8 April 2020
By Drew Smith
Drew is the Director of Product Strategy at Upp and focuses on how technology can help brands and retailers deliver what their customers want.
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In the current climate, retailers face an unprecedented range of threats to their profitability. Not only is the lack of uncertainty a pressing concern, but competition grows fiercer as consumers grow more fickle with the increased choice online.
Retailers, now more than ever, need to exist in a constant state of evolution, embracing and integrating new technologies to improve operational efficiency and deliver a better service to their clientele. Taking it one day at a time and adapting quickly to dynamic changes is the best way to survive.
In order to spend money on improving their operations, however, companies need to keep a close eye on their profit margins. The more profitable they are, the more they’re able to invest back into all aspects of their business. This is why all departments need to be aware of the company’s margin performance and its impact on their departmental operations.
As a retailer, it can be tempting to focus your attention on just your turnover and revenue rather than your profitability too. But revenue figures can paint an inaccurate portrait of your business’ overall performance. From the cost of inventory and raw materials to the fluctuations in pricing necessary to remain competitive, even a healthy-looking turnover can disguise a wealth of costs that affect profitability. The most successful companies put a strong emphasis on their key metrics and profitability. However, an issue many retailers face is a lack of alignment across departments.
We conducted a study in partnership with The Retail Hive and found that only 4.4% of retailers believed that their whole company is aligned around the same success metric as them and their departments. This lack of alignment and unified visibility can have a negative impact on performance. Our same research looked at the metric retailers prioritised most highly:
Critically, however, only 10% of people said they were focused on profitability or margin as their key metric for success.
Margin performance can show you a more accurate overview of your business performance. In an industry like retail, where pricing and costs are volatile and highly dependent on the climate of the world, tracking margin performance can yield useful insights that can help companies make better, more informed business decisions in order to maintain revenue and maximise profitability.
It is important that every department within a company is aligned around the same key business objectives, and metrics are the key indicators that help you do that. Margin is not only directly relevant to the widest number of departments, it contextualises departmental actions with the interest of overarching business objectives — including growth and profitability.
So, now we’ve looked at the importance of revenue and margin performance, but what does this have to do with marketing departments? Ironically, if you find yourself wondering this, that’s actually part of the problem.
Marketing departments can find themselves operating in something of a vacuum. Because so much of what they do involves watching the KPIs that are most relevant to them, they may not be aware of metrics that affect the company on a more holistic level. If they fail to take both their revenue and margin performance seriously, or even make themselves aware of it, they could find themselves making all the wrong strategic decisions. For starters, revenue and margin are huge drivers of profitability — revenue impacts your top line growth, and if margin performance is revealed to be in a state of consistent decline, it can indicate that something is seriously awry with the company’s marketing strategy.
If they only track KPIs that are meaningful for the department, such as inbound marketing ROI and Customer Lifetime Value, they may find themselves expending all of their efforts on customers who, while big spenders on paper, consistently spend their money on less profitable items. These loyal customers might, however, be more inclined to take an interest in more profitable items with the right push from the marketing team.
Used properly, an awareness of margin performance can help the marketing department steer the company towards greater volumes of high-margin sales. It can also benefit the marketing team by providing another stream of relevant data which they can factor into their strategic and creative decision making.
However, when marketing teams operate in silos, they can lose sight of the big picture. They need a more granular and detailed SKU level view of their product margins, as well as their revenue. With this data, they can then push more profitable items towards their consumers and make better-informed decisions.
It goes without saying that success in retail requires an agile approach with quick decision-making in response to data trends, as well as the current changing environment. Marketing departments need to constantly refine their practice, using A/B testing to see which marketing copy garners the most traction from their target audience. But as well as keeping a close eye on their own performance indicators, they need a holistic understanding of the company’s health.
And if they operate in ways that force them to become data silos, they can never get the big picture, and can therefore never develop a strategy that’s well and truly informed. When departments are able to gain access to a centralised data repository, they can ensure that the relationship between revenue and profitability is harmonious, and take appropriate action if it is not.
All of this begs the question of whether or not your marketing department, and your company as a whole, are getting the big picture. The problem with many legacy business structures is that they can push departments to become self-contained data silos that don’t talk to or share data with one another.
Younger, digital-native companies tend to succeed where others fail because they start out with a clear view of the implications of margin performance on all departments across the board. But whatever your business’ structure and data architecture, there are ways in which you can get better access to the big picture and get a clear understanding of your revenue and margin performance. Marketing teams, in particular, need to be focused on the big picture — they must be able to effectively justify their budgets and demonstrate how their actions impact the overall profitability success of the business.
We all know that in the age of big data, and especially the current climate, retailers need to collect and leverage the data that influences clear and decisive decision-making. But for virtually all businesses, the problem is never that there’s too little data. The problem is that without sufficient access to a holistic view of the organisation, the harder it is to find the actionable insights which can be mined from it. Take each day at a time and be sure you’re ready to adapt to any changes.
Some retailers are using AI-driven platforms to enhance their product listings, but often what they find is that these don’t provide the actionable insights they need, nor do they provide an end-to-end view of the product life-cycle with SKU level margin visibility.
At Upp, by combining performance marketing data, your business metrics and trending data, we look to ensure you have a 360 view of the performance of your products, allowing you to then focus on the most critical tasks — all while being strategically aligned across the whole business and ensuring revenue and profitability are part of your primary goals.
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