WOW! FACTOR

Nancy Brumback

Supermarkets are challenged to win true shopper loyalty with programs that deliver real value for their best customers.

Jim Hertel, senior vice president, Willard Bishop Consulting, Chicago, said supermarkets need to dramatically rethink how their loyalty programs reward shoppers. He noted supermarkets haven't been nearly as successful as loyalty programs in the airline and hotel industries, "where people live and die to get points. The issue is how to make these programs worthwhile as a loyalty builder, vs. just another way to deliver discounts."

Rick Ferguson, editorial director, Colloquy Group, part of Frequency Marketing, a Cincinnati-based loyalty consulting firm, said supermarket retailers are at a crossroads with their loyalty programs. "The two-tier pricing programs have outlived their usefulness," he said. "They have to get rid of these programs or migrate to a new stage."

Ferguson argued the discount programs are generating "a certain amount of consumer backlash." He said retailers have collected much data, but consumers have seen no effect. "Retailers to date have used the data on the back end, to negotiate pricing with suppliers and to determine what to put on the shelves," rather than to reward loyal shoppers.

Partners In Loyalty Marketing, a Chicago-based loyalty marketing consultant, has determined that the top 30% of supermarket shoppers generate 65% to 79% of sales; the top 10% often generate as much as 40% of store sales, said Glenn Hausfater, managing partner.

In interviews with those top shoppers, the company found they like loyalty cards: "They don't need to clip coupons to get low prices," but that "the cards don't make them feel special. They wish they did," Hausfater said.

Independents and smaller supermarket companies, with fewer than 50 stores, often do the best job of identifying their best customers and treating them differently, frequently with non-monetary rewards, he noted. In some cases, regional chains have more sophisticated loyalty programs. Yet the nation's largest chains have largely limited their efforts to discounts.

The large chains will have to change their approach, Ferguson said, "because they won't be able to continue to compete on price. There can only be one low-price leader." He assumes it will be Wal-Mart.

TIME FOR A CHANGE

This past fall, Kroger, Cincinnati, took a step in a different direction with the launch of a credit card program with reward points.

Customers who sign up for Kroger's 1-2-3 Rewards MasterCard earn points for every dollar spent, with bonus points for spending in Kroger stores and on Kroger brands, and receive a $10 reward certificate for every 1,000 points. (See sidebar on this page)

MORE HEED THE CALL

Meijer, based in Grand Rapids, Mich., last year introduced a credit card rewards program, Meijer Platinum MasterCard.

Kroger and Meijer require shoppers to sign up and be approved for the credit cards that also are used as store loyalty cards.

Dorothy Lane Markets, a Dayton, Ohio, independent with three stores, operates one of the most sophisticated consumer loyalty programs tied to a store card.

The DLM Club program, in its 10 years of operation, has been so successful that the company doesn't do outside advertising or weekly circulars, said Tom Winter, vice president of marketing. Weekly specials are advertised in-store and on the company's Web site. The company has about 160,000 DLM Club cardholders, and 14,000 to 15,000 of them receive a monthly newsletter that details new products available and offers recipes. The newsletter is produced in six to eight different versions, with the company's best customers receiving the best offers.

The newsletter includes Wow! coupons. Winter pointed out these are not traditional manufacturer coupons. "They have to be a Wow!" Such offers have included two-liter soft drinks for 29 cents, $3 off a package of ground beef, or, for this past Easter, eggs for a penny each.

"We're giving back to them. The money isn't going into advertising every week. We're eliminating the cherrypickers," Winter said.

However, Dorothy Lane goes even further to show top customers how much it appreciates them.

Last August, the company's president and the chief operating officer personally delivered flowers to five of the top 10 customers. The store directors also delivered flowers to 10 major customers at their stores. Last December, a three-box tower of gifts -- Dorothy Lane signature items -- went to 270 top customers, who received a letter thanking them for their business and asking them to stop by the service counter to pick up the gift. About 3,000 customers received gifts of Dorothy Lane mints, with a note stating "you're worth a mint to us."

In Richmond, Va., Ukrop's Super Markets ties a fund-raising program dubbed Golden Gift Program for area nonprofit organizations to its Valued Customer Card.

This year, from Jan. 31 to March 26, when customers shopped using their card, purchase totals were recorded electronically as points. In May, each household will receive a Golden Gift certificate with the total amount of points earned. Those certificates are submitted to a participating nonprofit organization. Ukrop's Golden Gift donation this year is capped at $400,000. Each participating organization will receive a percentage of that amount, up to 2%, based on the number of points contributed by customers.

Salisbury, N.C.-based Food Lion uses data from its MVP Card program to send coupons related to past purchases to customers who provide a mailing address. First-time purchases of such items as newborn diapers or puppy food trigger mailings for Food Lion's baby and pet-owners clubs.

The chain is looking at more direct-mail communication like recipes or special discounts beyond coupons, noted Jeff Lowrance, Food Lion spokesman. The most effective promotions, he noted, tend to be around holidays, when shoppers receive $15 gift certificates if they shop a specified number of times.

Giant Eagle, Pittsburgh, has found its fuelperks! rewards program to be very popular as gasoline prices rise, said Rebecca Kane, director of customer relationship marketing.

Under the fuelperks! program, customers receive a 10 cent-per-gallon discount on gasoline purchased at a Giant Eagle convenience store and fuel station for every $50 of purchases made at Giant Eagle supermarkets using the chain's Advantage Card. The card automatically tracks the customer's fuelperks! discounts. Points are redeemed by swiping the card at the pump.

Giant Eagle also does mailings targeting specific customers based on their prior purchases, Kane noted. The program includes third-party discounts for hotels and car rentals, as well as for local attractions and retailers.

EXPERTS WEIGH IN

Consultants expect to see programs such as these implemented by larger chains.

"We've seen more progress in the last two years than in the previous 10," said Carlene Thissen, president, Retail Systems Consulting, Naples, Fla. "Some of the more impressive programs include the use of the words 'thank you' fairly often; in-store recognition; information and offers on new products consumers would likely want to purchase based on prior history; and mix-and-match continuity promotions for heavy users of certain categories."

Mark Heckman, president, Strategic Resources, Sarasota, Fla., an associate of Thissen and former vice president of marketing for Randall's Supermarkets, said the pressure most retailers feel to drive aggregate sales prevents them from devoting the necessary time and resources to developing loyalty programs consumers perceive as having additional value.

Ferguson of Colloquy said the oft-noted rewards system developed by Tesco in the United Kingdom (in conjunction with consulting firm dunnhumby, now working with Kroger) would be difficult to implement in the United States, since margins are higher in Britain. "It's a catch-22. Retailers would like to fund these programs, but their margins are too thin. These programs will lose money early on" until they gain customer acceptance.

Hausfater of Partners In Loyalty Marketing said, "The supermarkets didn't adopt these programs as a loyalty strategy, but as a way to garner additional income from vendors. They are just beginning to see ways to use them for building loyalty."