How is Big Data Changing Retail?

Big data can seem like a slippery term, but research out of the McKinsey Global Institute has cited its rather concrete potential to increase retailers’ operating margins by 60 per cent. By now, its utility is unquestioned (at least when properly exploited), but its use poses new risks both to the businesses seeking to unlock its promise and to the individuals whose information is being harvested – namely all of us.

What is big data?

A quick scan of that rather obvious touchstone in this discussion, namely the Internet, and we get a workable definition: ‘an evolving term that describes any voluminous amount of structured, semi-structured and unstructured data that has the potential to be mined for information’. The Tech American Foundation characterises it by three factors: volume, velocity, and variety. There’s data, and then there are hordes of data, and studying those hordes to reveal actionable insights into consumer behaviour – for customer-retention and profit-maximisation purposes – is what it’s all about. In the past, it was too expensive or too time-consuming to extract much consumer insight from the numbers, or the information wasn’t stored digitally.

Big data in the context of retail

By analysing customers’ purchase history, social media interactions, and buying preferences, marketers reach them at the right time in the right place. Big data also plays a part in optimising prices and uncovering opportunities that are not immediately obvious. IBM published a nifty storyboard that illustrates how the entire consumer cycle is ripe for the picking when the numbers are collected and analysed.

Handicraft purveyor Etsy handles around $2 billion’s worth of transactions every year between more than 50 million members. That’s a vast store of information that could sit untapped, but Etsy continually gathers information – in order of granularity, i) market research and interviews; ii) online surveys; iii) transaction information such as order value and purchase frequency; down to iv) click-throughs and typed-in search terms – to sell more vintage clocks and handmade tea cosies to the people most likely to buy them. Not only do they manage to sell more, their customers receive a service that is customised to their preferences in a way that was nigh impossible before the data did the work.

Indeed, it has typically been online retailers such as the cycling shop Wiggle and flight information outfit Cheapflights at the vanguard of using big data for their front end. Some businesses have merely applied it to issues like supply chain efficiency rather than using it as a basis to achieve real customer-centricity, for instance. Cantor Fitzgerald’s consumer research head Mike Dennis points out that ‘The big ones are not using data the way you might think, on the customer side. They are more using data to help in their negotiations with their suppliers to bring down the cost of goods sold.’

Legal considerations

Beyond missed opportunity, big data’s exploitation can turn problematic. Privacy and data protection issues are on the political agenda, with criticism frequently coming down to whether the processing of personal information is fair. The process is unlikely to be fair if people are deceived or misled about how their data will be used. Transparency is therefore key. The UK’s approach to these matters is enshrined in the Data Protection Act and oversight is provided by Information Commissioner’s Office.