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Customer Intelligence Investments Driving Retention Rates For Leading Retailers

In order to react to and better predict customer demand, leading retailers are turning to Business Intelligence (BI) solutions to help turn one-time purchasers into long-term customers. A recent study from Aberdeen Research found that best-in-class retail companies are two times as likely as all others to increase customer retention.

According to the report, “Business Intelligence in Retail: A Best-in-Class Roadmap for Performance Improvement,” the top objective for implementing BI is the ability to quickly react to changes in customer demand (cited by 50% of best-in-class retailers). Following customer demand, the other top uses of BI tools were making more accurate business decisions (38%) and improving customer retention and loyalty (38%).

MEASURING LIFETIME VALUE

The study also found that best-in-class retailers are using BI tools to measure and improve the lifetime value of customers (through improvement of customer service, customized offers, and loyalty programs) and 41% are profiling and segmenting customers across multiple channels. Aberdeen defined the process for improving the lifetime value of customer through the following steps:

·         Understanding customer profitability;

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·         Building offers and incentives that draw customer back for repeat business;

·         Improving the ability to take advantage of opportunities for cross-selling and up-selling customers on subsequent visits.

These top strategies reveal that BIC retail companies are taking a long-term view to understand their customers and develop enduring relationships with them. Segmenting customers is the first step to understanding customer, the report found, but in order to build relationships and repeat purchases, retailers should focus on delivering value to the customer. Providing customers with value they acknowledge through a product and/or service is crucial to converting a one-time customer into a loyal one.

 “Once unprofitable customers are identified, retailers have the opportunity to analyze why they have been unprofitable by looking at customer purchasing trends,” says Jeanette Keene, retail analyst with Aberdeen and co-author of the report. “Once identified, it is up to the retailer to examine patterns among unprofitable customers as well as their profiles to determine if these customers can be converted to profitable customers.”

HEAD OF THE BI CLASS

As a best-in-class example of applying BI tools to retail strategy, the Aberdeen report provided a case study of Abercrombie & Fitch which operates 1,000 stores nationwide under the banners: Abercrombie & Fitch, abercrombie, Hollister, and Reuhl. The company inherited disparate legacy systems from its former parent company. Abercrombie instituted a three-phase business intelligence roll-out in August 2007 to overcome residual problems.

In the second phase of their implementation, the primary use of their BI solution resided in their finance and store operations departments. Data was updated in real-time and in-store reports were the first to be updated with new traffic counters that enabled automatic sales conversion calculations. The next phase, which rolled out in January, includes key executive reports that will provide insight into Abercrombie’s new concept store.

Aberdeen’s Keene pointed out that retailer’s like Abercrombie that are integrating BI tools across all lines of business are seeing the biggest impact on business. “Companies where the BI application is only used by the IT, merchandising, or sales department do not get the full impact BI has to offer,” Keene said. “Similarly, when IT controls the use of BI, the organization is not able to use the application to its fullest extent, as many of the actual users are not sufficiently trained. Successful integration of BI is more than technology integration. BI has only been successfully implemented when a company has ingrained the use of BI into every day activities and the data is analyzed to derive actionable insight.”

A copy of the report is available to Retail TouchPoints readers free of charge through the first week in April. Download the report here.

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