Personalized Marketing and Merchandising Rule as Digital Commerce and In-Store Shopping Converge

As retailers are tallying their holiday profits and setting a course for 2014, there are five ways that merchants can capitalize on their earnings and avoid pitfalls. The responsibility of retail profit margin and loses largely falls on marketers and merchandising leaders. By working together, they can improve their understanding of customer demands and product preferences.

Rapid market shifts are causing merchants to re-examine the way that they establish relationships with customers and deepen these connections in-store as well as with on-the-go mobile shoppers and online buyers.

While online sales continue to outpace offline — increasing 20 percent on Thanksgiving, Black Friday and Cyber Monday during the 2013 holiday season — the fact remains that the majority of retail sales still happen in-store. What complicates matters for retailers is the increased use of mobile devices to comparison shop online, even as the consumer is standing in their store. In fact, mobile traffic and sales in the fourth quarter of 2013 grew by an astounding 40 percent and 46 percent, respectively, over the same period in 2012.

The challenge for retailers is finding the right balance between online, mobile and in-store promotions that deliver the best deals to shoppers and protect their personal information, while safeguarding year-end profits. Those that succeed have the right balance of marketing and promotions and are merchandising a mix of products. The savviest retailers use advanced analytics to help build integrated plans around individual customer preferences, taking into account real-time inventory levels and fulfillment cycles. The goal is to deliver the right deal at just the right time to the right customer.

This is no easy task, especially with a new generation of consumers that are more connected than ever before. They expect the same prices and product availability regardless of the channel they use to buy. To meet these new demands while continuing to grow revenue and profitability, there are a few things retailers can do:

• As marketing and merchandising converge, retailers can gather nuggets of data to establish a one-to-one dialog with their customers.
• Combining data with location services, retailers can predict when a customer will be browsing their store's aisles and what merchandise customers are planning to buy before they arrive.
• Based on knowledge of a customer's shopping habits, retailers can formulate their inventory/merchandise mix that advance sales and grow profit margins.
• Consider flash sales as an opportunity to sell off merchandise while uncovering customer affinity.
• Be it stores, online or mobile shopping, all channels should deliver consistent offers.

Christmas in July
The art and science of having a successful holiday season begins well before the first snowfall. In fact, most retailers have their holiday plans in place by July.

With data growing at an astonishing rate, 75 percent of companies have a big data project underway. In the retail industry, holidays and special events are opportunities for marketers to engage shoppers.

Back-to-school season and other key shopping days like Labor Day serve as a testing ground for retailers to ensure they have the right product mix. In addition, these shopping days also provide retailers with a better understanding of the types of products and brands that consumers are buying.

By the time the holidays roll around, businesses using retail and marketing analytics already have the information they need to begin delivering relevant promotions to drive in-store traffic and online shoppers alike.

Not All Products Are Created Equal
During the holiday season, retailers go through a lengthy process of ordering inventory and categorizing products. The key lesson that most successful merchants understand is that there are two main classes of products: seasonal and gift giving. And they aren't all created equally.

Retailers look at in-store merchandise mix and evaluate pricing. Marking down a $100 cashmere sweater compared to a $10 ornament factoring in the time it takes for staff to markdown items, profits must be safeguarded.

There are some seasonal gifts that lose their value almost immediately on Dec. 26. Items such as Christmas trees, holiday stockings and ornaments lead holiday merchandise. Retailers like to show consumers that they have a varied assortment, but try not to overstock these items. Many retailers will hold back up to 35 percent of this merchandise to see where items are selling well, then redirect inventory to those shops.

Fresh specialty gourmet food and perishable beverages often have slim profit margins that expire quickly after the holiday. These seasonal delights are perfectly timed to hit shelves for family gatherings around the holidays and New Year's revelry.

For instance, HP Hood uses technology from IBM's Smarter Commerce initiative to manage 150,000 annual shipments of eggnog across 12 processing plants and 22 distribution centers. Nothing can spoil a decadent cup of eggnog faster than transportation delays and missed shipments. After Jan. 1, consumers expect eggnog and other seasonal delights to disappear or be deeply discounted.

Flash Sales Help Uncover Shopping Preferences
More retailers are conducting flash sales to sell their last seasonal merchandise while uncovering consumer preferences. Delivered through email-based promotions and social media sites, flash sales can signal a shopper's interests in specific merchandise categories such as home goods, health and beauty products, electronics, etc.

Privalia, the online leader in fashion "flash sales," with operations in Spain, Germany, Italy, Brazil and Mexico, is expanding its online sales business through mobile and social channels to meet the dynamic needs of its 11 million-plus consumer base. Privalia organizes online flash sales, a phenomenon that offers personalized, limited-time offers to consumers at attractive prices. Single-brand campaigns last between three days to five days. Registered members are invited to shop based on expressed personal preferences.

After Christmas, retailers tend to heavily promote items from the holiday selling season (e.g., toys and sweaters). They expect that they'll be out of stock by February to make way for new merchandise. The key is doing this effectively and as profitably as possible, which means knowing what items to promote or mark down, at what time and by how much. That's where leading retailers are augmenting the art of merchandising with optimization science and analytics.

Wehkamp.nl, Netherland's largest online retailer, uses cloud-based merchandising analytics to manage markdowns and pricing optimization to improve profitability. Employing digital marketing and merchandising technology has resulted in a more personalized shopping experience, while improving profit margins and revenue growth.

Deepest Discounts in February
February may be a short, cold month, but it's when sales are the hottest. After the holidays, retailers know that it's a race to sell out of seasonal items and gifts. They welcome shoppers that come into stores seeking post-holiday discounts with their fists full of gift cards to capture the year-end wallet share.

As retailers close out their holiday merchandise and consider their next steps, early planning is a must. Merchants are looking for new ways to engage their customers one to one, rather than traditional marketing segmentation.

By using technology to optimize prices, promotions and markdowns, and coupons, shopping rewards and loyalty points, merchants can keep sales flowing steadily throughout the year.

Lance Tyson is a retail senior managing consultant at IBM. For more information about omnichannel marketing and merchandising solutions, please visit IBM Enterprise Marketing Management.