What is Predictive Merchandising?

By Pamela Oldham
Business.com / Branding / Last Modified: April 11, 2018
Image credit: Zapp2Photo/Shutterstock

When you search for chocolate online and suddenly your feed is filled with chocolate ads, that's predictive merchandising.

Evidence of a company's use of predictive merchandising is relatively easy to spot on social media platforms. Search for an item online and suddenly you're bombarded with ads and recommendations on social media offering the same or similar items. But how do so many companies know which product you're likely buying soon? 

Predictive merchandising (also known as predictive analytics and automated merchandising) is based on technology that captures and analyzes a wide range of customer data, such as purchasing habits and history, browsing patterns, personal preferences, typical spend, purchase timing, and many other customer activities. This data is then used to create personalized marketing and a custom shopping experience for each customer that can build loyalty and increase store revenue. 

Until recently, only the largest companies possessed the resources to invest in what were once company-owned proprietary systems that gathered, analyzed and used customer data to reliably predict buying behaviors. Now, thanks to cloud technology, even small businesses can deliver and benefit from predictive merchandising. 

What are some benefits of predictive merchandising? 

Sales efficiency and effectiveness. Marketing success hinges on presenting the right message to the right customer at the right time. Predictive merchandising technologies gather and analyze all the data that companies need to determine who are best customers and how to keep them. 

Promotions targeting. Targeting the right promotion to the right customer is one of the big benefits of predictive merchandising. From the customer's perspective, the offers they receive are those that are most personally relevant. Businesses see higher conversion rates from the promotions they run and, ultimately, higher revenue.

Better inventory management. Predictive merchandising can enable small businesses to more accurately forecast inventory needs, which helps reduce overstocking and associated costs.

More effective advertising strategy. Using predictive models based on your business's customer data, advertising dollars can be spent more effectively to reach and convert prospects that resemble the behaviors of your best customers. 

Improved positioning over competitors. Predictive merchandising helps companies of all sizes and types compete more effectively in today's marketplace. This crucial tool helps to even the playing field when it comes to building and retaining a larger customer base while also improving business strategy and streamlining operations. 

Are there related business operations benefits?

In addition to improving sales revenue and customer retention, predictive merchandising can aid in other crucial areas of business, such as: 

  • Accuracy of financial forecasting
  • Supply chain cost management
  • Risk management
  • Profitability and revenue growth projections accuracy
  • Overall strategic business decision making
  • Business intelligence and reporting
  • Data sharing, collaboration and visualization 

Why use predictive merchandising software?

Today, most small businesses collect and store customer data. But a typical small business usually can't keep up interpreting and analyzing the vast amount of information available from the growing number of data sources: emails, site visits, support calls, multiple sales channels, social media, and others. 

Moreover, most small businesses don't have the resources or expertise to analyze the data they already gather on a regular basis. Predictive merchandising or predictive analytic applications are incredibly fast. Further, they typically use much broader sets of data and can track and analyze the information that few small businesses can perform in real time. 

Where to start?

As you might expect, there are dozens of software companies that offer predictive merchandising applications. Not all of them provide scalable solutions suited for small business yet. 

The best approach to finding the right solution for your company is to explore several organizations and see how well their offerings match your business's needs. Here are just a few of the companies that advertise small business solutions for a variety of predictive analysis types: 

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