Omni-Channel Merchandising Optimization

© 2014 IBM Corporation
Merchandising Omni-Channel Merchandise Optimization
Omni-Channel Merchandise
Optimization
Maximize sales, profit and shopper loyalty
by quantifying consumer behavior to make
predictive merchandising and marketing
decisions across all channels

2© 2014 IBM Corporation
Retailers face increasingly challenging merchandising decisions
Traditional price competition
New price
models
Online/mobile price transparency Increased targeting and personalization
Economic
impact on
price
sensitivity
Endless
aisles
available
online

And customer empowerment is impacting priorities
58%
are more price
sensitive than they
were a year ago1
EMPOWERED CUSTOMERS
1 in 4
customers feels “very loyal” to
his or her providers8
No.1
pricing issue for
retailers is
intensified
discounting and
promotional activity3
90%
believe unifying promo,
price and assortment
models to be
extremely or very
important to achieving
merchandising
success5
RETAILER PRIORITIES
84%
bought last in store,
but only 56% plan to
buy next in store, with
35% undecided7
91%
of online deal redeemers have
already done business with the
company or plan to again4
41%
cite underperforming
inventory as their
biggest merchandising
challenge2
2 in 3
admit that their
merchandising
function still
focuses primarily
on products
and categories,
not customers6
Sources – See Speaker Notes

“Should the weekly ad be
online and more targeted,
not in print?”
“We want to reach
our young families.”
“How does your
campaign affect my
in-store promotions?”
“We should
feature Brand X.”
In this environment, merchants and marketers need to connect with
the customer … but often aren’t connected themselves
Merchandising Marketing
“What’s the lifetime value of a customer?”

Research shows that leading retailers share three key traits
Source. “Understanding leading retailers: Insights from the IBM Retail Merchant survey,” IBM Center for Applied Insights, July 2013.
1. Customer focus
They put the customer at the heart of the way they work, how they
measure success, even how they’re organized.
83%
47%
Our merchandising function’s focus on the
customer is becoming more important.
Dedicated team
or individual
Leaders trained in
customer insights
Customer insights driver of
merchandising decisions
54%
54%
56%
26%
46%
24%
2x
2.2x
1.9x
Leading merchandisers
All other merchandisers

2. Collaboration
They collaborate across internal and external boundaries to serve
their customers better.
56%
38%
Merchandising works closely with IT to
help ensure that investment decisions
are closely aligned with needs.
Promotional activity
strategy
Pricing strategy
Product development
strategy
Data analysis
69%
34%
67%
33%
60%
32%
58%
24%
EXTERNAL INTERNAL

3. Analytics
They collaborate across internal and external boundaries to serve
their customers better.
Understand and predict customer buying behaviors
Inform merchandising strategies
Inform promotion or pricing strategies
Product assortment planning
Understand how customers interact with the business
across different channels
73%
47%
69%
42%
63%
40%
63%
37%
Currently use analytics to:
63%
39%
1.6x
1.6x
1.6x
1.7x
1.6x

These traits help deliver greater financial performance
Number of respondents with
an average customer basket
of more than USD100
1.4x more
2009–2012 stock price
compound annual growth rate
3x greater
Percentage of respondents with
more than USD100 in average
customer spending per visit
40%
29%
30%
2009–2012 stock
price compound
annual growth rate
10%
1.4x 3x

Retailers need to evolve along several dimensions to best service
the needs of the empowered customer
Truly omni-channel
Bricks and
mortar only
Siloed merchandising
and marketing ad hoc
vendor collaboration
Integrated merchandising
and marketing systematic
vendor collaboration
Understanding of individuals
Understanding of segments
Understanding of basket purchase behavior
(affinities, substitutability, etc.)
Understanding of products and
categories across all shoppers

Evolution to true omni-channel customer engagement
Phase 0 Phase 4 Phase 5Phase 1 Phase 2 Phase 3
Separately managed channels • Integrated channels (data,
analytics, process, etc.)
• Ability to leverage insights from
one channel to inform another
0
1
2
3
4
5
Leveraging capabilities and data across channels
Using data and insights to inform decisions
Knowing what your customers want
Having the right mix of products
Managing prices across the merchandise lifecycle
Efficiently delivering effective promotions

Phase 4 Phase 5
Evolution to true omni-channel customer engagement (continued)
Phase 0
No science
Phase 1
• Aggregate Point
of Sale
• Limited
competitive data
• Traditional
causal data
• Single channel
prediction and
optimization
Phase 2
• Transaction level
data
• Shopper data
• Online causals
• Broader set of
competitor data
• Inventory
• Weather
Phase 3
• Mass and targeted
marketing variables
• Behavioral
segmentation
• Comprehensive
near-real time
competitive data
• Shopper ratings
• Web behavior data
• Cross channel
price effect insights
• Competitive price
effect insights
• Dynamic segmentation
• Unstructured web data (reviews,
social, etc.)
• Trend based interpretation of data
• Game theory/next best action
0
1
2
3
4
5

Phase 0
• Aggregated Point
of Sale data
• No correlation to
shoppers or
shopper segments
Phase 4 Phase 5Phase 1
• Transaction log
(TLog) data
• Basket level
analysis (product
affinities,
purchase
overlap,
multiples)
Phase 2
• Shopper identified
TLog
• Allows item
importance
(product loyalty),
purchase
frequency, and
trial and repeat,
etc.
Phase 3
• Shopper-identified
TLog with shopper
segmentation.
• Selection and
grouping by
shopper segment.
• Segment
comparison
analysis and sales
decomposition by
shopper segment.
• Cross channel shopper analysis
• Compare and contrast shopper
behavior in different channels
0
1
2
3
4
5

Phase 0
• Rank and cut
approach
• Excel based
Phase 4
• Incorporation of
omni-channel data,
extending these
same levels of
analysis to
ecommerce
assortment and
virtual shelf as well
as physical store.
Phase 5
• Seamless
integration with
Order
Management,
Supply chain and
Web management
tools
Phase 1
• POS Data
• Incrementality
modeling
Phase 2
• Incrementality and
transferable
demand modeling
using shopper-
identified,
segmented TLog
• Understand
shopper switching
behavior
Phase 3
• Optimize on shelf
availability net of
cannibalization.
• Automated
integration with
space (POG)
software.
• Recommendations
based upon
forecasted sales
0
1
2
3
4
5

Phase 0
• Spreadsheet
based pricing
• No price impact
forecasting
• Few price zones
Phase 4
• Optimize all
dimensions of offers
based on shopper
data (product, price,
channel, etc.)
• Integrated
recommendations
spanning all price
types
• Dynamic pricing
bundles based on
shopper behavior
Phase 5
• Seamless
integration with
Order
Management,
Supply chain and
Web management
tools
Phase 1
• Rules based
pricing
• Optimize price
types and forecast
impact separately
by channel
• Manual
review/approve
• Weekly cadence
Phase 2
• Dynamic pricing
• Online demand
drivers
• Automation of
standard changes
• More
sophisticated
cross-channel
rules
• Daily cadence
Phase 3
• Personalized
pricing
• Personalized or
segment level
promotions
• Cross-channel
optimization
• Utilize competitive
intelligence to
optimize different
price types
0
1
2
3
4
5

Phase 0
• Manual /
spreadsheet
based planning
Phase 4
• Integrated with real
time delivery and
tracking in web
and mobile
channels
Phase 5
• Seamless
integration with
Order
Management,
Supply chain and
Web management
tools
Phase 1
• Mass promotions
planned using
collaborative tool
(internal and
external)
• Linked to
optimization and
prediction engines
Phase 2
• Visibility of mass
and targeted
offers across the
enterprise.
• Co-ordinated
planning between
merchandise and
marketing
Phase 3
• Fully integrated
promotional
planning across
merchandise and
marketing
• Mass and
Targeted offers
managed using
the same tools
• Consistent offers
delivered across
multiple channels
0
1
2
3
4
5

IBM experience in omni-channel merchandise optimization
Customers
IBM
Leading omni-channel
merchandise
optimization solution
• More than 60 retailers across multiple geographies
• Segments including grocery, hardlines, apparel,
electronics, etc.
• Multichannel—stores, online, mobile, catalog, etc.
• Extensive retail expertise gained from working with
customers and partners
• Advanced science and optimization
• IBM research that supports industry-leading capabilities
• Scalable and secure technology driven by big data
• Most comprehensive and integrated suite of predictive
merchandise optimization solutions, supporting
smarter assortment, price and promotion decision
making across multiple channels
+
=

Omni-channel merchandise optimization
Maximize sales, profit and shopper loyalty by quantifying consumer behavior to make
predictive merchandising and marketing decisions across all channels

Effectively managing assortments involves shopper and category
insights and dimensions
• Base assortment decisions on a quantitative understanding of shopper
behavior, both incrementally and through transferable demand
• Create efficient, customer-centric and profitable assortments for
all your sales channels by incorporating advanced modeling and
optimization science
• Collaborate with trading partners to jointly evaluate and optimize
assortments with a single, consistent approach for practically every
store cluster and configuration
• Increase productivity by automating processes to address the
assortment challenges that merchants face daily
Define shopper
strategies and
category roles
Identify
store
clusters
Reset
category with
optimal
assortment
Create cluster
specific
planograms

Assortment success
Our customers are able to determine a mix within each category that is tailored by
store, region or both, based on insights from customer segmentation, regional
preferences, demand modeling and other cues.
Assortments based on science
Combining customer insights, segmentation and
optimization science to make better assortment decisions,
a multibillion dollar retailer used IBM DemandTec
Assortment Optimization software to grow top-line sales
by up to 10 percent across several categories.
Consumer-driven merchandising
A major retailer lost sales after altering its
merchandising strategy for a category to reflect a brand-
first philosophy. Using consumer decision trees within
IBM DemandTec Assortment Optimization software, the
buyer identified a better way to merchandise the
category, recovering sales of USD2 million.

Develop pricing
strategy
Set prices Monitor price
performance
Manage
promotional
pricing
Optimize
clearance
pricing
Effective pricing across the merchandise lifecycle requires customer
and marketplace insights, combined with consumer demand science
• Maximize volume, revenue and profit by managing and optimizing
pricing across the merchandise lifecycle
• Determine cross-channel pricing strategies with an understanding
of how customers respond to different prices in different channels
• Refine your competitive strategy using science to measure how
your competitors’ prices affect your sales
• Eliminate pricing errors with a single transparent system to deliver
base, initial and everyday pricing; promotional pricing; and
markdown and clearance pricing

Price success
Our customers use powerful customer, demand and marketplace insights to more effectively
manage prices throughout the entire product lifecycle and across all channels—including
setting base prices, determining the right promotional prices and placing items on clearance.
Competitive edge
A European grocery retailer improved comparable stores
sales by 2.4 percent and increased product turnover by
2.7 percent using IBM DemandTec Price Optimization
software to price items more effectively than the
competition and to manage pricing of private label
products alongside those of leading brands.
Maximizing markdowns
Using IBM DemandTec Markdown Optimization software
to make science-based, store-level pricing decisions, a
department store chain improved inventory productivity
and reduced markdown evaluation and execution times,
increasing its gross margin profit by 400 points.

Define
promotional
strategy
Negotiate
vendor
deals
Define
promotions
& events
Optimize
promotions
Publish
across
channels
Reconcile
and measure
promotions
Managing retail promotions requires a system that is integrated
from end to end and facilitates external collaboration
• Improve promotion planning efficiency and reduce errors with a single system
for practically all promotional information and content about offers and events
• Increase promotion effectiveness using analytics to recommend promotional
prices optimized for user-defined goals, such as units, revenue and margins
• Consistently execute promotions across various customer touchpoints by
simplifying the process of publishing content as print or digital media
• Streamline the management of vendor-funded promotions by
automating the deal creation, submission, negotiation, approval and invoicing
processes

Promotion success
Our customers systematically identify the best items to promote and deliver more targeted
promotions to customer segments. They work to get the most from available trade
promotion dollars, while delivering deals that meet customer interest, across all selling
channels—online, in-store and mobile.
Plan for success
A department store retailer cleaned up promoted
prices and projected multimillion dollar cost
savings per annum by replacing its highly manual
promotion planning system, which caused errors
and unplanned discounts, with IBM DemandTec
Promotion Planning software.
Trade funds mastered
By implementing IBM DemandTec Promotion
Optimization and IBM DemandTec Deal
Management software, a leading grocery retailer
streamlined its trade funds presentation,
negotiation and reconciliation processes, and it is
now managing 98 percent of all trade promotions
through the system.

Omni-Channel Merchandise Optimization representative financial benefits
1% – 3%
2% – 5%
0 – 1%
1% – 12%
5% – 20%
1% – 9%
>5%
>10%
N/A
Revenue
increase
Base price
optimization
Promotional price
optimization
Markdown and
clearance optimization
Gross margin
dollar
increase
Volume
increase
1% – 4%
2% – 4%
1% – 3%
Assortment
optimization
Example:
A USD10 billion retailer with 30% gross margins
A gross margin improvement of 3% = USD 90 million
For an IBM customer, this can easily result in an
USD 30–100 million per year improvement in gross profit.

Markdown-driven fulfilment
Integrate markdown optimization with Sterling Order Management software to
more profitably fulfil online orders from stores based on markdown liability
Real-time dynamic omni-channel pricing
Integrate price optimization with IBM WebSphere® Commerce
software to dynamically update store and online prices and
promotions in real time
360-degree view of the customer
Combine shopper insights with digital analytics for a single view of the
customer’s social, browsing and purchasing behaviors
Cross-channel promotion, planning and execution
Integrate promotion planning, optimization and execution with eMessage,
marketing operations and Xtify® to plan, execute and track mass and
personalized promotions across all channels, leveraging shared content
Note. This is not a complete list of integration opportunities.
Extended capabilities for omni-channel customer engagement
Integrate merchandise optimization with IBM Enterprise Marketing Management
and other IBM software solutions

Why IBM?
Largest depth and breadth of integrated
merchandising solutions
Our solutions provide you with the ability to make better predictive
merchandising decisions that optimize your assortment, prices and promotions.
Most advanced science in the industry
Strengthened by IBM Research Labs, our science enables you to resolve more
price, promotion and assortment challenges across multiple channels.
Extensive retail expertise
We understand retail through our expertise gained from working with retailers like
you across multiple segments and geographies.
Integrated merchandising and marketing
across channels
We can deliver true omni-channel customer engagement leveraging integration
with IBM Enterprise Marketing Management solutions and broader IBM assets.
Scalability and security in the IBM cloud
Our security-rich and scalable cloud-based solutions help you mitigate risk,
lower your capital investment and ease the burden on your IT resources.

Business value
assessment
Align business
capabilities with
business strategy and
recommend a road
map for improved value
Solution workshop
Lay out the path ahead,
from immediate
improvements to a
common future vision
Proof of concept
Prove the path forward,
starting small and
scaling up
2
3
4
1
Visioning workshop
Begin charting a
course—whether via a
web seminar, at your
facility or in one of our
solution centers
Let’s get started achieving better business outcomes with proven
approaches to collaborative problem solving

Thank you.

Trademarks and notes
© IBM Corporation 2014
• IBM, the IBM logo, and ibm.com are trademarks or registered trademarks of International Business Machines Corporation
in the United States, other countries, or both. If these and other IBM trademarked terms are marked on their first
occurrence in this information with the appropriate symbol, these symbols indicate US registered or common law
trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or
common law trademarks in other countries. A current list of IBM trademarks is available on the Web at “Copyright and
trademark information” at ibm.com/legal/copytrade.shtml.
• Other company, product, and service names may be trademarks or service marks of others.
• References in this publication to IBM products or services do not imply that IBM intends to make them available in all
countries in which IBM operates.

Omni-Channel Merchandising Optimization

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