I did a quick industry study for our recent Electronic Marketing Conference to find out the penetration of electronic marketing/frequent shopper (preferred customer, frequent buyer, card-based marketing, front-end electronic marketing, data base marketing, etc.) programs in supermarkets. Here are my numbers, followed by an explanation of what to watch for in the numbers.
A total of 12% of all supermarkets (stores) have these programs, which is 21% of all chains, which represent 37% of the U.S. All Commodity Volume. One problem with all the available numbers (my own included) is the thing that's being measured -- "stores, chains and ACV percentage."
Kroger Co. is a perfect example. It is currently experimenting with Advanced Promotion Technology's Vision Value System in six stores. So Kroger gets a value of six in the "stores" equation. It is one chain, so it gets a value of one in the "chains" equation. But at $22 billion in sales, Kroger represents about 7% of the U.S. "ACV percentage," seriously inflating the 37% ACV percentage figure I mentioned above. On the other hand, A&P, at $10.5 billion, represents about 3% of the U.S. ACV percentage, and it has almost all its stores equipped with front-end electronic marketing systems. Its contribution to the ACV percentage figure is valid.
Actually, all three numbers are valid, and probably necessary. I just think it's important to understand the basis behind them before accepting any of the statistics.
Another major problem is the definitions. I deliberately used several of them so far in this column, because we use all of them, all the time. It leads to confusion, particularly when retailers are surveyed to see who's doing what. One magazine published a number of 16% of retailers involved with "frequent shopper programs" in 1993, and then said 13% of retailers are involved with "preferred shopper programs" in 1994. Does that mean 3 percentage points of them discontinued programs, or did they just interpret the terms differently?
You also have to watch whom the study was sent to, and whether the percentages were based on (a) the total industry, (b) the total number of surveys mailed or (c) the total number of respondents. Total number of respondents is used quite often. I think it leads to inflated statistics because retailers involved with the programs are more likely to respond than those who are not.
The other problem is the sources. Almost everyone has a vested interest in the numbers not coming out entirely truthfully. Retailers want to understate their activity, or hide it, because they feel these programs provide them with significant competitive advantages. If you ask vendors, they overstate their client base, to appear more successful than their competitors. Others to watch out for are double-counting chains and wholesaler stores.
NCH Promotional Services provided the most interesting number -- consumer involvement. In 1993, 12% of consumers participated in a frequent shopper program, and in 1994 that number has grown to 16%.
Whatever you call them, these programs are growing and they're important. Just watch out for the numbers as we monitor and evaluate their growth.