Continuing with our theme on how analytics practices can help retail industry, in this article we discuss how implementing analytics can help retailers to meet the exogenous demands.
Let’s first understand what exactly an exogenous demand is. We would classify demand for any products that rise because of activities outside the regular course of business as exogenous demand. An example for this could be a sudden increase in demand for paracetemol tablets or say surgical masks in the event of an epidemic flu. Another example for the same could be say a sudden increase in the sales of cold beverages and pop corns around the cricket world cup or say around an India-Pakistan cricket tournament.
Given the sudden increase in these products by consumers owing to exogenous factors, without the implementation of analytics practices it would be difficult for a retailer to meet the consumer needs and may have to lose upon sales. Had the retailer implemented analytics practices he would have been able to predict this expected increase and react proactively by raising the inventories of these products. This would definitely mean increased profits.
Over and above the increased profitability during the exogenous event, the proactive thinking also helps a retailer to build the brand value into customers mind. How often are you to visit a store where you didn’t get the item when you needed it compared to another store which offered you the same when you actually needed it?
While other retailers who are reacting to the exogenous factors and trying to build up the inventory post the event, you are ready to meet the customer needs because of the information you got in advance, courtesy, predictive analytics!
Let’s discuss a real world example on how Walmart, a giant US retailer implemented analytics practices to predict the customer demands during an exogenous event and increased its profitability. In 2004, hurricane Frances was on its way across the Caribbean, threatening a direct hit on Florida’s Atlantic coast. Walmart decided to analyze the consumer behavior during such situations and be prepared with what people would want to buy. Given the immense amount of data that Walmart has about its consumers, it analyzed the consumer purchase patterns when Hurricane Charley had struck several weeks earlier. Read here on how a retailer stores data about there customers.
As put by the CIO of Walmart, they wanted to, “start predicting what’s going to happen, instead of waiting for it to happen”. Walmart found an interesting pattern in the purchase behavior of customers during such an event. Apart from the regular flashlights and medicines, they noticed the increased sales of strawberry Pop-Tarts and beer during a hurricane. As a result of this priced information, Walmart maintained huge inventories of these products to meet the expected demand. As other retailers were not prepared for this sudden increase in demand, Walmart had a clear competitive edge over them. The company confirmed that most of the products that were stocked for the storm sold quickly thus increasing the profitability of the firm!
So what did Walmart do? Answer is simple; they implemented the business analytics practices which aided them to react proactively.
Edzyme Academy strongly believes in the poised future of analytics and are contributing towards nurturing analytics talent. Edzyme provides online business analytics training courses. We also provide training in SAS and R courses. Click here to know more about our courses.
Constance L. Hays, “What Wal-Mart Knows About Customers’ Habits,” The New York Times, Nov. 14, 2004, http://www.nytimes.com/2004/11/14/business/yourmoney/14wal.htm