By Richard Scott Saban, President & CEO, Retail Technology In Action LLC
By definition, predictive analytics is the ability to separate things into their constituent parts in order to study and examine them, draw conclusions, and solve problems in order to effectively forecast an outcome.
The difference between predictive analytics and other analytical methodologies is that predictive analytics are proactive while the traditional applications of business analytics are reactive. The fundamental goal of predictive analytics is to achieve the full profit potential of every customer engagement.
Putting this into a retail framework, the discussion goes to a method of managing customers based on the ability to predict their future behavior based on their past behaviors. This is a powerful statement, in that, the ability to predict customer behavior has long been thought of as the Holy Grail for retailers regardless of what their product offering is. How many times have we heard those immortal words, “if I only had a crystal ball…”? That said, having a sound Predictive Analytics strategy could, potentially, place that crystal ball right in the palm of your hand. The precursor to forecasting customer behavior is to build strong relationships that foster intimacy. The relationship becomes the foundation for creating a single view of the customer, as an individual, and the ability to differentiate them from one another based on their personal behaviors.
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Differentiation is the tool that uncovers who the most valuable customers are, and how to maximize each interaction with that customer. I propose that by focusing marketing and promotional dollars on the customers that provide the greatest value to your business, your return on investment will be geometrically higher then any return you may receive from blanketing the market with junk mail, spammed email and any of the other traditional marketing weapons of mass destruction. That’s right, destruction, not construction. The destruction is a direct result of becoming an annoyance to your customers by bombarding them with offers that have no relevance to them, and, as a result, just add more clutter to their lives.
Everything you need to know in order to create value for your customers is in the transactional and the other engagement data that is already being collected. The meaningful aggregation of this data provides a single view of each customer. Unlike that of our financial markets, human behavior can be accurately forecasted based on past behaviors. By tagging similar behaviors, retailers can begin to segment their customer population and start making data driven decisions that are based in fact. The result of data driven decisions, as opposed to decisions based on a gut feeling, is that the results of data driven decisions are measurable and therefore manageable. Manageability is the key to increasing efficiencies and driving profits. The ability to measure the results of a particular action reveals not only what works, but also what does not work.
Now let’s sweeten the pot a little. The costs that are associated with generating incremental sales from an existing customer, who has already been identified as a customer of value, are significantly lower then the costs associated with a traditional mass marketing approach. Therefore, the incremental sales dollars that are created by targeting your valued customers, with an offer that has relevance to them, will result in higher profit margins.
At the end of the day, it’s all about ROI; driving incremental revenue, reducing marketing costs and increasing profit margins. Just listen to your customers, they will tell you what they want, when they want it, how they want it and how much they are willing to pay for it. All you have to do is deliver.
Richard Scott Saban has over 20 years of retail experience serving as the Chief Information Officer as well as the Senior Executive for Business Operations with a national men’s and ladies apparel chain. As an entrepreneur, Saban was part of the start up team that launched K&G Men’s Center in 1989. During his tenure, K&G grew from a single store in Atlanta Georgia into a nationwide chain with locations in over 25 major markets. In 1996, K&G doubled its store base to 46 stores and then proceeded to grow at a rate of 20% per year.
