Making EDLP Credible

MARK HAMSTRA

For Stephen Vowles, getting consumers to understand that Stop & Shop and Giant-Landover have lowered prices is just the beginning.

The senior vice president of marketing for the two Ahold-owned chains is in the midst of a multifaceted effort to quickly reverse consumer perceptions about the value of shopping at the banners, while at the same time creating an ever-more-personalized shopping experience in an environment where cutting costs is also paramount.

“What we're doing in pricing is absolutely key to our future and is a fundamental foundation, but it's not the whole of who we are,” Vowles told SN. “Our whole credo is that customers should not have to choose between good prices and good quality and variety.”

SN has named Vowles Marketer of the Year for 2008, reflecting the challenge he faces — and early success he has seen — in reversing certain consumer perceptions about Stop & Shop and Giant.

The gradual rollout of everyday low pricing at the chains is being accompanied by an effort to retain the banners' impressions of quality and variety, part of Ahold's Value Improvement Plan, or VIP, which also includes such elements as product positioning and other changes. Cutting prices while maintaining quality and variety perceptions is a delicate balance that many chains have struggled with, but Vowles has embraced it by leveraging the knowledge gleaned through years of customer purchasing history obtained via frequent-shopper cards.

“One of the things I like about working in supermarkets is that in some ways we've got one of the richest data sources,” he said. “Our customers come in for 40-50 trips a year, and in a store that's got 30,000-50,000 SKUs, they probably pick up 20-30 SKUs on any given trip. In a year they might pick up 200-400 SKUs, and which ones they [select] out of the 30,000-50,000 tells us a tremendous amount who they are. We always say that customers have been talking to us all the time, we just haven't been listening.”

Listening to the customer is critical to the VIP initiative, Vowles explained, especially given the reduction in SKUs that is accompanying the new pricing platform. The chains are seeking to reduce the selection available in the stores — with the goal of reducing costs and improving quality — while at the same time retaining those customers who may have purchased the products that are being eliminated. About a quarter of SKUs have been stripped from the shelves in the categories that have undergone VIP analysis.

“The VIP program involves some rationalization of our offering, and much of the work — the sophisticated modeling and analysis that goes into that — builds directly off the card data,” Vowles explained. “That allows us to understand what's really important to our customers and what is not, what products are easy to substitute and what's actually quite unique.”

Although some vendors have reportedly struggled with the decision by the chains to reduce product selection, Vowles said it is really the customers who are making the decisions.

“If you are a brand that is aligned around the consumer and your offer is relatively unique, you are going to do just great,” he said. “Because with everyday low pricing, and actually moving out some of the tertiary SKUs, it will actually make it easier for the customer to find your brand and buy it on a regular basis.”

Ahold has also been working with Chicago-based Information Resources Inc. and with about 15 key vendors on a project called customer-centric retailing, or CCR, in which sales data is shared to make better merchandising and marketing decisions. That has been going on for about two years — longer than the VIP effort — and has made both the chains and their vendors more sophisticated in their marketing strategies, Vowles said.

The company is also using its card data to cluster the stores according to customer shopping patterns. Stop & Shop and Giant have created three different clusters of customers that enable the chains “to get away from that one-size-fits-all,” he said.

“We're determined to become powerful local consumer brands that actually stand for something different. We don't want to be the generic supermarket. [EDLP] is really the foundational element, as part of a longer-term plan to reinvent the business into something that will take us back to what we were originally, which is a powerful local brand with consumers.”

Lawrence Benjamin, chief operating officer of Ahold's U.S. operations, said in a recent conference call that the VIP rollout was showing some signs of success, especially in the produce department, the first and largest of 10 areas of the store that have undergone the process in the past year. The company plans to have the VIP program rolled out to 75% of all store products by this fall.

“A few key measures are up — most notably our [same-store] produce units are up,” Benjamin said in a conference call with investors in November. “Our produce price perception scores are up, and our produce quality perception scores are up. All three of these are key measures and key targets for VIP.”

He said other, broader measures are also showing positive trends at both Stop & Shop and Giant-Landover, including the number of trips per household, the overall price perception of the store and individual store market share.

One challenge Vowles said Ahold has is to convince its customers that it has a unique offering while at the same time retaining its appeal to as broad a swath of those shoppers as possible.

Vowles, a British native who spent eight years marketing some of Procter & Gamble's top consumer brands in Europe, is leveraging that CPG experience in the retail environment as he seeks to create such a distinct “brand” for the two Ahold chains. But there are some major differences between creating a CPG brand and creating a retail brand, he pointed out.

“The particular challenge for supermarket brands like ours is that unlike a CPG brand, where in many CPG categories having a 15% share of the market is a success, in a supermarket you've got to make sure that 80% to 90% of the people who live nearby are comfortable coming in to shop with you,” he explained. “What's success for us is finding a way for customers to see us as distinctive and understand that with us they can get the quality and variety they are looking for, that we'll be able to simplify and help them in their lives without sacrificing price.”

In between his time at P&G and Stop & Shop, Vowles also worked for Sainsbury's in the U.K.

“Sainsbury's really is an example of a powerful local brand, which is what we're trying to achieve here, with a broad appeal and distinctive point of difference,” he said.

Vowles is tasked not only with getting the message of the new value proposition through to customers, but doing so quickly.

The company tried to do that with a TV and radio effort designed to catch people's attention and make them aware that change was under way at the chains. The so-called “talking product” spots included animated produce flirting across the aisles with a message that prices were being reduced.

“We wanted to provide something that is different and discontinuous in the marketplace,” Vowles explained.

He said the ads also facilitated the company's effort to emphasize the department-by-department nature of the price cuts, so that it would not create the impression that the entire store had gone to an EDLP format before it actually had.

“We have been trying very carefully not to over-claim — we want to maintain our credibility with consumers,” he said.

He is battling a stubborn legacy the industry has for not delivering on a promise of price cutting, he said.

“Based on the multiple price campaigns that have been conducted throughout the years in supermarkets, consumers really have a pretty low opinion of the likely credibility of supermarket price claims,” he said.

Now that the price cuts have been spread to several major departments throughout the store, the chains have graduated to a new campaign featuring testimonials from customers, a tactic Vowles said helps reinforce the credibility of the claims. In the spots, customers talk about how either Stop & Shop or Giant “works for me” by making their lives simpler.

“We've certainly gotten great feedback on them to date,” he said.

Advertising only goes so far, however, Vowles explained — the real marketing message takes place at the store level.

“The customer spends 45 minutes to an hour interacting with the store every week, and that far outweighs anything that we may do outside the store or prior to them visiting the store in terms of their impression of the brand,” he said.

To combat that, Vowles said one of his primary objectives this year will be to streamline the in-store marketing message.

“I'm trying to reduce the message clutter in the stores, because there's a point where you bombard customers with so many messages that they don't see or hear any of them,” he said. “Right now the key marketing priority is to accelerate how fast customers realize we've reduced prices — that is our key message in the store.”

Vowles is also working on the next generation of TV advertising, and is poring over some of the shopper-submitted testimonials that were part of the “works for me” campaign.

In addition, the company is further seeking to customize the shopping experience with the rollout of a new iteration of handheld devices in the stores. EasyShop, a successor to the Shopping Buddy, which had been tested in about 16 stores, was recently rolled out to about 90 Stop & Shop locations. It is a handheld device with a small screen that is more intuitive than the Shopping Buddy, he explained.

“I think the digital revolution is going to have a huge impact on supermarkets and marketing in general,” Vowles said. “The ability to give people remote devices that allow access to large amounts of data is really going to allow us to develop a much more personalized, much more shopper-controlled shopping experience.”