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Not sure of the exact date but sometime in the early 90’s a group of folks at Jewel (or The Jewel as they liked to call themselves) in the marketing department got together and crafted a strategy that would change the game in the food and drug industry. They created the first “loyalty” program in food and drug. They had good reason, you see grocers were having a bit of a struggle, they were under attack.

It seems everyone from Home Depot to Walgreens, to WalMart was getting into selling food in some form or another. The industry was just starting to notice how big WalMart was getting. There were a ton of “new” stores down in Texas going up called Super Centers, full of the usual WalMart fare but also a huge addition, a full service grocery store to boot. And the pricing strategy scared the heck out of them. If you based the retails at WalMart on industry standard costs the folks in Bentonville were selling just about everything at a loss. Supply Chain efficiencies were Wal-Mart’s forte but they weren’t that good.  They had to be getting a lower cost from the same suppliers that were supplying the industry and even then it appeared that WalMart was willing to sell groceries for convenience and the carrot to get the folks into the stores. No one knew the plan but it was obvious that if the industry didn’t do something they’d be priced out of business when WalMart came to town.

It’s all about the card…..no the customer, no the card, I’m confused?

Grocers were already working off horribly low net margins, where the heck were they to get the money to combat the onslaught from Bentonville. Well the folks at Jewel came up with the “card”. They needed to know their customer better, and getting them to use a card at their stores and tell them something about themselves seemed a great way to establish a solid relationship. A relationship that they would / could take advantage of when the big W showed up in their back yard. A relationship that Jewel could call on to keep it’s loyal following from jumping ship for lower pricing. Trouble was how to get the customer to sign up. They kicked around several ideas and landed on promotion or discount. In order to get the “ad” price the customer must have a card, that’ll guarantee adoption.

It certainly did, everyone had a card. And then Dominic’s and other Chicago operators adopted the same process and soon everyone in the Chicago area was using discount cards to entice shoppers to come through their doors. They even reduced the size of the card so you could hang if off your key chain. It was nothing to see a customer with 5 or 6 cards hanging from their chain. It was also standard practice for the checker to have a “dummy” card at the register in case a customer didn’t have a card to ensure that no one got out the door without the ad price. What was intended to entice the customer to become a loyal Jewel shopper turned into a very expensive way to communicate and create discounts for the shopper.

Awash in Data

But they still had the customer data to analyze right? Oh they had data, tons and tons of data. You could call it a data tsunami. So much that they couldn’t really find the shopper in there. They had a good view of what was selling but a horrible view into who was buying.  BI was not a strategy at the time, it was a dream. Tera Data sold millions of dollars of nodes to the industry to try and help them get at that data. Micro Strategies, Business Objects, and Cognos were used to report on the data but it was still locked in the vaults and was not providing the value expected. Even more importantly it certainly did NOT create that relationship with the shopper.

The idea swept the nation; every major national grocer and drug store adopted the process. Regional players either adopted the “card” or they didn’t and used that fact to differentiate themselves. It was not uncommon to see advertisements for regional players touting the fact that everyone got the low price. But all of them, including Wal-Mart, were trying to figure out how to get the data around Mrs. Jones and what she wants, and a way to bring all the Mrs. Jones types together and communicate directly with them.

Finally, the customer counts

Fast forward 15 years and it looks very much the same, discount cards all over the place, no real shopper insights and a low adoption of BI and capabilities to get after that information. But things are changing. When you read industry analysis and surveys like Gartner and RIS you’ll see at the top of list (or very near the top) is the idea of using technology to get after that data in a whole new way. Using customer insights to aid the decision maker’s process for determining strategies and stepping closer to the customer / shopper. Customer Centric merchandising concepts are popping up all over the place. Demand Driven strategies have found their way out of the manufacturing world and into the vocabulary of Merchants.  Food and Drug retailers are trying like heck to rid themselves of those pesky discount programs and get after finding their loyal shoppers and treating them like the royalty they really are.  It’s not easy.

Changing customer behavior is hard, especially a behavior 15 years in the making. But it is doable. Kroger is attempting to make it happen with their purchase of Dunnhumby USA. Great start to mining the data they have for gold and creating segmentation that includes product attributes but is it sustainable? It’s an outside the firewall process driven by great people but it seems to me that the folks at Dunnhumby have a great handle on Kroger’s customers but the folks at Kroger are in lag 2 waiting for the “truth” to arrive. Don’t get me wrong, it’s better than anything attempted out there but there is a better way.

 How we can help

SAP CRM / Marketing has the tools and capabilities to change the game. It’s a comprehensive solution that brings the processes together. There’s campaign management that helps build the programs that drive the business.  Customer interactions that enable the customer to sign up, manage and redeem points. A customer database to enable visibility to the information needed to make great decisions. A rules engine that helps automate the interaction and execution needed. And the ability to see and create what I’ll call dynamic segmentation that allows the retailer to not only see what the customer says about themselves but with the added the dimension of what they purchase or intend to purchase to that segmentation. For example, if you take my demographics you’d put me in the over 50, white male, married with grand kids category. If you add my purchasing habits you’d also have to add Mexican Food and Red Wine to my profile because I love that stuff. That enables a much closer and personal view into me and allows the retailer to come after me in a much more intimate way, creating the loyal relationship. It also allows the retailer to understand how loyal I am to them and reward me for that loyalty or entice me to become more loyal. Move me from a 50% shopper to an 80% shopper or from gold to platinum if you will.

It’s game changing and it’s here now. When you add Business Objects to the conversation and deliver unbelievable analytical capabilities you get a comprehensive solution that can and will be a primary way SAP can service a very difficult customer base. Food and Drug companies are not known for leading the charge when it comes to technology and CRM / Marketing is a great place to start………

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  1. Stephen Johannes
    The problem is that loyalty programs are still stuck in the stone age of carying a card around and have yet to found a good “cardless” solution and different model.  As a consumer I really don’t want to carry 20 different loyalty cards so that my privacy can be invaded by you requiring me to use your to get the same discount that you would have given anyway.

    Besides I don’t need or want the “Costanza Wallet” just because another CPG marketing company adopted the “me-too” approach of issuing another worthless loyalty program.  It would be interesting to see how technology could be used not for just figuring out what consumers do, but actually make the the programs less burdensome on the consumer.

    Take care,

    Stephen

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