PARIS (FNS) -- The power of a customized shopper database and multitiered customer loyalty program is a lot more than a sophisticated luxury for one independent retailer in upstate New York.
Rather, it is the strategic muscle that is enabling Green Hill Farms, a single-store operator in Syracuse, N.Y., to compete against some of the most formidable players in the industry, such as Wegmans Food Markets, Rochester, N.Y.; Price Chopper Supermarkets, Schenectady, N.Y., and P&C Food Markets, Syracuse, N.Y.
"The playing field is changing and technology and information systems are now strategic weapons," said Gary Hawkins, chief executive officer at Green Hill Farms. "Customer databases have become a necessary asset to be in the retail business and the knowledge of how to use that information is critical."
Hawkins spoke about his store's success with a customer loyalty program at a conference here titled "The New Power in Loyalty" and sponsored by CIES: The Food Business Forum, also here. The one-day event drew 140 delegates from 19 countries, including 66 retailers and 48 manufacturers.
Green Hill Farms introduced its customer loyalty program in 1993 as a way to boost margins, enhance customer loyalty and cut the customer defection rate, which ran higher than 30% of shoppers annually.
"That is not a particularly high number for the industry," Hawkins stressed. "Worldwide, the [turn] rate runs between 25% and 50%. The reason is that, especially in the United States, we have rewarded the wrong behavior with constant weekly specials."
While 95% of the Syracuse food market now offers some form of customer loyalty card, Green Hill Farms set out to differentiate its program by introducing a multitiered system, Hawkins said.
The retailer has now issued more than 25,000 customer loyalty cards and collects data on 13,000 households. The program tracks more than 85% of store sales representing 70% of customer transactions, he said.
The point-based program features a variety of rewards, including a free Thanksgiving turkey or Easter ham for spending above a certain level and offers from other, noncompeting retailers. Customers can access three in-store kiosks to check point levels.
But it is the multitiered pricing for customers, based on weekly spending levels, that may be having the greatest effect on enhancing customer loyalty and influencing shopping behavior.
"The price the customer pays at Green Hill is now dependent on how loyal the customer is -- and our competitors don't know what that price is," Hawkins said. The pricing tiers are based on each customer's recent and past shopping behaviors, with the database going back three years.
The program includes a five-tier pricing program that covers 1,500 items in the store and ranks customers on weekly spending patterns from $10 to $25 per week to more than $100 a week. The corresponding discounts on those products range from 5% to 20%. Simultaneously, the program also features a three-tiered direct-mail pricing program that highlights regular item prices, advertised prices and prices for loyal customers on selected items.
"We are now rewarding our best customers. The cherry-pickers are helping to subsidize lower prices for our best ones instead of the other way around," Hawkins said.
"By playing with that mix we are able to increase our gross margins. All sales dollars are not equal. The sales from loyal customers are more profitable than the sales from non-loyal customers. Historically, the system was not working and we have now flipped that pyramid around," he added.
Green Hill now is looking to increase even further its customer-specific relationship with its most loyal shoppers. The retailer is now phasing out all newspaper advertising in favor of direct mail and other methods.
The goal is a true one-to-one relationship. "We are looking to customer category management that separates customers by economics, not demographics. Product category management should be done through customer category management. The question is not how many items you sell each week, but who is buying them."