For retailers eager to boost sales and improve customer experience, building an e-commerce website is just the beginning. To fully take charge of your business—from ensuring you have enough stock to forecasting sales—predictive analytics can help take your business to the next level.
Predictive analytics is statistical modeling that scrutinizes current data and makes predictions on future business. It can help you forecast everything from upcoming sales to potential product shortages. It can even add personalization to the customer experience.
"But the technology is still vastly underused by independent retailers despite its immense value,” says Carl Hildebrandt, Epicor vice president of Product Management.
That, however, is poised to change. Salesforce research shows close to 70% of consumers say Covid-19 elevated expectations about a company’s digital capabilities. And consumer expectations are compelling businesses to take a closer look at the technology.
"We saw a huge spike in e-commerce as it became an urgent need," Hildebrandt says. "[Retailers] wear so many hats that sometimes they need a catalyst to change. The pandemic is certainly one that should have businesses wanting more insight into data they’re already collecting."
How Predictive Analytics Work
There's a lot you can do to glean knowledge from customer data you already have. Predictive analytics helps make sense of it.
Your customers recognize and value product recommendations—and a personalized retail experience. Examples of that are when Amazon serves up book recommendations based on your past purchases, or Netflix personalizes your browsing experience by suggesting a movie similar to other shows you watch. That’s predictive analytics at work online. It also gives you the ability to learn more about your customers’ shopping behaviors and inform the way you manage inventory.
Predictive analytics can also identify when to run promotional offers, how to improve operational efficiency through better staffing decisions, and when to launch a product special or sale. Data can help you make quick decisions and speed up, or even automate, certain time-consuming or tedious tasks.
There's a profound need for business owners to " ... be able to see and more clearly interpret the information that already exists," writes Karen Mills, a senior fellow with Harvard Business School, in an article about AI and the future of small business. "As technology opens the doors to vast troves of data, opportunities are emerging to create new insights on a small business's health and prospects."
Here are ways your business can capitalize by using predictive analytics.
1. Forecast Product Demand
When it comes to keeping your retail business running smoothly, forecasting is a critical capability. A hardware store chain might carry 40,000 to 50,000 products in a 12,000-square-foot space. To ensure stocked items sell—and to keep enough items in stock to meet demand—can mean the difference between a profitable month and a sales deficit.
"While forecasts are predictions based on actual sales history, using these two capabilities together help retailers stock items more optimally based on overall store profitability and revenue."
Hildebrandt believes predictive analytics can help retailers of all sizes assess demand and sales performance. "It uses ranking to ‘grade’ a product’s performance based on indicators like sales margins and number of units sold,” he explains. "While forecasts are predictions based on actual sales history, using these two capabilities together help retailers stock items more optimally based on overall store profitability and revenue.”
That's vital both from a business perspective and in the context of customer experience. With forecasting tools, you can improve consumer engagement and satisfaction.
You can also help your customers have a positive omnichannel experience. For example, having the same inventory available online and at your physical store location(s). Incorporating online sales into forecasting can help you predict and balance inventory.
2. Anticipate Changes
"If you have the data at your disposal, the algorithms can help you assess unusual spikes or dips in sales to prepare and adjust."
Beyond the challenges of 2020 on the retail industry, part of maintaining a profitable business is to anticipate and address event-driven fluctuations in sales figures.
Knowing in advance that sales will increase dramatically in the days leading up to a hurricane, or that foot traffic slows whenever the Centers for Disease Control and Prevention announces an uptick in Covid-19 cases, helps you take measures to protect your business.
"If you have the data at your disposal, the algorithms can help you assess unusual spikes or dips in sales to prepare and adjust,” Hildebrandt explains. "There are many ways to adjust and fine tune the forecasting models to measure unique aspects of your business."
3. Market Basket Analysis
Another aspect of predictive analytics that's gaining momentum is the ability to analyze purchases for trends that can help you plan promotions, pricing decisions, end caps, and more.
With market basket analysis, you can identify products commonly purchased together. For example, you know your customers frequently purchase painter's tape when they buy paint brushes, so you merchandise them together in the store or online. Or it can help with pricing decisions like discounting tape while increasing the price on paint brushes to potentially improve your margin.
4. Predict Trends
In one form or another, predictive analytics can assist with all aspects of your business, particularly with budget planning. You can use historical sales to set trigger points and project sales by category, or even predict which categories are likely to grow.
It can help inform decisions on why to carry a certain brand or make sure assets and cash flow are invested in the proper categories. "Predicting trends will continue," Hildebrandt says, noting its versatility and value across the retail industry. If you have an e-commerce website, you're managing consumer expectations on internet shopping capabilities set by Amazon. Predictive analytics can help you distinguish your business both online and in store, through personalization and customer service excellence.
Predictive analytics can help you distinguish your business both online and in store.
As you set out to explore predictive analytics technology, be sure to work with a partner that offers customer support you may need to get started with this kind of solution. A full-service technology partner like Epicor can guide customers through setup and how to use solutions to capture the knowledge you need to enhance your business.
Technology available to independent retailers today rivals that of much larger corporations. Combining predictive analytics with the close connections you have in your community can create even more valuable customer relationships. And set you apart from the competition.
Download the free eBook to learn more about retail trends that can help you streamline and optimize your business.
