How does a data-driven approach change retail?
Retail is one of the leaders in the use of data. A variety of indicators, visualizations, tables, and graphs are just a part of what every chain owner has to deal with.
Smart technologies have greatly simplified daily tasks, accelerated analysis, and improved management efficiency.
Today we will talk about a popular and effective management approach - Data-driven.
Its full name is Data Driven Decision Making (DDDM), in other words, making decisions based only on real data.
This approach adequately took the position of its predecessor - HiPPO (Highest Paid Person's Opinion), which assumed decision-making based on the opinion and intuition of the management. The main disadvantage of HiPPO is that a manager cannot be competent on all issues and understand all the features of business processes.
Which company is data-driven?
The data-driven approach is relevant today more than ever. He makes managerial decisions more balanced and objective, rejecting the intuition and personal assumptions of the manager. It is very important since even a minor decision can significantly impact the chain's profits.
It should be noted that the data-driven approach is not new. Retailers began to study what and when they buy at the end of the 19th century, but the term "data-driven" became widely used in the 1990s. Today it has various use in retail. It can be used to determine:
- what and how to place on store shelves;
- how to optimize the assortment;
- what promotions to organize online;
- what pricing approaches will be the most profitable;
- current and forecast demand for products;
- when and how much to order a product, etc.
Retailers often wonder the question: "What needs to be done to launch a data-driven approach?"
Unfortunately, experts do not give a definite answer.
Some single out a mandatory criterion - the use of specialized tools - Business Intelligence (BI). Others argue that it is enough to understand Excel spreadsheets to collect and process data. And there is a group that considers the notes and calculations of the chain owner in a notebook to be a data-driven approach.
We will not deny the opinion of experts, but simply try to substantiate our point of view.
✅ To begin with, we reckon that for the implementation of data-driven, starting collecting data is not enough. Here it is necessary to control the quality of input metrics and filter them before further analysis. For analysts, this usually takes the most part of their time - up to 80%.
✅ It is important to focus not only on internal chain data but also take into account external sources of information: open statistics from analytical agencies, information about partners and competitors. Ignoring such data, it is difficult to get a complete and real view of the business and make objective decisions.
✅ The human factor and the probability of errors in calculations should not be rejected. Whenever an employee works with algorithms and data, there is a possibility of errors. Thus, working with Excel tables will not be able to prevent mistakes.
If you want to get the best results from the implementation of a data-driven approach, you should use BI systems that are based on artificial intelligence (AI) technologies.
Such a system was developed by the Ukrainian IT company Datawiz in cooperation with leading experts in retail.
What should you start competently using the data-driven approach with?
① Focus on goals. Firstly, each retailer should define the tasks that he wants to solve with the help of data. After that, you should choose metrics and channels for collecting information. If you start by collecting data without specific goals, then the chain can fall into the trap when the metrics "adjust" to the expected result. For example, when the goal is to minimize lost sales by 15%, you should collect data on out-of-stock and sales intensity. At the same time, data on the absence of goods can be collected using receipts, accounting system data, or using video surveillance devices, etc. From the list of methods, you should choose the less complex and costly one.
② Use a wide range of information. Don't limit yourself solely to chain data to get a full view of the business. It is advisable to take into account information from available analytical sources. In this way, artificial intelligence (AI) technologies come to the rescue.
③ Develop the analytical knowledge and literacy of employees. Data becomes especially valuable in companies where employees know how to correctly interpret dashboards and analytics, and understand what “lies” behind each indicator. Thus, it is important to develop such skills among coworkers so that all decisions based on data are not divorced from reality.
④ Implement a data-driven culture. A change in management methodology involves not only technological transformations, but also a change in the entire business model of the chain. Of course, such a transition should be step by step. It is important that at all levels of management, employees are ready to see the real picture, explore the data, learn to ask the right questions, and not make decisions intuitively. Top management should become an example of the competent application of the data-driven approach for everyone.
⑤ Invest in data. Of course, to implement a data-driven approach, investments are needed for collecting and processing data, building dashboards and visualizations. If you use highly effective tools that quickly organize and filter data, and help you identify insights, then such tools will quickly pay off and ensure a new level of income for the chain.
The data-driven approach in retail allows the manager to be flexible in making decisions and quickly respond to dynamic market changes. The real data provides many clues:
- what buyers expect from the chain and what they prefer;
- how to reduce the cost of customer acquisition;
- where to look for new clients and build strong relationships with them;
- how to increase customer loyalty;
- how to avoid lost sales;
- what promotions are most beneficial for the chain;
- how to optimize pricing policy, etc.
This approach allows you to monitor real-time data and quickly respond to any market fluctuations. Significant examples of successful use of the data-driven approach are Amazon, Google, Intel, Walmart, MTC, etc.
For fast implementation and successful application of data-driven analytics, we have developed a powerful analytical platform for retailers - BES.Datawiz. Now, it becomes much easier and more convenient to make effective management decisions based on Big Data and expand your business.