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The Ins And Outs Of BI For Retail
Part 1

by Lyndsay Wise, President, WiseAnalyticsWednesday, December 16, 2009

The need for organizations to look at business intelligence seriously and to consider its use as part of the overall strategy for success is obvious in today’s market.  With continued uncertainties, organizations cannot overlook the ability to attain a broader view of their company’s performance and to identify potential issues more proactively.  When looking at BI adoption specifically, banking, insurance and manufacturing are some industries that have been quick to adopt BI principles. 

The world of retail, however, is generally slower to implement BI within their organizations and at their store locations.  The ability of e-tailers and ecommerce businesses to use web analytics as part of their day-to-day activities has shown broader retailers the benefits associated within the adoption of BI.  Consequently, many retailers are now looking at BI and using it to improve efficiencies related to how they do business.

This two-part article identifies the different BI needs of retailers and their online counterparts.  Part 1 looks at the business intelligence drivers for retail and the business value gained from adopting BI.  Part 2 focuses on online analytics and the types of BI applications e-tailers use to remain competitive and gain a better understanding of their customers.  Finally, both sections will cover what organizations should consider when using analytics and BI components to gain more visibility into their businesses.

An overview of the differences between e-tailing and retailing in relation to BI

Both online retailers and those with physical stores have to worry about meeting the needs of customers..  Whether this means having the desired merchandise, getting it to the customer on time, managing suppliers and shipments, identifying customer behavior, managing customer satisfaction, or identifying the success of marketing campaigns, retailers face a diverse array of business challenges.  Retailers require the ability to manage all of these areas and more, all while integrating each to identify the overall success or potential gaps being faced.  Both online and store-based retailers have the same needs but are required to address them in different ways and use disparate tools to address their business problems.

When considering the use of analytics and business intelligence, online retailers have a clear advantage.  Because BI is about the ability to gather and analyze relevant data, online retailers already collect information that can be directly accessed.  In addition, analytics that include website traffic, behavior patterns, demographics and the like can be embedded easily into applications used or can alternatively access back-end databases.  Consequently, online businesses have a natural structure in place to take advantage of what BI has to offer.

Retailers, on the other hand, have a two-fold challenge when looking at business intelligence.  The first relates to their back-office operations that can include purchasing, marketing, supply chain, etc.  The second relates to the collection of in-store and POS metrics.  For instance, Amazon.com can identify whether someone has looked at an item, placed that item into their shopping cart, but chose not to purchase the item.  In a physical store, it can be much more difficult to identify how much a person has bought in relation to what they looked at, whether they put items back, whether they were unable to find specific items, or if displays were effective at getting their attention.

BI advantages for retailers – business benefits explained

Even though these differences between online and in-store analytics do exist, retailers can use analytics to drive their businesses and gain insights into their customers.  Before looking at ways that retailers can achieve this, it becomes important to understand the business value of BI and how retailers can use business intelligence within their organizations as well as in-store to increase sales and gain better visibility into customer behavior.

The general goal of analytics and BI is to provide better visibility into the day-to-day operations of any business.  Whether this occurs through the traditional trends and sales analytics or by applying more forward looking predictive modeling, BI’s aim involves consolidating disparate data to enable a broader company view.  This collection of information allows decision makers to identify patterns and plan their business proactively to enable better overall service to customers, financial planning, supply chain management, etc.  Aside from the practical benefits of BI, with better insight into the operations, successes, and challenges being faced, decision makers can react to market changes or potential issues before they negatively affect the business.

Back office versus POS

In addition to the traditional forms of BI applied within organizations, retailers have the added requirement of looking at in-store and POS-related data to help drive internal business decisions.  Looking at in-store analytics lets retailers identify more than just sales figures.  With advancements in technology, companies can use video feeds to identify the success of store displays, customer behavior, shoplifting, successful placement of merchandise and the like.  All of this information can then be analyzed to help with inventory, purchasing and employee-performance management. 

When looking at daily operations, retail BI versus other applications of business intelligence might not differ much.  Organizations use analytics to manage their financial planning, supply chain, distribution and tie that to their sales operations.  Consequently, the integration of back office and in-store analytics is the only way to provide a full view of what is happening within the organization as well as the only way to gain more competitive advantage.  Even though one form of BI without the other may provide some benefit for organizations, without insights into both business operations and how that interrelates with POS and in-store data, retailers only gain visibility into part of their business.

Considerations for retailers

Business intelligence can help retailers monitor sales and plan for future initiatives.  Retailers looking at BI for the first time should evaluate their options and take into account the type of BI to be used in addition to the types of features and functions required.  For organizations considering BI or looking to expand their current use, it becomes important to look at what type of data collection is required.  For instance, organizations looking to evaluate foot traffic and conversion rates may want different functionality than retailers looking at POS data and the types of products being sold based on demographics or geography.

Overall, with the maturity of BI and the ability to integrate structured, unstructured, video and geographic type data, retailers can use BI as broadly as they want in order to get a full picture of their businesses.

About the Author

Lyndsay Wise is an industry analyst for business intelligence. For over seven years, she has assisted clients in business systems analysis, software selection and implementation of enterprise applications. Lyndsay is the channel expert for BI for the Mid-Market at B-eye-Network and conducts research of leading technologies, products and vendors in business intelligence, marketing performance management, master data management, and unstructured data. She can be reached at lwise@wiseanalytics.com. And please visit Lyndsay's blog at myblog.wiseanalytics.com.

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