Everyone agrees: data is the pot of gold at the base of the digital rainbow. But what’s less recognised is that all data is not equal. To yield significant insights, data needs to be highly granular, especially when it comes to data about customers and their shopping behaviour.
Retailers are the best source of highly-granular customer data because they understand − or have the potential to understand − not just what was purchased but by whom, where, how and when.
Retailers can also discover how that purchase process occurred: Did a store visit prompt an online purchase or vice versa? What else did the customer buy at the same time? What other products did s/he consider? Has this customer purchased this product or brand before? And so on.
By contrast, while a bank or credit card company has good information − who the purchaser is, the amount, merchant, date and time − they have no idea what the purchase consisted of, or the process of how the purchase happened.
Similarly, Google knows all the details of any online searches, but it has no view of what was actually purchased, or anything that might have happened offline − for example, whether online activity led to a store visit and purchase.
The crucial enabler for retailers is the loyalty programme, something they used typically to shun because of the costs. But a growing number of retailers are realising that loyalty programmes provide them with the vital ability to link a transaction to an individual, something that immediately increases the value of their data, enabling them to understand their customers and how they purchase much more deeply. More about this later.
Retailers that can use their data effectively are able to drive higher conversion rates and increase average basket size and purchase frequency.
As an aside, think of a retailer like Makro (Walmart) which, very unusually in South Africa at least, has always known who its customers are because purchases have to be linked to a registered Makro card. In theory, the company has decades of customer and purchase information that can be mined to generate potent insights. The question is, is it doing so?
Research conducted by Deloitte shows that only 25% of retailers have reached maturity in terms of data usage − those that have are, the report says, “unlocking value by understanding customer behaviour in ways that were never possible in a brick-and-mortar world”.
While retailers generally recognise the potential for data-driven insights to improve their businesses, 50% of them are struggling to make headway.
Key stumbling blocks include accessing the right talent and prioritising investment in data capabilities.
Understanding the value
Let’s spend a little time understanding the retail data environment and its potential more deeply.
For retailers, data is clearly useful in helping to strengthen their core sales functions. Customer data can be used to examine historical purchase behaviour and assess loyalty. This information can in turn be used to improve the product mix and sharpen targeted marketing campaigns.
Retailers that can use their data effectively are able to drive higher conversion rates and increase average basket size and purchase frequency − all of which add to the bottom line, something that’s especially important during times of stagflation.
As important, retailers that can use data well can improve the customer experience for both online and in-store customers. Understanding the customer journey is key to improving it and thereby engendering loyalty.
One should note here that in order to close the loop, retailers need to find ways of persuading in-store customers to open their apps. At present, the typical scenario is for the in-store customer only to be recognised at the point of purchase, when he or she swipes the loyalty card.
If customers have a reason to open the app on entering the store, the dynamics of his or her in-store journey can be captured, and the retailer can also interact with them prior to the point of sale. Few retailers in South Africa have got this right, or have even attempted it yet.
But there’s a third set of opportunities that retailers must factor into their strategies. Everything points to a few tough years for retail. Inflation is the highest it has been for years in the United States and United Kingdom, and South Africa’s official inflation figure is hovering around 6.5%, above the Reserve Bank’s target of 6%.
Additionally, the aftermath of the pandemic and the Russia-Ukraine war have pushed up shipping and other costs, including fuel and, of course, salaries. Already-slim retail profit margins are being squeezed with consumers unable or unwilling to absorb higher costs.
Monetising data
In short, retailers need to find new, creative ways to reduce costs, improve margins and benefit from untapped revenue streams.
As already noted, data-driven insights can be used to streamline operations and increase profitability, but smart retailers are also now starting to monetise their data itself in two main ways.
The first of these is to share customer data with brands that occupy shelf space in their stores. Joint, targeted promotions and marketing and advertising can be used to grow revenues for both the brand and the store. Retailers like Walmart are already far down this road.
So far, so very logical. But few realise the value of retailers’ customer data to the financial services sector, particularly when it comes to new credit-scoring techniques. A persistent global challenge is financial inclusion, with some 1.7 billion people still without access to the formal banking system, largely due to the lack of a credit record.
Around 25% of South Africans are unbanked. Accenture estimates this market to be worth around $380 billion globally, but the benefit to the total economy of increasing economic activity would be even higher.
It seems like shopping data could be used to give unbanked people a credit score, and so allow them to access the financial system.
A recent study shows that grocery shopping data can reveal behaviour that correlates with creditworthiness, and thus “serve as a channel through which traditionally under-served consumers… can signal their creditworthiness to lenders”.
Many other institutions could find retailers’ data useful, including insurers and, of course, governments. Smart retailers will be on the lookout for further opportunities to turn their data gold into a revenue stream.
In my next article, I will look at how retailers should approach digital transformation and develop an effective data strategy within the South African context.
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