WHAT THE CARDS HOLD

JAMES TENSER

You can read the future in the cards.

In-store electronic marketing -- technology-based promotion media that enhance or replace traditional marketing -- has already transformed the way goods are merchandised in supermarkets.

Purchase-triggered coupons and shelf-based coupon delivery are already strong suits in the in-store marketing game. Electronic kiosks remain wild cards in the deck.

Now an exclusive survey of brand marketers and supermarket

retailers, jointly sponsored by Brand Marketing, Supermarket News and Retail Systems Consulting, Naples, Fla., reveals that use of card-based frequent shopper programs is surging. In their wake, a new era of data base-driven marketing appears destined to follow.

Most indicative of the vigorous health of electronic marketing is the spending outlook reported by brand marketers responding to the survey. In the 12-month period ended in June 1995, 45% of respondents said they had increased spending in this area, while 52% held steady. Projecting forward into the next 12 months, 39% said they anticipate spending growth, while 58% predicted continuation of present spending levels.

Notably, only 3% of brand marketers said they anticipate cuts in electronic marketing spending in the next 12 months.

Both brand marketers and retailers were asked about their current and planned use of various electronic marketing vehicles. Their responses indicate high participation in purchase-triggered coupons (such as Catalina Checkout Coupons and Advanced Promotion Technologies' Vision Value) and in other electronically delivered coupons (such as Actmedia's Instant Coupon Machine).

Results also indicate growing involvement, especially among retailers, in card-based frequent shopper programs, while the outlook for data base marketing appears strong for both groups.

Even electronic kiosks, which have attained only light penetration so far, show signs of gaining ground in supermarkets in the coming year -- at least on an experimental basis.

A common thread unites industry behavior regarding these five major activities: Retailers control the access. If the promotional media are accepted in the stores, brand marketers are encouraged to use them. If the retailers don't participate, brand marketers cannot.

Drilling into survey data on current and planned use of electronic marketing vehicles illustrates this. Purchase-triggered coupons are currently being used by 47% of the retailers and 47% of the brand marketers responding. Another 16% of retailers and 13% of brand marketers have firm plans to use them.

Similarly, 49% of retailers and 53% of manufacturers responding now use other in-store electronic coupons. An added 3% of each group plan to expand their use.

Both forms of in-store couponing continue to grow at fairly controlled rates. With high penetration by Catalina and Actmedia, they are now widely recognized as promotional media.

At the lower end of the usage spectrum, electronic kiosks are now being used by 12% of the retailers and only 3% of the brand marketers responding. But 29% of the retailers said they plan to use them, and 13% of the manufacturers said they will give kiosks a try.

More significant news drops out of the responses describing use of card-based marketing programs (a.k.a. frequent shopper clubs). Here retailers report explosive growth, with 45% of chains already involved, and another 27% committed. In two years, upwards of seven retailers in 10 will have active frequent shopper programs in place.

Brand marketers are moving along less rapidly, but already 32% of them take advantage of promotions available through their customers' card programs. Another 13% have firm plans to get involved.

If it seems unlikely that supermarkets would lead manufacturers in developing any marketing-related activity, consider that the card programs (like the kiosks) belong to the retailers. Chains savvy enough to grasp the potential of their programs are using them to pursue their own marketing objectives first. Brand marketers are then invited to tag along -- almost always for a fee.

A well-constructed and effective card marketing program is a prerequisite for supermarkets to move into the realm of data base marketing. It is no surprise, therefore, that they lag slightly behind in data base participation compared with card programs, with 32% current participation. But they are surging forward; with another 35% of respondents indicating they plan to get into it, data base participation is expected to double in the near future.

Even more robust is the outlook for data base marketing by brand marketers. With 25% currently participating and another 38% planning to, data base marketing appears destined to become brand marketers' most widely used form of electronic marketing.

Trigger-happy?

The competition between the main service providers in the purchase-triggered coupon sector appears to be going to the "first-in-store," Catalina Marketing. Among retailers using any form of purchase-triggered coupons, Checkout Coupon is currently being used by 75%, while among manufacturer users, that number swells to 90%.

Competitors Advanced Promotion Technologies and Stores Automated Systems Inc. are well behind in penetration, cited by 19% and 14% of retailers respectively. Among brand marketers the disparity is greater: SASI was cited by 11% and APT by 5% of respondents. (A few retailers use more than one vendor; multiple responses were allowed.)

Catalina's commanding lead in its sector is matched by Actmedia in the "other electronically distributed coupons" sector. Its Instant Coupon Machines are being used by 87% of the retailers responding, and by 100% of the brand marketers responding to the survey. Competitor Advanced Retail Marketing lags well behind, used by 10% of the retailers and 6% of the manufacturers in the survey.

Here again, Actmedia was the pioneer in at-shelf delivery of promotional coupons. Its pre-emptive position has enabled it to hold a commanding lead, and the relatively low growth of the sector would appear to permit slim opportunities for new competitors.

Card tricks

With shopper card programs gaining in popularity so rapidly among retailers, there is little consensus on how they are operated or even on what to call them.

Among retailers with card programs, 45% said they prefer to call them "frequent shopper clubs," a name that confers a kind of membership on the consumer. "Preferred customer card" is preferred by 31% of respondents, while 14% said they refer to their programs in a generic way as "card-based marketing" programs.

Responding retailers with frequent shopper clubs said that, on average, 58% of their customers have signed up for the cards. They also said that, on average, 75% of their cardholders present their cards at the checkout at least every other week. Fewer than half their shoppers, 46%, use their cards weekly or more often. Another 17% use their cards about once per month and 9% less often than that.

While presumably the frequent card user is a loyal, valuable, heavy-spending shopper, it's unclear whether the data captured from the segment of transactions they represent can be used to help guide chainwide or even storewide marketing and merchandising decisions.

Given time, higher card penetration could cure this shortcoming, however, even if every card user does not make weekly store visits. If card usage climbs toward 90% or 100%, the data-capture possibilities would be dramatically enhanced, extending even to analyses of infrequent shoppers. Retailers who prefer to name their programs "frequent shopper clubs," however, may find that moniker becoming less apt.

The benefit most widely offered to cardholders is the instant electronic discount, available from 66% of retailers responding. Another 55% of the retailers said they offer other special discounts to cardholders, and a surprising 28% of retailers said they use free video rentals as rewards.

One in four retailers (24%) lets cardholders accrue points for gifts (the old green stamp concept), and 14% offer various third-party discounts -- twofer tickets for local amusement parks might be one example. (Multiple responses were allowed.)

When it comes to communicating these benefits to consumers, retailers overwhelmingly prefer in-store signs. This method was cited by 93% of respondents, while fliers and direct mail, the next most popular methods, were cited by 63% and 60% of retailers respectively.

About half (53%) of retailers use their best food day ads. Half use radio ads (50%) and 43% use television advertising. (Here again, multiple responses were allowed.)

Upping the Ante

When it comes to footing the bill for card programs and other forms of electronic marketing, brand marketers are digging deep.

Supermarket retailers said that on average, 30% of their card programs are paid for with manufacturer funds. At 19% of respondents, upwards of half the costs are borne by brand marketers.

Of the monies they collect in support of their card programs, retailers estimate that 49% of the dollars come from trade marketing funds, another 20% from brand (consumer promotion) funds, and 31% from the advertising budgets.

Brand marketers beg to differ. They estimate that on average, 81 cents of every dollar they spend in support of retailer card-based programs comes from the trade promotion budget. Consumer promotion dollars account for another 15 cents, and advertising the other 4 cents.

Where are the electronic marketing dollars coming from? Brand marketers said they are diverting marketing and advertising funds. Taking the largest hit is the budget for freestanding inserts, which 65% of respondents said has been tapped. That result appears consistent with the high usage of purchase-triggered and shelf-distributed coupon media; those are mostly paid for with consumer promotion dollars, as noted above.

Equal numbers, 40% each, said off-invoice allowances and co-op advertising money has been diverted. Television ad dollars are lightly impacted, by only 15% of respondents. (Multiple responses allowed.)

When it comes to controlling the spending decisions for in-store electronic marketing, brand managers are still king, cited by 58% of brand marketers responding. Promotion managers are their biggest rivals for the purse strings, mentioned by 32% of respondents.

Trade marketing and salespeople, despite all the industry talk about account-specific marketing and co-marketing, have spending authority at just 16% and 10% of responding manufacturers, respectively. Market research people have some say at 7%. (Here again, multiple responses were allowed, and the numbers suggest some degree of overlap at many companies.)

Spending Rises

Most brand marketers are maintaining their overall spending levels for electronic marketing. Many others are increasing spending. Very few are backing away.

Percentage of Brand Marketers Responding

Last 12 Months Next 12 Months

Increase 45% 39%

Same 52% 58%

Decrease 3% 3%

THE MAIN VEHICLES

Both retailers and brand marketers anticipate expansion in their use of electronic marketing vehicles. Retailer interest is especially intense regarding card-based marketing programs, while manufacturers see much future activity in data base marketing activities.

Brand marketers' and Retailers' current and planned use of electronic marketing vehicles

% of Brand Marketers Responding

Currently Plan

Other electronic coupons 53% 3%

Purchase-triggered coupons 47% 13%

Card-based mkt. programs 32% 13%

Data base marketing 25% 38%

Electronic kiosks 3% 13%

% of Retailers Responding

Currently Plan

Other electronic coupons 49% 3%

Purchase-triggered coupons 47% 16%

Card-based mkt. programs 45% 27%

Data base marketing 32% 35%

Electronic kiosks 12% 29%

Which Budget?

Brand marketers take funds out of different pockets to fund different types of electronic marketing programs.

On average, about 84 cents of every dollar spent on purchase-triggered coupons comes from consumer promotion budgets...

Consumer promotion funds 84%

Trade promotion funds 8%

Advertising funds 8%

...and the ratio is similar when it comes to funding other electronically distributed coupons...

Consumer promotion funds 85%

Trade promotion funds 15%

...but when it comes to spending on card-based programs, 81 cents of every dollar comes from trade promotion budgets.

Consumer promotion funds 15%

Trade promotion funds 81%

Advertising funds 4%

Where the Money Comes From

Brand marketers have diverted other marketing and advertising funds to pay for their electronic marketing activities.

Freestanding inserts 65%

Off-invoice allowances 40%

Co-op advertising 40%

Television advertising 15%

Other budgets 25%

POINTS OF DECISION

Brand managers and promotion managers most often control decisions about the use of electronic marketing.

Who controls decision-making

Brand managers 58%

Promotion managers 32%

Trade marketing 16%

Sales 10%

Market research 7%

Other 3%

Getting the Word Out

Supermarkets favor using in-store and direct communications to inform their card holders about program benefits.

Methods of communicating card program news

In-store signs 93%

Fliers 63%

Direct mail 60%

Best food day ads 53%

Radio ads 50%

TV ads 43%

Telemarketing 3%

Other 7%

HOW DATA GETS USED

Retailers get first crack at the data from their card-based marketing programs, which may be why they are more aggressive at using the information. For brand marketers, it's strategy first, with sales close behind.

Uses for Information

Brand marketers Retailers

Develop marketing strategy 55% 79%

Increase sales 36% 82%

Acquire new customers 36% 57%

Convert secondary customers

to primary 27% 75%

Regain lost customers 27% 68%

Increase profitability 18% 43%

Other 18% 14%

THE FUTURE'S IN THE DATA BASE

Nearly one retailer in three currently practices some degree of data base marketing, a proportion seen as likely to double in the near future. Brand marketers have been a little slower to start, but plans indicate that they like the potential inherent in retailers' data bases.

Retailers Brand marketers

Currently involved 32% 25%

No, but definite plans 35% 38%

No, no plans 33% 38%

How Brand Marketers See It

Most brand marketers say their companies take an investigative or experimental view of electronic marketing.

True alternatives to advertising & promotion 19%

Worthy of serious testing 41%

Investigating, but its too early to say 31%

Important only because retailers demand it 3%

Not taken seriously 6%

Notes on the Surveys

This report is based on two simultaneous surveys on electronic marketing conducted by the editorial and research staffs of Brand Marketing and Supermarket News, New York, in partnership with Retail Systems Consulting, Naples, Fla. The surveys, one designed for supermarket retailers and one for brand marketers, were circulated by mail and fax machine in late June.