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DATA MINING FOR DECISION MAKING IN RETAIL

PRESENTED BY:

MD INTAKHAB ALAM ROLL NO. 110122

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ABSTRACT

The propagation of retail in today’s dynamic business environment has increased the demand and urgency of successful business organisation to be able to react rapidly to the changing market demands, by utilizing the latest data mining techniques of extracting previously hidden and potentially useful iformation from vast resources of unrefined data.

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‘‘An adequate information system finally requires that executives systematically integrate the information into their decision making’’ .

- Peter F. Drucker in ‘‘mangement Challenges for the 21st Century ’’.

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Data Mining

Data Mining is the principle of sorting through large amounts of data and picking our relevant information.

It is usually used by business intelligence organizations, and financial analyst,but it is increasingly used in the sciences to extract information from the enormous data sets generated by modern experimental and observational methods.

It has been described as ‘‘the nontrivial extraction of implicit, previously unknown, and potentially useful information from data’’ and ‘‘the science of extracting useful information from large data sets or databases’’.

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Data mining is filtering through the data to identify hidden patterns and establish relationship to predict future behaviour.

Extraction of data from repositories.

Data cleaning and preprocessing: It’s the the act of removing inaccurate records from database. Data reduction and transformation: The term data reduction in the context of data mining is usually applied to projects where the goal is to

aggregate or merge the inforation contained in

large

datasets into manageable (smaller) inforamation nuggets. Data reduction methods can include simple tabulation, aggreagation (computing descriptive

statistics) or more sophisticated techniques like

clustering,

principal components analysis,etc

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Data mining: search for patterns of interest. Pattern evaluation and knowledge presentation Visualization, transformation, removing redundant patterns, etc. Use of discovered knowledge to make decision the evalution from business data to business information, each new step has built upon the previous one.

In retail, every time product handled it costs the merchant. By using data mining techniques, retailers can improve their inventory logistics and thereby reduce their cost in handling inventory.

A retailer can identify the characteristics of its customers such as gender, marital status, number of children, etc and the products that they buy.

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This information can be extremely beneficial in stocking commodity in new store locations as well as identifying ‘‘hot’’ selling products in one demographic market that should also be displayed in stores with similar demographic characteristics. For nationwide retailers, this information can have a tremendous positive impact on their operations by decreasing inventory movement as well as placing inventory in locations where it is likely to sell.

Globally, Wal-Mart uses Radio Frequency Identification (RFID) readers toreduce stock outs. As soon as goods are sold, RFID tags automatically update the database. A software monitors the syock to be depleted and automatically generates a list of items that need to be replenished.

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Various data mining or business intelligence tools available in market are RFID solution from Orizin, india which includes

Point of sales: Used for predicting customer shopping lists from point of sales data. Customer Management Security – Checking un-authorized movement Stock Verification Merchandise Management- spoilage/Experiration, obsolescence, misplacement Out-of-stock position

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Problem Description

The difficulty of decision-making in business application is rapidly increasing, as the world is becoming information driven. Reyailers need to answer following questions quickly like:

Which are our lowest/highest margin customers? What kind of strategy is required to increase sales? Which customer are most likely to go to the competition? How to manage customer relations to increase profits? How to identify customer purchasing patterns to improve inventory

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The cope with changing environment, new techniques are required. Features of this techniques are:

Ability to handle changing qualitative and quantitative data. Short decision reaction time. Large and overlaping problem domains. Analysis of this results. Process rather than problem orientation. Flexibility of decision-making models to the evolving decision environment

It becomes very important to take quick decision to retain and build a loyal customer base. Always remember happy customer is a loyal customer.

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Solution

Data mining is used to resolve these problems. It is also known as Business Intelligence for enterprise.

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Stages of Data Mining

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Evolutionary

Business Question

Enabling

Product Providers

Characterististics

Step

technologies

Data Collection

“What was my total

Computer, Tapes,

IBM, CDC

Retrospective, static

(1960s)

revenue in the last five years?”

Disks

data delivery

Data Access

“What were unit

Relational Databases

Oracle, Sybase,

Retrospective,

(1980s)

sales in New England last march?”

(RDBMS), (SQL)

Informix, IBM, Microsoft

Dynamic data delivery at record levels

Data Warehousing & Decision Support

“What were unit sales in New Enland

On-line analytic processing (OLAP),

Pilot, comshare, arbor, cognos,

Retrospective, dynamic data

(1990s)

last march? Drill down to Boston.”

multidimensional database, data warehouses

Microstrategy

delivery at multiple levels

Data Mi ning (Emergin Today)

“What’s likely to happen to boston

Advanced algorithms,

Pilot, Lockheed, IBM, SGI,

Prospective, proactive informaion

(1996)

unit sales next

multiprocessor

Numerous Startups

delivery

month? Why?”

computers, massive database

(nascent industry)

         

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Application

There are various data mining applications which are used in retail

Basket Analysis: Which items customers tend to purchase.It’s a modeling to technique based upon

the theory that if you buy a certain group of items, you are more likely another group of items. It helps in stocking and promotions. Sales Forcasting: Predicting the future sales of the

company

in

a

given

market

is

called

sales

forecasting. It helps in examining time based patterns

which helps retailers in making stocking decisions. Apart from various models, many new software tools have emerged for forecasting sales in a better fashion.

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Data Marketing: Information of existing customer is maintained to reduce marketing costs, enhance

customer relationship, and produce long term loyal

customers. Data

mining

helps

marketing

professionals

understand customer behaviour. This understanding allows them to target marketing campaigns more accurately and to line up campaigns more closely with the needs, wamts and attitides of customers and prospects.

Merchandising Planning and allocation: It is to

determine that which products should be on the

shelves,

how much should be bought, how to price,

what to

promote, and what and when to mark down

so you

can

maximixe

sales

while

minimizing

costs

and

constraints.

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Retailer

Line of Business

Solutions Used

Shopper’s Stop Ltd.

Apparel, Home furnishing

CRM: Business objects

& more

Oracle Financials JDA Retail ERP (Merchandise Management System)

Trent

Westside (Apparel)

VPN (Tata Indicom) Retail Pro (POS + Head Office + Warehouse)

RPG Group

Food, Household items,

POS System integrated with

etc.

MMs by Zensar, Pune.

Pantaloon Retailer (India)

Apparel, Food,

POS: Home-Grown solution

Ltd.

Electronics, etc

Handheld scanners at Food Bazaar

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………………….

.……….

..

..

.…….

……………………….

..

.…….

.…….

……………………..……….…

..

.…….

Retail Market Growth

Population in crores 2001 2025 (CSI)
Population in crores
2001
2025 (CSI)
Proportion of the total Retail market (In Percentage)
Proportion of the total Retail market
(In Percentage)
Metros & Mini- Metros & Cities
Metros & Mini-
Metros & Cities

…………………………………………………………………………………………………………………………

6.7

13

…………………………………

Top Cities (Pop: > 1m) 27 Cities
Top Cities
(Pop: > 1m)
27 Cities

3.7

7.2

…………………………………

Large Cities (Pop: 0.05 to 1m) 32 Cities
Large Cities
(Pop: 0.05 to 1m)
32 Cities

2.4

4.5

…………………………………

Rest of India 5,500 towns + 6 lakh
Rest of India
5,500 towns + 6 lakh

87.4

115.3

Villages …………………………………………………………………………………………………………………………

2010

2015

2025

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Conclusion

In this paper we discussed about data mining, stages of data mining & applications which are used by top Retail outlets and challenges faced in india. The amount of data available is growing at an extraordinary pace. Once large databases are converted to data warehouses, data mining techniques can be used to extract information and discover hidden patterns can be used to make decision. Retail business is blooming in india at a fast pace so need of the time is to realize is the importance of undersatnding customer preferences in order to retain them to survive in this competitive market by taking correct decisions.

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