Retailers and manufacturers are always curious to get answers for simple questions which they face in their day to day operations. However, it depends upon the retailer and the relevant business function, to prioritise their questions. Is it that the retailer is unaware of their target customers, right pricing or competitor attacks?
Business Analytics will not only provide answers to these business challenges, but also provide recommendations and allows one to measure the success of key initiatives. The following are some examples of “must have” business analytical solutions:
- Customer Segmentation
- Price Sensitivity Analysis
- Promotion Analysis
Customer Segmentation helps retailers and manufacturers in understanding their customer base by dividing it into groups of individuals that are similar in specific ways such as age, gender, interests, spending habits, etc. Segmentation allows companies to target groups effectively, and allocate marketing resources to the best effect. Cluster Analysis and Segment Profiling are the standard techniques used for customer segmentation.
In Price Sensitivity analysis, the aim is to quantify the effect of pricing which impacts the shifts in sales volume or market share. Organisations can benefit from this type of analysis, which can be done using mathematical regression techniques and other statistical techniques. Future pricing for the products can also be determined from this analysis.
Promotions Analysis helps retailers in understanding their promotional strategies with respect to their consumer segments, products, markets, frequency, and retail outlets. Different types of promotions, such as TPR, feature and display, are targeted for different business objectives. Measuring the success of each of the promotion type can be done by the Marketing Mix Model. An optimisation tool can also be built for finding out the right promotional mix.
Let’s take a hypothetical example of a CPG organization, and see what Promotion Analysis can do:
Business Scenario: The category of the product as well as the brand of the product was growing for the organisation. However, the incremental sales (sales achieved by promotions) of the brand were declining. The trend was that, spend on promotions were increasing YoY (year on year), but its contribution was reducing at the same time.
Business Challenge: As the entire category is a promotion driven category, money spent on various discount promotions was to support the toplines. Promotions like price reductions, displays, and catalogue features were highly frequent. And, as the incremental sales were lowering down, return on total promotions was badly affected. Now, the challenge was to know which activity has performed better across the all the promotion activities and how to get maximum returns on that?
Business Solutions: The Marketing Mix Model tool is the best fit solution to address such a scenario. The model will help decompose the volume sales and identify the contribution from each of the promotional activity. Good and bad performing promotional activities and its impact can be outlined.
Other factors such as new product launches, cannibalisation, and seasonality can also be quantified in terms of their impact. Now, the optimisation of each of the promotional activity depends upon:
- Retailers Identification
- Products Identification
- Time Frequency
Business Result:
1. Such analysis can help a retailer in effective allocation of the promotion spend in different activities and optimal allocation of budget for each activity to generate highest returns can be determined.
2. Improvement in the efficiency of the promotion spends by optimising the trade promotions for products and its frequency, also resulting in incremental sale increase per promotion activity.
Gaurav Mahajan, Knowledge Services
MindTree Ltd.