Advantages and Disadvantages of Information Technology in Retailing
Table of Contents
- 1 Competitive Advantages of Information Technology in Retailing
- 2 Limitations of Using Information Technology in Retailing
Competitive Advantages of Information Technology in Retailing
1. Automating processes
Automating a process render many advantages to the retailers. It reduces costs, increases accuracy, reduces processing times, enables quick decision and speeds up customer service.
For example, EPOS (electronic point of sales) uses scanning systems. It ensures accurate prices, enables checkout staff to work faster, and it eliminates the need to fix price label to goods. All these factors reduce the cost considerably.
2. Collecting data about the customer
The purchase details of individual shoppers are collected and analyzed. Product extensions and promotions are based on the analysis of purchasing patterns of different types of shoppers.
Demographic information about the customers is known from a loyalty card database. The entries in the loyalty card are related to transactions data furnished by EPOS. These data can be further used to profile a customer base. This facilitates specific offers to be made to certain types of customers.
A retailer may send mail order catalogue to all loyalty card holders who have bought in the previous year. Moreover, internet and e-commerce sites use previous transactions information to personalize their sites for each shopper by offering them product items that have been related to their last few transactions. They automatically greet them by name when they enter the site.
3. Feedback on marketing decisions
Analysis of EPOS data helps the retailer in knowing the effect of promotion, prices, new products and packaging changes. Retailers can assess the impact of changes in layout or merchandising of stores in terms of category sales, competitor brands, gross profit and sales in the store. Innovative product ideas may be tested against the realities prevailing in the market. In short, the EPOS data analysis helps the company in
- evaluating its promotions
- calculating customer price responsiveness for core and seasonal products.
- predicting the outcome of its newly adopted policies.
- planning its promotional measures.
The stores manager indulges in effective communication with his suppliers. He sends documents such as purchase orders, stock and sales information over third party communication networks. This is electronic commerce. This method works fast and costs less. It is sufficient for stores to place their orders one or two days and in advance against seven days earlier in the traditional paper based method.
Store computers transmit EPOS data to the head office on daily basis. So, the senior manager is able to assess the performance of every store and product group.
Stock replenishment is done automatically. The computer system receives daily EPOS data from each store and next day’s stock requirements are known.
The system automatically sends the requirement electronically overnight to the distribution centre. So, delivery of merchandise is possible the very next day.
Effective communication reduces the lead time. It is the time taken between sending an order and receiving the merchandise.
5. Tools for Planning the business
1. With the use of sophisticated computer software packages, retailers are able to
- plan, budget and forecast,
- choose the most successful location; and
- control their business.
2. Model decision making, statistical packages of sales forecast and data mining tools are available for retailers.
3. Retailers can also use geographic information systems (GIS).
4. Socio demographic data along with company transactions data and intelligent analytical tools are used to forecast sales in different stores.
6. Adding value to the retail transaction
Customers prefer IT assisted transactions to traditional retailing because IT assisted transactions provide speed, accuracy and convenience. For example, ATMs are used at any time of day. Thus, use of IT adds value to retailing.
7. Technology enabled shopping
Selling goods over the internet is becoming popular. Electronic means of selling include the following.
1. Products: Grocery, clothing, footwear, music, books, videos, cameras, photographic goods, computer hardware and software, pharmacy goods etc.
2. Services: Retail banking, personal insurance, financial service, real estate, stocks and shares, Tourism, florists, entertainment tickets, virtual education, information services, etc.
Thus, IT is transforming the nature of products, processes, companies, industries and even competition itself. The spectacular reach of IT is widely accepted today.
Limitations of Using Information Technology in Retailing
1. Originally IT was used by retailers to automate control services such as finance, pay roll, and management accounts. Electronic point of sales systems can be afford only by a very few department stores. Basically, retailing is a highly dispersed business. Retailers have to incur enormous amount of expenditure on installation of IT equipment in their retail business.
2 Retailing involves a wide array of products. So, a complex system is required to handle a large number of product lines.
3. In retail stores, staff may have limited knowledge about computers. So, computer specialists are to be employed to deal with the automation process. Only the largest retailers can afford to employ technically qualified people.
4. The costs of routine investment in automation process is very high.
5. Many IT projects fail and the risk of such failure is too high for retailers.
6. According to Prof. John Sawson, many retailers concentrate on operational improvement rather than transformational ones. The expected pay off from IT has not been fully realized. Retailers devote only a small amount of their budgets to IT.
7. Getting the full benefits of IT may actually take a longer time. Retailers should learn how best to exploit the new systems. Many U.K. grocers invested in EPOS in the 1980s. But only a few made effective use of information about customer’s shopping behavior. Only after making heavy investments and learning from experience, retailers could create IT based stock replenishment system.
8. IT alone has not produced performance advantage in the retail industry.
Inspite of the above limitations in using Information Technology for competitive advantages, firms have gained advantages such as flexible culture, strategic planning and improved supplier relationships. Advantage lies in people and systems rather than systems alone. To derive full competitive advantage of IT requires long-term investment.