Retailers as Mind Readers: How Technology Closes the Consumer Gap

It used to be that retailers and merchandisers determined the length of a woman's hemline each season. Now, it's the other way around. Consumers are the kings and queens who are demanding to be heard, and it behooves retailers to listen — and listen well.

With instantaneous access to information about trends and brands at the touch of an app, the average shopper wants individualized experiences and real-time responses and, if retailers fail to come through, customers are voting with their feet. Even with mass-market retailers, consumers expect to be able to influence what's available on a store shelf or website. They want custom tailoring at every level.

But in recent years, as retailers have consolidated and technology has automated the customer service experience, the opposite has been happening. Stores have been losing that sense of intimacy with the customer. Shopping online, robotic recordings when the customer calls in, and retailers' inability to visit all of their physical locations to understand what is happening on the ground, have distanced the consumer from the retailer. For manufacturers, this challenge is even greater since the distribution channel keeps them one more step removed from the customer.

Thankfully, there are digital innovations that retailers can adopt to effectively create a more personal experience and bridge this yawning gap. Social media and mobile technology in particular are getting the consumer back into the mix.

Online retailers such as Amazon and Gilt Groupe, which use sophisticated algorithms to measure the shopping and viewing patterns of its members, have already figured this out. But the big news is that brick-and-mortar businesses are following suit.

Macy's in particular is doing a stellar job of using social media. Historically a very traditional business, Macy's is using a YouTube channel to show videos of upcoming collections and collaborations, as well as news coverage with celebrity partnerships, such as the Justin Bieber initiative for the holiday season. Through its corporate Twitter account, Macy's continually sends out updates on new collections, in-store promotions (such as the recent "Meet a NY Giant" campaign), and sales. It has incorporated Twitter and Facebook "like" icons on its product pages on the website, which gives Macy's shoppers the opportunity to leave feedback and provides Macy's insights into consumers' preferences. Macy's even maintains blogs, using M Blog to highlight upcoming Impulse collections.

Nordstrom is taking similar social media initiatives, growing its Facebook fan base by offering "exclusive content" to viewers who "like" their page. For the most recent holiday season, it also launched "Nordstrom Santa," a promotion that allowed online shoppers to notify friends via Twitter and Facebook about the items they wanted from Nordstrom. The catch was that friends had to "like" Nordstrom's page to view the items, with the added incentive that participants could win a $500 gift card from Nordstrom. The retailer also blogs and encourages online shoppers to share items on their site through Twitter, Facebook and email.

High-end retailers are also becoming more accessible through social media. Burberry has led the way with "Art of the Trench," a website dedicated to people showcasing trench coats in various styles. For the last few seasons, Burberry has also live-streamed its men's wear and women's wear fashion shows on its website, Facebook page and on YouTube, making product from the show immediately available for purchase through the site. Not to be left out, Louis Vuitton is also streaming its shows on its website and building Facebook content with images from fashion shows, store openings, and celebrities wearing the brand. It even has a branded online magazine: New Now.

Smart retailers are also incentivizing their customers to give feedback. Ann Taylor LOFT, for example offers a $500 shopping spree annually for 30 years for customers who qualify by "liking" items on Facebook.

These programs are ingenious ways of getting real-time feedback on consumers' likes and dislikes for products that are part of the current retail assortment. But innovations in digital technology are not just for analyzing purchase data or reactions to existing products. Retailers are now predicting trends and product preferences for the coming season, or seasons ahead, without having to rely on historical data. Technology has enabled the retailer to harness the power of the collective consumer voice to interpret future demand for products. This is accomplished in a number of ways today.

For example, IBM has developed artificial intelligence software — affectionately known as "Watson" — to predict fashion trends. In one experiment, Watson searched billions of social media posts and identified individuals discussing women's shoes. These tens of thousands of posts were then filtered down to a list of key online influencers in footwear fashion. The software then used special algorithms that rated the popularity of these bloggers based on the size of their social networks. They weren't traditional experts – they didn't necessarily work in the footwear industry – but they were passionate enthusiasts with large followings. By focusing in on discussions about shoe heel heights, Watson was then able to determine the preferred median heel height and learn that it would decline to two inches this year.

While not a crystal ball, these types of sophisticated analytics are the wave of the future in retail. They enable retailers and manufacturers to better plan future products, choose which products to stock, determine how to price them and plan their advertising campaigns.

Whatever technology a retailer uses, it's imperative to get inside customers' heads. Retailers need to be mind readers. Regardless of how people shop, whether it's online, in a store, through mobile technology or even through a catalogue, the retailer needs to be able to create a two-way conversation with their customers, wherever they are, through a seamless, omni-channel approach.

With an unlimited amount of data to sift through, the retailer also needs to edit and make the call about what is most relevant. It's a huge challenge. Information is ubiquitous but insights are rare. We live in an era of information overload, so retailers need to be able to determine what matters to the consumer and, at the same time, be true to their brand. Fortunately, we now have the tools to make this happen.

Greg Petro is CEO of First Insight, a provider of solutions that give retailers inventory investment guidance on new products.
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