BANKING ON FREQUENT SHOPPERS

MARC MILLSTEIN

Electronic frequent-shopper programs hold the potential to supply brand marketers with the ultimate data bank of consumer information.

The information-rich programs, if implemented on a wide enough basis, could usher in a new era of highly efficient and effective brand-oriented target-marketing programs.

The big question is how quickly frequent-shopper programs can achieve the "critical mass" needed on a national basis to warrant substantial manufacturer investment in the data and prompt the formulation of a new breed of customer-specific marketing programs.

Frequent-shopper programs are based on electronically collecting point-of-sale data about shoppers' purchasing patterns at the store level, and then using that information to develop more sophisticated target-marketing programs.

Brand marketers thus far are supporting the programs primarily with regional trade marketing or research dollars allocated on a retailer-by-retailer and product-by-product basis.

"We are intrigued with the potential of these programs and view them as a good way to promote our products. We are especially interested in the potential for gaining information about specific segments of our consumer base and using it for target marketing," said Diane Rand, communications associate at Kraft General Foods, Glenview, Ill. "It is definitely a growing trend, and we are participating in an increasing number of these programs. But it is still in the early stages. We are just beginning to look seriously at the types of information we can get from these promotions with retailers." Steve Poppe, spokesman at Kellogg USA, Battle Creek, Mich., specifically cited the potential of frequent-shopper programs for supporting more sophisticated target-marketing promotions. But the programs still have a long way to go before they reach their full potential and command wider manufacturer support.

"From the positive feedback we have gotten so far with these programs, we intend to continue our involvement in them," Poppe said. "If these types of programs begin expanding more rapidly among our retail customers, then we might see some expansion from our side as well. But it is not widespread at this point. To get a good feel for these programs, we probably need more experience with them."

The use of frequent-shopper program data to devise more sophisticated target-marketing programs, though, is expected to begin increasing dramatically in the next several years, according to most industry observers interviewed by Brand Marketing.

The promise of the information is that brand marketers will be able to revamp how they promote products nationally. They could replace broad-based, relatively inefficient forms of advertising with consumer-specific or household-specific marketing programs, such as targeting elderly or high-income shoppers.

"Every manufacturer realizes that they are wasting an awful lot of money with many promotions, especially the freestanding inserts. They would all love to be in a nationwide data base marketing program because they could then clearly identify category buyers," said Louis Lambiase, vice president of business development at Viata Corp., Richardson, Texas.

When manufacturers begin harnessing information from frequent-shopper programs on a large scale, promotional efficiency will soar, he predicted.

"You will see [increased] efficiency of promotional dollars because manufacturers will no longer have to waste money going after noncategory buyers. Or they could target buyers of a competitive brand to get them to switch to their own product. These programs can truly provide manufacturers with the information they need to do this," Lambiase said.

Paul Corliss, president and chief executive officer at DCI Cardmarketing, Manasquan, N.J., agreed. "The key today in retailing is taking the best information about the best customers and using it. There may be 15,000 transactions in a supermarket, but 1,000 of those transactions represent 50% of sales. Those are the customers that need to be targeted.

"Savvy brand managers used direct mailing information in the past. The synergy today, though, is in combining the brand manager's [information] with the retailer's frequent-shopper data base. If both are used, the brand manager can help the retailer gain additional category sales," he said. "But the brand managers desperately need these new data resources," he added.

According to observers, one of the most crucial factors involved in the shift to more efficient promotions is for the data available from frequent-shopper programs to reach a large enough critical mass to be useful on a national basis.

That means not only more retailers coming on board with frequent shopper programs, but also a growing sophistication in gathering and analyzing the information, often by third-party firms, for manufacturer purchase and use.

While the system for procuring retailer-driven frequent-shopper data is still highly fragmented and regionalized that will change fundamentally within the next several years, observers predicted.

"These frequent-shopper programs will lead to the next wave of information systems," said Don Irion, co-founder of RMS, Stamford, Conn. "There is already a lot of stuff out there on total store data information. But the next wave is household data," he said. Another key issue involves how manufacturers pay for and use the information, even when it is available, industry sources said.

As long as manufacturers continue to view the programs primarily as regional promotional tests rather than vehicles for strategically altering how they target customers, the full benefit from frequent-shopper data will not be reached.

"The one thing I would say about card-based frequent-shopper programs is that they are definitely a happening thing. I would say from a retail perspective they will be as common as scanning is today within five years," said Carlene Thissen, president of Retail Systems Consulting, Chicago.