DAYTON, Ohio -- When it comes down to getting new customers and retaining the faithful, Dorothy Lane Markets here goes beyond the discount incentive.
Retailers and industry executives told SN the essence of effective loyalty marketing must reach beyond price and work to establish a deeper bond between supermarket and shopper.
A recent look at Dorothy Lane's frequent shopper card data gave the upscale retailer some uplifting news: 66% of households that shopped with the two-store operator when it began its program five years ago still buy at the regional, and market baskets have grown bigger.
"That's amazing considering how often people move, and that they can't pick us up again in a new geographic area," said MIS director Amy Brinkmoeller.
It's a stickiness that most supermarkets could only dream of, and it's borne of a culture of extreme service that is uncommon in mass retailing today. Dorothy Lane extends itself to create intimacy with customers. Besides having a home economist on staff, the chain recently began using a dietitian to run store tours and a support group for customers with diabetes. Its employee newsletter, "The Legend Continues," reports how a home-delivery person drove a sick customer from her home to the hospital after she refused the ambulance he summoned for her. It tells also of a store associate who baked a cake for a customer to demonstrate a recipe.
"To us, loyalty marketing engenders all of our behavior. It's about much more than Club DLM [the frequent shopper card program]," noted Brinkmoeller. "We under-promise and over-deliver."
Yet Club DLM is also inventive. "We gave our top 100 customers a French copper saute pan, worth over $100, with our logo on it, as a thank-you for their loyalty," she said, noting the numerous views it will have in the household and the way it ties in to the cooking needs of these shoppers.
The stores are 17,000 and 35,000 square feet, with a heavy presence in perishables, natural foods and gourmet products. A walk-in, temperature-controlled wine cellar, a School of Cooking and a Healthy Living Department are signatures of Dorothy Lane, which bears the tagline, "the store that accommodates." For all that, it expends loyalty-building efforts in mundane areas. It increased deli category sales in recent months by incentivizing Club DLM members with $5 off a Boar's Head purchase once they buy $50 of the brand's products.
What Dorothy Lane has achieved is more a phenomenon of small, nimble operators who understand the psyche of customers and create emotional connections, can interact with their communities, have customer bases that aren't so massive they can't be analyzed, and invent novel rewards for its best customers that go far beyond price discounts. Industry experts typically point to the likes of Wegmans, Ukrop's, H.E. Butt, Gerland's and Dorothy Lane as examples of the most exciting initiatives in loyalty marketing.
The Internet will play an increasing role in building loyalty across the entire trade class. The Quincy, Mass.-based Stop & Shop chain just went live last week with an on-line service that analyzes its shoppers' past purchases and guides them to potentially healthier choices. Frequent shopper card members can access the virtual nutritionist service at a link on the chain's Web site or at smartmouth.com. Site users enter their card number and get immediate personalized feedback and guidance, based on their nutrition goals and purchase history. The site also helps consumers write their weekly shopping list, generates quick-meal ideas, and posts nutrition news and information.
Ed Porter, director of marketing at the chain, calls the initiative "a wonderful opportunity" to differentiate from competitors.
Meanwhile, Rochester, N.Y.-based Wegmans Food Markets used its loyalty program's database to contact customers about a product recall. The chain sent low-tech postcards to people who purchased three varieties of private-label cream soups that might have contained a bacterium that could cause botulism (see story on Page 31).
Adding some sizzle to its loyalty cards program, Carlisle, Pa.-based Giant Food Stores is giving away a Chrysler PT Cruiser and in-store gift certificates of $50 or $100. For every Coca-Cola, Nabisco or Kraft item bought between now and Feb. 13, Giant Bonuscard shoppers are automatically entered to win. Similarly, a Weight Watchers sweepstakes at the chain automatically enters card-holding purchasers to win a treadmill or digital camera.
"Clearly, some operators recognize that the store creates loyalty, and the frequent shopper program is just a reward mechanism," says Steve Perlowski, director of industry affairs, the Alexandria, Va.-based National Association of Chain Drug Stores.
Don't underestimate the importance of loyalty marketing, adds Perlowski, who offers up some figures from Chicago-based Partners In Loyalty Marketing: Within supermarkets, the top 10% of customers generate 33% of dollar sales, and the top 30% of customers produce 70% of dollar sales. Moreover, the top grocery shoppers spend 50% of dollars in their favorite store. "While that's far more favorable than the 14% share of spending retained by a shopper's favorite drug store, that's most likely because the same area that might have one or two Giant Food stores could have 15 CVS stores," explained Perlowski.
Tailored offerings result from mining frequent shopper card data, and effectively help retain continuity with productive customers. "Loyalty marketing focuses retailers on consumer buying patterns. Category management tends to drive retailer decisions based on product movement," Perlowski added. "The difference is that a retailer might be tempted to eliminate, say, caviar that moves at the holidays, but just three pieces per month the rest of the year. But if he sees other data that show his best customers buy this item, he can avoid making a decision based on economics that could otherwise wind up firing some of his best customers."
Jenai Wall, president, Foodland Super Markets, Honolulu, also feels the payoff is in catering to top customers. "We spent a lot of time debating where more business could come from: Is the greatest benefit gained from attracting new customers to our stores, from the mid-tier secondary shoppers or from our top customers? I think we all found that our top customers have the most vested interest in our business. They care the most about helping us succeed.
For all these efforts, however, Jeff Manning, executive vice president-GMD, Fleming Cos., Dallas, takes a broader view of customers and states bluntly that "price and convenience override any sense of loyalty today. Frequent shopper programs are becoming less and less of a competitive difference. I don't think anyone is much loyal to anyone or anybody. The low-income shopper tends to go where he gets the better deal, and the average Joe is married to convenience."
What's caused his skepticism is the intense time pressures on shoppers, the blending of trade classes and the Internet. "People have an abundance of shopping choices," declared Manning. "That's why we at Fleming feel we have to follow customers in whatever shopping formats they frequent, whether it's brick-and-mortar or the Internet. And we have to offer them as many goods and services as we can so they don't go anyplace else."
Indeed, agreed Bill Bishop, president, Willard Bishop Consulting, Barrington, Ill., "loyalty as a practical matter has to do with earning a larger share of your own shoppers' spending, recognizing that people spread it around. If loyalty programs only represent off-shelf discounts, it's not very differentiated. If you're able to target and make a relevant, valuable offer, consumers see that as beneficial.
"Having a frequent shopper card and discounts in your stores is jacks-to-open. Real loyalty comes in using data to make differential offers that are meaningful to target customers," he added.
"Hotels and airlines have made really good use of this. But food retailers aren't used to marketing one-on-one, they're not sure how to deliver benefits to reward frequent shoppers, and if they pay postage for direct mailings, program costs grow high."