Best Buy, Other Retailers Tap Tech to Boost Salesby
As the financial meltdown spiraled in September, spending habits changed quickly. Many consumers stopped spending altogether. Those who were still hitting stores showed some disturbing patterns that weren't lost on retailer Best Buy (BBY). The number of customers signing up for financing on such purchases as big-screen TVs and computers surged. At the same time, the number of shoppers spending $1,000 or more per trip plummeted.
In response, Best Buy began offering free financing for entire shopping carts full of items—rather than one product at a time. "We realized that storewide financing could be a powerful differentiator in the marketplace," says Best Buy Chief Marketing Officer Barry Judge. That left just one question: At what dollar amount should Best Buy start offering the free financing?
To find its answer, Best Buy turned to software from analytics company Omniture. In trials, Best Buy offered financing at different levels: $499, $699, or $999. Every time a customer signed up for payments, Omniture (OMTR) tracked purchase details and homed in on the answer: $499. Within weeks, the software cranked out data that the store's own systems, with their antiquated databases, couldn't have matched.
Big Bang for the Buck
Omniture's software is emblematic of a new breed of analytics that's helping retailers capture as much as possible from the dwindling pool of dollars being spent by penny-pinching consumers. Even as retailers trim staff, curtail marketing, and close stores, they're ramping up spending in one area: technologies that help them track customers' behavior and purchase patterns. "A lot of retailers are looking for small technology investments that produce big results, and analytics is one of those things," says Gartner (IT) researcher Hung LeHong.
U.S. retailers increased their overall IT budgets by 8% in 2008, after a 2% increase a year earlier, according to a recent report from AMR Research and the National Retail Federation. Of more than 125 retailers surveyed last year, 59% invested in new systems or upgrades in customer relationship management, a category that includes analytics. Growth in spending on analytic software accelerated in the fourth quarter as drastic changes in shopper behavior sent many retailers racing to adapt, says Janet Sherlock, research director of retail for AMR.
Manufacturers are also trying to get smarter about consumers' in-store buying habits to kick-start sluggish sales. Consumer packaged goods companies are the main clients of ShoppingTrip360, a suite of retail analytics services offered by Indian IT giant Infosys (INFY). Collaborating with retailers, Infosys embeds wireless transmitters in shopping carts, throughout the store, and in overhead sensors, creating reams of new data about how shoppers move through stores and where they stop to linger or compare prices.
Shelf sensors track the Consumer
One large consumer goods company enlisted help from Infosys to keep tabs on sales of a new cereal. The company, which Infosys declines to identify, installed "smart shelves" that use ambient light-sensing technology to monitor how long customers stand next to a particular product, whether and how long they pick it up and inspect it, and whether they choose to put it down and pick up something else. Using intelligence gathered from the shelves, the manufacturer soon noticed a troubling trend: The shelves were left empty for long periods of time, meaning it was losing potential sales because the retailer was too slow to restock it. The consumer goods company "immediately got on the phone with those stores" and told them to fix the problem, says Sandeep Dadlani, Infosys' vice-president and head of client services for retail.
While analytics may not be able to save a failing company, they may at least help with the tough decisions that accompany a downsizing. Rather than just closing stores that have the worst sales, companies can analyze data obtained from customer loyalty cards and other programs to determine which stores are being most affected by customers who make inconsistent purchases, jump at coupons, or frequently return products. From there, the stores can make better decisions about how to tailor sales, coupons, and other promotions.
Analytics had a tangible result at Best Buy, which introduced the free financing offer in November. The following month, Best Buy reported that the Omniture system had helped create tens of millions of dollars in profits. "As ad dollars become more precious, we all have to be smarter," Judge says. "We think one of the ways we're going to win in this new game is understanding our customers better than anyone else."