Friday, 27 November 2009

Your buying habits revealed!

You probably do not even think about it when you pay at the checkout counter of your local retailer, but retailers have been collecting massive amounts of data on your shopping for several years now. Ahold alone has registered 32 billion ticket lines over the past 7 years; every week 80 million ticket lines are added to that. That mountain of data has been collecting dust over the past few years. Mathematical modelling, statistical techniques and computer power have given the retailer the tools to mine for gold. But are they making the most of it?

Recently I was invited by the VARA, a Dutch broadcasting company, to explain how retailers use our shopping data. While at the future store of Metro in Germany I was interviewed on the subject. The interview was part of the “Weet wat je koopt” programme. The programme’s objective is to scientifically explain the background of certain products, like night vision glasses or Mexican flu vaccines. A perfect setting to explain how mathematics support retailers and show some of the stuff Stephen Baker has written about in practice. You can see the result on “Uitzending gemist

Retailing really is paradise for Operations research professionals. With the data from consumer transactions, point of sales scanners, customer loyalty cards, website click through streams, RFID tags and smart carts (that register the way you walk through the store) quality data is absolutely no issue. That data allows us to help retailers to find the most efficient replenishment strategy, sourcing, and optimise on stock levels in both the store and at the distribution centre. But there is more. Assortment planning for example was previously an area where no optimisation methods were applied. It was seen as an art or craftsmanship from the store manager to find the best set of products for the store. From actual sales data, a store manager can learn from the buying habits of the customers to find the best assortment, making it a more fact based decision.

What is next? Well think about the actual lay out of the shelves. Don’t you ever wonder why certain products are displayed on eye level? You bet that it will influence the sales. Research has shown we buy more products on eye level than other. Knowing this, the retailer has to be smart on how to display his products, making sure that products with the highest margin are on eye level. Extending this a bit, knowing how customers move through the store can increase the effectiveness of product display even more. In the future store this was even extended a bit. With the “Einkaufsassistent” (an application on your cell phone) it is possible to direct you to the exact location of a product on your shopping list.

With all the knowledge on our buying habits, the retailer can try to tailor his offering to our preferences. In the old days the grocer around the corner already did this, like the milkman. With the massive stores, we have become unknowns to the store manager. Using the knowledge from our buying habits they can build up that knowledge again. Not that they want to know us personally, they are only interested in our buying habits. With that knowledge they can target us with special offers (like Tesco does in the US) or surprise us with an text message on our cell phone when we enter the store stating whether we forgot the peanut butter on the shopping list.
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