How To Know Your Customer

Call it late wisdom. indian retailers are now trying to make good use of the huge mine of customer profiles they have been sitting on. They are screening the profiles of their registered customers (people who have loyalty cards) to study buying patterns and trends so that they can better manage cash flows and vendor relations. Pioneering this trend are the country's biggest retailers, Shoppers Stop and Pantaloon.

Both the retailers together have about 3.5 million registered customers, and this forms about 70 per cent of their combined customer base. Both Shoppers Stop and Pantaloon have already started mining this large data set, and will use these profiles to plan better promotions and reduce operational expenses. The companies say the data allow them to study high networth customers, who collectively spend up to Rs 10,000 crore annually. Both the retailers are now trying to integrate this data across their retail formats and are spending close to Rs 6-10 crore each solely on classifying and analysing this data.

And the companies are confident this exercise will pay off. "We can target customers and their habits based on where they stay (pin codes), their surnames and spending patterns," says Vinay Bhatia, vice-president of marketing at Shoppers Stop. The retailer says analysing  customer data helps it manage its inventory better and improve cash position. This even allows the retailer to enhance its relationships with vendors as it tells them which products are going to be in demand in advance. This, in turn, benefits vendors as well.

Shoppers Stop uses the retail management system by JDA, a US-based supply chain solutions provider. It is also working with data management firm Netezza to analyse customers' buying habits. In fact, Shoppers Stop started its data management programme in March 2009, and the results are already showing: it is paying off its vendors on time, and net profits jumped to Rs 12 crore in Q2 from Rs 2 crore in Q1. The reason: they could stock what was necessary and not carry excess inventory. "We tested ‘data mining' in Mumbai after correlating it to a particular community's spending pattern with the growth of the Sensex," says Bhatia. For example, Shoppers Stop separately studied the profiles of customers from wealthy Gujarati communities by screening the surnames. This community is known for its high spending habits. "We identified more than 24,000 members for this analysis," says Bhatia. The analysis showed that whenever Sensex fell, the growth of sale from the Gujarati community slowed down. The retailer conducted a survey based on pin codes, which suggested that spending in government colonies had gone up because of the pay commission hike.

Following a similar strategy is Pantaloon. The Kishore Biyani-promoted Future Group's retail chain is in the middle of integrating membership across all its retail formats. Sources in Pantaloon say the company was working on a hybrid data management system, which was built by its software sibling Future Knowledge Services (FKS). Both Pantaloon and FKS are owned by the Future Group. FKS has been working with companies such as Sun Microsystems, Cisco, Wipro and SAP to develop a low-cost and customer-friendly retail network. Future Group also plans to sell data to other upcoming retail chains. There is more to the story. If these retailers build their own retail enterprise resource planning (ERP) systems, it will compete against large corporations such as Oracle, Microsoft or SAP in providing ERP solutions Indian retailers.

Globally, retailers such as Wal-Mart and Tesco have a hybrid model — created by integrating different ERP solutions. The reason: secrecy — retailers do not want to share the enormous data with one service provider alone.

It seems the economic slowdown has taught the retailers some valuable lessons.

(This story was published in Businessworld Issue Dated 23-11-2009)

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