• Definition of Business Problem + Hypothesis

• Analytical Solution Approach

Retail Business Problem

• Product Association Analysis

• Revenue Management

Analytics in Action

• Business Case

• Next Steps

Key Takeaways

Source: Serving the Networked Consumer - Deloitte 07/08

Vegetables

Frozen

Vegetables

Butter

Tropical Fruit

Curd

Beer

Option 1 Option 2

Current Purchase Vegetables Vegetables & Butter

Suggested Bundle Vegetables + Butter Butter + Whole Milk

Implications If customer purchases bundle,

75% chance customer will

purchase Whole Milk

75% chance customer will

purchase bundle

Vegetables

Butter

Segment

A

•Price

Sensitivity

•Probability

of buying

Demand

and

Revenue

Model A

Optimal

Discount

for

Customer A

A

Segment

B

•Price

Sensitivity

•Probability

of buying

Demand

and

Revenue

Model B

Optimal

Discount

for

Customer B

B

Revenue Increase Over No Discount: 16%

Revenue Increase Over non-Targeted Discount: 7%

Total Revenue: $252,040

0%, $136,594 4%, $150,040

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

0% 2% 4% 6% 8% 10% 12% 14% 16%

Reven

ue

Discount

Revenue Model for Segment A

0%, $79,540

10%, $102,000

$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

0% 2% 4% 6% 8% 10% 12% 14% 16%

Reven

ue

Discount

Revenue Model for Segment B

Assumptions: Metrics

Calculations: Impact:

$37.1M Incremental Revenue in Y1

NPV =$169M over 5 years

Payback Period <1 year

Cost 1: the team – 3 Data

Scientists

Assumptions:

• Model development and maintenance: requires a team of 3 Data Scientists at a rate of $100,000/year/statistician

• Model can be developed in 6 months

• Costs of adjusting existing Loyalty Platform to incorporate targeted bundling: $100,000

Cost 2: adjustment to

existing platform

Activity Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Ongoing

Hire team

Build and Refine analytical Model(s)

Adjust existing loyalty app

Maintain model and app

Loyalty Shoppers Customers Data:

Revenue $17,044,400,000

Average Basket size $85

Number of trips per year 78

Number of Loyalty Customers 2,570,799

Expected Incremental Basket Size $8.50

52 weeks ending 2015-01-

03

Revenue $42,611,000,000

COGS $32,063,000,000

Gross Profit $10,548,000,000

Selling & General Admin Expenses $9,886,000,000

R&D $0

Depcreciation / Amortization $0

Interest Expenses $0

Unusual Expenses (Income) $18,000,000

Total Operating Expense $41,967,000,000

Operating Income $644,000,000

Income Before Tax $78,000,000

Net Income $53,000,000

Net Income Margin 0.12%

Loyalty Shoppers Customers Data:

Year 1 (20% of

Loyalty Customers)

Year 1 (22% of

Loyalty Customers)

Year 1 (24% of

Loyalty Customers)

Year 1 (25% of

Loyalty Customers)

Year 1 (25% of

Loyalty Customers)

Revenue $17,044,400,000 $37,148,051 $40,862,856 $44,577,662 $46,435,064 $46,435,064

Average Basket size $85

Number of trips per

year 78

Number of Loyalty

Customers 2,570,799 514,160 565,576 616,992 642,700 642,700

Expected Incremental

Basket Size $8.50 4,370,358.97 4,807,395 5,244,431 5,462,949 5,462,949

All values are in CAD $ Start Up Costs Year 1 Year 2 Year 3 Year 4 Year 5 5 Yr Total Assumptions

Revenue

Increased Loyalty Shopper

Spend/Trip

$37,148,051 $40,862,856 $44,577,662 $46,435,064 $46,435,064 $215,458,697

20% of Loyalty Shoppers will increase their Avg.

Basket size by 10%. This will grow to 22%, 24%,

25% and 25% of Loyalty Shoppers over the

remaining 4 years after implementation. Revenues

expressed here are completely incremental to

existing Revenue base.

Sub-Total 0 $37,148,051 $40,862,856 $44,577,662 $46,435,064 $46,435,064 $215,458,697

Cost

On-going model maintenance

and updates

$300,000 $309,000 $318,270 $327,818 $337,653 $1,592,741

3 Data Scientists at an assumed rate of $100,000

per year (each) with assumed merit increases of

3% per year

Start-Up Costs-$250,000

3 Data Scientists at an assumed rate of $100,000

per year (each) for 6 months + updates to PC Plus

App

Sub-Total -$250,000 $300,000 $309,000 $318,270 $327,818 $337,653 $1,592,741

Profit -$250,000 $36,848,051 $40,553,856 $44,259,392 $46,107,246 $46,097,411 $213,865,957

Cumulative Cash Flow -$250,000 $36,598,051 $77,151,908 $121,411,299 $167,518,545 $213,615,957

Discount Rate 8.0%

NPV $169,034,819

IRR 14749.3%

Pay Back Period (Yrs) <1 year

Start-up Cost Itemization

Statistician/Modeler 1 $50,000

Statistician/Modeler 2 $50,000

Statistician/Modeler 3 $50,000

Updates to PC Plus App $100,000