Frequent-shopper programs have grown in the supermarket industry, not just in number, but in sophistication. The most advanced customer-loyalty programs draw detailed portraits of shoppers, allowing retailers to segment their customers in order to make effective marketing decisions.
do lend themselves to softer measurements, such as customer retention.
All in all, IS executives will be keeping a closer eye on frequent-shopper programs, noting both what they can do and what they can't.
SN: What's the key value of a frequent-shopper program, in terms of the information it allows a supermarket to gather from its customers?
SMITH: Because we will know our customers better, these programs may allow us to offer a whole new suite of services, such as home delivery or automated checkout.
We think there is a great opportunity here. We want to be sure we can make it easy to reward loyalty and make it less advantageous for cherry-pickers to come and shop the deals.
NICHOLSON: What we're really getting back to, a little bit, are the corner grocery store days, when we knew the kind of things the customer wanted and were able to address specific needs to specific customers. Realistically, we have that same ability today.
The data you want are the data that are most important in helping you know your customer -- when and how the customer shops, what size orders they buy, how they pay and the products they buy. For instance, do they buy wines and gourmet cheeses, or all generic brands? Are they heavily coupon-driven or are they almost impervious to price and want what they want? Retailers must think through what customer knowledge will help them do a better job serving that customer's needs, and build a database with that data in it.
DRURY: Any time a retailer can understand a consumer's behavior pattern and observe it changing, he's got an advantage. That's changing for good or bad -- customers coming in more often or not coming in at all. Behavioral changes are what marketers like to observe, so they can factor in what they've done to make that change occur.
SN: How do you measure the value of a customer-loyalty program?
HOMA: I don't think anyone has proven such programs are cost-effective. My suspicion is that retailers are doing it because their competition is doing it, not because they are making money on it.
There is value in it; I'm just not sure the value is offsetting the cost. The value is that it allows you to get closer to your customers. There's also a lot of value in having [aggregated] market-basket data. It helps you merchandise to different kinds of customers
NICHOLSON: It's a soft measurement. A retailer can't say, "My sales are up 3.7% because my best customers are getting extra discounts and rewards for shopping with me."
SN: Are there valid ways to measure?
NICHOLSON: Customer retention measurements are very valid. When a retailer begins collecting customer data, he can look at his new customer profile: How much are they buying? How many new customers actually become good customers? How many good customers am I losing in any given time? How many are demoting me, moving from a good customer to a cherry-picker?
After the retailer starts implementing rewards, they can say, for example, "I was experiencing a 20% defection rate in the best customer category; now that I've implemented this it's down to 8%." The retailer can look at new customers and say that it used to be that only 30% of new customers made it into the good customer category within a year, now 50% do because he's able to address those people quickly and get them savings and benefits that really make sense for them.
SN: What do you see as the future for these types of programs?
HOMA: I think it's up in the air. We are an everyday low-price operator and we have to think about whether a frequent-shopper program lines up with a low-price strategy. I think a lot of retailers have to weigh that.
NICHOLSON: Gathering information is only half of the issue. The other half is flowing information to the front-end system to be able to give rewards to specific customers. Both halves are important.
