GROCERS BUILD FREQUENCY, LOYALTY ON COUPON SYSTEMS

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When the first coupons began spurting out of checkout systems a few years ago, customers thought they were a novelty. But no longer, as a growing number of retailers build powerful frequent-shopper programs from data collected at the point of sale.

According to a Food Marketing Institute study, more than 60% of food retailers say they will have a frequent-shopper program in place by yearend.

The same study explains why grocery chains are eager to begin: many retailers attributed sales increases of 10% to 20% a year to the programs. These same retailers say they were able to reduce advertising costs by the same percentages because of targeted promotions to their most loyal customers.

Product marketers, on the other hand, have been cautious about spending their promotional dollars through retailers' frequency programs. Kraft Foods and Procter & Gamble, for example, issue coupons only through mature systems.

"What they're [marketers) waiting for is scale," says Tim Simmons, VP-sales at Advanced Promotion Technologies. "We'd have to be in 40% of the stores in an urban area" before marketers would switch from freestanding inserts for coupon distribution, he adds.

APT's Vision Value Network is installed in 270 sites. One of its customers, Vons Co., uses it to reward customers with non-food prizes. Frequent shoppers accumulate points that can be redeemed for jewelry or other merchandise, and they also may donate their points to local charities.

Catalina Marketing Corp.'s Checkout Direct is the oldest and largest frequency program available, with access to 2,000 stores, including Ralphs Grocery Co. and Lucky Stores. Checkout Direct issues coupons for use during the customer's next shopping trip.

Newer frequency programs, like Retail Services Group's One to One system, issue coupons as a shopper enters the store. Customers are required to swipe the cards through a kiosk, which prints out coupons for their frequently purchased brands or even greater discounts for competing brands.

The 68 Farm Fresh Supermarkets in Virginia using the One to One program also offer discounts for their produce, bakery and meat departments to shoppers who don't frequent these areas. If the shopper doesn't use the initial offer, One to One increases the discount on the customer's next visit.

Retail Services Group is just beginning to market the program to package goods companies, says Managing Director Walter Schaffer.

Marketers would be more likely to support frequent-shopper programs if they had access to customers' names and addresses-Catalina and others don't share this data with retailers or manufacturers.

Shoppers, after all, are often encouraged to participate in frequency programs with the assurance they won't be inundated with direct mail.

DCI Cardmarketing, whose program is in 1,000 retail outlets, is one of few database designers that give retailers-but not manufacturers-access to customers' names and addresses.

"Some retailers like to write their best customers `thank-you' letters," says Jim Keller, senior VP-business development, who spent 32 years in marketing at Kraft General Foods before moving to DCI.

"The important thing for all retailers is to retain the best customers," says Mr. Keller.

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