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The Top 7 Ways Online Retailers Can Use Competitive Intelligence to Drive Value

2017

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Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Competitive Intelligence as Business Intelligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

From Data to Insight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Assortment Optimization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pricing Optimization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Introduction

Examining data more closely can help outsmart the competition, especially in the eCommerce space. Although this involves substantial work, the effort is worthwhile when it yields valuable insights—or boosts the bottom line. Many businesses have already amassed a wealth of data, including transactional, customer, internal, and competitive data, but struggle to make it actionable.

First, determine a specific question or end goal to make the most of your data mining endeavors. The way you use your data can help differentiate your business from others. This is especially true in today’s competitive landscape, where retailers are moving towards an omni-channel experience, and the line between physical and digital is increasingly blurred. Major players in online retail, such as Amazon and Walmart, are already using such analytics to their advantage—and so can you.

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Competitive intelligence is “the legal and ethical collection and analysis of information regarding the capabilities, vulnerabilities, and intentions of a business competitor,” according to the Strategic and Competitive Intelligence Professionals association. It is, in effect, a form of business intelligence concerned with the market environment instead of a single company itself. Additionally, B2B International points out that competitive intelligence can be difficult to obtain, since it is not information generally available online and may require an expert to gather properly through market research.

There are five major areas in establishing intelligence about the competition, as identified by Arik Johnson, the director of a consultancy in this field:

• Assessment of strategies

• Competitor perceptions

• Effectiveness of current operations

• Competitor capabilities

• Long-term market prospects

Therefore, focusing on competitors brings awareness of not only what those around you are doing, but it also heightens your ability to see into the near-term future based on the past. In other words, smarter business is about anticipating the moves of the competition and having a plan to respond to various scenarios.

In online retail, this means paying attention to the main drivers of purchase transactions, such as price. Although other factors hold their own weight, pricing is one of the most important considerations about a product for both sellers and buyers. It is a reflection of availability and demand. But pricing is not the only type of useful data, and having such data does not automatically enable you to take action.

Competitive Intelligence as Business Intelligence

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The journey from data to insight consists of several steps (diagram courtesy of WealthEngine). First, there must be awareness of what data exists or could be collected and analyzed. Next comes the basic, occasional use of data to answer business questions. Finally, in full maturity, there is investment in and optimization of structures to support data (along with meaningful conclusions from it).

Note that analytics rely on data that has been cleaned, or formatted to be as consistent and complete as possible. This is not trivial, since data may come from various sources and require a significant quality assurance process before it is usable. Collecting data from two competitors who define product categories differently can make them difficult to compare. For example, one retailer

may group coffee pots and French presses, while another separates them—this classification disparity complicates the metrics for the product shelf, since it is unclear which level of distinction or specificity is best.However, many online retail businesses are at least aware of the advantages of having data, and they may also rise to the level of basic usage. It is more challenging for businesses to invest in data and analytics as a matter of necessity, until they can actually see the gains made.

To that end, this eBook will show that much can be done with the power of data, especially within the realm of competitive intelligence. Read on to discover the top ways to make the data you collect actionable and get measurable results for your business.

From Data to Insight

Oblivious

Uninformed about data and do not use analytics to make decisions.

Aware

Somewhat uninformed and use very little data.

Emerging

Data-neutral. Using data and analysis for basic processes.

Investing

Data-informed. Use data and analysis regularly.

Optimizing

On the cutting edge. Investment in data and have structure in place to scale.

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Competitive intelligence can help retailers address tactical and strategic questions in merchandising and product planning by providing a unique view of product assortment with respect to your rivals. It provides a Venn diagram of sorts, representing where you and your competitors’ assortments overlap. It also shows where your inventory stands out from theirs, and where the competition has products that you do not. From a high-level perspective, you can see spaces where the market is underserved, which is an opportunity to step in and reap the benefits.

You can use assortment information to optimize your offerings and improve the selection of products you make available to customers. For example, you can start by identifying your most important categories and key competitors and then see how you compare against them. What’s the distribution of your top competitor’s assortment, and in what price ranges do they fall? Which brands are they selling? What assortment trends are you seeing over time? Which products have been introduced or removed and at which retailers?

01 WHITE SPACES

By looking into the assortments of competitors, you can identify the gaps to proactively identify fulfillment opportunities. The gaps could be defined in multiple ways—regarding pricing ranges, brands, or item sub-categories.

Here are a few examples of retailers filling white spaces successfully:

• Price: In the world of computer monitors, AOC has cornered the lower price market. There are many well-established players in the market serving pricing tiers above them, like ASUS and Dell, but becoming an expert at the lower end of the market brings them considerable sales because it had previously been neglected.

• Category: Active gear is hot right now, with successful retailers like Victoria Secret adding lines recently. Walmart decided to get in on the action at a bigger scale and acquired Moosejaw, a well-known player in the outdoor recreation space. Walmart’s competitors weren’t doing anything similar, and none of them were particularly strong in outdoor/activewear, so it was a way for them to jump into a new category before anyone could beat them to it.

Assortment Optimization

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Assortment Optimization (continued)

• Brand: In retail, exclusivity is the name of the game. If you can strike up an exclusive deal with a respected brand, then consumers will come flooding in because you’re the only seller, of course. Beyond that, if there are certain brands that are likely to become popular in the near future, then it’s best to try having them at the outset, before there is a bandwagon. That way shoppers will think of you first, even if competitors start selling the same brand later on.

Gathering this type of competitive intelligence in real time can help you make informed decisions about the items you’re considering adding to your own assortment. However, don’t forget to consider some caveats. If an item is very volatile within a bestseller list, then you should be aware that an investment in that product may not be entirely worthwhile. Its volatility suggests its popularity is merely a fad that shouldn’t be taken too seriously in the long term. It’s also important to consider your desired margin. If you are unable to acquire a hot product at a reasonable price, it’s probably not worthwhile. And finally, any decisions made should align with your brand and overall strategy. After all, the key is to achieve profitable growth and to add products that make sense for your business, not to chase every trend you can.

02 PRODUCT TRENDS

Understanding how you measure up against the competition over time should be a major component of your assortment and pricing strategies. Knowing what products competitors carry, which ones are their bestsellers, and how they’re priced sets you up to make informed decisions.

Gaining competitive pricing and assortment intelligence are the baseline of an effective strategy. Next, you’ll need to run tests to see which of the insights you’ve gleaned are relevant. Then analyzing the results will provide the final insight to determine whether certain products, categories, brands, or price tiers will be worthwhile long-term features for your assortment.

Here are some of the trends you should consider monitoring:

Pricing trends as related to assortment: Pair assortment insights with pricing intelligence. For example, examine SKUs that have been removed recently—how heavily discounted were these products leading up to their retirement or going out of stock? You also want to examine if your current mix of products is priced accordingly across various channels, so that you’re competitive but not cutting margins across the board.

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Assortment Optimization (continued)

• Category and brand trends: Ultimately, you want to make sure you have the right combination of products across all of your channels, and you need to have a reliable way to discover what these brands and categories are. You don’t want to miss out on opportunities because you don’t have visibility into the competitive landscape. See what brands or categories are on the upswing that you may not be aware of. You want to stay on top of changes in the market so that when your customers are ready to buy, you can effectively compete for their business. Catch the trends early, while keeping in mind some may be volatile and not worth pursuing. Make sure to balance risk versus opportunity.

• Seasonal trends: Improve conversion rates and inventory turns by leveraging competitive data coupled with your own historical sales data. This should help you to plan and forecast better.

Considering these assortment insights as a whole can lead to new areas to expand into ahead of the competition, which will increase profitability from an optimized product assortment and consistent seasonal planning. Overall, this data-based approach helps you merchandise more strategically.

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Pricing Optimization

The price is one of the main factors affecting a customer’s purchase decision. In fact, according to BigCommerce, 80 percent of those surveyed indicated that competitive pricing was an important store feature determining whether or not to buy. As such, it’s important to have a good idea of what your true competitors are doing with regard to pricing, discounting, promotions, and how you stack up. While competitor pricing shouldn’t be the only input for your own strategy, it’s a very important variable to consider. The goal is to support merchandising with effective pricing and timely promotions that drive more traffic, conversions, profitable and efficient return on advertising spend, and ultimately, revenue.

With pricing intelligence, you can make smarter pricing and merchandising decisions backed by current and historical data to achieve revenue growth. One of the concerns you’ll likely want to know about: “Am I selling my products at a price that’s competitive relative to other merchants in this space?” But there’s much more to explore beyond that, including questions like these: “How are competitor discounts and promotions impacting my own response rates, redemption rates, conversions, and sales?” “Is my current mix of products priced in line with the market on key sales channels, so that I’m competitive without having to sacrifice margins?” “How can I improve timing and depth of markdowns to mitigate risk of slow inventory turn on key brands and categories?” Let’s dive deeper into the use cases of competitive pricing data.

03 COMPETITIVE PRICING TRENDS

It’s one thing to collect and mine competitors’ prices, but inferring competitor pricing strategy based on those dollar amounts is a much harder undertaking. Viewing competitor prices over time can provide an idea about patterns or cycles, and these can help you improve your own pricing strategy going forward. If you know a competitor is constantly undercutting you, then you know they are competing on price. This means you should consider stepping up your pricing game and might have to be more aggressive in discounting, if feasible.

However, if your sales trends remain the same after undercutting competitors, then you know you can charge a premium. This pricing power can help you stay competitive without sacrificing your profit margins. For the sake of your bottom line, don’t cut prices in an uninformed attempt to stay competitive. But if you have the competitor-related data along with your sales data, you can use it to make educated and well-calculated price changes to keep profits up.

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04 SWOT ANALYSIS

With the data about competitors that you’ve gathered, you can conduct a robust analysis of your business’s strengths, weaknesses, opportunities, and threats. You can then use that analysis to shape your ongoing strategy. In the example above, testing the impact of your price changes against your rivals’ shows where you have the power to set higher prices that buyers will still pay and, on the other hand, where there is room to be more competitive. This helps you identify your strengths and weaknesses. If you have pricing power, you know that consumers view you more favorably than your competitors.

At the same time, it helps you understand which other businesses in your market are becoming more viable threats and which strengths you can capitalize on (for example, identifying areas where you could actually raise prices). There will be some who cut their prices when you do and hurt your sales numbers, and there will be others who attempt to shrink the assortment gap in order to go toe-to-toe with you. Be aware of these “heat seekers,” as they are looking to derail you.

05 REPRICING

Another use case from competitive data mining is automated repricing. Retailers can succeed by changing the prices of their products in real-time to combat heat-seeking competitors. There are two ways to reprice your products, both of which revolve around data: competitor-based repricing (a type of rule-based repricing) and dynamic pricing.

Competitor-based repricing uses competitor prices as benchmarks on which you can base your own price changes. It’s useful if you want to beat your competitors’ prices, but it’s relatively one-dimensional, compared to a dynamic pricing solution.

Dynamic pricing takes a handful of metrics into account to determine the optimal price for driving revenue or profit growth. One of the top factors is competitor price, but it’s not the only one. To build a successful dynamic pricing strategy, you need to build an intelligent demand estimation engine, fueled by multiple signals. Incorporating variables such as historical sales, elasticity, and factors for seasonality gives you the most comprehensive formula to determine the right price at any given time.

Pricing Optimization (continued)

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06 PRICE TESTING

Controlled experiments can be the best way to test various tactics. Comparing your sales data to competitor price changes is a great way to analyze the impact of each price change. Such changes can affect your demand levels, map product price elasticity, and determine your pricing power. If your price goes up and shoppers choose you even though there are cheaper options available from competitors, you know you can test higher prices in the future to maximize your margins, while perfecting your pricing strategy. Why sacrifice profits if you know you can make more without impacting demand? It’s only possible with the insights gained from market-wide data.

07 DISCOUNTING & PROMOTIONS

Are you taking full advantage of all digital channels that you can to drive growth in your business? From a marketing perspective, it’s extremely important to understand competitive actions and dynamics. Another form of data that can be collected is the promotions offered by competitors. Over time, you can see how frequently they run certain promotions and over which time periods, allowing you to strategize your own promotions accordingly.

Tracking promotions also allows you to spot trends and gauge how well the competition is doing. For instance, if a competitor is constantly sending out promotions and putting everything on sale at a certain threshold, you can react with a promotion of your own that attracts customers to you as well, rather than just them. Overall the result is to boost sales, profits, and customer satisfaction with compelling promotions of your own. With promotional data, you can also see which promotions worked well and which flopped, leading to better predictions of consumer behavior. By being able to better predict what type of promotions or discounts will resonate and when, your return on advertising spend can improve dramatically.

Remember, you want to track pricing as it relates to promotions and discounts, but also where and how the promotions are presented.

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Here’s a quick cheat sheet about what competitive promotional and discounting data you should be analyzing and how to take action on it—thereby improving your own strategy and seeing more return on advertising spend.

Data to Analyze

• Look and feel of competitor promotions across homepages, email, and social media (especially for major shopping holidays)

• Timing of competitor promotions

• Competitor promotional frequency over time

• Competitor promotional mix (distribution of type) and discount (of depth of discount)

Suggested Actions

• Determine if you are differentiating in a way that’s consistent with your brand messaging and position relative to competitors in the market

• Use historical competitive data and your internal sales data to determine the impact of others’ promotions on your own sales numbers and on your own promotion redemption rates

• Infer competitor promotional calendars to inform your own strategy

• If a competitor is offering free shipping much more frequently, for example, you may want to adjust your strategy to undermine that value point of theirs

Pricing Optimization (continued)

06 PRICE TESTING

Controlled experiments can be the best way to test various tactics. Comparing your sales data to competitor price changes is a great way to analyze the impact of each price change. Such changes can affect your demand levels, map product price elasticity, and determine your pricing power. If your price goes up and shoppers choose you even though there are cheaper options available from competitors, you know you can test higher prices in the future to maximize your margins, while perfecting your pricing strategy. Why sacrifice profits if you know you can make more without impacting demand? It’s only possible with the insights gained from market-wide data.

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Summary

To summarize, here are the top 7 ways online retailers can use competitive intelligence to drive value for their business:

Assortment Optimization

01 WHITE SPACES

• Identify assorment gaps and competitor whitespace to capture underserved markets or categories

02 PRODUCT TRENDS

• Track assortment changes over time to identify trends

• Optimize product assortment and improvement of seasonal strategy for improved inventory turns

Pricing Optimization

03 COMPETITIVE PRICING TRENDS

• Benchmark pricing against competitors to evaluate your own pricing strategy

04 SWOT ANALYSIS

• Review look and feel as well as cadence and mix of homepage, social media, and email promotions

05 REPRICING

• Automate repricing: optimize pricing with competitor behavior as a variable

06 PRICE TESTING

• Build demand prediction models and determine product price elasticity

07 DISCOUNTING & PROMOTIONS

• Analyze discounting and promotional behavior to improve your own startegies

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Conclusion

There are several ways for retail businesses to use competitive intelligence, which results from researching other players in the market. Given access to historical data from across the marketplace, it’s possible for you to optimize and make strategic decisions. Two important categories of data about competitors in eCommerce have been discussed: assortment and pricing (including promotions). Each of these presents opportunities for you as a savvy retail business to leverage. However, investing resources in data analysis and technology solutions is required. A thorough understanding of what competitors are doing, based on a consistent factual record, rather than intuition or occasional observation, is one of the most important foundational pieces that online retailers should strive for in order to win a bigger share of customers’ wallets.

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Wiser is a single source partner by design, with solutions for every aspect of retail, including: Market Intelligence

• Promotional Analysis

• Assortment Intelligence

• Pricing Intelligence

Optimization

• In-store Shelf Health

• Online Repricing

Compliance

• MAP Monitoring & Case Management

• In-store Merchandising

Wiser is the leading provider of actionable data for better decisions. Wiser collects and analyzes online and in-store data with unmatched speed, scale and accuracy. The Wiser platform then blends these insights with advanced workflow software to drive business value for brands and retailers, including restaurants. Using a unique combination of data science and human validation, Wiser offers integrated solutions for every aspect of retail, all in one place.

Learn more at www.wiser.com and follow @wiserdata.

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