GIS (geographic information system) software allows retailers to see their customer data in a way that's worth a thousand words.
When you're lost, a map can guide you to your destination. It's the same idea when retailers are lost among vast amounts of customer information. Names, addresses, demographics, and store locations fill line after line of stored tabular data. Since a picture at times is worth more than words, retailers can use a GIS (geographic information system) to wade through the text. The solution combines computer software, hardware, and personnel to manipulate and analyze data and present it graphically. It links tabular data with geography. Anything that can be matched to an address can be crossed with demographic or census data. This helps retailers decide anything from new store locations to merchandise assortment. Tony Burns, manager of corporate sales at ESRI, describes how retailers can chart successful marketing and relocation campaigns based on spatial data analysis.
How does GIS work with the databases retailers already have?
Tony Burns: Retailers typically keep a customer database made up of POS (point of sale) data from private label credit cards or ZIP code information. The sales transactions are then tied to the store number where the purchase was made. GIS software geocodes this information and maps where those customers are. A retailer can see its total sales by ZIP code or sales territory, which creates spatial patterns. It can link customer data to additional data like lifestyle clusters and determine the buying behavior of a specific demographic based on those patterns. The user can query the database to learn more information about customers, such as the last time they shopped, what they bought, and with what frequency.
What are some ways that retailers can use geographic systems?
Tony Burns: Retailers have a tabular file of customer addresses, but GIS provides a spatial distribution of where their customers live or shop. Once this is established, retailers can create a trade area of where their revenue comes from. Areas with the highest concentrations of customers are where a retailer wants to focus its marketing activities. Retailers can also determine how far a customer is willing to drive to reach a store. Retailers can take this information along with customer demographic information and use it to determine the best site for a new store or distribution center (DC). The map does not only have to be of a city or state. Sears has optimized its DCs by mapping the warehouse floor. The aisles in the warehouses are streets, and every bin is an address. The company routes the forklift to optimize the picks and the drops inside the warehouse to get orders to the truck more efficiently. This can also be done in a store to identify combinations of products that sell well together. Sears uses the software to route 14,000 trucks a day. It added one to two more route stops each day by mapping the streets with GIS software.
How is GIS software updated and how often?
Tony Burns: There are companies whose statisticians take census data and update it annually. They get current year estimates and five-year projections on demographic data. There are also databases like National Household Consumer Database (a file of about 165 million households), which is updated weekly. We provide our users with the ability to access that data online; it syncs with our software and displays households by geographic area that meet certain criteria, i.e. females between 30 and 60 years old with incomes over $100,000. Now they can see where there are other areas that have demographics that look like their existing customers.
How much does a GIS solution cost?
Tony Burns: Our software ranges from $1,500 to $20,000 depending on whether you are purchasing server- or Internet-based products. The straight cost of demographic data, business files, and street maps could add up to $50,000 to $60,000. Because we do high volume, we are able to get the cost down to $12,000, which is extremely reasonable given the commercial value of data. If you were to go out and get the data yourself and try to analyze it for some specific state or country, it could cost $10,000. There are some companies that charge fees of $40,000 to $50,000 on an annual basis to license their data. Our company sells the product for $12,000 and then we charge $4,000 each year for data and software upgrades and technical support.
How have retailers realized ROI from this kind of software?
Tony Burns: Some results are tangible and some are intangible. Retailers are finding that they are making better and faster decisions, particularly in terms of site selection and marketing campaigns. Anytime a company can reduce the amount of time it spends looking for a new building location, it saves money. In terms of marketing campaigns, a good example is the Credit Union of Texas. In terms of customers, a credit union is similar to a retailer. The company was sending direct mail to 100,000 people and getting a 1% to 2% response rate. When it started using GIS software, it identified the characteristics and profiles of its customers and whittled its prospect areas down to 10,000 people. After that it received an 8% to 9% response rate. That is a huge saving just in direct mail for a marketing campaign. Retailers are finding the same kinds of results. Overall GIS improves organizational integration. The real estate, marketing, sales, and merchandising groups within a retail operation can coordinate their analyses of consumer behavior. One department store chain moved a store five miles based on the spatial density of customers. By relocating, it became more accessible to its existing client base and created a new customer draw based on proximity and drive time.Questions about this article? E-mail the author at StephRD@corrypub.com.