Retailers need to get closer to their customers to build loyalty, argues Aldata, a global leader in retail and distribution optimisation software. Fiona Briggs reports
Retailers are playing a risky game, claims retail and distribution optimisation specialist Aldata.
In a tight UK market, over 40% of sales are now being run on promotion. As a result, margins are being eroded.
Historically, promotional activity has been largely funded by suppliers, but the emphasis has switched and the retailer is increasingly carrying the can.
Worse still, promotions carry far more supply chain risk, says Mark Croxton, vice president customer support at Aldata.
“Promotions are great,” he says, “but they are not necessarily the ones customers want to buy.
“The problems of availability are much higher on promotions,” Croxton adds.
Compliance can be very poor and retailers can be particularly vulnerable in weeks two and three of a promotion, says Aldata. This can put increasing pressure on their businesses.
Research by Aldata also reveals retailers are a little complacent with regards to availability and about what their customers do when they disappoint them.
“Retailers think that if they don’t have what a customer wants, the customer will buy something else,” says Croxton.
“The real research shows you they don’t – they get extremely annoyed and most of them leave the store without making that purchase.”
Tolerance is much lower among younger shoppers too, Croxton adds. Under 35s are less likely to revisit a store if the products they want are not available, than older shoppers.
“The point we are making to retailers is that if they have not got a product, it’s a problem. Shoppers are moving around a lot more in store and across different channels. Customers are not tolerant or loyal to the retailer brands,” he says.
While recession and a more competitive market has spawned deep discounts and promotions, retailers are waking up to the fact their margins are taking the hit.
As a result, they are looking to work out what customers really want and to optimise their pricing.
Aldata’s latest CIO survey, conducted by Martec, explored the trend of spend among 106 CIOs at grocery retail companies.
According to Croxton, it revealed retailers are shifting the focus from their promotional management ability to customer loyalty and analytics.
Aldata, which has its roots in supplying solutions for the supply chain, “anything to do with inventory, warehouses, shops, head offices”, has been broadening its expertise by acquiring companies specialising in price optimisiation, space and assortment.
“We are now wrapping analytics around those head office functions to address promotions, pricing and assortment,” says Croxton.
In June, for example, Aldata announced a partnership with Dacos Software, a German pricing and promotion optimisation provider.
Retailers in the US are ahead of Europe in terms of price optimistiation, says Croxton. Europe, therefore, provides the biggest opportunity.
Aldata plans to roll out the Dacos partnership initially in France; which has been the retail heartland for the Finnish-owned firm, which is quoted on the Helsinki Stock Exchange, and has offices in Germany, France, Slovenia, the UK and US.
Aldata has grown up with the leading French retailers: Carrefour, Casino, Auchan and Leclerc; and moved into international markets in tandem with their expansion overseas. It has also helped manage the international expansion of Belgian giant, Delhaize, and leading Dutch retailer, Ahold; plus worked with Tesco in central Europe.
It entered both the UK and US markets in 2004. According to Croxton, its focus has initially been on mid-market sized retailers. In the UK, for example, customers comprise Waitrose, The Co-operative, Spar, Thorntons, Poundstretcher and Lloyds Pharmacy.
Now, however, it is pitching to tier one retailers, especially in the US. Leading Aldata customers in the States now include Dollar General, a leading US discounter with around 10,000 stores; supermarket chain A&P; and DIY retailer, Home Depot.
Aldata has also inherited Safeway and Kroger as customers, after acquiring two businesses in the space and assortment arena.
As a result, Croxton reveals Aldata may do more business in the US than in France for the first time this year.
The US market has recovered from the banking recession quite well, he maintains.
“The US has done more to stimulate growth therefore retail spend has held up well versus Europe, which has been more focused on cutting costs and debts.”
In an uncomfortable European market, Aldata’s model plays out well, Croxton adds.
“Retailers are not committing to huge supply chain and capital investment projects but there is still activity in improving processes, which are low risk and low capital investment such as price optimisation and consumer analytics.”
Acquisitions in assortment and space have also provided Aldata with access to manufacturers who use optimisation software. Now it is aiming to bring suppliers and retailers together and ensure processes are applicable to both camps; winning consumer insights and information on buying patterns.
Growth in multi-channel retailing will also enable players to get closer to the customer, Croxton adds.
Aldata is helping retailers move from a promotional strategy to one focused on winning customer loyalty but it requires a paradigm shift.
Retailers must give the customer what they want, not what they think they want.