KNOWING BEFORE IT HAPPENS_ Artificial Intelligence makes retailing more efficient

Image: Plataformasinc.com

ABSTRACT

Traditionally, it is understood that a segment is a part of the market made up of people sharing a similar profile, which means they can behave in a similar way if they are exposed to some marketing policies.Nevertheless, thanks to the evidence provided by Artificial Intelligence (AI) applied to retailing it is being proved that the same individual can simultaneously belong to several segments, but with a different degree of adequacy to each one.

Today, AI programs allow us to combine qualitative and quantitative data, which in turn enables us to get much closer to the complexity of human life and therefore to predict short-term customer behaviour.


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Do you spend as much money on holidays as you do on any other working day? Are you equally sensitive to prices in both situations?

Chances are that you behave differently depending on each situation. However, even though your behaviour is at odds with the conventional theory of segmentation, you don’t need to go to the shrink . That happens to almost everyone.

Reviewing the idea of segmentation

Traditionally, it is understood that a segment is a part of the market made up of people sharing a similar profile, which means that they can behave in a similar way if they are exposed to specific marketing policies. Therefore, each segment must be different from the others.

Volumes have been written stating that for segmenting, a number of criteria can be applied such as socio-demographic (age, gender, spending power, etc. which are so often cited, yet actually of little use ), psychographic (including attitudes, values, etc.), and even behavioural (for instance shopping habits, …).

Yet, if you in fact behave differently depending on the context or situation you find yourself in, you are actually saying that the traditional theory has its shortfalls. And I believe you are right.

Today there is the possibility of using Artificial Intelligence (AI) programs applied to retail is validating the intuition that the reality differs  from the conventional theory, as my ESADE colleague Monica Casabayo, explains. The same individual can simultaneously belong to several segments, but having different degrees of adequacy to each one of those segments.

If we apply this, for example, to the beauty centres retail industry, customers can be perfectly segmented by anticipating the level of their economic value as customers, based on what was their first contact with the store. For instance, it could have been a discounted hair removal service, a recommendation from a friend, etc.

One of the main advantages of this method is that we can simultaneously work with quantitative (volume of purchase, number of products, etc.) and qualitative (complaints, type of promotion, preferences for brands, etc.) data. This enables us to get much closer to the complexity of human life.

AI can also be applied to retail to find out how many employees would be required at the checkouts next Saturday, taking into account the weather forecast and the fact that there is a football game scheduled between the two major local clubs.

In short, by using AI programs, retail companies achieve something that statistic applications can only dream of: ex ante results. That is, results that can predict what is going to happen in the near future with a high degree of probability. Statistics can only explain what has already taken place.

Another example of the use of AI has to do with its ability to detect customers with disloyalty risk, when it is already known that a new competitor is arriving soon to the store’s catchment area. Once the list of those customers is completed, the company’s next step would be to devise and apply a counteracting loyalty reinforcement plan.

The two main requirements for using an AI applications are having access to professional specialists  and  to a large quantity of properly gathered data from past periods.In that sense retail companies are magnificent: the amount  of raw data they generate is huge.

People (and segments) do change

A further advantage offered by this AI tool is that it provides solutions to a major issue: customer databases become obsolete in a blink. When the eldest daughter in a household,  holder of a customer card, moves in with her boyfriend, her mother won’t come to the store to let us know that we have to change the number of people living under that roof so that we can recalculate better our market share per household.

Using AI, the company is based on facts and real behaviour, and it builds on that to understand its customers.

Don’t trust what your customer says he does, and even less about what he says he is going to do. Actions speak louder than words.

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Lluis Martinez-Ribes

Source: Distribución Actualidad, the spanish retail magazine

(nº 415, may 2010)

THE STORE, AN EMOTIONAL SPACE_ Creating a moving story: the shopping process

Image: JMF

ABSTRACT

Only recently neuroscience has provided evidence of the fact that the main route leading to decisions and preference creation is the unconcious emotional route. That is, the reasons behind the marketing mix, still adopted by many chains, have their shortcomings.

 

The true function of retail chains is actually not providing the customers with products or services, but to offer them a specific sense that fits their somewhat secret insights and that is transmitted by means of a specific emotion.


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Once upon a time, there was a redheaded girl with unblemished skin and a round face,  and when her almond-shaped eyes blinked while she spread a smile that was like a slice of lime, there was absolutely nothing she couldn’t obtain.

One Thursday afternoon during the sales season she went out to buy a book. She entered a typical bookstore, well located, full of books (poetry, novel, self-help, … as the fluorescent daylight signs announced) and asked the shop assistant if they had ‘The Paradise of the Giant Poppies’.

The assistant simply said ‘no’ in an unconcerned tone and without lifting his eyes from the delivery notes he was painfully sorting. On the wall, there was a half covered, full-colour poster that stated ‘Reading makes you free’.

The girl had enough of being there and left. She didn’t buy anything. Which, she thought, was not bad either as she shouldn’t spend so much in times of crisis.

Stores that are merely stores

The problem with many stores is that they are only (correctly set up) stores: spaces where the products that are arranged on the shelves don’t get wet when it rains, and where prices are more or less visible, some places where they let you walk, plus a checkout and things like that.

What stops many chains from moving on is that they still believe in the Retail Mix – this sort of equation or magic potion for selling a lot and trouble-free. You only need to place some high quality products and add appealing prices, some pretty shop windows, some shop assistants who know their job, and some correct services (opening times, fast moving queues, etc.). Have all this in a shop that is located where plenty of people pass by, and done deal!

However, it turns out that this equation is no longer working, or at least not as well as expected. Then of course, in this time of crisis, we are told that the problem is actually the price. But when they notice the long queues of customers at the Nespresso stores, where the price per kg is just surprisingly high, the theory flies out the window.

Learn to unlearn

What happens is that over 80% of the choice of store and product is an implicit or unconscious decision. That is, the reasons behind the marketing mix have their shortcomings, as their influence on the decision is below 20%.

Only recently neuroscience has provided evidence of this fact. So the main route leading to decisions or preference creation is the emotional route.

In fact, the purpose of retail firms is not to provide customers with products (or molecules or services), but with a specific sense, that fits their somewhat secret insights, and that is transmitted through a specific emotion.

There is a very wide and varied range of emotions. Picking the right one that turns out to be the most suitable for the retail formula is quite an art. In fact, it is one of the pillars of customer-centric retail innovation.

The store must be an emotional space: “No emotions, no party”, because without emotions, there is no sustained preference beyond the punchy promotion. Without emotions, a store is just a store, nothing special.

The shop must be an emotional place where customers are not treated as robots with wallets, but as persons. Where collaborators are not considered as “staff costs”, but persons whose job has a sense for them. Where visual merchandising is not just a set of techniques, but the language, the atmospherics and the background of the story, which, in fact, encompasses the whole shopping process.

All the different technologies (communications, multimedia, selling methods, etc.) can be applied only after a moving plot has been set for the story. These technologies must be finely tuned to the script. In fact, technologies are enablers of innovation, but they usually shouldn’t be the starting point.

On this stage, the store manager is the leader of an emotional space 1. Indeed a job to die for.

1 I listened this idea from a managing persons guru : Francisco Loscos, profesor of ESADE.

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Lluis Martinez-Ribes

Source: Distribución Actualidad, the spanish retail magazine

(nº 416, june 2010)

A FINELY TUNED ENGINE_Ferrari’s retail model

Photos: Lluís Martínez-Ribes

ABSTRACT

Ferrari’s job, is that of a “brander”, that is, a brand cultivator.

 

First, it arouses desire among the public, – unreachable for many- with which it achieves the energy of its marketing and then it monetises it by offering much more affordable products.

 

Building a brand is much more than selecting Pantone colours: it is about having a clear idea of the brand’s DNA and values in order to create a determined sense and express it. Ferrari is well aware of it, and thus it takes care of every detail regarding the shopping experience


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When Luca di Montezemolo, President of the Ferrari motor-racing team, made official his sponsorship agreement with Banco de Santander’s President Emilio Botin, they exchanged gifts: Botin gave Montezemolo a red blazer, who gave him the sculpture of an engine in return.

Ferrari began in a small town garage and its adrenalin would fire up every time he heard an engine roar.

A motor-racing team or a luxury car manufacturer?

To talk about Ferrari is to talk about the essence of Formula One.

This motor-racing team is a mith itself.

Ferrari began as a manufacturer of great cars. Yet, it would have not become what it is if it hadn’t sought to become a top-notch brand.

Among its brand values there is the “will to compete”. Competing you not only improve, but you also innovate. Therefore, Ferrari’s natural habitat is the F1 races, an extremely high-tech environment, practiced almost all over the world, and which is also very expensive, even elitist. This latter aspect is perfect for the brand, as Ferrari is a luxury company with a sportive connotation.

Ferrari only sells 6,587 cars per year, at a price that only very few can afford (that is a real  luxury). In addition, the client must wait a whole year to have the car delivered. In fact, the firm is in a premeditated permanent “out of stock” status.

All these makes Ferrari a brand so desired as well as so unreachable for most. Well… it actually pretends to be unreachable, but the truth is that 80% of Ferrari’s turnover does not come from cars but from all types of items sold at their stores. Statistically speaking, it is basically a fashion and design firm that besides, also sells luxury cars.

However, Ferrari’s job is that of a “brander”, that is, a brand cultivator. First, it arouses desire among the public, – unreachable for many- with which it achieves the energy of its marketing and then it monetises it by offering much more affordable products.

Building a brand involves much more than selecting Pantone colours

They have a very clear brand DNA: passion for competition, quality in everything they do, their very own Italian dolce vita lifestyle, and exclusivity. Ferrari is continuously receiving offers to out-license the brand.

You just can’t imagine how much money we decide not to earn when we say ‘no’ to highly tempting economic proposals, but which would jeopardize the brand’”, says Massimiliano Ferrari, Ferrari’s retail director.

This is sheer strategic vision for a company in retailing, where it is too easy to surrender to the  short-term-gain temptations.

At their 30 stores, operating in prime locations worldwide, the company takes care of every detail regarding the shopping experience. When customers cross the outlet’s entrance, they hear the unmistakable sound of an F1 car passing by full throttle. The shelves are concave, with a translucent surface that subtly frames the products on display. The furniture are carefully designed, yet they never take over the protagonism.

They even let customers take pictures. Many take their souvenir picture in front of the cavallino rampante (the rampant horse), Ferrari’s logo. Can you imagine your customers taking pictures next to your logo?

Their store is a three-dimensional and multisensory experience of the brand. Values are not stated, but felt and sensed intuitively. Ferrari is a master in creating and delivering a given sense.

No wonder why Ferrari’s sales rose 27% in 2009.

Lluis Martinez-Ribes

Source: Distribución Actualidad, the spanish retail magazine

(nº 418, September 2010)

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LET’S DREAM, IT’S FREE_The days are counted for the traditional model to sell journals

barco

Photo: Marcel Germain (flickr.com)

ABSTRACT

Structural problems are emerging in the printed press industry and affecting its business model. A result of new consumer trends, decreasing number of points of sale, the sensibility of newspaper sales vis à vis special offers, and the high percentage of contents produced from agency releases or inserts. The “keep up to date and know more” industry, however, will never enter in crisis. Hence, all that needs to be done is to adopt a new approach, stopping short-sighted debates about printed information vs e-information and start adopting the new mindsets emerging from putting the customer at the heart of the innovation process. Continue reading “LET’S DREAM, IT’S FREE_The days are counted for the traditional model to sell journals”

FINDING THE X_Where innovation starts

HallarX

Photo: JM Martinez Ribes.

ABSTRACT

If you want to innovate in retailing it is as important to find the solution as starting with the correct ideas or approaches.

If you do not have a profound understanding of your public your final outcome will be like playing lottery.

Moreover, trying to innovate within set boundaries and only researching the point of sale – neglecting that the purchasing process goes a lot further- will merely help to improve the existing. Hence, the store is the end point and not the starting point of innovation. Continue reading “FINDING THE X_Where innovation starts”

FROM SANTURCE TO BILBAO_Some advises for improving the communication of stores

tienda Milan

Window display in a Milan store.

ABSTRACT

No communication means no sale. Next to informing communication should also persuade the customer. And in this context (good) sales people are vital. Retail companies used to be person and smile-intensive, but nowadays they have to be capital-intensive too. The context has changed and a new challenge emerged: how to communicate better with fewer sales people? Opting for IT and sensorial solutions offers answers to the dilemma “cheap coffee for all” versus “expensive customisation”. Continue reading “FROM SANTURCE TO BILBAO_Some advises for improving the communication of stores”