THE VALUE OF LOYALTY

COLE CORBIN

Now that offering a customer-loyalty program no longer guarantees a long-term competitive advantage, retailers are looking even more closely at the customer data such programs allow them to collect. In addition, some savvy retailers are using that data to shape their marketing and merchandising operations, in hopes of influencing the very customers they gathered information from in the first place.

"You need to have accurate, clean data," said Andy Carrano, spokesman for A&P, Montvale, N.J. "You need to do something with that data: either reward a customer or try to alter their shopping behavior.

"With our frequent-shopper program we offer automatic discounts, clipless coupons, and we're able to automatically keep tallies of the customer's sales for some of our promotional giveaways," he added.

In order to keep such a data-feedback loop going, retailers need to encourage customer-loyalty program members to use their cards on virtually every shopping trip. Several retailers are seeking cost-effective ways to further reward these customers, such as through tie-ins with non-supermarket retailers.

In addition, some retailers are employing "soft" rewards for their top customers, such as grouping together the products they purchase most often in a designated area of the store, and another "soft" reward is the use of labor scheduling to ensure that there are plenty of cashiers on duty when loyal customers shop the store.

"We know that 30% of the cardholders do 80% of the business," said Kevin Doris, president and chief executive officer of Gerland's Food Fair, Houston. "I think it's important for retailers not to use [frequent-shopper programs] just for discounts at the checkout. They should be rewarding their best customers, because that's what's going to keep this type of program going."

Gerland's uses its Customer Advantage loyalty program to offer its best customers discounts on more than 3,000 items per week, as well as to provide points toward earning a 5% discount off a future shopping trip. Customers can also use their frequent-shopper cards to access an interactive, coupon-dispensing kiosk.

In addition, the retailer has set up a Customer Advantage Value Center -- a display of the products purchased most often by customer-loyalty program members.

Lees Supermarket, Westport, Mass., is rewarding its best customers with speedier checkout experiences. The retailer integrates the information from its frequent-shopper database with its labor-scheduling program in order to increase staff levels when the best customers -- not the most customers -- are in the store.

"We did a study of our better customers and we found they shopped between 10 a.m. and noon, as opposed to shopping in the late afternoon," said Al Lees Sr., owner of Lees Supermarkets. "We added a few extra cashiers in these hours in what I call a 'soft reward' for these customers. That is, they don't realize that the extra cashier is there but their checkout is much faster than it would be at another store during these hours."

Finding which rewards will mean the most to their best customers is one of the toughest challenges facing retailers.

"As part of a general strategy I think you need to offer something over and beyond discounts," said A&P's Carrano. "The main purpose of the card is to gather information on your main customers and to do something with that information."

Both A&P and Gerland's have looked into cross promotions that provide frequent-shopper cardholders with discounts and benefits outside the supermarket, as a means to get them to use their cards more often.

"We are trying to expand our point system to other areas," said Doris. "We are looking at partnering with other [non-grocery] retailers in accepting our frequent-shopper points."

A&P, which has more than five million active cardholders in its frequent-shopper program, is currently running a tie-in promotion with the Broadway show "The Sound of Music." Customers who show their frequent-shopper cards get a buy-one-ticket-get-one-free offer, as well as a free "Sound of Music" CD sampler.

In addition to discounts and offers, targeted information can be a valuable commodity to loyal customers. Nature's Northwest, Lake Oswego, Ore., analyzes its frequent-shopper data as part of a targeted marketing program that prints out customized newsletters at the point-of-sale. When customers present their frequent-shopper card, a stand-alone printer produces the newsletter in a matter of seconds.

"It's been working for us, though we're still fine-tuning the program," said Kate Bell, marketing director at Nature's Northwest. "We are customizing the newsletter to people who have chosen certain topics of interest on their application for our frequent-shopper program. For example, if you chose cooking, low-fat eating and pets as topics of interest, you'll receive a printout with that information."

In addition to this information, each newsletter includes coupons for products throughout the store that pertain to that customer's specific interests and purchasing history.

Frequent-shopper data also allows Gerland's, A&P and Lees Supermarket to more accurately target their direct-mail promotions. "We're beginning special mailing clubs, or 'sub-clubs,' " said Lees. "For example, some of our customers are interested in bird watching and others are wine connoisseurs. We will send them special mailings about the things that interest them."

Gerland's also analyzes its database "to effectively reward our customers on a regular basis, and to keep retention as high as possible," said Doris. "We are not into the mass-marketing techniques that try to bring everyone into the store. Consumers bring consumers into the store. We take care of the consumer who is already with us."

In addition, some retailers are analyzing their frequent-shopper databases as part of category management efforts. Lees plans to analyze its data to determine what items the best customers want to see on the shelves. "We're going to be very aware of what our best customers are buying," said Lees.

"Each store has a personality and, as a customer, you react to the personality of the store," he added. "There's no sense in appealing to somebody whose criteria we don't meet."

"You can't just put data down and analyze it," said A&P's Carrano. "We can't look at five million pieces of data at once. We just can't do that. We look at one group and say 'What do we want to do with this?' You need to decide what you're going to do with the data as part of your marketing strategy."