A BASES-LOADED OPPORTUNITY

JAMES TENSER

Data base marketing, with its promise of an individualized and perfectly tailored message for each worthy consumer, has electrified the business mainstream and given the term "household name" a new meaning.

With a reported $160 billion in supermarket sales now being made by consumers flashing frequent shopper cards, efficient, targeted marketing through the retail store may finally be at hand.

Quick access to household data is becoming available through retail chains across the country, which have been advancing card-based frequent shopper programs, either on their own or with outside help. These programs allow retailers to track heavy users, promote store loyalty and even measure the profitability of individual households.

Proponents say a major opportunity for targeted marketing lies where brand marketers' consumer expertise intersects with what retailers learn through their own frequent shopper programs.

"Data base marketing is going to be the stepping-off point," predicts Chris Hoyt, president of Hoyt & Co., a Stamford, Conn.-based consulting firm. "The retailer has the data on the shopper that already shops their store. The manufacturer has data on the market area. When you compare them, you have a gap analysis."

Under an ideal co-marketing alliance, a manufacturer could leverage its data base of households that use its products to help drive new shoppers to the retailer. In exchange, the retailer would provide access to its detailed information on shopper behavior to the brand marketer. Cooperative promotions would ensue. Profitable volume would be tallied. Bonuses would be paid.

"Activity on that front so far has been very modest," says George Off, president of Catalina Marketing, St. Petersburg, Fla. "Retailers and manufacturers are just starting to understand how to work together on that score."

So far, retailers' analyses have focused on identifying so-called "heavy user" households and marketing toward them. At Ukrop's Super Markets, Richmond, Va., frequent shopper data on 225,000 households has revealed that 73% of its overall sales come from 30% of customers, and 83% of sales come from 40% of customers, according to several recent reports. The chain's monthly mailer focuses on them, delivering a few customized offers, including laser-printed coupons.

With some variation, the old "80-20 rule," which holds that 80% of the business is generated by 20% of the products, tends to apply for heavy users of brands as well. For example, Nabisco Foods Group's Eggbeaters product reportedly generates 79% of its total sales from 32% of its consumers.

Application of this knowledge is fairly straightforward: Aim offers at the heavy users. Target the spending for greatest payback.

In a study released last spring by consulting firm Clayton/Curtis/Cottrell, Boulder, Colo., literally every packaged goods manufacturer and retailer responding reported some current activity -- development and/or implementation -- in data base marketing programs.

So how is it that so many companies -- brand marketers and retailers alike -- have shrouded these activities in secrecy worthy of the Manhattan Project? One explanation advanced by the Clayton study authors is that few of the companies on either side who responded have progressed far enough to have anything to boast about. Participants on both sides of the potential alliance agree.

"Very few manufacturers understand data base marketing and are able to implement programs," says Claire D'Amour, vice president of corporate affairs at Big Y Foods, Springfield, Mass., which has operated its frequent shopper program for four years. "So we have not met that potential synergy of data, but have forged ahead on our own."

She adds, "Brand managers need to filter their understanding down to the retail account people that call on our account. That is an additional hurdle. We have explored this with a few manufacturers. I can count on one hand the number of manufacturers that I am working with that legitimately and completely understand the potentials of data base marketing."

Says Glen Griffiths, director of sales promotion and communications at McNeil Consumer Products Co., a thoughtful critic who has closely investigated electronic marketing, "Some of these card programs are not appropriate for manufacturers at this stage."

Griffiths argues that retailer card programs have mostly failed so far at making themselves attractive to brand marketers for reasons of high cost, lack of flexibility and unwillingness by retailers to freely share data.

"Retailers think these programs are the holy grail of marketing and charge much more than the market will bear," he says. "What the market will bear is typically what the cost of a freestanding insert is today."

Griffiths adds, "Targeted or not, [FSI's have] a fixed cost and a fixed return. Retailers are looking for a higher charge and essentially are delivering no more than a coupon redeemed or a sale made, so there are some real questions about whether or not their cost structure is appropriate."

He also argues that retailer card programs that are geared toward continuity -- such as collecting points toward premiums -- can deprive manufacturers of flexibility in promotion strategies. "We need the flexibility to execute trial and loading or stocking strategies as well."

A second reason for the shroud of secrecy may be more strategic, at least among the handful of retailers that have made early progress with their frequent shopper programs.

"Our clients don't want their competitors to know they are getting 30% redemption rates from some of their targeted direct-mail efforts," says Don Irion, a principal at RMS Inc., Darien, Conn., a supplier of frequent shopper data-management software to a number of supermarket chains, including Vons Cos. and Ukrop's.

Compared with the single-digit rates typical for coupons distributed via freestanding inserts and other "broadcast" forms of promotion communications, that kind of response is an eye-opener.

"I think it is the way of the future of supermarket retailing," says D'Amour of Big Y. "Players that jump in early on stand to be at an advantage over those that don't. Brand managers need to understand the concepts and to wrestle with potential opportunities."

Says Hoyt, "I think it is the easiest entry point for manufacturers and retailers to cooperate. The retailer wants to enhance its data base with consumer knowledge. The manufacturer wants to leverage the retailer's data base to get to heavy users."

All rhetoric about working together and strategic alliances aside, it appears to many experts that most of the brand marketing community and most of the retail community remain a long way from enjoying the full benefits due to a combination of obstacles -- technology and trust.

Retailers are concerned with building store loyalty and tend to favor promotions that rely on continuity. Brand marketers are concerned with promotional efficiency and retailer performance, and tend to favor promotions that have easily and accurately measurable results.

According to RMS's Irion, a typical supermarket pours from one to two megabytes of transaction data per day into the hopper. For any given 100 stores, that's roughly a gigabyte per week. For a large chain over a year -- well, add it up. It's enough to make a disk-drive manufacturer salivate.

Beyond the obvious storage challenge, collecting raw data on frequent shopper members is easy compared with figuring out how to mine the data base for real value: Information isn't power. Knowledge is.

RMS has tested its Market Expert software for two years at several retail headquarters around the country. It is currently being used to track roughly 7 million households at a total of 1,000 supermarkets, including Vons, Ukrop's and several others.

Irion says some of his customers are even tracking customer profitability by category. "So they know how much Peter Smith is worth in the deli department, or in purchases of Coca-Cola products, for instance. This allows retailers and brand marketers to select target customers, and also allows them to select which products do the best jobs of maintaining customer loyalty."

Also working with the retail chains and brand marketers are Catalina Marketing and Advanced Promotion Technologies, each of which is leveraging transaction-processing data as a means for customized consumer communications through their at-checkout terminals.

Says Dan Cope, vice president of sales at APT, Pompano Beach, Fla., "We have got the retailer's data base with names and addresses, which can be used for mailings to the stores' customers. Based on the members using their Vision Value Club cards, we can determine who should receive the mailing, match the manufacturer's and retailer's list, and watch results."

Catalina's Off says his company hasn't been specifically involved in matching up a manufacturer and retailer in any cooperative way on purchase data, although he identifies "some interest in that."

Catalina's Checkout Coupon system, like most frequent shopper systems, can identify heavy user households in a category, he says. "Retailers want to treat their heavy shoppers in a very special way. The manufacturer wants to identify heavy users in his category. More are exploring ways to complement each other on that."

Catalina's Checkout Direct service shortcuts the problem of massive household lists by tracking instead the ID numbers on any cards presented for identification or payment at the store checkouts -- credit or debit cards, check-cashing cards, etc. It compiles purchase behavior for each unique number and allows marketers to deliver discounts or rewards to selected groups of shoppers through its Checkout Coupon terminals the next time the same card is used.

All this happens without the need to gather names, addresses or demographic profiles, Off explains. Purchase behavior is the sole trigger. Currently the system tracks some 10 million ID numbers. "We think it is the largest body in the grocery industry," he says.

APT's system also can generate a business reply card offering a mail-in rebate or other premium from its checkout terminals that can be targeted to a specific group of card users, Cope says. When the card is mailed back to the brand marketer -- purely voluntary on the consumer's part -- a high-quality name is captured.

"Retailers have gone along with this because it brings value to their shoppers," he says. "You can get in the neighborhood of 25% of those back from people who have been cardmembers."

Adds Cope, "A manufacturer can ask us to track what people are buying in a particular category and on a specific brand. By tracking those two data fields over time, a manufacturer could define what is heavy, medium and light usage in a category, on our brand, on our department. For the matrix of nine different classifications, it can communicate in specific ways through Vision Value terminals."

When it comes to protecting the integrity of proprietary lists, most retailers are comfortable with such "blind targeting." But programs that result, directly or indirectly, in the transfer of household information between strategic partners are more controversial.

Suggests Irion: "Solo mailings can be done blind through a third-party letter shop." He says he is skeptical about complex interactions between manufacturer and retailer data bases such as merge-purges. "I believe it has dubious value and it is not trivial to accomplish."

Carlene Thissen, president of Retail Systems Consulting, Naples, Fla., advocates frequent shopper clubs as "the only effective way I know of to monitor consumer shopper behavior." However, she adds, "Nobody wants to give up control of the names, so they fail to leverage the value of their lists. It is a little ironic."