A&P CASH, GIFTS LURE PREFERRED CUSTOMERS

MARC MILLSTEIN

CHARLESTON, S.C. -- A frequent shopper pilot program offering cash and gift rewards to preferred customers who increase their spending levels has succeeded in substantially boosting incremental sales at A&P, Montvale, N.J.

Under the program, A&P targeted what it called its moderate shoppers -- 20% of customers who account for 35% of sales -- by offering them incentives for stepping up to a series of higher spending brackets, said Lawrence Zimmerman, A&P's vice president of systems development.

The incentives ranged from a free gift, such as a pound of coffee, at the bottom rung of the program, to cash vouchers of increasing value for use in A&P stores for customers ringing up the largest sales increases, Zimmerman said at the Food Marketing Institute's annual Information Systems Conference here last week.

The test was conducted this spring in a limited number of stores in nine A&P divisions. The program is now in place in about 100 stores involving 200,000 customers and is being expanded to other locations.

"I would suspect that we will be rolling out the program to all our stores. It has proven that successful," Zimmerman told SN following a workshop presentation titled "Marketing Revolution: Rocket Fuel or Quicksand?"

Zimmerman declined to provide details on sales increases generated from the program, but said some consumers, for example, doubled their shopping levels from $250 to $500.

"Some skeptics may think all we did with the incentive program

was get people to use their [frequent shopper] card more without really increasing their purchases.

"But one of the things we measured was average purchase dollars per visit. If the skeptics were right, the average purchase dollars per visit during the promotional period would have gone down. But, in fact, they went up or stayed about the same," he said.

One tenet of the program was that cash awards -- not product coupons or limited discount offers -- represent the most effective way to attract customers and build loyalty with a frequent shopper program.

"People want cash. They don't want a coupon or a gift box award or something like that. A bag of Eight O'Clock coffee might be the award for the lowest level of increased customer spending, but we offer cash awards for reaching certain higher incentive levels," he said.

Zimmerman declined to state the dollar amount of the incentive rewards. Asked whether they were in the range of $30 to $40, however, he said they went "higher."

"We started off with the premise that all customers are not equal. The top 10% of our customers account for 42% of total sales. The next 20%, which we call our moderate shoppers, account for another 35%.

"To some who are not used to these numbers, it may seem astonishing that over 75% of purchases come from 30% of customers. Those happen to be our numbers, but they come within a couple of percentage points of overall industry numbers," Zimmerman said.

At the other end of the spectrum, 20% of customers account for 15% of sales, while a striking 50% of customers generate only 8% of sales, he added.

The frequent shopper pilot test involved eight stores, four control units and four test sites, in each of nine chain divisions.

Sales during a six-week period between Thanksgiving and Christmas were collected to serve as a base-line comparison. Customers enrolled in the program were offered incentives for boosting their spending during a six-week period ending shortly before Easter.

"One of the challenges we faced in putting together the program was that we have so many different banners in the United States and Canada. As a result, we let the individual [division] participants choose their own reward levels. The program parameters were not dictated by the corporate level," he said.

Before launching the test program, A&P already had an electronic card-based marketing infrastructure in place in 75% of its stores. The chain has issued more than 10 million frequent shopper cards in the last three years and currently captures 3.5 million card-based transactions weekly, Zimmerman said.

However, the chain had not developed a cost-effective program for generating much higher incremental sales and net profits.

Finding a method to attract customers to A&P's stores and create a strong sense of loyalty remains a top priority for the chain, he said.

"Bill Gates, the chairman of Microsoft, predicted that 33% of food purchases would be done by personal computer within 10 to 15 years. That is $100 billion of business in a $300 billion industry.

"At the same time, there are more and more competitors in the food industry. There is tremendous pressure for consumer food dollars. We are truly at war for maintaining our share of the business," Zimmerman added.