FLYING HIGH ON LOYALTY

KIM ANN ZIMMERMANN

Offering discounts to frequent shoppers is a time-honored way to foster loyalty and build business, but savvy supermarket executives know they must do more to keep their top spenders in the fold.

Some retailers are teaming up with local merchants and organizations to offer discounts on services such as dry cleaning or fast food. Others have programs for top customers to earn rewards such as points toward free airline tickets and even more groceries.

Retailers are also allowing customers to donate points to their pet cause or the local youth soccer league. While administering donation programs has typically been very paper-intensive and time-consuming, retailers such as Safeway, Pleasanton, Calif., are moving toward an "electronic scrip" that electronically tracks a customer's card usage and donates a percentage of the purchases on that card to the customer's designated charities.

Supermarkets are also aiming to make it easier for a customer to use the card even if it has been forgotten at home. Vons Cos., Arcadia, Calif., a division of Safeway, allows customers to enter their phone numbers on a key pad if they have forgotten the card. This move aims to address the problem of insufficient data collection. Many customers will only pull out the frequent-shopper card if they know they are getting a discount on a particular item, but valuable information on customers' buying habits is lost when they don't present the card at each shopping trip.

Another challenge ahead is to link traditional shopper-loyalty programs with on-line shopping so customers will be credited for purchases made outside the brick-and-mortar world. Many supermarkets are currently grappling with how to improve the synergy between their on-line offers and in-store promotions.

Several customers of Stop & Shop, Quincy, Mass., recently filed suit because they claimed that the prices they were charged at the store were higher than those charged through the Peapod, Skokie, Ill., Web site for Stop & Shop customers.

While frequent-shopper programs can take many forms, more than two-thirds of supermarkets offer loyalty cards, according to industry research, and the number continues to grow.

Kroger Co., Cincinnati, began rolling out a loyalty program to stores operating under the Kroger banner about a year ago and Kroger Co. of Michigan recently invested $12 million in technology to roll out the KrogerCard to its 82 Michigan stores.

Pathmark Stores, Carteret, N.J., which has resisted frequent-shopper cards, began a loyalty program this summer. Pathmark is expected to be acquired by Ahold, Zaandam, Netherlands, by the end of the year.

"We're pleased with the response so far," said Rich Savner, spokesman for the retailer. "We got involved in a frequent-shopper program as another opportunity to pass more savings along to our customers and maintain a competitive advantage in the marketplace. We've evaluated and monitored these programs over the past several years, and we wanted to be sure we had the technological wherewithal to implement a program and do it right from the outset."

Customer confidentiality is a key concern for Pathmark, Savner said. Retailers such as Wild Oats Markets, Boulder, Colo., have discontinued frequent-shopper cards, citing privacy concerns as a driving factor.

"We're very sensitive about protecting our customer information, and we state that when they sign up, we will not let their information outside our organization. Privacy is paramount," Savner said. When customers sign up for Pathmark's frequent-shopper program, the form indicates that their information will not be sold to outside firms, but may be used in Pathmark's own sweepstakes or mailings, which may include offers from outside companies.

While Savner said Pathmark's frequent-shopper program is currently offering price discounts, other types of rewards are being considered.

One type of reward that remains popular is airline miles. Kroger recently launched a Kroger Visa card that allows customers to earn points toward free airline tickets and hotel stays as well as local attractions and movie rentals. The card, which is issued in partnership with U.S. Bancorp, Minneapolis, is separate from Kroger's frequent-shopper program.

Customers are credited two points for each purchase made at Kroger stores and one point for purchases made at other locations that accept Visa. "We feel this is a great way to inspire loyalty as our customers can earn extra points for shopping at our stores with the card and they can also earn points any time they use the card," said Gary Rhodes, a Kroger spokesman.

While larger supermarkets have been investing in loyalty programs, some wholesalers are making loyalty programs more accessible to independents.

Supervalu, Minneapolis, is making interactive kiosks available to its retailer customers. Customers can swipe their frequent-shopper cards at the kiosk for additional in-store savings.

Bob Spelts, director of advertising for Supervalu, commented, "We think the interactive kiosk is a really useful and exciting addition in the drive to build customer loyalty. We carefully monitored [the kiosk] at Laneco -- a Supervalu-owned chain in Pennsylvania. The success we saw there convinced us we should expand the program throughout our independent store base. The program network enables us to measure customer-loyalty growth, while cutting direct mail costs by presenting customer-specific offers through the in-store, multimedia interactive terminals."