NEW ORLEANS -- Data mining partnerships between retailers and manufacturers can increase brand sales by 10% to 20% and gross margin dollars earned by all partners by about 10%, according to results of a study commissioned by the Grocery Manufacturers of America, Washington, D.C.
Preliminary findings from the study, which was conducted at Wegmans Food Markets, Rochester, N.Y., were presented during GEMCON, the conference on Global Electronic Marketing, here last month. The final report will be issued at GMA's Information Systems and Logistics Distribution Conference, April 24-27.
"Data mining is an important capability to have because it provides much needed focus to your loyalty programs. More effective and efficient marketing can mean double-digit gains in sales and gross profits," said Frank Badillo, principal consultant, for the Columbus, Ohio-based PricewaterhouseCoopers.
"There is value in partnering," he added. "Retailers and manufacturers can do together what neither can do alone." Seven manufacturers participated in the project: Anheuser-Busch, Coca-Cola, Kraft, Nabisco, Pillsbury, Procter & Gamble and Warner Lambert. Case studies from Kraft and Procter & Gamble were highlighted in the GEMCON presentation.
"You only need to look at some of the brand manufacturers to see that they are all under great pressure these days to grow their brands. Companies are turning to growth by acquisition because they can't generate that growth internally," Badillo said.
"Meanwhile, retailers are under growing pressure from the threat from Wal-Mart and other retail channels. In response to these pressures and threats, [companies] need to take advantage of loyalty programs and the underlying data. They could provide that new growth and that differentiation from your competitors that you are looking for," he said.
There are two ways to mine data, he said: a product-focused or a strategic, storewide approach. The study initially took the product-focused approach because it makes best use of available frequent-shopper data, which tends be product specific, and also because it could be done faster, Badillo said. "The two case studies suggest that a product-focused approach to the data can grow the brand, the category and the store. The project also concluded that comparable and potentially greater results are possible from a strategic, storewide approach to the data," he said.
The strategic, storewide approach starts by looking at shopper behavior across product categories, trying to identify shoppers who are important because they can drive storewide sales. "The participants in the project believe that this approach ultimately holds the most promise, the most bang for the buck. It's also the approach that makes sense for supermarkets because it can help them blunt the competitive threats they are facing from other retail channels. In fact, Wegmans is using this type of approach in its own data mining efforts as it responds to Wal-Mart's entry in upstate New York," Badillo said.
"There's no one answer. There's no one-size-fits-all, and that's the strength of data mining. It can pinpoint the hard-to-find differences among your shoppers that you can capitalize on to deliver more personalized value to them," he said.
Kraft Macaroni and Cheese was selected for the project because it is a national brand with no regionality or seasonality, said a source close to the project. Also there was no competing brand except for Wegmans' private label macaroni and cheese product. The study found that marketing events for Kraft Macaroni and Cheese grew the entire category with little cannibalization of the private label product, he said. The data mining process could target loyal purchasers of the Kraft product and further minimize such inroads, he said.
Several broad-scope lessons resulted from the project. One is, "there is value in partnering," said Badillo. "Neither party has the best or most complete information on their own. It's only when the parties come together that the potential opportunity is maximized here. In two cases, we saw that both Kraft and Procter & Gamble contributed key information about marketing events that made the Wegmans' frequent-shopper data even more powerful. That translates into dollars and cents -- bigger gross margin dollars for each partner," he said.
The two case studies involved products with very different marketing and consumption patterns, he noted. "This suggests that the benefits are not limited to just certain types of products and certain types of companies."
The second lesson is that partners must be organized to effectively work through the process. "Break down the barriers within each organization so sales, marketing, technology and other departments can together optimize the use of data mining tools," Badillo said.
"It's also clear from the project that data mining tools are not a magic solution. Having data mining capability by itself is not going to generate all kinds of wonderful benefits. It takes capabilities across areas, particularly marketing, to create successful partnerships between retailers and manufacturers," Badillo said.