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CASE 1-3 Demand Tec: Using Collaborative Analytics in a Fragmented Latin American Market Written by Kristine Pray, Muskingum University In February 2012, headlines across America alerted con- sumers that mass-market retailer Target had discovered a way to predict the gestational state of their female shoppers, even before family members were aware of the pregnancy. With this predictive ability, Target would be able to capitalize on the life-altering events of their customers. Imagine anticipating the changing needs of individual consumers with such accuracy that develop ing the associated marketing mix brings implementing the marketing concept to a whole other level. Sending targeted promotions to highly segmented markets while the rest of the competition remains unaware offers a strategic advantage to marketers competing in the 21st century The accuracy of these predictions is based on mod els that identify changes in the behavior of consumers. In the case of Target, changes in the purchase behavior of female shoppers, such as increased spending on sup- plements important to neonatal development, as well as uns cented soaps and lotions, were a strong indication of pregnancy. This is, of course, an oversimplification Agregating vast amounts of consumer behavior data ad creating predictive models to strategically target individual consumers is only made possible by the use of very powerful software, software which has been de veloped to further the emergent practice known as col. laborative analytics. Although collaborative analytics and cloud-based software company DemandTec made the news recently when it was acquired by IBM for $440 million, it is not likely that anyone outside of the industry is familiar with the San Mateo, California-based company. In the field of collaborative analytics, however, Demand Tee is well established, with a client list of over 500 retailers and consumer products companies, including ConAgra Foods, General Mills, Home Depot, PETCO, Sara Lee, Walmart, and, of course, Target. With increased global competition and price-conscious consumers, companies know how important it is to properly seg. ment the market and create the right marketing mix for each of these consumer segments. DemandTec pro- vides companies with the tools they need to optimize those decisions. American companies, however, are not the only ones faced with increased global competition. Emerging mar- kets in countries like Argentina, Peru, India, and China are appealing to multinational companies. Domestic as well as foreign corporations can also benefit from the services of companies like Demand Tec. In Sao Paulo, Brazil, the largest market in Latin America, Companhia Brasileira de Distribuicao Grupo Pao de Acucar (GPA), referred to as the "Walmart of Latin America," is striving to hold on to the majority share of the grocery market. French-wned supermar- ket giant Carrefour maintains a close second place, fol- lowed by global retail behemoth Walmart, which plans to invest heavily in the region to edge out the competition for market leader. If that does not make circumstances difficult enough for GPA, the Brazilian market itself is very fragmented. With heterogeneous consumer seg. ments coming from diverse socioeconomic backgrounds and different geographic areas, determining the appro- priate marketing strategy becomes even more complex Enter DemandTec. Using "everyday price optimization software-as- a-service from DemandTec, GPA can optimize their pricing strategy at the local level. GPA segments their market using geographic segmentation variables (re. gion), demographic segmentation variables (income and social class); psychographic segmentation variables (life- style) and behavioristic segmentation variables (price sensitivity), resulting in 12 distinct target segments. In addition to managing all of the consumer segmentation information, GPA must also integrate stock-keeping unit (SKU) information. Usually in the form of a machine readable bar code, SKU numbers are assigned to in- dividual items in inventory to help monitor inventory sales, pricing, transactions, and consumer spending pat- ters. With 99 variants for each SKU across each of GPAs regions, the amount of data to be processed would be overwhelming without the use of Demand Tec's price optimization software. 11 QUESTIONS Demand Tec's powerful modeling software col- lectively analyzes regional competitor prices and then aggregates consumer demand for items, vendor costs, customer characteristics, and consumer segments to arrive at optimal prices for all products across all SKU variants. Collaborative analytics not only helps GPA to optimize prices but also helps them to optimize the price perception of items which have the most elastic demand; in other words, products for which consumers exhibit the most price sensitivity, The idea of using loss leaders as a form of sales promotion is not new to the grocery industry Consumers tend to be more sensitive to the prices of certain items like bread or milk, so retailers offer these products at a price at or below cost to draw consumers into the store, with the hopes that the consumers will purchase additional, more profitable items. Without the proper intelligence, this promotional strategy can backfire, as consumer price perception of other items in the store discourages value- conscious consumers from buying these items with higher margins, cutting into the profitability of retailers. Collab- orative analytics allows marketing managers to process volumes of data to make optimal decisions In an era of social media and mobile technology, today's consumers have access to an infinite amount of marketing information in real time. Armed with smart phones and unlimited apps, they can locate product, pro motion, and pricing information by typing in a product name or scanning a bar code as they stand in the aisle of their local retailers. In order to meet the needs of these technology suwy and price-conscious consumers, mar- keters must arm themselves with the next generation of marketing tools, collaborative analytics Predictive models used by Target identified in female Ishoppers changes in their purchase behavior that indicated they might be pregnant, including increased spending on supplements important to neonatal development as well as unscented soaps and lotions. What other changes in purchase behavior might indicate that a female shopper is expecting? How does the use of collaborative analytics provide value to the consumer and help to facilitate exchanges between buyers and sellers? 2 Based on collaborative analytics, Target created targeted sales promotions for newly expectant mothers, such as mailing coupons to them for purchasing diapers or baby bottles. GPA, in Brazil, uses collaborative analytics to optimize prices for their various customer segments. These are only two of the four marketing mix variables. Can you think of other ways that companies might use collaborative analytics to fine-tune the other marketing mix variables? GPA uses collaborative analytics to look at the I shopping behavior of their customers. The next time you purchase food items (groceries), make a list of every item you purchased. Try to organize the items in a meaningful way. Imagine that a researcher was using ethnographic methods to analyze your grocery list. What insights might they have about you based on your purchases? Choose a local retailer that is not part of a national or regional chain. Assume they have decided to expand their efforts internationally and have therefore enlisted the help of DemandTec. How will the use of collaborative analytics help them to better understand consumers in this new market