Predictive analytics and BI (business intelligence) technology can help retailers increase profit levels and exceed customer expectations.
Now that many retailers have implemented the basic 'plumbing' technology of ERP (enterprise resource planning) and transactional systems, it's time to strategically use the data generated by those systems to make better business decisions and grow the top and bottom lines. All industries — including retail — are laser-focused on BI and predictive analytics as the top technologies to enable growth. Analyzing data and making solid business decisions based on hard facts takes retailers out of the realm of guessing about possible outcomes and places them squarely into the world of knowing what's going to happen.
BI technology has come out of the back room of IT shops and into boardroom-level discussions because it can have a significant, positive impact on earnings and shareholder value. Every executive around the table is responsible for impacting corporate profits, and these technologies support them in their efforts. BI technology can be approached as an integrated suite of solutions, but retailers are pressured to show high-impact results and may first choose a point solution for quick impact, such as assortment planning, size optimization, or markdown optimization. The good news with integrated suites is that you can have the best of both worlds: Begin with one element, gain a payback, then fund the next initiative.
One of the many ways BI technology can quickly and directly have an impact on a retailer's bottom line is through price optimization. Price optimization technology allows retailers to maximize margin and inventory goals by establishing optimal initial pricing, promotional pricing, and optimized markdowns.
Increase Profits By Optimizing Pricing
Price is the most important profit lever a retailer has to work with. A 10% price increase can double profits — a far greater impact than increasing sales by 10% (resulting in only a 33% increase in profit) or reducing fixed expenses by 10% (which results in a 20% increase in profit). Understanding price elasticity and how to optimize pricing from the start is paramount in moving the profit needle for retailers in all categories.
Because of its power to quickly and dramatically improve the profit landscape, price optimization technology is often considered self-funding. It quickly pays for itself and puts savvy retailers in a position to adopt additional sophisticated technologies that create an impact further upstream in the business process, such as advanced assortment planning, which allows tailored local market assortments.
Price optimization technology has become more mainstream as we have evolved beyond first-generation software applications. Retailers looking at second-generation price optimization solutions can gain the benefits of predictive analytics, such as robust forecasting, across all merchandise types. Second-generation solutions offer enhanced scalability. Some even allow optimization from zone- to store-level pricing, an important factor for many retailers. Additionally, providing these solutions through hosted 'software as a service' delivery systems means even smaller, emerging retailers can gain the same competitive advantages as larger organizations in today's fiercely competitive environment. Driving these second-generation systems are vast amounts of SKU-level pricing data, making data integration an important part of selection criteria.
A more sophisticated consumer, a more competitive landscape, and higher shareholder expectations mean that retail is more demanding that ever. Retailers must take advantage of the latest technologies to succeed in today's global economy. BI and predictive analytics give retailers that needed edge today — and tomorrow.