How Indigo Books and Music finds the next bestseller

What has made your company successful throughout its history probably won’t make it successful going forward. All too often, companies sit on their laurels and don’t see change coming. Take Nokia. Ten years ago, the company owned the handset market. Today? Well, how many people do you know have Nokia phones?

Having a “big enough market insight” and being able to move to a different place because of recognizing a change in the marketplace can be a game-changer. Toyota did this with its Lexus brand. The insight was the recognition of a growing affluence (aka yuppies) that would create a whole new demand for luxury from a class that had never experienced luxury before.
Perhaps Indigo Books & Music, Canada’s largest book retailer, has discovered its own “big enough market insight.” The book business is under threat, said Sumit Oberai, CIO of Indigo Canada. Book sales in general are going down, so it’s vital to replace that business with other product categories.

“We think there is an opportunity to leverage analytics,” he said. “Indigo is changing, it needs to change. We want to help bring our customers along with that change.” Indigo spun out Kobo, its e-book division. It’s entering new product categories and evolving store assortments. And it recently launched a new customer loyalty program, called PLUM, which allows customers to collect points on purchases (and targets customers who don’t want to pay an annual program fee).

While Indigo faces a changing market, it has other challenges, such as the sheer volume of data it has to deal with. The book retailer has 30,000 to 50,000 SKUs in a single store, 3 million SKUs in its catalogue and millions of customers.

A few years ago Indigo deployed SAS as part of an initiative to drive better customer engagement with the brand. They rolled their online and in-store channels into one to gain a single view of the customer. And they started building models for customer relationship management, to recommend books to customers based on previous purchases.

Analytics help them determine what to feature in-store, what to return to the publisher and how to manage markdowns to get a profit out of a declining profit line, as well as what future investments to make in non-book areas. The challenge with the data, however, is that books and toys are often bought as gifts. “If I bought a book on knitting for my mother, that doesn’t mean I want a bunch of recommendations on knitting books,” said Oberai.
That’s still a challenge, as is the sheer volume of data they have to deal with. But overall, they have a clear ROI path. “Unlike other technology investments, it’s one of the easiest things to measure,” he said. For example, they can send out a highly targeted email to certain customers, and a general email with discounts for the top best sellers to others. “We found spend is higher in highly targeted emails,” he said. “It gives us a direct measureable return, but it also gives us softer advantages.” This includes happier customers (they use Net Promoter to measure customer satisfaction).
Many companies, however, are resting on their laurels or continuing to do business the way they’ve always done business — and missing out on that “big enough market insight.” Over the past year, the media has picked up on this trend. InfoWorld stated: “Microsoft is becoming your grandma’s computer company.” And Fortune magazine asked: “Is Google over?”
“Ninety-nine per cent of [Google’s] business comes from search,” said Jim Davis, senior vice-president and chief marketing officer with SAS, during SAS Global Forum in Las Vegas last month. “Search isn’t where it’s at today. It’s an important component, but it’s not what’s going to take them forward.” When it comes to display advertising revenue, Google has 2.4 per cent market share. Facebook, on the other hand, has 16 per cent.
In March, The Wall Street Journal ran an article about RIM, stating: “It should be evident by now that a corporate tragedy is underway … Perhaps the company should be called Research in Slow Motion.” Compare RIM’s Playbook, which doesn’t have cellular capabilities in its first iteration, to Apple’s iPad 2, said Davis. The magnetic cover for the iPad — a simple accessory — is expected to net Apple US$770 million in the next 12 months. Companies that we thought had it all, such as RIM, now have to rethink strategy and retool product.
In yet another magazine article, Newsweek talked about the concept of “brain freeze” and how the deluge of information paralyzes our ability to make good decisions. “We’re data obese now,” said Davis. “The more data you throw at a person, the more they lock up, and that’s what’s happening in a lot of companies.” And this is paralyzing business processes. Time passes as we wait to see what’s real and what’s not — and we often miss an opportunity.
By 2013, 33 per cent of business intelligence functionality will be consumed via handheld devices, according to research firm Gartner. And 15 per cent of BI deployments will combine BI, collaboration and social software into decision-making environments. But not all companies take social media seriously.
SAS worked with Harvard Business Review to ask 2,100 companies worldwide if social media was important to their future, and 69 per cent of respondents said the use of social media by their organization will grow significantly. But 60 per cent said their organization has a significant learning curve to overcome, and 50 per cent said that until they can measure social media it would not be taken seriously.
If you’re in the business of servicing a customer base, then it’s critical to monitor what’s going on out there in social media and be responsive by dealing with negative sentiment, said Davis.
At the conference, SAS announced Conversation Center, a tool that monitors Twitter feeds and the blogosphere in real time, allowing companies to not only measure sentiment, but also to take action on it. The idea is to help companies protect their brand, engage the most influential voices in the market, enhance market research, understand the impact of industry trends, gather competitive intelligence and create a better customer experience.
This is where BI needs to go, said Davis. Companies need to improve the flow and flexibility of data, get the right technology in place and demand fact-based decisions, but they also need to get the right talent, transform the culture and continually revise their strategies. “You may have developed something brilliant but people will catch up quicker than you think,” he said.
No doubt, vendors such as Microsoft, Google and RIM have tools in place to measure performance. But the tools alone aren’t going to solve the problem, said Davis. It’s about creating a culture that is innovative. The ideal scenario is a CIO who understands the importance of fact-based decision-making, but in many cases they may have to begin from a grassroots level and change a process that’s been around for years.
Charlene Li, author of Open Leadership and founder of Altimeter Group, a research-based advisory firm that helps companies leverage disruption, said Dell is a good example of a company with a transformative culture. “Back in 2005, remember Dell Hell?” she said during SAS Global Forum. At the time, Dell was suffering from poor customer service and technical issues — remember those exploding laptops?
But they started to use data to transform the culture of the organization, to see what needed to be fixed and to set up a centre of excellence to monitor customer feedback. CEO Michael Dell set the direction on how quickly customer issues needed to be addressed. Now they’re looking at tweets and Facebook mentions and responding to those in real time. “See how long it takes for Dell to get back to you,” said Li. “Definitely within 24 hours.”
And this is changing the role of the IT leader, who is truly becoming a business partner with marketing and sales. But one of the biggest challenges, said Li, is trying to create perfect analytics. “So many organizations get hung up on a master data set, but there’s only so much time,” she said. “Strategize on the most impactful business decisions.”
Because t any given time, customers are on your website, reading customer reviews to better inform buying decisions, shopping in your store using a mobile device to ensure they aren’t overpaying for anything, or telling their friends on social media what they think about your brand. They expect a near-instantaneous ability to find what they’re looking for; if not, they’re only a click away to your competitors. So companies have to rethink how they interact with customers to meet new expectations.
To measure success, start by asking what kind of relationship you want with the customer, said Li, and the answer will tell you what you need to be measuring. Often companies see their customers in terms of a transaction, she said, but that commoditizes your value proposition. Understanding customer behaviour can be achieved by structuring your approach to data gathering.
“Everyone is looking for that magic bullet,” she said. “But if you can use analytics to make your front-line people just a little more attuned, a little more aware of how they can impact the customer experience, that is astounding. You won’t need a magic bullet.”
Paul Nunes, executive director of research for Accenture’s Institute for High Performance, says it’s important to recognize that businesses have lifecycles — they start small, become successful, hit their peak and reinvent.
Zenith, for example, invented the car radio and the TV remote. And Zenith Data Systems was, at one time, the No. 2 maker of IBM-compatible PCs. What happened? The company wound up expanding production, but underestimated the Japanese threat. And management had an inability to let go, so they sold off the data systems business and went back to TVs. By that time it was too late and they sold off to LG.
Of companies that see their revenues peak, only seven per cent are ever able to recover to see normal revenue growth, said Nunes. Company life spans are growing shorter; now it’s down to about 10 years. Global competition is intensifying. And technology continues to evolve as consumer tastes continue to change, which hastens the need for reinvention.
And there are all sorts of disruptive market forces, including mobility, digital marketing, cloud computing, consumers in emerging markets, sustainability and smart infrastructure solutions — to name a few. “What insight is driving the business? How can we use analytics to convince folks of the trends that we’re seeing?” said Nunes. It’s not just about knowing what customers want, but knowing exactly what they want, and only entering the market once you can deliver on those thresholds.
Create a hothouse of talent, said Nunes, and establish hotbed conditions to create a surplus of talent. Hire for long-term fit, not short-term needs, he said. Give people assignments rather than jobs, and cultivate hardiness through variety. When companies focus on culture they seek to create a consistent mindset (at P&G they’re called Proctoids). Recognize the need to break that, because you’re susceptible if the company becomes too insular. Get out there with real people to really understand the customer.
Many Canadian companies, however, are still struggling with strategy around their use of analytics. Bryan Robertson, senior analyst with OpenRoad, a Web application development company, works with clients to establish key performance indicators — and continued optimization of those KPIs.
“The tools produce a lot of data and you can easily get lost in that data and not get anywhere with it,” he said. “You need to be laser-focused in terms of what metrics you choose to look at and making sure they’re tied to strategy and they’re actionable.”
But the only way it’s going to work is if management has a clear strategy in terms of what it’s trying to measure and IT has a sound implementation strategy to get that data. “You can have a great strategy and a really good performance management measurement perspective, but I’ve seen several clients fall down on implementation,” said Robertson. “It’s going to work best when the organization is working closely together.”
As part of the measurement definition, however, companies have to decide who owns each metric. “It’s critical someone owns each one of these metrics,” he said. “That person is on the hook for acting on it.”
Some organizations still fear measurement, so this involves a cultural shift. No one should be fired for a metric that performs poorly, said Robertson. Someone should be fired, however, for failing to act on that underperforming metric. “People are leery of stepping up toward a target, so it’s a bit of a balancing act because you need people to be motivated by the numbers, but you don’t want them to be paralyzed by the numbers,” he said.
Most leaders are skilled at making decisions based on financial data, said Robertson. Traditionally executives who got involved in operational decisions were forced to make decisions based more on gut feel than available data and analysis. Over the years more analysis tools and processing power have become available and afforded more data-driven decision-making. The potential for the use of data to make decisions now exists in almost all areas of the business.
“The challenge for leaders more experienced with — or with a preference for — gut-based decision-making is to seek data and adjust decision-making processes accordingly,” he said. “The challenge for rank-and-file analysts is to stop talking gobbledygook and use data to tell stories to executives with financial outcomes.”
Thomas Davenport, author of Competing on Analytics, found that companies that are data-driven are seven per cent more profitable than those that are not. And new research from Erik Brynjolfsson, a professor at the MIT Sloan School of Management, found that analytically driven companies are five to six per cent more productive.
In a panel at SAS Global Forum, Davenport said that IT can be a barrier, so IT and business analytic teams need to be joined at the hip. The best companies overlap in skills between IT and business analytics. “If the relationships between the groups are bad, it will hold you back.”
He advised companies to prioritize data analysis projects and not try to tackle everything at once. Are you focused on customer attrition? Increased loyalty? Targeted promotions? “You can’t do it all. Trying to do everything can result in no real impact anywhere,” he said. And if you’re just generating insights, but not acting on them, it’s going to be hard to get any value from analytics.

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Jim Love, Chief Content Officer, IT World Canada

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