How BI and Analytics Can Optimize Holiday Margins

By Ulrik Pedersen

The holiday season has arrived and people are lining up outside of stores for the best deals. And they’re increasingly shopping online, with the National Retail Federation (NRF) forecasting that online sales will increase between 6 percent and 8 percent this year. Meanwhile, retailers are gearing up for the busiest time of the year. Sales in November and December (excluding auto, gas and restaurant sales) are expected to increase a solid 3.7 percent to $630.5 billion, significantly higher than the 10-year average of 2.5 percent (NRF). With this type of anticipated growth, retailers are put to the test to see how they can best balance driving holiday sales with discounting, while also maintaining margins.

Retailers often rely on deep discounts to push inventory out the door. However, they should think before putting a sale tag on an item. Putting items on sale comes at a cost, and retailers need analytics to inform their strategy.

Using Data During Deal Season
Black Friday and Cyber Monday deals are being promoted earlier and earlier each year, and the deals themselves are running for a longer period of time. Couple this with the proliferation of ads announcing discounts everywhere, from TV to consumers’ mobile devices, and it's not surprising that consumers have now come to expect that the items they want will be on sale.

However, customers don’t always realize that putting items on sale can actually be costly for retailers if they don’t have a strategic approach. Think about everything that goes into putting an item on sale. The retailer needs to develop materials and ads announcing the sale. It then needs to dedicate time for employees to mark the in-store items on sale, and for the web team to update the new prices on the site. And the point-of-sale system needs to be updated as well. All of these activities take time and resources. Therefore, it's important for retailers to think strategically about whether and when to place an item on sale.

In order to take a thoughtful approach to discounting, retailers need to take several things into consideration, including internal factors around how quickly a certain product is selling and the resources required to put it on sale, and external factors like competitors’ offerings and what's driving consumers’ buying behavior.

How can a retailer, large or small, gain this visibility and put it to use? Many retailers are turning to business intelligence (BI) and advanced analytics solutions to gain a better view of their business and the overall landscape. By pulling in internal and external factors, retailers can take a historical look back. For example, they can analyze how well a specific item sold, at which price, during the last holiday season.

A more powerful use of BI is to use this data to predict what will happen in the future. For example, a retailer might consider placing an item on sale at a 20 percent discount. But by examining all the factors, it might find that it could sell out with just a 10 percent discount — which could lead to significant revenue. By carefully analyzing how and when to put products on sale, retailers are able to better manage their margins.

With BI and analytic support, retailers will gain insight and a solid basis of understanding the buying experience. Once retailers have an understanding of their results after a healthy (or unhealthy) holiday season, they'll have the ability to see which products were successful and what they're doing right.

The holiday season is always a great time for using analytics to pull out exactly what retailers need to cater their sales approach, while maintaining set margins.

Ulrik Pedersen is the chief operating officer of TARGIT, a business intelligence and analytics software developer.