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Profitable relationships: stores reward best customers to induce loyalty.

With no let-up in sight for new-store openings and shoppers still relentless in their search for sales and promotions, retailers are being forced like never before to find the means of building and keeping customer loyalty.

Whether it's through the frequent-shopper bonus programs, coupons for addi- tional discounts or even special mailings and newsletters, most retailers have initiated or are now testing some kind of program that rewards their best customers.

Many of these loyalty programs have been hastened by advances in point-of-sale technology and new software that allows retailers to better analyze and understand the mountains of sales information in their database.

This new technology process, often called "data mining," helps the retailer identify best customers and their product preferences, tailor assortments to specific market demographics and can even help determine the best location for future store sites.

However, it is the idea of identifying a store's best customers and then determining a better way to market to them that has become the top priority at many stores. These efforts generally fall under the umbrella of "relationship marketing."

Among developments over the past year are:

* Sears, Roebuck & Co., which has perhaps the best customer information data-base in the retail industry, has stepped up its efforts at customer tracking with the rollout of gift registry kiosks in mall-based stores for births, weddings and its private label Craftsman tools. The data collected at the registry is intended to help Sears build a relationship with customers based on key events in their lives.

* Ames Department Stores, which has 2 million members in its 55 Gold discount program for senior citizens, plans to strengthen the program and is working with major suppliers to take advantage of the information that has been col- lected.

* Macy's awarded $10 gift certificates to customers every time they spent $60 during the 1996 holiday shopping season. These rewards could be used only on future purchases at Macy's.

* Kmart and other discounters have issued proprietary credit cards that offer rebates on purchases charged on the card at the store.

* In June, Kmart created a new post, vice president of database marketing, and named a 26-year marketing veteran, Thomas Lemke, to the job. He is charged with "building a new level of data base management and direct marketing capabilities" and reports to Kmart chairman and chief executive Floyd Hall.

Most observers note that supermarkets are at the forefront of the effort to track frequent shopper data. It is estimated that up to 8,000 individual supermarket locations are using some type of frequent shopper card to identify preferred customers.

Mass merchants and some department stores have been slower to begin comparable programs, however, according to Brian P. Woolf, president of the Retail Strategy Center, Greenville, S.C. "There's no champion in the [mass market] for it that I can see just now," he said, noting that this is likely to change.

Michael Gould, Bloomingdale's chairman and chief executive, acknowledged that Bloomingdale's is putting more emphasis on improving the marketing efforts to its best customers, through using both its own credit card database and other sources of shopper identification for those Bloomingdale's shoppers who use other credit cards.

"It's something we're working on and pushing very hard," he said. Gould also said Bloomingdale's is "very anxious to figure out" how to better utilize its credit card database, but didn't specify any ongoing efforts.

"Everything we're trying to do on a day-in, day-out basis is to figure out how we can build better relationships with the customer," Gould added. "That's the whole key. Everyone is trying to do the same thing, but we think more people than not would like to have a relationship with Bloomingdale's."

John H. Costello, senior executive vice president and general manager of marketing at Sears, Roebuck & Co., said one of the goals of the Sears Best Customer program is to maintain an ongoing dialog with the store's best con- sumers. This includes giving them special purchase offers, advance notice of sales and even appreciation letters.

The program, which covers 6 million households, has been around almost 10 years and is based on a formula that combines the number of annual visits to Sears with the amount charged on the Sears credit card.

"Relationship marketing is an important part of Sears' overall marketing strategy," he said. "It enables us to maintain a positive relationship with our customers while leveraging Sears' databases, which we believe provide a real competitive advantage."

In addition to its Best Customer program, Sears also has special marketing efforts aimed at parents of young children through its KidVantage program and another loyalty program targeted at owners of Craftsman tools, Sears private label for hardware. These "clubs" include 6 million and 5 million members, respectively.

Costello noted that other department and general merchandise stores have advanced relationship marketing programs, but that the industry still has much to do. "There are pockets of excellence, but I believe there is considerable untapped potential in relationship marketing. We believe the combination of Sears' image and our database provide a real opportunity to significantly accelerate our efforts in this area in the future."

According to industry sources, Sears's database is the most robust in retail- ing because of its combination of store data, credit purchase data and market- ing variables. Sears also is believed to be pursuing relationship marketing more aggressively than almost any other retailer.

Outside of Sears, retailers have not been as successful in getting customers to use their proprietary credit cards. As a result, it's more difficult for these stores to identify and track best customers.

One alternate tracking method being used at some stores including Service Mer- chandise and Toys 'R' Us, is to ask shoppers for their home telephone numbers at the point of sale. This is then added to the company's database.

Ames, through its 55 Gold program, also has a significant amount of data on some of its best shoppers. The discounter is now trying to determine the best way to team up with suppliers to market to these shoppers, said Joseph R. Ettore, Ames's chief executive. Card holders get an extra 10 percent off all purchases on Tuesdays at Ames.

"It's an important part of our strategy and remains that way," he said of 55 Gold. "We're working on a whole new approach to re-energize that program. It's been so good that we feel we can take it to the next level." He declined to specify any of the possible programs, but noted that Ames is working with "a number of major suppliers" that have interest in the 55-plus market.

Ettore, however, expressed some doubt about whether supermarketlike frequent shopper programs will work in the general merchandise sector and noted that Ames needs "to learn a little bit more" before jumping on the bandwagon.

Kohl's, the fast-growing, moderate-priced department store, closely monitors its credit-card customers and makes special periodic offers to the best shop- pers in this group, according to Gary Vasques, senior vice president, market- ing.

The offers may include special sales, mystery discounts and other things, he said, but declined to specify the number or percentage of Kohl's shoppers targeted by the program. Key to the strategy for Kohl's is to grow its proprietary credit card base and then target these shoppers.
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Author:Tosh, Mark
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Date:Jul 7, 1997
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