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Quickly Identify and Respond to Profitable Opportunities: 3 Keys to Success for Retailers

by Verlin Youd and Richard Murray | SAPinsider

July 1, 2009

To continue drawing buyers into their stores, retailers need to resist the urge to simply cut prices and push promotions blindly to all shoppers. Uncover the three steps retailers must take to identify the most profitable opportunities and then capitalize on them.
 

You can’t ignore the headlines: Within the last year, retail companies have been closing stores, backing out of expansion plans, or even going out of business altogether. Current economic conditions are amplifying the global challenges that retailers face:

  • Consumers are spending less, which makes it critical for retailers to retain shoppers, serving them well with the quality products they expect.

  • Competition is intensifying on multiple fronts. Traditional segments are blurring as shoppers use various channels and investigate purchases before they make them (see sidebar below). The Internet, for example, brings competition from around the world — and around the block.

  • Retailers lack real-time visibility into shopper buying patterns, the performance of their own stores, and that of their competitors. They struggle to streamline operations and often lack the control necessary to make any adjustments quickly.

To continue drawing buyers into their stores, retailers need to resist the urge to simply cut prices and push promotions blindly to all shoppers. Several retailers have found out the hard way that slashing prices across the board resets shopper expectations and erodes the brand, making it very difficult for retailers to return margins to their previous levels.

Instead, retailers must take a more reasoned, analytical approach. They must respond to the current economic environment with a plan that’s based on demand and with a detailed understanding of their current and prospective shoppers. To ensure that they’re operating in a profit-maximizing way, retailers need:

  1. Insight to understand their shoppers and the competitive environment

  2. Flexibility to make changes quickly and take advantage of every opportunity

  3. Efficiency to streamline operations, improve processes, and cut costs

SAP can help retailers excel in all of these areas. Using SAP for Retail solutions, retailers can identify opportunities — such as a competitor closing its doors or a favorable location to open a new store — and capitalize on them.

Insight to Quickly Identify New Opportunities

Retailers must identify any potential market opportunity quickly. SAP BusinessObjects dashboards, which include embedded analytics from both internal and external data, make it very easy for a manager to have timely, actionable information at his or her fingertips (see Figure 1). Consider a regional retail sales manager who, through the SAP BusinessObjects dashboard, can receive up-to-the-minute information about what products sell best, why consumers buy them, and how the company’s stores and competitors are performing. Equipped with this insight, the manager can make the right decisions about which products or stores to target and promote.

Figure 1
On one screen, a regional manager has insight into his or her territory, including store profitability and shopper buying behavior

Using forecasting and analytics through a dashboard, a retail manager can truly analyze shopper demand, understand what the store’s best shoppers are buying, and discern whether they’re buying products because of promotions or other reasons, such as affinity with other products, seasonality, or discounts. Retailers can help ensure the highest sales and profits by targeting their best shoppers, promoting key value items, and adjusting the pricing strategy of other items using a tool like SAP Price Optimization, an application in the SAP for Retail portfolio.

NOTE!
SAP Price Optimization determines the optimal price for an item depending on your customers’ propensity to pay for it — allowing you to best respond to consumer demand.

Tying RSS feeds directly into the dashboard also provides immediate visibility to other critical external information, such as news of a competitor going out of business (refer again to Figure 1). A competitor exiting the market presents a great opportunity to bring in more customers, but there are still factors for a manager to consider before determining how to best act on this event (if at all). The manager can start by investigating the demographics of the surrounding neighborhoods to ensure that any marketing campaign dollars are spent on the area with the highest concentration of consumers likely to purchase his company’s products.1 On the dashboard, the manager can quickly view a local map of his stores and those of the competitor that’s closing its doors (see Figure 2). The manager can also view surrounding ZIP codes by household income, foreclosure rate, or household size to help determine the best area to target.

Figure 2
Retailers can easily bring up a map pinpointing their stores and those of their
competitors

Once the manager identifies the most attractive area for targeting consumers, he could then confirm that the company’s existing stores are equipped to handle the increase in demand since the people who had shopped at the competitor’s stores are now potential customers. SAP’s integrated suite of applications makes it easy to pull critical information from all systems into one dashboard.

For example, the manager might want to view information about physical store size, staffing, inventory turns, and historical sales in one convenient place. A business suite approach enables precisely this, gathering information from across the enterprise into a single view to ensure that a user can assess all relevant information before making any decisions. A user no longer needs to log in to different systems separately or analyze the information manually. SAP’s approach to integration and enterprise applications begins to break down the boundaries among different silos within a company, offering increased visibility across the organization to empower everyone to make better decisions.

Flexibility to Swiftly Act on New Opportunities

Let’s continue our scenario of a competitor exiting a market. Once a promising opportunity has been identified — the chance to attract the competitor’s customers, for example — the regional manager could move directly into launching a marketing campaign with an offer to lure shoppers into his stores. Again, it’s important to have the right tools to enable this — and SAP solutions help retailers streamline and automate the planning process for their promotions. Here, an integrated business suite can again make life easier by eliminating the need to navigate through multiple solutions. Instead, the regional manager can quickly jump from the dashboard to, in this case, SAP Customer Relationship Management (SAP CRM) to launch his campaign. Prebuilt campaign templates in SAP CRM allow retailers to target a ZIP code with a promotional offer in minutes, as opposed to hours or even days.

After launching the campaign and bringing in shoppers, the retailer then must leverage sales and customer information to not only build up its list of shoppers, but also continue to glean insight about the most profitable shoppers — this is essential to continued growth. Because the company sent out a promotional offer, the retailer can very easily track the response rate and capture shopper information at the time of purchase with SAP Point-of-Sale (SAP POS).

In addition to gathering basic contact information from consumers, it is also important to analyze the actual business transactions so shoppers can be segmented based on spend. For example, if someone only buys items on sale, he or she might be considered a “deal shopper” and would not be worth targeting in the future. However, shoppers who purchase many more items and yield a higher margin could be considered “top shoppers.” This distinction will be crucial in creating a strategy going forward, and should also take into account available demographic information. Given the integration of SAP POS with SAP NetWeaver Business Warehouse (SAP NetWeaver BW) and the ease of bringing in external information, a retailer can efficiently assemble all relevant data in one place to conduct this detailed analysis.

With this segmentation of consumers and the campaign functionality in SAP CRM, retailers have the flexibility to easily target future promotions to those top shoppers who spend the most or provide the highest margin. This allows retailers to maximize the return on their promotional spend, as opposed to spending money simply to drive more shoppers into the store. Beyond targeting specific shoppers for the next campaign, retailers should look to use a robust segmentation scheme to craft a holistic strategy around how they want to go after their shoppers. SAP for Retail gives retailers the ability to tailor their strategy by segment so, for example, they can launch online promotions targeted at certain shoppers, while reserving a mail/in-store marketing approach for others.

Efficiency to Streamline Operations and Cut Costs

By better targeting their campaigns and gaining a deeper understanding of what response to expect, retailers can streamline their operations to achieve maximum return on any initiative.

Consider inventory, the highest cost that a retailer has; any efficiency gains in this area will translate directly into bottom-line savings for the company. The SAP Forecasting and Replenishment application in the SAP for Retail portfolio allows retailers to leverage their detailed understanding of shopper demand to reduce the amount of inventory they need to carry, while still ensuring minimal stock-outs during a promotion. Furthermore, retailers can share forecasted demand with suppliers to collaborate and ensure the necessary product availability and streamline the supply chain.

This increased efficiency can then ripple through all aspects of the supply chain, starting with vendor collaboration. This would proceed through product transportation: Are products shipped directly to the store or into a regional distribution center? The process should even extend into the tactical details of how a warehouse operates: Are product placements and task assignments aligned with the expected store demand? By knowing the answers to these questions, retailers can boost their operational efficiency.

Conclusion

Retailers should not view the current economic situation only in the context of “what do we need to do to survive” — this sets the bar too low. Rather, retailers need to proactively look for and take advantage of opportunities to improve their market position. This is easier said than done, of course, since retailers must not only correctly identify the right opportunities, but also gain the ability to quickly and precisely act on them with an infrastructure in place that lets them execute efficiently (see sidebar). A misstep in any of these three areas could negate the chance of success.

An end-to-end retail solution increases efficiency by ensuring consistency between strategic planning and tactical execution. Having these tools will enable retailers to turn the current economic downturn into a positive situation; using SAP for Retail, companies can focus on their most promising opportunities and their best customers to provide a superior shopping experience that sets them apart from the competition.

To view a video demo of how to leverage SAP solutions to capitalize on new retail opportunities, visit www.sap-tv.com/video.php?a=3911&l=1. Find more information on SAP for Retail at www.sap.com/usa/industries/retail/index.epx.

Additional Resources

  • The CRM 2010 conference and the Logistics and Supply Chain Management 2010 conference, co-located in Orlando, February 23-26, 2010 (www.sapinsidercrm2010.com and www.scm2010.com)

  • “Integrate R/3 with SAP for Retail for Maximum Logistics Agility” by Trilokesh Satpathy (SCM Expert, Volume 4, Issue 3, www.scmexpertonline.com)

  • “Can Your Enterprise Solutions Adapt to New Industry Demands? How mySAP ERP Meets the Requirements of a Changing Business Landscape” by Chris Hanna
    (SAP Insider, January-March 2006, sapinsider.wispubs.com)

Verlin Youd (verlin.youd@sap.com) is Senior Vice President of the Global Trading Sector at SAP, responsible for the company’s strategy, solutions, and success in the transportation and logistics, wholesale, and retail industries. He has almost 20 years of industry and software experience, including positions at Motorola, Symbol Technologies, IBM, and Systech Retail Systems before joining SAP. He has a bachelor’s degree in finance from Brigham Young University and an MBA from the University of North Carolina at Chapel Hill.

Richard Murray (richard.murray@sap.com) is Vice President of Enterprise Solution Marketing at SAP, responsible for SAP’s suite of retail, wholesale, and travel and logistics services products. He has more than 20 years of solutions strategy and product marketing management experience in retail and wholesale application development. Prior to joining SAP, Richard held positions at Khimetrics, JDA Software, Safeway, and Blockbuster Video.


1 Through the dashboard, a user can access aggregated demographic information from various sources, including subscriber-based services, freeware databases from the Internet, and internal SAP solutions such as SAP Real Estate Management. A retailer can then leverage the information from all three sources in a way best suited for the particular company. [back]


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