Module:4 Retail Analytics

What Are Retail Analytics?

Retailers use data analytics to improve inventory management, marketing efforts, pricing, and
product allocations.
Retail analytics involves using software to collect and analyze data from physical, online, and
catalog outlets to provide retailers with insights into customer behavior and shopping trends. It
can also be used to inform and improve decisions about pricing, inventory, marketing,
merchandising, and store operations by applying predictive algorithms against data from both
internal sources (such as customer purchase histories) and external repositories (such as weather
forecasts). In addition, retail analytics can measure customer loyalty, identify purchasing
patterns, predict demand, and optimize store layouts so that, for instance, retailers can place
items on store shelves that are often bought together or offer personalized discounts to frequent
shoppers that will result in higher average basket sizes and more frequent visits.
Retail Analytics Explained
Retail analytics is the science of collecting, analyzing, and reporting on data related to a retailer’s
operations. It complements the art of retail.
Retail analytics can apply to analyzing customer behavior, tracking inventory levels, measuring
the effectiveness of marketing campaigns, and more. For example, by analyzing data from a
variety of sources, such as customer purchase histories, call center logs, and POS systems,
retailers can gain valuable insights into their customers’ habits and preferences so they can adjust
their product offerings, pricing, return policies, and even their physical and online store layouts
accordingly. Analytics also helps retailers make better decisions about which promotions to run
and which marketing strategies to focus on, as well as when to staff up and down. Ultimately,
data analytics helps retailers increase sales, reduce costs, and improve customer satisfaction and
loyalty.
Why Is Retail Analytics So Important?
Simply put, retail analytics takes the guesswork out of many types of decisions. Experienced
employees are often a font of wisdom, but as the baby boomer generation ages out of the
workforce, less experienced employees will have fewer insights to share. And even the most
experienced and savvy retail executives must wade through a plethora of internal and external
data points on factors that include labor strikes, merchandise trends, and weather forecasts.
Analytics helps retailers synthesize such data and take steps to anticipate future events.
Retail is a highly competitive business complicated by the relative novelty of online commerce,
and retail profit margins have always been thin, leaving little room for error. Even slight
adjustments in product selection and inventory management can greatly reduce stockouts or, at
the other end of the same spectrum, the need for steep discounts. Those adjustments, in turn, can
have an enormous impact on the bottom line. For example, fashion retailers can use data
analytics to decide which styles and sizes to order for different locations and in what quantities,
based on demographic and purchasing trends at each location.

Benefits of Retail Analytics

Retail analytics is a set of tools that retailers use to help them increase revenue, reduce overhead
and labor costs, and improve their margins. Some of the ways retail analytics can accomplish
these goals are by:
Reducing stockouts and the need for discounts: Retail analytics helps users understand
demand trends so they can have enough product on hand, but not so much that they resort to
steep discounts to get rid of excess inventory. For example, analytics can help determine how
quickly demand falls for fashion items that are driven by the popularity of social influencers.
Improving personalization: Analytics helps retailers understand their customers’ preferences
and thus capture more demand than their competitors. For example, using purchasing history, a
book retailer can alert customers who have shown interest in American history when a new book
by historian Ron Chernow becomes available for preorder.
Improving pricing decisions: Data analytics can help retailers set the optimal prices for their
goods by synthesizing a variety of factors, including abandoned shopping carts, competitive
pricing information, and the cost of goods sold. Retailers can thus maximize profits by avoiding
setting prices higher than the market will bear or lower than what customers would be willing to
pay.
Improving product allocations: Analytics can help retailers decide how to allocate products in
different geographic regions, distribution centers, and stores, reducing needless transportation
costs. For instance, a sports apparel retailer can use analytics to see that even a two-degree
difference in temperature affects sales of thermal undershirts and can allocate more of those
items to a distribution center closest to areas projected to have colder temperatures in a given
winter.
Types of Retail Data Analytics
There are four main types of retail data analytics: descriptive analytics that reflect and explain
past performance; diagnostic analytics to determine the root cause of a given problem; predictive
analytics to forecast future results; and prescriptive analytics to recommend next steps. Below is
more detail on each of the four approaches.
Descriptive analytics
Descriptive analytics is the foundation for more sophisticated types of analytics, including those
that follow in this list. It addresses fundamental questions of “how many, when, where, and
what”—the stuff of basic business intelligence tools and dashboards that provide weekly reports
on sales and inventory levels.
Diagnostic analytics
Diagnostic analytics helps retail organizations identify and analyze issues that may be hindering
their performance. By combining data from multiple sources, such as customer feedback,
financial performance, and operational metrics, retailers gain a more comprehensive
understanding of the root causes of problems they face.
Predictive analytics
Predictive analytics helps retailers anticipate future events based on several variables, including
weather, economic trends, supply chain disruptions, and new competitive pressures. This
approach often takes the form of a what-if analysis, which, for example, would let a retailer map
out what would happen if it offered a 10% discount versus 15% on a product, or estimate when it
would run out of stock based on a given set of possible actions.
Prescriptive analytics
Prescriptive analytics is where AI and big data combine to take those predictive analytics
outcomes and recommend actions. Prescriptive analytics can, for example, provide customer
service agents with suggested offers they can pass along to customers on the fly, whether that be
an upsell based on previous purchase history or a cross-sell to satisfy a new customer inquiry.
How Is Retail Analytics Used?
Companies use retail analytics to explain past operational and financial performance, diagnose
what might have gone wrong, suggest alternative approaches that would have been more
productive, forecast demand, and offer suggestions, sometimes in real time, that store associates,
customer service agents, and others can use to cross-sell, upsell, or improve the customer’s
experience. In all cases, the tools are intended to help retailers boost sales, profits, and customer
satisfaction.
In-store analytics tools use data generated from POS systems and in-store video cameras to help
retailers analyze customer shopping patterns so they can place products more effectively in
aisles, ensure appropriate inventory levels, and reduce theft. Video footage, for example, can
show whether customers are slowing down to look at a given display, while POS system data can
show the effectiveness of merchandising on customers who use their loyalty cards.
Customer analytics uses data from systems that customers interact with, including POS systems,
websites, phone logs, and customer service chats. Analyzing this data helps retailers determine
which and where certain items are most popular, why certain items are being returned or
exchanged, or what promotions or suggestions are most effective with customers. For example, it
can help determine what marketing language is most effective over the phone, as opposed to in
chats, to promote a new item.
Inventory analytics, as the name suggests, assesses inventory levels for goods a retailer has on
offer. It’s used to prescribe more efficient warehousing and distribution strategies, such as when
a distribution center is preferable to a more local storehouse, and when to replenish items based
on inventory levels and projected demand. Inventory analytics can, for example, reduce the labor
and shipping costs associated with carrying too much safety stock.
Merchandise analytics helps retailers determine whether they’re displaying their wares
effectively, mostly in physical stores, with the goal of enticing consumers to make a purchase by
using compelling assortments or offers. Merchandise analytics also helps retailers adjust prices to
increase profit margins across products.
Web analytics tracks the digital footprint of consumers as they linger over certain parts of a web
page or click from one page to another. It follows them from the source that led them to the site
to the moment they leave. This type of analytics helps online retailers decide how and where to
display their goods on the site, the prices they charge, and the marketing promotions they should
run.
Business intelligence (BI) reports, often presented in the form of dashboards, are preset to show
certain key performance indicators, such as inventory turns and sell-through rate. They are used
mainly to share top-line trends with peers and senior management.
Demand forecasting forecasts demand for particular items sold online based on the path
customers followed to view those items, move them to their shopping cart, remove those items,
or abandon the cart entirely. While those actions aren’t counted as sales, they can extrapolate
future demand.
Sales forecasting helps retailers predict future sales based on actual sales figures and other
factors. Used in tandem with demand forecasting, it can predict what total demand will be for an
item across all channels and can help retailers ensure they have the necessary inventory to fulfill
that demand.
Retail Analytics Tools
Retail analytics relies on data captured through a variety of means, both at physical store
locations and on websites. The following are some of the tools used:
Point-of-sale systems: These are the systems that retailers use to track and manage customer
transactions. POS systems provide data on customer purchases and can generate reports on sales
and customer trends.
Customer relationship management (CRM) software: This software category includes
applications that manage sales, marketing, customer service, and ecommerce processes. Retailers
use these applications to track interactions with customers, retain data about individual
customers, and identify potential sales, marketing, and customer service opportunities based on
that information.
Business intelligence tools: Retailers use BI tools to synthesize information gleaned from large
volumes and different sets of data, mostly to track key performance indicators such as customer
loyalty, inventory turns, sell-through rate, and days on hand. Retailers can easily generate reports
from these tools and distribute them to executives and other decision-makers.
Inventory management systems: Retailers use this software to track items in stock, monitor
inventory levels in warehouses and distribution centers, and create forecasts of demand. It also
helps retailers identify optimal locations for storing certain items to minimize transportation
expenses and ensure that goods are available to meet customer demand.
Predictive analytics: This type of analytics uses data from prior transactions, communications,
and other actions to predict future trends and behaviors. The four most common types of retail
analytics are descriptive, diagnostic, predictive, and prescriptive (defined above), used to identify
opportunities for growth and new customer segments.

churn
Churn prediction involves identifying at-risk customers who are likely to cancel their
subscriptions or close/abandon their accounts.
A churn model works by passing previous customer data through a machine learning model to
identify the connections between features and targets and make predictions about new customers.
Identifying churn before it happens helps businesses take proactive action to retain customers.
This includes targeted re-engagement campaigns, personalized customer education, and more.
The first step to creating a churn model is to collect relevant data, including product usage data
and direct feedback data from customer surveys.
Next, you’ll need to analyze trends in the data to find the main reasons behind customer churn.
Finally, you’ll pass the data through a logistic regression algorithm (such as the random forest
algorithm) to identify key data points and make future predictions.
Thankfully, Userpilot enables you to collect and analyze user data without any data science or
programming skills.
What is churn prediction?
Customer churn prediction identifies which customers are at a high risk of canceling their
subscription or abandoning your product.Churn prediction, therefore, tells you whether a
customer will leave and why.
Understanding the churn prediction model
A churn prediction model is a machine learning model that predicts whether a customer will
likely churn. At a high level, predicting customer churn requires a detailed understanding of your
customers.
This understanding is derived by examining the historical data of your customers. A good churn
prediction dataset will include multiple predictive features that describe your customer – contract
type, subscription price, etc.
It should also have a target variable (the feature you want to predict). In this case, this will be a
column indicating whether the customer churned or not.
Finally, you’ll need a machine-learning model (specifically a logistic regression algorithm like
decision trees, random forest, SVM, or XG Boost) to find patterns in the data and make accurate
predictions.
To summarize:
Historical data + machine learning = churn model

Why is customer churn prediction important?

Churn is expensive. The cost of any new customer acquisition is always higher than the cost of
retaining existing customers. This is especially true for SaaS companies with the subscription
business model.
Therefore, predicting customer churn before it happens is an important part of modern business
management. It helps marketing teams to:
 Provide more targeted re-engagement campaigns for at-risk customers.
 Create more focused customer education content to increase customer lifetime value.
 Retain customers before they churn.
 On a larger scale, churn trends can help marketers build customer personas to target a
market segment with better messaging and boost customer acquisition.
How to create churn prediction models to prevent churn
There are three main steps to creating a customer churn prediction model. They are:
Data preparation: This involves gathering relevant data and preparing it for use in your model.
It is sometimes said that data preparation forms 80% of data scientists’ jobs.
Exploratory data analysis: This step aims to understand your data and discern the factors
behind customer churn in your business.
Predictions: The final step of your data science process involves creating a predictive model to
identify high-risk customers before they churn.
Create a churn model for business.
Leverage data points for predicting customer churn
The first step to creating your model is collecting the right data. The more data you have, the
more accurate your predictions will be. Consider some data collection methods for a churn
model.
Monitor product usage data of existing customers
Product usage data tells you how and when your customers are using your product. It reflects
how customers use your software, capturing their engagement and behavioral data.
Some important product usage data points for your model include:
Feature usage data: How are users engaging with the different features of your product? This
metric reveals the most popular/relevant feature of your product.
Customer behavior: Customer behavior data captures everything a user does within your
product. This includes when they use your product, how long they use it, which features they
engage with, how they progress through the product, etc.
Clicks: This is a record of the number of times a user clicks or interacts with a UI element, such
as a button, checkbox, text area, menus, etc.
Others: Other product usage data you can track include time-to-value, product stickiness,
interactions, etc.
User pilot in churn prediction and prevention
Userpilot is a product growth and customer analytics platform that helps you collect, analyze,
and act on customer data in your product. Thanks to its no-code nature, you don’t need a data
science team to work with it.
Some key features include:
Feature tagging: Tag product features and UI elements to track how they’re used and why users
interact with them.
Surveys: Create and launch in-app surveys to collect customer data directly. This includes
everything from customer success surveys like NPS and CSAT to general feedback surveys.
Segmentation: Segment users based on their session data, feature usage data, feedback, and
more, and tailor their experiences to help them get the most out of your product.
Funnel analysis: Funnels in Userpilot will allow you to break down the data for detailed
analysis of the conversion rates. Thanks to that, you will be able to easily identify friction
points and drop-offs.