The food industry has only just begun to tap into the enormous potential of data-base marketing to lock in shopper loyalty and build sales.
ng programs and achieve high degrees of measurable success.
But the growing pains accompanying the initial wave of data-base marketing programs are beginning to give way to a new era in which companies cost-efficiently and accurately target specific consumer groups and gain a competitive edge. The stakes are high. For small operators, successful data-base marketing may be the only way to compete against larger chains with greater economies of scale. Similarly, large chains need to understand their core customers and target them more effectively to continue thriving in the increasingly competitive food industry.
Here is how SN's discussion with five leading MIS executives went on the subject:
SN: How important are data-base marketing programs and how successful has the industry been in implementing them?
DAVID HAYES: Developing targeted, electronic marketing programs is one of the most important issues in our business. To some degree, the industry has been successful in talking about data-base marketing, but not in implementing it. I don't think there are many supermarkets today that can tell me how many times I've shopped in their deli department.
PATRICK STEELE: The whole issue of data-base marketing is one of the hottest topics in our industry today. Many companies are starting to move forward in this arena. But it is hard to tell who is having success, because companies who are doing extremely well in this area tend not to talk about it. These types of programs can provide companies with a competitive advantage.
BILL MAY: The food industry has been excellent at the front-end piece of the puzzle in terms of capturing shopper purchase information from the point of sale. But most companies are still relatively unsophisticated in using that data to make marketing decisions. There is a whole raft of data that people are collecting, but turning it into useful information is the challenge.
PETER ROLANDELLI: We are seeing the emergence of marketing in the retail industry. Our role in information systems now must be to take conjecture and turn it into empirical evidence. We need to be able to tell factually whether or not a specific marketing program is working. It should no longer be just an impression. Information has to take the place of conjecture and guesswork.
RAY HAMILTON: The food industry in the past has only been marginally successful with data-base marketing programs. I know several companies that launched programs and discontinued them. But I think we are now seeing a second wave of data-base marketing initiatives. At the FMI MarkeTechnics show earlier this year, for example, interest in frequency programs was tremendous. Almost every new POS system featured some easy way to do frequent shopper -- at least easy from a technology standpoint. It's still difficult from an implementation and management point of view, however.
SN: What are some of the obstacles to achieving greater success with data-base marketing programs?
ROLANDELLI: One of the big challenges in data-base marketing is the prejudice and inertia in how we all think in the supermarket industry. It is hard to break out of old patterns and begin thinking as individual marketers to customers.
Inside every data processing guy is a frustrated marketer trying to get out. We are analytical by nature and believe if we look at enough attributes we can solve the company's problems. There is a desire to come up with solutions. Somewhere in the data is the answer. We've just got to find it. The benefits of data-base marketing are absolutely achievable. It's important to shift from targeting people who are not your customers to people who are. The ultimate goal is increasing sales.
STEELE: The obstacles are in the organizational culture. The technology is here today to satisfy whatever needs come up, all the way down to capturing individual transactions at the POS and bringing that data back to a central repository. From a demographic standpoint, there are also some good solutions out there. But applying that technology to create better marketing and merchandising programs involves a change in how companies present themselves to consumers. That is where the challenge is.
Also, a shift toward these types of marketing programs can't be done in a vacuum by the retailer. It has to be done in conjunction with manufacturers, because we are selling the items they produce. We have to be sure that all segments within the supply chain are satisfying what the customer wants, not what we want the customer to have. That is where the work is going to be for the food industry.
HAYES: There is a lot more we can do in data-base marketing. One problem in moving forward more quickly is that to some extent we frequently have to rely on outside people to get this going. Some of the necessary data must be sent outside the company to be massaged and returned. Another issue is how to organize the tremendous amount of data. Scan data accuracy is also very important. There are some very involved issues here.
Also, as a wholesaler, these programs have to be presented in such a way that our customers will participate. In my experience, senior management always wants to know which other companies are doing it and how successful they have been. I think the successes in this area, and that means increased customer loyalty and sales, probably need to be advertised more before these programs can become an easy sell for everyone else.
MAY: Many companies today are involved in hit-or-miss types of programs, but I have not seen or heard of too many ongoing, well thought-out, strategic plans resulting in long-term incremental growth.
Right now each chain and wholesaler is working hard to make sense of all this.
There are several challenges here. For one thing, the amount of data is substantial. Handling the amount of data generated from a single store, much less an entire chain, is a tremendous challenge. We all collect a lot of data from our customers, but I don't think anyone can truly stand up and say, "We have a dynamite system where we are pulling through customer demographics and successfully using the data to just drive incremental sales." This is the piece we are still weak at.
There is also the issue of accurately measuring the impact of these programs. Are the benefits outweighing the costs, because it is expensive to do data-base marketing.
SN: What new developments do you see on the horizon in this area?
HAMILTON: With the new PC-based systems, it may be possible for many companies to get back into data-base marketing, and even to partner with a third-party firm to run the programs. Any mid- to small-size company would be smart to look at an outside company to get them off the ground, because it's quite an investment to do it all internally. Even a small chain would need a dedicated department to keep track of the program.
STEELE: It will be interesting to see where this whole arena goes. It may be that what we are seeing today is just the forefront of many things to come down the road as we make greater use of information on consumers' shopping experiences.
We are seeing more emphasis on neighborhood marketing programs in which retailers try to satisfy the needs of customers living near their stores. There are ways to achieve that goal without enrolling every customer in a frequent shopper program and tracking individual transactions.
The industry has not yet grasped the real potential of using customer-specific neighborhood data. By definition, if retailers know which customers live near their stores and what their needs are, they can drive their marketing and merchandising efforts directly toward them. In theory, there is tremendous potential for retailers to grow their business this way.
HAMILTON: Retailers today must better define the criteria for success. Simply signing up every shopper is not enough, and can even result in failure. There has to be a plan for purging customers who, for instance, shop only once a month and spend $25. It is not cost-effective to maintain them as part of the program.
In our company, we are trying to cater to the big shopper. We think that's where the profits are and we want to keep them from defecting. Understanding the shopper well enough to do that is what I would consider the second phase in frequent-shopper programs. The key is to try to get people to buy a little more each time they shop the supermarket and not defect to another store.
HAYES: Top management and retailers, especially smaller independent operators, want to see success in this area, because data-base marketing is one way they can compete with the big chains down the street. Independent operators are slowly beginning to realize the potential benefits and getting involved.