RETAIL MARKETING 1998-04-06

ADAM BLAIR

NEW ORLEANS -- The ultimate goal of database marketing -- using individual customer information to cost-effectively provide the exact products and services each customer wants -- may seem unrealistic in the high-volume world of supermarket retailing.

But while retailers may never achieve true one-to-one marketing, the availability of more powerful computer systems as well as vehicles allowing more interactive customer communication, such as Web sites and automated calling systems, are bringing a few retailers closer to the target.

These and other database marketing issues will be among the hot topics at Gemcon, the seventh annual conference on global electronic marketing being held here this week.

Database marketing ranges from the simple to the sophisticated in the supermarket industry. Some of the retailers supplied by Spartan Stores, Grand Rapids, Mich., for example, "use a shopper card primarily as a means of giving discounts and creating a mailing list," said Gary Evey, a spokesman for Spartan.

"Other retailers are looking at ways to execute one-to-one marketing, through the use of in-store kiosks or integrating their shopper-card information with their Web site," he said.

While many retailers are still at the early stages of analyzing and acting on the information from frequent-shopper databases and other sources, others are already using data to forge alliances with both their customers and manufacturers.

At Brodbeck Enterprises, Platteville, Wis., which operates eight Dick's Supermarket units, consumers responding to an on-line survey who indicate they own a dog or cat receive an offer for pet products by the time they complete the survey, according to Ken Robb, senior vice president of marketing at Brodbeck.

Big Y Foods, Springfield, Mass., which has been collecting customer-loyalty information for nearly 10 years, is already providing targeted customer lists to specific manufacturers. The retailer uses a third-party firm for the mailings to protect its customers' privacy.

In the future, however, the retailer would like to leverage these detailed histories to, for example, print customer-specific ads on register tapes using high-speed printers at the point of sale.

"I don't know if the technology will allow us to do this in three to five years, or seven to eight years, but something like this would allow the manufacturer to talk directly to the consumer at the store, based on information we have," said Daniel Lescoe, senior vice president of merchandising at Big Y Foods. "This would take literally all other costs out of the system."

Lescoe spoke on the topic of loyalty marketing at last month's Fourth Annual Efficient Consumer Response conference in Atlanta.

These types of immediate, custom-tailored interactions are the leading edge of database marketing, according to Don Peppers, president of the consulting firm Marketing 1:1, Stamford, Conn.

Peppers, who spoke at the MarkeTechnics convention in Los Angeles in February, used the consumer-direct company Peapod, Evanston, Ill., as an example of not only responding to individual customer desires but improving the process with each subsequent communication.

Customers are loyal to Peapod not because shopping on-line is easier than shopping in the store, said Peppers. Indeed, he said, it's more difficult. "Wouldn't it be easier to traipse down to the grocery store and eyeball the stuff on the shelf? You could scan it a lot faster with your human eye than you could through the computer," he said. "But that's only the way the Peapod customer shops the first time.

"The second time, customers simply call up last week's shopping list and make a few changes. The next week's list is smarter, and the week after that it's smarter still," said Peppers. "Every time the list gets better, shopping time reduces. For some customers, getting routine purchases out of the way is going to be very attractive."

Retailers can use this concept -- learning more from their customers with each contact -- to cultivate greater customer loyalty than that provided by frequent-shopper programs, according to Peppers.

By their nature, establishing these "learning relationships" makes it more difficult for a customer to get the same level of service from a competitor, "even if they offer the identical level of customization, price and quality," said Peppers. "That's because the consumer can't get back to the same level of service without re-teaching the competitor what he's already spent time teaching [the retailer]."

Customers don't mind providing retailers with a fair amount of information if they feel they are gaining something from the interaction, said Brodbeck's Robb. He noted that the on-line survey conducted on Brodbeck's Web site, www.dickssupermarket.com, has achieved a 40% response rate.

"Every contact is a chance to learn," said Brodbeck's Robb. In addition, "The customer definitely comes out of the experience feeling they've been treated in a unique way. Their expectations have just been raised, and they look at you, and other retailers, in another light."

Another way Brodbeck is using database marketing is via its own customer-loyalty information. The retailer has experimented with a "shopping-list" program, which mails weekly lists, containing specific offers based on an individual's past purchases, to members of Brodbeck's frequent-shopper program.

Brodbeck will be relaunching the program May 1, said Robb, adding that the lists will be available both through postal mail and e-mail.

This type of database marketing, which focuses not only on specific products but specific brands, could be even more powerful with the use of more detailed information from the manufacturer, said Robb. "We could use information such as purchase intent, which uses demographics and psychographics to determine who would be most likely to buy a given product," he said.

Information on optimal variety and selection within a category would also be useful, he added, as would price-sensitivity data. "This [manufacturer-supplied] data might not apply to all stores, but with our knowledge of our own trading area, combined with our sales information and household purchase data, would allow us to make some solid inferences," said Robb.

While not all retailers may have the information systems infrastructure to access and combine all these databases, they can still discover crucial information about promotions and category management by analyzing their customer data.

As an example, Big Y's Lescoe recounted that the retailer wanted to find out why vigorous promotions for its stores' produce departments failed with certain customers.

"We were sending customers a $2, $5, $8 coupon to shop with us, and one day we got a brilliant idea -- we'd call customers on the phone," he said. The reason one household didn't buy their produce at Big Y? "They owned a farm. We're sending her checks and money to bribe her to shop with us, and apparently they're growing their own produce," he added.

A similar mystery was cleared up in trying to discover why meat-department promotions failed with a certain customer. "We called them up and found out they were vegetarians," said Lescoe.

"Instead of spending all this money chasing customers who don't do things, maybe I should see who's doing what, and why they are doing it, and reinforce that behavior instead of trying to change it," he added.

Peppers cautioned that this type of one-to-one marketing works best when a relatively small percentage of customers account for a large portion of a company's business.

"If the top 2% of your customers bring in 50% of your profits, it's cheaper to do one-to-one marketing [to them] than if 20% of customers account for that 50%," said Peppers.

Many database marketing experts note that for supermarkets, the top 30% of customers generally account for 70% of a retailer's business.