What are the sources of data to do customer analytics in retail industry ?

Here are some data inputs which can be leveraged to "juice" insights from transactional data

1. Point of sales systems
- Store identifier
- Time of transactions
- Transaction type ( sale / return )
- Sales value
- Number of items shopped
- Product code
- Quantity
- Promotion code
- Store employee number
- Loyalty card number ( optional )

2) Loyalty card
- Loyalty card identifier
- Cardholder name
- Age
- Sex
- Profession
- Address
- City/State
- Zip

3) Store profile
- Store id
- Store description
- Store location
- Store type
- Store area in square feet
- Store format
- Number of floors in the store

4) Product info
- Product id
- Product description
- Product type
- Brand
- Category

Which are the right variables to segment loyalty card holders in retail industry ?

Some indicative behavioral variables which can be used to segment loyalty customers are

1. Customer Purchase Recency
The number of days which have elapsed since the customer last purchased from a store
Example : less than 30 days, less than 3 months, less than 6 months etc
2. Tenure
The number of months the customer has been a member of the loyalty card program
Some targeted campaigns could have increased loyalty subscriptions during certain periods
3. Average basket value
Average amount spent by the shopper during each visit to the store
Example : less than $ 50, 50à125 $, greater than 125 $
4. Average basket size
The number of items the shopper purchases during each visit
5.Spend dispersion
The % of spend dispersed across various categories of products like music, books, stationery items, perfumes etc
Example : 12 % on stationery, 35 % on books, 43 % on perfumes
6.Customer Purchase frequency
The number of times the customer purchases from the store in a year
Example : 10 times in a year
7.Overall spend dispersion profile
The % of deviation between spend of this customer and an average store shopper to benchmark the intensity of shopping on various categories relative to an average buyer
Example: An average Joe would spend lets say 20 % on stationery, 50 % on books and 30 % on perfumes. If David’s spend dispersion profile is 60 % on stationery, 35 % on books and 5 % on perfumes, his spend bias helps us understand his profile better relative to an average Joe.
8.Demographic spend dispersion
The % of deviation between spend of this customer and the demographic segment to which the customer belongs to
9.Range of products purchased
Out of the overall number of categories present in the store, what % of the categories has the customer purchased
10. Range of channels used
A product can be sold thru multiple channels – company owned store, franchisee store, web , phone/contact center

What is the step by step process to be followed to segment customers ?

Lets take the example of segmenting loyalty card holders who use their card to shop at retail store outlets ...

Step-1: Identifying the specific context for shopper segmentation within the organization

Step-2: Creating a universal customer behavior record of the customer from POS, Loyalty and store profile information

Step-3: Configure the segmentation parameters like cluster count, cluster algorithm, maximum input attributes etc

Step-4: Execute the shopper segmentation model and characterize the segments from a business perspective

Step-5: Conduct workshops with business users to explore possibilities of differential treatment of customer segments

Step-6: Having decided on specific segment specific treatment strategies it is necessary to operationalize it in CRM and other campaign management systems and monitor business impact

What is customer segmentation ?

Most retail outlets these days have invested heavily in Point of sales systems to capture purchase transactions of customers. Some retailers have gone a step ahead and invested in a loyalty card program and incentivising buying behavior by giving points to increase “stickiness” with the store thereby stimulating increased repeat purchase behavior. But most organizations have not used the millions of POS transaction, loyalty card data, and redemption data to understand customer behavior at a deeper level.

Segmentation is a basic first step a retail organization can undertake to understand the behavioral characteristics exhibited by the shoppers and to build a comprehensive behavioral portrait of the customers shopping at the store. Segmentation is basically the process of dividing shoppers into meaningfully distinct groups. Once shoppers are grouped into distinctive segments each group can be offered a different marketing mix plan depending on behavioral characteristics they exhibit. Segmentation is both an art and a science where behavioral niches are identified and pin pointed marketing actions are initiated as opposed to “carpet bombing” the entire customer base. It is a very selective demand stimulation strategy which the retailer can adopt. Before getting into the actual process of segmenting shoppers in your store it makes sense to get an understanding of the flavor of business questions which can be answered using a loyalty based segmentation framework based on raw POS, Store and Loyalty card data.