How Retailers Have Been Incorrectly Using Predictive Analytics

For my inaugural blog post here at Clear Returns, I was recommended to write an article around the topic of “The Power of Predicting: We are Transforming Retail by Predicting the Future”. My initial thought was well, to be honest, that seems like a mouthful and once all sorted out…a bit unoriginal. Everyone and anyone who is using any sort of analytics in retail will likely be making the same claim. But fine, in the grand scheme of things, predicting the future is hardly boring, so I resolved myself to discussing our unique value proposition in using predictive analytics and how that might “transform retail”.

Obviously, the best way to go about proving how we’re affecting transformation is to take some time to understand what the current retail landscape actually looks like. So, before sitting down to write this post, I did a little digging to understand what the perception is within the industry. What I found made me change the topic of the article.

The industry is obsessed with Customer Centricity. And, ironically, not with a 360 degree view of which many tout they’re able to do for their own customers. Instead, they’re obsessed with the most obvious and shallow dimension.

Customer centricity has been a prevailing theme for quite some time and focus on the customer is absolutely right. However, what is surprising is the sheer consistency of what aspect of the customer is being focused on. For example, below are some of the most common statements:

“Shoppers are dictating the future of retail” – Ray Hartjen, Director, Content Marketing and Public Relations at RetailNext
“The future of retail lies in technology enabled-customer centricity” – Paula Rosenblum, Managing Partner and co-founder of Retail Systems Research
“The future will belong to retailers that empower consumers” – Rick Moss, President, Founder, RetailWire
“The future of retail will need to…[be] focused on helping the shopper achieve his or her personalized trip goals” – Anne Howe, Growth & Insights Consultant

Not only have retailers accepted that consumers have more power, they believe that that they need to be given even more.

Again, finding ways to increase customer sales by making the purchase process easy, quick, and enjoyable is inherently correct. After all, there has been a significant change in customer mentality and expectations. Consumers are empowered with information (in-store physical presence, online reviews, social media, etc) and choice, but this means they have retailers under their collective thumbs. Because of this shift, retailers have already responded by using more and more advanced analytics to understand their shoppers and offer them more personalized experiences and offers tailored to their individual lifestyles and preferences. That movement is still in the developing stages, and yet we can see that this is where retailers believe the answer lies. Based on these reactions, a fairly solid argument can be made that it’s the customers who have actually (albeit indirectly) been the catalyst for retail transformation.

However, the underlying issue is that increasing customer spend seems to be all that the experts are focusing on and are thus displaying a myopic disregard for the already visible consequences of this approach. Retailers have emphasized the importance of improving customer sales, customer retention, and loyalty and have done whatever it takes including but not limited to restructuring their entire organizations, investing heavily in analytics to improve shopping experiences, and implementing customer-favouring policies (yes, I do mean returns policies) in order to keep the customer happy and willing to buy.

This kind of behaviour has already perpetuated a harmful cyclical relationship between consumers and retailers that almost no one, aside from a handful of academic researchers, have commented on much less taken into any consideration within their marketing strategy.

Without a doubt, customers have more power. They are free to take their business elsewhere. Desperate to keep them, retailers gave them whatever they wanted, and turned to data to do so more efficiently and effectively, which in turn gave consumers even more power. Now, consumers not only changed their purchasing behaviour but also their whole mindset. They don’t owe retailers anything. As part of the competitive market offering, retailers have facilitated an environment where consumers are encouraged and even desensitized to the prospect of making returns. Even worse, they haven’t even recognized it and instead of using predictive analytics to truly understand a customer’s preferences combined with their true value, they’ve used analytics to just get customers to buy more. Retailers have essentially used predictive analytics to accurately target the exact people who are the most willing to buy without considering if these are the types of people that they want to be buying from them.

That’s where Clear Returns comes in. Our efforts aren’t focused on just increasing purchases, but on aiming our predictive capabilities to increase true value aka keeps. Our capabilities aren’t just about increasing spend, but about increasing spend with the right customers which trickles down into keeps. It’s in this way that we can transform retail, not through cutting-edge predictive models (although we have that too), but by critically examining the problems facing retailers and finding solutions to fix the present cycle so that true market transformation can be possible that will benefit both customer and retailer.

While consumers may still dictate the future, retailers need to recognize that they do still hold some power, the same as of the consumer, the power of choice. Retailers can choose how they want to communicate, what type of relationship they want to have, who to spend their marketing dollars on, and even to some extent who to sell to. At least if retailers recognize this and take the right steps, they’ll place more transformative power into the hands of the right customers, not the ones who would take unfair advantage of the inherent social agreement and trust between retailer and customer.

 

Regina Berengolts
Lead Data Scientist
Tel:   +44 (0) 141 554 4175
Email: regina@clearreturns.com