Although more than half of the top 50 grocery chains today have card-based loyalty marketing programs, many retailers have yet to connect to the missing link that make these programs profitable and worthwhile.
Since their inception more than a decade ago, these programs have largely been confined to offering cents-off discounts to shoppers who join. Consequently, every shopper receives the same reward regardless of how loyal they are to a brand or to the store as demonstrated by their spending levels.
That's hardly the well-publicized goal of these programs -- namely, consumer-centric one-to-one marketing. It doesn't "mine" the accumulated purchase data to enable retailers to market to their most valuable shoppers more effectively.
"A lot of retailers are realizing that they got into the card game and absorbed a tremendous ongoing annual cost. And what they got out of it was a cost and very little [return on investment]," said Peter Leech, managing partner of the Equilum Group, a Chicago-based consultancy. "Now they're starting to reassess what to do with this marketing vehicle to make it truly differentiated."
But enhancing a program, experts say, is easier said than done.
Leech urges retailers to focus on marketing, which is a relatively new function for them. They tend to promote their own buyers and store managers for newly created positions in marketing, but these executives don't have marketing expertise.
"The board may understand [the need for marketing] and they may speak to it," he said. "But they leave the keys, all the power and the budgets in the hands of the buyers. And the buyers know how to buy; they don't know how to sell.
"They don't have the 'brainware' or the genetic understanding of what to do," he went on to say. "Grocers are flailing around in different directions with their marketing because they refuse to hire new teams. They have to hire externally for their retail marketing. They need to put in place a new vision -- a data-driven, customer-focused, incremental sales-driven type of promotional focus."
Barry Kotek, managing partner of Retail Systems Consulting, Naples, Fla., agreed with the need to have properly trained marketing executives running loyalty programs. But he also said the analytical software that retailers are using needs to be upgraded because it can't target individual customers effectively.
"A lot of tools today aren't intuitive," he explained. "So we're talking about a leap in technology. It's an investment."
Some of these newer programs involve advanced statistical modeling with limited data points, according to Kotek. Researchers are starting to apply this technology to frequent shopper programs that might have limited points of data on consumers.
"Because the technology is such that you can fill in the blanks and get a better picture of consumers, you can start to determine their price and promotional sensitivity around individual categories," said Kotek.
Paw Paw Shopping Center, based in Paw Paw, Mich., has been testing advanced software from Adpilot, New York, for nearly 18 months. Because the program is based on the transactional history of grocery shoppers, it can give projected movement rates by price points, according to Marv Imus, president of Paw Paw.
"Usually, when I look at my purchase history data, I make decisions on offering products to consumers based either on last-time-purchased or most-often-purchased in the category. [The new software] takes it a step further. Its algorithms have a much higher predicted rate of response by the consumer," he said.
For the last two years, Imus has also been targeting shoppers with a dispenser-like kiosk called the Personal Savings System from Tactical Retailing Solutions, Farmington, Conn.
Consumers swipe their cards when they enter the store and receive a sheet with product promotions. They receive discounts when they buy the products and the card is swiped at checkout.
"It's another avenue of communication with the consumer," said Imus. "It enables us to communicate with our shoppers when they enter the store rather than as they leave the store. We can provide highly targeted offers, or it can be a mass offer. We can target offers to a category of users such as young families, empty nesters or pet owners." Meanwhile, larger chains continue to launch loyalty programs. The most recent example is Albertsons, which recently began a loyalty card program in its Northern California stores. According to Retail Systems Consulting, 10,821 supermarkets offer card programs today, compared with 8,999 in 1999. About half of the top 50 grocery chains now have programs. In many cases, they consider loyalty programs to be a competitive advantage and are reluctant to speak publicly about their development. For example, Winn-Dixie introduced its Customer Reward card in early March in its three Florida divisions. At the end of June, it expanded to divisions in New Orleans and Montgomery, Ala. Customers receive discounts as well as "points" that can be redeemed for merchandise. When asked to explain the evolution of the program, Joanne Gage, senior director of consumer and marketing services, said, "We'll let the fact that we expanded it into additional divisions speak for itself. We really don't want to say much more. We want to keep the competition guessing as far as its success or lack of, the number of cardholders, etc." Carter's Food Centers, Charlotte, Mich., introduced the S&H greenpoints card-based loyalty program 18 months ago in all of its 21 supermarkets. The program, now in more than 300 supermarkets around the country, is the digital reinvention of S&H Green Stamps. Shoppers earn 10 greenpoints for each dollar spent and can redeem points for merchandise and travel from a rewards catalog. They can also use points at checkout for free or discounted groceries.
Within six months, Carter's had nearly 85% of its sales with the card, according to Rex Harcourt, president of marketing and procurement. Various sweepstakes and continuity promotions helped the program to mature in the first year.
"In the last six months, we've been more focused on customer basket, and realizing which of our top shoppers are shopping which departments. Then we set up our promotions based on that. That will help the program to evolve," he said.
For example, a top-spending shopper may not be buying products from the in-store bakery. So Carter's offers a bakery promotion targeted to that shopper.
"Our largest sales opportunities are with our existing customers, especially our top-level customers," said Harcourt. "Finding out where those customers aren't shopping in our store and creating promotions based on that is what our program has evolved into."
Harcourt and other Carter executives analyze the purchase data. Store managers get a monthly recap of the program, as well as a weekly trigger report that gives an analysis of the previous week's history.
"Our merchandisers analyze it because our vendors are very deep into the program," Harcourt said. "They help us with it, as well as participate."
The sought-after benefit of loyalty programs is a true one-to-one relationship between the retailer and shoppers. It's a goal, experts insist, that is attainable if retailers actively develop the program.
"By understanding individual shoppers and their profit contribution to the business, retailers can begin to create marketing incentives that reward the right behavior -- that is, profitable, loyalty-building behavior," said Leech of the Equilum Group. "Mass promotions can never reward the right behavior. They wind up rewarding some good behavior and subsidizing a ton of bad behavior, like switching and cherry-picking."
Kotek of Retail Systems Consulting pointed out two benefits of mining purchase data and creating one-to-one relationships with shoppers:
Creating loyalty instead of just having a frequent buyer program. "Then you're paying attention to what consumers purchase and incenting them on the products that make a difference to them," he said.
Increasing the efficient use of trade dollars. "Right now, we have a serious problem with trade dollars in the industry," he said.
