PWC Profitable-Growth-For-Retail-Businesses-Online
PWC Profitable-Growth-For-Retail-Businesses-Online
PWC Profitable-Growth-For-Retail-Businesses-Online
Foreword p2/ Analytics as a lever for profitability p4/ Retail analytics framework p5/
Merchandising analytics p6/ Marketing analytics p7/ Supply chain analytics p9/ Store
operation analytics p10/ Adoption of analytics p11
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Foreword
Data generated from the various While physical retail constitutes a
larger share of total retail, online retail
The new challenges retailers are
facing today include engagement,
digital touchpoints is already
providing insights into customer continues to show accelerated growth. digitisation, trust and disruptions.
behaviour. In this report, we will This is because the latter offers
Customer engagement: How do we
discuss how analysing data captured convenience in terms of anytime,
constantly find ways to be relevant
across the value chain can help deliver anywhere gratification, along with the
in the lives of the customers, appeal
a superior customer experience and best deals on products. Retailers today
to their emotions and thus be invited
place the retailer on the path to long- do not just sell products; instead, they
to interact?
term profitability. are offering services which focus on
delivering a differentiated experience. Information integration: How do
PwC’s Total Retail Survey 20161 we radically simplify and remove
reveals the behaviours that will Many leading retailers have merged
the friction in systems in order to
usher in the next retail revolution. their online and offline divisions
dramatically reduce the cost of a
Trends like new payment types and so that the same team oversees
product or service through efficiency,
variable store footprints continue to merchandising, planning and
as well as enable the creation of a
redefine ways in which consumers are marketing for their physical stores
flawless, seamless, easy and enhanced
interacting with retailers. Although and e-commerce. In-store customers
customer experience?
stores remain an indispensable part of are now able to browse products
the shopping journey, digital channels and place orders on handheld Enhancing trust: How do we develop
have become the first touchpoint for devices, following which they can emotional intelligence and learn
consumers today. pick up their items from a collection to incorporate the art of rapport
point. Retailers are improving their building into data science? Customers
CEOs of retail and consumer goods profitability by merging in-store and are people, and brands need to
companies who were interviewed digital operations. behave with the social respect that
as part of PwC’s 19th Annual Global emotionally aware people display.
CEO Survey rated data and analytics Retailers are taking to social media
technologies as their key area of focus. with campaigns and promotion Creating disruption: How do we use
The new operating model will be activities. Clearly, social media is the customers as an ally and an asset to
customer centric, with data analytics ‘great influencer’, as also indicated by refine and constantly challenge the
at the heart of the decision-making our Total Retail Survey 2016. relevance of their value proposition
process, enabled by appropriate and customer culture?
Retailers are now focussing on offering
technology and tools. a differentiated in-store experience. A structured analytics-driven
In this hyperconnected, information- While in-store customer traffic has approach can help retailers
driven age, data and analytics are been an important metric to measure successfully undertake the
playing a major role not just in marketing spend effectiveness and journey from discovery to trust,
effectively tracking growth but also in conversion rate, digital channels are description, prediction, optimisation,
driving strategies for sustainable and becoming important touchpoints empowerment and finally embedding
profitable growth. Rapid advances in for an omnichannel experience. of intelligence in their existing
digitisation and the resultant changes With this wealth of customer data, operations workflows.
in consumer behaviour have redefined retailers will be able to drive newer
Retailers can use the business
the retail business operating model strategies for revenue generation and
insights generated from analytics to
and the value proposition. cost management in the race towards
effectively align physical and digital
turning profitable.
1. www.pwc.com/gx/en/industries/retail-consumer/global-total-retail.html
2 PwC
store operations under a single
management team with incentives
that are agnostic to channel of sale. Predict
They can set up flexible data
infrastructure that is able to build a What
might happen
‘single view of a customer’ and deliver
be
O
real-time operations. next?
Wh t an ur
ri
pt
rig for y ess?
sc
im
wh d
an ppe at
at
h
As a result, retailers would be able
d ne
De
ha h
y?
ise
is wer
W
bu
to successfully spot opportunities,
the
sin
s
quickly assess ideas and test and learn
o
from these experiences.
They would be able to innovate
?
at th ht people
continuously and understand and Unlock data
t time
the r ered to
being t
igh
trust your
w er
data?
e righ
t
mpo
deliv
ig
to exploit the latest technologies to
o
deliver better digital experiences for
o w d bed
E
their customers and integrate digital Wh H m ics
exis at valu e yt
channels and operations into the ts in e you anal ur
ta o
fabric of their businesses. dat your da nto y tion?
a? i isa
Data and analytics would help
Di r g an d
retailers to understand how their sc
ove
o be
customers are using their products r Em
and services, how their operations and
supply chain are performing, how to
manage their workforce and how to
identify key risks—insights that they
then can then act upon.
Retail Consumer
2. http://www.pwc.com/gx/en/ceo-agenda/ceosurvey/2016.html
4 PwC
Retail analytics
framework
Retail analysts can generate deeper Merchandising analytics: Retailers customer service. Marketing analytics
insights across the entire value chain of can use merchandising analytics to quickly combine all relevant customer
retail operations, including procurement, stock the right product at the right data—from point of sale systems,
supply chain, sales and marketing, store place at the right time. Merchandising customer relationship management
operations, and customer management.
analytics enable planners to align system, loyalty cards, etc., with social
Based on our experience of working their merchandising decisions with media data—perform sophisticated
with multiple retailers, we have customer expectations. The key analytics, and share insights to help
identified a retail analytics framework areas of merchandising analytics optimise marketing decisions. It can
that can be used to structure their are assortment planning, product help to deepen customer insight,
programmes in four areas: adjacency and space allocation. optimise multichannel performance,
improve marketing effectiveness and
• Merchandising Marketing analytics: To keep up with
enhance social media presence.
changing customer demands and
• Marketing
ensure loyalty, retailers need marketing Supply chain analytics: Retail
• Supply chain analytics for deeper customer insight, profitability is directly impacted by
targeted interactions and improved the logistics efficiency to maximise
• Store operations
demand fulfilment and avoid any back
orders or stock-outs. These include
Retail analytics framework interventions in logistics, inventory
and supplier performance.
Store operation analytics: The
performance of retail operations
Merchandising analytics Marketing analytics depends on various factors,
• Assortment planning • Promotions including the effectiveness of the
• Product placement • Pricing store staff, the cost incurred on them,
• Space allocation • Personalisation reduction of pilferage from the store,
• Product adjacency • Campaigns management of inventory at the right
levels and improvement of the overall
staff performance.
A retailer’s assortment is the set of are so large that it is not humanely be a good idea for it to add batteries of
products it carries in each store at each possible to undertake optimisation based brand X to its assortment. Moreover,
point in time. Retailers periodically on intuition and experience only. these techniques will help in identifying
revise their assortment for each category, potential sales loss. For example, a
For instance, in order to declutter its
removing slow sellers and adding others retailer thinks that customers do not
stores, one of the retailers removed 15%
to account for changes in customer want to buy product of type A, so it offers
of the SKUs it carried. The move triggered
demand over time as well as new a limited amount of it and thus doesn’t
an immediate decline in sales and the
products introduced by suppliers. This sell much of it, thereby confirming its
retailer eventually had to roll back most
periodic assortment reset seeks to choose assumption that customers did not want
of the changes. Another example is that of
a set of stock keeping units (SKUs) to product A. However, this may not actually
a retailer of home items which witnessed
carry in the new assortment in order to be the case. In a study of tires, where the
an 18% increase in revenues when it
maximise revenue or profit. Constraints attributes were size, brand and mileage
localised 1 of its 35 categories for five
like shelf space inhibit the number of warranty, the lowest-priced brand had
store clusters. However, when it applied
SKUs that can be carried. only a 10% share of the retailer’s sales.
the same process to another category,
However, it was found that the retailer
While planning assortments, retailers it enjoyed no lift in revenue and hence
only offered this brand of tires in a limited
have to take into account many abandoned its localisation efforts.
number of sizes. Despite this, the brand
considerations. For instance, how will
Analytics holds the key to optimising outsold the next highest priced brand by
sales change if the number of products
assortment. For each SKU, retailers 40:1 and had a 61% share. This retailer
carried in an assortment is increased
can identify a few attributes, such as offered a limited selection of the cheapest
or decreased? What is the likelihood of
brand, package size or flavour, that are tire because it thought this could get
customers buying a substitute product
meaningful to customers. They can then customers to trade up to a higher priced
if they do not find the product of their
use the sales of existing SKUs to estimate brand, but data showed that this switch
choice? What are the benefits of localising
the future demand at attribute level and occurred only 45% of the time. It was
a category? How many store clusters
further use these estimates to forecast the not true in the remaining 55% cases and,
should be formed, for each to carry
demand for any combination of attributes, given the 61% share of the brand, resulted
different assortments? What are the right
including those that correspond to new in a loss of one-third of potential sales.
matrices to use while segmenting stores?
products the retailer is considering to add
What are the likely sales of products This clearly demonstrates that
to its assortment. Analytics lets retailers
they are considering to add to their thoughtful assortment optimisation
discover new products that have high
assortment? Careful analysis of SKU data can have a significant impact on a
chances of selling well. For example,
will help retailers answer these questions retailer’s profitability.
if a retailer finds that one of its stores
and improve their bottom line sales.
sells many smartphones of brand X and
Retailers find it difficult to make batteries for phones of various brands but
assortment decisions since the variables not for those of brand X, then it would
6 PwC
Marketing analytics
The two important areas under Top five factors influencing consumers’ choice of their
marketing analytics are pricing and
favourite retailer: 2015
promotion analytics.
46% 55%
Pricing analytics: With extensive
competitive pressure and price 33% 30%
transparency, pricing has become
the key focus for retail companies.
As a powerful tool to define product
and brand positioning and as a key
monetising tool, pricing can turn out
to be the single biggest profit lever for They usually Good returns Trust in the Good prices
retailers. PwC’s Total Retail Survey have items I want policy brand
2016 clearly indicates that price is in stock
the biggest factor for customers to Source: PwC’s Total Retail Survey 2016: India report
determine their shopping destination.
Based on the product life cycle, six during sales. Retailers often use this Markdown optimisation: Seasonal
pricing analytics approaches can be technique to encourage customers to discount campaigns ensure that
used: price setting, pricing structure, buy more or, recently, as an ongoing retailers are able to achieve category
cross-/upsell, promotional pricing, customer acquisition strategy. sales objectives within a specified
profit leakage and markdown. Analytics can help retailers enhance period. Markdown optimisation helps
the benefits derived from promotional establish flexibility in pricing for
Price setting: Pricing models can be pricing by establishing baselines for discontinued and obsolete products.
implemented using competitive, cost gauging promotion effectiveness. Here, This approach allows the retailer to
and elasticity levers to establish ideal analytics focusses on key areas such pay close attention to profit margins
price ranges. Although price elasticity is as promotion optimisation and trade and markdown budget, and maintain
a great way of identifying ideal pricing, promotion effectiveness. competitiveness in pricing.
it needs to be applied in the proper
context; otherwise it may not lead to the Profit leakage analytics: Multichannel Retailers must become adept at using
desired results. and omnichannel strategies pricing to improve the top or bottom
necessitate that retailers devise efficient line. While devising an appropriate
Pricing structures: With pricing cost-to-serve models. Analysing pricing strategy is a long and engaging
of products becoming an important transactional data can help smooth journey, it is important to have a
exercise while implementing direct- operational challenges and drive higher holistic picture in mind and adopt an
to-customer strategies, it is imperative profit margins. agile approach.
for retailers to consider an approach
which is verifiable and effective in
optimising customer lifetime value. The Product life cycle and pricing approaches
key applications are subscription-based
pricing, value-based pricing, customer
lifetime value analytics, etc.
Cross-/upsell: Simply put, this is the
Introduction Growth
art of selling more through product Maturity Decline
recommendations. Sales staff in brick-
and-mortar stores and panels that Price Cross-sell Profit leakage Markdown
display frequently bought products setting Upsell analytics optimisation
while shopping online have proved
to be sure-shot ways of encouraging Pricing Promotional
consumers to buy more. structures pricing
Promotional pricing: As consumers,
we are all familiar with retailers
offering heavy discounts on products Source: PwC analysis
8 PwC
Supply chain analytics
The data generated by store operations Internet of things (IoT) sensors are sensors help identify the high-traffic
in real time can be efficiently used by fast becoming a complete ecosystem areas, which will allow the company to
developing analytics models to optimise where software, cloud computing better position its products.
the store and staff performance. and analytics tools are turning raw
Going forward, retailers can view IoT
The store manager faces the constant data into meaningful information
as a tool that enables them to help
challenge of maintaining its staff levels at or predictions. When presented on easy-
the right size and finding the ideal mix of their customers through innovations
to-use interfaces (such as dashboards
part-time and full-time employees to keep such as smart price tags that can
or mobile apps), this information
its staff costs as low as possible. Analytical change prices in real time, mirrors
enables retailers to monitor and
models can forecast the demand based that allow a person to try clothes on
automate responses.
on seasonality, campaign dates, festive virtually, and packaging that monitors
events and marriage periods, and identify More and more retailers are adding the freshness of goods and alerts the
their impact on store staff requirement. sensors to people, places, processes and consumer when they are nearing the
These could be then used to optimise staff products in order to gather and analyse end of their shelf life.
requirements as well as the staff mix to
information for better decision-making
minimise costs.
and greater transparency. Predictive
analytics applications process this
data, optimise the supply chain and
decrease inventory shrink. Retail stores
are increasingly adopting sensors to
determine inventory levels and restock
shelves automatically.
Location analytics can map how
customers move through a store. Using
a combination of IoT-enabled product
Retailers can reduce shrinkage by and shelf sensors, cameras and RFID
identifying patterns in shoplifting in their devices, one can track which sections
stores, such as location of store, time of of the store receive the most traffic
the day, type of shoplifting, employees in general over different hours of the
on duty and products stolen. Based on day and week. Based on the insights,
this, they can undertake initiatives such
workforce planning can be done and an
as providing training to employees,
optimised workforce schedule can be
increasing coverage of radio frequency
identification (RFID) tags, installing chalked out on a daily basis, resulting
cameras in certain areas and ensuring in effective customer service. Further,
tighter observation based on specific heat sensors can be employed in stores
intelligence generated from analytics. to track customers’ movements. These
10 PwC
Adoption of analytics
While many retailers have started their • Inorganic in-house: The retailer The path to return on investment
analytics journey and are at various stages buys an analytics company which can (ROI) is not as clear as it is in other
of maturity, they are still struggling to start working on various analytics industries. Hence, it is critical for
identify the most appropriate model for projects across the enterprise. This retailers to embed analytics in their
sustainable analytics implementation. approach can improve the time to
operations. Analytics will not only help
Retailers can adopt analytics across their value; however, there are integration
enterprise using various options: issues and the analytics resources in identifying opportunities for growth
may take some time to understand the but also in developing innovative
• Organic in-house: The retailer solutions for product development and
organisation processes and culture.
augments its in-house analytics team customer service, while also assisting
gradually over a period of time and • Primarily outsourced: In this case,
in the evolution of new business models.
introduces analytics in a phase-wise the entire analytics work is completely
approach. However, this is a slow outsourced to an external vendor who Data-led insight has the power to
process and the time to first insight ingests the various data feeds from the add business value to every part of
increases drastically. retailer, performs the analysis, and the value chain and to every area
sends the results and insights back to
of business decision-making. As we
the retailer. This approach can deliver
quick results, but in the long run, it can rapidly move towards a connected retail
prove to be an expensive proposition environment, companies need to master
for the organisation due to reliance on the full potential of the customer data
the external vendor, along with loss of that is collected at numerous digital
control on analytics operations. touchpoints. Retailers have already
• Hybrid model (recommended): started putting data analytics at the
This approach is a combination of the heart of their operations across the
in-house and outsourcing approaches. value chain—procurement, supply
An external consultant works with the chain, sales and marketing, store
retailer to set up an analytics centre operations, and customer management.
of excellence and to co-create various They now need to establish a big data
analytics models on its premises. This ecosystem which processes multiple
not only helps in gaining access to the terabytes of new data and petabytes
latest best practices prevalent in the
of historical data. This will help them
market but also keeps the retailer in
control at all times. improve their revenues through
analytics based decision-making.
Time to value
Control of
operations
12 PwC
About our Retail and About our
Consumer practice Analytics practice
Our India Retail and Consumer practice has been working Our Analytics practice has been working with leading
with the Fortune 500 companies, helping them enhance organisations across the globe, helping them with strategy
value. Developing the market entry strategy for global and needs assessment, benchmarking, process management,
companies, location assessment based on the target audience, vendor and tool evaluation, model implementation, financial
streamlining the supply chain and distribution system, modelling, analytics competency centre set-up as well as
deploying IT strategy, linking customer data using analytics, support and change management.
managing the inventory and ensuring customer delight are
among the gamut of services we offer our clients to help them We have executed multiple projects across the retail and
in their journey to success. consumer, insurance, banking, private equity, manufacturing,
mining and utilities, telecom, automotive, healthcare, pharma
Our clients in the Retail and Consumer goods sector operate and government sectors.
in different formats, ranging from supermarket chains to
food and beverage manufacturers and from luxury goods We are experts in implementing analytics solutions through
retailers to consumer packaged goods manufacturers and leading market tools by aligning them to the client’s
agribusiness companies. technology landscape.
Contacts
Anurag Mathur Sudipta Ghosh
Leader, Retail and Consumer Leader, Analytics
Email: anurag.mathur@in.pwc.com Email: sudipta.ghosh@in.pwc.com
Saurabh Bansal
Email: saurabh1.bansal@in.pwc.com
Sumit Chopra
Email: sumit.chopra@in.pwc.com
Arshveen Kaur
Email: arshveen.kaur@in.pwc.com
14 PwC
Notes
In India, PwC has offices in these cities: Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune.
For more information about PwC India’s service offerings, visit www.pwc.com/in
PwC refers to the PwC International network and/or one or more of its member firms, each of which is a separate, independent
and distinct legal entity in separate lines of service. Please see www.pwc.com/structure for further details.
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