Smart Data Smart Decisions Smart Profits

Its buyers also identified additional cross shopping

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Unformatted text preview: gory management process. Its buyers also identified additional cross-shopping, promotion, and assortment opportunities. The retailer achieved sales uplifts of between 3 percent and 8 percent across categories. Space allocation also can be a thorny issue for many retailers, particularly for categories that seem to lose money. The right data can turn a hunch into a fact. For instance, a European hypermarket knew that a category was unprofitable on its own but believed it made a profit contribution as a result of cross-shopping. By looking at customer segment penetration and cross-shopping data, the retailer determined that the category truly was unprofitable; target customer segments were neither participating nor cross-shopping. The space was reduced and reallocated to categories with higher sales and profits. Sales rose by 7 percent. Increase returns from marketing spending Both merchants and marketing executives are constantly pressing for increased marketing spending to sustain sales levels against growing competition. For nearly all retailers, marketing is the second largest expense and productivity is often not measured. We expect the 16 ©McKinsey & Company 2000 MCKI29 - Ret. Smart Des.7 8/9/00 11:08 AM Page 17 proliferation of channel and media options to make demands for improved marketing impact even more insistent. To make an informed decision, retailers need to know which customer segments are responding to what marketing media and programs, ranging from traditional mass advertising to on-line marketing. In one case, a European retailer’s promotional budget was increasing with uncertain returns. To decide what to do, the retailer used customer data to analyze the real impact of various promotions as well as other marketing levers in different categories. Executives looked at the importance of each marketing lever – price, discounts, loyalty, media – on customers’ price perceptions and on segment behavior. To understand true incremental sales and profit, the retailer then overlaid data on participation in promotions by key customer segments to identify important categories for the target segments. The retailer then decided to reallocate promotional spending to the vehicles with the highest impact on the behavior of target segments. By doing this, the retailer increased its profits by about 6 percent. On-line retailers are also leveraging customer data to improve marketing spend impact, particularly customer acquisition costs. Sophisticated on-line retailers are systematically tracking customer response and reassessing their mix of on-line marketing spend across placements – from portal deals to advertising to outbound e-mail campaigns to affiliate marketing. For example, a leading Web wine and gourmet foods merchant overhauled its site structure and content after realizing that wine novices, not connoisseurs, made most of the purchases. Decisionsupport software had segmented customers by use of banner ads, site behavior, and purchases. Segments generating the most sales were identified, and results were calculated by advertising sourc...
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This note was uploaded on 02/08/2014 for the course RCS 391 taught by Professor Jeanielim during the Fall '14 term at University of Tennessee.

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