A NEW YEAR'S RESOLUTION TO KNOW CUSTOMERS BETTER

Bob Vosburgh

There's been a lot of talk regarding the ways supermarkets are trying to improve their understanding of the customer in these ultra-competitive, channel-blurred times.

Several initiatives are particularly noteworthy, including the forging of stronger retailer-manufacturer alliances and the increasing use of new software to develop a database of consumer insights. Used in conjunction with related best retailing practices, these efforts hold the promise of helping supermarkets better cater to shopper needs.

A study released just before Christmas by the Food Marketing Institute shows how some operators are using these tools to respond to the changing marketplace. The report shows the fastest-growing features in new stores last year were dollar sections and self-checkout lanes. At first, the two seem divergent in nature, but they share a common ideal: satisfying demands for simplified and convenient shopping.

These store additions are a tangible demonstration of consumer insights at work. This coming year, however, will require retailers to use shopper information in more sophisticated ways, and herein lies the true challenge of the next 12 months.

Supermarkets got a taste of manufacturer price increases this past year, and indications are 2005 will bring more of the same. After all, the turn of a calendar year doesn't necessarily free consumer packaged goods companies from higher costs for fuel, raw ingredients and even labor.

Shoppers are a fickle group, and a wrong pricing move by a retailer could send skittish consumers to purchase other products or even shop another store. Wal-Mart learned this valuable lesson on the day after Thanksgiving, when it kept retails higher than usual, and sales dropped. In this case, a retailer renowned for its marketing expertise failed to take into account the impact its decision would have on the chain's own price-value reputation.

Coffee recently garnered headlines in the consumer press, as three major brands -- Maxwell House, Folgers and Chock Full O' Nuts -- announced average 14% price increases for every 13 ounces of coffee. Manufacturers blamed dwindling supplies and increasing consumption for the uptick in retails, and supermarkets were forced to decide whether to eat the increase or pass it along.

As price pressures build from the wholesale side, retailers will need to re-evaluate their role in the marketplace. Those pursuing high-low pricing strategies might find some wiggle room, since they'll be able to play up short-duration discounts that attract the notice of bargain-hunting consumers. Everyday-low-price operators may find these manufacturer increases tougher to deal with, since they have less flexibility. Indeed, their success largely is due to their pricing consistency. But even here, they can leverage their relationships with manufacturers to keep any increases to a minimum, and then crank up merchandising with a strong promotional program that emphasizes the lowest available price proposition.

Certainly, all retailers will have to carefully review their strategies as these increases arrive on their doorstep. They will need to know what price threshold their customers are willing to accept, and at what point shoppers will go somewhere else.

In other words, it's time to really put those customer insights to work.