meets Click April 2013

Overview

1. Wheres the value?

Where big data creates value for retailers The most valuable data sources

2. Whats the focus?

Demand and supply side perspectives

3. Whats happening today?

Whos doing what The status of big data projects

4. Whats ahead for big data?

Clarifying the definition Overcoming barriers to progress A process for moving forward
Readers of this paper are invited to comment using this link. Or, go to http://www.brickmeetsclick.com/big-data--surveying-the-future-of-retail-analytics

BRICK MEETS CLICK is a strategic resource for retailers, suppliers, and technology providers who want to make insightful decisions about meeting shoppers needs. Visit us at brickmeetsclick.com.

Moving Forward with Big Data: The Future of Retail Analytics

Overview
When we surveyed retailing professionals on big data in 2012, fewer than 20% indicated that retailers were actively working on big data and better understanding of customers was the most widely perceived benefit. By March 2013, 64% report they are participating in a project that involves Big Data, and the biggest focus is on how to use it to create competitive advantage. Clearly the relationship between big data and retail is evolving rapidly, but its also clear that many retailers still need to answer questions about how much to invest in big data and where to focus efforts initially to produce the best returns. This survey explored: Where and how big data is adding value for retailers on both the demand and supply sides of the business. The type of big data projects that are underway, the stage of development or implementation theyve reached, and whether a business case has been established. The definition of big data and how clarifying this can accelerate progress in using it. Barriers that are limiting its application in retail.

So, how can retailers use these findings to more quickly and confidently decide if big data can help them create competitive advantage? The answer depends on where your particular organization is with big data. For retailers who havent yet made a decision in favor of big data, use these results to build awareness within your organization about how competitors are already working to measure the benefits and validate the business case for the strategic use of big data. For retailers who are committed but looking for a starting place, use these findings to provide guidance on which business problems hold the greatest potential. For retailers who are already moving forward with big data projects, find a second opinion on the direction youve taken by learning more about what others in the business are doing.

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ABOUT THE SURVEY AND COMMENTS Brick Meets Clicks second big data survey was conducted during March 2013. 115 retailing professionals responded. 50% identified themselves as consultants or market researchers, 20% as technology/information suppliers, 13% as retailers and wholesalers, 9% as product supplier/manufacturer, and 8% as other. Participants had the option to answer questions related to the demand side of the business or the supply side of the business, or both. 89% chose to answer demand side questions; 60% chose to answer supply side questions; and 44% answered both sets of questions. Survey respondents had an opportunity to comment on the findings. In the text, these are set off by a blue background.

Readers of this paper are invited to comment using this link. Or, go to http://www.brickmeetsclick.com/big-data--surveying-the-future-of-retail-analytics

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Moving Forward with Big Data: The Future of Retail Analytics

1. Wheres the value?

The big data experts and leading retailers weve talked with in the past year frequently cite the following ways they expect big data to create value for retailers: Analytical results will become more accurate because big data will make it possible to study the entire information set instead of sampling data. Dealing with sampling errors will no longer be necessary. Large-scale controlled experiments will become both possible and practical. This is the only way to establish with certainty what really drives a particular improvement. By creating a single source of data that the entire enterprise could access for analyses, big data could eliminate much of the friction, effort, and coordination required to bring together data from different parts of the business. Big data analytics will support faster, fact-based decision-making by shortening the time that elapses between the identification of a problem or opportunity and when management is able to take effective action. It will strengthen analysis by incorporating sources of data that were previously impractical or impossible to integrate.

Supporting faster decisions ranked #1

While big data offers many ways for retailers to create value, the ability to execute on fact-based decisions more quickly was ranked highest. The ability to include new sources of data in analyses ranked second. Using big data to create a single source of data for the enterprise ranked third. All other choices scored in the single digits. (See Figure 1.)
Figure 1 * multiple responses allowed

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The familiar is still favorite: Shopper transaction data

Five sources of data were identified as having high potential for improving retail performance (Figure 2). Shopper identified transaction data, selected by 52%, still gets the biggest vote of confidence from retail professionals. These transactions can be tied directly to a shopper or
Figure 2 * multiple responses allowed

household via loyalty programs, credit or debit purchases, and other methods. Mobile device data that could be used for geo-tracking and geo-targeting is also seen as having big potential. In-store tracking has been around for some time, but its potential to create value for retailers is increased by new data collection methods and more powerful analytics. Shopper feedback can now be collected on a more continuous basis. Much of todays focus is on translating it into information that can be used quickly and effectively by management. The ranking of social media reflects the challenge many retailers still face in connecting these digital breadcrumbs with existing marketing and merchandising tactics.

BMC PERSPECTIVE: Wheres the value?

The recent advances in data storage and analysis will allow retailers to extract value from big data but, at the same time, this has created an almost overwhelming number of never-beforeavailable possibilities. Its no wonder that theres confusion about how to begin to capture this value. At the start of this study, we had a long list of ways big data can create value for retailers; we were interested to find out how others viewed this landscape. Here are the opportunities we see:

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1. DOING THE SAME THING BETTER AND FASTER. While the results show no consensus, the emphasis on supporting faster decisions is clearly the most popular option. This comes as no surprise since its easier and probably safer to try to do something better than to take an entirely new approach. 2. EXPLORING NEW DATA SETS. Conversations with big data practitioners (outside of retailing) reveal that they find significant value in incorporating new external sets of data that provide a richer context for the analysis. The survey shows that some retailing professionals see this value as well. We hope this report will encourage exploration of which external data sets can be of most value to retailers. 3. A SINGLE DATA LIBRARY. The idea of creating a single source of data was endorsed by some in the survey, but challenged by others as not a legitimate way for big data to create value. Conversations with those deeply involved in analysis, however, opened our eyes to some truly transformational possibilities. Just think of the time and labor that would be saved if everything from the weekly sales reports to the revenue component of quarterly financials could be extracted from the same database. From survey participants

Its noteworthy shopper feedback appears in the top five. It isnt enough to just know what a shopper purchased (which might have been a substitute for the out-of-stock item they really wanted), how they moved through the store or if they purchased a geo-targeted ad item. Shopper feedback connects all of these elements with the experience behind the purchase, which may be most revealing! -- Brian Numainville, Principal, The Retail Feedback Group Collecting and managing big data in real-time acts as the catalyst to reach shoppers at the moment of truth, and not just tool for planning campaigns. A mobile platform will generate relevant data which can be used to further engage shoppers in a precise and personal way and drive predictable purchases." -- Aaron Roberts, CEO, QThru As a believer in CRM Big Datathe shopper name, address and SKU linked, made into a database and then analyzed to find applications across the retail enterprise, it is heartening to find that the big data concept continues to become embedded as a decision tool and not just the idea du jour. My takeaway: big results from big data. -- Francey Smith, Francey Smith & Associates

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2. Whats the focus?

Demand and supply side thinking
People working on the demand side of retail tend to think about big data opportunities differently than those who work on the supply side. For demand-siders, winning market share is the major goal. Supply-siders are responsible for retail operations, distribution, and supply chain relationships and often focus on managing costs, productivity, and optimization. For retailers, the decision about which side of the business to start with will reflect the retailers strategy for growing the business. If the focus is on: Demand side, these survey findings are likely to encourage that retailer to concentrate on marketing more effectively to individual shoppers. Supply-side, then the results will direct them to strengthen their management of inventory and look for possible workforce applications. To capture both types of thinking, the survey offered supply side and demand side tracks. Participants had the option to answer either (or both) sets of questions. Eighty-nine percent of the survey participants chose to answer demand-side questions, 60% chose to answer supply side questions, and 44% answered both.

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On the demand side . . .

One of the first questions retailers need to answer as they move deeper into big data on the demand side of the business is what they want to achieve what problem do they want to solve? Once thats been decided, the job of identifying data and analytics becomes much easier.

. . . marketing to individuals more effectively is the focus.

The idea of one-to-one marketing has been around for some time, but its difficult to implement. With 69% currently focusing on marketing to individuals, it would appear that retailers are seeing big data as the light at the end of the tunnel that will enable them to achieve customization on a mass scale. (See Figure 3.)
Figure 3

Turning to the specific opportunities to drive demand, we asked: Where will big data create the most value in the next two years? There are some strong contenders. (See Figure 4.

Given that strengthening shopper engagement is the highest rated opportunity at 76%, expect retailers to interact even more actively with shoppers along the entire path to purchase. This will change marketing and merchandising practices.
Figure 4 *multiple responses allowed

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High interest in personalized promotions (70%) reflects continuing focus on moving aggressively toward one-to-one marketing tactics. The focus on shopper solutions (43%) opens additional opportunities for collaboration with suppliers who can bring shopper insights to power development of highly relevant solutions. The power of implementing store specific assortments (38%) comes from better ensuring that shoppers will find the products theyre looking for and making sure that theyre in stock.

BMC PERSPECTIVE: On the demand side

With continuing slow economic growth, retailers top priority is understandably on driving demand. SHORT TERM. The clear direction from the survey is towards strengthening relationships with existing customers. Theres strong evidence that this is probably the best way to drive incremental sales, but this is a short-term justification. LONG TERM. The more strategic reason for this focus is to put in place a clearly defined and manageable base for driving sustainable growth. Enhanced customer relationships are the basis for customer retention and managing the lifecycle value of each shopper. This is where retailers will capture long-lasting value from personalized promotions and stronger shopper engagement.

From survey participants

Putting the emphasis on business value (what problem(s) does the retailer need to solve?) is the best and most practical way to go about conquering big data. It ensures value, investment, and outcomes are aligned. If executed well, the results should be easy to quantify. Taking a build it and they will come approach to big data is too risky from a time, opportunity cost, and financial standpoint. -- Jim Butera, FusionPoint The ability to quickly analyze transaction data down to the SKU level will open a gateway to understanding how consumers are shopping each product in the store and how those specific items are inter-related. Retailers that adapt this level of basket analytics will certainly have a competitive advantange in the marketplace by partnering with vendors/CPG to develop and create very unique customer-centric promotions that will resonate with their targeted shopper segments. -- Victor Andedo, Principal, Linque Marketing Inc.

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On the supply side . . .

. . . once again, POS is MVP.
By far, POS transaction data was identified as the most valuable source of big data for the supply side of retailing; 51% of respondents selected it. Three other sources were identified as potentially most valuable sensors in the retail environment, shopper feedback, and automated product recognition though none even came close to rivaling the confidence shown POS (Figure 5).
Figure 5

POS has been a key source of data since the inception of checkout scanning and its clear that the growth of big data will not change this any time soon. POS data drives replenishment, maps labor requirements, and provides a unique operational signature for each store. The growing importance of sensors has been evident at recent trade shows where they were used for cold chain and energy management, as well as, workforce management. Shopper feedback is used mainly to identify opportunities for improved employee engagement with customers. Automated product recognition, the technology at the core of tools for monitoring plan-o-gram compliance on the shelf, was identified by 8% even though it was unfamiliar to many.

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Moving Forward with Big Data: The Future of Retail Analytics

Optimizing inventory is a big opportunity

As retailers move to apply big data analytics to the supply side of the business, the question is, where will they find the greatest opportunities? Inventory is by far where respondents see big data has the most positive impact today. Two other opportunity areas identified customer service management and labor management are closely related. (See Figure 6.)
Figure 6

Attention on inventory management focused mainly on optimization rather than reduction. Customer service management is becoming a more important competitive dimension. Labor management -- both scheduling and sales conversion are both related to shopper engagement.

Workforce management will change

Labor represents an important element in most brick and mortar retail business models, so the response to this question showed a remarkable degree of confidence (Figure 7).

Figure 7

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Moving Forward with Big Data: The Future of Retail Analytics

BMC PERSPECTIVE: On the supply side.

Expect strong focus on supply side applications because these have the potential to both reduce costs and drive incremental sales. The good news is that these results show a range of ways to do that. SHORT TERM. While inventory management was identified as the most important in these results, its hard to imagine that there are not equally impressive ROI opportunities related to labor and customer service management. Solid decisions will leverage accurate measurements in both areas. LONG TERM. The strategic opportunity is to use big data to reconfigure the supply side of the business to deliver products and services cost-effectively in a multi-channel shopping environment. Already, retailers show signs of recognizing this need (online retailers are opening stores and brick and mortar retailers are leveraging digital) but the details of how to optimize inventory in this complex mixed environment are still being worked out. Retailers who solve this problem will have a real competitive advantage.

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Moving Forward with Big Data: The Future of Retail Analytics

3. Whats happening today?

Whos doing what?
Almost two-thirds of those who answered the survey were actively involved in a project using big data (Figure 8). The projects addressed a broad range of problems, but some patterns did appear. About half targeted a better understanding of shopper behavior and buying habits. These fell mainly in two areas: Developing more relevant and effective promotional offers.

Figure 8

Creating more sharply focused behavior-based shopper segmentation.

About 20% related to improving product availability: assortment optimization and getting the right product to the right place, and reducing out-of-stock. Four unique business problems being addressed stood out from the rest: Leveraging insight from social media to drive product display with specific markets in a way that intersects with natural events (like flu outbreaks). Maximizing customer retention while minimizing incentive spending. Monitoring risk in the environment. Analyzing the shopping behavior of millions of insurance customers.

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Moving Forward with Big Data: The Future of Retail Analytics

The status of big data projects

Marketing is driving the bus.
Marketing sponsored almost half of the projects reported in the survey (Figure 8). This was followed by merchandising, operations, and IT. In the other category, projects were sponsored by: Research and development Executive management Supply chain Sales/category management
Figure 9

The horses are spreading out on the track.

The status of big data projects spanned the project lifecycle, suggesting that some companies are pulling ahead of the pack. A little less than a quarter of the projects are in startup, while nearly half, 49%, are either in pilot or in production (Figure 10). This indicates that while the practice of big data is still young, some retailers are already beginning to reap the benefits.
Figure 10

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Moving Forward with Big Data: The Future of Retail Analytics

The fact that 58% of those responding report that they have already been able to measure the benefits indicates that confidence is building in the value of this approach.
WHATS HAPPENING TODAY?

Having business case for big data projects is no longer the exception, 65% of the projects had established one (Figure 11). This shows that nearly two-thirds of those working with big data now see how it will solve important business problems. These people are no longer groping to figure out how to use a new tool.
Figure 11

BMC PERSPECTIVE: The status of big data projects.

The use of big data in retailing has gained significant traction in just a matter of months. While the practices are still in an early stage of development, its clear that many more retailers are making a real commitment to figure this out. This is encouraging, because in the larger scheme of things, this evolution is not only sensible, but inevitable. STILL EARLY DAYS. Even this progress doesnt obscure the fact that big data is still in the early stages of the adoption curve for business innovation. A lot more evidence will need to be generated about its value before a significant percentage of retailers adopt the practice but we see this happening fast, probably a lot faster than most can imagine now. SOME RETAILERS ARE PULLING AHEAD. The key insight? Now is the time for retailers to begin figuring out how big data can benefit them over the long term and to take the first steps in that direction, so they dont fall too far behind.

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Moving Forward with Big Data: The Future of Retail Analytics

4. Whats ahead for Big Data?

Clarifying the definition
When McKinsey published their big data report in 2011, the definition they offered focused mainly on scale:!Data sets whose size is beyond the ability of typical database tools to capture, store, manage, and analyze. The emphasis on size has proved a distraction at times as retailing professionals grappled with how to make practical use of big data. In BMCs 2012 survey, participants quickly went beyond what it is to focus on what it does and how it could be used to improve sales performance.
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Dont get distracted by the BIG in Big Data

In this 2013 survey, we wanted to explore whether extending and clarifying the definition could add value and make the term more useful; 94% of agreed that doing so would help to speed up the adoption and effective use of big data. (See Figure 12.) Almost 9 out of 10 indicated that a stronger working definition would make it easier for senior management to see the connection between big data analysis and changes that would drive improved performance. The focus on the large-scale nature of big data doesnt do much to help bridge that gap.
Figure 12 *Multiple responses so total exceeds 100%

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1

Big Data: The Frontier for Innovation, Competition, and Productivity McKinsey Global Institute 2011

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Moving Forward with Big Data: The Future of Retail Analytics

Nearly half said a better definition would make it easier to gain agreement on the scope of projects and help to build justification for projects. Better agreement on scope would help in minimizing costs and coordinating project support across business functions. In other comments, participants said a stronger definition would: Help focus on the real value speeding up innovation, fine-tuning customer focused offers, providing competitive context for analysis, and emphasizing important business questions Clarify ambiguity. The term big data feels too ambitious for many people. Said one participant: We need to replace it with more focused definitions . . . since often the data we are talking about is closer to mid-sized or even small sized.

Favorite addition: New data combinations

We asked those surveyed to start with a core definition an approach to making the handling of data at large scale effective and affordable and then indicate how helpful it would be to add each of three features to the definition. Nearly 70% chose Analyzing data not previously combined. Almost 40% wanted to include opportunities to extract value from unstructured data, and about a quarter wanted to include the opportunity to use data not previously collected or previously considered of low value. (See Figure 13.) These additions make it easier to talk about what big data does. When a retailer combines short-term temperature forecasts with their beverage replenishment system, they are analyzing data not previously combined in ways that improve their results. The grocery retailer who is analyzing comments on social media to tailor menu and recipe recommendations is extracting value from unstructured data. And the major retailer who is using sensors to track shoppers in order to make short-term adjustments in labor at the front end is making use of data not previously collected to reduce customer wait time and increase labor productivity.
Figure 13

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BMC PERSPECTIVE: Clarifying the definition.

With appreciation to the McKinsey Global Institute and those who developed the initial working definitions of big data, its now clear that more meaningful progress will require a next-generation definition or set of definitions. More descriptive definitions will be easier to use in business settings, and benefit all stakeholders by encouraging more rapid adoption of big data practices. WHATS NEXT? The findings in this survey make it clear that it is time for the retail community to work together to hammer out this new generation of definitions. The only caution would!be to not leave this work to those whose self-interest would influence the results.

From survey participants I believe we are all just talking about input, because that's what data (big, medium, or small) is. It may be more productive from a leadership perspective to talk of Testing (big, medium, or small - although I like the idea of Big Testing), and focus on continually learning through tests that can now be fully analyzed and acted upon because of the masses of data that we can now gain access to and the speed at which it can be crunched. -- Craig Elston, SVP Insight and Strategy, The Integer Group

Overcoming barriers to progress

Survey participants were concerned that organizations werent making full use of already available data (Figure 14.). This comes either from not having enough staff to analyze the data or to make full use of the insights from existing data. They were also concerned that organizations dont have the staff or infrastructure needed to handle all the insights generated by big data and translate them to action.
Figure 14 *multiple responses allowed

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The low concern for privacy and security was perhaps the only surprise among the other barriers identified (Figure 15). While shoppers are showing less concern about privacy, the incidence of security breaches indicates that this is an area of risk warranting careful management.

Figure 15

*multiple responses allowed

BMC PERSPECTIVE: Overcoming barriers to progress.

The main barriers to successfully using big data are not technical; they are related to organizational alignment and capability. This may sound like jargon, but its the truth and those participating in the survey know it. This raises a key question: What it will take for senior retail leaders to make big data and the organizational readiness to exploit it a key strategic priority? The increase in big data projects is encouraging, but by itself it doesnt reveal much about the vision for and the magnitude of commitment to taking full advantage of this important new resource. Effective use of big data by itself wont guarantee success in 21 century retailing, but it will be a key part of that success formula. From survey respondents
st

The issue companies face is not the technology to amass the data but the analytical skill to understand the insights from the data to take the proper marketing action. We must invest in people with those skill sets to be competitive. As an industry we have never really invested in staff to do the analytical work necessary to build the right targeted programs. Kroger clearly figured it out when they began working with Dunnhumby. Technology has moved quickly and at a lower cost than before. We need to harness the information to make businesses successful. -- Ann Raider, President and CEO, inStream The report shows a glimpse of the future. We will forget todays clunky user-intensive big data and mobility platform interaction model one day. Background-processed realtime prescriptive analytics will ultimately get big data out of the way. Retailers and consumers alike with engage truly seamless Brick Meets Click shopping experiences. Supply chains, markets, and buyers will integrate without regard to location. I cant wait for this new future. -- Andrew John Stein, Pervasive Strategy Group
2013 Brick Meets Click It seems clear that senior management needs to adjust as failure to could lead to 19

disaster. Just ask Blockbuster, Borders, and on the ropes retailers: Best Buy, JC Penney, Radio Shack, Sears and Abercrombie & Fitch. All have in common a failure to

Moving Forward with Big Data: The Future of Retail Analytics

BMC PERSPECTIVE: A process for moving forward.

As we reviewed the findings from our big data survey at Brick Meets Click, we also thought about the many conversations weve had with colleagues during the past year on this topic. Its clearly going to take large-scale solutions to address some of the big issues identified like developing the organizational alignment and skill sets needed to take full advantage of big datas potential. But, the fact that some big issues remain to be resolved hasnt stopped people from moving forward to apply big data practices to solve retail problems and create value. 5 SIMPLE STEPS. Heres an approachable, grounded process that any retailer can use to move forward with big data. It unlocks the power of big data by focusing on specific business challenges. 1. Identify a key business challenge worth overcoming through the analysis and use of big data. 2. Find a tool an application, analysis, method, etc. with the potential to address that business problem in a new and better way. 3. Put in place a baseline measurement you can use to evaluate progress in overcoming the challenge. 4. Focus first on incremental improvements to ensure youre making real progress. 5. Expand to bring in new external sets of data that will improve results.

From survey participants

It seems clear that senior management needs to adjust as failure to could lead to disaster. Just ask Blockbuster, Borders, and on the ropes retailers: Best Buy, JC Penney, Radio Shack, Sears and Abercrombie & Fitch. All have in common a failure to adjust to changing conditions. Perhaps this is the real promise of Big Data. Used correctly it offers the ability to not only adjust but to lead the way to realizing the holy grail of creating a truly multi-channel shopping environment. -- Tom Van Aman, Marketing Strategy, Allstate!

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