The small data challenge for big retailers

Great customer service is what all businesses should aspire to, and this means being able to meet customers’ needs intuitively. Be it the uncle in the kopi tiam who remembers exactly how you like your coffee, or the business class air stewardess who knows when to bring you a cup of tea during a long overnight flight.

Understanding why a purchase was or wasn’t made is critical to getting inside the mind of the customer. This is why so-called “Big Data” has come to play such an important role in contemporary marketing. Businesses want a better understanding of customers in order to be able to improve their product range or develop new products to meet customers’ changing needs.

This push towards collecting and processing ever more data is why we receive emails reminding us of a particular product we once looked at online but decided not to buy. It’s why we find adverts in our Facebook feeds for hotels in destinations we Googled the other day. To some consumers this might seem intrusive but it’s all in the name of improving service.

It is not what data you have but what questions you ask of it.

Data – or more precisely data analytics – is having a transformative effect on the way we shop and how we as consumers interact with businesses. The mistake that many businesses make is that they have a compartmentalised view of the data they collect. It is not what data you have but what questions you ask of it.

Breadth of data

Traditional bricks-and-mortar retailers, banks, telcos and the like may claim to have Big Data, but scratch the surface and most will find that the data they have is only in terms of financial transactions. Restricted to this limited view they will never achieve the breadth of data they need to understand what drives customers and their decision-making.

The financial industry is one sector that has become especially complacent in the illusion that they own plenty of valuable data. Like telcos, banks know their customers’ banking transactions but not how and why these change across their career lifespan.

Traditional retailers have a similar problem: they only understand their customers in terms of a few basic metrics – for example, how much of a product is sold each a week and which brand is most popular. This data might be “interesting”, but provides no insight that can be turned into action – such as why a customer preferred one item and not another, or why customers browsed but left the store without buying anything at all.

Contrast these with giant ecommerce firms like Amazon or Alibaba who are in pole position to harvest the widest and most complete data, and to capture the most opportunities from it. Beyond just the “who” and the “what”, they get answers to the critical questions of “how” and “why”.

Building understanding

This allows them to delve upstream into the customer journey, building up profiles that give insight into what drives sales, enabling them to anticipate and better serve their customer’s needs. By offering free gift-wrapping options, for example, an online retailer gains greater intelligence on which products are commonly gifted and when. By asking customers to fill in a free greetings note to the receiver, they can intimately understand why the item was purchased.

Mining data and building this strong understanding of their customers has also allowed Alibaba and Amazon to build massively successful new products.

It’s what led to the emergence of Alibaba’s payments arm AliPay – because it saw an easier way for customers and merchants to transact. Last year Ant Financial cleared some US$1.7 trillion (S$2.31 trillion) in transactions, making the firm which originated from AliPay reportedly worth an estimated US$75 billion.

Amazon meanwhile has used the intelligence it has gained on bestselling items to move into manufacturing. Because it has more complete, broader data, Amazon is able to build a better product than the original manufacturer. As a result, Amazon’s AmazonBasics brand now sells more batteries than Duracell and almost as many diapers as Pampers.

By becoming the retailer, manufacturer and the payment gateway, Alibaba and Amazon are locking consumers deeper into their ecosystem and making it harder for competitors to catch up.

Benefits of collaboration

All this makes for a perilous time for traditional businesses. With data-driven global competitors eroding profits, not clearly understanding customer needs is a business killer – look no further than the fast-emptying malls of Singapore’s Orchard Road.

That doesn’t mean, however, that traditional businesses have no recourse. Technology has magnified the benefits of collaboration and firms across sectors would do well to explore the potential for data integration to bring them greater width and hence better intelligence.

Cooperation between a bank, a telco and a retailer for example can help all parties delve into how, why and when customers make purchase decisions. Likewise opportunities exist for cooperation between traditional and online firms.

Here in Singapore for example, property developer CapitaLand recently sealed partnerships with Alibaba and Lazada to create an integrated shopping experience for consumers online and off.

While some traditional firms may see this as making a pact with the devil, with a wider pool of data businesses can better understand their customers and the number of possibilities and opportunities grows.

Plenty of software and services exist to do this, yet many traditional business remain stuck in their silos and set ways of thinking. Firms which have been led for years by gut instinct find it hard to give up the notion that they know best what their customers want.

Moving away from this means understanding the real value of Big Data, looking beyond simple quantity to actually deliver actionable business intelligence.

For the consumer, that should make firms better at meeting their needs, recommending one product over another – or simply knowing the right time to offer a blanket and a cup of tea.

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