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Editor's Note: This is the first of a two-part series on hyper-personalization in the retail food industry.
The industry looks to the achievements of The Kroger Co.'s 49 consecutive quarters – more than 12 years – of quarterly same store sales growth, improvements in price perception, strengthening of margins, among others, in awe.
Kroger has become a master of strategic marketing personalization, the use of targeted promotions to grow the value of shopper households over time. In a December 2015 investor conference call, Kroger CFO Mike Schlotman, spoke to the third quarter’s 5.4 percent same store sales growth as being driven by an increase in the number of households shopping and an increase in shopping frequency. He went on to call out that Kroger continues to grow the number of loyal households at a faster rate than the number of total households who shop; in other words, Kroger is continuing to transition casual customers into loyal customers at a critical rate.
While the value of marketing personalization by retailers is beyond doubt, Kroger's decade of success with the data consultancy-based approach with the former dunnhumbyUSA has been unprecedented. (In April of 2015, The Kroger Co. purchased the remaining 50 percent of dunnhumbyUSA and created a new, wholly owned customer engagement company called 84.51°.)
While Kroger and 84.51° continues to expand the use of its innovative analytics and insights to deliver increased customer engagement, the years' long partnership has required a massive investment that has stymied even significant regional retailers, let alone smaller independents. Few can afford the hundreds of data analysts crunching through Kroger’s data. However, just as the Kroger/84.51° partnership has transformed retail marketing, advances in technology threaten to disrupt the consultancy-driven, shopper segment-based model that has become the norm.
The explosive growth of low-cost computer processing is expanding the use of cognitive computing, converging with big data and the cloud to bring new capabilities to retailers. Consumer goods retail provides a fertile field for the rich application of artificial intelligence and machine learning to upend past approaches to shopper centricity. Hyper-personalization is upon us; but first let’s take a look at where we are today and how we got there.
Personalization as We Know It
Kroger’s success has been driven by analytics and insights drawn from the massive store of shopper-identified purchase data the company possesses, along with third-party data it acquires. The company’s analysts have done a masterful job of creating shopper segments built on demographics (income, household size, etc.), insights (shopping trip types, basket size, shopping frequency, etc.) and attributes (pets, babies, seniors, organic, gourmet, etc.).
Kroger then leverages these shopper segments to send targeted promotions to specific households in order to strategically grow shopper value; converting secondary shoppers to loyal shoppers, loyal to premium loyal, and maximizing shopper retention. And this promotion targeting is a massive effort: According to Kroger’s 2012 annual report, a Loyal Customer Mailing (LCM) reached more than 11 million households, and 97 percent of recipients received an individualized set of coupons for the products they like and buy regularly – almost no two were alike.
While one cannot dispute the effectiveness of this approach, it requires an increasing number of analysts creating highly refined segmentations that are combined with rules and algorithms to distill the number of promotions for which a given household may qualify. While valuable, this is a time consuming, laborious process requiring multiple iterations of data processing.
Heading Toward Hyper-personalization
In the Kroger/84.51° approach, each shopper household is receiving a different mix of offers, each offer targeted to that shopper because the shopper household belongs to some segment. Contrast Kroger’s approach to marketing personalization with hyper-personalization using the latest sophisticated technologies to target the individual shopper; a segment-of-one. A subtle but important - and immensely powerful - difference.
Stay tuned for the next column, to learn where personalization is headed and what to look forward to beyond hyper-personalization.