saks fifth avenue

Download Saks Fifth Avenue

Post on 15-Apr-2017

40 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

  • Saks Fifth Avenue Customer Behavior Report Based on Data Driven Analysis

    Group 8: Linhan zhang, Zhongyuan Lian, Huiruo Zhang, Yitian Chen

  • Executive Summary

    Saks Fifth Avenue is a luxury department chain store which sells high-end brands both

    online and offline. The objective of this research is to help Saks Fifth Avenue (hereafter Saks)

    decrease customers return rate and cancel rate so as to improve customers profitability and

    satisfaction. Also, we want to regain our old customers as well as increase their loyalty.

    The original data in our research comes from the Customer Relationship Management

    Database in Saks. This database records a wide range of historical sale information based on every

    single order line, including over 137,000 orders from 100,000 customers. Each order line records

    customer information in terms of customer ID number, and ZIP Code, and transaction-related

    items such as order date, shipping date, revenue, cost etc.

    Since we intend to segment our customers based on their return record, order cancel record,

    total profits, and the time of their most recent order, we aggregate all records into a new data file

    with individual level. Then, we choose four key factors as our variables which are profits, return

    rate, cancel rate and time duration since last order date. We use K-means cluster analysis as our

    major segmentation method. We divide whole data into calibration set and validation set, and

    conduct K-means cluster analysis on each of them to make sure that we will not miss any

    meaningful group of customers. Furthermore, different methods are conducted to explore our

    research several times.

    After outcomes of K-means cluster analysis match our expectation, we summarize and

    interpret our key findings. There are 8 clusters which have meaningful features respectively.

    Among them there are three groups that interest us most.

    The first group makes up about 30% of all customers which generate high profits, and their

  • return/cancel rate are extremely low. They have shortest time duration since last order date.

    Obviously, they are the core customers for our company and we should take an action to retain

    these customers in order to generate more profits. For example, we could offer them better services

    and high quality products to increase customer loyalty and satisfaction.

    The second one is a group of customers who generate relatively high profits to our

    company, while their cancel rate are extremely high. These customers were able to generate a huge

    profit for us. However, they are likely to cancel their orders due to some reasons. What makes

    things worse is that they will cause additional costs for our company since we need to provide

    special services when they return items. For these kinds of customers, we need to figure out their

    true needs and the reasons of high cancel rate. They have huge financial potential if we can increase

    their customer satisfaction. They could turn into the first group of customers and generate a huge

    profit to the company.

    The third group includes customers who have relatively lower profits, but their return rate

    is very high. These customers are unsatisfied with our products or services so they keep returning

    their items back. This group is a huge financial burden for Saks, so we have to decrease their return

    rate by figuring out the reasons and taking any actions to increase their satisfaction.

    Ultimately, we analyze the major reasons, which cause high rate/cancel rate. Based on our

    previous analysis, we provide different managerial recommendations for each groups regarding

    their significance and characteristics. These recommendations will serve to decrease customers

    return rate and cancel rate and eventually increase profits for Saks in the future.

  • Table of Contents

    1. Introduction ................................................................................................. 1

    2. Background ................................................................................................. 2

    3. Methodology and Analysis ............................................................................ 4

    Definition of Clustering Analysis ................................................................... 5

    Data Obtained and Used ................................................................................ 7

    Variables selection and Explanation ............................................................... 7

    Data Preparation ........................................................................................... 9

    Calibration and Validation ........................................................................... 11

    Clustering Settings ...................................................................................... 11

    Measure Interval: Euclidean Distance.................................................... 12

    Cluster Method: Wards Method ............................................................ 12

    Standardization: Z scores ...................................................................... 13

    Specific Operations ..................................................................................... 13

    Findings from Clustering Results ................................................................. 18

    4. Conclusion & Recommendations ................................................................. 20

    Recommendations....................................................................................... 22

    5. Limitations and Future Research ................................................................. 28

    6. Appendix ................................................................................................... 30

  • 1

    1. Introduction

    Imagine you are a store owner selling limited-edition Pradas purse which normally more

    than $5000. Which kind of customer is more valuable for you? A customer who spends average

    amount of money but never returns or cancels the order? Or a customer who spends huge amount

    of money but returns or cancels most their orders at the end? This is a significant but tricky question

    for every company, especially for Saks Fifth Avenue who has higher unit price.

    It is said that customers are the most valuable equity for companies. As a luxury department

    store, Saks sells products that are much more expensive, which means every single purchase means

    a lot to the company in financial level. As a result, high return and cancel rate are more lethal for

    Saks than regular department stores, for example, Macys. At the meantime, customer satisfaction

    and loyalty that directly decide the companys fate are also extremely significant for Saks. What

    is more, it is also important for us to know how often a customer comes back and purchase.

    According to our background research, the major managerial issue of Saks is to increase

    profit by reducing return/cancel rate as well as regaining customers who have not purchased more

    than one year. Through a series of analysis and comparison, we segment whole customers into 8

    groups based on profit that they generate, the time duration since their last order date, return rate

    and cancel rate. Each of group has their own meaningful features. Some of them generate the

    highest profits while have not purchased for more than two years. Some of them generate high

    profit while also have high return/cancel rate. We have discussed each cluster in detail in the

    following report. We will elaborate each groups features and provide managerial

    recommendations.

  • 2

    2. Background

    Saks Fifth Avenue is a luxury department chain store that was founded in 1867. With such

    a long history, Saks has established its own customer pool with large quantity of loyal customers.

    Most customers go shopping in Saks for their nice service and latest fashion. There are a number

    of world famous luxury brands in Saks including Gucci, Prada and FENDI. Staffs in Saks are very

    professional and they usually offer customers thoughtful advices during the purchase process.

    However, based on our research, Saks cannot generate as much revenue as it did a few

    years ago. The competition between department stores is becoming more and more fierce. Main

    competitors of Saks such as Bloomingdales and Neiman Marcus have made much pressure on

    Saks by using price-off promotions. Even medium range department stores, saying Macys, and

    online stores, like amazon.com, are competing with Saks. More competitions mean customers have

    more choices. However, for Saks it leads to high return and cancel rate because once customers

    find a lower price on amazon.com, the first action they will take is to cancel their orders on our

    website. Moreover, high service costs make Saks more difficult to generate considerable profits.

    As a result, Saks has faced much more challenges than it ever did and they need to find a way to

    solve their own problems and keep growing.

    In recent years, Saks has introduced their online stores and app to enlarge their market

    share and attract more young customers. Online shopping is an easier and cheaper way to purchase

    items for both customers and companies. However, it raises several issues as well. Since Saks sells

    many apparels and makeups, it is i

Recommended

View more >