Limitations of Big Data Analytics

By now, you’ve probably heard of big data analytics, the process of drawing inferences from
large sets of data. These inferences help identify hidden patterns, customer preferences, trends,
and more. To uncover these insights, big data analysts, often working for consulting agencies,
use data mining, text mining, modeling, predictive analytics, and optimization.

As of late, big data analytics has been touted as a panacea to cure all the woes of business. Big
data is seen by many to be the key that unlocks the door to growth and success.

However, although big data analytics is a remarkable tool that can help with business decisions,
it does have its limitations. Here are 5 limitations to the use of big data analytics.

Prioritizing correlations

Data analysts use big data to tease out correlation: when one variable is linked to another.
However, not all these correlations are substantial or meaningful. More specifically, just because
2 variables are correlated or linked doesn’t mean that a causative relationship exists between
them (i.e.,“correlation does not imply causation”). For instance, between 2000 and 2009, the
number of divorces in the U.S. state of Maine and the per capita consumption of margarine both
similarly decreased. However, margarine and divorce have little to do with each other. A good
consultant will help you figure out which correlations mean something to your business and
which correlations mean little to your business.

The Wrong Questions

Big data can be used to discern correlations and insights using an endless array of questions.
However, it’s up to the user to figure out which questions are meaningful. If you end up getting a
right answer to the wrong question, you do yourself, your clients, and your business, a costly
disservice.

Security

As with many technological endeavors, big data analytics is prone to data breach. The
information that you provide a third party could get leaked to customers or competitors.
Transferability

Because much of the data you need analyzed lies behind a firewall or on a private cloud, it takes
technical know-how to efficiently get this data to an analytics team. Furthermore, it may be
difficult to consistently transfer data to specialists for repeat analysis.

Inconsistency in data collection

Sometimes the tools we use to gather big data sets are imprecise. For example, Google is famous
for its tweaks and updates that change the search experience in countless ways; the results of a
search on one day will likely be different from those on another day. If you were using Google
search to generate data sets, and these data sets changed often, then the correlations you derive
would change, too.

Ultimately, you need to know how to use big data to your advantage in order for it to be useful.
The use of big data analytics is akin to using any other complex and powerful tool. For instance,
an electron microscope is a powerful tool, too, but it’s useless if you know little about how it
works.
With the retail market getting more and more competitive by the day, there has never been anything more
important than the ability for optimizing service business processes when trying to satisfy the
expectations of customers. Channelizing and managing data with the aim of working in favor of the
customer as well as generating profits is very significant for survival.

Data Analytics in Retail Industry

For big retail players all over the world, data analytics is applied more these days at all stages of the retail
process – taking track of popular products that are emerging, doing forecasts of sales and future demand
via predictive simulation, optimizing placements of products and offers through heat-mapping of
customers and many others. With this, identifying customers who would likely be interested in certain
products depending on their past purchases, finding the most suitable way to handle them via targeted
marketing strategies and then coming up with what to sell next is what data analytics deals with.

Strategic Areas in Data Analytics for Retailers

There are some strategic areas where retail players identify a ready use as far as it is data
analytics. Here are a few of those areas:

1.) Price Optimization

Of course, data analytics plays a very important role in price determination. Algorithms perform several
functions like tracking demand, inventory levels and activities of competitors, and respond automatically
to market challenges in real time, which make actions to be taken depending on insights safe manner.
Price optimization helps to determine when prices are to be dropped which is popularly known as
‘markdown optimization.’ Retail giants like Walmart, spend millions merchandising systems on their real
time with the aim of building the world’s largest private cloud so as to track millions of transactions as
they happen daily. As stated earlier, algorithms perform this function and others.

2.) Future performance prediction

This is another important area when looking into data analytics in retail industry since every customer
interaction has a very big impact on both potential and existing relationships. Dishing out the full idea to
the full sales force personnel might be risky because making a wrong decision could result in an
immediate or prolonged loss. Rather, top business organizations have discovered the best way to contain
cause-and–effect relationship between key performance and strategic shift indicators by using a test-and-
learn approach. This is carried out by customers or reps who compare the performance of the test group to
performance of a well-matched control group. This is the data science involved behind the study.

3.) To accommodate small-scale retailers

Data analytics in retail is important for small-scale retailers, who can get assistance from platforms who
provide the services. Apart from this, there are organizations, mainly start-ups, who offer social analytics
to create the awareness of products on social media. Therefore, small-scale businesses can take the
advantage of data analytics retail without spending too much in order to avoid hurting their finances.

4.) Demand prediction

The moment retailers get a real understanding of customers buying trends, the focus on areas that would
have high demand. It involves gathering seasonal, demographical, occasions led data and economic
indicators so as to create a good image of purchase behavior across target market. This is very good for
inventory management.

5.) Pick out the highest Return on Investment (ROI) Opportunities

Retailers use data-driven intelligence and predictive risk filters after having a good understanding of their
potential and existing customer base, for modeling expected responses for marketing campaigns,
depending on how they are measured by a propensity to buy or likely buy.

6.) Forecasting trends

Retailers, nowadays have several advanced tools at their disposal to have an understanding of the current
trends. Algorithms that forecast trends go via the buying data to analyze what needs to be promoted by
marketing departments and what is not needed to be promoted.
7.) Identifying customers

This is also important in data analytics retail because choosing which customers would likely desire a
certain product, data analytics is the best way to go about it. Because of this, most retailers rely so much
on recommendation engine technology online, data gotten via transactional records and loyalty programs
online and offline. Companies like Amazon might not be ready ship products straight to the customer’s
before they order; they are looking in that direction. Individual geographic areas depend on demographics
that they have on their customers which imply that demand is forecast.

Role of Data Analytics in Retail Industry

Other key areas where data analytics play a key role are:

a.) Discount Efficiency

Retailers can run analysis on historical data and utilize it in predictive modeling for determining the
impact of discounts and offers would have on a long-term basis. For instance, a team of data analysts and
scientists can make a history of events that might have occurred if there was no discount. They then make
a comparison of this with the real events when there were discounts to have a better understanding of the
effectiveness of each discount. After getting this knowledge, the retailer will now readjust his discount
strategy by increasing the number of discounts on various categories and removing less profitable deals.
This would certainly boost the average monthly revenue.

b.) Churn Rate Reduction

The creation of customer loyalty is the main priority among all brands because the cost of attracting a new
customer is more than six times expensive than retaining the existing ones. It is possible to represent
churn rate in various like percent of customers lost, the number of customers lost, percent of recurring
value lost and value of recurring business lost. With the help of big data analytics, insights got like things
customers are likely to churn, retailers can find it easy in determining the best way to alter their overall
subscriptions to prevent such scenarios. For instance, a retailer takes an analysis of customer data after a
monthly subscription box and can use it to get new subscribers who might likely end up as long term
customers. This would result to the retailer decreasing the monthly churn significantly and would make
brands be able to calculate lifetime value and make money back on marketing costs that are steep.

c.) Product Sell-through rate

Products that are data related can be analyzed by retailers to find what pricing, visuals, and terminology
will resonate with the potential and existing customers. An alteration of the product showcase depending
on the data sets that are analyzed, retailers will obtain improved sales rate. Take, for instance, Uber’s
whole business model depends on big analytics for sourcing of crowd and sell-through of products. With
customers’ personal data, Uber is able to match them with the most suitable drivers depending on the
location and rating of their customers. Customers, therefore because of such personalized experience,
would prefer to take advantage of Uber’s personalized offers against offers by competitors of Uber or
even regular taxis.

Getting the right customers to stores is very important too, something a US department store giant
recently discovered. Because of the way their analytics showed a dearth in vital “millennials”
demographic groups, their One Below basement was opened at their New York flagship store.
Promotions such as “selfie walls” and while-you-wait customized 3D-printed smartphone cases were
offered. All these were just ideas for attracting young customers to their store with the aim of giving them
an awesome experience.

Opportunities in Retail Analytics

Also, there are several opportunities in retail analytics:

1.) The promise of big data

Yearly, retail data is on the increase, exponentially in variety, volume, value, and velocity every year.
Retailers who are smart know that each interaction holds a potential for profit. So much profit.

A report in 2011 states that retailers who use big data analytics could increase their operating margins by
as much as 60 percent. This, therefore, has created the need for the data scientist whose job is to make big
data (structured or unstructured, external or internal) clear. This is to help retailers take actions that will
help them increase sales while costs are reduced.

2.) Marketing

 Online behavioral analysis and web analytics that create tailored offers.
 Personalized and location-based offers on mobile devices.
 Targeted campaigns that use analytics for segmenting consumers, identifying the best channels
and eventually achieving an optimal return on investment.
 “Second by second” metrics used by real-time pricing.

3.) Customer Experience

 Multi-level reward programs and personalized recommendations that depend on online data
purchase preference, smartphones apps, etc.
 Sentiment analysis of call center records, social media streams, product reviews and many
others for market insights and customer feedbacks.
 Predictive analytics for customer experience enhancement on all devices and channels, online
and offline.

4.) Merchandizing

 Detailed market basket analysis that yields more rapid growth in revenue.
 Identifying shopping trends and cross-selling opportunities with the aid of video data analysis.
 Rise in daily profits via a combination of external and internal data such as seasonal and holiday
trends, economic forecasts, traffic and weather reports.

5.) Omni-Experience

The main aim is a streamlined and seamless experience for everyone involved. This is from when the
product leaves the manufacturer, to the store floor or warehouse, to it being purchased, the retailer wants
maximum efficiency in all departments.
It is no longer news that the retail industry has gone through a lot of operational changes over the years
due to data analytics in retail industry. The solutions of big data analytics in retail industry have played an
important role in bringing about these changes. Therefore, the adoption of these analytics solutions is
growing rapidly making more retailers work tirelessly in order to enhance supply chain operations,
improve on marketing campaigns and raise the satisfaction of customer as well as achieves a high success
rate in retailing.

Challenges

A lot of issues would be acknowledged to optimize data analytics in retail industry full capacity. Factors
such as security, privacy, liability policies and intellectual property have to be stringent when talking
about analytics. Analytics and big data are inter-related and therefore professionals who are specially
trained would need to be included in the team so as to functionalize and utilize big data analytics.

Also, companies would find it pertinent to incorporate information from various sources of data, mainly
from third parties, and aid such environment by deploying efficient data.

Finally, companies often make the mistake of falling in short-sightedness, making them fail in
implementing the insights gotten from analytics. Of course, this could be fixed by continuously altering
retail styles where a particular team is given the task of arranging and implementing insights.

Conclusion

Retailing has gotten to the platform for more disruption that is data-driven because data quality gotten
from several sources such as social network conversations, internet purchases, location-specific
interactions from smartphones have transformed into a new entity for transactions that are digital based.

The benefits that organizations would reap from utilizing data analytics are better risk management,
improved performance and being able to discover insights that may have been hidden.

With the big return of interest data analytics delivers in the retail industry, most retailers will continue to
utilize solutions so as to increase customer loyalty sustenance, boost the perception of their brand and
improve promoter scores. Data analytics retail allows retailers and organizations gather information on
their customers, how to reach them and how they can use their needs to impact sales. As technology
continues to dominate retail industry, one thing is certain – data analytics is here to stay!