Mumbai: Organised retailers in India will need much more than just prime locations and competitive prices to succeed in what is shaping up as a fast growing and extremely competitive retail market, says consulting firm Diamond Management and Technology Consultants Inc.
The firm says that these retailers have the opportunity to develop a competitive advantage by gaining a deep understanding of their customers using robust data analytics.
A new report from Nasdaq-listed Diamond Management and Technology Consultants, Inc. contends that organised retailers need to build their data collection, storage, and analysis capabilities if they hope to win in the burgeoning Indian market.
Diamond is a management and technology consulting firm. Recognising that information and technology shape market dynamics, Diamond's small teams of experts work across functional and organisational boundaries to develop new strategies, improve operations, and deliver results.
Diamond's report, entitled "Understanding the Indian Retail Customer - in Bits and Bytes!" explains that India's innovative organised retailers should leverage data-driven analytics to acquire new customers, build loyal long-term customers, and maximise customer value.
"Organised retailers in India today primarily focus on traditional building blocks such as retail space and supply chain infrastructure," said Vinod Nair, a partner at Diamond who leads the firm's practice in India, and is also an author of the paper. "Consequently, these companies often overlook the need to develop a continuous understanding of the Indian customer's preferences and buying behaviour."
Consider Tesco, a top-five international retailer that has over 2,000 stores, and whose Clubcard loyalty program has been a key contributor to the company's success. The Clubcard program helps Tesco identify customers individually, providing sales and transaction data that give the company unique customer insights.
Indian organised retailers may miss out on those benefits if they don't start planning now, particularly if they intend to compete on the basis of value, rather than being the low-cost provider, says the report.
Diamond's report outlines a multi-step approach toward developing enterprise capabilities that will help organised retailers better serve customers while improving corporate performance.
Need to surpass traditional building blocks
Diamond believes that, although the traditional building blocks of organised retail remain crucial to the success of organised retailers, they are unlikely to provide long-term competitive advantage. A strong analytics approach driven by customer data will become a key driver of success in the Indian retail market, allowing retailers to use the resulting insights to maximise customer lifetime value, according to the report.
"The objective of customer analytics is three-fold," said Rajesh Balaraman, a principal at Diamond's India practice and co-author of the report. "Organised retailers should use the domain of customer analytics to acquire new customers, retain existing customers, and also maximise customer value."
Diamond says that in a highly competitive environment, it is vital for retailers to distinguish themselves and a deep understanding of the customer will serve as a springboard toward differentiation. "As the organised retail market in India matures, long-term success will require deep insight into the customer's psyche," said Balaraman.
"As a result, retailers in India that want to remain ahead of the curve will need to consider three distinct capabilities when designing and implementing a customer analytics engine – data collection, data storage, and data analysis."
Leading the way in India's new retail frontier
Building robust customer data analytics skills is a long-term process, and Diamond's report recommends that retailers in India should apply a phased approach when developing these capabilities.
However, retailers can begin reaping the benefits of data analytics from an early stage by capturing and analysing basic customer information, according to Diamond's report. "Adopting a phased approach to developing analytics capabilities will help retailers maximize value and move ahead of the pack," said Nair.
Retailers can capture several types of data, such as point-of-sale, footfall, basket size, margin, and time-of-purchase, which will help them refine product assortment, inventory management, pricing, and promotions to boost sales and maximise customer value. As time progresses, the report notes, retailers will have more historical data to identify trends, which can then be used for demand forecasting and resource allocation.
In addition, retailers should implement customer initiatives such as customer loyalty programs in order to capture information about their customers at an individual level. This data will allow them to segment their customers and target marketing efforts and promotions based on a segment's specific needs.
"The time for change is now, when the value of customer analytics can be maximised," said Nair.
"Once retailers in India look beyond the traditional building blocks of retail and develop robust analytics capabilities, they will be on a path toward seeing their customers in a different light, and creating a competitive advantage that will directly improve both sales and margins."