Affinity Analysis: Are you promoting hoarding behavior?
Part 4 of a 4-part series
When you hear the word “hoarding” what do you think of? For me, living in the Philadelphia area, which is prone to winter snow storms, I think of how everyone makes the mad dash to the supermarket to stock-up on their must-haves before the storm hits. Milk, orange juice, bread – are gone from the shelves.
When I heard Shantanu first speak about this, scenarios like this came to mind, but hadn’t considered that customers tend to hoard when products are on sale. Even more interesting, is that technology exists that can track exactly what’s going on with any retail promotion. It can help retailers identify whether they are promoting new sales or simply hoarding behavior.
So in this context, hoarding is when customers stock up on supplies all at once instead of putting off purchasing until a later date. Let’s say you run a chain of liquor stores and you decide to generate some more business by selling Heineken beer at a 25% discount. In this case, the results of such a promotion will be fairly predictable: you’ll sell a lot more Heineken.
What you may miss, however, is the impact of hoarding behavior on future sales. The fact may be that your Heineken customers who bought the beer on sale may have stocked up for a few weeks. The result is that you sell a lot now but less in the future – and what you sell now comes with a lower profit margin (because of the discount) than if you just left well enough alone. In the end, the promotion delivers little if any benefit to your bottom line.
All you’re doing here is incentivizing existing customers to adjust their purchasing schedule. Ideally you’d want to do something different – namely attract net new customers. But how do you know if you’re attracting new customers or not? With traditional BI, you’d analyze aggregate data to see what’s happening – but by the time the data becomes available for analysis, maybe a week or two down the road, the promotion has run its course. To tell if a promotion is working in the here and now – to tell whether or not you’re promoting hoarding behavior – you need to see the transaction data as it’s happening in real real-time.
‘Affinity Insight’ (on SAP HANA), a new datamining tool from SAP, can help make this happen. For instance, you can almost instantaneously analyze the purchasing record of all customers buying the Heineken beer on sale to see if any had bought the same brand in the past and how often. Whatever your threshold may be – say 50% of sales need to go to new customers – you can track whether or not you’re meeting the objectives of the promotion in near real-time. If not, you can make adjustments on a range of factors (price, rebate policy, promotion rules, in-store location, etc.) to get things right. And, of course, as you make these adjustments, you can continue tracking the results.
Is your retail business getting this level of insight? Are you promoting hoarding behavior with your promotions?
View other blogs in this series:
Blog 1 – Affinity analysis and the “man aisle”
Blog 2 – Affinity analysis: What’s up with the drag-along effect?
Blog 3 – Affinity analysis: What you can learn from top seller analysis
Get started with the Discovery Service for Affinity Insight v2.0.
Learn more about affinity insight for retail.