FINE-TUNING LOYALTY PROGRAMS

Frequent-shopper programs are only just beginning to deliver on their immense promise to boost customer loyalty and hike profits -- key paybacks that nearly all segments of the industry expect to transform the supermarket business before long.The most successful frequent-shopper initiatives heading forward certainly will look a lot different than the dressed-up trading-stamp programs that many retailers

Frequent-shopper programs are only just beginning to deliver on their immense promise to boost customer loyalty and hike profits -- key paybacks that nearly all segments of the industry expect to transform the supermarket business before long.

The most successful frequent-shopper initiatives heading forward certainly will look a lot different than the dressed-up trading-stamp programs that many retailers implemented in early attempts to garner customer loyalty.

Instead, industry experts said, the most effective shopper-loyalty programs will be based not on points-for-prizes or product discounts; rather, they will rely heavily on customer-specific purchasing history that can be used to tailor the experience, services, privileges -- and even store appearance -- for each customer.

Although product discounts will not be dropped entirely as a key method for luring increased customer shopping, retailers increasingly are turning their focus to targeted marketing efforts.

Today, those targeted efforts are aimed primarily at groups of consumers who share similar shopping behavior. In the future, however, the ultimate frequent-shopper program will leverage purchasing data to tailor marketing to each shopper on an individual basis, a practice referred to as "one-to-one marketing."

Retailers are examining the one-to-one marketing concept more intently than ever now that many of them have built massive customer data warehouses and invested in sophisticated analysis software capable of supporting such initiatives.

Gerland's Food Fair, Houston, for example, is one company championing the collection and analysis of consumer data to reward loyal customers and enhance profitability.

"The most important thing for companies that are going into frequent-shopper programs is to look at what they are going to do with the data. There has to be a commitment to analyze the data and use the data as you would your financial statement -- to manage the business," said Kevin Doris, president and chief executive officer of Gerland's.

Can supermarkets, with their highly transient customer bases, truly achieve marketing to a segment of one?

"It will be very difficult to get there," Doris said, "but that is what we need to strive for, to give the customers what they want. In the long run, if you can do that, you will make that customer loyal to your stores."

Giving customers what they want entails finding out precisely what it is they want. Yet each customer has widely varying needs and preferences, said Ray Burke, who heads research for the Center for Education & Research in Retailing at Indiana University, Bloomington, Ind. "Retailers need to do more to recognize the heterogeneity between customers," he said.

"When customers walk into most stores today everybody sees the same store, the same set of products, the same prices and the same merchandising, yet consumers are incredibly different," he said. "You've got singles, married people, families with children, those doing fill-in shopping trips, others doing a big trip. They are all looking for different products."

Burke, who also serves as E.W. Kelley professor of business administration at Indiana University, said retailers who recognize these differences can respond in several ways to enhance the shopping experience. For example, alerting a shopper to special promotions that would be of interest to that particular shopper, based on past purchasing behavior, can add value to the store visit.

The difference may be a subtle one, but shoppers perceive more value in being alerted to a special sale on an item they already buy frequently, such as a specific brand of baby food, than they appreciate being offered a free turkey after spending $500 in six weeks' time.

While the first incentive recognizes an individual's personal brand affinity, the second reward is clearly an impersonal "bird-for-bucks" incentive, available to everyone willing to spend the money in the prescribed time frame. Shoppers tend to stray after such a promotion and return to patronizing several retailers.

Put simply by Don Peppers, president of Marketing 1 to 1/Peppers & Rogers Group, a Stamford, Conn., consulting firm, "You can't buy a customer's loyalty."

Retailers who customize offers for shoppers through an in-store kiosk, for example, can heighten the value of those incentives by simply organizing the printed promotions according to how the store is laid out. It's these seemingly minor but distinctive refinements that can enhance the shopping experience.

In this scenario, the customer's shopping data is actually used to help the shopper, not merely to compile a direct mailing list that benefits only the retailer. Peppers said too many marketing efforts are one-way streets, with the retailer taking information and using it to try and dictate shopper behavior.

"The whole issue with one-to-one marketing is that both parties are participants in the relationship," he said. Retailers must be willing to incorporate what they know about the consumer into how they behave toward the customer. Customizing the appearance of the store to suit each shopper is one way to deliver on that promise.

"In the retail environment it's impossible to customize the [physical] store, but one alternative is to create a cyberstore and arrange the product on the computer screen" according to an individual's preferences, on file in the customer database.

Other things retailers can do to distinguish themselves in a sea of frequent-shopper programs is to personally greet the most profitable shoppers, whose presence in the store can be recognized by a kiosk linked to a pager carried by the store manager.

A store's best shoppers can also be extended privileges, such as personal shoppers or dedicated checkout lanes, in order to demonstrate how valuable they are to a retailer.

"Today, what we are seeing is marketing to a segment of customers, such as families with newborns," said a source familiar with customer-loyalty programs. "I don't think anyone has gotten to that segment of one yet," but it's only a matter of time before retailers are able to reach out to shoppers and customize the experience for each, the source added. "The ultimate frequent-shopper program will be having as many frequent-shopper programs as you have customers."