Business Analytics & Use of business Analytics in Retail

Business analytics (BA) is a set methodology that uses data analysis, statistical models, and other
quantitative methods to solve business problems. It is a methodical, iterative look at an
organization's data, with a focus on statistical analysis, in order to make decisions.

Companies that are driven by data see their data as a business asset and look for ways to use it to
gain a competitive edge. For business analytics to work, you need good data, skilled analysts
who understand the business and the technologies, and a commitment to using data to learn
things that can help you make business decisions.

How business analytics works

Before any data analysis takes place, BA starts with several foundational processes:
 Analyze business goals
 Process to be followed for analysis.
 Get business data to back up the analysis. This data can often be found in different
systems and places.
 Clean up the data and put it all in one place, like a data warehouse or data mart.
Usually, a smaller sample set of data is used for the first analysis. Tools for analytics range from
simple spreadsheets with statistical functions to complex programs for data mining and making
predictions. There are patterns and links in the raw data that are made clear. The analytic process
keeps going back and asking new questions until the business goal is reached.

Scores from a database are usually used in a statistical process called "scoring" that is used to put
predictive models into action. Scores help businesses make better decisions in real time that are
based on more information.
History
Analytics have been used in business since Frederick Winslow Taylor's management exercises
were put in place in the late 1800s. Henry Ford kept track of how long each part of his new
manufacturing line took. But when computers were used in decision support systems in the late
1960s, people started to pay more attention to analytics. Since then, enterprise resource planning
(ERP) systems, data warehouses, and a huge number of other software tools and methods have
changed and shaped analytics.
With the rise of computers in the last few decades, business analytics has grown. This change has
taken analytics to a whole new level and opened up a world of opportunities. Given how far
analytics has come in history and what it is used for now, many people would never guess that
Mr. Ford was the first person to use analytics in the early 1900s.

Challenges
Business analytics require a lot of high-quality data in large quantities. To make sure data
quality, you have to combine and match data from different systems and then decide which parts
of the data to make public.

Analytics used to be thought of as a way to predict customer behavior after the fact by looking at
how many units were sold in the last quarter or year. This kind of data warehousing needed a lot
more space for storage than speed. Now, business analytics is becoming a tool that can change
what happens when a customer interacts with a company. When a certain type of client is
thinking about making a purchase, a business that uses analytics can change its sales pitch to
appeal to that client. This means that the capacity to store all of that information must be able to
respond very quickly if it is to be used in real time.
Business Analytics In Retail Industry
Retail Business analytics is the act of collecting and analyzing data pertaining to retail (such as
sales, inventories, prices, and so on) with the goals of recognizing trends, anticipating outcomes,
and making more educated business decisions. Retailers are able to learn more about the
performance of their stores, products, customers, and vendors with the assistance of data
analytics, which, when carried out correctly, helps retailers learn information that can then be
used to help them make more money.

The vast majority of retail enterprises use data analytics in some way, even if it's just to look at
sales figures on Excel. This is true even though data analytics is not widely used. However, there
is a considerable gap between an analyst using Excel to filter through spreadsheets and the usage
of AI that was created expressly to carry out work of this nature. AI was designed specifically to
carry out work of this nature.

In order to have an adequate understanding of this differentiation, it is vital to be familiar with

the four different types of retail data analytics.

Type of Data Analytics in Retail

There are four distinct types of retail data analytics, and each of these types plays a significant
role in providing retailers with crucial information regarding the operation of their businesses.
They are :
 Descriptive Analytics
 Diagnostic Analytics
 Predictive Analytics
  Prescriptive Analytics
1. Descriptive Analytics Definition
The most typical kind of data analysis is known as descriptive analytics. It assists retailers in
organizing their data in a way that reveals meaningful patterns.
It does this by extracting raw data from a variety of sources (POS terminals, inventory systems,
OMS, ERPs, and so on) in order to provide helpful insights on past and present performance.

In the past, analysts would do this manually in Excel by gathering data from a variety of sources,
structuring it, and creating charts, among other tasks. The majority of this data gathering and
report producing effort can be done automatically nowadays thanks to the BI tools and
integrations that are available.

To put it more simply, descriptive analytics is the process of using data to describe "what" is
happening in your company. However, if it is not paired with other types of data analytics that
can demonstrate patterns and connections, it does not contribute much to answering the question
"why."

2. Diagnostic Analytics Definition

The most fundamental kind of so-called "advanced" analytics is called diagnostic analytics. It
assists merchants in utilizing data to determine "why" certain business problems are occurring in
their operations.

Diagnostic analytics makes use of the same raw data as descriptive analytics. However, instead
of relying solely on these data, diagnostic analytics also makes use of statistical analysis,
algorithms, and occasionally machine learning in order to delve deeper into the data and discover
correlations between data points.

Diagnostic analytics can also be used to identify outliers and highlight potentially problematic
situations as they unfold in real time (if results do not match pre-programmed benchmarks and
business rules).
Back in the day, even the most skilled analysts had to do everything by hand. They would
examine the data, make use of statistical models, search for patterns, and identify correlations.

However, in the modern, information-heavy world that we currently inhabit, carrying this out is
very impossible for a single individual. Because they have billions of data points and are
becoming more difficult, larger merchants are unable to make effective use of diagnostic
analytics without the assistance of machine learning and AI.

As you'll see in the following section, retailers don't have access to a lot of "diagnostics"
solutions that can be used independently. This is due to the fact that the fundamentals of
diagnostic analytics, such as locating previously unknown links between variables in your
company, are much more effectively utilized to forecast the future and automate difficult
analyses.

3. Predictive Analytics Definition

If diagnostic analytics informs you "why" something is happening in your company, then
descriptive analytics tells you "what" is happening in your company, and predictive analytics
tells you "what's next."

This form of analytics is considered to be the second most advanced.

In order to generate accurate forecasts about the future, predictive analytics that are effective
make use of the findings generated by descriptive analytics as well as diagnostic analytics. This
is due to the fact that, in order to correctly predict what will occur in the future, one must first
understand what has occurred in the past and the motivations behind those occurrences.

The practice of predictive analytics involves the application of intricate algorithms and statistical
methods to the tasks of identifying clusters and outliers as well as predicting future trends.
As is the case with other kinds of analytics, many merchants attempt to carry out this task
manually by having analysts compile data in Excel and employ standard statistical models to
make predictions regarding future trends.

Unfortunately, retail operations are exceedingly sophisticated, and there are too many linkages
between aspects (such as demand, price, inventory, product assortment, competition, and
consumer behavior, amongst other things) for a single individual to be able to manually keep
track of them all. Estimates of demand tend to be far more accurate than forecasts of basic sales
because of this reason.

Therefore, in order to effectively predict the future and take into consideration the most essential
correlations, retail predictive analytics need to use a combination of artificial intelligence,
advanced mathematics, and smart automation.

4. Prescriptive Analytics Definition

Prescriptive analytics is the most advanced and final frontier of analytics.

The forms of analytics that we have covered up to this point can inform retailers "what" is
happening, "why" it is happening, and "what will happen next." Retailers can be given direction
on "what to do next" to improve their business with the use of prescriptive analytics.

A prescriptive analytics system must not only know what is likely to occur in the future, but also
what actions will lead to the greatest potential future results in order for it to be able to provide
useful recommendations.

It is difficult to provide an accurate answer to this question because there are virtually an infinite
amount of actions that a company may take to affect the numbers.

There are different ways to do it:

 Executing simulations on a restricted number of alternative beginning conditions (various
assortments, allocations, pricing, etc.) and selecting those that result in the greatest
amount of financial gain.
 Using artificial intelligence developed expressly for the retail industry to give
recommendations that lead to the optimal mathematical outcome feasible (profit,
GMROI, etc.)
 Instructing a computer program in machine learning to identify the behaviors and
sequences of activities that provide the most desirable outcomes.
 The specific methods that various analytics organizations use to achieve this goal are, as
expected, a well guarded secret. However, the most important aspect of the process is to
provide retailers with sound guidance that they can confidently implement 99 percent of
the time.
 CHALLENGES

In order to maximize the potential of data analytics in the retail industry, it is necessary to
acknowledge a great deal of problems. When discussing analytics, it is necessary to adhere to
severe standards for issues such as security, privacy, liability rules, and intellectual property.
Because of the interconnected nature of analytics and big data, it is necessary to have people
with the appropriate level of education and experience on the team in order to operationalize and
make use of big data analytics.

Also, businesses can conclude that it is important to include information gleaned from a variety
of data sources, most notably those belonging to third parties, and to contribute to such an
environment by delivering effective data.

Last but not least, businesses frequently make the error of sliding into short-sightedness, which
causes them to fail in successfully adopting the insights obtained from analytics. Naturally, this
may be remedied by regularly modifying retail formats, in which a specific group would be
tasked with the responsibility of organizing and putting into action insights.

BENEFITS OF BUSINESS ANALYTICS IN RETAIL:

Putting customers in groups

This is one of the most important parts of running a retail business. It gives you different ways to
respond to changes in demographics and trends and shows how different parts of society do so. It
helps to divide customers into these groups:

 Segment A: Customers who respond to the new ads and promotions

 Customers who know about the new product's release make up Segment B

 Segment C: Customers who respond to different discounts

 Segment D:Customers who tend to buy certain kinds of goods.

  Segment E: Customers with different buying power

Analysis of How Well a Campaign or Promotion Worked

After the campaign has started, it's important to see how people react to it. To figure out the ROI,
you can look at how well the campaign worked on different social media. This will help you a lot
to understand the main things that led to the campaign's success.

Customer Lifetime Value (CLV)

Not every customer will have the same response. In this case, Customer Lifetime Value will help
figure out how much Risk-Adjusted Revenue and Risk-Adjusted Loss are related to each other.
This helps figure out how risk and return are related. This gives an idea of how likely it is that an
investment will make money or lose money. This includes adding some Net Present Value (the
difference between the present value of cash inflows and cash outflows for a certain period of
time) and subtracting the customer's services.

Prospective Customers:

Even if a customer isn't profitable for you right now, that doesn't mean they won't be in the
future. By this, we can say that it's very important to figure out who your best customers are and
adjust your marketing plan to suit them.

Customer Loyalty

It is cheaper and more effective to keep a customer you already have than to get a new one. It's
important to figure out the best way to keep customers by finding out why they're leaving. Here,
big data analytics helps you figure out how to keep customers by looking at the different things
that affect them and drilling down on any transaction that could cause them to change their
loyalty.
Cross-Selling

Retailers use information about their current customers to try to sell them other products at the
same time. Product portfolio analysis can be used to help with cross-selling, since the portfolio is
a list of all the products and services that a company offers. So, the retailers will be able to sell
the products that aren't in the portfolio.

Price Optimization

For price optimization, data analytics uses algorithms that perform a number of important tasks.
It keeps an eye on how much people want the products on the market and how the competitors
are doing. When figuring out the best price for a product, these things are taken into account.

Track Customers View

Business analytics helps businesses track how customers talk to them about their products and
services, like when they call, email, or post on social media. This helps the companies compare
the tests even more so they can take precautions.

To choose the best ways to make money

Most stores benefit from big data analytics because it helps them learn more about their
customers. With all of this information, they can figure out which market strategies will give
them the best ROI (ROI).

Planning for demand

Big data analytics also helps the retail sector predict what people will want to buy. Here, you
need to look at sales numbers, the environment, and the market to help you figure out how much
demand there is for production services.

Analysis of Goods That Are Out of Stock

Big data analytics in retail helps stores figure out why they are "out of stock." Since there are a
lot of different things to consider, the process could get complicated. Part of the data analysis
will help figure out how much money has been lost since the product ran out of stock.

Channel Profitability

Business Analytics helps to figure out how profitable channels, which are also called distribution
channels, are. A channel is a way for goods or services to get from the person who makes them
to the person who buys them. This also helps the retailer figure out if the channel is making
money and if they should keep learning more about it. If the retailers want to keep the channel,
they should include some subjective factors that would allow technologies and techniques for the
channel.

Figure out how customers act

Data analytics that keep track of how customers act help retailers figure out how their customers
shop, what they like, and where they like to get deals. Using this information, they can improve
their marketing efforts and make the best offers for their customers. They can also find ways to
keep customers and make things more personal, which boosts sales and lowers costs.

Keeping track of in-store experiences

Improving the in-store experience is a must for both online and offline retailers today. Tracking
is one way that data analytics can help improve the way things are sold. Customers' movements
through the store are tracked by sensors, beacons, and mobile apps. Once this information is
gathered, it is analyzed to find out how to give great customer service, where to put the most
effort, and what makes customers come back to shop again.

Better ads and marketing

As more and more people buy things online, it's important for retailers to improve their
conversion rates. With predictive analytics and targeted promotions, retailers can find out what
products and offers are most popular, what people are signing up for, and more. With this
information, they can keep trying out and analyzing new ways to get people interested.
Keeping track of what the customer does

One of the most important things to know about a customer is their journey, which is a look at
their whole experience with the brand as a whole. From how they communicate to what they buy
online and in stores to how they interact with ads. Having a full picture of this makes it less
likely that a customer will abandon their cart, makes it more likely that they will make a
purchase, and helps retailers figure out how to best guide customers through the buying process.

Changes to the operations and supply chain

One new way retailers are stepping up their game is by using analytics in the supply chain. The
data can be used to track products, improve quality, keep track of inventory in real time, and
make better predictions. It also speeds up shipping, which is something people have come to
expect. Better decisions at this level of the business's operations not only save money but can
also affect the bottom line.

In the end, retailers who use data analytics to their advantage will keep getting more and more
customers. To make more sales in a competitive market, you need to know more about your
customers' wants and needs and build stronger relationships with them.