Effective CRM using Predictive Analytics

7Value segmentation and cross-selling in retail

7.1 The business background and objective

In retail, competition is hard. The lack of a formal commitment and the easiness with which shoppers can switch to competitors make the process of building a loyal customer base tougher for retailers. Quality of offered commodities and competitive pricing are often not enough for standing out from the competition. In such a dynamic environment, a competitive enterprise should try to understand its customers by gaining insight on their attitudes and behaviors.

To achieve this, retailers have to collect and analyze usage data. Fortunately, this type of information is usually stored at a very detailed level at the point of sales. Transactional data which typically record the detailed information of every transaction are logged with every purchase. A prerequisite for summarizing transactional information at a customer level and for tracking the purchase history of each customer is that every transaction is identified to a customer. This issue is usually tackled with the introduction of a loyalty scheme which assigns a unique identification number, card ID, to each loyalty card. Customers use their loyalty cards for their purchases, and this way, the anonymous transactional records are associated with a specific card ID and a customer.

In this chapter, we’ll focus on the efforts of a retailer (chain of department stores) to analyze purchases’ data and gain insight on its customers. More specifically, ...