Supermarkets Offering Deals - For You Alone

Data mining delivers.

Supermarket chains are beginning to use information gleaned from their data bases to customize offers to consumers. But not just any consumers. Next door neighbors who are otherwise similar might find they are paying very different prices for the identical product in the same store.

Think of it as airline pricing in the grocery aisle. An individual's purchasing habits will determine what sort of deals they get.

The questions are whether the chains will see customers begin to change their buying patterns in order to game the system and get better offers; whether the stores will realize increased margins as a result of the more focused incentivization driving purchases to the store's advantage; or whether customers will rebel as a result of what they see as unfair marketing.

The guess here is that consumers will respond to the deals and that, over time, as patterns become discernible, customer behavior will change as well. Whether this really improves grocers' margins is questionable given the macro impact of global sourcing but with thin margins to begin with, every little bit helps. JL

Stephanie Clifford reports in the New York Times:

It used to be that with dedication and a good pair of scissors, one grocery shopper could get the same coupons — and cheap prices — as another.

Now going to the grocery store is becoming a lot less egalitarian.
At a Safeway in Denver, a 24-pack of Refreshe bottled water costs $2.71 for Jennie Sanford, a project manager. For Emily Vanek, a blogger, the price is $3.69.

The difference? The vast shopping data Safeway maintains on both women through its loyalty card program. Ms. Sanford has a history of buying Refreshe brand products, but not its bottled water, while Ms. Vanek, a Smartwater partisan, said she was unlikely to try Refreshe.

So Ms. Sanford gets the nudge to put another Refreshe product into her grocery cart, with the hope that she will keep buying it, and increase the company’s sales of bottled water. A Safeway Web site shows her the lower price, which is applied when she swipes her loyalty card at checkout.

Safeway added the personalization program to its stores this summer. For now, it is creating personalized offers, but it says it has the capability to adjust prices based on shoppers’ habits and may add that feature.

Airlines, hotels and rental cars have offered variable prices for years. Those prices, however, are almost always based on capacity and timing, or are given to groups — seniors get one discount, frequent users another.

Now grocers like Safeway and Kroger are going one step further, each offering differing methods to determine individualized prices. Hoping to improve razor-thin profit margins, they are creating specific offers and prices, based on shoppers’ behaviors, that could encourage them to spend more: a bigger box of Tide and bologna if the retailer’s data suggests a shopper has a large family, for example (and expensive bologna if the data indicates the shopper is not greatly price-conscious).

The pricing model is expected to extend to other grocery chains — and over time could displace standardized price tags. Even though the use of personal shopping data might raise privacy concerns among some consumers, retailers are counting on most people accepting the trade-off if it means they get a better price for a product they want.

“If our consumer information is right, personalization is really a consumer desire right now, not so much a consumer fear,” said Michael R. Minasi, president for marketing at Safeway.

There are skeptics. Joseph Turow, a professor at the Annenberg School for Communication at the University of Pennsylvania, said shoppers should be cautious. The pricing at grocery stores and other retailers is not transparent enough to give consumers any real power or choice, he said, and “there’s a sense of fairness that’s derailed here.”

In a 2005 survey conducted by Professor Turow, most adult respondents did not know that retailers could legally charge different prices, and more than 90 percent said they would dislike it if their supermarket charged different prices to different people within the same hour.

Retailers say the groundwork has been laid with individualized coupons, which are resoundingly popular. Sites like Amazon have also made consumers comfortable with custom offers and varying pricing, they say.

Kroger, the Cincinnati-based grocer, has long been sending its frequent customers specialized coupons with the help of dunnhumbyUSA, a consumer research firm. A Kroger spokesman, Keith Dailey, said that 70 percent of customers who received the coupon mailings redeemed at least one of the offers, a high response rate. Kroger has had 34 consecutive quarters of same-store sales growth, which both it and analysts attribute in large part to the coupon offers.

Kroger calibrates prices by studying when someone redeems an offer for, say, ketchup at $1.70 but not for ketchup at $1.80.

“It comes down to understanding elasticity at a household level,” said Stuart Aitken, the chief executive of dunnhumbyUSA. The companies also track how frequently someone buys a product, at what times of the year and when the last purchase was made.

Kroger has been sending customers mailings with “multiple price points,” Mr. Aitken said. Now it is testing personalized prices via “other devices, or other ways of reaching out to the consumer,” he said, which could include things like smartphone apps or loyalty card swipes.

Catalina, a marketing company that tracks billions of purchases each year, is using a shopper’s location in store aisles to refine offers. Last year, Stop & Shop’s Ahold division introduced a mobile app, now run by Catalina, that allows shoppers to scan products. When they do, Catalina identifies them through their frequent shopper number or phone number, and knows where in the store they are. Special e-coupons are created on the spot.

“If someone is in the baby aisle and they just purchased diapers,” said Todd Morris, an executive vice president at Catalina, “we might present to them at that point a baby formula or baby food that might be based on the age of their baby and what food the baby might be ready for.”

Catalina studied purchase data from 54 million Americans over a year, and found that a significant portion of the sales of individual products came from a small percentage of shoppers.

At Safeway, the digital customization program allows the company to respond to current events. After a recent power failure in Washington, for example, it sent city residents coupons for freezer items to encourage restocking once power was back.

Ms. Sanford and Ms. Vanek, both of whom live in the Denver area, were among bloggers that Safeway asked to test its pricing program in return for a $50 gift card. Like any good shopper, Ms. Vanek is already starting to game the system: she noticed that she received cheaper prices on ground coffee when she alternated between Starbucks and Dunkin’ Donuts brands rather than buying just Starbucks.

She said it would not bother her if another customer were offered a lower price. “No two people are ever going to buy the same things, so I don’t think it matters, at least not to me,” she said.

So far, consumers say, the programs seem to reflect their buying habits. Ms. Sanford, who says she tries to buy health-conscious items, says offers for Kashi cereal and bagged lettuce reflect her preferences.

Ainy Kazmi, 35, a mother of four in Ellicott City, Md., said Safeway’s program encouraged her to change what she bought. She tried to use the offers for a large bottle of cranberry juice, rather than the smaller bottle of cranberry apple juice she usually buys, and a box of Cocoa Puffs that was not on her shopping list — but she said the discounts for some reason were not loaded onto her card at checkout. She bought the items anyway.

She has used the program again since then, getting discounts on bananas and other products, and says she is happier with it since Safeway worked out the kinks. “It’s a little bit creepy, but I figure they’re checking everything anyway,” she said. “I might as well get a good deal out of it.”