The Perception Gap

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 them to consolidate their spend, resulting in increased frequency of shopper visits and basket size.

When retailers use a customer-centric strategy, they could see a net incremental sales increase of 1 percent to 4 percent, and an average increase of 4 percent to 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, according to a 2014 survey of U.S. food and drug retailers and CPG manufacturers conducted by LoyaltyOne.

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

Shoppers Aren’t Buying It

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.

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 lukewarm attention: 64 percent say the offers (e.g., coupons) they get are the same as everyone else’s; 50 percent say companies don’t consistently send personalized and relevant marketing communications; 40 percent say companies don’t know how they prefer to receive promotional offers (e.g., coupons by mail); and 35 percent say they don’t receive promotional offers for products that they want. While retailers say they’re delivering, shoppers 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 aren’t acting on the material they have. They’re 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).

Winning With Shoppers

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 they do this correctly, grocers can expect to see sales and gross profit increases 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 aren’t 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.

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 and gross profits.

Marketing

Incremental sales from shopper marketing campaigns are usually less than 1 percent, but with a personalized approach based on shopper data, this improves to nearly 4 percent in incremental sales. 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 cross-channel marketing that drives enhanced response rates, meaningful incremental sales and highly positive marketing ROI.

Manufacturer Collaboration

Manufacturer trading partners allocate a significant percentage 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 that share customer insights with 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 shoppers’ needs better than the competition does 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.

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.