Online Retailing, Data Mining and Technology takes center stage at NRF’s BIG SHOW in 2010

Published on January 29, 2010 in Al Beery. 0 Comments Tags: , , , , , .

Alan Beery, Pitney Bowes Business Insight

The National Retail Federation BIG SHOW was held this year in New York City in mid-January. This is a premier event showcasing the emerging trends in retailing internationally. I had the opportunity to be among the more than 17,000 attendees from at least 50 countries who were represented at this years show. The conference highlighted how the best retailers are utilizing data and technology to effectively reach their customers. The explosion of increased customer transaction and purchase data was a theme heard repeatedly in educational sessions and conference presentations.

Of particular interest was the advanced use of research and technology to identify and attract potential customers. One such example is Wet Seal which is aggressively incorporating social media and online shopping access to successfully promote sales. Additionally, a number of retailers highlighted the intensive use of CRM technology and data mining to uncover their best prospects. This was evident in strategies such as Market Basket Analyses where the most frequent or profitable purchase combinations were identified. The most innovative retailers were also successfully quantifying how and where customers are making purchases across key channels (internet, catalog, brick and mortar, and telephone) and leveraging these channels to increase overall sales potential. As an example of emerging technology, a session focused on video analytics at Cabela’s documented customer and salesperson interactions and provided actionable strategies to improve customer service.

The NRF BIG SHOW provides great insight into the analytics, IT, and customer trends affecting the retailing industry.

12 ways location data yields better decisions – Part II

Published on January 22, 2010 in Uncategorized. 0 Comments Tags: , , , , , , .

Nearly 70 percent of all business data contains a geographical component, so it’s not surprising that more businesses and government agencies are using location intelligence to reach, serve and grow customer relationships. Last week we looked at the latest trends related to customer-facing initiatives Today we’ll examine the ways geo-spatial data is being used in operations and the public sector.

Crime fighting. While governments have long used geo- technology to support public works decisions, such as highway and sewer planning, a number of specialized applications now incorporate location intelligence in the area of crime mapping. In many municipalities, citizens now have a centralized portal where criminal intelligence and information is shared by law enforcement at the local, state and federal levels—giving law enforcement agencies the insight needed to solve and prevent crimes.

E-Government: In the public sector, location intelligence is used to plan for growth, improve public services and share information with citizens. New government legislation, such as INSPIRE in Europe, is changing the way public organizations manage and share their GIS data. Many agencies have found ways to keep costs down, serve citizens and comply with new government mandates.

Tax management. State and local tax jurisdictions involve complex rules and boundaries that have no relationship to postal codes—and the failure to collect or pay appropriate taxes can result in significant penalties. This need is especially prevalent in certain industries, such as telecommunications, where miles of fiber optic cable may cut across hundreds of distinct tax jurisdictions—each with unique rules and tax rates.

Risk identification. In financial services, predictive analytics based on geo-demographics now provide an early-warning mechanism to detect borrowers who may be at risk of bankruptcy and default. In the insurance industry, companies have integrated spatial analysis into underwriting and claims management systems—instantly calculating the distance between a home and the nearest fire hydrant, flood plain or fault line.

Fraud detection. Due in part to the recent recession, fraud attempts are on the rise and more organizations are integrating customer data quality and location intelligence into their fraud management systems. In the credit card industry, geo-based analytics can instantly assess whether two credit card purchases could have been made by the same person using the same card based on time and distance.

Routing and fleet management. As consumers shift to online shopping, location intelligence is increasing part of the delivery system, as retailers and shippers calculate optimum drive routes and determine where to locate distribution centers—decisions that provide for faster deliveries and lower costs.

Experts predict that the market for business geographics and location intelligence will grow 50% over the next five years. Clearly, new solutions such as those offered by Pitney Bowes Business Insight are making an impact.

Have you started looking at any of these areas this year?  Feel free to share any questions or insights here.

12 ways location data yields better decisions – Part I

Published on January 14, 2010 in Uncategorized. 0 Comments Tags: , , .

Location intelligence has clearly become a mainstream business practice—driving decisions across most every department. As we begin 2010, we wanted to provide you some insights into twelve of the latest trends and applications. Today we’ll look at how geo-spatial information supports customer-facing initiatives.  Next week, we’ll examine the same trends in operations and the public sector.

Site Selection. Opening a new store or branch location can cost millions of dollars, with payback often calculated in years. Companies can now analyze market demographics, competition and consumer buying habits across alternative geographies in order to predict events well into the future. This is especially important in times of economic uncertainty, when many firms are deciding whether or not to close or relocate stores and branch locations.

Customer Segmentation. Marketers can go beyond simple postal codes to identify households at the neighborhood and street level who are most likely to become new customers or to purchase additional products and services. Color-coded maps overlay multiple levels of data, including revenue, Census information, proximity and customer penetration—making it easy to visualize how market demographics correspond to sales potential.

e-Tailing. The exponential growth of online shopping adds another dimension to marketing decisions. While consumers may transact in a “virtual world” they still access the Web from specific locations. Understanding the relationship between where online customers live and work vis-à-vis the location of retail locations and competitive outlets makes it easier to develop strategies that best leverage both on- and off-line efforts.

Customer onboarding. The opening of a new account can be one of the most critical times in the relationship between a customer and a company. Geocoding applications help validate the exact location of new accounts so correspondence and shipments reach customers in a timely fashion. Increasingly, organizations are also using location-based information to make real-time decisions on which products or services to cross-sell in the first 90 days, when customers are most open to expanding their relationship.

Customer self-service. With an ability to integrate vast amounts of data, analytics and customer-friendly mapping applications, customers can now view the same information used by back-office personnel. In one instance, an insurance company shared details on a hurricane’s path online, discouraging individuals from submitting false claims.

Customer care. In many companies, telephone reps now navigate intuitive, user-friendly mapping applications to make on-the-spot decisions based on location. In most cases, these technologies are employed to identify cross-sell opportunities and provide accurate information to customers regarding network access.

While spatial analysis is just now hitting its stride in terms of business applications, it is likely that major breakthroughs are yet to come.  New tools and solutions are making it even easier to locate new opportunities, connect with customers and communicate more efficiently.  So tell us… what other ways are you tapping the “power of where” in your business?

Retailers Embrace Cyber Shopping

Published on January 7, 2010 in Elizabeth Zachry. 0 Comments Tags: , , .

Elizabeth Zachry, Pitney Bowes Business Insight

Shopping malls have been around for hundreds of years and, thus far, have been able to respond to the ever-changing demands of the consumer. What started as simple structures in downtown areas of cities have morphed into grandiose buildings in suburban settings. However, with an increasing number of consumers turning to the internet for bargains, retailers are trying to find new ways to bring shoppers into their stores. According to the U.S. Census Bureau, e-commerce sales have steadily increased over the past decade, from less than 1% of the total quarterly retail sales to more than 3%, with current trends indicating that online shopping will only increase.

Instead of fighting this trend, retailers are embracing the internet and finding new ways to integrate the online shopping experience with the traditional storefront. Some retailers, such as Gap Inc., offer the opportunity to order products online from within the store, making shopping easier for consumers when the desired product is out of stock. In addition, several retailers, such as REI, Sears, and Nordstrom, offer online consumers the option of picking up their items at a retail location, eliminating shipping costs and shortening wait times for packages. Many retailers and shopping centers even have their own Facebook pages and Twitter accounts, where people can become fans and followers and can get regularly updated information on sales and store promotions.

Increasing use of mobile technology has also led to new applications designed to improve the in-store shopping experience. One such application, by NearbyNow – a company in Mountain View, California, allows users to find and hold products in the stores nearby. If, for example, you are looking for a black shirt, the application lists all the stores in your area that sells black shirts, gives you the option to put a shirt on hold – even lets you email pictures of the various shirts to your friends to judge.

Certain aspects of internet shopping will be impossible for shopping malls to replicate, but it seems as though the future of retail encompasses both the storefront and the internet.

Preparing for the Future: How to Surf the Wave of Commercial Foreclosures

Published on December 23, 2009 in Eric Steckling. 0 Comments Tags: , , .

Eric Steckling, Pitney Bowes Business Insight

An earthquake can devastate a shoreline thousands of miles away in the form of a tsunami. In the same manner, short-term loans made to commercial-property owners 3 to 5 years ago could soon change the retail landscape for the years to come.

In 2010, $1 trillion in short-term commercial loans will mature. Typically, in the past, property owners were able to trade these loans for new ones and continue with business as usual. Now’s different. Many investors in commercial mortgage-backed securities have eaten substantial losses in the past few years and lack the appetite to throw good money after bad. Combine that with a rise in vacancies and a decline in commercial-property values, and you have the tremors that suggest a wave is coming. Retail properties that are in the black with strong occupancy and credit tenants have had trouble securing financing over the past several months. Properties that are losing money will most likely face foreclosure unless the owners reach deep into their pockets to provide sizeable down payments or to pay off the debt completely.

So the question remains: How can retailers leverage the faltering commercial real-estate market to maximize sales and market position for the future?

When is the lease up?  Whether you operate a single store or a nation-wide chain, it is important to know where you stand on all your leases and when they are due for renegotiation. Consider the strength of your current property owners and remember that bigger does not necessarily mean stronger. When a center is losing money, the owner is less likely to perform standard maintenance, repairs, and updates to the property, which reflects poorly on the tenants in the eyes of the customers. If the ship is sinking, bail: as cotenants move out and the property languishes, sales of the tenants who stay in the center will likely go down with the ship.

Avoid the Fringe.  You may want put that fringe site you were thinking about on the back burner. Chances are that the planned residential construction at the next highway exit out of town won’t be happening any time soon. Unless the site represents a legitimate market void, your dollars will work better for you closer to the town’s core population.

Why Build? Many commercial properties are selling for much less than the cost of construction. Acquiring and improving existing space can provide better return than would scraping new dirt.

Not every market is the same, but nearly every market will see some level of commercial foreclosure. Even strong markets that remained relatively unaffected by residential deflation and foreclosure will default some properties to the lenders. The dearth of financing options for commercial owners means that seemingly strong properties in strong markets will fail to cover debt obligations.

Two for the price of one and a half.  Underperforming units with only a few years left on their lease may be good candidates for relocation. A new space may have better strategic and market position, as well as a better deal on the lease. It may make more sense to pay two leases for a short term, moving inventory and equipment to a new space that will provide higher sales volumes.  Correctly forecasting the relocated unit’s sales is a critical basis for ROI decisions, so don’t skimp on the number crunching.

Cash is king.  Simply put, larger retailers that can close deals with cash will hold a distinct advantage over those who normally rely on financing. Tightened credit markets mean that expansion plans may have to be curtailed for cash-squeezed retailers, even when sales at existing stores remain strong. Discounters Dollar General may have had trouble with their 500-unit-per-year expansion plans, had they not raised cash through a public offering (again) last November. It is probably too late to try to stash cash like an October squirrel stashes nuts, so if you have big plans, you may have to give up equity to generate working capital.

The current retail recession, by most accounts, is not expected to rebound quickly. The coming wave of commercial foreclosures will present a new set of challenges and opportunities for retailers who are involved in this process. Retailers with long-term leases in standalone prototypes will be less affected by the wave, while smaller chains and independents with more scalable store designs, will have the most to gain or lose. Whatever your position, it is time to consider how commercial foreclosures will affect your strategy. As any surfer knows, in order to ride the wave, you must paddle in the right direction.

No Need for Discounts? Let them eat Lobster!

Published on December 10, 2009 in Eric Steckling. 0 Comments Tags: , , .

Eric Steckling, Pitney Bowes Business Insight

In August 2009 Sarah Gilbert of WalletPop.com blogged about how “Panera made news by not discounting its bread” (see link) and goes on to lambast the chain for not lowering prices despite an industry trend of discounts, promotions, and new low price offerings.  Even though the economy is in a severe depression, not all retailers and restaurants are feeling the pinch evenly.  Panera’s strategy can be summed up by a quote from CEO Ron Shaich when he said that he’s “focused on the 90% [of Americans] that are still employed”.

The trend of price breaks may be a hasty kneejerk reaction to slipping sales.  Many restaurant operators argue that discounts hurt the bottom line and largely fail to bring more customers in the door.  It’s reasonable to understand why discount sellers are posting modest gains, as previously higher-end consumers downgrade and loyal bargain hunters continue to patronize the low priced purveyors.  Companies such as Walmart, Costco, TJX and McDonalds have all reported increased sales.  Panera’s strength through the recession begs the bigger question; how are some non-discount retailers and restaurants relatively unaffected by this massive economic downturn while others struggle to keep their doors open?

My guess is that there is a reason behind every success. A particular store may have a customer base that is relatively unaffected by job losses, or in an area(s) with a relatively stable economy (Texas), or are benefiting from folding competition.  In turbulent times such as these consumers often change their behavior so quickly that retailers/restaurants do not have time to respond to the trend before the fickle consumer changes their mind.  It is evident that in troubled times with economic factors to numerous to list, that there are winners and losers, with the losers far outnumbering the winners…

Ms. Gilbert predicted that the press around the company’s growth (and lobster offering) “will only affect it negatively.” Panera’s third quarter earnings report prove Sarah’s predictions wrong; a sales increase of 35% over Q3 2008 can hardly be described as “a fluke”.

Some Good Stimulus News

Published on December 9, 2009 in Shawn MacDonald. 0 Comments Tags: , , , .

Shawn MacDonald, Pitney Bowes Business Insight

Pork. The “other” white meat or a “four-letter” word? Merriam-Webster’s Online Dictionary defines as:

1. the fresh or salted flesh of swine when dressed for food
2. government funds, jobs, or favors distributed by politicians to gain political advantage

Meateaters and vegetarians can both agree that the second definition leaves a bad taste in your mouth.

Admittedly, I opposed the government stimulus bill passed earlier this year because it seemed fraught with funding for “pet projects” so legislators could return to their districts and prove how hard they have been working for their constituency. And I do mean “pet” projects such as $2.5 million for a waterfront duck pond park and $200,000 for a dog park in Hercules, California or $16.5 million to save the San Francisco Bay area habitat of the salt marsh harvest mouse. While these may be very worthwhile causes, how many jobs will be created?

However, I have just discovered a stimulus-funded success story that you can sink your teeth into, literally! That’s right, I am talking about food here. As reported by Supermarket News, a 55,000-square-foot Stop & Shop grocery store will be the focal point of Arverne by the Sea, a mixed-use development in the south Queens community of Rockaway Beach. This development will be funded in part by $5.5 million in tax-exempt bonds made possible through the federal stimulus program. This Stop & Shop will not only fill a retail void – an estimated $528 million in consumer spending is lost annually to competing retail centers outside the Rockaways – but could also create upwards of 175 jobs as well.

The once-thriving waterfront community was designated as an Urban Renewal Project in 1964, and is emblematic of the decay within many urban communities throughout the country. The loss of the retail sectors within these communities have long been a challenge for local authorities. Urban consumers do have money to spend, accounting for $122 billion in retail sales in 2005. However, research also indicates a $42 billion “retail gap” still exists within urban communities, the majority of which can be attributed to the lack of supermarkets. To underscore this last point, more than half of the Detroit residents have to travel twice as far to find a grocery store than a fast-food restaurant.

While there are true impediments to closing the retail gap (scarcity of developable land, restrictive zoning, infrastructure, and politics), grocery chains must also overcome some powerful myths associated with doing business in these underserved areas. These myths include the closure of other local businesses, rampant crime, local residents will not get majority of jobs, and the need for special subsidies to ensure survival.

The Great Atlantic & Pacific Tea Company’s (A&P) Pathmark banner embraces inner-city opportunities, and in the early 1990s formed a partnership with the New Community Corporation to develop a 44,000-square-foot supermarket in the Newark, New Jersey Central Ward. Due to years of pent-up demand, this store set sales records on its first day of operation and within 2 years became Pathmark’s most profitable store. Hopefully, Stop & Shop will find similar success at Arverne by the Sea.

The stimulus package could have been another tool used by local authorities to recruit supermarket operators to underserved areas. Given all of the negative press surrounding the stimulus bill, it is comforting to find a truly “stimulating” story among the $787 billion appropriation. No doubt, a lot of “pork” was doled out in the stimulus bill, but did you know that the Pilgrim’s Pride Corporation received $70,000 to deliver 80,000 pounds of frozen chicken during July 2009 creating zero jobs? Now, I gotta “beef” with that!!

Cross-selling equals customer retention…but who’s buying?

Published on November 20, 2009 in Brian Diepold. 0 Comments Tags: , , , , .

Brian Diepold, Pitney Bowes Business Insight

It’s pretty well recognized that the deeper the relationship with the customer, the more valuable it is for the bank and the customer.  For years we have been preaching cross-sell as the way to build relationships, gain lasting customers, and run a profitable bank.  It’s also generally regarded that cross-sell leads to customer retention.  There may have been a bit of chicken and the egg with this part, but I think that has been resolved by looking at the timing of most cross-selling.  As we all know very well by now, the great majority of cross-sell takes place within the first 90 days.

I’m willing to take that as evidence of causality – cross-sell does in fact lead to customer retention, not the other way around.  The luxury of having millions of customer data records is that one cannot find themselves bored.  It seemed like a worthy endeavor to quantify the actual impact of cross-sell on customer retention.  And with that, enter 80MM customer account records.  By quantifying this relationship, we can see the direct impact of a firm’s strategic initiative and diagnose the types of households where cross-sell is more important to strengthening the relationship and increasing the probability of retaining the household.  The analysis uses a logistic model to determine the impact of cross-sell on the probability of retaining a household.

The bottom line is that regardless of how you measure cross-sell ratios, you can find the intuitive relationship that more products per household lead to a higher probability of retaining that household.  We also find a diminishing marginal return – i.e., the first cross-sell is the most important to establishing the relationship.  While each additional product does increase the likelihood of retention, the biggest jump is with the first cross-sell.  Rather than rewrite the research paper, I’ll just highlight some of the key findings:

  • Moving from one product to two for the household yields the greatest increase in the probability of retention.
  • Households with low deposit dollars yield an 8 – 10% increase in the likelihood of retention through cross-sell.
  • Households with mortgages or interest-bearing deposits as the lead product also yield an 8 – 10% increase in the likelihood of retention through cross-sell.

If you have the luxury of focusing your resources on certain types of households, these are the ones where you can make the biggest impact.

Consumer Demographic Profiling: Does Distance-weighting Make a Difference?

Published on November 20, 2009 in Nat Evans. 0 Comments Tags: , , , .

Nat Evans, Pitney Bowes Business Insight

It is a standard market research practice to use psychographic segmentation as a primary tool for discerning a company’s target customer.  This “customer profile” creation is a primary means by which customer behavior is bucketed into distinct groups that reflect differing customer characteristics, shopping behavior and loyalty to a retail, restaurant, or consumer package brand.

Over time, the Strategy & Analytics statistical modeling team at PBBI has given a lot of thought to the idea that customer profiles, and their use in sales forecast models, may be enhanced by weighting the customer source survey data by distance.  It makes sense.  The farther away target (or non-) customers are, the more pronounced the profile scores may be.

For instance, a typical customer profile for a high-end department store, with a specific high income, suburban customer segment or “cluster” (Corporate Clout, say, from Acxiom’s PersonicX lifestage segmentation system) may have a score of 200, meaning that people within the segment spend two times what an average customer spends for the concept.  A low-income segment (Single City Stress, for example) may have an index score of 40, or the segment spends 40 cents for every dollar that an average customer spends. Weighting the profiles by distance, however, may yield a more intensified result.  You may expect the high-income cluster to go from an index score of 200 for customers only within 0 to 3 miles, to 225 for those same customers beyond 6 miles from any given store.  Perhaps the Single City Stress cluster would go from 40 to 25, meaning that the farther away the cluster is from the store, the less they are willing to patronize and spend at the department store relative to other customer segments at the same distance.

In theory, it seems to be a reasonably insightful approach.  In practice, the S&A modeling team created just such an analysis, and found that among several clients’ customer databases, distance has no significant bearing on the relative spend of psychographic segments at the same distance.  The following box plot will give a sense for one sample profile’s distribution:

Distance Weighted
As shown, 50% of all scores’ distributions fall between approximately 50 and 110.  A couple of outlying clusters find themselves floating outside the distributions (the “1”, “2”, or “3” above the whisker for each plot), but statistically, no significant difference was found between scores at different distance increments.  The distributions’ medians were roughly the same; variance was the same.  This pattern was consistent among several customer files we tested, and the application of several distance weighting methods yielded no statistically significant enhancement whatsoever.  Goes against the hypothesis.  To be sure, there exists a multitude of ways to carve up customer data, and this analysis is by no means definitive, but from a macro level, it seems the proof is in the data. This analysis also does not mean that distance in its myriad forms (straight-line, drive time, drive distance) has no influence.  Obviously, it does.  Distance decay portrayed on a sales per capita, or other relevant, basis is very important indeed, and is an extremely well documented predictor of consumer behavior.  It’s just a matter of proper application, and what any one retailer’s customer data is truly telling an analytics researcher.

Black Friday 2009….Cheap Thrills or Business as Usual?

Published on November 18, 2009 in Deb Purcell. 0 Comments Tags: , , .

Deb Purcell, Pitney Bowes Business Insight

My name is Deb, and I am a Black Friday shopper. At one time perhaps I would have been ashamed to admit this condition, but not today. For several years, I have braved cold weather on far too little sleep and far too much caffeine in search of the best deals. Wow, what deals! Cameras, laptops, and MP3 players for my teenagers, a leather jacket for my husband, and a few goodies for myself all purchased at a fraction of their normal cost. In fact, the hunt has become a family tradition. We scour the inserts over pumpkin pie to develop our shopping strategy.

With Thanksgiving around the corner, I am beginning to contemplate Black Friday 2009. The biggest question on my mind: is it worth it this year? As an industry professional, I am aware that retailers have reduced inventories in hopes of avoiding deep discounts that will cut into profits on an already limited revenue base. I know merchandise is already aggressively priced, and retailers have begun advertising early under the assumption that consumers are carefully planning their holiday shopping in advance to avoid overspending, particularly on impulse purchases using credit.

As a consumer, I also know the recipients of my gifts are not expecting much this year. Ours is not the only extended family to scale back our party venue and emphasize the importance of sharing each other’s company rather than the token presents that really seemed to escalate over the years. With a few members out of work or on the edge, I would be embarrassed to show up with bags full of frivolous goodies this year. Three major consumer shopping trends this year have been well publicized: make personalized gifts instead of buying expensive items, give a single gift to be shared among a group or family rather than individual items, and purchase what must be bought well in advance, with cash. Where does Black Friday fit into these trends, especially as consumers appear to now really understand the difference between must have and want to have?

Don’t get me wrong. I am not forecasting doom and gloom for retail sales this holiday season. Compared to the shockwaves of uncertainty that rippled through the markets in 2008, I believe there will be few surprises this year, and retail sales will come in pretty close to conservative industry expectations. I just don’t know how important the Friday after Thanksgiving will be in the whole equation. If I’m not planning to buy many items, then I am not really going to save very much through the discounts. Sleeping in is beginning to sound pretty nice. But then again, I may really miss the adrenaline rush, the thrill of the hunt….ask me again on November 30th.