The supermarket loyalty card has been around since 1987, but for many retailers it's been nothing more than a glorified discount card. There are signs, though, that retailers are finally starting to wake up to the marketing potential of cards and other in-store targeting vehicles.Retailers are beginning to leverage CRM (customer relationship management) tools that "talk" to customers and influence

The supermarket loyalty card has been around since 1987, but for many retailers it's been nothing more than a glorified discount card. There are signs, though, that retailers are finally starting to wake up to the marketing potential of cards and other in-store targeting vehicles.

Retailers are beginning to leverage CRM (customer relationship management) tools that "talk" to customers and influence their shopping decisions. Indeed, several sources characterized CRM as a "secret weapon" that can help stem the erosion of category sales to low-price retailers like Wal-Mart and Costco.

The trend is most apparent among regional retailers who may not have the help of everyday low prices to generate traffic, and have mined their loyalty shopper databases to identify their top shoppers and their shopping preferences.

Plus, it is evident among national retailers like Kroger and Safeway who are creating card programs that, in addition to offering discounts and reduced prices to loyalty card holders, are also letting those customers use their cards to earn rewards at local business such as restaurants and movie theaters. Or, as in the case of Ralphs, the Los Angeles-based division of Kroger, Cincinnati, loyal shoppers can save by participating in a wine, pet or senior citizens club -- all bonuses of having a Ralphs Club card.

Alan Couch, food and drug industry director for Dayton, Ohio-based NCR, whose Copient Technologies division is a provider of CRM solutions, said retailers are becoming more sophisticated with their CRM programs because many now realize "there's no sense in just broadly discounting the same offers to everyone. CRM only makes sense when you customize the offers so you give your primary and your secondary customers offers that are meaningful to them."

There are "real opportunities" for supermarket retailers who understand how to enhance the customer shopping experience, said Neil Clemmons, senior vice president at Calgary, Canada-based Critical Mass, which executes Internet-based customer loyalty building programs. "If a customer has a good experience when they shop, they tend to come back and spend more."

As supermarkets create more sophisticated CRM marketing programs, they invest in new technologies that can deliver their messages to customers in a personalized way in three key settings: the point-of-purchase, the point-of-sale, and their home computer.

Adjusting to Customers

One of the most innovative supermarket retailers in CRM is Indianapolis-based Marsh Supermarkets. Marsh, the first user of the Copient system, goes to the extent of mining its customer database to determine how to lay out stores. The data is used to "adjust the store to better fit the lifestyles of our customers," said Jodi Marsh, vice president of community relations for the chain.

For Marsh's newest prototype, its "lifestyle store," the customer database was "used very heavily in determining adjacencies that fall in line with the shopper's behavior," she said.

As with many chains, Marsh's loyalty card program, introduced a decade ago, was initially just for electronic discounts. "But as we evolved and as loyalty cards evolved, we've been able to expand on that," she said. "Our competitors in the marketplace now have loyalty cards as well, so we needed to go to another level."

For example, Marsh has just launched a targeted customer-relationship-building promotion designed to reward its best, or First Class, customers. Marsh calls the promotion "Free On First" because on the first day of each month, Marsh, via its Copient interactive POS system, offers its best customers rewards for being loyal.

"Most retailers spend their marketing dollars chasing customers that have already left them," said Kevin Bridgewater, vice president of marketing for Marsh. "And while we do that as well, we also want to reward our customers while they are currently with us." When First Class customers finish shopping and are being checked out at the point-of-sale, the interactive display at the POS tells them that Marsh appreciates their loyalty and, as a reward, will give them a free item such as a loaf of bread the next time they shop the store. When that customer comes back and swipes her card, the POS automatically deducts the cost of that promised item.

Bridgewater said Marsh hasn't been running the promotion, which broke in January, long enough to analyze its cost-effectiveness, but he added, "We are getting very positive feedback from our customers. They appreciate the reward, and our goal is to make sure they remain loyal shoppers."

Marsh identifies First Class customers, Bridgewater said, by their dollar sales and the purchase of staple products like bread, milk and cereal. "If a person is buying bread, milk and cereal from you every week, they're a very loyal customer."

Marsh has also been sending targeted e-mail promotional offers to segments of its loyalty customers who opt in for almost a year. Bridgewater said the response has been "very good. We have customers who tell us they look forward to the e-mails."

At this point, the e-mails are not personalized down to the individual level, but are classified into segments of customers. Through its interactive POS display, Marsh offers customers the opportunity to join certain clubs that their purchase histories indicate they might have an interest in, such as a pet owners club, a wine club, or a baby club.

Another chain using the Copient system is Giant Eagle, Pittsburgh, which is piloting it at the checkout lanes in six Pittsburgh and Erie, Pa.-area stores. The chain has also installed the system in interactive kiosks at the front of all six stores so that customers can receive printouts of targeted offers before they begin shopping.

Rebecca Kane, Giant Eagle's marketing director of customer relationships and target marketing, said the Copient system will make it possible for Giant Eagle to give customers who scan their loyalty cards "real-time targeted offers at the checkout based on unique buying history and interests."

The technology, said Kane, offers "a wonderful opportunity to build one-to-one relationships with our customers, while improving the overall value of a trip to Giant Eagle."

High-Tech Companion

Another novel approach to CRM is being taken by Stop & Shop, Quincy, Mass., a division of Ahold, Zaandam, Netherlands. For about a year, the chain has been piloting in three stores an interactive, wireless, mobile device that customers can attach to their shopping carts.

The device, known as the Shopping Buddy, is displayed in dispensing racks at the front of the store. As customers come in, they can opt to scan their loyalty card at the rack and place the device onto their shopping cart.

As the shopper moves through the store, the system, through a local area network, can communicate with both Stop & Shop's loyalty database and its point-of-sale so customers can self-scan their purchases as they shop.

The system also "knows" where the cart is as the customer pushes it through the store. As the customer stops in the cereal aisle, for example, the system can, via its 10-inch computer screen, "talk" to the customer and point out special offers like a 10% discount on the cereal that this specific shopper purchases most of the time.

"By analyzing customer purchasing behavior, we target special offers and weekly specials that best meet their shopping patterns," said Curt Avallone, who, until recently, was vice president of marketing for Stop & Shop.

Faith Weiner, director of public affairs for Stop & Shop, said the company is "pleased with the results we're seeing" and has plans to add Shopping Buddy to more stores this year.

Mike Grimes, vice president of sales and marketing for Quincy, Mass.-based Cuesol, which makes the customer-facing applications behind Shopping Buddy, said that while Stop & Shop was the first supermarket to test the system, its sister division, Giant Foods, Landover, Md., may soon begin testing the technology as well. Jamie Miller, a spokesman for Giant Foods, said management is "looking at" the companion cart technology and at other CRM technologies.

Grimes said interest is growing in the mobile companion cart technology because the pilots have shown a lift in revenues, particularly from secondary shoppers.

At Bashas' Supermarkets, Chandler, Ariz., the focus has been on using sophisticated analytical tools to get the most out of loyalty data.

"Our program started off as a reward program, so it was never just a discount program," said Christie Frazier-Coleman, vice president of sales and customer loyalty. "We're beginning to analyze customer transactions at a deeper level so we can better understand what the opportunities are. Our goal is to build categories and basket size in smarter ways."

Frazier-Coleman said that since January, Bashas' has been integrating Fujitsu's Corema CRM software with POS registers in its 80 stores, and expects to have the system in other banners by July.

"It will allow me to identify the purchasing histories of my loyalty card customers," said Frazier-Coleman, "and to print out at the POS promotional offers that will be of value to them, offers based on what they frequently buy."

Bashas' will soon be using two CRM analytical tools from St. Petersburg, Fla.-based Catalina Marketing to, among other things, identify categories it is losing to alternate formats, analyze household size and spending, and design programs to regain those sales.

Bashas' is also in the process of rolling out technology that offers incentives to customers who increase their spending in certain categories or who increase their frequency of store visits.

Another goal at Bashas' is to integrate CRM with category management and, therefore, work with vendors to develop more targeted promotions focused on delivering promotions that customers want.

The State of CRM

A study conducted by Catalina Marketing, St. Petersburg, Fla., suggests that food retailers are indeed becoming more sophisticated users of CRM (customer relationship management) technology.

According to the study, 41% of all supermarket retailers offer continuity promotions in addition to frequent shopper discounts. Another 34% are starting to mine their customer databases to find out what their customers like to buy, and then tailor their marketing accordingly.

Fourteen percent of supermarket retailers have moved to the more advanced phase of integrating CRM with category management. "They are identifying category opportunity gaps," said Kimberly Coiner-Moyle, executive director of marketing for Catalina Marketing. "They are trying to win back the sales of products like paper, diapers, etc., that have been lost to low-price retailers like Wal-Mart, and they are developing targeted CRM promotions that are designed to win those customers back."

One percent of supermarket retailers, the study shows, are doing very sophisticated segment marketing based on CRM and POS data. Marsh Supermarkets falls into this category (see main story).

Just 10% of supermarket retailers today, according to the study, are using CRM just as a discount program.

The Evolution of Grocery Retailer Customer Loyalty Strategies

(based on sophistication of relationship building strategies implemented)

Stages: What grocers do to build relationships with customers

1: Distribute discount cards

2: Create continuity programs to encourage return visits and increase the frequency of visits

3: Segment customers into groups based on purchase histories

4: Integrate customer relationship management with category management

5: Fully integrate loyalty programs, category management, space management and advertising in an evolution to segment management

Source: Catalina Marketing