Just as supermarkets manage each category in their stores, progressive retailers are managing customer purchase history to target promotions and product mix in their stores.
By using customer relationship management technology, the retailers are rewarding their best customers, while at the same time using frequent-shopper data to build their businesses and meet competition.
For example, instead of simply mailing its monthly newsletter to all cardholders, Covington, Ky.-based Remke Markets' technology allows it to send 19,000 newsletters to 15-20 subgroups with different offers. "We always send free items and coupons, like a discount on produce for non-produce buyers," said Pat Iasillo, director of customer relationship management at Remke.
Green Hills Farms in Syracuse, N.Y., uses its customer data to determine how much space to give certain categories, which customers spend more than others and where those customers live, to better target newspaper free-standing inserts.
Customer relationship management is also effective in targeting grocers' top spenders. "Retailers are changing the composition of their customer base by creating more higher spending customers and trying to reduce the number of cherry-pickers," said Gary Hawkins, chief executive officer of Green Hills Farms and a CRM consultant.
For example, Greens Hills' Thanksgiving promotion rewards shoppers who spend $500 at the store in a 10-week period with a free turkey. Customers who spend $1,000 in 10 weeks receive a free Christmas tree.
Cardholders at Dick's Supermarket in Platteville, Wis., who spend over $100 a week receive special treatment at the checkout. Once the card is swiped, the checkout beeps quietly to let the cashier know the person is a high-spending, frequent shopper. Cashiers are encouraged to be very courteous and friendly to those shoppers, and call them by name. They are allowed to write checks for as much as double the amount of the total, without manager override. If they don't have enough cash or have used their last check, they are allowed to leave the store with their purchases and pay later.
Retailers are using customer relationship management for on-line efforts as well. "We're beginning to reward some customers by e-mail, and see that as a developing channel for us to communicate," Hawkins said.
Dick's Supermarket is using CRM on-line with the on-line U-pon coupon and sampling service from planet U, San Francisco. Dick's customers sign in with their name and card number and, if they choose, complete a profile, including the size of their family, foods they like to eat and other data. "That information has been used to target certain offers, for example, if they like to exercise and have purchased sports beverages, they receive coupons for sports beverages," said Ken Robb, senior vice president of marketing at Dick's.
When targeted shoppers redeem a coupon offer, the retailer tracks the redemption. "If we know it takes four weeks to consume that item, four weeks later there is a coupon for them for the same item," Robb said.
CRM also works well with an emotional approach, according to Robb. For example, Dick's sent custom Hallmark cards to its top customers, expressing its appreciation for their business. To one group of shoppers, Dick's sent the card and a coupon for $5 off their next order, and another group received only the thank you card. "We got a 46% response rate on the coupon but we also got a lot of nice compliments from people who only received the card," Robb said.
Retailers also plan to work more closely with vendors on CRM, but note challenges, such as larger manufacturers' difficulty in working with small chains on targeted promotions.
"Here were are, sitting on this data. There's an advantage to the manufacturer and we want our customers to get some value," Iasillo said. Local manufacturers are set up to better to handle small, local promotions, he added.
However, Remke is working on a pilot project with a large non-foods manufacturer, tracking which customers buy its product and how often they repeat purchases. "We're doing test marketing and hoping to take it beyond this company to market one product on a one-to-one level," Iasillo said.
Iasillo urges manufacturers to target shoppers who are already buying their product, and get them to buy more, rather than targeting the competitors' customers. For example, instead of targeting Pepsi customers, Coca Cola should send a valuable coupon to the chain's Coke buyers, to induce them to purchase more product.
With such targeted marketing, retailers must be willing to give away some gross profit for certain promotions, according to Iasillo and others. For example, when Iasillo mails detergent samples to all the chain's non-detergent buyers, he realizes that he may not see a return on investment right away. However, if the non-detergent shoppers start buying detergent on a regular basis, instead of at a mass merchandiser, it is worth the temporary hit on gross margin.
Despite retailers' advances in the use of CRM, many grocers with frequent-shopper programs are still not using shoppers' purchasing data to their full advantage.
"Retailers that have some type of loyalty program in place are gathering the customer information, but few understand that information and even fewer still use it strategically in how they go to market," Hawkins said.
Grocers could do more in the area of customer retention once they know the household shopping pattern," said Sandra Kirmeyer, vice president of Partners in Loyalty Marketing in Chicago, Ill. For example, households that have occasionally purchased pet food could be sent a discount for pet food to fuel purchases of pet food on a regular basis.
Retailers who use the data could also better target their advertising dollars by tracking the geographic location of their shoppers. "If you know who is in your store on a regular basis, you can ask if you are promoting to them frequently, and whether you are getting truly incremental sales," Kirmeyer said.
Hawkins said regional chains and independents have had more success with CRM to date because they are "usually more innately customer-specific." However, as the technology evolves, he predicts that more large chains will use CRM to manage product assortment and streamline promotions.
Already, Safeway is using CRM chain-wide, industry analysts say, and is rewarding top spenders with discounts on their grocery bills. Kroger in Atlanta and Wegmans Food Markets, Rochester, N.Y., also effectively manager customer data, consultants said.
Meanwhile, United Kingdom supermarkets are showing U.S. grocers the CRM ropes after using the technology for years.
For example, in Tesco's recent research of its cardholders who are also organic food shoppers, the chain detailed the behavior of those shoppers by dividing them into three sub-groups: organic devotees, dabblers and experimenters.
Then, the chain obtained even more exact information on product purchases and demographics, such as: 13% of organic devotees buy more organic baby food than any other organic product and, of the organic devotees, 36% are young families.