Road to Precision Retailing

HCL's Retail Analytics

Analytics have become one of the most powerful tools

available to retailers, and are being used to enable factbased, insight-driven decision making to manage their
strategic, operating and financial performance, and create
shareholder value. Retailers today are searching for ways
to derive more customer intelligence and operational
insights from their overflowing databases

Marketing Mix Modeling

The Opportunity and the Challenge

Half of the money I spend on advertising is wasted; the

trouble is I don't know which half. The old complaint, no
longer has to be true - retailers can find out whether
advertising works, and how it compares to other
marketing tools.

Today, there is a compelling need to provide the

right information, at the right time, to the right
decision makers, using the right technology.
The aggressive adoption and exploitation of analytics has
led to competitive advantage among some of the world's
most successful retailers. Retail Analytics can collect,
process and analyze a wide variety of data on retail
performance.

The Breadth of Analytical Options for a

smarter enterprise
Leading retail executives believe they can achieve true
competitive advantage with retail analytics technology by
using enterprise-wide approach that involves product,
customer and functional boundaries. That is the reason
why Analytics is the centre of focus for any profitable
enterprise today.

Retailers recognize analytics as key to business

transformation and competitive advantage
To sustain and lead in a complex and constrained
marketplace, companies have to resort to mathematical
tools and techniques to make informed choices from
terabytes of data available. HCL can customize analytics
offerings to retailers to enable them to do their business
profitably like never before.
Based on analysis of what all business problems retailers
are plagued with today, HCL has come up with a set of
often-asked problem definitions, and attempted to map
against those what could be palpable solutions to the
defined problems. HCL is well equipped to work with the
retailers and implement these solutions.

Problem Definition
The task of measuring returns on the marketing mix has
become somewhat more complex as media have
proliferated, and as alternative explanations of marketing
lift have to be ruled out.

Solution
HCL leverages Marketing mix modeling (MMM) to unearth
the driving forces in the marketing environment in order to
stay profitable.
MMM defines the effectiveness of each of the marketing
elements in terms of its contribution to sales-volume,
effectiveness (volume generated by each unit of effort),
efficiency (sales volume generated divided by cost) and
ROI. These learnings are then adopted to adjust
marketing tactics and strategies, optimize the marketing
plan and also to forecast sales while simulating various
scenarios.
It helps an organization's efforts to measure the change in
sales and attribution of the change to various marketing
mix elements such as Trade, TV, FSI, Print amongst
others.

Benefits
Being able to know what investment works for the brands
will potentially save a lot of marketing dollars. Experience
shows by deploying the models, 7-10% of promotion
dollars can be saved or reallocated to more hard working
marketing buckets.

ANALYTICS SERVICE OFFERINGS

Frequently Asked
Questions

Customer Analytics

?
How do I target precisely and

customize offerings?

Marketing Spend
Optimization

?
How do I justify my marketing spends?
?
How do I optimally price throughout the

product lifecycle?
?
How do I decide on my assortment

composition so that I can minimize lost

sales?
?
How do I optimize

inventory/replenishment and

Service Offerings

?
How do I customize offers to stores?

?
Marketing Mix Modeling
?
Advertising effectiveness
?
Awareness planning
?
Product attribute drivers
?
Replenishment analysis
?
Quantifying lost sales
?
Pack size simulation
?
Optimization

Assortment
Optimization

Price Analytics

Inventory Analytics

?
Price/Cross Elasticity Modeling
?
Item Cannibalization Analysis
?
Pricing Simulation
?
What-If Scenario Modeling
?
Inventory Management performance
?
Analyzing Inventory Replenishment Policies
?
Evaluating optimal quantity to order to

transportation costs?
?
How do I manage demand?

?
Targeting
?
Customer Segmentation Analysis
?
Customer Loyalty Analysis
?
Market Basket Analysis

Test & Learn

minimize total variable costs

?
How do I know whether my retail

?
Test out store renovation prospect
?
Finding effect of any store intervention on

innovation will work?

sales and profits

ISOLATING FACTORS THAT ARE IMPACTING

INCREMENTAL AND BASE SALES
MODELING SALES
BASE VARIABLES

INCREMENTAL VARIABLES

90.56 * Distribution

6168.18 * Trade

-686.35 * Price

943.95 * Print

32.43 * Seasonality

5187.29 * TV

-0.59 * Competition

0.08 * Radio

SALES =

SALES DECOMPOSITION BY DRIVERS

INCREMENTAL
?
TV
?
Print
MEDIA
?
Radio
?
Trade
?
Outdoor,

etc.
TRADE

OUTDOOR

BASE
?
Price
?
Distribution
?
Competition
?
Long-term

impact from
marketing

MARKETING MIX MODELS

OUTPUTS
?
Elasticity
?
ROI of each marketing vehicle
?
Marketing activity which drives volumes
?
Marketing activity driving the consumer

behavior
?
Impact of operational factors
?
Financial planning

Customer Analytics - Propensity to buy

Modeling/Response Modeling
Problem Definition
Decision makers today believe that getting a clear view of
customer preferences and customer behavior with
effective Predictive Analytics and Data Mining tools, to
identify the customers with the highest propensity to buy
new products and services, is imperative for accurate and
better customer segmentation. Retailers are striving hard
to personalize offers and hence need to identify the
targets very precisely.

Solution
Business intelligence technology that produces a
predictive score for each customer or prospect hence
targets the most likely prospects of a marketing
campaign. The offers can be based on extrapolating from
past behavior in an ad-hoc manner but a more scientific
way to target would-be customers is to put probability
scores to each customer from a customer base of millions
and choose the most probable ones.

Benefits
?
Selection of best target customer base for customer

acquisition campaigns
?
Achieve higher response rate and reduce marketing

Cost
?
Maximizing ROMI (Return on Marketing Investment) on

campaigns
?
Understand the demographics of specific product

(category/brand) buyers and design promotions

accordingly

Test and Learn for Stores and

Customers
Problem Definition
Test and Learn is followed by retailers for randomized
testing, to test ideas in a small number of locations or
customers to predict impact of retail innovations on a
small scale.
Large retailers with multiple stores are uniquely positioned
to employ the test and learn analytical approach, in
which a relatively small sample of stores is used to test
whether a particular change or intervention delivers the
desired result.

Some of the questions answered are:

1. What impact will the program have on key
performance indicators if executed across the network
or customer base?
2. Will the program have a larger impact on some
stores/customers than others?
3. Which components of the idea are actually working?

Solution
HCL can help in carrying out test on smaller set of
subjects (stores or customers) and results can be
extrapolated to the entire population.

Benefits:
?
Feasibility study at a low cost
?
HCL can provide an ongoing test laboratory facility for

various tests to be carried out the results can be

used for future reference when similar innovations are
envisaged

PROPENSITY TO BUY MODELING PROCESS FLOW

Scope to increase category base Profile
buyers and non-buyers

Sizing the opportunity

Modeling
?
Candidate variables
?
Significant variables

Analysis sample creation

Combine Data sources

Create Analysis sample
Create Training and validation set

?
Modeling type (Step wise regression etc)
?
Model performance
?
Scoring custome

Buyer definition

Combination of business unit buyers

$ value of purchases
Time frame of buying

Targeting strategy

TEST AND LEARN - UNDERLYING PRINCIPLE

TEST AND CONTROL METHODOLOGY

Test and Learn

Test and Learn is a set of
techniques carried out by retailers
and consumer-focused
companies to test out hypothesis
that holds business promise.
Tests are carried out on a smaller
set of subjects (stores or
customers) and results
extrapolated to the entire
population. These techniques
essentially are built on the
foundation of Design of
Experiment theory in Statistics

PRE TEST

POST TEST

Locations/groups where
test is performed

Amount of change in
test group

Control group no
activity performed

Amount of change in
control group

NET CHANGE : TEST VS. CONTROL

RESULT BASED ACTION TEMPLATE

RESULTS

Result based
Actions

ACTION

> Goal

Result:
Sales Lift > 5%

?
Rollout

= Goal

Result:
Sales Lift = 0~5%

?
Re-test

< Goal

Result:
Sales Lift < 0%

?
Stop/Re-design

the same hypothesis

the test

Pre Pack Optimization

Market Basket Analysis

Problem Definition

Objective

Fierce competition in today's global markets, the

introduction of products with shorter and shorter life cycles
and the heightened expectations of customers have forced
business enterprises to quickly respond to customer needs
without an increase in costs. This has necessitated the
streamlining of business processes by cutting down
unwanted activities that add to cost and lead time across
supply chain.

With the introduction of electronic POS data, retailers have

at their own disposal an incredible amount of data. MBA
(Market Basket Analysis) is one tool that leverages this data
and helps retailers understand underlying hidden pattern in
customer transaction and use that information profitably.

Solution
Business enterprises are using more and more of
information technology tools to optimize their supply
chain. One such tool is Pre-pack Optimization which
takes a system-wide perspective in identifying and
reducing cost and thereby enhancing the supply chain
profitability.
HCL has devised an innovative process to address this
issue by treading a middle path between optimization of
'predetermined ratio of sizes combination' and 'pick a
pack' options.
HCL has undertaken broad steps to follow in order to
identify optimum size ratios, framework to quantify
'unnecessary replenishment, calculate percentage of
units sold on clearance, zero in on stores with highest
clearance sales and which had the biggest negative
impact on margins, find ways to reallocate the
unprofitable units to stores that had stock outs, develop
and continuously refine size skew customer look-alike
model(s).

Benefits
?
Pre-pack optimization takes optimization beyond

the retail enterprise to improve efficiencies of its

vendors and the retailer's stores
?
Retail planners and replenishment analysts can rely

on an automated and sophisticated solution to

determine pre-pack configurations
?
Boost the ability to get the right sizes to each store

while decreasing the amount of excess, fringe-sized

assortment
?
It helps to create a lost sales model and incorporate

into current processes

Solution
Market Basket Analysis unfurls the science that goes
behind why certain products are bought together.
The application of market basket analysis is generally
facilitated by the use of the data mining tools. HCL Analytics
has the expertise to take the regular MBA analysis to the
next level by identifying the most profitable baskets,
differentiate between the natural rules that are inherent to
the stores and patterns induced by promotion, normalize
the effect of store attributes like size, footfalls etc to sales
and margins and compare stores.

Benefits
In retail, affinity analysis can be used for purposes of crossselling and up-selling, in addition to influencing sales
promotions, loyalty programs, store design, and discount
plans.

PRE PACK OPTIMIZATION

Predetermined Ration of Size
Combinations with a Pack

Is there a third option that is more viable?

Create and manage a few more packs, (Pack = Size)
Automate decision process

Pick-a-Pack

MARKET BASKET ANALYSIS

Market Basket Analysis analyses customer buying habits by finding associations
and correlations between the different items that customers place in their
shopping basket

TRANSACTIONAL DATA

ANALYTIC ENGINE

Milk,
Eggs,
Sugar,
Bread

Milk,
Eggs,
Sugar,
Cereals
Bread

Milk,
Eggs,
Sugar

Milk,
Eggs,
Sugar

Customer 1

Customer 2

Customer 3

Customer 4

Market Basket Analysis

X ===> Y
RBSK Total Support Confidence Expected Lift Median Median
SL BSKcount LBSK
(X,Y)
Basket
Confidence
S
S
X(Rules Y(Rules
RC
L
R
T
S
C
E
L Basket) Basket)
1
2
=RC/T
=RC/L
=R/T
=C/
3
EC
4
5
6
7
8
9
10

RESULTS
?
Support
?
Confidence
?
Association rule

discovery (Simple and

complex rules)

Hello, Im from HCL. We work behind the scenes, helping our customers to shift paradigms and start revolutions. We use digital engineering to build
superhuman capabilities. We make sure that the rate of progress far exceeds the price. And right now, 90,000 of us bright sparks are busy
developing solutions for 500 customers in 31 countries across the world.
How can I help you?
www.hcltech.com

For more information contact us at: retail.solutions@hcl.com