The ideal frequent shopper program remains an elusive goal. Despite numerous frequent shopper pilot programs that document increased sales, profit margin and customer loyalty, retailers and wholesalers acknowledge they are just beginning to learn what works.
The formula for frequent shopper program success is unique to each retailer and is influenced by a myriad of factors, from pricing
strategy and market share to the complex business of managing a massive data base of shopper purchasing records. Even pioneers, whose programs date back eight years, continue to wrestle with various approaches.
"I think at this point it's more an art than a science," said Gerald Good, executive vice president of merchandising and marketing at A&P, Montvale, N.J. "You have to figure what will work with your kind of customer to build loyalty.
"I think you're going to have to experiment a lot. We've tried some things, but I can't tell you we've found the answer yet."
Good said the 1,100-store chain, whose electronic frequent shopper program has been in place three years, is experimenting with different promotional strategies, from continuity programs to discounts on airfare and amusement park admission.
"Like anything else, if it's just another 'me-too' program -- like everybody in the market offering double coupons or 99-cent chickens -- then it's just a copycat. And it won't grow in importance," he said.
Bill Sackett, electronic marketing counselor at Spartan Stores, Grand Rapids, Mich., agreed there's a danger of frequent shopper programs falling victim to "me-too" consequences if the customer rewards are similar at two competing chains.
"One of the things we strive to do with our electronic marketing program is to work with our retailers so they build their own identity into the program," he said.
Spartan has more than 70 retailers enrolled in its electronic marketing program, Sackett said. While some retailers are issuing electronic discounts at the point of sale, others are transmitting POS data daily to Spartan for analysis.
Reports generated by the wholesaler lend insight into customer retention rates and transaction size -- information that brings the retailer closer to the customer base.
"I think the benefits to the retailer -- knowing who their customers are and what their customers are doing within their operations -- are very great," he said.
More and more retailers are recognizing the value of gathering shopper-specific data through electronic frequent shopper programs, according to a recent survey developed by SN and conducted by the Market Research Department at Fairchild Publications, New York, which publishes SN.
More than 44% of respondents said they would introduce or expand a frequent shopper program in 1995, according to the SN's State of the Industry Report on Supermarket Technology. In addition, among those with programs already in place, 40.6% of respondents called their efforts highly successful and 50% characterized their programs as moderately successful.
At Marsh Supermarkets, Indianapolis, the Fresh IDEA (for Instant Discounts Electronically Applied) program introduced to 39 stores last year has remained a flexible vehicle.
"We have done some direct mail and had some fairly encouraging redemption rates," said Mark Heckman, director of market research. "We plan to do more of it, but it's not something that will happen overnight.
"It will grow and evolve in our company because it's not just a program that affects market research or electronic marketing. It touches merchandising, it touches manufacturers, and with all the complexities of the program, it will take some time to get everybody moving in the same direction," he noted.
Key to the success of Marsh's program, and that of nearly any retailer's program, is how deftly shopper data is collected, analyzed and understood, and what sound marketing strategies can be developed from that information.
"The capabilities of these programs will be commensurate with the investment the retailer makes in terms of being able to manipulate the data," he said.
"From my impression, and from talking to retailers, that's all over the board right now. Some are debating whether to do it in-house [with off-the-shelf software], whether they intend to develop an internal system, or whether they intend to let someone from the outside manage their data base."
At Ukrop's Super Markets, Richmond, Va. -- whose frequent shopper program, launched in 1987, is hailed as one the industry's first -- data analysis is a new component.
"We've just started with measured marketing," said Scott Ukrop, director of marketing. "I say that we are just getting started with measured marketing because we only began collecting consumer purchasing data this past year."
In the course of the last year, Ukrop's gained insight into shoppers' frequency of visits, which shoppers contribute the most to overall sales and which shoppers are bypassing particular departments.
"The sky, perhaps our disk space, is the limit as to what we can track and study to enhance not only our marketing effort, but also our merchandising, procurement and operations as well," Ukrop said during a recent industry meeting.
Opportunities to build shopper loyalty and sales through electronic frequent shopper programs are readily available, said Marsh's Heckman.
"But it will be limited by the systems capability that the retailers have and the budgets they have for moving the dollars over from existing merchandising programs -- circulars and other conventional things that are currently absorbing the lion's share of media and advertising budgets."
Indeed, one of the more telling benchmarks of a successful frequent shopper program is the ability to redirect funds from conventional advertising media to the marketing program.
According to the Food Marketing Institute, Washington, some retailers have reduced advertising expenses by 10% to 20% as they target promotions to their best customers.
Gregerson's Food Stores, Gadsden, Ala., for one, trimmed 30% from its advertising budget after launching its frequent shopper program, Club Greg, in six stores.
A&P's Good said smaller retailers like Gregerson's may have an easier time than larger chains when it comes to trimming advertising budgets after introducing a frequent shopper program.
"The nice thing about [Gregerson's] is that he is contained in a market, and I think it's a little harder when you're spread around and have a large number of stores," he said. "It's a bigger bullet to bite" to reduce advertising spending in highly competitive markets.
Just over one-fourth of survey respondents said they are now offering a card-based electronic frequent shopper program at their stores.
Of firms featuring frequent shopper programs, a striking 90%-plus characterized the programs as moderately or highly sucessful.