Loyalty: Check It Out : Supermarkets Track Top Patrons, Reward Them With Custom Deals
Hoping to stem massive customer defections, supermarkets are electronically tracking each shopper’s purchases to tailor special deals for individual customers.
In doing so, supermarkets are shedding a longstanding reluctance to treat customers differently and are moving toward a tiered pricing system in which loyal shoppers pay less.
“We’re talking about different prices for different people,” said Brian P. Woolf, president of the Retail Strategy Center of Greenville, S.C.
Already, the best customers at Snyder Foods in Oklahoma City get special “power coupons” with deep discounts not available to other shoppers. In Milwaukee, shoppers entering a Pick ‘N’ Save Mega-Food Center store receive a “shopping list” with deals tailored to them. Members of Vons’ frequent-shopper club get breaks on dozens of grocery items.
Supermarket consultant Carlene Thissen predicts that within five years, 80% of the nation’s supermarkets will offer frequent-shopper programs that give loyal shoppers better deals.
“It will become as common as scanning,” she said.
Grocers are embracing reward programs to win loyalty from often-fickle shoppers. The industry-sponsored Food Marketing Institute reports that a quarter of supermarket shoppers switch grocery stores each year, mostly to take advantage of bargains.
The search for a better deal is also driving many shoppers to membership warehouses, discount stores and specialty shops such as Petco, the pet supply chain. According to Nielsen Marketing Research, a quarter of all grocery shopping is done at stores other than supermarkets.
“Supermarkets are facing some pretty terrible competitive problems,” said Thissen, president of Chicago-based Retail Consulting Systems. “They really need to do something to keep their customers.”
In Southern California, Lucky, Ralphs, Alpha Beta and Food 4 Less are installing a system from Catalina Marketing of St. Petersburg, Fla., that scans purchases and sorts customers into such categories as “cherry pickers” or “high-potential shoppers” and dispenses coupons at the checkout. People who buy only advertised specials (cherry pickers) get different coupons than those who spend a lot but shop infrequently (high-potential shoppers).
Vons is testing an enhancement of its frequent-shopper program that would give customers special coupons and points that could be redeemed for jewelry, electronic equipment and other merchandise. The test is being conducted by Advanced Promotion Technologies of Pompano Beach, Fla.
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Other supermarkets buy software from Manasquan, N.J.-based DCI Cardmarketing that allows them to develop their own promotions, which could include discounts, sweepstakes, special coupons and cash rebates. Micro Enhancement Technology of Spokane, Wash., developed the system used at Pic ‘N’ Save.
Many consumers currently receive coupons at the checkout counter, but these are not based on a specific customer’s purchases over time. Some of these coupons are printed on the back of register receipts while others are dispensed from a different kind of Catalina machine.
There’s nothing new about rewarding loyalty. Department stores, for example, have offered special credit deals and “private sales” to their best card customers for years.
Until recently, supermarkets have avoided those tactics. In advertising, many supermarkets stress low prices. Special deals for select customers could confuse a low-price image.
“I don’t like segregating customers according to how much they spend or how often they come in,” said Jack H. Brown, chairman of Colton-based Stater Bros. supermarkets. “I think it is more positive when your promotions are available to all customers.”
Nonetheless, the industry’s reluctance to target their best shoppers appears to be fading. In a survey of 106 supermarket companies, 60% told the Food Marketing Institute that they would have frequent-shopper programs by the end of 1994. In 1993, only 26% of those companies had such programs.
A recent study funded by the Coca-Cola Research Council suggests that loyal shoppers are worth courting. According to the study, 30% of a store’s customers provide 75% of the sales. “This logically leads into making different offers to different customer segments,” the report said.
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Besides allowing grocers to reward customers, the systems give supermarkets a better look at how sales are going. For example, the Catalina tracking system will allow Lucky to monitor sales of groceries at individual stores, a task it cannot do now.
“If we notice that sales of dog food are high in a particular store and we’re not selling cat food, we can target people who live around that store in a different way,” Lucky spokeswoman Judy Decker said.
The tracking systems raise privacy concerns. Shoppers at stores using the Catalina Marketing system don’t know they are being tracked. Catalina representatives say their system does not invade customer privacy because shoppers are not tracked by name or address.
Shoppers who join frequent-shopper clubs supply names, addresses and other demographic information. The applications usually contain “opt-out” clauses allowing consumers to have their names deleted from marketing lists, but the clauses are often cryptic.
For example, the opt-out clause on Advanced Promotion’s application advises consumers to check it only if they do not want “paper coupons, free samples, special offers or information based on your purchases and application information.”
Beth Givens, director of San Diego-based Privacy Rights Clearinghouse, isn’t troubled by electronic marketing, but she says most opt-out clauses are inadequate.
“They make it sound like, ‘Check here if you’re some kind of idiot and you don’t want all these special offers,’ ” Givens said.
The reward programs aren’t without techno-glitches. For example, Catalina Marketing’s “smart scanner” recognizes only credit cards, debit cards and check-cashing cards. It does not know customers by name. Therefore, shoppers using a credit card one week and a debit card the next would be viewed as two different people. A spouse using a different card would have a separate electronic identity. People paying with cash would not be tracked.
Earlier technologies have flopped. Citicorp, GTE and S&H;, the trading-stamp company, have abandoned as too costly their high-profile frequent-shopper programs. Analysts said these companies grew impatient because the programs--which offered customers discounts and shopping points toward prizes--caught on too slowly with grocers.
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Some programs appear to be working. Take Big Y Supermarket of Springfield, Mass. Three years ago, it eliminated clip-out newspaper coupons in favor of electronic discounts for frequent shoppers. It regularly runs sweepstakes and contests for frequent shoppers, entering them automatically when they shop. Big Y says its sales have increased by a third as a result of the program.
“Intuitively, you know that database marketing approaches make you smarter,” Terry Peets, Ralphs senior vice president of marketing, said at a recent industry conference. “It is not yet nirvana, (but) you know over time this is the way to go.”
High-Tech Marketing By the end of this year, more than half of the nation’s supermarket chains expect to offer frequent-shopper programs in which stores use scanner information to tailor incentives to a shopper’s needs. The use of other electronic marketing tactics will also increase. Percent of supermarket chains using high-tech marketing methods:
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IN 1993:
Frequent shopper: 26%
Electronic coupons: 36%
Electronic rebates: 9%
Electronic signs: 19%
Electronic kiosks: 10%
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END OF 1994
Frequent shopper: 60%
Electronic coupons: 57%
Electronic rebates: 27%
Electronic signs: 27%
Electronic kiosks: 14%
Source: Food Marketing Institute survey of 106 leading supermarket companies.
