A growing divide is emerging in the retail industry, a divide between two classes of retailers: those that are customer-aware, and those that are not. By customer-aware, we mean those retailers that have some capability to regularly, consistently and accurately identify shoppers to their transactions.
For too long, customer data has been synonymous with loyalty marketing, but this is a misconception. One must separate the means of identifying the shopper to the transaction from whatever marketing initiatives may be enabled by that capability. A loyalty card is simply a way to bar code the shopper, enabling the shopper to be "scanned" and made part of the transaction record just as any product is.
While loyalty cards—with their attendant marketing programs —have been the most prevalent way to identify shoppers, other means of doing so are at hand. Biometrics, RFID cards and tags, mobile phones with near field communication capability, smart cards, and others are all proving to be capable shopper identifiers. These new tools, when combined with digital communication channels, open the door to true individualized retail consumer marketing, a quantum leap beyond loyalty marketing.
In the preface to this series, we looked at previous power shifts that have occurred in the retail industry: In Retail 1.0, fast-moving consumer goods manufacturers were the locus of power within the supply chain. In Retail 2.0, that locus shifted to retailers, driven by consolidation and the accumulation of shopper data. Retail 3.0 posits the next shift of industry power to the individual shopper, driven by competition and understanding of shopper value, and enabled by technology. Shopper-identified transaction data is the foundation for this next industry movement. Without it, retailers will be at a significant disadvantage.
This growing retail industry schism might be loosely compared to the growing divide between those consumers with broadband Internet connections and those inhabiting the offline world. In a time where everyday services are increasingly delivered online—e.g., vehicle registration, banking and travel booking—those consumers unable to participate are disadvantaged, forced to spend hours waiting in line, and unable to quickly and efficiently search for the best rates or deals. There is, simply put, a productivity gap between the two worlds that will foster an economic gap.
So it is with retailers bereft of shopper identification competing with their customer-aware brethren: enlightened retailers are able to communicate with individual shoppers over low-cost digital channels (such as e-mail, online and mobile) while delivering relevant promotions and information. These customer-aware retailers, both large and small, have begun a steady climb to superior business and financial performance. Meanwhile, their blind peers are on a trajectory of underperformance for years to come, forced to use declining, mass advertising vehicles, and communicating economically inefficient same-for-all promotions.
Development and Growth of Personalized Marketing
Green Hills, a large independent supermarket located in Syracuse, N.Y., has long been known as a leader in gathering, understanding and using shopper data since the 1993 launch of its loyalty program. The use of shopper data at Green Hills took an exponential leap forward two years ago with the creation and launch of SmartShop, a personalized marketing system created by Hawkins Strategic (full disclosure: I'm an EVP at Hawkins Strategic, and my family owns and operates Green Hills). The SmartShop system enables Green Hills to efficiently and effectively deliver a personalized ad flier to each enrolled consumer every week, providing relevant promotions based on shopping history. Thousands of participants receive their personalized promotions each week via e-mail, Web or in-store kiosks, with impressive results: across every customer segment, these shoppers spend more, shop more frequently, and have higher annual retention rates than nonparticipants, all while reducing overall markdown expense. Marketing relevancy is powerful.
Understanding the inefficiencies of ad fliers and coupons, many retailers are following suit and implementing technology solutions to cost-effectively communicate and deliver differentiated, relevant promotions to their shoppers. Those retailers able to personalize their marketing communications are able to drive sales and margins while decreasing associated marketing expenditures.
Such personalization of consumer marketing is possible only with shopper-identified transaction data. And as these efforts gain momentum in the industry, the divide between the haves and have-nots will widen.
To maximize the benefits of shifting to more relevant, individualized shopper marketing, collaboration between brand manufacturers and the retailer is increasingly necessary. A prime example of this is Food Lion's "Vendor Pulse" program. By the fall of 2008, Food Lion was regularly sharing retail data with over two dozen key suppliers, and is working to increase this number to at least 100. Alongside this, the grocer provides a Shopper Insight Portal through which suppliers can view aggregated shopper data and segmentations. In return, Food Lion is seeking greater collaboration to manage product logistics and to improve promotional planning.
An Online, Digital World
Shopper identification is rapidly becoming the price of admission for retailers into an increasingly online, digitized world of consumer marketing and services. Services like AOL Shortcuts and Zavers are seeking to transform FSI coupons into an online alternative, enabling consumers to select desired coupons online and add them to an electronic wallet linked to the shopper's loyalty card for automatic redemption at checkout. Upromise has recently released its eCoupon service, operating much the same way, but the savings derived are credited to the shopper's education fund.
These solutions are already in use at Kroger, and are soon to be elsewhere (several well-known chains have committed and are in the process of implementation). And in all cases, these solutions are enabled by a loyalty card (shopper ID) that functions as the link between the electronic wallet and in-store purchase.
How will retailers bereft of shopper identification be able to offer these values, soon to be widespread, to shoppers? Even today, the ubiquitous fuel promotions offered by so many supermarket chains require loyalty cards (shopper ID) to tabulate spending and redeem discounts at the pump. Retailers without means of shopper identification can't play this game.
'Bar Coding' Shoppers
It was over 30 years ago that mass retailers began installing bar code scanners at checkout, and the technology spread rapidly across supermarket and other channels. What drove this massive adoption of technology was a variety of benefits, including faster checkout times (improved efficiencies) and more accurate data. As early adopters began realizing the benefits and converting them into solid financial gains, others were pressured into installation simply to maintain a level playing field with competitors.
This improved data accuracy provided the foundation for such industry initiatives as category management and supply chain logistics. Wal-Mart's relentless focus on driving costs out of its supply chain in support of EDLP would have been nearly impossible without scan data. And just as product scan data has become foundational in modern retailing, so, too, are the metrics afforded by shopper-identified transaction data. From companies like Kroger and Food Lion using such data to create shopper segments, to those like Green Hills or Rice Epicurean Markets practicing customer category management and embedding customer metrics into management and financial reporting, shopper-based measures are becoming essential. But only those retailers with shopper-identified transaction data are allowed on the field.
The digitization of consumer marketing also creates a foundation for effective loyalty marketing. It has been well proved that loyalty marketing, properly executed, is a powerful tool. Brand Loyalty, a Netherlands-based company providing loyalty programs to supermarket and mass retailers the world over, has a long history of success in generating profitable sales increases by recognizing and rewarding the retailer's top shoppers. While the vast majority of these efforts have been accomplished using technology no more advanced than stamps collected at checkout, shopper-identified transaction data integrated to multiple customer touch points is prepared to transform not only traditional loyalty marketing, but also trade promotion itself.
"Using shopper-identified transaction data, Brand Loyalty programs can be used to transform the consumer value proposition away from price discounting—that ultimately harms both the brand and the retailer—and toward rewarding shopper behavior, for loyalty to both the retailer and to specific brands that partner through the program," says Robert van der Wallen, CEO of Brand Loyalty.
The need for shopper-identified data isn't about loyalty. It's about how retail will be practiced, and how brands and retailers will go to market, in the very near future. Shopper data is the foundational requirement for the world of Retail 3.0, which is first and foremost driven by relevant, personalized marketing to the individual shopper.
--Nielsen Business Media