Coles places faith in data revolution

While Coles' new FlyBuys deal looks like a guaranteed way to slash margins, it is in fact a long-term strategy to get a foothold in the revolutionary 'big data' game.

Productivity Spectator

Coles' massive FlyBuys campaign, where they’ll be sending a card to almost every household in Australia, has a pretty big carrot attached.

A 10 per cent discount on your top five grocery buys may put even more pressure on squeezed suppliers. But I would wager that Coles will easily find a way to offset the cost with the mountains of actionable business data it will generate.

This is the age of 'big data', and every company must understand that this is the future of commerce.

Once upon a time, retailers would segment their customers into fairly broad categories. As a result, marketing campaigns would be fairly crude, and marketing spend wasted.

According to Anthony Viel, Data Specialist at Deloitte, a power shift from manufacturer to retailer to consumer is almost complete. He says that thanks to our digitally connected world, every customer wants to feel like an audience of one – I don’t need to shop at Coles, or any of the big stores, the internet will get me exactly what I want without me ever having to leave my house.

That means that to get me off my couch and into a store, a retailer has to offer me what I want, before I know I want it.

To do that, they need access to my information and they need as much as they can get to make it as predictive as possible.

Viel says that top US firms are considering 500 individual attributes in a data set to narrow down that customer segmentation as tightly as possible.

One leader in the field is now considering 16,000 attributes. This is getting as close to an individual customer as it gets.

In Australia, according to Viel, about a third of companies get 'big data', another third have no idea where to start and the last third have their head in the sand.

The 5 per cent that are doing this well will steal market share hand over fist.

A fascinating book by Charles Duhigg, titled The Power of Habit: Why We Do What We Do in Life and Business, explains why this is so important (he addressed the concept recently in one of his New York Times articles).

He writes about Target in the US. Target realised that one of the few times that people change their buying habits is when they go through major life events. They figured if they could work out when people were pregnant, they might be able to encourage them to move from buying the standard Target products like homewares and consider also buying from Target’s range of groceries, or DVDs.

By the time a baby is born, rival retailers would also be sending new parents offers and competitive advantage would be lost. So, using their huge data sets, Target’s analysts worked out that 25 products, including things like calcium, zinc and scent-free soap, gave as much as 87 per cent accuracy that someone was due to give birth as much as five months early.

That allows Target to send coupons and offers long before rivals and influence that buying behaviour.

Once a consumer has shifted their habits, it is very hard to unshift them. That means Target might turn that new mother into a customer for life.

This is the brave new world of big data. Where, as online retailer Ruslan Kogan says, marketing is no longer about creating an emotional connection with creative ads – it’s mathematics.