DATA PUMP UP PROMOTIONS;GOLDEN OPPORTUNITY IF GROCERS, MARKETERS CAN COMBINE RESOURCES

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Step by small step, supermarket retailers and package-goods marketers are learning how to make more sophisticated use of information technology to refine and improve their promotional efforts. Admittedly, the use of scanner data to target promotions is still sporadic, but programs are emerging that point toward enormous future potential:

Grocers have been rapidly expanding frequent shopper and check-cashing card programs that enable them, at the checkout register, to capture massive amounts of detailed data about shopping habits and lifestyles.

Manufacturers are building their own customer databases and using them to launch customer newsletters, direct mail drops, loyalty programs and other more targeted promotional efforts.

Increasing use is being made of technology that distributes highly targeted coupons at the point of purchase, sharply increasing the precision and efficiency of promotions and cross-selling programs.

Consider the way this last set of efforts is beginning to change marketers' promotion programs.

"Consumer promotion has been, up until now, very comparable or analogous with media. Both have been mass kinds of communications," said Karl Maggard, exec VP-marketing for Catalina Marketing Corp., St. Petersburg, Fla. "Unfortunately, those are untargeted and inefficient."

In contrast, Catalina's Checkout Coupon uses coupon-dispensing machines at grocery store checkouts to issue coupons to consumers based on what they have purchased.

Let's say Kellogg Co. wants to reward loyal consumers and increase their purchases of Kellogg's Nutri-Grain bars. Catalina could design a Checkout Coupon program where consumers who purchased one box of Kellogg's Nutri-Grain bars would be rewarded with a coupon for $1 off a future purchase of two or more boxes of Nutri-Grain bars.

Compared with free standing insert drops of coupons, this Catalina program offers much better targeting and increased redemption rates. "Today, an FSI is redeeming coupons at a rate of 1.9%, which means 98.1% of the media cost is wasted," Mr. Maggard said. "Checkout coupons are redeemed at a 9% rate."

Another Catalina program, Pay-for-Performance, enables retailers and marketers to put promotional messages and incentives right on the grocery shelf. For example, a shelf display might say: "Buy any two Kellogg cereals and get $1.50 off your next shopping order"-offering the consumer a reward before they purchase and thereby immediately increasing the number of items they put in their shopping carts.

According to Catalina, this program has a stunningly high 38% average redemption rate; some offers generate redemption rates as high as 50%.

The costs per coupon of Catalina's programs are typically much higher than those connected with FSI drops, but Mr. Maggard observed: "You can have a $1 per thousand cost for an FSI, but if you don't move product your cost per unit moved is infinity."

More generally, these types of capabilities point toward a future in which "mass promotional kinds of offerings are going to go by the wayside and will be replaced by more and more targeted, directed programs," according to Alison Paul, VP-business development for Efficient Market Services, Deerfield, Ill., a consultancy affiliated with Schaumburg, Ill.-based market researcher A.C. Nielsen. "Having the right promotion at the right time in the right store is going to be the way that the survivors stay ahead."

Unfortunately, several major challenges need to be overcome before the early efforts to use information to turbocharge promotions realize their revolutionary potential. Part of the problem is technological. Existing information systems often aren't up to the task of handling the massive amounts of data involved in consumer promotions.

"It's a classic case of data overload," said Donald Stuart, partner for Cannondale Associates, Wilton, Conn. "The full potential of database marketing certainly has not been close to realized."

"Manufacturers have not been able to adequately re-engineer their processes," said Jose Anstey, president of Applied Information for Marketing, Westport, Conn.

In addition to the technological difficulties, barriers to improved promotions also arise from a mismatch between the location of marketing data and of marketing expertise.

On the one hand, it's retailers who have been collecting the massive amounts of scanner data. On the other hand, it is the manufacturers who have the marketing prowess needed to analyze the information and to design effective promotional programs.

"The grocery guy has the data and is beginning to learn how to manipulate it; but he doesn't have a marketing culture to realize what is possible," said Spencer Hapoienu, president of Insight Out of Chaos, a New York-based marketing consultancy.

The obvious solution would seem to be for retailers to combine their database assets with the marketing expertise of manufacturers. Unfortunately, longstanding suspicions between the two parties tend to inhibit such efforts to pool resources.

Taken altogether, the various problems that are arising suggest a major opportunity for third-party consultants and agencies to step in and aid retailers and package-goods marketers in developing solid database marketing strategies.

"If you could present a database segmented and carved up to any manufacturer, they would willingly do anything," Mr. Hapoienu said. "It's such an opportunity for them to do a much better job of reaching their customers or non-users."

The opportunities and jockeying for position on today's promotion scene prompted Mr. Hapoienu to compare the current situation to the preparations of runners moments before a big race.

"Everybody is trying to get to the starting line, but the gun has not gone off yet."

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