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What Retailers Learned In 2018: It’s All About Customer Data-Driven Strategy

  • Written by  Jose Gomes, dunnhumby

0aaaJose Gomes dunnhumbyAt a recent industry event, I quipped that this is “the best of times and the worst of times” for retailers. Implicit in my comment — which was a paraphrase of the opening lines of A Tale of Two Cities, the Charles Dickens classic about the French Revolution — that the retail industry is undergoing a revolution of its own. Never mind the “retail apocalypse.” What retailers have begun to realize is that the demise of their businesses is not a foregone conclusion. This is a time for retailers to take action, not sit idly on the sidelines. In 2018, we saw more retailers take action by equipping themselves with the most important weapon for battle: customer strategy fueled by customer data science.

Why is this happening? It could be that the ever-looming threat of Amazon, which has ventured boldly beyond e-Commerce and into physical spaces as well, with the steady spread of its 4-star stores throughout the U.S. It could also be the emergence of grocery discounters that are forcing retailers everywhere to rethink pricing and overall value propositions for customers. It could also be the example of retailers of all sizes to embrace the art and science of customer data which has begun to be democratized, and no longer the exclusive domain of online and offline giants.

In 2018, it paid for retailers to use data science to better understand and engage their customers, while delivering the most relevant experience possible. Here are five areas where customer data-driven strategy helped retailers reimagine themselves in the past year.

Price

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Without customer strategy, the pressure on prices — which comes from many players beyond the discounters — can lead to the inevitable race to the bottom. Smart retailers, however, are using first- and second-party data to rethink their entire pricing model based on the concept of value. Recent research my company released shows customers are more driven to make decisions as to where they shop based on perceived value, not price per se. The formula: divide quality by price, and that gives you a better idea of what your customer wants, and how to put the customer first. For example, customers happily exchange the time it takes to shop at Costco and Walmart for lower prices — a choice driven by a subconscious cost/benefit analysis of each retailer’s value proposition.

Space

Customer data-driven strategy is also helping retailers rethink the entire shopping experience, another area where value is created. In this video featuring a Cleveland grocer that transformed a downtown landmark into a one-of-a-kind urban shopping experience — I ask the question, “If you live downtown, in an American city, and you need to shop for groceries, what would you need to get you out of the house, especially on a cold winter’s day?” Studying the shopping habits of customers in both urban and suburban environments, many retailers are providing more engaging, personalized experiences with creative approaches to the use of one of their more important assets: space. But reimagining physical space can also have an immense impact on operating costs. A recent article in the Wall Street Journal looks at large retailers that are reducing the size of underperforming locations and favoring what the industry calls “small format stores.” But this is not just a cost-cutting measure. Using customer-data powered technology like smart mirrors, retailers are transforming cluttered aisles to more elegant, virtual “endless aisles” that provide store visitors with unique experiences.

E-Commerce

But retailers, of course, can’t just compete in the physical realm. With the advent of services like home delivery and in-store pickup, retailers need to be “amphibious” — capable of moving seamlessly between online and offline environments. This is an area of innovation where customer strategy really matters, and some retailers are taking it seriously. A recent study by Packaged Facts predicts that the grocery e-Commerce market will quadruple by 2023.

Brand

A survey of food retailers shows that brands with a more homogenous customer and store footprint perform better. Why? Because they deliver a brand proposition that is more consistent with their customer’s expectations. They opened most stores in the last 30 years, and as such their customers are more homogenous, and they better understand their customers — their habits, their biases, their preferences. But that level of understanding requires an investment in customer strategy.

Investment

And retailers, in fact, are investing. In November, the Wall Street Journal reported that food retailers in 2018 doubled their investment in technology over the previous year. One big area of focus: artificial intelligence, a large complex of technologies that are helping retailers rethink everything from optimizing operations, to predicting customer preferences, to providing great customer experiences. And again, these are technologies that are driven by customer data, but deliver the most value when deployed to support customer strategy.

“If data is the new oil,” food retailers were big importers of this resource in 2018 to fuel their customer strategy. We expect they will import even more in the coming year.


Jose Gomes is the President in North America of dunnhumby, a customer data science leader, empowering businesses everywhere to compete and thrive in the modern data-driven economy.

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