Ecommerce retailers have one major advantage over brick-and-mortar businesses: easy access to critical data.97% of data executives believe data is critical for maintaining a business' profitability. That is because data can enhance your decision-making process and consequently help increase your bottom line. However, data management remains one of the major challenges facing ecommerce businesses today.
Ecommerce businesses may employ data science methods to solve this challenge, allowing them to streamline business processes and increase revenue. This article will explain how data science can increase an ecommerce business' growth and profitability.
Data science: A force that promises increased income
For ecommerce businesses, data is no longer an option. For modern online retail, accessing, interpreting, and using it effectively has become the difference between life and death. According to some resources, 2.5 billion bytes of data is produced every day. This number reflects the amount of profit-driving insights and value you might be able to get if you tap into this data.
Data science can assist you in interpreting data. It allows marketers and business owners to obtain vital information about their company performance, customer behavior, demographic, inventory, and competitors. It transforms raw, meaningless data into valuable, meaningful insights and guides all business processes, from decision-making to strategy.
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Businesses are rapidly adopting data science, with regular investments in AI and ML initiatives. As a result, data science is expected to increase by 300% in the next years. Here are a few of the many areas data science works on to enhance your business' profitability:
You would not mind having more sales as a business owner, whether you are an ecommerce or a brick-and-mortar store. Of course not. You would want to generate as many sales as you possibly could, because increased income.
Data science can assist you in boosting your company's sales by helping you understand consumer habits. If we go out to buy bread, we may buy milk and eggs as well. When we buy mobile phones, we may purchase other mobile devices such as headphones or headphones, chargers, screen guards, etc.
Market basket analysis, also known as affinity analysis, is a data mining and analytics technique that helps businesses understand purchase patterns and leverage this knowledge to increase revenue.
What is the significance of this?
You may publish eggs on the breads page in order to remind people that they may like to buy eggs with their bread. Market basket analysis is said to be one of the finest machine learning applications in retail. It empowers you to make the appropriate product recommendations.
Recommendation engines draw on market basket analysis to make useful recommendations for consumers. For example, on Amazon, customers also saw these products sections that displayed other relevant items. Moreover, Best Buy, a U.S. tech store, recorded a 23.7% increase in sales using product recommendations.
Through market basket analysis, a global data analytics and advisory company helped a food store increase quarterly sales by 50% and lower marketing costs by 15%. Thus, we may confidently conclude that understanding product categories that are often purchased together increases sales.
Apart from increasing sales by relying on human insights, market basket analysis-driven recommendation engines also increase customer loyalty, which in turn increases revenue, as customers may be willing to spend as much as 17% more for a good experience.
Optimization of pricing
60% of internet shoppers in the world consider pricing when making a purchase decision. If your price is too low, you lose customers' trust. And if it is too high, you drive the customer towards your lower-priced competitor.
The price you pay for your goods or services is influenced by a number of factors, including customer behavior, psychographic and demographic data, market geography, operating costs, LTV and churn rate, and more. Data science is the foundation of all data analyses.
Price optimization, which is driven by technology, considers all the variables that go into determining the appropriate price and analyzes the available data to create an optimal price. Machine learning-enabled price optimization combines both qualitative and quantitative data, plugging it into predeveloped algorithms that give retailers a well-informed and precise approach to pricing optimally.
If your products are optimally priced, customers are more likely to purchase them, which in turn increases revenue that is reflective of your business. This is why a 1% increase in pricing can lead to an 11.1% increase in profit.
Management and optimization of inventory
Inventory management is the process of preparing inventory in order to avoid shortages, which may result in a deferred profit. On the other hand, overstocking can cost you a lot of money in terms of warehousing and logistics. In the United States, that is about $5.08 per sq. ft.
The challenge of determining how much to keep in stock, what and when to order, and predicting demand is a challenge that plagues many industries, and ecommerce is no exception. 75% of supply chain management professionals wish to improve their inventory management methods. And there is no better way than to incorporate data science.
With the appropriate data analytics methods, the supply chain, like most industries in ecommerce, is overflowing with data. You can either ignore it or capitalize on it and utilize it to your advantage. There are many modern inventory management programs and applications that are grounded in data science and use historical and current data to maintain your inventory.
These programs utilize past sales data and seasonality, among other things, to anticipate future demand. This allows you to estimate how much inventory is needed while keeping the stocks at a minimum level.
Personalization and segmentation of customers
Customers segmentation is the process that separates a business's customers into discrete groups. This allows marketers to create targeted marketing campaigns that resonate more with the target audience and produce better results. This could be why 77% of marketing revenues come from customers segmentation.
Your customer data is scattered across the internet.
Data science assists you in collecting all of this data, cleaning it, and segmenting your customers into sections. This is because effective segmentation comes from efficient data analytics.
You can reach your Gen Z audience on TikTok and Instagram with messages promoting yourself as fit and fabulous. At the same time, you can communicate with Baby Boomers in your audience via emails or Facebook with messages highlighting the importance and benefits of staying fit at an advanced age.
People associate personalized messages with them and are more likely to buy from them. In fact, 49% of buyers have made impulse purchases because of a more personalized experience, while 59% believe personalization influences purchase decisions. So, again, data science helps with effective customer segmentation, enabling you to develop more targeted marketing messages, increase sales, and increase profit margins.
Your business model may be profitable only if the customers you acquire pay more for their purchases, from the first transaction to the last. This is called customer lifetime value or CLTV.
Businesses usually calculate CLTV after they have acquired customers. But this isn't an extremely efficient strategy because it's more reactive, and you might be spending more on acquiring a low-value customer, reducing your profitability. You have to be proactive to ensure that your business model continues to grow well.
Data science can assist you in determining your CLTV when it comes to collecting, cleaning, and generating key insights from customer data, such as their preferences, behavior, frequency, recency, and amount of purchases. Based on this data, machine learning algorithms create a presentation on how each customer's lifetime value might be compared.
With this information on hand, you are better equipped to focus your marketing spend on prospects who will pay more money and pursue a more sustainable and profitable business model. For example, predictive analytics have informed you that the CLTV of customer type A is around $200, while that of customer type B is around $1000. Now you know that you must spend less than $200 on buying customers from group A.
Data science can assist in the creation of a marketing strategy with a positive ROI by anticipating CLTV.
The last word
In the modern ecommerce environment, data science is the key strategy businesses must use to ensure their success. It can both help marketers optimize their strategies and enable stakeholders to make more informed and efficient decisions. However, the correct application of data science principles is the key driver of all its benefits.
Atul Jindal is a web design and marketing specialist.