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Retailers Using Big Data: The Secret Behind Amazon and Nordstrom’s success

A man who has been thinking about purchasing a new HD Sony TV has been comparing prices online. The next day he receives an email from Amazon.com with an exclusive offer on all HD Sony TV’s. Surprisingly enough, another ad from Amazon featuring TV’s appears on the side of the website he just visited. He also notices that HD Sony TV’s are being recommended for him on Amazon under, “items that you might be interested in.” Confident that he has found the best price and satisfied with the convenience, he makes his purchase from Amazon.

The above scenario is an example of Big Data being used effectively by the major online retailer, Amazon.com.

Big Data = A Smarter Way of Thinking

It’s not just a coincidence when Amazon recommends a product to you that you’ve been interested in purchasing. Amazon has generated 29% of sales through their recommendations engine which suggests popular products to specific customers. By analyzing customer data coming from 152 million+ accounts, Amazon has figured out the real secret behind sales success – Big Data.

Amazon uses Big Data analytics to determine what a customer has placed inside their virtual shopping cart and which items they've recently viewed and purchased in the past. Amazon calls this technique, “item-to-item collaborative filtering,” a method which uses structured and unstructured data sources to customize a returning customers’ shopping experience. This provides Amazon shoppers with an easier shopping experience due to a type of, “virtual customer service.” Within seconds of entering Amazon.com, consumers are presented with merchandise options that they have already considering purchasing.

A Leading Example: Nordstrom

Well-known for their outstanding customer service and excellent product merchandising, Nordstrom also invests heavily in Big Data to achieve their goal of determining which products should be promoted to certain customers via specific channels. One way Nordstrom does this is by acquiring volumes of Big Data coming from their website and in-store sales, as well as through their social networks like Facebook (over 2 million likes), Pinterest (over 4.5 million followers) and Twitter (about 360,490 followers).

Nordstrom has taken Big Data a step further and has created an entire innovation lab which utilizes Big Data to gain insights into customer shopping trends and patterns. Experiments are conducted at the Nordstrom innovation labwhich provides insights from data based around customer shopping patterns. Nordstrom recently launched an experiment in their Dallas-Fort Worth area stores which used WIFI signals to monitor customer behavior. Although this caused controversy, it provided Nordstrom with helpful insights into customer shopping trends, allowing the retailer to further improve customer service and marketing techniques.

The Possibilities are Endless

Here are just a few business solutions which retailers have gained from utilizing Big Data:

  • Ensuring a personal shopping experience:  By examining a customers’ purchase history, clicks generated from online sites, likes via social networks, geospatial services and other behavior patterns, retailers can now create real-time, targeted promotions which can be broadcasted directly to customers’ smart phones while they shop, allowing consumers to find exactly what they are looking for upon entering a store.
  • More effective merchandising: A thirty-year old pregnant woman walks into a San Francisco Target store and finds baby diapers displayed at the store entrance. How can this be? Thanks to data coming from online sources, retailers can now pinpoint which merchandise should be stocked at specific locations and where items should be placed throughout the store.
  • Customer loyalty: Retailers which cater to their customers’ needs are seeing an increase in returning cliental. Customers are looking for the easiest and most convenient way to shop and Big Data allows retailers to understand their customers’ needs before they even enter a store.
  • Inventory Management: Big Data which is being used in near real-time enables retailers with the capability to predict when merchandise should be restocked and which shelves should be equipped with certain products. This optimizes inventory and prevents stock-out incidents.

Big Data = Big Value

A study from McKinsey shows that retailers who have started utilizing Big Data have experienced a 60% enhancement in business margins and a 1% improvement in labor productivity. The proof is in the pudding – Nordstrom and Amazon are just a few major retailers that have started benefiting from Big Data, now just imagine what other retailers can achieve if they implement a Big Data strategy.

As we approach 2014, a more effective marketing and sales solution for retailers has been clearly defined – find a robust Big Data DB capable of analyzing structured and unstructured data sources. This will provide retailers with the power of understanding their customers’ shopping behaviors, leading to tremendous opportunities.

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Tags: Big, Data, Retail

Comment by Jeff Cotrupe on January 8, 2014 at 8:02pm

Nordstrom's use of Wi-Fi signals foreshadows reflects an entire new growing industry: retail and Wi-Fi analytics (RWA). Retailers implement RWA via apps on shopper smartphones, by requiring shoppers to log into their Wi-Fi network, or without requiring any action at all (or any awareness they are being monitored). That last method is probably the one Nordstrom used in DFW. I'd be happy to talk more about this at [email protected] .

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