WHAT ANALYSTS CAN LEARN FROM CHILLING BEER BOTTLES ?

As retailers we come across multiple issues in our day to day operations that cannot wait for an analysed corrective actions, so an immediate solution is needed that too a wise one. But we end up giving the same fix over and over again.
What we need to understand is that most of us keep doing repetitive spot fixes for the same problem over and over again without actually resolving the underlying cause to an issue. The solution can be explained with a simple example and I am sure this will change your perception and plan of action towards your day to day issues.
The answer is: How an out door caterer chills the beers in the Ice box for an event in less than 10 minutes and ensures that the chillness is retained throughout the event for the beers placed in the ice box. How does he do it? Its simple, he puts a layer of solid Ice at the bottom of the ice box and places the beer bottles above it. This will keep the beer bottles chilled for longer and to get that instant chillness, he fills with another layer above the beer bottles with crushed ice. That's the trick and yes some of you will be aware of this process.
We need to apply the same principle vice versa for our retail problems. Crushed Ice is a spot fix to an issue but it will not keep out the problem for long and it will repeat. The bottom layer of solid ice is the permanent fix to the problem which will keep out the issue for ever just like it does for the beer bottles throughout the outdoor event.
When you face a problem on the shop floor, it requires a spot fix and you have to give one before it escalates further and leaves the customer unhappy. But you should not forget the solid ice. Now you have to invest time and efforts to find the actual root cause to this recurring issue and provide the permanent fix to avoid a fire fighting situation again.
This will ensure that the issue doesn't resurface and also increase your management efficiency and customer satisfaction. A simple perspective that can give an effective solution to your day to day operational issues. CHEERS ! 

Customer Relationship Management : RFM Analysis and RFMV Analysis

What is RFM analysis ?

RFM analysis is done in order to understand the health of a customer's relationship with a retailer and the value of a customer to a retailer by analyzing the historical sales data for the respective customers. The outcome of this analysis is used in direct marketing, customer centric promotions and loyalty programs.

The modules used in the analysis are :

RECENCY :
How recent did a customer purchase ?
This explains when was the last purchase made by the customer, by this we can select the list of customers who has purchased from the retailer in the last 90 days or 180 days or 365 days.

FREQUENCY :
How frequently a customer purchases ?
This explains what is the frequency of purchases the customer makes with a retailer. This is calculated based on number of purchases made by a customer in the last 90 days or 180 days or 365 days.

MONETARY VALUE :
How much does a customer spend ?
This explains how much does a customer spend for a stipulated time period similar to the previous two scales. This also provides information on customer spend per purchase and over a period of time i.e. a customer might not make big shopping per visit but totaling their purchase over the same period of time will project a bigger purchase value compared to a customer who has done a single big purchase.

VOLUME :
How many products a customer has purchased ?
This is an add on to the RFM analysis which indicates how many products a customer has purchased or volume quotient of a customer's purchase pattern over a period of time. This in combination with Monetary value of the customer shows whether the customer purchases high value products or a general shopper buying small value products for regular use


SCALE OF MEASUREMENT
Recency, frequency and monetary bench mark scales may vary from retailer to retailer based on their product assortment and the lifespan of the product sold. Based on a retailer's product portfolio they can choose a scale based on a benchmark set for each of the module. We can look at how this can be done through a simple example :

A is a supermarket store having products in convenience, home appliances and grocery categories.

Sameer had purchased at A 5 times in the last 30 days as on 30-Nov-15, his last purchase was on 27-Nov-15. He has purchased for 1000 Rs., 2500 Rs., 1500 Rs., 1500 Rs. and 2200 Rs. respectively. Total quantity of products purchased by him is 20

Rachel had purchased at A only once in the last 30 days as on 30-Nov-15, her last purchase was on 2-Nov-15. She has purchased for 10500 Rs. Total quantity of products purchased by her is 1

Based on the above purchase data we can easily arrive at the below observation through data analysis:

Sameer and Rachel are both high value shoppers but there Is a lot in difference between the two which this analysis throws light on, that can help the retailer can use to arrive at customer centric promotion to increase sales and frequency of customer visits.

SAMEER'S PURCHASE ANALYSIS :
- He is a recent shopper who has visited the supermarket in less than 15 days
- He has purchased 5 times in the last 30 days so he is a frequent shopper
- He is a high value shopper as per the retailer's bench mark. His total purchases are worth 8700 Rs.
- He is a high volume shopper as well and based on his value and volume of purchase we can see that he buys less expensive products that are more of a necessity than luxury

RACHEL'S PURCHASE ANALYSIS :
- She is an old shopper who has not visited the supermarket in the past 15 days
- She has purchased only once in the last 30 days so she is a occasional shopper
- She is a high value shopper as per the retailer's bench mark. Her total purchase is worth 8700 Rs.
- She is a low volume shopper as well and based on her value and volume of purchase we can see that she buys expensive products that are more of a luxury than a necessity

Customers who have not purchased in the stipulated time period can be contacted by customer service manager or marketing team can mail the customer attractive promotions based on their historical purchases to resume trade.

NOTE : RFMV analysis is not a standardized analysis matrix in CRM. This is a customized version used by me in analyzing customer value. I feel this provides better depth into customer purchase pattern there by helping a retailer analyse his customer' value better

Porter's Five Forces - simplified !

This was originally formulated by Mr. Michael Porter, professor at Harward Business school in the late 1970s to analyse an industry based on five forces that influence an industry and its players. Porter's five forces have five forces or market elements that needs to be analysed to arrive at a successful business strategy. The derived business strategy can be implemented to achieve a clear and distinct position in the market and in the customers' minds. The outcome which also gives a clear picture of the current market situation which will help the organisation decide how they can use the market situation to their advantage or position themselves in the market where by increasing profitability and brand image.
To hear the original one from Mr. Porter himself, follow the below link :
https://www.youtube.com/watch?v=mYF2_FBCvXw

The below is my view of Porters's five forces and how they can be applied to analyse an industry and how well we can position our organisation.

MY VIEW OF APPLYING PORTER'S FIVE FORCES :

1. Competitors Rivalry
This gives insight into the rivalry that exists in the industry i.e. how competitive the players in the industry are and what are their strengths and weaknesses. It also answers the questions to how can a new entrant cope up with this competitive market and turn their business into a success model. A few of the questions that can help us draw a picture of competitors rivalry are as below :
- How competitive the industry in terms of margins and profitability ?
- How is the competitive intensity ?
- Who is the biggest player in the industry and what is the market share held by them ?
- What is the industry experience of each player in the industry and their strength ?
- What is the industry Growth in the near future ?
- Does it demand for capacity addition in large scale ?
- Brand value of competitors
- Is there a monopoly or hurdles put in place by big players to indirectly control small players' market share?
- Is it a high stakes industry where organisational structure requires highly skilled and efficient human resource ?

2. Threat of New Entrants
This gives insight into how easy it is to enter an industry or exit an industry and also how easy it is for a new entrant in the market to replace an experienced strong player in the industry. A few of the questions that can help us draw a picture or gain insight of this force are as below :
- How easy is it to enter the new market or the industry ?
- What is the economies of scale to be profitable ?
- How big and specialised capital investment needed for setup and distribution ?
- How brand conscious or brand loyal is the industry and its customers ?
- What is the increase in the inflow of supply with new entrants ?
- What are the legal complications for new entrants ?

3. Threat of Substitute Products
This gives insight into how the available substitutes for the original affects the latter's market share and sales. A few of the questions that can help us draw a picture or gain insight of this force are as below :
- How many products or service providers are available in the market catering to the same customer's need ?
- How loyal are the customers to brand ?
-  Can customer's need be satisfied by products from other industries serving the same purpose ?

- How easy is it for competitors to develop a new substitute or a clone ?

- What is the price and quality difference between the available substitutes ?

- How regulated is the market with respect to patent rights ?

- What is the switching cost for consumers ?

4. Bargaining Power of Consumers
This gives insight into whether the market favours the buyers or the sellers or a win win for both. This also explains the demand and supply quotient of the industry. A few of the questions that can help us draw a picture or gain insight of this force are as below :
-  What is the percentage of population dependent on the products supplied by the industry
-  What is the cost of switching between services or product to fulfil customer's need ?
-  What is the demand and supply, is there a surplus in supply or a shortage in supply to demand ?
-  Customer's price sensitivity, what is the elasticity of demand ?
-  What is the cost of backward integration for the customer ?
-  What is the frequency and volume of purchase ?
-  Are the products supplied by the industry come under luxury products or a necessity ?

5. Bargaining Power of Suppliers
This gives insight into whether the market favours the supplier or the organisation or a win win for both. This also provides insight into availability of capital goods and input costs. A few of the questions that can help us draw a picture or gain insight of this force are as below :
- How easily are the raw materials/capital goods available ?
- How many suppliers are available and how easy it is to find an alternative ?
- What is the possibility of backward integration  in order to negate the supplier in the process ?
- How easy is it to acquire skilled manpower in the respective field ?
- What is cost of switching between suppliers ?
- Are we to deal with government organisations in a industry involving consumption of natural resources ?
- What is your economies of scale ?
- What is the possibility of forward integration  by the supplier there by directly catering to the customers' needs ?

Once the five forces are analysed, a chart can be prepared in the below format to assess the opportunities and threats for our products/services in the industry. This will help us to define a robust business strategy to negate competition and make profits or to decide whether to enter a new industry or to exit a matured industry.

FORCES	OBERSVATIONS	OPPORTUNITIES	THREATS
FORCE - 1	Observation 1	How ?	How ?
	Observation 2
	Observation 3
FORCE - 2	Observation 1	How ?	How ?
	Observation 2
	Observation 3