Electronic Grocery Coupons, Bonus Checks : Frequent-Shopper Plans Are Wooing Consumers
George and Sarah Yamasaki don’t mind collecting coupons to save on groceries. But now they worry less about the hassle of clipping and sorting.
By simply presenting a plastic card at the checkout counter, the South San Gabriel couple get discounts automatically, thanks to a revolutionary type of “paperless couponing” that Vons Co. is offering in its upscale Pavilions stores.
On Monday, loyal shoppers at some Lucky and Ralphs supermarkets will get a taste of another sort of electronic marketing. They will be rewarded with regular bonus checks or points toward the purchase of audio equipment, coffee makers and the like, much as frequent fliers benefit by racking up mileage toward free travel.
Such frequent shopper and rebate plans are the newest wave in food and consumer products marketing, designed to dramatically change the way customers shop.
The idea for retailers is to keep increasingly fickle customers coming back. Manufacturers can more efficiently target marketing efforts at interested customers. And consumers can get instant gratification--and potentially save hundreds of dollars a year--without having to spend hours poring over advertising inserts and snipping coupons.
“It’s great,” George Yamasaki said after saving 45 cents recently at the Arcadia Pavilions. “We look for items we need. If we get a discount, it’s a bonus.”
But some observers see a possible downside: The threat to consumer privacy, as product makers and retailers learn more about their customers by tracking purchases with bar code scanner data and computers. Some experts fear that shoppers will sign up for discount programs without realizing that their buying habits might become fair game for a host of marketers.
“The potential is there for manipulation,” said Robert Ellis Smith, publisher of Privacy Journal, a monthly newsletter published in Washington.
Regardless of the darker computer age implications, scores of the nation’s largest marketing companies and grocery chains are plugging into the technology.
About 1 1/2 years ago, Vons began testing at its Monrovia Pavilions a so-called electronic coupon bank developed by Citicorp, the big New York financial services and banking company. It features discounts from manufacturers on such brand names as Green Giant, Pillsbury, Campbell Soup, Carnation, Del Monte, Kraft and Coca-Cola.
Vons, which recently rolled out the program to all of its 24 Pavilions and Pavilions Place stores as well as the Vons in Baldwin Park, so far is the only chain to offer it in Southern California.
It works this way:
Vons invites customers to join its Pavilions Value Plus Club at no charge. They are given a membership card that looks like a credit card with a bar code on the back.
When scanned at the register, it identifies the shopper as being eligible to receive discounts on 200 to 250 items that change monthly. The list is mailed to members and posted in the stores.
Computer Subtracts Discount
If any of the featured items are purchased, a computer subtracts the discount--generally, 10 to 50 cents--and shows the savings on the register tape below the regular price. (If the customer also has a valid paper coupon for a featured item, Pavilions takes off whichever amount is greater.)
“We’re a society that doesn’t have time to do things anymore,” said Frank A. Woodard, director of electronic marketing for El Monte-based Vons. “This is a time-saving program that gets promotional money to customers in less time.”
Although Woodard expects the concept “will sweep the industry,” he acknowledged that not all manufacturers have leaped aboard the bandwagon. “But the results speak for themselves,” Woodard said, noting that Vons generally sells 50% more of an item than usual if it is featured on the monthly discount list.
Before implementing the program, he studied results at Ukrop’s, a 19-store operation in Richmond, Va., that put Citicorp’s pioneering idea into action nearly three years ago.
Ukrop’s customers embraced the program, according to James E. Ukrop, president and chief executive. He estimated that “somebody who does all their shopping with us has got to save $500 to $600 a year, maybe more.”
Plans Rebate Program
In mid-October, Vons will also introduce a rebate program, another Citicorp concept, at four Pavilions locations. Called Reward America, it will offer monthly rebates for Value Plus customers buying the required number of any featured product by Jan. 14. For example, a member who buys two bottles of Liquid Clorox 2 will get $1 worth of certificates that can be redeemed for future purchases. For three Maybelline cosmetic products, the buyer would be eligible for $1.50 in certificates.
On Monday, Ralphs and Lucky will begin testing other electronic bonus programs, devised by Catalina Marketing Corp. in Anaheim.
Catalina has two approaches, one using cash as an incentive and the other offering merchandise--from consumer electronics to back yard toys to photographic equipment--worth $15 to $1,000.
With the latter program, shoppers accrue points that can be redeemed for items. Catalina will send customers a monthly statement.
Tommy Greer, president of Catalina Marketing, said he expects the program to be in 3,000 stores nationwide by the end of next year. If that happens, Greer said, Catalina would be tracking more than 60 million transactions a week.
Already in Operation
The company for years has operated an electronic coupon system--already in place in Ralphs and Lucky--that allows marketers to directly target customers who buy competitors’ products. If a shopper buys a particular brand of cat litter, for example, a computer at the check stand prints out a coupon for a participating competitor’s brand that can be used on another shopping visit.
For Lucky, which eschews double coupons and other expensive promotions in favor of keeping everyday prices lower than competitors’, the new frequent shopper and rebate programs afford a chance to keep good customers happy.
“Our thinking going in is that it’s a tremendous loyalty-building program,” said James R. Clark, senior vice president of sales and merchandising for Lucky’s Southern California division. But he emphasized that the nine-month program--at stores in Diamond Bar, Buena Park, El Toro and Ontario--is only a test.
“If this in any way gets interpreted as something that would raise prices, we don’t want to tarnish our theme,” he said.
Executives at Compton-based Ralphs Grocery were also reluctant to speculate on how fast the program might be expanded after the nine-month test at stores in Costa Mesa, Huntington Beach, Arcadia and Orange.
To Test Customer Loyalty
“To be honest, we’re all trying to learn whether these programs create additional customer loyalty and, if so, at what cost,” said Terry Peets, group vice president of merchandising.
Starting up a program can be costly. Although bar code scanners are already in place in many supermarkets, most retailers would have to add other equipment to monitor purchases.
“It’s expensive for them to develop their programs, and it does hurt their small (profit) margins,” said John A. Bly, a Los Angeles-based partner in the management consulting division of KPMG Peat Marwick, an accounting firm. “But if they don’t come out with these, they will lose the edge to other companies.”
With the plethora of new products and shopping options, keeping customers faithful has become a high priority.
“Consumer loyalty has been eroded throughout the 1980s,” said Deborah A. Bozsa, a couponing expert with D’Arcy Masius Benton & Bowles, an advertising agency. “This solves a problem for consumers and advertisers alike.”
She contends that electronic couponing can be far more economical and efficient for retailers and manufacturers because it saves on printing and distribution costs.
Millions Go to Waste
With current techniques, millions of dollars in manufacturers’ promotional money goes to waste. A study by D’Arcy Masius showed a leveling off of coupon redemption in 1987. Of 215.2 billion coupons distributed that year, only 3.3% were redeemed, down from 3.5% the year before.
Peggy Wadell, an Eagle Rock resident shopping with her son, Philip, is one reluctant coupon clipper. “I’m not really good about clipping coupons,” she noted. “It’s nice. If I really pay attention to the Value Plus items, I can save $2 on a $70 to $100 order.”
Although no one is predicting that electronic couponing will spell the end of paper coupons, it is clear that newspapers, magazines and others that get revenues from product manufacturers are potential losers if the technology spreads.
Of more immediate concern, some privacy experts contend, is how information about consumers is treated and whether participants in frequent-shopper programs will end up being deluged by pitches from direct-mail marketers.
Bonnie Guiton, special adviser to President Bush for consumer affairs in Washington, recently sent a letter urging retailers, Citicorp and Catalina Marketing to disclose fully to customers how their programs work and how the information collected will be used or sold. So far, Guiton said, the companies “have been very forthcoming.”
Sensitive to Issue
A Citicorp official said his company is sensitive to the issue.
“We are not going to give out specific information about individuals,” said William J. Ahearn, vice president. Citicorp does, however, use the information to help product manufacturers tailor their marketing programs. It plans to continue designing written materials that clearly explain how the system works.
If these programs catch on, some observers say, they may cease to be a point of distinction between retailers.
“What happens when everybody has them and is on a level playing field?” wondered James H. Huguet, president of Neo Inc., a sales consulting services firm in Trumbull, Conn.
However, he added, “it will probably be three or four years before the programs are up and in place and people know what to do with them.”
