At RSR, we talk a lot about new non-transactional types of demand signals coming from consumers in the digital channels, including sentiment. Sentiment doesn’t lend itself well to hard-number analysis – after all, it’s an expression of human emotion and if there’s anything that people can agree on, it’s that emotions aren’t always (or even usually) logical. That’s one reason why I used to laugh that the term “artificial intelligence ” was used for advanced computing machines. You bet that the result is artificial! Humans (unlike analytical machines) can compare two completely unrelated facts and draw a conclusion that is completely illogical but works anyway.

Sentiment drives so much of what we humans do, whether it’s logical or not. The great leaders of business have been people who are really good at taking often illogical leaps of faith that end up defining the future. Their leadership has often been driven by both facts and sentiment. Today, there are two kinds of sentiment that are driving the retail industry, that I’ll call micro and macro sentiment. One is about understanding the marketplace, while the other is about leadership.

Micro-sentiment

When it comes to using sentiment as a new demand signal, retailers are learning that they need to analyze what people are saying about them in order to get early indications whether their strategies and campaigns are working or not. This is why understanding consumers’ omni-channel paths to purchase (using several “channels ” to make a single purchase decision) is so important. It’s possible for retail analysts to get good clues as to whether or not they need to adjust something they are doing in the marketplace or not, if they get early enough sentiment signals from consumers, for example via Facebook or Twitter.

I mentioned in a Retail Paradox Weekly column a couple of weeks ago that retailers need to understand consumers’ paths to purchase – which often begin outside of the store and often traverse several “channels ” for a single purchase decision. Generally, “click’n’brick ” retailers need to use what marketing people call multi-channel attribution, especially to understand the online-to-store path to purchase. Attribution theory is described this way:

“Attribution theory can be applied generally to ‘processes whereby people attribute characteristics, intentions, feelings and traits to the objects in their social world’ … (there are) … two types of attributions – dispositional and intentional. People make intentional attributions directly from observed behavior; observers begin to make sense of their world by speculating about why others perform certain actions… intentions offer cues to dispositions, the more stable, underlying components of the actor’s personality which persist across a variety of situations. These dispositional attributions often take the form of ascribing to the observed individual a set of ‘broad’ traits, ‘despite the scant empirical evidence for their existence’…. ” [1]

Marketing analysts use attribution data to try and understand the offline impact driven by online marketing and advertising (from their point of view, that may be the #1 reason for retailers to develop a mobile app for consumers, since it generates the metrics needed to help measure the path to purchase). I spoke to a group of retail financial executives last week in Dallas, and pressed the point that understanding these non-transactional metrics is critical to a successful omni-channel strategy, because all paths to purchase are not equal. There is no “one way ” to enable a buy anywhere/get anywhere model – consumers use different retailers differently (an obvious example is the difference between how a consumer uses a Macy’s vs. a TJX store). In order for CFOs to support the capital spend needed to modernize the company for buy anywhere/get anywhere retailing, it must first be clear what paths to purchase the consumer is most likely to want optimized. And a good way to know that is by attribution analysis.

It’s for these reasons that when a business exec asks me the question (as one did last week in Dallas), “Where do we start? “, I recommend that they figure out what measures are needed to make good decisions and then go about the business of implementing both the measurements and the analysis tools needed to make sense of the resulting data (that often means to implement next-gen BI & Analytics toolsets).

Macro-sentiment

“Micro ” is fine once you’ve got a general sense of where you’re going, but strategists will tell you that if you don’t know where you’re going in the first place, you probably won’t get there – no matter how carefully you analyze each step of the way. This is where companies seem to be struggling right now.

I saw a couple of articles last week that gave me pause. The first was in the San Francisco Chronicle, that outlined results from a recent Harvard Business School survey of 7,000 CEOs, managing directors, company founders and other senior executives. The survey was managed under the auspices of the school’s U.S. Competitiveness Project. The report itself summarized its findings this way:

“Ample evidence now points to a series of structural changes that began well before the Great Recession and threaten to undermine the long-term competitiveness of the United States. For the first time in decades, the business environment in the United States is in danger of falling behind the rest of the world. With this, pressures on jobs, wages, and living standards will only grow. “[2]
The Retail industry fared better than some in the survey; retailer leaders’ assessment of their ability to compete globally was close to the whole-survey average (manufacturing leaders are generally far more pessimistic). The report went on to highlight what business leaders think the main culprits are:

“Overall, respondents pinpointed America’s tax code, political system, K-12 education system, macroeconomic policies, legal framework, regulations, infrastructure, and workforce skills as the most important culprits in the country’s deepening loss of competitiveness. “

The report concluded that:

“…business plays a role in creating even those problems that seem to stem from public policy… Part of the business agenda for U.S. competitiveness is to stop taking actions that benefit one’s own firm but, collectively, weaken America’s business environment. Moreover, business can and must be a positive part of the solution to America’s competitiveness problem. Individually and collectively, firms can upgrade the business environment in the communities where they operate – by supporting educational institutions, building shared infrastructure, investing in workforce skills, deepening clusters, and so on… Untapped opportunities exist for firms to upgrade the competitiveness of their local communities, and to benefit themselves in the process. “

The other piece of news that gave me pause came from the Financial Times, when it reported on 10/22/12 that:

“… the next generation of retail leaders see little or no improvement in consumer sentiment around the world as they prepare to gather in London this week… Almost a quarter of those attending believe international consumer confidence will be worse one year from now, while 41 percent expect it to remain the same. Some three quarters believe that consumer confidence will gradually improve over the next three years, although any uptick in consumer confidence in the short term is unlikely, with 59 per cent expecting it to remain the same one month from now. “

It’s Time for Leaders to Lead

Sentiment is indeed a powerful thing, and it feeds off of itself in many ways. While consumer are trying to get on with their time-starved lives, leaders seem to be in a terrible funk and are not doing a whole lot of leading. While marketing people, merchants, supply chain experts, and technologists can optimize businesses to the point where there is nothing left to squeeze, more is needed. Business leaders really need to grab the megaphone and call out for a better (not merely a hyper-optimized) world. That doesn’t mean “more value for your dollar ” but “more dollars for you to spend “. A lot of that is the result of thinking of the business as part of a community.

Management guru Peter Drucker said it best: “Leaders in every single institution and in every single sector … have two responsibilities. They are responsible and accountable for the performance of their institutions, and that requires them and their institutions to be concentrated, focused, limited. They are responsible also, however, for the community as a whole. ” That’s a sentiment people can get behind.

[1] Consumer Complaining: Attributions and Identities, Cathy Goodwin, Georgia State University & Susan Spiggle, University of Connecticut, http://www.acrwebsite.org/search/view-conference-proceedings.aspx?Id=6873

[2] Prosperity At Risk, Michael E. Porter & Jan W. Rivkin, Harvard Business School, January 2012, http://www.hbs.edu/competitiveness/pdf/hbscompsurvey.pdf