At the first DataIQ Conference last October, data was constantly identified as a highly valuable asset. In order to exploit its potential, however, companies need to be prepared with new processes, people and technology. David Reed reports on what advice speakers had to offer.
If data is to be classed as an asset, the critical question is, what class of asset does it most resemble? Cash is an obvious possibility, although data can not be traded or banked in the same way. Intellectual property has obvious similarities, although data tends not to have the same unique qualities.
One parallel widely used at the first annual DataIQ Conference in October was oil. Like that raw material, companies first need to have exploitation rights, then they need to extract it and finally transform and analyse it in order to create something with added value. Just as the world would seize up without oil, so business can no longer function without data.
The metaphor was explicitly used by Peter Gleason, managing director, intelligent shopper solutions, Aimia, which helps FMCG manufacturers and category managers to exploit Nectar card data. “I believe in the view that data is the new oil. You can’t just take oil out of the ground and put it into your car - you need to process, refine and transport it. Data also has to be extracted, refined and delivered to become valuable information. Its value relies on permissions and privacy. Without them, it is a big risk.”
One key difference between oil and data as assets is that there is no scarcity of data, he pointed out. “We are seeing a data explosion - 15 petabytes of data are created every day globally or 1.8 zetabytes in 2011. The opportunity is to harness that and deliver value,” noted Gleason. Nectar cards generate 29 million rows of data daily, with records held for two years on dimensions such as store, till, basket total, number of items, SKU, price, promotions or coupons used, all linked using the unique card identifier.
Just as the global petrochemical industry has become ever more sophisticated at methods of extraction and uses for its products and by-products, so the data industry needs to become more adept at coping with data gushers. Gleason pointed out that the average Sainsbury’s store carries 50,000 SKUs and is visited by 12,000 unique customers every week.
That does not just mean increased volume and complexity of data, but also of the decisions that need to be made using it. An average Sainsbury’s will stock 85 different loaves of bread, for example. Just ranging, pricing, merchandising and restocking that one product type shows just how complex decisions now are in retail and FMCG.
Aimia is an example of the new generation of companies which are helping businesses to absorb and act on this new wave of data. From planning media and marketing, right through to supply chain management, “data means companies are using the same language to make the right decisions and unlock value through CRM and category management,” he said.
It takes 300 people within Sainsbury’s and 2,000 in the broader user base to transform the base Nectar card data into meaningful and actionable insights. Their impact can be immense. Gleason reported on one international company that wanted to reduce its inventory by £500 million. That represented a 25 to 40 % drop in the number of items it stocked, which could have hit sales by anything from 5 to 30 %.
By using Nectar data to understand how products were bought, which were essential and where certain product sales were linked, the company was able to make the cut in stock, but achieved a 6 % increase in sales. “It became easier to shop and merchandise, so you can reduce stock and still give the customer a benefit,” he noted. In another example, Sainsbury’s has been able to reduce the number of products on promotion to 32 % of sales compared to 37 % on average in grocery retailing.
Data’s ability to support major decision of this sort, which deliver substantial benefits to the bottom line, is behind the current claims for its value. In a growth economy, it is relatively straightforward to expand since customers are actively looking for new products and services. In a down economy, the focus has to be on more internal improvements, such as cost-cutting, productivity gains and ways to hang on to cash. Data plays well in both phases but is one of the few to offer significant gains during economic difficulties.
O2 is now reaping the benefits of the substantial investment it made into its Customer Intelligence Centre over the last few years. Between 2006 and 2011, its customer base grew by 40 %, reaping the organic growth in the mobile market. With 36 billion transactions every month, it has a data warehouse with 300 billion rows of data drawn from 400 different operating systems.
Exponential growth in data is only useful if the business can make positive use of that resource. “The tipping point was a report by Accenture that showed ‘analytical shakers’ - businesses that invest significantly in advanced analytical functions - outperform the S&P 500 by 64 %,” said Andy Day, head of CRM at O2. “We know that 90 % of what we do can be copied by our rivals. Competing through analytics is a way to differentiate the business.”
As a result of this insight, the business has spent £30 million on its CIC and grown the human resource from 15 to 55 people over five years. “It is driven by skills, rather than technology to drive value through the exploitation of data. We measure the value, not the size of the data warehouse,” said Day.
One outcome has been to move decisions away from the use of averages. As Day noted, “if a man has his head in the fridge and his feet in the fire, he is, on average, warm.” This can sometimes stand accepted wisdom on its head. For example, analysis has revealed that low value customers actually deliver better margins if they are acquired cheaply, whereas the business has generally been focused on high value customers.
At the same time, O2 has been able to identify loss-making customers - one segment was responsible for multi-million pound costs every month, while another was generating six-times the volume of calls to customer services relative to its size and consuming ten-times the amount of agent time.
Insight only becomes valuable when it leads to value-adding action. In the above case, many of the calls related to problems using handsets or services. By creating explanatory videos and placing them on YouTube, then sending SMS with an embedded link, customers were able to self-service, leading to a 50 % drop-off in calls.
“We have been using social network analysis to build a clearer picture of the role played by influencers and the way they pass on information. We used that for the launch of the iPhone 3GS where we found a 4.1-times take up among the influencer community. We also found out that people who took part in our ‘Scrum the Beach’ with the England rugby team bought six-times as many products as non-influencers,”
Successes like these have created an appetite for more data and analysis across the enterprise. Day explained that an “Art of the Possible” internal research programme identified 100 significant projects with multi-million pound benefits to the business. “We are now looking at how to focus our effort on the low-hanging fruit,” he said.
The explosion in the volume of data is only an opportunity if organisations are able to manage its flow in line with their ability to transform it, just as oil producers need to with every well they sink. Data may be almost unlimited in scale, but each business has finite resources to deploy and also a limited ability to absorb changes and new plans.
Opening the conference, Martin Hayward, founder of Hayward Strategy and Futures and former futures director at DunnHumby, pointed to a McKinsey report on the opportunity presented by ‘Big Data’. “They identified a 0.5 to 1.0 % improvement in productivity annually through exploiting big data. That could be the key to new prosperity,” he said.
Set against the new sources and possibilities of data, Hayward pointed to growing consumer concerns about privacy and permission. “They are waking up to the power of data and the need for their permission,” he said. As part of the its role as the new oil, data will come under new regulations and have to find fresh frameworks for its value exchange. Hayward pointed to the Government’s Mydata project as an example.
“It is a profound shift if you have to tell the customer all the information you hold on them. They can then trade off against other suppliers,” he noted. Some of the new data volume may also get capped off as a result of initiatives like Do Not Track in the US.
Just as consumer behaviour is changing, so will that of companies, especially their marketing departments. “The arrival of this data is creating a new array of opportunities to intervene and interact. You can now reward people for their behaviour through systems like Facebook Places and Foursquare. You can look at interactions, connections and influence and are able to connect the dots,” said Hayward. This is being called the “Thank You Economy” by some commentators.
Not all of the value-driving uses of data are based around social networks or mobile. For More Th>n, “tapping into the love owners have for their pets” by mailing a request “from the pet” to get a pet insurance quotation as a birthday present led to a 150 % increase in sales alongside a 60 % reduction in cost per sale, according to Pete Markey, chief marketing officer at RSA Group.
“Our big learning is that we need to be smarter than ever to get our pack opened and onto the customer’s shopping list. We can keep beating our control by being smarter,” said Markey. His summary is a perfect motto for an industry learning how to maximise the benefits from its latent assets. Said Markey: “Don’t get lazy - keep innovating.”