Targeting Preferred Customers

I can see that time in my dreams, but we're still miles away. I believe that understanding customer level transactional profitability is the key to all future growth.

Ryan Mathews, Founder, ceo, Black Monk Consulting

Stew Leonard talks a lot about this, and, for a time, did a great job of it. I have often commented on my surprise at how few retailers spend a second thinking about how to please existing customers. Particularly in cases where shoppers opt in to providing information to retailers, in the form of online info or by signing up for courtesy cards.

I work with a number of companies dependent on the continuing goodwill of their customers, e.g. a gym and a cable company. They do not even have maintenance marketing programs, only acquisition, and occasionally upgrade. It's sad, and long-term will cause them trouble.

Karen Kingsley, Consultant, Kingsley Business Advantage

This has been the drumbeat heard first faintly, then more loudly in our industry for a good while now. Get to know your customer, form relationships, mine the consumer data, etc.

Regardless of the words used to describe it, or facets of it - it is becoming central to the way retailers (and manufacturers for that matter) will NEED to compete currently and into the future.

Do they do a "good job" of it now? Sporadic at best. We can all point to certain successes in the market, but the general thrust is less positive to date. The impetus needs to shift away from current practices (where have we heard that before???) and incorporate the cultural, managerial, and technological changes required to make this a reality. It is not JUST one of those, but all that need to be defined and clarified.

It appears that more and more are embracing this approach, but the results have been slower to follow than any of us would have hoped for (which may be more a function of unrealistic expectations and not failures of implementation and execution).

David Zahn, Owner, ZAHN Consulting, LLC

Retailers can always do a better job at this, that's for sure. And, technology is at the point where it is becoming easier to conduct target marketing campaigns. The issue of privacy does come into play here, even though most of these programs are opt-in. To counter this, at least initially, retailers can give a boost to the top and bottom lines by applying newly available market basket analytics that will tell them the most important items to keep in stock in order to retain high-value clients. We did a test last year with a local (NJ) supermarket chain, for instance, that showed a direct correlation between the $250 per order shopper and certain eclectic items, like powdered mustard. While these items probably would be considered losers on their own, only selling a few cases a month, the fact this chain stocked the products kept those high-value customers coming back and spending a lot of money.

As for the second part of the question, I don't see traditional marketing tools like flyers and broadcast being replaced within the next decade, and even then they will probably be re-purposed in some electronic form rather than done away with entirely.

Ron Margulis, Managing Director, RAM Communications

For the most part, retailers are not targeting offers to customers based on their purchasing history. Loyalty marketing, solution marketing, target marketing has mostly been talk. The data is there, the execution isn't.

Given today's environment, this type of a program is smart. Providing an incentive for something you “know” your customer needs encourages patronage at that store.

Since so few retailers are using their loyalty data for targeted marketing, one needs to ask why. Do the retailers believe the pay-back is not worth the effort? Will RFID implementation change this? Perhaps….especially if a certain very large retailer begins to launch a marketing effort in this manner…which may seem far-fetched today, but not so far-fetched in the future.

'KR'

Harris-Teeter recently announced they'd begun using their frequent shopper card database to begin marketing to individual customers based on their historical purchase behavior. Unfortunately, they became the latest on a very short list of supermarket chains finally making use of the mountains of customer data accumulated through loyalty programs.

Brian Woolf is the recognized authority and most outspoken critic of this general failure to maximize the use of loyalty cards, but let me attempt to outline the basics. Three things are necessary for retailers to launch a successful target marketing effort:

(1) A comprehensive historical purchase database by customer, usually collected through the use of a frequent shopper card but, in the case of Amazon, collected via a login process.

(2) An inexpensive way to notify customers of personalized, targeted offers based on purchase history, which today usually equates to email. Direct mail can be used, as Kmart has done on a vast scale (but it's expensive), or messages can be printed on receipts.

(3) Customer permission to contact them with special offers.

I feel strongly that truly comprehensive and inexpensive targeted marketing to individual consumers was waiting for email use to reach critical mass. Or, for innovative new in-store developments like Couptron. Both of these inexpensive communication methods tap into retailer frequent shopper databases, both communicate prior to the shopping trip, and both are predicated on customer permission.

M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

For the most part, retailers are inept at using historical information to target market to specific customers. They either aren't gathering data or, in most cases if they are, they are not able to mine or successfully use it to their benefit. The reasons found so far make little sense.

Take for example the incidence expressed in the article from Sports Authority. If I just bought shoes, what use is there for another pair immediately? The cost / return ratio simply doesn't make sense in this type of marketing.

Retailers need to be reminded and remain focused on what really creates consumer loyalty - It's not cards, data, or coupons. Retailers create loyalty by delivering on customer expectations. It's created when a customer consistently makes a value decision in your favor rather than the competitor. I think these decisions for the most part are made over and over on the basis of experience and execution more than simply price alone. Sure the Wal-Mart factor can be always cited as the knockout example for price. However, Starbucks certainly hasn't grown and created intense customer loyalty on the basis of price - now have they?

Retailers that continually execute well and deliver a value which consistently meets customer expectations will build loyalty faster and greater than any other method.

Will these technology driven methods of marketing discussed eliminate the traditional marketing forms? NO. The demise of the newspaper has been predicted for more than a decade in the face of the internet. There is no real decline and there will not be in the foreseeable future. Simply consider how quickly demographics turn today and it becomes clear that marketing in mass is required to maintain a customer base.

'Scanner'

Full disclosure: I am a principal in KwikAd, which is a new company that offers a targeted email program that delivers a personalized weekly ad to a retailer's customers based on each customer's individual purchase history. KwikAd is the engine behind Harris Teeter's new E-VIC program.

Most retailers with card programs are in fact capable of using the data to target incentives based on shopping history, yet few are being aggressive with their efforts. Targeted marketing efforts present a logistical challenge and with tight margins; it's also difficult to make the targeted effort pay out. That's why many retailers have historically relied on manufacturer-funded incentives to generate value for the customer.

Instead of replacing mass marketing methods like ad inserts, broadcast media and outdoor, I think we're more likely to see targeted efforts supplementing existing broadcast efforts. Harris Teeter's E-VIC program does not replace their existing weekly flyer activity, but strengthens the impact by cutting through the clutter and communicating the most relevant offers from the flyer directly to each customer.

Ken Wyker, President, Circular Logic

Tesco is doing it. It appears from their significant contract with dunnhumby that Kroger wants to do it. But frankly, I'm not that impressed with the methods being used.

Before we see targeted offers, we'll see more sophisticated use of consumer information for merchandising and category management. It simply requires too much change for retailers to become direct marketers.

Additionally, the technology for targeting shoppers in food, drug and mass isn't quite there yet. The data warehouses are more like data jails. Targeting requires numerous analytic iterations. No technology on the market grinds through the data quickly enough to make it feasible.

'BrandManager'

Targeting based on shopper purchase history works. The executional challenge is efficiently scaling to deliver the kind of impact that that redlines the needle without putting garbage in front of shoppers. The organizational challenge is getting a retail culture focused on buying excited about selling.

"Data jails" are not the answer because they are not designed to keep in step with ever changing shopper preferences and the chaotic world of promotions. They are great for identifying your shopper's characteristics, but worthless at doing something about improving shopper spending.

Rules-based automation combined with both convenient communication and effortless redemption are key. High touch. Low resources required. Amazing leverage.

The privacy issue all but disappears when you do it right. Shoppers appreciate that you took the time to select high quality relevant offers that make sense for them. It's a real time savings and the personal recognition, even automated, is a heck of a ray of sunlight in what is too often an overcast retail environment.

John Hennessy, Vice President, Concept Shopping, Inc.

I'm undoubtedly too late for this comment to be read by many, thanks to my own holiday vacation, but it seems to me that the first thing most retailer need to do is stop bad marketing, even more than they need to advance good marketing.

I am so tired of getting dog food offers from my local grocers (I never have had a dog, we keep cats) or baby diapers offers (I will pray I never need those again until the grandchildren show up) both of which regularly appear in the folder of coupons I get as a frequent and supposedly loyal shopper.

Clearly this is not based on data mining; it is based on the availability of manufacturer funding.

Take the recaptured costs of eliminating BAD marketing and re-purpose them to better programs and maybe they won't look so expensive.

'RetailSeer'