report of case analysis digitaltransformation and artificial intelligence predicting consumer taste with big data at gap

Gap Inc.must therefore adopt new tactics if it wants to change the course of events.In order to obtain this, the proposals should succeed in the followingobjectives: - Firstly, businesse

VIET NAM NATIONAL UNIVERSITY OF HO CHI MINH

UNIVERSITY OF ECONOMICS AND LAW

REPORT OF CASE ANALYSIS Summer Semester: 2022-2023 DIGITAL TRANSFORMATION AND ARTIFICIAL INTELLIGENCE

PREDICTING CONSUMER TASTE WITH BIG

DATA AT GAP

LECTURE: Master Nguyễn Thế Đại Nghĩa

Course ID: 215MI5205 MEMBERS IN GROUP 5

Ho Chi Minh City, November 12 2022 th

CONTENTS

I OBJECTIVE ORIENTATION 4

VII EVALUATION OF THE CONTRIBUTION OF MEMBERS IN TEAM30

CATEGORY OF FIGURES

Figure 1: The decrease in sales in 2015 of Gap Inc in general and Gap brands 5 Figure 2: Traditional Model and New Model of Gap Inc 12 Figure 3: Brand Consideration among Non-Millennial Consumers 18 Figure 4: Brand Consideration among Millennial Consumers 18

CATEGORY OF TABLES

Table 2: Contingencies maybe happen with our recommendation 28

I OBJECTIVE ORIENTATION

Gap is a popular retailer providing clothing, accsessories and personal products for men, women, children, and babies under the Gap, Old Navy, Banana Repuloc, Piperlime, and Athleta Brands Gap has seen a drop in sales since 2015, and because it uses traditional and individual focus models for its analysis, it is facing pressure from the market's competition Gap Inc must therefore adopt new tactics if it wants to change the course of events

In order to obtain this, the proposals should succeed in the following objectives:

- Firstly, businesses should make significant investments in digital capabilities with a focus on breaking down the barriers between physical and digital channels in order to address consumers' shift to omnichannel shopping

- Secondly, gain insight into customer behavior and deliver a better customer experience by driving data-driven decision-making and utilizing big data to analyze consumer tastes Gap Inc aims to build a technology-modernized business model, especially focusing on developing Product 3.0

- Finally, increasing competition with new competitors such as H&M and Zara as well as strengthening partnerships with businesses specializing in e-commerce and applying technology in business to create the foundation for the use of big data analytics consumer tastes

Based on the above goals, in order to increase practicality, businesses need

to set goals that are proven specifically through numbers:

- According to revenue figures from 2015, Gap Inc continues to decline in revenue with an average of 2.35% per year Therefore, with the strategy, businesses must achieve growth of at least 10% revenue per year and be offset by the annual decline rate from 2015

- Managing the closing of underperforming stores (200 in 2011, 175 in 2015, and 75 in 2016) was another arena in which Gap used data-driven decision making

- 60% of people visiting the website are recognized as unique visitors, enabling Gap to personalize experiences based on things like browsing and purchase history Doing so is providing movement on numbers like conversion, time on website, click-through-rate Good things happen for

the customer if they're willing to self-identify and tell us who they are at the beginning of a shopping experience

- In effective business, customers always play an important role, so it is necessary to increase the customer retention rate by 10-35% with Gap and Banana Republic brands because currently, the dislike rate of these brands is higher than the number of customers like

- Strengthen external relations, take advantage of cooperation with electronic markets (Amazon, Alibaba, ), and win 15% of online shoppers of Gap branded products through online platforms its

II KEY ISSUES TO TACKLE

Declining sales following two years since 2015 - The main issues of GAP

Declining sales and profitability have been a significant challenge for GAP since 2015 Compared to fiscal 2014, when net sales were 16.4 billion dollars, fiscal 2015 net sales were 15.8 billion dollars, a 4 percent decrease As opposed to the USD 6.3 billion for fiscal 2014, the gross profit for the 2015 financial year was USD 5.7 billion Comparable sales have decreased by 4.0% and 12.0%, respectively, in Gap's two most significant business units, Gap Global and Banana Republic Gap endured negative sales growth not just in 2015 but also

in the following two years

In general, Gap's inability to keep up with trends was the main issue contributing to the company's sales decline during this time Customers have not been drawn in by its clothing, which veers from ultra-trendy to uninteresting basics The business appears to no longer understand what distinguishes it from rivals

The delicate balance between creativity and commercialization

Upsetting the delicate balance between creativity and commercialization, between designers and merchants, that existed at most fashion brands and had supported Gap Inc.'s fashion cycles for decades Creative directors are aesthetic designers who are highly trained in design and use their unique eyes, attitudes, and personalities

to shape tomorrow's fashion With their seal of approval, they have provided legitimacy and credibility to new trends as arbiters of taste When compared to creative directors, merchants, or salespeople, the fashion industry is more market-oriented They are in charge of selecting products to create a consistent product assortment for each store in order to reach a specific target consumer at a specific price point The merchants are market-aware, while the creative directors are the market leaders The differences in the function between creative directors and merchants lead to conflicts in working styles and an imbalance in the division of responsibilities

Lack of ability to analyze and predict customer behavior

Since the early 2000s, this company has been unable to account for the dynamics of client behavior in the apparel market According to the case presented, Gap failed to implement an appropriate product assortment mechanism in response to changing customer needs and

expectations in the fashion sector (Israeli and Avery 5) As a result, competitors such as Zara and H&M could easily gain a significant share of the US apparel market by offering fast fashion items at lower prices than Gap

The application of traditional methods of predicting customers’ future tastes and behaviors was ineffective for Gap As a result, clients shifted to rival companies that provided trendy apparel for both basic and fashion-forward items Gap’s use of conventional market research approaches was ill-informed Such methods could not allow this company to predict its clients’ future behaviors and deploy factors that could influence their tastes and fashion preferences

The develop of e-commerce

Competition is always fierce in the world of e-commerce Meeting customer needs is becoming increasingly difficult for apparel companies due to the rapid growth of e-commerce Many customers were shifting their purchases from physical stores to online channels

As online sales increased, brands no longer required the same number

of physical stores GAP had over 3000 stores at the time Gap is under pressure to transform its business model due to the large number of stores Due to the increase in online shopping, Gap must balance resources in order to operate both online and physical stores at the same time; otherwise, losses are likely

The rise of the fast-fashion model

The rise of the new clothing industry business model fastfashion -causes traditional apparel companies like Gap's products to lag behind the trend While Gap has a ten-month product cycle, fast fashion brands only need four weeks to design and deliver new products to customers Gap's supply chain, which was not designed for a fast-fashion world, makes it difficult for the company to get its products to market quickly Major competitors, such as Zara and H&M, strengthened their positions as they quickly adapted and converted to this new model

The transformation from asset to ability

Gap’s size and ubiquity were transforming from asset to ability Consumer tastes change with the increasing demand for personalization and uniqueness, making Gap’s classic and mass products no longer suitable

III EVALUATE OPTIONS

1 Criterion

To build the basis for the formation of options, we need to provide specific, selective, and close-to-target evaluation criteria In this case of Gap Inc, the necessary criteria for the options evaluation process include:

Firstly, feasibility and effectiveness To ensure that the change process can take place successfully, the proposed options must be based on the available resources of the company At the same time, options must have a positive effect on the process of creating change Combining the two factors above, in order to come up with the most optimal solution, the company must know how to utilize and allocate resources effectively

Secondly, creativity, originality, and collaboration A prerequisite in the innovation process is to create uniqueness and excellence in products as well as work processes, thereby constructing a premise to build competitive advantages and regain market share Besides that, collaboration is a factor that helps accelerate the change process Thirdly, the ability to diversify experiences and meet customer needs

In order to solve the problems of customer tastes, the proposed solutions must achieve the goal of improving the customer experience, offering a variety of product segments and supply channels

Fourthly, the ability to accurately predict consumer behavior Accurate judgment of consumer behavior is the basis for deciding on actions to innovate and improve products and business models

Finally, maintaining a beneficial relationship between consumers and the company

2 List of options

In Peck's view, some options to help Gap Inc improve business performance include using Digital and Big Data, using Big Data and firing Creative Directors, using Predictive Analytics in marketing, predicting consumer preferences, Product 3.0, and Shifting the distribution model

Option 1 – Using Digital and Big Data

Considering the changes in customers’ shopping behavior, Peck decided to invest heavily in digital capabilities to address the consumer shift to omnichannel shopping, centralizing on removing the wall between the physical channel and the digital channel The most important action of this option is promoting data-driven decision-making As the company moved into the digital realm, Peck pushed its managers to continually test and refine new features as the company listened to customers through its “voice of the customer” initiatives, which tracked customer feedback and usage This creates

an opportunity to improve the product and enhance the customer experience For example, Gap collected data and discovered that customers wanted to buy online but still preferred to try on the clothes Gap worked with Google and Avametric to develop an augmented reality app that allowed shoppers to test out different looks

to improve their online and mobile shopping experiences Besides that, Peck developed email programs to provide relevant, personalized messages to customers in order to personalize customers’ experiences Moreover, using data-driven decision-making also helps Gap to manage the closing of underperforming stores The company used the collection of insights from consumers’ online browsing activity and engagement in social media platforms to help understand why consumers were not buying as much from Gap’s physical stores Based on a thorough analysis, Peck continued to develop Gap’s digital and mobile e-commerce platforms to drive customer engagement

Option 2 - Big Data In, Creative Directors Out

As we mentioned in the previous section, the creative director is the person responsible for creating the creativity and uniqueness of the

product As arbiters of taste, they have provided legitimacy and credibility to new trends with their seal of approval Creative directors are always seen as an integral part of most companies, especially apparel companies However, Peck was always skeptical of Gap’s creative directors He advocated eliminating the position of creative directors and spreading the responsibility for designing the brand's seasonal lines to a collaborative team informed by hard data

Option 3 - Using Big Data and Predictive Analytics in marketing

Digital data streams allow companies to observe consumers' buying journeys and collect detailed data about their online behavior As digital data streams become more accessible and powerful, companies are exploring how to use data mining and machine learning to generate consumer preferences and predict future behavior in the marketplace The two main goals of using predictive data are to sell existing products and to develop products for the future

Option 4 - Predicting Consumer Preferences

Predicting the future fashion tastes of consumers is a difficult proposition Traditional market research methods, such as surveys, focus groups, and interviews, are often inadequate, as consumers are notoriously poor at predicting their future behaviors Modern market data collection also has some problems because consumer psychology research shows that consumer preferences are built, not revealed, and subject to marketers’ manipulation, unstable over time, and therefore unpredictable So in order to ensure the most accurate customer taste prediction process possible, Gap must combine both traditional and modern market data collection methods

Option 5 - Product 3.0 at Gap: “A clear brand vision with a common operating model”

In a strategy Peck calls Product 3.0, he promises to combine “a clear brand vision with a shared operating model.” The new brand vision governs every design, sales, inventory, and manufacturing decision so Gap can identify trends, make them relevant to its customers, test them at stores and respond demand-buying more of what’s on sale and