In recent years, the UK retail industry has been dominated by consumer demand for discounts. This demand has led to high-profile ‘supermarket wars’ on prices, the rise of budget high-street chains and the growing popularity of Black Friday and Cyber Monday.
And yet, as the UK enters a period of rising inflation, many chains are asking whether they can maintain their low prices while remaining profitable. Others have concerns that high-profile events such as Black Friday, while generating record sales and footfall, are actually eating away at their profits.
At worst, retailers face a race to the bottom just to keep their customers satisfied. So how can they balance consumer demand for discounts and promotions without taking a hit to the bottom line?
For many retailers, the biggest concern is that they do not have a single version of the truth when it comes to measuring how well their promotions and special offers are performing. Their individual departments are working in silos, tracking their own data and key performance indicators (KPIs) – and these KPIs only tell part of the story.
Let’s look at this scenario as one example. The marketing department is reporting on click-throughs on an email campaign to promote a special offer online. At the same time, the eCommerce team is tracking orders relating to this same promotion. Both report sound results – healthy click-throughs, strong sales – but something isn’t right. Despite all those orders, the business is failing to make its margins.
What is the reason? All too often, it’s down to the fact that legacy KPIs are not linked up to enterprise-level data that shows whether the discount makes sense for the business as a whole. Furthermore, executives are relying on their ‘gut feel’ for what should be working and don’t want to give up on their tried-and-tested metrics. In turn, they cannot keep up with online shopping platforms that have grown up with sophisticated, data-informed decision-making.
If they want to compete in a digitalised retail industry, established brands may need to think again about what they measure and how they use, and act upon, analytic insights.
A more efficient operation
With the right analytics solution in place, retailers can identify where they are leaking profits and offering discounts and promotions that aren’t creating value. Through advanced data solutions, this can mean analysing profitability by individual product.
Rather than relying on cross-product averages, executives can see their top-selling products and assess whether a mark-down in price is necessary on a product that is selling in large quantities. Similarly, if they are offering free shipping on all products, they can judge whether doing so is making a difference to the number of units sold. If not, they have found an opportunity to save costs. In this way, data analytics can help them become more precise in their decision-making.
Learning from past mistakes
Retailers’ promotional strategies are influenced by a wide range of variables and are largely decided by analysts. Mistakes happen. If the business has rolled out a series of promotions, it can be time-consuming to calculate which are proving to be most profitable. If a mistake has been made on pricing one product, it can go unnoticed for far too long.
For this reason, we can expect leading retailers to increasingly explore automated systems that can scan for mistakes and inefficiencies across all active promotions. By investing in machine learning and AI, executives can be alerted in good time to initiatives that aren’t profitable.
Using data to outpace the competition
A good indicator of a retailer’s agility is how quickly it can iron out inefficiencies and make the necessary positive shifts to their promotional strategies. Online retailers have the advantage of being able to automatically adjust prices, but this isn’t possible in physical stores. What stores can do, however, is to get better at trusting the data and overcoming bureaucracy. The first and most critical step to becoming more agile is through enabling their departments with the tools to track, measure and recalibrate their strategies.
The retail industry is not getting any easier. Most likely, there are some tough years ahead for many established and currently profitable brands as they respond to today’s digital retail paradigm. This is why a fundamental change in thinking is required. To succeed, retailers must have the speed and agility to make, and act upon, high impact decisions that are supported by analytical insights. It is the key to survival and only path to a profitable future.