The New Crystal Ball For Retailers
During his playing days, hockey great Wayne Gretzky said that he skated to where the puck was going to be, not to where it had
Retailers face a similar challenge. Knowing where consumers are going to be next month or next quarter -- what products they will be interested in buying -- is devilishly difficult, yet absolutely essential.
A lot is at stake. Retailers often load up on a particular product category with high hopes, only to have them dashed when the customers didn’t materialize. Deep discounting often ensues, and the merchant is left gun-shy and confused.
Anticipating the customer is more important today than ever. Research into retail consumer buying patterns indicates that the Great Recession had a profound impact on the way people shop. Before the downturn, there was lots of buying across all categories -- consumer electronics, home goods, beauty products, and other categories of clothing -- you name it.
For the past several years, however, consumers as a group have been "rotating" between categories. Typically, a particular category experiences a period of high sales, and then sales drop as consumers move on to another segment.
This indicates that consumers are still willing to open their wallets, but are much more cautious now. Whether this pattern represents a "new normal" is not clear yet, but the trend has been extremely persistent since 2008.
In this environment, a retailer that can’t predict consumer behavior is in an extremely difficult spot. Most merchants do forecasts -- often running algorithms against past sales statistics. Some of them produce powerful models that are becoming more sophisticated all the time. But the most forward-thinking among them are looking for an edge.
Augmenting traditional forecasts with an analysis of social sentiment can help provide this edge. The use of software to parse the world of social media -- including Twitter, blog posts, and message boards -- can offer increased specificity into powerful emerging trends.
For example, in an analytics-based forecast of retail trends, running algorithms against more than two decades of monthly sales data compiled by the U.S. Department of Commerce, the current forecast shows that women’s clothing has "rotated" into favor -- on track to increase by seven percent in the third quarter versus the year-ago period.
Complementing this forecast, a sentiment analysis of fall shopping trends revealed a notable highlight: leather goods scored extremely high in the women’s clothing and accessories category. The online buzz was emphatic. At the same time, the analysis revealed a huge increase in online discussion and sharing of promotions -- such as coupons and sales.
Of particular note, the analysis measured the “affinity” -- or desire -- that consumers posting online have for promotions. It discovered that women have developed a much stronger desire for promotions this year compared to last year.
Augmenting the sales forecast with a social sentiment analysis reveals additional actionable information that a merchant can use to craft a hyper-specific, results-oriented marketing strategy. In today’s world of intense competition among retailers, that could spell the difference between success and failure.
Whether you’re talking about hockey or retailing, anticipating the future is hard to do. But it’s a key step on the road to becoming a superstar. To be successful, merchants need to avail themselves of all the tools that can give them greater insight into the mind of the customer.