What Price Loyalty?
The hottest marketing come-on at your favorite big supermarket chain probably isn’t a fresh-produce special or even the double coupons. Throughout much of the country, it’s increasingly likely to be the deal you’re offered for joining a “club” or frequent-shopper program.
By signing up for the program and using the supermarket’s plastic club card, you get a stream of instant price cuts at the checkout stand.
And what do the supermarkets get in return? A wealth of information about your personal buying habits, data they plan to use to coax you to spend more. On top of that, consumer advocates question whether the programs are partly a ruse to boost the prices paid by shoppers who don’t want to join the clubs.
Even in a nation where privacy issues sometimes alarm consumers, few shoppers pass up the chance to get club cards. According to a survey due for release next month by market research giant ACNielsen Corp., 66% of U.S. households have at least one supermarket club card--nearly double the level of just two years ago.
For most supermarket customers, “it’s a natural part of how they shop now,” said Jane Perrin, ACNielsen vice president for global market research.
Still, despite their speedy growth, the future of frequent-shopper programs is much debated. That’s especially true in Southern California, where more than three out of every four shoppers belong to the clubs. Pending corporate mergers involving Lucky and Ralphs supermarkets could spur executives to rethink the programs at the two chains.
Optimistic marketing experts predict that frequent-shopper programs or related “loyalty marketing” strategies will shake up the way groceries and other consumer products are sold.
Information-rich retailers, the argument goes, will have a leg up on knowing what products their biggest customers want and when they want them.
Say you normally buy cat food every four weeks. According to enthusiasts of frequent-shopper programs, your days of combing through the newspaper for a discount coupon might soon be over. Your store could mail you a special coupon that would arrive just when the bag is almost empty.
“What we’re trying to do with loyalty programs is re-create the corner store of the 1950s, when the retailer knew what you wanted when you walked in the store,” said Barry Kotek, a marketing consultant in Naples, Fla.
Fostering loyalty that way, marketing specialists say, is crucial for two basic reasons. For one thing, it’s cheaper to retain good customers than to lure consumers away from other stores.
In addition, a supermarket industry rule of thumb is that 30% of the customers account for 70% or more of the sales and profits. Frequent-shopper information provides clues on the merchandise and services that will keep those big spenders happy.
Even so, some executives and analysts say frequent-shopper programs could prove to be a fad that fades away much the way trading stamps did decades ago.
Executives at Wal-Mart Stores Inc., the nation’s biggest retailer and a growing competitive threat to the supermarket industry, are among the skeptics. They say their customers prefer “everyday low prices” without the bother of toting around club cards.
As video stores, dry cleaners and other kinds of retailers set up frequent-shopper programs, the number of cards consumers carry in their wallets or on their key chains could become a nuisance.
“It’s extra weight in my pocket that I don’t need,” said George Montenegro, a Los Angeles Police Department officer who has cards from Vons, Ralphs and Lucky Stores, the three biggest chains in Southern California.
Another touchy topic is whether shoppers, overall, actually pay less--or even pay more--after club programs are launched.
“No one really knows whether prices on club card items have been lowered or whether prices on non-club-card items have been raised,” said Jon Golinger, consumer program director of the California Public Interest Research Group, which is considering doing a study on the issue.
Golinger expressed concern that the programs “are more about penalizing non-club-card holders than they are about benefiting card holders.”
Michael Sansolo, a senior vice president with the Food Marketing Institute, a Washington-based industry group, countered that he has “never heard that someone has raised prices for one group to let another group get discounts.”
“The competitive nature of this business means that our pricing and everything else we do has to be sharp,” Sansolo added.
For now, the potentially explosive issue of consumer privacy is fairly quiet.
That may be partly because other marketers--particularly the airlines, with their frequent-flier programs--have employed loyalty marketing for years without memorable controversy. With supermarkets, even privacy advocates are hard-pressed to come up with examples of worrisome documented privacy abuses.
Teaching assistant Adriana Saldivar, like many other shoppers, doesn’t mind handing over a club card to the cashier at the Vons supermarket near her home in Arleta. “We save almost $30 almost every time we go,” she explained.
The merchandise she buys, Saldivar said, “is just stuff I need. It’s just stuff I use. If that [information] is going to help them, then I have no problem with that.”
Other shoppers--somewhat more concerned about privacy but unwilling to pass up the benefits of frequent-shopper cards--occasionally opt for another approach: They give the stores fake names and perhaps other false information when they sign up.
That ploy could cause a shopper to miss out on bargain offers mailed out by the stores, and probably would kill any chance of winning a prize in one of the contests sometimes held for club members. But it normally won’t stop someone from pocketing savings at the cash register.
“As a practical matter, [supermarkets] can’t do anything about it,” Sansolo said.
Supermarket programs do, to be sure, have the potential to be intrusive. People not only shop at the supermarket more than they fly or visit other retailers, but they also buy everything from condoms to videos to beer at their food stores.
“There are a lot of things we buy in the supermarket that we really don’t want archived,” said Robert Ellis Smith, publisher of the Privacy Journal, a monthly newsletter.
The greatest fear is that supermarkets’ data could one day slip into the wrong hands, causing people to be denied jobs or insurance coverage because of records showing that they buy lots of wine, cigarettes or medicine.
Ralphs, Vons and Lucky all pledge not to release customers’ names or addresses to outside companies.
About one supermarket in 10 nationally, including Ralphs and Vons, will sometimes team with other merchants to provide deals on movie theater tickets, restaurant meals or other items to frequent-shopper club members. But these stores, too, almost always say they won’t share the names of their shoppers with their business partners or any other company.
There is a notable exception, however, to the general rule against releasing personal information. Some grocery firms, including Vons’ parent, Safeway Inc., acknowledge that they have complied with subpoenas from law enforcement for frequent-shopper records.
A Safeway spokesman said the company seldom receives such requests from authorities and that its Vons chain never has gotten one.
But Smith’s Food & Drug Centers in Arizona reportedly has released information several times to the Drug Enforcement Administration. The company, which failed to respond to requests for an interview, was said to have released information on whether a suspect in a drug-selling case bought lots of plastic bags.
Separately, an abuse of privacy is alleged in a civil lawsuit underway in Los Angeles County Superior Court that seeks damages from Vons supermarkets. The plaintiff, Robert Rivera, said he shattered his kneecap and had to quit working after he slipped on spilled yogurt at a Vons store.
Rivera claims that during an effort to negotiate an out-of-court settlement, a mediator handling the dispute made a surprising disclosure: Vons allegedly looked up Rivera’s shopping records, determined that he bought a lot of alcohol and decided to use the information against him in court if necessary. Vons denied the claim.
The way the frequent-shopper competitive battle plays out in Southern California could foreshadow what happens across the country. Vons was one of the industry’s pioneers when it launched its club program in 1988. Lucky, together with its sister Sav-On drugstore operation, and Ralphs began their versions in 1997.
Membership is higher in Southern California than it tends to be for the nation as a whole. A Los Angeles Times marketing research survey taken in mid-1998 found that 72.1% of shoppers in Los Angeles and Orange counties belonged to at least one of the clubs offered by Vons, Ralphs or Lucky. The poll also found that if all clubs for preferred grocery shoppers are included, the figure rises to 76.8%.
But things could change. Lucky’s parent, American Stores Co., is being acquired by Albertson’s Inc., which has spoken out against frequent-shopper programs.
“We would rather pass deals on to all customers rather than selected customers,” said Michael J. Read, an Albertson’s vice president at the company’s Boise, Idaho, headquarters.
The merger deal, however, is still under review by antitrust regulators, and meanwhile, no decision has been made on the frequent-shopper program.
Ralphs, likewise, is being acquired by the nation’s biggest supermarket company, Kroger Co., which is experimenting with frequent-shopper strategies but has yet to adopt them widely.
The competitive advantage of offering a frequent-shopper program diminishes when most of the major chains in a region have them, analysts say. Couple that fact with the cost of maintaining the database, and some companies could lose interest.
Meanwhile, though, more and more chains are adopting them.
Part of the impetus is that supermarkets with frequent-shopper programs can snare more promotion dollars from food companies and consumer product manufacturers. That’s because these supermarket suppliers often would rather aim discounts at their most likely customers through a frequent-shopper program than rely on newspaper or broadcast advertising.
With newspaper advertising, a marketer distributes “coupons for dog food to people who don’t have dogs. It’s wasted,” Sansolo said.
All told, though, industry advocates of frequent-shopper strategies say the main reason for their appeal to supermarket owners is the ability it gives them to court their best customers with a more personal touch.
It’s even a help to small-town grocers such as Al Lees of Lees Supermarket in Westport, Mass. Lees has rewarded the loyalty of his biggest customers with free flowers for Christmas and free turkeys at Thanksgiving.
But Lees, known in the supermarket industry for his sophisticated use of frequent-shopper information, has taken advantage of the data in less obvious ways too.
For instance, Lees says that most of his store’s customers shop between 3 and 7 p.m. But with his frequent-shopper data, Lees discovered that for some reason his best customers tend to come in between 10 a.m. and noon. As a result, he keeps two or three extra checkout lanes open that time of day. For those top customers, “it’s what I call a ‘soft reward.’ They’re really not aware they’re being taken care of better [than other customers], but they are. If they go to a competitor, they’ll usually find longer lines,” Lees said.
Likewise, when Lees is tempted to stop carrying a generally slow-selling item, he first checks to make sure it’s not a product that some of his top customers like. And before deciding on a customer’s request for the store to sell a new product, Lees investigates how much the customer already buys at his store.
“Thirty percent of our customers account for 70% to 75% of our biz, so we take care of that 30%,” Lees said. “Using the data, we know which group to be loyal to, and that’s the top 30%.”
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Getting Carded
The largest frequent- shopper programs in Southern California are offered by Vons, Ralphs and Lucky stores. In Los Angeles and Orange counties, 72.1%* of shoppers say they belong to one or more of the three chains’ preferred- shopper programs. A look at Southland residents’ supermarket club membership:
Belong to 2 supermarket clubs: 29.3%
Belong to none of the clubs: 27.9%
Belong to 1 of the clubs: 26.4%
Belong to all 3 of the clubs: 16.4%
Data are taken from a survey of 2,009 residents of Los Angeles and Orange counties in May and June 1998.
*When other stores that sell grocery items and have similar discount programs are included, the percentage of shoppers rises to 76.8%.
Source: Los Angeles Times Marketing Research Group
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Choosing Where to Shop
A frequent-shopper program is a key attraction for many consumers. It ranked third among seven top reasons for choosing a store in a survey of nearly 41,000 shoppers completed early last year by market research firm ACNielsen Corp. The seven reasons, listed from most important to least important:
* Convenient location
* Store deals
* Frequent-shopper program
* Assortment of items
* Everyday low prices
* Quality of merchandise
* Customer service
