Noah Katz met the threat head-on.
At last month's FMI MarkeTechnics 2001 conference in New Orleans, the vice president of PSK Supermarkets, a Mount Vernon, N.Y.-based chain of 20 Foodtowns in New York City, said he did better than sit and worry over competition from a supermarket opening near one of his Bronx outlets.
Instead, using customer data gleaned from his Preferred Customer Club Card, he took an immediate step to strengthen customer loyalty.
"I sent a letter to some of the customers that live in that neighborhood and told them they would get 10,000 S&H Greenpoints just to bring the letter back to the store," he said.
"I could have sent them a letter offering a discount or requiring that they spend some money in the store, but I chose not to," he said.
In effect, what Katz was doing was trying to get the customers hooked on the S&H program and stop them from migrating.
Katz and Pat Iasillo, director of customer relationship marketing for the seven-store Remke Supermarkets, Covington, Ky., were part of a workshop entitled "Making Technology Pay: Loyalty Marketing Best Practices" at FMI's MarkeTechnics in New Orleans.
"As you shop, you earn 10 [S&H] points per dollar," Katz said.
Eventually, one of Katz's checkout people will gently point out to a customer that he or she has "21,000 Greenpoints and here's the catalog."
Under the S&H program, customers can buy gifts from an 80-page catalog with points accumulated. "The more you shop, the more you get back," Katz said.
A light usually goes off when the customer realizes he's shopped part of his way toward earning a new CD player, Katz said.
"Bingo, we've got that customer," he said.
But, more than that, with the aggressive use of the S&H program in the Bronx store, Katz fended off any possible customer migration.
"It really worked," he said. "It was very effective. Everyone was talking about it."
It was a far cry from where Katz's stores were just two years ago. "Back then, we didn't even have a register that could accept a loyalty card."
Now, with S&H tracking the entire program, Katz gets what he calls a "rich" set of reports, daily, weekly or monthly. He even gets a customer migration report on lost shoppers.
His Foodtown outlets show a very high rate of reliance on customer loyalty marketing.
"We do 82% of our business on the club card," he said. "Everybody knows how many points they have. You can walk through our aisles and see Mrs. Jones comparing her 5,000 points to Mrs. Smith's 35,000."
But, the points are only the beginning. Customers are profiled based upon the types of items they purchase, becoming, for example, automatic enrollees in the Foodtown Baby Club after they spend $25 on the appropriately coded items.
The straightforward incentives also ratchet up for the better customers, heaping bonus points and other discounts on top of the regular points earned by more casual visitors to the store.
Iasillo said when his company started mining the data from its loyalty card program he became hooked on the business practice.
"I just had to get my hands on the information," Iasillo said. "We started looking at data and reports and really examining chain defectors, customer migration."
Iasillo said Remke started measuring statistics from various groups of customers. "We have done rather well with it," he said. "We started targeting residents in the area who weren't customers just to get them in the door and shopping. Forget about making a profit on them."
But as extensive as Foodtown PSK and Remke's use of customer relationship marketing may appear, most retailers have yet to follow suit.
Others who do have a loyalty card program are really not taking full advantage of all that data.
As one of the leading authorities on "data mining," or what to do with the mound of information one collects in the course of administering customer programs, Frank Badillo, economist and principal consultant for PriceWaterhouse Coopers in Columbus, Ohio, said he has studied the situation and found much lacking.
"The bottom-line conclusion I came to is that most retailers, very often supermarkets, have often taken too narrow an approach," said Badillo. "In the case of the loyalty programs at supermarkets, they are often little more than electronic couponing and they're not using the information they have.
"One of the problems with these programs is that retailers have put too much of their resources into these types of incentives.
"It becomes a game of 'can you top this,"' he said. While these straightforward incentives undoubtedly stimulate purchases, they are easy to duplicate or match in one way or another by the competition.
The real trick, Badillo said, is to offer "value for shoppers in a way that is not easily recognized, what I like to call 'stealthy incentives."'
Experts say that to get the true bang for the buck, users of these data-mining systems must wade through a wealth of data, all the time keeping the eye on the prize: the hypothetical "store of the future" that gives customers, or the best ones, at least, exactly what they want.
The data you get from the point of sale can be used to find out what is being purchased and by whom. Knowing likes and dislikes means you can offer an expanded selection of a particular type of product, know how to group products together, and more generally target merchandise to maximize customer loyalty.
Other professionals in the field agree that the future of customer relationship marketing lies in making the best use of whatever information you collect -- which few retailers practice at present.
Glen Hausfater, managing partner of the Chicago-based Partners In Loyalty Marketing, is one of them.
"For many years now, virtually every grocery chain has been selling groceries to people having no idea who these people are," he said.
"The major element of faith is if you look at most research and ask what it is that most promotes loyalty. The top answer is 'the physical store,"' he said, underscoring the potential for information technology to change the very design of retail outlets in the future.
While he is aware of the prevalence of card-based marketing and promotional programs, he said it is only recently that more innovative retail chains have begun to tap their potential.
"The extent to which retailers can use their card data to make their stores better -- that is where we have the most room for improvement," Hausfater said.
Strangely enough, the more innovative retailers now are the smaller ones like Foodtown and Remke, he said.
"I don't think that any large retailer feels that their card program has turned around their business," he said. "It's tricky when you have 1,100 stores and you've got to get all your managers to do the same thing."
Indeed, with the most inertia usually being present in the largest objects, it is not surprising that larger firms feel less intense pressure to get full value from card programs.
"Most retailers did not make an enormous investment in their loyalty programs," he said. "Most did not do a vigorous analysis of whether it paid for them."
In these cases, the consultant must often start out small. "We talk to them, help them segment their customers and realize the potential for increased sales," Hausfater says. "It's reality that you don't have a 100% share of somebody's wallet," said Katz. "If you can eliminate one shopping trip to the competitor, it increases your sales."
And the reality of much of the new technology that's available means that retailers have powerful tools for communicating directly with customers.
"We treat our top shoppers very well," said Katz. "We communicate to these customers through our technology."
Indeed, "top shoppers" at one of PSK's Foodtowns will find that not all the technology aimed at them is hidden behind the scenes. Checkout counters have "extra-wide thermal printers" that are electronically alerted to the presence of frequent shoppers, printing out promotional fliers and messages along with bonus points.
Cashiers at a PSK Foodtown have a "loyal level" display in front of them, a small screen that alerts them to the presence of a "level one, two or three shopper." As per standing procedure, the manager's name is called out, secret gestures and meaningful glances are exchanged, the cashier discreetly telling the manager in this way to come over and have a chat with those customers the store has most reason to welcome.
And, yes, the data can be mined in a high-tech way to achieve even old-fashioned results.
As in the practice of getting every one of Katz's top 500 customers one dozen long-stemmed red roses delivered to his or her home every Valentine's Day.