This Black Friday, Stores Know Customers Better, Via Big Data

Macy’s and Sears might not be psychics or fortune-tellers, but that doesn’t mean they can’t predict the future. Each year, retail giants attempt to forecast the hottest toys and trends of the holiday season, but also to predict how much the different types of consumer will spend and on what.

So what’s their secret? They use the same techniques that Nate Silver used to correctly predict all 50 states in this year’s election, and that police forces use to fight crime in San Francisco and Memphis.

It’s all about big data analytics; retailers are using it to discover everything about their customers.

Survey Says...

For instance, this year the average holiday shopper is expected to spend $749.51 this season, up from $740.57 from last year. Of that total, $421.82 will be spent on children, parents and other relatives. The rest will be spent on friends, co-workers, food, flowers, and other goods.

But where exactly do retailers get this information? Well those stats came from a National Retailer Federation survey; but those are by no means the only source of data.

Rewarding Our Loyalty

Most retailers actually track customer purchases and use that data to suggest additional products to consumers. For online shoppers, this could mean embedding cookies within your browser, which allows retailers to suggest additional products, but that’s an imperfect science.

To completely track customer history—both on- and offline—many retailers use customer loyalty programs, which often attract customers by offering special discounts or offers exclusively to members.

This purchase tracking can be used for customers’ benefit, not just the retailer’s. For example, the home improvement retailer Lowe’s recently launched a series of advertisements highlighting its MyLowe’s program, which automatically tracks and remembers purchases, so consumers don’t have to:

While analytics can improve customer service, they can also backfire. For example, earlier this year Target became the premier case study of when too much data can be a bad thing when the retailer sent baby coupons to a pregnant teenager’s home. The retailer had concluded that the customer was pregnant, based solely on her purchase history; the only problem was that the teen had yet to reveal the pregnancy to her father, who found the coupons in the household mailbox.

Credit Where Credit’s Segmented

Another source of data for retailers might actually be your credit card provider. It was recently revealed that MasterCard has, since February, been pitching a new program called MasterCard Audiences, which involves the selling to advertisers and retailers of anonymous, aggregated customer transaction information.

The company says it can identify millions of different consumer segments—such as business travelers, holiday travelers, Black Friday shoppers, Cyber Monday shoppers, etc. Again, it does this by analyzing big data: in this case, their historical spending patterns.

But before you don your tinfoil hat, note the words aggregated and anonymous above. According to a company statement, “MasterCard is committed to protecting individual privacy. No personally identifiable information is collected, disclosed or used.”

Brave, New World

Regardless of how or where retailers get customer data, one thing’s clear: It’s here to stay. Retailers such as Sears continue to reinvest and retool their analytics in hopes of finding ways to increase profits and reduce costs.

So while you’re drafting your holiday gift list, ask yourself: What can big data do for your business?

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