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ON-LINE RETAILERS AND SUCCESSFUL PROMOTIONS DATA MINING FREQUENT SHOPPER PROGRAMS FREQUENT SHOPPER & LOYALTY PROGRAMS THE IMPORTANCE OF
CUSTOMER LOYALTY
REBATE & PREMIUM FULFILLMENT ARTICLES
Source: Progressive Grocer 72nd Annual Report of the Grocery Industry - April 2005KEY FACTSSupermarket Sales
Number of Stores
Source: Progressive Grocer 72nd Annual Report of the Grocery Industry - April 2005Median Average Store Size – Square Feet
Source: Food Marketing Industry Speaks 1995 - 2005 Average Weekly Sales Per Supermarket
Source: Food Marketing Institute Industry Speaks 1993 - 2004 Weekly Household Grocery Expenses
Source: Food Marketing Institute, Trends in the United States: Consumer Attitudes and the Supermarket, 2005
By Type of StoreGrocery Store
— Any retail store selling a line of dry grocery, canned goods or nonfood
items plus some perishable items. By Store FormatConventional
Supermarket - The original supermarket format offering a full line of
groceries, meat, and produce with at least $2 million in annual sales.
Conventional stores will realize 9% of their sales in GM/HBC. These stores
typically carry approximately 15,000 items, offer a service deli and frequently
a service bakery. Non-Traditional
Grocery
Consumer Product Goods marketers are targeting consumer through retailers’ frequent-shopper programs to efficiently reach consumers at account-specific levels that can be effectively calculated. Grocery chain retailers are under pressure from new formats and alternative retail channels (Wal-Mart) to maintain their market share. Their frequent-shopper programs provide consumer loyalty and valuable targeted marketing data that is their primary weapon against their competitors. Marketers look for programs and retailers that will allow them to communicate to their target consumers directly rather than using more traditional 'mass' vehicles by providing a targeted offer based on the consumer's purchasing habits. Manufacturers have been proactive in card-based frequent-shopper programs including Coca-Cola, Kraft, Procter & Gamble, Pillsbury and Unilever. Retailers have data about individual consumers that manufacturers cannot gather on their own, including buying patterns, total basket purchases, predisposition to switch brands, and sensitivity to promotions. Manufacturers typically fund basic co-branded promotions, including coupons, the cost of advertising, and in-store signage and may get involved with designing the program and assisting in the analysis of the data. Retailers are very protective of their customer data and many are very cautious in sharing that information with manufacturers for analysis and third-party analytic firms play an important role for theses trading partners. Retailers do not provide the identities of their consumers and the manufacturers analyze general purchase data, without identifying the individual consumers identity. Retailers and manufacturers should look for common goals and synergies from a customer perspective and focus on improving data analysis to evaluate the effectiveness of their marketing promotions.
Retailers and manufacturers tend to look at the lift they get during promotions or they may get a little more complex and look at the incremental lift from the promotion. You can determine consumer lift by analyzing your loyalty programs customer card data to understand how many consumers purchased the product when it was promoted, whether or not they’re new consumers to the brand, new consumers to the category, and to look at their switching patterns to understand what they purchased before and if the promotion was truly incremental. If all the retailer did was switch people who were already purchasing in the category, then the retailer really didn’t gain any new consumers. You need to look at what happened after the promotion to the consumers who responded to the promotion. Did they stay with the brand, did they stay with the category, did they just switch to that brand during the promotion, or did they change and purchase that brand and become loyal to that brand long term? That’s important to understand so you can really begin to understand the effect promotion has on consumers and what it has to do with loyalty. As a manufacturer, if you rewarded people who would have bought the product anyway and didn’t bring any new users to your brand, then you’ve really just sacrificed margin. The retailer needs to keep two years of data to really understand the effects of promotions on consumers in the future. You need a pre-period that is detailed enough to understand what consumers were doing before, and you need a post-period of some substance. Unfortunately, many retailers don’t keep data online for that long. So even if they wanted to do this analysis themselves, they do not have enough data online to be able to do it.A good way to use promotion is to encourage people to come into that category even if the first purchase is on a discount. That’s what you want to do with targeted discounts because you leverage promotions to bring new consumers to your category, however, you want to bring new consumers into your category who will stay with it and also purchase your product at full revenue. Return-On-Investment (ROI) is a lot more than just gross margin. It’s understanding and building a loyal base of consumers who will shop your brand and your category and will shop it when it’s at full revenue as well as when it’s on discount. That’s where "margin blending" comes in because if you margin-blend a category, you look at all the brands and all the packages within the category to try and identify the brands that are not price sensitive, the brands that people will purchase anyway at full price. If they’re going to purchase it anyway, then there’s no point in discounting, because then all you’re doing is reducing profit out of the category.
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Evaluation by buyers or category managers. | |
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Reprogramming computers for inventory management, category management, store deliveries, labor scheduling, shelf labels and scanners. | |
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Providing space in the warehouse and back room and on the shelf. In many cases, the entire shelf must be reset (both physically and in computer plan-o-grams) to make room for the new product. | |
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Verifying that the item has been set according to the plan-o-gram and that checkout registers scan it correctly. | |
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Developing merchandising programs. | |
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Changing accounting records, including bill-payment procedures for the new item. | |
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Monitoring product performance. | |
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Modifying advertising programs as needed. | |
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Deleting existing items to create the necessary shelf space. | |
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Many of these same activities are required for the product being removed, except in these cases the item must be deleted from all computer and financial records, merchandising efforts must be refocused and unsold products must be disposed of — often at a fraction of the original value. |
5.
Are slotting allowances offered for all products?
No.
They are not offered for most established products or for new offerings that
have a high likelihood of success.
Arguments for Slotting Allowances include:
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Allocate the costs and risks associated with product introductions more equitably between trading partners. | |
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Help retailers allocate shelf space more effectively. | |
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Offer shelf space opportunities for valuable new products. | |
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Facilitate lower retail prices. |
Argument
against Slotting Allowances include:
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Enable retailers to exercise market power. | |
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Undermine trading partner relationships. | |
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Provide a mechanism for price discrimination. | |
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Foreclose competitive opportunities for certain manufacturers and retailers. | |
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Facilitate higher retail prices. |
The
true impact may depend on how the practice is applied. The Federal Trade
Commission (FTC) takes the view that these issues need to be considered on a
case-by-case basis as it reviews complaints.
8.
Are slotting allowances legal?
According
to Oct. 20, 1999, testimony by Willard K. Tom, deputy director of the FTC’s
Bureau of Competition, before the House Judiciary Committee, the legality of
slotting practices “can be determined only in light of all the surrounding
facts and circumstances.” Even in cases where a small supplier cannot afford a
high slotting fee, the practice can be deemed legal, he said, as long as the
market remains competitive and consumers “receive the benefits of low prices
and wide product selection.”
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A
study was presented at the 2003 FMI Conference called “Trends in the United States:
Consumer Attitudes & the Supermarket, 2003” which revealed that
alternative shopping channels continue to take value-driven consumers away from
traditional grocery stores.
Resulting
from the increased competition from supercenters and discount stores, only 79
percent of shoppers said a traditional supermarket was the primary grocery
store, down from 81 percent in 2002, while 18 percent chose a discount store or
a supercenter, up from 15 percent in 2002. There is a growing shopper base for
supercenters, dollar stores and warehouse clubs.
Low
prices gained in importance as 83 percent saying it was very important compared
to 77 percent in 2001. Shoppers who
choose discount stores and supercenters instead of traditional supermarkets as
their primary store generally have lower household incomes ($41,800 versus
$49,500 for traditional grocery stores), are younger (median age 41.2 versus
44.8) and have larger households (3.3 percent versus 2.8 percent).
Discount and supercenter store shoppers are more price driven (92%) than
traditional supermarket shoppers (82%).
Traditional
shoppers rate higher than discount stores and 67 percent of primary traditional
supermarket shoppers would recommend their stores compared to 60 percent of
primary discount shoppers. Consumers
believe the economy will not recover soon and were concerned with unemployment,
problems with business ethics, terrorism, war with Iraq and rising fuel costs.
This resulted in consumer confidence dropping in February 2003 to the
lowest level in more than nine years. The
five most frequently practiced cost-savings measures have remained constant:
·
Look for grocery specials in the newspaper (36%).
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Participate in frequent-Shopper Programs (30%).
·
Stock up on sale items (27%).
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Use cents-off coupons (21%).
·
Price comparisons (21%).
While
the percentage of shoppers reporting their primary store offers Internet grocery
shopping increased from 9 percent in 2000 to 16 percent in 2002, it dropped to
14 percent in 2003 with only 3 percent of the shoppers purchasing groceries
online in the last 12 months. Sixty-nine percent said that they have Internet
access versus 62 percent in 2000.
In
2003, the average household weekly grocery bill ranges from $52 for one person
to $138 for large households of five or more people. On average, grocery
shoppers eat their evening meal away from home 1.4 time per week with younger
consumers and smaller households eating away from home more frequently than
older shoppers and larger households.
Gasoline
and self-checkouts have been quickly adopted by shoppers as 60 percent purchase
gasoline and 53 percent use self-checkouts where available. Warehouse clubs,
supercenters, dollar stores and convenience stores continue to expand in
offering gasoline.
The
number of consumers interested in purchasing irradiated products has increased
from only 38 percent in 2000 to 57 percent in 2003 due primarily to the high
level of concern regarding bacteria as a health risk. Almost all shoppers (92 percent) of shoppers are aware of
sell by dates on packaging with 89 percent saying that they frequently look at
this information. Food items most
frequently checked are most perishables, uncooked meats and dairy products.
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As competition
continues to grow to gain market share for the consumers grocery dollar, from
new channel options such as Warehouse Clubs, Supercenters and Dollar Stores,
store brands or private label products have become more important as they
provide a unique difference from their competitors.
They also have the ability to provide store loyalty, increase
profitability and improve customer satisfaction.
An
FMI study called “Building Shopper
Loyalty with Store Brands” indicated that store brand shoppers are as
demanding about high quality products, good selection, convenient location,
product availability and customer service and not simply lower prices.
There appears to be a shift in demographics from lower-income households
to more affluent households, especially among premium store brands.
Ethnic shoppers (African Americans, Hispanics and Asians) are less
inclined to purchase private label products, however this may change with target
marketing strategies.
There
is a direct correlation between store brand loyalty and store loyalty as
shoppers who believe that their stores private label is important are likely to
be loyal to that retailer. Premium
private label can attract new users to private label, especially from more
affluent shoppers who are less price-sensitive but require high quality and
value.
Category
management is the key to success as factors that influence product selection
varies widely across categories. When
price is not the most important factor, retailers must manage store brand
pricing to ensure that the pricing supports the overall categories as well as
the store brand strategies. Marketing
and merchandising strategies must be developed to increase market share
including improved packaging, in-store sampling and communicating the high
quality of the brand.
Store
brands represent an estimated 17 percent of the $729 billion dollar grocery
industry and the growth of store brands have averaged almost double that of
national brands. Store brand market
share can increase as evidenced in England where private label has reached 45
percent at Tesco Plc and 60 percent at J Sainsbury Plc.
With
increased competition across several channels for the consumer’s grocery
dollar, store brands represent value and approximately 70 percent of shoppers
place high importance on store brands when selecting a grocery store. The
increased number of channels has eroded market share for several grocery
categories in traditional supermarkets, especially with nonfood items.
Heavy
private label shoppers purchase more than 30 percent store brand items when
shopping. They study reported that
36 percent of shoppers buy 10 percent or fewer private label items while 36
percent buy between 11 percent and 30 percent of store brand items and 28
percent buy more than 30 percent store brand items. Heavy private label users are not as motivated by low prices
as the price-oriented shopper, however pricing plays a role in communicating
quality driving brand and retail image and enhancing margins.
One-third of heavy private label shoppers trust the store brand to of
high quality and as good as national brands.
Price and value drive them while light private label purchasers focus on
brand loyalty and family preferences. Seventy-three
percent think that store brands are produced by the same manufacturer as
national brands with a different label.
Shoppers
that are loyal to a retailer are more likely to purchase store brands and the
reverse is true. While private label has traditionally been marketed as a
lower-cost alternative to a national brand, retailers are now promoting quality
and freshness. Simply carrying more store brands does not guarantee success as
the study showed that stores that managed their categories better to maximize
store brand performance were more successful.
Store brands play a critical role in driving overall retail and category
strategy and should not be based solely on margins. Price and quality were the leading factors for food items and
while packaging was not as important, it reinforces the consumers’ attitudes
about quality. Package design must clearly project a brand image and identity,
attract attention at the shelf, promote value and quality and reinforce the
brand message with the consumer at the point-of-purchase.
Traditionally,
heavy private label users in terms of dollars tend to be larger, less affluent
families, however premium private label items have attracted higher income
professionals with smaller families. Price conscious private label consumers are
generally women, age 35 to 54, with larger families and a median household
income of $39,200.
Managing
the store brands through tiered strategies, especially premium brand
development, positively impacts the growth of store brand sales.
Premium private label shoppers have more positive attitudes toward store
brand quality and trying new products. The
packaging should signify an upscale, high-quality product. Understanding the
consumer is key to developing strategies to increase private label sales.
Brand segmentation and targeted marketing can bring new consumers to
purchase private label products.
While
ethnic shoppers tend to be more brand loyal, a targeted store brand program can
succeed and an opportunity exists to market directly to ethnic groups.
There are opportunities for private label growth with ethnic shoppers as
their combined buying power in the U.S. has reached $1trillion.
By 2030, 19 percent of the U.S. population will be Hispanic, 13 percent
African American and 7 percent Asian American/Indian.
Language translation, in-store sampling, packaging and in-store marketing
should be part of the retailers marketing strategy for ethnic shoppers.
Developing
store brands with high quality and unique product attributes can build store
loyalty and shopper satisfaction. Retailers
should be clear and consistent with the brand message, product quality and
value. Effectively marketing store brands requires a combination of preferential
merchandising, displays, advertising and promotions.
It is important for retailers to optimize store brand awareness at the
point-of-purchase. Utilize existing loyalty card data to develop a relationship
between the retailers’ customers and store brands and target the customers
with a combination of trial-generating promotions and brand messages.
Retail
loyalty cards and programs have moved to the forefront as an aggressive
marketing tool, with 82% of consumers participating in some form of loyalty
program, according to a survey conducted by WSL Strategic Retail, New York City.
Supermarkets lead the pack by a wide margin with 58% of consumers carrying a
supermarket card and 82% trying to use the card every time they shop. About 17%
will go out of their way to use the card.
Customer participation in loyalty reward programs for other market including:
Credit cards (29%), drug stores (27%), entertainment stores (24%), travel
programs (23%), bookstores (20%), restaurants (19%) and greeting card stores
(16%).
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COMPETITION
AMONG TRADITIONAL AND NEW CHANNELS IS INCREASING
Competition among food retailers has never been more dynamic with more than a dozen types of retailers competing for market share. Food retailers today include conventional supermarkets, superstores, supercenters, membership clubs, combination (food and drug) stores, natural and organic outlets, limited assortment stores, convenience stores, dot-coms and gasoline stations. Consumers have never had more choice in variety, value and quality. The competition includes restaurants, especially fast food, which are near the milestone of controlling half the $850 billion market for food sales. Dual-income couples and generations X and the echo boomers are fueling steady sales growth in “food away from home.”
Families
still eat most of their main meals at home, but a dramatically increasing number
of those meals are fully or partially prepared by outside sources. Driving this
trend is the increase individual-income families (and their overworked couples)
and young adults who don’t like to cook or don’t know how. As a result, they
buy an increasing portion of their food ready-to-eat or -heat. Many food
retailers are expanding and upgrading the frozen meal selection. Their bakeries
are selling breakfasts. Their delis are selling lunches and side dishes for
dinner. Salad, pizza and coffee bars are spreading. For one-stop convenience,
shoppers can go to superstores, supercenters, combos and super warehouse
outlets. For value, they have limited assortment, warehouse and wholesale club
stores.
The
industry is consolidating while competition among traditional and new channels
is increasing dramatically. The various food retailer formats include:
Grocery
Industry Market Share by Format
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2001 |
2006 |
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Store |
Number |
Dollar
Share |
Number |
Dollar
Share |
Superstore |
7,900 |
25.9% |
9,200 |
25.9% |
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Conventional
Supermarket |
13,000 |
18.8% |
12,500 |
15.1% |
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Food/Drug
Combination |
3,850 |
14.3% |
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