April 22, 2019
Weather is perhaps the single largest external swing factor in business performance – responsible for nearly half a trillion dollars in economic impact in the U.S. alone each year. And retail industry executives understand its value. Weather changes not only impact what customers put in their shopping carts but also supply chain management, pricing, product assortment, and staffing.
We talked to Paul Walsh, IBM’s Global Director of Consumer Weather Strategy, who shares insights and advice for how retailers can make weather insights a more strategic part of their business.
IBM conducted a global study of 1,000 C-level executives on how weather affects their business. What were the key findings?
Weather is a core driver of consumer behavior. By integrating weather insights across supply chain and engagement, companies can generate a 2-5% increase in revenue and decrease costs by as much as 2%. Together, that adds up to a major gain. However, the two biggest challenges retailers and consumer goods companies face are creating insight from weather data, and integrating those insights at scale into processes and systems. Weather itself is a raw commodity, and the key to transforming a weather report into a business strategy is having systems in place that can provide actionable insights.
Source: IBM Institute for Business Value 2018 Global Weather Study Survey (n=1,000).
What kind of weather data is most relevant to a retailer?
Increasingly, the weather forecast is becoming the most relevant data to retailers because consumers use the forecast to plan their activities and purchases. Understanding how the forecast is changing and how that changes what people need and want is of tremendous value for both advertising and fulfillment. For example, each winter, retailers in snowy areas see patterns in which storm forecasts drive spikes in sales of groceries, shovels, sand, salt and cold-weather gear. Yet those same weather events typically hamper retail sales as consumers stay inside. This is where a digital retail experience would see those same consumers, who are staying indoors, drive spikes in website traffic. By leveraging weather analytics, businesses can understand the specific times and locations to deliver a product or brand-specific message to a consumer at the exact time they are realizing the need to make a purchase. The ability to better understand and predict the impact of such weather events also allows retailers to adjust staffing and supply chain strategies as needed – regionally and nationwide.
How are the most innovative companies integrating weather insights into how they do business?
An immediate way to make an impact is by integrating weather data into forecasting systems and a business’ CRM. For example, a forecasting engine that combines hyper-local external data from IBM Weather Company with historical demand data that explains the historical sales and the impact that a demand influencing factor (DIF) had on consumer demand in the past. Examples of a DIF include price changes, promotions, tactics, seasonality, public holidays, or trend. Using both artificial intelligence (AI) and weather data enables retailers to continuously improve forecasts.
The benefits include a precise and continuously improving forecast that enables:
- Increased sales while avoiding unexpected product shortages and stock outs
- Increased inventory level accuracy and allocation of merchandise
- Enhanced planning, pricing, and promotion models based on product demands
How is climate change impacting the significance of weather-driven insights for businesses today?
There are four reasons the weather impact on consumers is increasing.
- Forecast accuracy: Consumers expect the forecasts to be correct and subsequently, plan their lives based on the data they receive.
- Mobile access: We are connected to weather forecasts instantly, on-demand, and at all hours of the day. Access to weather information anywhere around the world allows businesses to adjust how they manage their supply chains, inventory, pricing, product assortment, promotions based on local weather forecasts.
- Social media: Even mediocre weather events are now amplified to reach more people than ever before. Our awareness of extreme weather events is at an all-time high and can directly impact those who are indirectly impacted. For example, the California wildfires might motivate someone to buy fire retardant clothing.
- Climate change: Increasingly volatile changes in the weather are impacting more people. The less predictable the weather, the more we want to rely on forecasts for a sense of certainty and stability.
What advice do you have for Retail and CPG companies who want to make weather insights a more strategic part of their business? How should they move forward?
They need to think big and start small. The impact for a business can be "massively huge"–for example, a 2% increase in revenue for a $10B retailer is $200M –but they need to create an overarching weather/climate strategy and execute on smaller and more manageable projects.
Aim to have a clear strategy and understanding of how weather impacts functions across the organization. Start with a Design Thinking workshop and include senior leaders from business units across the organization. Uncover the projects that deliver high value and are feasible to implement — and build out a longer-term plan to use weather data insights.
Weather insights should further enable data-driven decision making and automation for operational processes, not add additional complexity. Aim to couple weather data with your existing modeling toolsets. Learn from historical data and become more predictive by tying in factors such as current on-demand weather data and future forecast data along with real-time alerts to help build a comprehensive picture of the business impact of weather.
Don’t focus on data, focus on decision support fueled by data. Most organizations are looking for creative ways to identify and confirm rapid, scalable and cost-effective ways to design, test and deploy transformational changes, including weather-based decision making. Seek experienced, collaborative partners that can co-create and experiment with you on agile, rapid prototypes to build strong business cases and trust.
Why Are IBM and Salesforce uniquely suited to help retailers use weather insights as a competitive advantage?
The Weather Company is an IBM Company, combining the world’s most accurate weather data with industry-leading AI, Internet of Things (IoT), and analytics technologies to provide powerful forecasting capabilities in real-time. Salesforce is the world’s leading customer engagement platform and supports the entire customer journey: from Marketing Automation, through Digital Commerce, B2B Sales, and Customer Service. IBM and Salesforce have a strategic business partnership, which is coming to life through integrated solutions that combine their complementary AI technologies, Watson and Einstein, as well as weather insights from The Weather Company. The combination of these powerful technologies is completely differentiated in the marketplace today and provides immense opportunity for Retailers worldwide to bring advanced intelligence into their businesses.
Bluewolf, an IBM Company, and Salesforce’s longest-standing consulting partner, now offers a solution, AI Now™ for Connected Commerce, that can help retailers leverage weather insights in every area of their business–from merchandising to marketing to fulfillment and supply chain. Bluewolf and IBM’s direct connection to the Weather Company means it can deliver retail-specific solutions with greater speed and ease, and customers can feel confident that they’re working with unparalleled expertise.