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

Why everything you assume about your shopper is wrong..

 

Sales are great aren’t they?  For every marketeer, pretty much without exception, looking at response rates, average baskets, and sales from your campaign is like a shot in the arm.  Triumph.  We look at our response uplifts, congratulate ourselves on our customer selections, creative execution and content and move to using what worked, to make the next campaign even better..

 

But..  what if, 60% of all the dresses we sold through our campaign get returned?  What if the customers I think are my best customers are actually serial returners who are costing my business a fortune? Well, let’s not think about that because the sales were great weren’t they.  Reverse logistics nightmares, handling costs, out of stock issues, that is surely someone else’s problem, isn’t it?

 

The reality is, it’s time for a seismic paradigm shift in the way we think about the sales and our customer.  With the increasing growth of online fashion sales, and as customers become more and more comfortable with the concept of their home being their changing room, retailers have to grasp a basic concept – a sale is not a sale until the customer decides to keep it.

 

The simple reality is, using our big data algorithms to match customers with a product they will actually keep is game changing in its simplicity.  Optimizing what a customer ‘keeps’ rather than ‘sales’ is the only viable way forward.   The benefits are endless for every business unit – sales growth, retained revenue, operation cost savings, improved personalisation and stock availability improvements, not to mention the fact that by marketing products to customers they will want to keep is putting them at the heart of what you do.

 

We are the only company globally that can lead this change.  We understand who are keepers, who are high risk to your business from a return, who should be encouraged to return and explore and what product or category your customer should be marketed with to make sure what they buy they actually keep.  Feeding customers who are costing your business money with endless marketing campaigns, promotions and incentives has to become a thing of the past and with new big data technology, it can be.

 

Adding revenue to the bottom line has actually never been easier, retailers simply need to take the blue pill and delve into the new world of customer returns behaviour.

 

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Viv Sutherland
Director of Sales
Tel:   +44 (0) 141 554 4175
Email: viv@clearreturns.com

Easter bunnies beware: the peak trading woes aren’t over for retailers as returns still roll in

The aisles may be packed with chocolate and the Christmas decorations long since packed away, but the festive season continues to impact the retail sector, in ways that businesses may not have accounted for.

This is because retailers have calculated their performance on sales alone – what customers bought in-store or online – rather than what they chose to keep. Returns are a £60 billion problem for the UK retail industry alone, and will be further eroding results of what was already a weak Christmas for many organisations.

For many retailers, this year’s festive figures told a sorrowful story. December’s unseasonably warm weather impacted sales in the fashion sector, with Next – usually the barometer of Christmas success – only seeing sales rise 0.4% year on year, while Primark, Bonmarché and Marks & Spencer all reported losses.
Even strong performers like John Lewis, which experienced a 7% increase in sales over the festive period, or Debenhams, which recorded a 3.5% sales rise, are not immune from the cost of returns – particularly from online shoppers.

The steep adoption of online shopping is, in fact, making matters worse and ecommerce has a much higher return rate than items bought in the store. This is often due to an expectation gap between what the customer thinks they have ordered and the reality of their purchase once it arrives.

Almost £1 in every £5 was spent online in December, according to British Retail Consortium, with web sales up nearly 20% on last year. This will have brought a flood of returned, unwanted products into stores during January and it may not be yet over, as under the Consumer Rights Act, shoppers now have 30 days to send back an item and receive a full refund if it is faulty or sold ‘not as described’. Stock returned during January sales results in valuable margins being lost, as once the item has been processed it will return to the shelves at a reduced cost.   That is all too apparent in the results currently being reported.

Our data showed that the total estimated cost of returns to retailers from Black Friday reached £180million. This figure increased further as retailers processed unwanted Christmas gifts. This issue will be hitting some businesses harder than others; around 30% of multichannel women’s fashion is returned, for example.

And many retailers will still be dealing with the repercussions of peak trading returns, having put them on the backburner to concentrate on sales.

A key peak trading lesson for the retail sector is that the sale isn’t over until the customer has decided to keep the item. Retailers’ number one task for 2016 should be to recognise the true cost of returns and work to understand why items are not being kept in order to secure and boost realistic profits.

Want to know how your returns stack up against the market? Access our new free returns benchmark reporting tool.

Playing For Keeps – keep stock sold over the peak trading period

 

Keeping stock sold – avoiding returns the key to retail profits

The sales figures over the peak trading periods of Christmas and Black Friday may make the headlines, but those returns coming back over the next 28 days will cost retailers millions…and often get ignored.

It’s time to get the facts.

Playing for keeps…

Clear Returns new Playing For Keeps report offers the facts around returns on Black Friday, peak season and beyond. £160 million of Black Friday stock is set to be returned, stock that will then be unavailable to sell during the most critical trading period of the year…Christmas.

Playing For Keeps is more important than ever as it is not really a sale until the customer decides to keep it. Returns kill retail profits and Clear Returns presents the facts that the wider retail business simply cannot afford to ignore:

 

Clear Returns can help retailers regain an extra £1 million for every £10 million returned, statistics which make Clear Returns one of Europe’s  top tech scale-ups according to The Telegraph.

Expert insight…

Clear Returns CEO, Vicky Brock, explains why Black Friday could end up being a short term gain but long term loss for many retailers:-

“Forget the headline-grabbing figures of what analysts say people are going to spend on Black Friday. That’s just the beginning. The real concern is that the event could end up costing retailers money rather than boosting their profits.”

“This is because the spike in sales from November 27 will be followed, for many businesses, by an increase in returns – and profit is only generated when customers decide to keep their purchases. On average, 14 per cent of all consumer electronic sales are sent back, and in the build-up to Christmas in particular, this can cause all manner of logistical headaches and lost margins.”

Talk to Clear Returns now to help your customers keep more of what they buy – and keep buying.