Four years after the official end of the Great Recession, small businesses, especially retailers, are struggling to remain relevant and grow sales. Many believe the solution lies in the massive amounts of data generated by consumers in today's connected world. They call it "big data," and numerous solutions aim to help companies large and small leverage big data to competitive advantage. However, Ron Shevlin, Senior Analyst at Aite Group LLC, described the promise of big data as nothing more than that. "It's all assertions and claims," he said in a recent interview.
Shevlin, an avowed numbers cruncher, said the problem confronting businesses isn't a lack of data. "There's more data being tracked today than ever before thanks to mobile," he said. But more isn't always better. "Simply throwing more data into the pile usually produces minimal improvement in predictive capability," he added.
There are too many unknown variables shaping individual behaviors to know what really prompts someone to make particular decisions. "I may purchase something simply because I like the dress the sales clerk is wearing," he said. And that's not something that can be quantified by data sets.
Leslie Bradshaw, Chief Operating Officer at Guide, a technology startup that mines data, conceded "big data" may be a misnomer. She said it is "more of a dynamic" than anything in particular.
Big data, big business
Whatever term is used, the fact is that more data is available today than ever before, and the pie keeps getting bigger. Gartner Inc. expects the volume of data generated by companies to grow 800 percent over the next five years, with 80 percent of that data in unstructured form. The research company International Data Corp. estimated that spending on solutions to gather and analyze data will reach $16 billion by 2015.
Wikibon Project, an online technology resource, expects big data analytics to be a $50 billion market opportunity by 2018, supported primarily by cloud computing, which offers unlimited storage capacity and access on demand.
As Bradshaw stated, new data analytics is being driven by the mountains of transactional data being produced by companies, financial institutions and the web, especially social networks, along with mobile and cloud technologies.
"The transformation of mobile devices into mobile wallets represents the most important link between big data and the consumer experience," Bradshaw wrote in Big Data and What it Means, published by the U.S. Chamber of Commerce Foundation. "The data emanating from mobile phones holds particular interest because it can be linked directly to individual users in identified locations."
But as Shevlin noted, the challenge is in understanding what data points matter and how to leverage those to advantage. Analyzing data for insights on customer needs and intentions is only a starting point. What counts is getting the right messages to the right customers, he said.
A recent survey by the technology consulting firm Infosys Ltd. revealed that the way merchants interact with customers does indeed influence purchase behavior. About one third of individuals polled said consistency across channels results in greater spend, and 59 percent of consumers who have experienced personalization believe it influenced their purchase decisions.
Ninety-six percent of respondents said they expect retailers to inform them of new products, yet only 34 percent of retailers today can track consumer trends in real time, reducing the ability to roll out targeted offers to drive sales, Infosys said. That's because 38 percent of retailers lack the technology needed to track and respond to customer behaviors across channels. "Creating a consistent experience across all physical and digital touch points has a direct impact on sales," said Sandeep Dadlani, Senior Vice President at Infosys.
Dominique Levin, Vice President of Marketing at AgilOne Inc., a predictive analytics company based in Mountain View, Calif., said marketing driven by sophisticated data analytics isn't just for big companies. He noted that a survey AgilOne recently completed found the trend gained traction among middle market retailers last year and that will continue through 2014.
"Being able to predict a buyer's next move is what can set them apart from their biggest competitors," Levin said. "The better they can communicate with their customer base the more likely they are to retain high-value customers and grow their bottom lines." Levin added that her company's research suggests 70 percent of mid-market retailers will be doing customer segmentation this year. She expects the big push will be to integrate off-line, call center and loyalty transaction with online customer data.
Metrics linked to payment cards
Another approach is to tie marketing data more directly to the POS, linking deals and rewards to payment card usage. Merchants large and small are adopting card-linked offers that "reward" customers for shopping in their stores (online and offline) with "frictionless" offers, like cash back or discounts on gasoline. The rewards typically are tied to a consumer's preferred credit or debit card. The card data then gets mined for critical information, like incremental spending and return visits.
"Linking metrics to payment cards provides a clear path for collecting the lifetime purchasing data that is so critical to meaningful metrics," First Data Corp. wrote in a white paper, Going Beyond Redemption: Closing the Loop with Card-Linked Offers. "As mobile wallets and other near field communication (NFC) technologies emerge, the most effective solutions will make that transition entirely seamless."
First Data has a solution called Offerwise that is designed to work with existing POS devices. It captures and maintains data on every transaction to trigger relevant rewards and to help merchants better plan and track marketing campaigns.
"Marketers value the information they believe can be obtained through card-linked marketing," said Kasey Byrne, Senior Vice President at Cardlytics Inc., a provider of card-linked marketing. Cardlytics recently asked a group of marketers to identify key benefits of card-linked marketing. The top vote getters were:
Being better able to reach loyal customers (49 percent)
Helping customers save money (47 percent)
Being able to target offers based on consumer purchase behavior (45 percent)
Cardlytics holds several patents on its card-linked marketing technologies. And it has partnerships with hundreds of banks that enable it to gain detailed insights into the purchase behavior for about seven out of every 10 U.S. households. It said it is able to track where and when consumers shop, where they live and how much they spend.
Cardlytics then uses that information to deliver millions of targeted marketing offers each month to active individual consumers. A frequent deli customer, for example, might receive a special offer from that deli on his or her monthly bank statement. Or a supermarket might use the data to determine which of its customers who haven't been in lately are shopping at rival stores and offer personalized discounts to woo them back. Pricing is performance based; merchant clients only pay when customers spend.
It's a solution that benefits banks and their customers, said Scott Grimes, Cardlytics Chief Executive Officer. "Large-scale adoption of sophisticated marketing and analytics platforms based on bank transaction data is providing banks with a proven consumer engagement and retention tool, as well as a new revenue channel," Grimes said.
Opportunities for acquirers, ISOs
San Francisco-based Oto Analytics Inc., dba Womply, developed a similar solution. Cloud-based, it is designed to make it simple for merchants to manage customer data and business analytics. Jim Egbert, the company's CEO, said big data offerings help merchants harness the value of existing information, including information about revenues, reputation and social media information. No new hardware or software installations are required, and the solutions work equally well for single- and multi-location businesses.
Top 10 acquirer TSYS Merchant Solutions uses Womply for a dashboard offering that provides merchants with analytics on card-based revenue and transactions, online reputation, social media activity and competitor benchmarking. Called TSYS Merchant Insights, the dashboard is being offered to TSYS merchants as a free value-add.
"Merchant Insights provides our customers with critical business metrics in one easy-to-use dashboard," said Chris McNulty, Group Executive of Sales at TSYS Merchant Solutions. "Providing these analytics to our customers gives them data they can turn into action to improve their bottom lines."
Pivotal Payments, a Melville, N.Y.-based ISO, tapped Womply to support a similar product that it calls Pivotal Merchant Insights. Pivotal also uses Womply for Loyalty Cloud, a loyalty and customer engagement platform. That product was designed to help merchants identify their best customers, rank them according to spend and offer rewards for their patronage, stated Jeremy Richardson, Womply's co-founder.
"We provide merchants with powerful analytics and solutions to help them improve their business," Richardson said. In September 2013, Womply was used by over 30,000 merchants that collectively rang up over $400 million in sales, he noted.
As these companies demonstrate, the potential for making strides with sophisticated analytical tools has not been lost on merchant acquirers and their partners. "We truly feel that the evolving role of the successful acquirer includes better data analytics, which in turn, creates greater visibility for the ISO and allows them the opportunity to match appropriate value-added products on a merchant-specific basis," said Todd Linden, Executive Vice President and Chief Operating Officer of Merchants' Choice Payment Solutions.
Merchants' Choice, which provides back-end processing support for ISOs and merchants, revealed in November 2013 that it was working with the data analytics firm Tranzlogic. California-based Tranzlogic developed a platform that enables merchants to mine credit card transaction data for demographic, economic, geographic and psychographic patterns that they can leverage to support dynamic marketing, pricing and inventory decisions.
"The data analytics market is rapidly growing as customers seek real-time insight allowing them to better connect with their consumers through highly relevant products, offers and services," said Gary Kearns, Executive Vice President at MasterCard Advisors. A division of MasterCard Worldwide, MasterCard Advisors boasts one of the largest sources of aggregated and anonymous transaction information in the world. In 2013, the company struck a deal with big data analytics firm Mu Sigma Inc. to help it develop new analytics-based products for businesses of all sizes.
Demand for two-way relationships
New and better analytics will be especially critical for capturing loyalty and sales among the millennial generation, often defined as individuals from 18 to 34 years of age. The first all-digital generation, and extremely social, millennials are all about personalization. (For example, one out of three sport at least one tattoo, according to one study.)
The Boston Consulting Group estimated millennials account for $1.3 trillion in annual spending, and that total is expected to multiply as these young adults mature. Millennials do few things the way their elders do. "Millennials expect a two-way, mutual relationship with companies and their brands," BCG observed in a recent paper, How Millennials are Changing the Face of Marketing Forever. "The Internet, social media, and mobile devices greatly amplify millennials' opinions and accelerate their impact."
A poll of millennials by BCG revealed that 52 percent use social media to "like" brands, compared with 33 percent of baby boomers. Millennials also are twice as likely to use mobile devices to check prices and product information, or to shop for sales.