Is Myer Holdings Ltd employing the wrong strategy?

Heavy investment in ‘big data’ analytics could be misplaced for Myer Holdings Ltd (ASX:MYR) and Woolworths Limited (ASX:WOW).

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I think it is safe to say that most customers have a vague idea their shopping habits are tracked by major retailers.

What did you buy, and at what store? Why did you buy it?  What items often get bought together? Is there a correlation between the types of items bought and the total amount spent? How about a correlation between the items bought and the type of payment used?

This last question brought you first the credit-card PIN, and eventually the PayPass system (wave your card over the EFTPOS machine to pay), because research determined that the credit card was often used to make small purchases quicker and less painful.

These are the kinds of questions retailers ask themselves all the time, in an attempt to better understand, pre-empt, and thus extract more dollars from consumers.

Of course it’s great for customers too, because we get more of what we want, it’s easier to find, and sometimes cheaper to get a hold of.

But one analytics expert, Ian St-Maurice at global consulting firm AT Kearney, believes that firms are focussing on the wrong kind of big data analytics, or investing too much money into it when that money would be better spent elsewhere.

As quoted in Fairfax media this morning, Mr St-Maurice pointed out that offering loyalty cards and benefits to the most ‘promiscuous’ shoppers (those who switch between stores at will) might actually destroy value by offering too much in the way of discounts and enticements (since the shopper might take advantage of the discount, and then go back to shopping around).

Mr St-Maurice said that retailers like Woolworths Limited (ASX: WOW) and Myer Holdings Ltd (ASX: MYR) might be better off understanding why consumers went elsewhere, and focussing on retaining (or rather, dissuading from straying) semi-loyal customers who still visit the stores of competitors.

Putting this in context, I know that I personally shop at either of two Woolworths stores, because they are closer, and also because I like the atmosphere of the one that is co-located in a Stockland shopping centre.

However, a shortage of gluten-free bread at Woolies or a desire for a couple of tasty products at a Wesfarmers Ltd (ASX:WES)-owned Coles store is enough to lure me elsewhere.

My experience chimes with Mr St-Maurice’s thoughts, who stated that there is often a specific event, like a shortage of a desired product, that sends consumers to shop elsewhere.

He further stated that retailers need to put more focus on qualitative research (interviews and surveys, rather than pattern analysis) to better understand consumers’ concerns.

If there’s one thing ‘big data’ analytics can’t do, it is tell you the why of consumer behaviours.

You can learn all you need to know about payment info and purchase patterns (research which brought you PayPass and self-serve checkouts, among others), without having anything more than a vague grasp of why consumers are or are not shopping at your store.

With Woolworths and Myer still grappling to improve slowing sales, taking AT Kearney’s concerns on board and working to understand the why of consumers could be the way to go.

Motley Fool contributor Sean O'Neill doesn't own shares in any company mentioned.

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