The younger generation is used to today’s technological innovations and advancements in all the aspects of our lives, but me, quite frankly, I am still in awe over computers, digital television, and smart phones. But I wander a bit. Let’s get back to the day in December when I received my packet of store coupons from Kroger.
I am a consistent shopper, and always write a shopping list and always start my list so that it will follow my route through the store as I pick out my groceries. And being older and set in my ways, I always buy the same brands. And this is what stood out for me when I looked through the 10 or so coupons.
I remember thinking, “How does Kroger know what I always buy?”
Almost every single coupon was for money off a product I regularly bought, while two of them gave me the item free. I did notice that the last couple of coupons were for different products, sort of associated with what I usually bought. I was absolutely thrilled and looked forward to my next shopping trip (Well, you can see I don’t get out a whole lot).
The coupons have been arriving regularly, much to my delight, and sometimes I get one or two free items, but I always get money off items I regularly buy. I have wondered for months at how Kroger knows what I usually buy, and until recently, it never dawned on me that data analytics and digital technology was the answer.
Kroger tracks each customer as an individual
Cincinnati-based Kroger is the nation’s largest grocery store chain and is second only to Wal Mart in grocery sales. In 2013, Kroger was named “Retailer of the Year” by Progressive Grocer. Talking about the significance of the award, Neil Stern at McMillan-Doolittle told Progressive Grocer that “Kroger had made significant investments in a best-in-class loyalty program, strong private label, and reinvested in their stores and technology.”
And it is Kroger’s investment in technology that has played a major role in customer loyalty. In 2013, Kroger began working with dunnhumby, a customer data specialist that so impressed the UK’s Tesco that the grocery firm bought them.
Dunnhumby uses data analytics to identify what an individual shopper buys when they go to the store. Remember that customer loyalty card? – The account number on that card follows your every purchase, regardless of which Kroger store you might go to, and allows dunnhumbyUSA to know with 80 percent certainty what you buy. The remaining 20 percent is focused on discovery.
Here’s how that works – If a customer is buying baby food regularly, a coupon may be generated for baby diapers or other baby products. Kroger uses Catalina, a coupon dispenser company for point-of-sale coupons, but with a twist, dunnhumby insists on – they don’t try to convert a customer to another product. If a customer likes Pepsi and buys Pepsi all the time, it is foolish to try and convert the customer to Coke.
I remember studying Marketing in College as part of some banking courses I was taking, and marketing at that time was heavily reliant on demographics. And I assumed that demographics still play a major role in a business’s focus. However, Stuart Aitken, CEO of dunnhumby USA has a different point of view when it comes to consumers and their grocery shopping habits.
“Demographics tell you nothing, yet too many companies are focused on them. Just because I am the same age as you, live next door and have 2.2 children doesn’t mean we have the same preferences,” Aitken says. This is the core of what dunnhumbyUSA does – They create a DNA on each customer, rather than cramming customers into segments, to see what drives their behavior — do they have kids, do they like organic or convenience foods, and where are they sensitive to prices?
Bottom Line? It’s not the variety or amount of technology tools that a retail store uses that is important, but how they use those tools to increase their customer’s loyalty, in turn, increasing their profits. In Kroger’s case, the company has jumped right into the digital transformation field. We’ll look at that next time.
