Expert Column: The Perception Gap Between Grocers and Shoppers

Customer-centric strategies produce results. When grocers make the investment to understand who their shoppers are and use that knowledge to make the shopping experience truly focused on customer needs, they earn their loyalty and encourage customers to consolidate their spend, resulting in increased frequency of shopper visits and basket size. We’ve found that when a retailer uses a customer-centric strategy, they could see a net incremental sales increase of 1-4 percent and an average increase of 4-7 percent in gross profits. For a $2 billion retailer, this could potentially equate to an additional $80 million in sales per year and an additional $30 million in gross profits per year.

Retailers and manufacturers understand that building pricing, promotion, assortment and marketing decisions around customer needs is an essential approach to success. In fact, retailers and manufacturers cite a customer-centric strategy as the most important factor for success — more than twice as important as even high-quality products, low prices or a great in-store experience, according to a 2014 survey of U.S. food and drug retailers and CPG manufacturers conducted by LoyaltyOne.

The troubling news is that we’re seeing a perception gap between how good a job retailers think they’re doing and how customers really see their relationships with retailers. Top retailers believe they’re embracing shopper insights, but something’s not resonating.

Let’s look at the details.

More than nine in 10 top U.S. retailers say they consistently leverage customer insights to develop strategies and plans across the organization. They say they regularly track customer metrics, use customer insights for digital, social and mobile plans, heavily invest in staffing and technical resources, and educate store personnel on using customer insights in their daily jobs.

These retailers also say they consistently draw from customer insights to improve the in-store experience, to deliver personalized marketing communications and to collaborate with manufacturers.

For the top U.S. retailers, that’s doing a lot of things right.

However, we also surveyed U.S. shoppers who say they aren’t feeling personalization or relevance in their shopping experiences overall. Instead, they’re reporting luke-warm attention:

• 64 percent say the offers (e.g. coupons) they get are the same as everyone else’s
• 50 percent say companies do not consistently send personalized and relevant marketing communications
• 40 percent say companies do not know how they prefer to receive promotional offers (e.g. coupons by mail)
• 35 percent say they do not receive promotional offers for products that they want

Our research shows that while retailers say they’re delivering, shoppers just aren’t buying it.

Interestingly, customers say they want the experience to be more personalized. Ninety-two percent say they’d like the retailer they most recently shopped at to send them relevant coupons. Ninety-four percent say they’d like a loyalty card or app with the ability to earn and redeem points or miles, and would like to receive special offers and discounts based on their loyalty. Eighty percent say they’d like companies to use their data to decide which products and services to offer or eliminate.

The problem is that even as shoppers are essentially asking retailers to use their data, most retailers are not acting on the material they have. While the top U.S. retailers may be feeling good about their efforts, most retailers are still struggling to share, analyze and respond to customer data across the organization. Only half (55 percent) report that they’re using customer data in customer service, and fewer than one in three use customer data in operations (28 percent), assortment management (28 percent) or purchasing (32 percent).

Grocers can overcome these challenges. Here are six areas where companies should focus on using data better to close this perception gap:

Strategy: Shopper data insights should be used to assess current spend and model potential spend for each individual shopper at the category level. This allows the grocer to identify the greatest growth opportunities by category, customer and store, which enables them to allocate staffing and financial resources against the shoppers, categories and stores in a way that will allow them to most effectively pursue the best opportunities to profitably grow the business.

Pricing: Pricing insights can be developed at the lowest levels of the store, product and even shopper hierarchies. Grocers can then aggressively price the items that are most important to their most valuable shoppers, aligning price plans with the needs of these shoppers. If done correctly, grocers can expect to see sales increases of 1-3 percent and gross profit increases of 2-5 percent, while enhancing price perception and improving market share.

Promotions: Shopper insights should be used by grocers and CPG manufacturers to identify which promotions are performing well, which are not performing well but can be improved and which should be terminated. This collaboration will align grocer and manufacturer trade investments in the most productive areas, with grocers deploying promotions that target specific shopper segments and needs. Selecting the right items to promote, determining the right discounts to offer and allocating ad and display support to the right items to maximize productivity of the space also leads to dramatic improvements in performance. Expect increases in promoted sales of 3-6 percent and increases in promoted gross profits of 5-10 percent.

Assortment: Maximizing the productivity of finite shelf space is key to retailer performance.  Shopper insights should be used to identify which low-productivity items can be safely removed from the assortment to be replaced with higher-productivity items. Understanding item importance to most valuable shoppers and the extent of demand transfer by individual item ensures that only low-risk items are candidates for removal. This approach improves the sales performance of the low productivity items by 1-2 percent and gross profits by 2-4 percent.

Marketing: Incremental sales from shopper marketing campaigns is usually less than 1 percent, but with a personalized approach based on shopper data this improves to nearly 4 percent in incremental sales. A personal approach also has the potential to lift campaign ROIs from less than 15 percent to more than 100 percent. Retail and CPG marketers can tailor customer marketing communications along multiple dimensions to consistently improve effectiveness in future campaigns. With these insights, grocers can gradually shift the marketing budget from mass, untargeted activities to personalized marketing across channels that drive enhanced response rates, meaningful incremental sales and highly positive marketing ROI.

Manufacturer Collaboration: Manufacturer trading partners allocate a significant percent of their revenues to the marketing mix.  Manufacturers, retailers and shoppers would all benefit significantly if these marketing dollars could be deployed in the most effective way to deliver enhanced customer-driven media ads, consumer promotions and trade promotions.  Retailers who share customer insights with their manufacturer trading partners maximize their chances of aligning manufacturer marketing investments with the needs of the specific customers in their stores.

Retailers that understand and satisfy the needs of shoppers better than the competition will be on a path to sustainable competitive advantage and profitable growth. Grocers would do well to honestly evaluate where they are on the journey to becoming more customer-centric and put a plan in place to steal a march on their competitors to win with shoppers.