Analysis of Data Underscores
Importance of Best Shoppers
By John Karolefski
How important are a retailer’s best shoppers?
They account for a large chunk of the store’s revenue, according to Michael Schiff of Partners in Loyalty Marketing. “What would happen if all those people went away? You wouldn’t have a business left.”
William Young of Concept Shopping advises retailers to spend the lion’s share of their time, effort and promotional dollars on their top-spending, loyal customers. “It costs about five times as much to win a new customer as to keep a current one,” he said.
Analysis of over 2 million grocery shoppers by Concept Shopping shows that the top 10% of store’s customers visit the store more than twice a week, spend over $39 per visit, and represent nearly 40% of the store’s total sales.
The study also found that these most valuable shoppers tend to remain very loyal to the store, with 95% continuing to shop there throughout the year. Conversely, only 34% of the store’s worst shoppers – those who visit the store less than once a month and spend only $9 per visit – remain customers.
“Shopper churn is a fact of life for every marketer,” said Young, vice president of sales and marketing for the in Lisle, Ill.-based firm. “Shopper loyalty continuously ebbs and flows through retail banners and store types, but sorting shoppers by their value helps identify which ones should be courted and which ones can be ignored.”
Most retailers have some form of segmentation or deciling, according to Schiff, managing partner of the Chicago-based consultancy. “CVS does the deciles and they are probably the savviest,” he said. “Kroger does some other segmentation. Wegmans is another good example of a retailer that’s segmenting and trying to make stores more about the experience than necessarily about shopping.of the Chicago-based consultancy. “CVS does the deciles and they are probably the savviest,” he said. “Kroger does some other segmentation. Wegmans is another good example of a retailer that’s segmenting and trying to make stores more about the experience than necessarily about shopping.
“Other retailers know about segmentation, but whether or not they really act on it is completely different. I think most of them don’t. If you look at any of the promotions or anything that
goes out to consumers, the vast majority of it is talking in the voice of that average shopper,” he said.
Concept Shopping’s analysis of the 2 million shoppers divided them into ten equal deciles based on their spending levels during a 12-week period. Only 11% of the dollars spent by the best shoppers were on markdowns, making these heaviest shoppers the most profitable as well. In contrast, over 35% of the dollars spent by the worst shoppers were on sales items, making them unprofitable, assuming a 33% profit margin.
“At the end of the day, there is only a small audience among all those shoppers who are really driving sales,” explained Young. “But most retailers continue to believe that to grow sales they need to attract more shoppers.
“The advanced grocers with loyalty card data that they analyze are beginning to realize that there is a lot of head room among their best customers,” he continued. “From what we have seen – even among the top decile shoppers – a grocer is only getting about 60 cents of every dollar spent on groceries. So there is still a lot of room to grow the business among the
best customers.”
Young explained that it wouldn’t be so bad if the lowest-spending customer shopped elsewhere because they tend to “cherry pick” and largely buy items on sale. But it would be a major concern when the best shoppers begin leaving.
“We help retailers look at their loyalty card data, identify top shoppers who are in decline, and more importantly identify what are the key categories that signal they are heading to the doors. What do you need to do to promote those key categories better to those shoppers,” he said.
That is where a retailer’s trading partners come in. Concept Shopping gets involved in targeted marketing and helping the CPG manufacturers reach shoppers with a branded message. Such efforts obviously help retailers as well. For example, say the frozen pizza category at a retailer is suffering particularly among top shoppers. Several of them who used to buy frozen pizza aren’t buying it anymore, or are buying less than before.
“We identify those shoppers,” said Young. “We work with the frozen pizza manufacturers to develop targeted offers like coupons that are either mailed to those shoppers or electronic coupons on the retailer’s website that are only valid for those shopper IDs. It gets them re-engaged in the category. They may have bought three units of frozen pizza and now they are only buying one. Give them an offer that gets them up to the multiple purchases they were
at previously.”
Schiff, whose firm also specializes in similar targeted marketing programs and has studied top shoppers, agrees that retailers should not take their best shoppers for granted. In other words, a retailer should be more concerned with their heavy buyers than their lighter ones.
“But a lot of retailers think that they’re got a lock on those top shoppers,” he said, “and that’s why you see the focus on the lighter buyers. They think, ‘What can I do to get somebody else? Wouldn’t it be great if I could move a light buyer up to heavy status, to that top decile?’
“And they’re not alone,” he goes on to say. “Manufacturers do this, too. But think how difficult that is. Those low-decile people are probably heavy shoppers somewhere. I would say 80% of retailers’ promotion dollars are trying to get them away from that store. But to me, wouldn’t you rather spend money on making sure that you don’t lose your heavy shopper first? Is there any way that you could increase their market basket? You may have a lot of their dollars, but you don’t have all of them.”
Market Watch
Social Media Here to Stay for CPGs, Retailers
By Lynne Cooke
Social media is causing a paradigm shift in the way that people view products and brands, according to Jill Bach, principal, Marketnet, Plano, Texas. Consumers are becoming brand advocates and sharing their opinions through social channels like Facebook, Twitter and blogs.
“They are doing it whether retailers are onboard or not,” she said. So it’s better for retailers and marketers to get involved. That way, they can also comment, while monitoring what is being said about them.
Citing 2008 research from Forrester Research, Bach pointed out:
- 75% of all active Internet users participate in social media.
- 48.5% of Internet users read blogs at least once a month.
- There are 900,000 blog posts in an average 24-hour period.
- The fastest growing segment of Facebook is 55-65 year-old women.
Among the major social media brands: Facebook has 250 million active users, with more than two-thirds out of college, which was the original target audience; LinkedIn has 47 million members, with a new person joining about every second; Twitter had over 23.5 million unique visitors in August 2009 and 20% of Tweets contain requests for product information or are responses to such requests.
“The social media model is a little different: it is consumer driven,” Bach said in a presentation at the LEAD Marketing Conference in Chicago recently.
For example, consumer packaged goods companies or retailers could use Facebook to build advocates for brands, she said. “One strategy might be to share ideas out to networks both in-store and out-of-store, such as recipes – that is an easy one.” Other possibilities are cleaning suggestions and beauty recommendations.
“People are saying it’s a fad, but it’s really not a fad. It’s becoming mainstream and it’s a different way of influencing purchasers. It’s very similar to how the Internet revolution developed,” Bach said.
Cheesecake Chatter
Social media is helping Eli’s Cheesecake Co. keep its brand in front of consumers. The Chicago-based company is using social media like Twitter, Facebook, LinkedIn, flickr and YouTube, along with more traditional promotions like a local cheesecake festival, to connect with its customers.
Among the ways that Eli’s has used social media is to notify Twitter followers of Tweetup Meetups, putting videos on YouTube, and promoting a cheesecake giveaway on Facebook.
“Social media really is important. If you don’t use it, your consumers will use it without you. It’s viral. It is their voice. They want to be heard. It’s important for the brand to connect with them,” said Debbie Marchok, vice president of marketing in a presentation at the LEAD Marketing Conference recently in Chicago.
LEAD 2010
Thought leaders from the CPG and retailer ranks will present the latest advances in technology as speakers at the industry’s most comprehensive conference focusing on all aspects of Loyalty, Engagement, Analytics and Digital Marketing.
The LEAD Marketing Conference is scheduled to take place October 11-13, 2010 at the Westin O’Hare in Rosemont (Chicago), Ill. The collaborative event for manufacturers and retailers in all trade channels will be on hand to learn how to enhance their business with
social media, virtual shopping platforms, video analysis of shopper pathways, and assorted shopper technology.
DECEMBER 2009
Generalizations Don’t Work Because
Shopper Behavior Varies: Dunnhumby
By James Tenser
Can the spectrum of purchase behaviors within a category mean that average measurements mask what’s really going on?
“A category may appear mature with no growth. But among households that are engaged, they are significantly more engaged, buying 60% more of some categories. We focus on those specific households to understand why they are acting the way they are,” said Haluk Nurai of Dunnhumby USA.
“The idea is to identify behavior you want to see more of, understand why it’s happening,
and use the marketing spend to increase those,” said the vice president of manufacturer practice at the consultancy best known for its work on loyalty marketing with Kroger, the supermarket chain.
Dunnhumby doesn’t rely on generalizations and averages because consumers behave differently around different categories. For example some shoppers may respond to a lower price in a certain category, but then use the savings to trade up in a category that is important to them.
Nural observed that more retailers – not only Dunnhumby marquee client Kroger – are making those kinds of data available to manufacturers to support improved merchandising and marketing decisions. A crucial consideration for retailers, he added, is to maintain the right balance between efforts to promote shopper loyalty versus shopper acquisition.
“In the old days we were primarily after acquisition because we had no ability to identify loyal users or quantify their value to us. Now we can identify loyal users and identify the right set of shoppers to try to acquire,” he said in a presentation at the recent Merchandising, Sales & Marketing Conference hosted in Phoenix by the Grocery Manufacturers Association (GMA).
He cited an example regarding a brand in the confectionary business where his group identified Kroger shoppers who fell into four loyalty groups – Champions, Valuables, Potentials, and Uncommitted.
The Champions were highest in value, representing 1% of shoppers, but 10% of dollars spent on the brand. Potentials and Uncommitteds were significantly lower. Review of historical data revealed that many previous promotions had motivated Potentials and Uncommiteds to buy at very low prices, but not come back.
Kroger loyalty data also revealed that year-over-year, 60% of Champions in the category were buying less of the brand and 10% had left the brand, although they stayed in the category
in Kroger.
“As you can see, a focus on acquisitions over loyalty can be an expensive choice,” Nural said.
The brand determined that a better alternative would be to redirect some of the marketing spending to pinpoint the Champions, motivate them to buy incremental items, and remain loyal.
“There is still a lot of headroom to increase volume among the best customers,” he said. “You can see how much the brand had lost. Better to make sure you put a portion of funds to keep Champions and Valuables with you and persuade them to make incremental purchases.”
Nural told the GMA audience that Dunnhumby considers itself to be “an activation company,” more than a database marketer.
“Even though you hear a lot about Dunnhumby as the database for Kroger,” he said, “we basically see those data and the insights that come out of that almost like a given or foundation. What we do with that data, working with our manufacturer partners and also with Kroger in the U.S., is really where the value add is.”
Nural added, “What we try to do is utilize the granularity of that data so we have specific actions against the consumers and be able to then read and see how they behave against those stimuli. Then basically we modify that plan for the retailer in collaboration with the manufacturer so we will be able to have both of those entities win.
“Our end goal, really, is to increase the enterprise value of the organizations we work with.”
Can Trading Partners Collaborate
To Benefit Brand and Store?
By Lynne Cooke
Can manufacturers and retailers align their objectives for brands and stores so both benefit with the same program?
Partners in Loyalty Marketing (PILM), a Chicago-based consultancy, works with manufacturers and retailers individually and collaboratively. For the latter, the goal is alignment so the right programs can be chosen and optimized.
According to Michael Schiff, managing director of PILM, trading partners can put together programs that will speak to top shoppers to keep them in the store and with the brand. He lists four keys to a successful loyalty strategy: right target, right message, right relationship, and right vehicle.
Right Target
“No matter whether you are a manufacturer or a retailer, you are either trying to retain consumers, sell them more, up sell, cross sell, or acquire them,” said Schiff in a recent presentation at the LEAD Marketing Conference in Chicago.
Here is a closer look:
- Retain Customers Keep heavy buyers from leaving the brand and keep top shoppers in the store and get them to come back
- More Sell Get buyers to increase purchase frequency and size, as well as make repeat visits to the store
- Up Sell Get buyers to purchase a higher volume count, and get customers to buy more per trip
- Cross Sell Get detergent buyers to purchase soap, or get shoppers to go from the greeting card department to the bakery
- Acquire Customers Get new or lapsed buyers.
“If a manufacturer goes to a retailer and is thinking acquisition and the retailer is thinking retention, this is where the collaboration starts to break down,” said Schiff. “They are contrary objectives. So the first thing to do is to align the objectives. Once you are aligned on the objectives, you can start picking the right target.”
Right Message
“Top shoppers and heavy buyers are a breed apart,” he explained. “They don’t need a message to buy a certain product that they buy all the time. If you send them a message to do that, they are going to ignore it.”
So what kind of communication is appropriate for top shoppers?
“Heavy buyers are familiar with the brand’s equity, performance and benefits,” he said. “Top customers know the store and believe its people are important. So it’s more about reinforcing the belief system the shopper already has; that is, they are loyal to a brand or store.”
Right Relationship
Schiff lists three types of relationship: short term vs. the long term, quick hellos vs. deep conversations, and reward vs. recognition.
“What you have to determine is the right balance,” he said. “It is really a balancing act between all three of them.”
There’s nothing wrong with a short-term approach, according to Schiff. But the trading partners need to agree that it is a short-term program. A manufacturer may want to insulate the brand from competitors, and the retailer may want to get customers to cross over to another department. But you both just want to reach out to consumers briefly and give them a reason to come back.
For the long term, he explained, the objective is to engage top shoppers in a continuing dialogue with the goal of increasing sales and retaining them longer.
“The manufacturer can probably speak to the consumer better at home, and the retailer can speak better in the store,” he said. “Why not put together a campaign that starts in the home and is supported in the store?”
Schiff said it isn’t necessary choose between a quick hello and a deep conversations. He recommends engaging with a hello and ending with a deep conversation. Continuous dialogue can anticipate and address consumer needs.
Balancing reward and recognition is the trickiest strategy, according to Schiff. Most brands and retailers want to reward their customers, but how can they do something that doesn’t make customers feel that everyone is getting the same thing?
Schiff suggests explaining that the reward is for being a most valued shopper. “But you want to blend some of the low-cost, high-impact recognition with selective monetary rewards. You want to keep your costs in line. There is a difference between just giving somebody a reward and recognizing their status with regards to the brand or the store.”
Right Vehicle
Every week there is going to be a new tactic and a new program vendor. Schiff recommends ranking them on three things: what is their ability to isolate the target, adapt a method, and track and measure the program?
“There are vendors for the manufacturer and tactics for the retailer,” he said. “How do you put them together and align? Consider the following: What are the objectives? Are all of the tactics connected?”
