Sunday, September 13, 2009

Point of sales data - What other uses can retailers get out of it?

You buy a product at a store. The scanner collects the transaction. What happens to that data? How is it used to serve you better? Retailer sophistication in utilizing Point Of Sales (POS) data runs the entire gamut. Some retailers are focused on great merchandising (making sure what customers want *could* be sold at the store) and other retailers are focused on great execution (make sure what is on the shelf at the store is in the store at the right price, at the right cost, everyday). What ever the focus is, POS data plays an important part. But depending on the focus, some of these might be more important to a retailer than others. Here is my attempt at ranking the usage of POS data (most common usage first). Where do you disagree with this ranking? What other uses would you add to this and where would you rank them?
  1. Culling Low Sellers: Most major retailers collect POS data at headquarters to analyze which products are not selling and cull them.
  2. Replenishment / Inventory Allocation: Many of the major retailers selling non-fashion items (replenished items like cans of soup, diapers, milk), use the POS data to drive replenishment using Computer Aided Store Ordering systems. Even fashion retailers might hold back some of the inventory from the stores and push them to the stores as the early season POS data reveals selling patterns. More retailers could do this but the challenge of having a good forecast at the store and having a good count of inventory at the store is tough.
  3. Localizing Assortment: Many major retailers use POS data to localize the assortment - which stores should sell a particular product by analyzing historical POS data together with demographic data and other pieces of data.
  4. Product Placement: Understanding what products are brought together (basket analysis) helps decide which products can be placed together. Think chips and salsa but with the relationship less obvious - diapers and beer?
  5. Pricing: Many retailers have become more aggressive in pricing products by store groups. Understanding price elasticity and grouping stores together by product group is becoming more sophisticated.
  6. Fixing store execution problems: In many studies, 60 to 80% of the store lost sales has been shown to be caused by store execution issues like product lost in the shelf, stuck in the backroom, promotion display and new product coming into the store on-time but not brought out on-time, and inventory overstated at the store (phantom or ghost inventory). Retailers can check POS to make sure new product has been scanned. Retailers can check to see the probability of sales being lower than forecast for a few days and use that to sense issues.
I will continue editing this as the feedback comes in. Karthik

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