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Next week, the 13th annual Global Electronic Marketing Conference (GEMCON) will commence in Naples, Florida, focusing on the real value of loyalty marketing programs. We anticipate that this should be an interesting and provocative few days…and we bear some responsibility for this, since for the second straight year, we’ll be helping to moderate the sessions.

To get a preview of the sessions and a sense of the mindset behind GEMCON 2004, we conducted a joint interview with its founders, Carlene Thissen and Barry Kotek of Retail Systems Consulting.

MNB: One of our criticism of most loyalty marketing schemes would be that most retailers think of them as just another way to deliver coupons or discounts, as opposed to creating organic, evolving programs that really connect to the consumer’s needs and desires. Would you agree? And if so, do you think the reason for this is that retailers haven’t had the interest in going further? The infrastructure? The money? The imagination?

Carlene Thissen: I agree completely with your statement. Most retailers, when they first start up a program, offer the same discounts for everyone with a card, and that’s logical because they have to get their feet wet and get used to dealing with an entirely new kind of data. But while most of them plan to use the card to do targeting in the future, somehow they seem to get lost along the way. Infrastructure is not the issue, because many retailers have adequate technical systems and abilities. Some of the problem has to do with pressure from Wall Street and/or corporate management for immediate sales rather than having time to nurture customers to ensure their continuing loyalty. That pressure also affects manufacturer brand managers whose entire career path is based on short-term sales. The manufacturers sales forces are even worse and exacerbate the situation of retailers who are limited in their creativity and vision; CPG sales forces are woefully under-trained and under-knowledgeable when it comes to targeted forms of electronic marketing. They don’t want to support it because they don’t understand it. And again, targeting doesn’t provide the fast sales spike “opium” that the industry is addicted to.

I also think some of the problem has to do with the power of people in traditional merchandising positions at the retailers. It’s only been in the last ten years (when frequent shopper programs started to proliferate) that grocery retailers even had a person with the title of “Marketing.” You’d be amazed at how many of the marketing folks are stifled and restricted by traditional merchandising management because, in many cases, traditional merchandisers still don’t respect Marketing. They think with the “pile it high, stack it deep” mentality and can be highly resistant to creative efforts. Whenever sales improvements have to be made quickly, the time-honored tactic of dropping the price and blowing product out the door works. But in the long run, when you’re trying to keep loyal customers who are the people you should be focused on, it’s a waste of money.

Barry Kotek: The major problem with the programs isn’t that they offer coupons and discounts, but that most offer the same discounts for everyone that has a card. They don’t take into account that their top 25% of shoppers make up close to 70% of their sales and profits. Besides giving targeted offers to consumers, programs can be developed to show the consumer that the store appreciates their loyalty. The money is there if the retailer chooses to spend on those customers that do the most for their business. Infrastructure issues are disappearing with improvements to database analytics, offer administration systems and new offer delivery methods. Imagination is key to keeping the program fresh and meeting consumer needs and desires.

MNB: Obviously, there are retailers who have transcended the conventional and created programs that work. What are the standout retailers in your mind, and why?

Barry Kotek: Small independents like Dorothy Lane Markets have done a good job in the customer service and creative program area. Regional chains like Big Y have good customer service and unique signature items and have done an excellent job with games, surprise rewards, and school programs. Finally we think that Pathmark is doing a great job with targeting offers to their individual consumers based on past shopping history.

Carlene Thissen: This is a tough one to answer because of the secrecy about Electronic Marketing/Frequent Shopper programs in our industry. Other industries share their learnings so the whole industry grows, but in grocery retail it’s difficult to see who’s doing what. The ones I think are doing the best job are either independents like Lees Supermarkets, Dorothy Lane Markets, Paw Paw Shopping Center, and Skagway Stores, or regionals like Ukrops, Big Y, Marsh, Pathmark, and Shaw’s (oops! Used to be a regional!)

MNB: We’ve always been suspicious of programs that feature collaborations with other businesses gas stations, movie theatres, etc...), only because they don't necessarily drive more traffic and dollars to the supermarket. But we suspect this has more to do with our bias than any root in fact, especially since there are some very good retailers out there who do exactly that. What’s your sense of this approach and how it does or doesn’t work?

Carlene Thissen: I think it could be a bias on your part, actually, because tie-in programs with non-competing retailers are highly effective in adding value to card programs. Discounted movie tickets, for example, especially when coupled with local movie listings, are great ways to get people to visit your web site - often. And we’ve been told by many retailers that discounts on gasoline is without a doubt the most effective promotion they have ever run. The other nice thing about many of those tie-ins is that it doesn’t cost much to do them. Often, the partners will offer discounts just for the increase in publicity and anticipated traffic.

Barry Kotek: Today one of the most successful programs is one that provides discounts for gas. With the current prices over $2/gallon and no relief in sight we suspect that retailers will continue to get a lot from this type of program. Consumers like variety, some only want discounts on their favorite products while others will look at free movie tickets as a way of thanking them for shopping there.

MNB: Does the specter of “consumer direct” marketing mean that if retailers don't get on the stick, manufacturers are going to find ways to target the consumer and create loyalty that essentially bypasses the traditional retailer?

Barry Kotek: That may take place for some specialty items or high margin HBC products but I don’t see that happening in any large way for center store items in the near future. Let’s face it we are still ironing out problems of getting products from manufacturers to retailer’s distribution centers and to the stores so we can reduce out-of-stocks. What is happening however between manufacturers and retailers with loyalty programs is a sharing of data (without names) so that manufacturers can do a better job with their marketing budgets.

Carlene Thissen: If anything, the retailers are getting more powerful because they have data the manufacturers need in order to do targeting. Some of the manufacturers are doing a great job with consumer-direct Internet and emailtargeted marketing, but they can’t purchase data without the retailers.

MNB: Does e-commerce make loyalty marketing easier or harder to achieve? And what’s your experience with how e-commerce dovetails with loyalty marketing?

Barry Kotek: E-commerce dovetails well with loyalty marketing and through the computer can provide good customer service. When ordering a consumer has an inventory of what they purchased before so in a way they are reminded when they are running out of items. They also can help tie in products that create incremental sales. For instance if you purchase an apple pie they can remind you that ice cream is on sale or if you buy a pot roast that there is a great Pinot Noir that you should try.

Carlene Thissen: I think of them as separate applications, actually, although they can be linked. Home shopping can be quite a loyalty program in its own right, if the retailer handles it properly. The ease of having someone know your purchases and purchase cycles and then delivering the groceries to your door (or even if you pick them up) is addictive. At least it would be for us, if anyone in Naples bothered to offer it!

MNB: Finally, it always has seemed to us that technology initiatives – such as RFID or self-checkout or kiosk programs, to name just a few – are a lot easier sell to retailers than the somehow intangible notion of “loyalty.” In some ways, we might argue, retailers latch onto technology initiatives precisely because they are tangible, and they help retailers avoid the problem of actually making a human connection to the customer...which, we would maintain, is what realm loyalty marketing ought to be all about. Do you agree? Why or why not?

Carlene Thissen: Those are very interesting thoughts, particularly since it seems you’re implying that retailers aren’t great with human connections and in reality, many of them are not! And you’re right-on about human connections being what loyalty marketing ought to be all about, but it’s a tough thing to execute. That’s why independents are usually better at using frequent shopper data than chains; most independents are people-people or they wouldn’t be in that business.

What I don’t understand is why chains can’t nurture the same kind of customer interactivity on a store-by-store basis, treating each store as if it were an independent operation. Especially when, with customer-specific data, it’s so easy to identify top shoppers - they’re the ones you really need to focus on. And it’s not only personal contact – it’s things like keeping products in stock that top shoppers buy. Our local store, for example, seems to discontinue every product I buy on a regular basis, especially new ones. And the closest I’ve gotten to personal contact was a recent “come in and meet the manager” event for which I received an invitation addressed to “Neighborhood Shopper.” I forgot completely about the big event but ended up in the store that day because I needed groceries. Each department manager was dressed in a suit and sat at a table in his or her department and we customers were given a sheet with spots for six signatures. If all the managers signed it and we took the paper to the courtesy counter, we got a coupon for a FREE half-gallon of private label orange juice and an entry into a not-memorable sweepstakes (I can say that because I don’t remember it).

The interesting thing was that four of the six managers were not people people at all. They had trouble smiling and saying hello, and not one of them recognized me. I’m in that store three to four times a week and spend a minimum of $100 per trip. I would be so happy if just one of them came out and said hello to me on a “regular” day. But that hasn’t happened and I don’t expect to see it soon.

And certainly, it’s easier for most of us to get our minds around tangible items than more abstract concepts like loyalty. I think it takes real skill to understand and execute what consumers will respond to, and that’s the skill many retailers lack.

Barry Kotek: We definitely agree that in order to have a good loyalty program that you first need to have all of the basics like good customer service, clean well-stocked stores and a great perimeter departments. Technology by itself will not create customer loyalty.

I like to think of a well-run program being similar to the corner grocery store that we saw as kids (those of us old enough to remember that). Since the store was small the grocer knew everyone in the family and would suggest cuts of meats for dinner and would tell my mother how to prepare it. And while he was doing that he would be giving us kids a piece of candy or a cookie. But it was the interaction with the grocer that was key to the store experience and loyalty that it rendered. Technology today can give retailers the capability of remembering what each customer wants but you need the service to drive loyalty home.
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