For a decade now, the grocery shoppers in most American households have carried a plastic check-cashing card. At supermarkets, computers read data from the card's magnetic stripe, making check approval a snap. That's a nice convenience for shoppers, but technology gurus have realized all those years that the cards could do much more: By electronically linking the identity of purchasers with what they buy, they predicted, convenience cards could help packaged-goods suppliers and supermarkets better understand their businesses and earn better profits.
Most supermarket chains have found it difficult to make this happen, mainly because of the huge volumes of data involved. Indeed, in the late 1980s, Citicorp spent $200 million--in vain--to develop a system to collect and sift through floods of retail sales information. But at Vons Cos., the plastic is beginning to live up to its potential. Over the years, Vons, Southern California's largest supermarket chain and No.9 in the country, has upgraded the check-approval card into an electronic checking card, then added a VonsClub card, which gives automatic discounts on items selected for promotion. Now, the Vons card is evolving into the foundation of a new promotional system that could someday end the blizzard of coupons that clog the mails and fill newspapers--and are often ignored.
TARGET MARKETING. Under a program named Target Vons, started nine months ago, the chain began using the card to capture detailed data about what VonsClub members were buying. Vons has cross-indexed the information by customer and product category so that grocery suppliers can focus promotions on the most appropriate and receptive customers. In the past, promotions have been scattershot. But target marketing such as Vons's, says Willard Bishop, a Barrington (Ill.) grocery-marketing consultant, "is going to explode in the next two or three years as retailers see their competitors embrace it. Within the decade, some kind of card-based program will be in place at most, if not all, successful grocery retailers."
Vons started putting the pieces in place for target marketing in 1990 with its VonsClub program. Then, the Arcadia (Calif.) company wanted a way to reward its best customers--some 3 million cardholders who ring up weekly grocery bills that are 21/2 times the average among Vons shoppers. With a swipe of their cards at the checkout, club members enjoy instant, electronic discounts on promotional items. No more clipping coupons from the Sunday newspaper, no printing or distribution costs for the manufacturer--and Vons earns an 8 cents handling fee for each electronic coupon. With paper coupons, fees are split with a clearinghouse.
All along, though, Vons had an ulterior motive. It was building a comprehensive database of exactly what's in shoppers' baskets each time they leave the store. Using that data, Vons can understand consumer behavior better and send a monthly mailing of individually laser-printed discount coupons to each VonsClub member. Packaged-goods companies select their target customers and pay Vons to print the coupon. "It's micromarketing, and Vons is on the leading edge," says Susan Widham, marketing vice-president at Beech-Nut Nutrition Corp. in St. Louis. "It's not cheap, but in terms of promotional programs I've worked with, it's far and away the most sophisticated."
The key is the precision. McCormick & Co., for example, promotes its Cake Mate icings and decorations only to those who have previously bought cake mixes. Coffee roaster F. Gavina & Sons recently used a VonsClub mailing to offer $1 off its upscale Don Francisco brand, but only to heavy coffee buyers who regularly purchase premium brands of other goods.
Even more exciting to the packaged-goods suppliers is the ability to create their own categories. Beech-Nut, a maker of baby foods, has used the VonsClub mailer to identify every household that has purchased a baby product for the first time in the preceding eight weeks. Says Widham: "This program enables me to target an offer specifically to a consumer based on the type and quantity of a product they buy, the frequency they buy it, and whether they buy my product or my competitor's." Under consideration, she says, is a 50 cents-off coupon--to hold on to Beech-Nut customers--and a $1-off coupon for Gerber Products Co. customers, to get them to switch brands.
PROMOTIONAL VEHICLE. Next, Vons plans to bring target marketing--or database marketing, as it's often called--right into its stores. Last year, it bought a 6.4% stake in Advanced Promotion Technologies Inc. (APT), a Pompano Beach (Fla.) startup that has developed a machine that displays video commercials and prints coupons in the checkout lane. A similar system is being sold by Catalina Marketing Corp., but it prints coupons only in response to what gets scanned during checkout. APT can determine discounts according to demographic and past-purchase data. Once a shopper is identified by a Vons card, the system will look up his or her purchases of a week ago and automatically determine, for example, if it's somebody who's eligible for a buy-two-get-one-free special. Vons will start putting APT gear in its 346 stores later this year.
That, however, will require a new round of VonsClub cards. And this time they won't be so simple: Each will contain a memory chip to store such data as the cardholder's birthday and how much he or she has spent over the past month. "We're betting that at the end of the day, this will be a powerful promotional vehicle and replace a lot of paper coupons," says Michael F. Henn, executive vice-president. It may even make life easier for many boys and girls who deliver the Sunday papers.