Data on Customers Can Yield Bushels of Dough, Grocers Told : Marketing: Details on shoppers’ buying habits could be more profitable than the sale of food, an Irvine specialist says. But he cautions that stores must keep control of the information themselves.
His credentials make John S. Budd out to be anything but a revolutionary.
But the former head of Lever Bros. U.S. Foods and the Mattel Diversified Cos. division is preaching a policy that would radically change the grocery business and the way stores use the volumes of customer data they can now collect by electronic scanner at the checkout counter.
Budd, president of Consumer Link, a marketing firm here, said grocery chains must keep control of the data rather than surrendering it to outside vendors of data-collection systems.
He is one of a handful of marketing specialists who believe that, just as many insurance companies use income from premium payments to support their real profit-making business of investing, grocery chains in the future are likely to use food sales mainly as a way to collect customer data for resale.
Checkout data on individual customers “is potentially as valuable to the grocery chains as the groceries they sell,” Budd said.
But now, the nation’s supermarkets are in danger of giving away the store by allowing outside vendors to collect and manipulate the data, he warned.
Even as the industry discovers the data-collecting possibilities of “frequent shopper” programs, most grocery companies are allowing the vendors of those programs--principally Catalina Marketing Inc. of Anaheim and Citicorp POS of Stamford, Conn.--to take control of the information.
Frequent shopper programs reward loyal shoppers with coupons, rebates or merchandise, much as airlines reward frequent fliers. Typically, customers obtain special ID cards with a bar code on the back that identifies the shopper by name and address. By running the ID cards through the checkout scanner, the store can connect a customer’s name--and often such personal data as occupation and annual income--to his purchases.
Such individualized consumer information is the kind of data that fetches a huge premium in today’s cutthroat world of direct marketing.
Citicorp, in its contracts, stipulates that it has the right to resell the data gathered at the grocer’s counter to other marketers. Catalina so far shares the information only with the stores and the product manufacturers who are underwriting each of its programs--but has not ruled out the possibility of broader sales someday.
With 3,600 scanners already installed in grocery stores in California--every major chain and a lot of minor ones have them--the number of individuals whose buying habits ultimately could be captured through frequent shopper programs is staggering.
There is some criticism of the data-collecting programs, mostly from civil libertarians concerned about the potential for invasion of privacy. But the frequent-buyer programs seem to appeal to shoppers.
Most people, after all, shop regularly at a supermarket. A chance to receive special discounts or cash rebates for purchases that were going to be made anyway is hard to pass up, especially when there are no coupons to clip and no rebate forms to fill out and mail back.
All the store wants in return is the customer’s name and address, and from those willing to supply it, valuable demographic information--such as approximate annual income and the number and ages of people in the family.
The information identifies those who have signed up for the programs so that their purchases can be credited to them, but it also enables stores, for the first time, to know what individual customers buy, how much they buy and how often they buy it.
Ukrop’s Super Markets, an 18-store regional chain in Richmond, Va., reports that fully 80% of the 200,000 households in its principal market have obtained one of its frequent-buyer cards in the two years the program has been running.
Frank Woodard, director of electronic marketing for the Vons Cos., which has just inaugurated a frequent-shopper program at all 26 of its Southern California Pavilion stores after a six-month test, said that about 70% of the people who apply for a frequent-shopper ID card fill out the demographic information section that asks for income, weekly grocery spending, and the number and ages of children in the family.
The information is valuable because the more precisely a retailer or manufacturer can identify potential customers--and eliminate consumers with no apparent interest in their products--the more productive and cost-effective a marketing campaign becomes.
Knowing individual shopping patterns is helpful to an individual market because it assists in targeting promotions, in keeping current customers and winning back those who suddenly defect to a competitor and, by a process of elimination, in identifying and wooing new customers, said Woodard, Vons’ electronic-marketing chief.
But as valuable as the programs’ direct benefits might be to the market chains, there is even more value on the secondary market. As an example, if a shopper with no history of buying diapers suddenly starts loading up on them, that information is valuable to every manufacturer of every baby product known to man, and many will pay dearly for the shopper’s name and address.
But grocers have not rushed to sell consumer data like other goods.
One problem is that grocery chains currently are not equipped to do the job and are more comfortable selling food than electronic data, according to Don E. Schultz, a professor of advertising at Northwestern University and a leading consultant to the direct-marketing industry.
A few chains are running their own programs, however, and Safeway in Northern California has made marketing of scanner-generated customer data a profitable business for more than a year, Schultz said.
But Woodard said that Vons, like many other Southern California market chains, is not convinced that customer data is marketable on a chain-by-chain basis. “It isn’t aggregated, and manufacturers look to a whole market, not an individual retailer. That’s the value of a third party” that can consolidate information from several chains before reselling it, he suggested.
Vons is one of several major chains nationally that has signed with Citicorp POS, the marketing unit of Citicorp, for a test of its frequent-shopper program. And Citicorp intends to resell the shopping data to manufacturers and other retailers, a spokesman said.
Ralphs Grocery Co. hired Catalina to operate a frequent-buyer program despite a pitch by Budd that sales of checkout data to other marketing companies could add $25 million a year to the chain’s profits.
The decision was made in part because Ralphs doesn’t want to bear the costs of setting up an in-house program and then discover that it doesn’t work, said Terry Peets, group vice president for merchandising.
Catalina already operates the three chains’ successful checkout coupon programs, in which coupons are electronically printed at the checkout counters. Adding the frequent-shopper program was mainly a relatively low-cost matter of installing additional software programs in the computers at each store.
But under Budd’s plan, Ralphs would have had to spend nearly $700,000 for computers and software in order to have its own program.
“The first issue is one of expense,” Peets said., “How much does it cost to make these frequent-shopper programs work. We don’t know yet what level of incentive is required to keep people interested in participating; that is why we are testing.”
Even though most don’t want to tackle the job now, the potential profitability from selling consumer data means that most of the nation’s supermarket chains are looking at the possibilities of eventually running their own programs, according to Gary Arlen, publisher of Electronic Shopper, a leading electronic retailing newsletter.
“Retailers are just now beginning to explore this area” of scanner-collected data bases, Arlen said. “As they become more comfortable with it over the next two to three years, my guess is that a few of the leading chains will start doing something with the information on their own. And because this is a real ‘me too’ business, the others will join in.”
By the mid 1990s, Arlen said, grocery retailers “probably will be using this data to market to their customers, to negotiate better prices from their suppliers, to cross-market various goods and to sell customer lists to preferred outside vendors. There are a lot of decisions that are going to be made in the next few years.”
