With the growing advancement of technology globally, data science plays an increasingly significant role in every industry. The retail industry in particular can reap considerable benefits from the integration of data science into its strategies - nearly every retailer already possesses some form of customer data. Merely taking this data, refining it, analysing it, and finally modeling it can provide the retailer with substantial insights, taking action on which would undoubtedly lead to exceptional boosts in sales.
Field inventory management is a crucial aspect of any retail outlet, as it helps ensure that there are sufficient goods available to meet the demands of its target market and thus avoid overstocking of goods. The use of data science has the potential to greatly improve the inventory management process; instead of the retailers forecasting the customer demand using outdated, erroneous processes, they could employ machine learning algorithms. These algorithms will recognise patterns in data related to sales trends and supply chains and detect correlations, allowing the retailer to opt for the most efficient inventory management strategy in a much quicker and accurate way.
Secondly, many retailers today make use of recommendation engines as a tool to gauge customer preference. A recommendation engine may be of various types: content-based filtering, collaborative filtering, or a mix of the two (hybrid). The former makes a prediction of a customer’s preferences by analysing the characteristics of a known product and simply recommends other products with similar features. The latter type makes the predictions by associating one customer’s preferences with another’s (e.g. if one customer uses product A and another customer uses product A and product C, then it will recommend product C to the first customer as well). Using this recommendation engine system, retailers are able to accurately detect trends and optimize sales, eventually leading to an increase in overall profits.
A relatively newly-introduced application of data science in the retail industry is the customer sentiment analysis tool. For any given retailer, customer segmentation is a critical facet of running the business because without thoroughly understanding the customer’s needs and wants, retailers cannot optimise their marketing budgets, nor can they ever hope to gain competitive advantage over their rivals. Conventionally, market segmentation is carried out through processes such as customer polls, surveys, focus groups, or questionnaires. Of course, these techniques incur a significant amount of time, expenses, and work. However, with the data science-based customer sentiment analysis tool, the whole process becomes substantially more cost-effective and efficient - data is gathered from readily available sources such as the customers’ social media activity. This data is then processed by data engineers performing sentiment analysis through natural language processing, thus categorising the customer sentiments into negative, neutral, or positive views. Retailers can make methodical use of this data science tool to effectively nail down customer feedback and provide improved customer services.
Price optimization can also be carried out through the application of data science techniques. If products and goods are priced optimally, it is mutually beneficial to both the customers and the retailer. Data science can be utilised to first analyse data obtained through multi-channel sources in order to extract information on the customers (location, attitude, popular seasons), the prices (flexibility, rival prices). Then, retailers employ real-time optimisation models, which aid in putting together personal pricing schemes and attracting customers. Eventually, this enables the retailer to maximise on profits while simultaneously ensuring an optimal customer experience - this is a win-win situation for both parties.
Unfortunately, a commonly occurring problem in the retail industry is financial losses as a result of fraudulent activities by one party or another. The cause for this may be traced back to the increase in internet accessibility across the globe and the rising digitalisation of business activities - either way, it leads to negative repercussions on both retailers and customers. Fortunately, data science offers a practical solution to this obstacle as well. Data scientists make use of techniques such as DNNs (Deep Neural Networks), which essentially gather and analyse the customers’ and retailers’ data. Proceeding from there, the DNNs make use of certain data visualization tools in order to comprehend any trends and/or patterns present in the dataset, in addition to highlighting any outlying data points that may represent unusual behaviour of customers/retailers. This aids in fraud detection because it flags any unusual activity and promptly lets the concerned party know of this. For example, if a party makes a transaction through a debit card and the money is deducted from the account without asking for a PIN number or OTP, it is recognised by the network as unusual and unexpected activity.
Practical applications of data science in the retail industry are vast and not limited to the ones mentioned above, but the advantageous nature of data science techniques is clearly illustrated. Retailers can effectively employ data science to obtain valuable insights, and use such insights to develop highly efficient strategies to increase profit margins, customer satisfaction, and market accessibility. Some examples of well-known retailers that make regular use of data science techniques to optimise activities are Starbucks, Netflix, and Amazon. It is no surprise that these retailers are able to stay prosperous as they continually develop their use of data science to monitor and evaluate their data. Hence, it is evident how the retail industry has been reshaped and revolutionised by the progression in data science in today’s business environments all across the globe - this impact is expected to continue to increase with more advances in technology.