Maxmimize sales profit and shopper loyalty

© 2015 IBM Corporation

Merchandising Maximize Sales, Profit and Shopper Loyalty

Maximize Sales, Profit and Shopper Loyalty

with omni-channel merchandise optimization


2© 2015 IBM Corporation

Retailers face increasingly challenging merchandising decisions

Traditional price competition

New price

models

Online/mobile price transparency Increased targeting and personalization

Economic

impact on

price

sensitivity

Endless

aisles

available

online



And customer empowerment is impacting priorities

58%are more price

sensitive than they were a year ago1

EMPOWERED CUSTOMERS

1 in 4customers feels ―very loyal‖ to

his or her providers8

No.1pricing issue for

retailers is intensified

discounting and promotional activity3

90%believe unifying promo,

price and assortment

models to be

extremely or very

important to achieving

merchandising

success5

RETAILER PRIORITIES

84%bought last in store, but only 56% plan to

buy next in store, with 35% undecided7

91%of online deal redeemers have already done business with the

company or plan to again4

41%cite underperforming

inventory as their biggest merchandising

challenge2

2 in 3admit that their merchandising

function still focuses primarily

on productsand categories,not customers6

Sources – See Speaker Notes



“Should the weekly ad be

online and more targeted,

not in print?”

“We want to reach

our young families.”

“How does your

campaign affect my

in-store promotions?”

“We should

feature Brand X.”

In this environment, merchants and marketers need to connect with

the customer … but often aren’t connected themselves

Merchandising Marketing

“What’s the lifetime value of a customer?”



Research shows that leading retailers share three key traits

Source. ―Understanding leading retailers: Insights from the IBM Retail Merchant survey,‖ IBM Center for Applied Insights, July 2013.

1. Customer focusThey put the customer at the heart of the way they work, how they

measure success, even how they’re organized.

83%47%

Our merchandising function’s focus on the

customer is becoming more important.

Dedicated team

or individual

Leaders trained in

customer insights

Customer insights driver of

merchandising decisions

54%

54%

56%

26%

46%

24%

2x

2.2x

1.9x

Leading merchandisers

All other merchandisers




2. CollaborationThey collaborate across internal and external boundaries to serve

their customers better.

56%38%

Merchandising works closely with IT to

help ensure that investment decisions

are closely aligned with needs.

Promotional activity

strategy

Pricing strategy

Product development

strategy

Data analysis

69%

34%

67%

33%

60%

32%



58%

24%

EXTERNAL INTERNAL





3. AnalyticsThey use analytics to get smarter with every customer interaction

and make better business decisions.

Understand and predict customer buying behaviors

Inform merchandising strategies

Inform promotion or pricing strategies

Product assortment planning

Understand how customers interact with the business

across different channels

73%

47%

69%

42%

63%

40%



63%

37%

Currently use analytics to:

63%

39%

1.6x

1.6x

1.6x

1.7x

1.6x




These traits help deliver greater financial performance

Number of respondents with an average customer basket of more than USD100

1.4x more

2009–2012 stock price compound annual growth rate

3x greater

Percentage of respondents with

more than USD100 in average

customer spending per visit

40%

29%30%

2009–2012 stock

price compound

annual growth rate

10%

1.4x 3x



Retailers need to evolve along several dimensions to best service

the needs of the empowered customer

Truly omni-channel

Bricks and

mortar only

Siloed merchandising

and marketing ad hoc

vendor collaboration

Integrated merchandising

and marketing systematic

vendor collaboration

Understanding of individuals

Understanding of segments

Understanding of basket purchase behavior

(affinities, substitutability, etc.)

Understanding of products and

categories across all shoppers



Evolution to true omni-channel customer engagement

Phase 0 Phase 4 Phase 5Phase 1 Phase 2 Phase 3

Separately managed channels • Integrated channels (data,

analytics, process, etc.)

• Ability to leverage insights from

one channel to inform another

0

1

2

3

4

5Leveraging capabilities and data across channels

Using data and insights to inform decisions

Knowing what your customers want

Having the right mix of products

Managing prices across the merchandise lifecycle

Efficiently delivering effective promotions



Phase 4 Phase 5

Evolution to true omni-channel customer engagement (continued)

Phase 0

No science

Phase 1

• Aggregate Point of Sale

• Limited competitive data

• Traditional causal data

• Single channel prediction and optimization

Phase 2

• Transaction level data

• Shopper data• Online causals• Broader set of

competitor data• Inventory • Weather

Phase 3

• Mass and targeted marketing variables

• Behavioral segmentation

• Comprehensive near-real time competitive data

• Shopper ratings• Web behavior data• Cross channel

price effect insights• Competitive price

effect insights

• Dynamic segmentation• Unstructured web data (reviews,

social, etc.)• Trend based interpretation of data• Game theory/next best action

0

1

2

3

4










Phase 0

• Aggregated Point of Sale data

• No correlation to shoppers or shopper segments

Phase 4 Phase 5Phase 1

• Transaction log (TLog) data

• Basket level analysis (product affinities, purchase overlap, multiples)

Phase 2

• Shopper identified TLog

• Allows item importance (product loyalty), purchase frequency, and trial and repeat, etc.

Phase 3

• Shopper-identified TLog with shopper segmentation.

• Selection and grouping by shopper segment.

• Segment comparison analysis and sales decomposition by shopper segment.

• Cross channel shopper analysis• Compare and contrast shopper

behavior in different channels

0

1

2

3

4










Phase 0

• Rank and cut approach

• Excel based

Phase 4

• Incorporation of omni-channel data, extending these same levels of analysis to ecommerce assortment and virtual shelf as well as physical store.

Phase 5

• Seamless integration with Order Management, Supply chain and Web management tools

Phase 1

• POS Data• Incrementality

modeling

Phase 2

• Incrementality and transferable demand modeling using shopper-identified, segmented TLog

• Understand shopper switching behavior

Phase 3

• Optimize on shelf availability net of cannibalization.

• Automated integration with space (POG) software.

• Recommendations based upon forecasted sales

0

1

2

3

4










Phase 0

• Spreadsheet based pricing

• No price impact forecasting

• Few price zones

Phase 4

• Optimize all dimensions of offers based on shopper data (product, price, channel, etc.)

• Integrated recommendations spanning all price types

• Dynamic pricing bundles based on shopper behavior

Phase 5


Phase 1

• Rules based pricing

• Optimize price types and forecast impact separately by channel

• Manual review/approve

• Weekly cadence

Phase 2

• Dynamic pricing• Online demand

drivers• Automation of

standard changes• More

sophisticated cross-channel rules

• Daily cadence

Phase 3

• Personalized pricing

• Personalized or segment level promotions

• Cross-channel optimization

• Utilize competitive intelligence to optimize different price types

0

1

2

3

4










Phase 0

• Manual / spreadsheet based planning

Phase 4

• Integrated with real time delivery and tracking in web and mobile channels

Phase 5


Phase 1

• Mass promotions planned using collaborative tool (internal and external)

• Linked to optimization and prediction engines

Phase 2

• Visibility of mass and targeted offers across the enterprise.

• Co-ordinated planning between merchandise and marketing

Phase 3

• Fully integrated promotional planning across merchandise and marketing

• Mass and Targeted offers managed using the same tools

• Consistent offers delivered across multiple channels

0

1

2

3

4









IBM experience in omni-channel merchandise optimization

Customers

IBM

Leading omni-channel

merchandise

optimization solution

• More than 60 retailers across multiple geographies

• Segments including grocery, hardlines, apparel,

electronics, etc.

• Multichannel—stores, online, mobile, catalog, etc.

• Extensive retail expertise gained from working with

customers and partners

• Advanced science and optimization

• IBM research that supports industry-leading capabilities

• Scalable and secure technology driven by big data

• Most comprehensive and integrated suite of predictive

merchandise optimization solutions, supporting

smarter assortment, price and promotion decision

making across multiple channels

+

=



Omni-channel merchandise optimization

Maximize sales, profit and shopper loyalty by quantifying consumer behavior to make predictive merchandising and marketing decisions across all channels



Effectively managing assortments involves shopper and category

insights and dimensions

• Base assortment decisions on a quantitative understanding of shopper

behavior, both incrementally and through transferable demand

• Create efficient, customer-centric and profitable assortments for

all your sales channels by incorporating advanced modeling and

optimization science

• Collaborate with trading partners to jointly evaluate and optimize

assortments with a single, consistent approach for practically every

store cluster and configuration

• Increase productivity by automating processes to address the

assortment challenges that merchants face daily

Define shopper

strategies and

category roles

Identify

store

clusters

Reset

category with

optimal

assortment

Create cluster

specific

planograms



Assortment success

Our customers are able to determine a mix within each category that is tailored by

store, region or both, based on insights from customer segmentation, regional

preferences, demand modeling and other cues.

Assortments based on scienceCombining customer insights, segmentation and

optimization science to make better assortment decisions,

a multibillion dollar retailer used IBM DemandTec

Assortment Optimization software to grow top-line sales

by up to 10 percent across several categories.

Consumer-driven merchandisingA major retailer lost sales after altering its

merchandising strategy for a category to reflect a brand-

first philosophy. Using consumer decision trees within

IBM DemandTec Assortment Optimization software, the

buyer identified a better way to merchandise the

category, recovering sales of USD2 million.



Develop pricing

strategySet prices

Monitor price

performance

Manage

promotional

pricing

Optimize

clearance

pricing

Effective pricing across the merchandise lifecycle requires customer

and marketplace insights, combined with consumer demand science

• Maximize volume, revenue and profit by managing and optimizing

pricing across the merchandise lifecycle

• Determine cross-channel pricing strategies with an understanding

of how customers respond to different prices in different channels

• Refine your competitive strategy using science to measure how

your competitors’ prices affect your sales

• Eliminate pricing errors with a single transparent system to deliver

base, initial and everyday pricing; promotional pricing; and

markdown and clearance pricing



Price success

Our customers use powerful customer, demand and marketplace insights to more effectively

manage prices throughout the entire product lifecycle and across all channels—including

setting base prices, determining the right promotional prices and placing items on clearance.

Competitive edgeA European grocery retailer improved comparable stores

sales by 2.4 percent and increased product turnover by

2.7 percent using IBM DemandTec Price Optimization

software to price items more effectively than the

competition and to manage pricing of private label

products alongside those of leading brands.

Maximizing markdownsUsing IBM DemandTec Markdown Optimization software

to make science-based, store-level pricing decisions, a

department store chain improved inventory productivity

and reduced markdown evaluation and execution times,

increasing its gross margin profit by 400 points.



Define promotional

strategy

Negotiate vendor

deals

Define promotions

& events

Optimize promotions

Publish across

channels

Reconcile and measure

promotions

Managing retail promotions requires a system that is integrated

from end to end and facilitates external collaboration

• Improve promotion planning efficiency and reduce errors with a single system

for practically all promotional information and content about offers and events

• Increase promotion effectiveness using analytics to recommend promotional

prices optimized for user-defined goals, such as units, revenue and margins

• Consistently execute promotions across various customer touchpoints by

simplifying the process of publishing content as print or digital media

• Streamline the management of vendor-funded promotions by

automating the deal creation, submission, negotiation, approval and invoicing

processes



Promotion success

Our customers systematically identify the best items to promote and deliver more targeted

promotions to customer segments. They work to get the most from available trade

promotion dollars, while delivering deals that meet customer interest, across all selling

channels—online, in-store and mobile.

Plan for successA department store retailer cleaned up promoted

prices and projected multimillion dollar cost

savings per annum by replacing its highly manual

promotion planning system, which caused errors

and unplanned discounts, with IBM DemandTec

Promotion Planning software.

Trade funds masteredBy implementing IBM DemandTec Promotion

Optimization and IBM DemandTec Deal

Management software, a leading grocery retailer

streamlined its trade funds presentation,

negotiation and reconciliation processes, and it is

now managing 98 percent of all trade promotions

through the system.



Omni-Channel Merchandise Optimization representative financial benefits

1% – 3%

2% – 5%

0 – 1%

1% – 12%

5% – 20%

1% – 9%

>5%

>10%

N/A

Revenue

increase

Base price optimization

Promotional price optimization

Markdown and clearance optimization

Gross margin

dollar

increase

Volume

increase

1% – 4%

2% – 4%

1% – 3%

Assortment optimization

Example:

A USD10 billion retailer with 30% gross margins

A gross margin improvement of 3% = USD 90 million

For an IBM customer, this can easily result in an

USD 30–100 million per year improvement in gross profit.



Markdown-driven fulfilmentIntegrate markdown optimization with Sterling Order Management software to

more profitably fulfil online orders from stores based on markdown liability

Real-time dynamic omni-channel pricingIntegrate price optimization with IBM WebSphere® Commerce

software to dynamically update store and online prices and

promotions in real time

360-degree view of the customerCombine shopper insights with digital analytics for a single view of the

customer’s social, browsing and purchasing behaviors

Cross-channel promotion, planning and executionIntegrate promotion planning, optimization and execution with eMessage,

marketing operations and Xtify® to plan, execute and track mass and

personalized promotions across all channels, leveraging shared content

Note. This is not a complete list of integration opportunities.

Extended capabilities for omni-channel customer engagement

Integrate merchandise optimization with IBM ExperienceOne and other IBM software solutions



Why IBM?

Largest depth and breadth of integrated

merchandising solutions

Our solutions provide you with the ability to make better predictive

merchandising decisions that optimize your assortment, prices and promotions.

Most advanced science in the industryStrengthened by IBM Research Labs, our science enables you to resolve more

price, promotion and assortment challenges across multiple channels.

Extensive retail expertiseWe understand retail through our expertise gained from working with retailers like

you across multiple segments and geographies.

Integrated merchandising and marketing

across channelsWe can deliver true omni-channel customer engagement leveraging integration

with IBM ExperienceOne solutions and broader IBM assets.

Scalability and security in the IBM cloudOur security-rich and scalable cloud-based solutions help you mitigate risk,

lower your capital investment and ease the burden on your IT resources.



Business value assessment

Align business capabilities with business strategy and recommend a road map for improved value

Solution workshop

Lay out the path ahead, from immediate improvements to a common future vision

Proof of concept

Prove the path forward, starting small and scaling up

2

3

4

1

Visioning workshop

Begin charting a course—whether via a web seminar, at your facility or in one of our solution centers

Let’s get started achieving better business outcomes with proven

approaches to collaborative problem solving

Presentations & Public Speaking

Maxmimize sales profit and shopper loyalty