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Matching the mix (IRM53)

Clever ways of monitoring and connecting with customers are all very well, but if the merchandise isn’t what they’re looking for or they don’t understand the sales pitch, the effort may well be wasted. Penelope Ody investigates.

In the pre-digital world it was an experience all-too-familiar to every shopper: you knew just what you wanted to buy, but finding a shop which actually had the item available could involve hours visiting multiple high streets. Internet shopping and clever search engines have – in theory at least – made finding what you want rather easier, but they also bring new challenges for retailers.

The first is that perennial retail goal of selling more to your existing customers rather than having to constantly recruit new ones, especially when the competition is only that proverbial “one click away”. Then there are the inevitable stock-outs, which always occur from time-to-time, thirdly the lack of any feedback loop alerting buyers to such potential problems as excessive returns rates for a particular line, fourthly delays in adopting what is being called “high-definition merchandising” – to maximise digital technology and social media to better understand customers and develop appropriate ranges, the list could go on.

A recent study by IHL for OrderDynamics calculated that a combination of price cutting on over-stocks, lost sales through out-of-stocks and losses on returned merchandise could, worldwide, add up to $1.75trillion: a “ghost economy” of potential trade lost to global retailers. It is an area, argues Kevin Sterneckert, Chief Marketing Officer at OrderDynamics, where “big data” and powerful analytics can make a significant difference. “You don’t need to find new customers,” he says, “you just have to fix the disconnects to see an 11% gain in year-on-year sales to your existing ones. Any retailer will be disappointing customers who are trying to buy what is not in stock.”

Thanks to “big data” – clever algorithms, predictive analytics and data integration across the enterprise – developing inventory problems that could drive sales into the “ghost economy” can quickly be highlighted. However, achieving a high level of merchandise availability is just the start: the assortment must also be closely aligned with what the target customers actually want to buy. “Increased personalisation is the number one trend going forward,” adds Sterneckert, “and that personalisation must be specific and granular to an individual level, not averaged to a segment.”

That is, of course, easier to deliver online where a real-time response to a known customer’s individual buying and browsing habits is perfectly possible – just as long as what they want is actually included in the product assortment. “Online content has to be relevant and personalised,” says Gerald Heath, Ecommerce Practice Principal at Oracle implementer, OLR Retail. “New technology now makes it easier to do that based on which pages a customer has viewed and tracking them across websites. You can see what they have searched for on competitive websites, for example.”

While some customers may baulk at the prospect of being constantly tracked, as Heath says, you have to be “very tech savvy” to block all the tracking options. Amazon’s recently unveiled smartphone, for example, collects data from its users to make increasingly accurate product recommendations. “Tracking customer engagement to this level requires a customer relationship management system that is designed to capture customer data across every touchpoint, from a retailer’s point-of-sale system to its Facebook page,” adds Sarah Davies, head of Kurt Salmon’s digital practice in the UK.


Few retailers will want to track the behaviour of every customer, but by using systems such as Google Analytics to understand the interests of, perhaps, both high spending shoppers and those who browse but rarely buy, can help to refine assortments to match their needs and wants more closely. “These systems allow you to find a great deal of information about your customers,” says Heath, “but it needs to be distilled down to identify what is really useful.”

Mark Stone, SVP and COO for the UK at TXT e-solutions agrees: “Big data and clever analytics are very valuable,” he says, “but you also need good data analysts to provide the insights that can help the business”. He talks of “customer-driven assortment planning” with stores if not actually planning down to an individual shopper at least making greater efforts to match assortments to an individual store’s customer base. “For the very largest retailers, planning to store level is still challenging,” he says, “so they still operate clusters. Historic sales patterns are important but are not the only driver for the assortment. You need to look at such things as local demographics, geography and lost sales analysis. Online you can track what people are browsing but that is harder in-store, although we are finding retailers want to improve the way they record not just out-of-stock data but also the items customers ask for which they don’t stock.”

While gaining “customer insight” is a priority for many retailers, actually feeding that information back into merchandise departments is less common. “Customer data traditionally goes to the marketing department,” says James Lovell, Smarter Commerce Solutions Consultant Europe at IBM, “but it needs to be shared with merchandising as well. The focus today is on personalising the experience, not just in digital channels, but in the physical world as well.”

Lovell argues that smartphones are key with geolocation data providing information about where in the store a customer lingers and how long they spend looking at particular products. “The technology is still mostly used for push promotions rather than understanding customer behaviour,” he says, “but that is changing.”

Changing too, is the range of information sources buyers and merchandisers need to consider when planning the product mix. Social media is possibly high on the “to do” list but very few retailers have any formalised structure for using the customer insights it provides and focus instead on treating it as an additional channel for pushing product – which is not at all what customers actually want. According to a recent Oracle survey 42% of those questioned specifically stated that they did not want retailers to contact them via Facebook. “They don’t want to be sold to by social media and they don’t want to be asked too may privacy questions,” says Sarah Taylor, Senior Director at Oracle Retail, “but consumers still expect retailers to know what they like and what interests them, so retailers have to use good data analysis to find the right answers.”


“Buyers might look at sites like Pinterest,” says James Lovell, “but do they use it to glean insights into what is interesting their target customers? If the supply chain is good then it may be possible to respond to an emerging market trend very quickly.”

This is where “HD Merchandising”, now gaining ground in the US, comes in. The aim is to use the digital tools familiar in everyday life – Facebook, Pinterest, Yelp, Instagram, Twitter – in a business context replacing what Kurt Salmon describes as the “analogue tools equivalent to the Yellow Pages, old fashioned telephones and TV aerials” currently available to most buyers. Instead of product codes, systems should incorporate visual imagery, while information flows should be streamlined across the organisation so that buyers and merchandisers can have instant feedback on what is selling – and more importantly what is not selling and being returned. These customer reviews also need to be fed back to merchandisers in real time, not just sent to the marketers who may focus on damage limitation rather than product redesign.

“Buyers and planners need to incorporate social media insights into their processes,” says Mark O’Hanlon, Senior Manager at Kurt Salmon. “Crowdsourcing product feedback should be both internally among colleagues and externally among consumers, as well as reviewing blogs and product reviews to understand customers’ requirements, inform past-season performance reviews and future-season planning. This allows the consumer to drive how products are grouped and reviewed by buyers and helps retailers talk to consumers in their language.”

When it comes to connecting with customers, language is, of course, key. As Diane Ellis, CEO of The Limited said at NRF in New York earlier this year: “The language that we use when marketing our products comes from language that we hear in our reviews and social media. Many times, we tried to come up with great descriptors for a product but it didn’t necessarily resonate with the client. Being able to leverage her testimonials – use the actual customer language about the fit, style, fashion – really was important to her. We can then bring that into our language.”

Of course, once you have a common language, customer connection is so much easier.

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