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RETAILERS NEED TO PUT LOYALTY DATA TO WORK

While many supermarkets have been gathering information about their top customers for years, many are failing to use this data in their daily decision making, according to industry observers.A recent survey by ACNielsen, Schaumburg, Ill., revealed that only slightly more than half of the supermarkets collecting customer data through loyalty programs use it in their day-to-day decision making on a

While many supermarkets have been gathering information about their top customers for years, many are failing to use this data in their daily decision making, according to industry observers.

A recent survey by ACNielsen, Schaumburg, Ill., revealed that only slightly more than half of the supermarkets collecting customer data through loyalty programs use it in their day-to-day decision making on a regular basis.

Industry analyst Ted Bernstein, director at Grantchester Securities, New York, observed that the supermarket industry has done a good job of collecting data, but said, "Very few are really mining the data very well." He cautioned that "If a supermarket is using the frequent-shopper card to treat their best customer to periodic specials, that's only half the usefulness."

However, those retailers who are taking the time and effort to mine frequent shopper data when making crucial business decisions are seeing results.

They are using the knowledge gained through their loyalty program to improve the effect of marketing campaigns and make make more informed decisions about which products and categories to promote and which "slow movers" to drop.

"There are only about eight to 10 different things that you would gather from frequent-shopper cards -- like UPC, date and time of purchase, amount of purchase and amount of discounts," said Albert Lees Jr., chairman of Lees Supermarket in Westport, Mass. He explained that Lees uses the data primarily "for category management and shelf resets."

Lees said the data "also lets us identify our core customers and advertise only to them," which he said means by direct mail. Lees Supermarket generates a report from its shopper data every two weeks. All customers who meet the selected criteria -- such as frequency and volume -- receive the mailing. Each mailing offers ads for two one-week periods. The mailings, Lees noted, are "combination ad and information piece." The printed materials announce sales, but also may include recipes or news about upcoming events.

"We've done this for three and a half years and we're very pleased with it," Lees reported. "it will not work in all instances for everyone. It works for us because of how we've positioned ourselves."

Marv Imus, vice president of Paw Paw Shopping Center, a single-store operator in Paw Paw, Mich., said that its frequent-shopper program was initiated 10 years ago. "We record everything the consumer buys. When we look at the data, we work back up into a category level." But Imus pointed out that he defines "category" in many ways -- not just by traditional category rules, like dry cat food. "We'll look at information on a 'category' that could be as little as a 4-foot shelf to a whole half an aisle," Imus explained.

At first, Paw Paw Shopping Center used an outside vendor to manage and process the data. "We've had our own in-store data warehouse to handle transactional data for the past three years," Imus said. "We store all the purchase data on a daily basis."

He said that the data is used to identify shoppers to send direct mail, e-mail and in-store offers. "Our mailings go from 10 up to tens of thousands of pieces. The smaller the mailer, the higher the customer [value] must be to us," Imus noted.

Bernstein cited some inherent difficulties of CRM in the grocery industry: "One of the challenges for supermarkets is that even though there is a lot of data, each purchase is for a relatively small ticket item, making it harder to model an individual's buying pattern."

Asked about investments in comprehensive customer relationship marketing programs, Bernstein commented, "It's a difficult undertaking for small operators because they don't have the volume to justify the technology." He pointed out that the hardware and software required "is about the same whether it's across 50 stores or five stores."

Those that have delved into CRM have generally seen satisfactory results. Paw Paw Shopping Center's Imus said that Paw Paw is working closely with technicians from the software provider to "see how else it can work for us. Our program will evolve as the software evolves."

Imus noted that hardware, too, has already made a difference for Paw Paw Shopping Center. "As systems get faster, there are queries that I run now that I couldn't run before." He added, "Since our last server upgrade, we've been able to improve our customer category management. We'll have a multitude of items in a set, and we can now determine which items are the most important on the shelf, according to which customers are purchasing them. That's a new capability."

Lees Supermarket's CRM strategy has helped it establish customer "sub-clubs" and devise new, targeted marketing vehicles. In addition to its bi-weekly general mailings, Lees Supermarket's also mails a quarterly wine newsletter to shoppers who have purchased wine from the store.

Lees also favors targeted simple postcard promotions. "People don't have to open them. There's an immediate message."

Paw Paw Shopping Center avoids targeting shoppers based on income brackets for promotions, but does apply other key data. "We'll look at our top 10% or 20% of shoppers. We'll want to know when they have a higher incidence of being in the store so that we can staff properly," Imus said.