Retailers' No. 1 Tech Priority Is Business Intelligence

An Aberdeen Group survey finds that BI tools can improve retailers' "customer intelligence," cut wasteful spending and increase gross margins.

All of the frothy hype over business intelligence tools is justly warranted in the retail industry. That's according to a January 2008 report from Aberdeen Group titled "Business Intelligence in Retail: A Best-in-Class Roadmap for Performance Improvement."

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The report's findings, that BI tools can "build customer knowledge, improve visibility across the enterprise and drive sales," are based on survey results from more than 200 retailers. Nearly 70 percent of the retailers had already implemented and currently use BI tools, and 26 percent reported plans to adopt a BI system.

It's important to note that Aberdeen defines BI not as a single reporting or analytics application applied to a specific data set. Rather, BI "involves the ability to access information affecting the business, often as the data is created," write analyst Jeanette Keene and research director David Hatch. "This can involve one or a multiple set of data sources, and can affect one or many sets of decisions, actions and people."

The top reason retailers are implementing BI systems is to allow them "to quickly react to changes in customer demand." In addition, Best-in-Class retailers using BI tools (defined by Aberdeen as having increased their average year-over-year same-store sales by 11.7 percent, their average profit-margin by 9.3 percent and their customer retention by 12.2 percent), said they needed to be more predictive with their forecasting capabilities (38 percent) and improve customer loyalty and retention (38 percent).

"There is clear focus among Best-in-Class companies on improving intelligence across the enterprise to react to and better predict customer demand," the report's authors write. "In today's highly competitive and global landscape, the average consumer has many options, so maintaining and exceeding customer expectations is critical for a company's continued success."

Retailers need all the help they can get with customer service. The most recent data from The University of Michigan's American Customer Satisfaction Index (ACSI) showed that customer satisfaction in the retail sector slipped 0.3 percent last quarter to 74.2 on ACSI's 100-point scale. The last holiday season, in particular, was less-than-merry for many retailers: "Satisfaction with the department and discount scores reached its lowest level since 2001," the index showed.

"Operational efficiencies don't always translate into customer service," said Claes Fornell, head of the ACSI, in the report. "Cutting jobs and eliminating services might improve earnings but won't do much good if customers take their business elsewhere."

For those retailers that are identified as "Laggards" and might be the ones struggling most with customers service, the Aberdeen report offers up three suggestions to get their BI efforts going. (The report also offers "steps to success" for Industry Average and Best-in-Class retailers. Access to the report is free until the end of March.)

Go beyond segmenting customers and aim to identify profitable ones that can become loyal customers. "Business intelligence technology assists in accelerating the identification of both profitable, and perhaps more importantly, unprofitable customers," the authors write. "Retailers that can identify and segment these groups are able to shift awareness and tactical marketing spend toward more profitable activities and new targets with a higher potential for profitability."

Prioritize real-time alerts and updates. "The retail world is evolving faster than ever, particularly as online retailing has become an industrywide force. Consumers have quickly learned to utilize all of the tools at their disposal to educate themselves about products and prices," they write. "Do not let a lag in data access cause lost opportunities. Retailers that respond fastest to changing market dynamics gain the most advantage in terms of Best-in-Class performance."

Train end-users—BI cannot be fully utilized if users do not understand the solution. "Only 28 percent of Laggards currently provide end users with BI training, inhibiting the ability to make full use of all BI capabilities," the authors write. "The investment in business intelligence technology only begins with the acquisition of a toolset. The ongoing support and maintenance of the system is important, but all of that goes to waste if users are not adopting the tools and using them to their fullest potential."

Copyright © 2008 IDG Communications, Inc.

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