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 MINHUNIVERSITY OF ECONOMICS AND LAW

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

PREDICTING CONSUMER TASTE WITH BIG

DATA AT GAPLECTURE: Master Nguyễn Thế Đại Nghĩa

Course ID: 215MI5205MEMBERS IN GROUP 5

Ho Chi Minh City, November 12 2022.th

CONTENTS

I OBJECTIVE ORIENTATION 4

CATEGORY OF FIGURES

Figure 1: The decrease in sales in 2015 of Gap Inc in general and Gap brands 5Figure 2: Traditional Model and New Model of Gap Inc 12Figure 3: Brand Consideration among Non-Millennial Consumers 18Figure 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 personalproducts for men, women, children, and babies under the Gap, Old Navy,Banana Repuloc, Piperlime, and Athleta Brands Gap has seen a drop insales since 2015, and because it uses traditional and individual focus modelsfor 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 followingobjectives:

- Firstly, businesses should make significant investments in digital capabilitieswith a focus on breaking down the barriers between physical and digitalchannels 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 toanalyze consumer tastes Gap Inc aims to build a technology-modernizedbusiness model, especially focusing on developing Product 3.0

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

Based on the above goals, in order to increase practicality, businesses needto set goals that are proven specifically through numbers:

- According to revenue figures from 2015, Gap Inc continues to decline inrevenue with an average of 2.35% per year Therefore, with the strategy,businesses must achieve growth of at least 10% revenue per year and beoffset 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 decisionmaking

- 60% of people visiting the website are recognized as unique visitors,enabling Gap to personalize experiences based on things like browsing andpurchase history Doing so is providing movement on numbers likeconversion, 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 thebeginning of a shopping experience.

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

- Strengthen external relations, take advantage of cooperation with electronicmarkets (Amazon, Alibaba, ), and win 15% of online shoppers of Gapbranded 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 forGAP since 2015 Compared to fiscal 2014, when net sales were 16.4billion dollars, fiscal 2015 net sales were 15.8 billion dollars, a 4percent 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, inGap's two most significant business units, Gap Global and BananaRepublic Gap endured negative sales growth not just in 2015 but alsoin the following two years

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

The delicate balance between creativity and commercialization

Upsetting the delicate balance between creativity andcommercialization, between designers and merchants, that existed atmost fashion brands and had supported Gap Inc.'s fashion cycles fordecades Creative directors are aesthetic designers who are highlytrained in design and use their unique eyes, attitudes, and personalitiesto shape tomorrow's fashion With their seal of approval, they haveprovided legitimacy and credibility to new trends as arbiters of taste.When compared to creative directors, merchants, or salespeople, thefashion industry is more market-oriented They are in charge ofselecting products to create a consistent product assortment for eachstore in order to reach a specific target consumer at a specific pricepoint The merchants are market-aware, while the creative directorsare the market leaders The differences in the function betweencreative directors and merchants lead to conflicts in working stylesand 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 forthe dynamics of client behavior in the apparel market According tothe case presented, Gap failed to implement an appropriate productassortment 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 significantshare of the US apparel market by offering fast fashion items at lowerprices than Gap.

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

The develop of e-commerce

Competition is always fierce in the world of e-commerce Meetingcustomer needs is becoming increasingly difficult for apparelcompanies due to the rapid growth of e-commerce Many customerswere shifting their purchases from physical stores to online channels.As online sales increased, brands no longer required the same numberof physical stores GAP had over 3000 stores at the time Gap is underpressure to transform its business model due to the large number ofstores Due to the increase in online shopping, Gap must balanceresources in order to operate both online and physical stores at thesame 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 behindthe trend While Gap has a ten-month product cycle, fast fashionbrands only need four weeks to design and deliver new products tocustomers Gap's supply chain, which was not designed for a fast-fashion world, makes it difficult for the company to get its products tomarket quickly Major competitors, such as Zara and H&M,strengthened their positions as they quickly adapted and converted tothis 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 forpersonalization and uniqueness, making Gap’s classic and massproducts no longer suitable.

III EVALUATE OPTIONS1 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, thenecessary criteria for the options evaluation process include:

Firstly, feasibility and effectiveness To ensure that the change processcan take place successfully, the proposed options must be based on theavailable resources of the company At the same time, options musthave a positive effect on the process of creating change Combiningthe two factors above, in order to come up with the most optimalsolution, the company must know how to utilize and allocateresources effectively

Secondly, creativity, originality, and collaboration A prerequisite inthe innovation process is to create uniqueness and excellence inproducts as well as work processes, thereby constructing a premise tobuild 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 proposedsolutions 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 Accuratejudgment of consumer behavior is the basis for deciding on actions toinnovate and improve products and business models

Finally, maintaining a beneficial relationship between consumers andthe company

2 List of options

In Peck's view, some options to help Gap Inc improve business performanceinclude using Digital and Big Data, using Big Data and firing CreativeDirectors, using Predictive Analytics in marketing, predicting consumerpreferences, Product 3.0, and Shifting the distribution model

Option 1 – Using Digital and Big Data

Considering the changes in customers’ shopping behavior, Peckdecided to invest heavily in digital capabilities to address theconsumer shift to omnichannel shopping, centralizing on removingthe wall between the physical channel and the digital channel The most important action of this option is promoting data-drivendecision-making As the company moved into the digital realm, Peckpushed its managers to continually test and refine new features as thecompany listened to customers through its “voice of the customer”initiatives, which tracked customer feedback and usage This createsan opportunity to improve the product and enhance the customerexperience For example, Gap collected data and discovered thatcustomers wanted to buy online but still preferred to try on theclothes Gap worked with Google and Avametric to develop anaugmented reality app that allowed shoppers to test out different looksto improve their online and mobile shopping experiences Besidesthat, Peck developed email programs to provide relevant, personalizedmessages to customers in order to personalize customers’ experiences.Moreover, using data-driven decision-making also helps Gap tomanage the closing of underperforming stores The company used thecollection of insights from consumers’ online browsing activity andengagement in social media platforms to help understand whyconsumers were not buying as much from Gap’s physical stores.Based on a thorough analysis, Peck continued to develop Gap’s digitaland 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 theperson responsible for creating the creativity and uniqueness of the

product As arbiters of taste, they have provided legitimacy andcredibility to new trends with their seal of approval Creative directorsare always seen as an integral part of most companies, especiallyapparel companies However, Peck was always skeptical of Gap’screative directors He advocated eliminating the position of creativedirectors and spreading the responsibility for designing the brand'sseasonal 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' buyingjourneys and collect detailed data about their online behavior Asdigital data streams become more accessible and powerful, companiesare exploring how to use data mining and machine learning togenerate consumer preferences and predict future behavior in themarketplace The two main goals of using predictive data are to sellexisting products and to develop products for the future

Option 4 - Predicting Consumer Preferences

Predicting the future fashion tastes of consumers is a difficultproposition Traditional market research methods, such as surveys,focus groups, and interviews, are often inadequate, as consumers arenotoriously poor at predicting their future behaviors Modern marketdata collection also has some problems because consumer psychologyresearch shows that consumer preferences are built, not revealed, andsubject to marketers’ manipulation, unstable over time, and thereforeunpredictable So in order to ensure the most accurate customer tasteprediction process possible, Gap must combine both traditional andmodern market data collection methods

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

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

quickly get rid of what's not available with the goal of fewer fashionmisses and markdowns In place of a creative director, each brand'svision statement acts as a filter so that trends can be consistentlyassociated with the brand's image Besides that, to imitate its fast-fashion competitors, Peck wants Gap to enhance its ability to combinedetected trends with real-time performance readings and act faster onthem Moreover, in terms of characteristics, Product 3.0 is heavilybased on the analysis of customer purchase data so it is necessary tofind the correct data analysis tools Google Analytics data is also asource of inspiration.

Option 6 - Shifting the Distribution Model

Another key decision being made is whether to partner with Amazonand allow it to sell Gap-branded products through its online platform

Figure 3: Traditional Model and New Model of Gap Inc

3 Evaluation of the option

According to our group's analysis, in general, the proposed options areconsistent with the established criteria Those options are all aimed ataddressing the decline in sales and improving Gap's business All optionsfocus on digital transformation, application of big data, and othertechnological achievements to improve products and enhance customer