Will you swim or sink in Big Data Profit Pool?

[amitagrawal]

Where are you from?

I often get asked this question and it stumps me each time.

Am I from the United States, the country that issued my passport and where I have lived for the last 20+ years? Am I from India because that is where I was born and grew up?  Or do I identify more with New York where work is or New Jersey where home is?  If I have difficulty answering “where am I from” – all hopes are lost for answering the question “who am I?”.  That brings into play other aspects of my life – what do I own, my interests, my family, my career, my social life, my aspirations!

And mine is the simpler case. People these days have much more multi-cultural background and much more varied life and interests. The fact is who we really are and what we identify with is increasingly a matter of heart than of heritage!

This is not entirely new, yet the resulting implications and opportunities for retail business were never this great. This is because the Internet has given people an opportunity to wear their hearts on their sleeves and for retailers to discover it. That too in the most micro-segmented way – if you are a stay-at-home dad who likes Thai food while watching Seinfeld reruns – I suspect there is an internet community that exists just for you or you can easily find like minded people and create one.

“Who is my customer?” is the single most important question for a retailer impacting everything from merchandising to marketing to inventory management. Yet, despite customers pouring their hearts out on the Internet, most retailers are stuck looking at their customers through a traditional demographic lens.  At its very best, this approach gives them sub-optimal answers. At its worst, making broad assumptions about a customer based upon superficial knowledge can be not only downright stereotypical and offensive, but will also lead to the wrong business decisions.

So as a retailer you have to try and understand where your customer’s ‘heart’ lies through a multitude of data sources including transaction history, social media activity and location. Just this morning I read a Wall Street Journal article on how a company is now looking at an applicant’s facebook friends (to determine for example if a close friend of the applicant has defaulted on a loan) in addition to your FICO scores in determining his loan worthiness. Numerous opportunities to mine such data exist in Retail as well. Not doing so was ok in the past, your customers weren’t expecting it and both the sources for such information and the technology to efficiently analyze it was lacking. Those days are gone forever!

Ok so you knew all this already. But maybe you aren’t sure of the value of doing so.

Recently, I attended an alumni webcast from McKinsey Global Institute – the topic - what are the five game changers that can accelerate the GDP growth of the entire US economy (the report can be found here). Now this is not just an opinion piece. This is the result of extensive and rigorous research. Four of the five ideas for GDP growth may come as no surprise – fundamental proposals on energy, infrastructure, education, and trade. But the fifth one may surprise you:

To be clear this is not an analysis where someone said let’s take these five things and quantify the value, these are the top five things out of the many many ideas that they looked at. The potential of efficiency and revenue improvement through big-data analytics in retail and manufacturing is large enough to significantly move the needle on US GDP. Really understanding “who your customer is”, is one of the Big-Data analysis contributing to this value but there are many other applications from inventory management to assortment optimization to labor optimization that the study mentions. And this is just the productivity gain piece.

Ok, so the above is an aggregate number – the productivity gains that all retailers and manufacturers could collectively derive from big data analytics. Maybe the value a single retailer can capture is not that significant you say. Not so fast!

I directly quote the MGI study here:

Big Data analytics has the potential to change the game for entire economies and for individual retailers. If you are looking for some game changers for your business, take a look at how SAP Customer Activity Repository on SAP HANA is revolutionizing retail analytics and decision-making. Depending upon how good a job you as a retailer do with data and analytics will determine whether you collect from or contribute to this $600 billion profit pool. Given the magnitude of the number, it certainly has the potential to make or break retail businesses of the future.