Segmentation and Targeting in Grocery Retail - Essay Example

Segmentation and Targeting in Grocery Retail Introduction Technology is drastically changing our present world. It has been instrumental in introducing a host of new concepts and ideas in relation to not only in the way we go through our daily routines but also in the manner we conduct our business and even in the way we live our lives. These innovations, just like anything else could be viewed in two ways. They could be looked into as a beneficial tool which upgrades our standards of life by providing major paradigm shifts or minor conveniences. Often, this is the case of the advancement in information and communications and technology, which includes the internet and mobile technology as two of the most important platforms of these changes. Yet, an ugly head could appear in the face of rising concerns about breach of privacy and even discrimination not just by race but also by gender, income capabilities, beliefs and attitudes and behavioural patterns. Despite these debatable issues, one of the forefront concerns is how to properly harness what technology has to offer to the best advantage, especially for those in the business world. Translated to the strategies in business and marketing, it necessarily means that those who can properly utilize the different aspects of the innovations in technology will have greater probability to rise above the rigid competition. This is the basic issue of this essay. It is anchored on the analysis of the available data metrics for grocery retailers and how they could be exploited to provide profile and behavioural data of its customers. The culled data has greatest impact and relevance on the biographical analysis, segmentation and targeting not just of its existing customers clients but also of its potential customers as well. Marketing Trends Business and marketing are not exempted from these changes and innovations. As more and more business people and marketing practitioners are embracing the different innovations towards their best advantages, concepts and theories are also being revamped or overhauled. Technology even gives rise to new models and even sends to obsolescence some well known practices. One of these trends is changing the way the businesses are reaching out and communicating to the customers. If previously, tri-media had been the solid triangle that holds the key to talk with the customers and send the message across, technology, most notably the internet is changing this set up. Because of its introduction of a host of alternatives in reaching out to the target customers, not to mention its role in driving different shifts in behavioural patterns resulting to more complex consumers, the marketing arena has become a maze of sorts for the businessmen. The youth of the past decades who could be found glued to their TV sets have now transferred and set up camp in their virtual world. For some who opted to maintain TV while adopting the online lifestyle at the same time, the challenge to the marketers is to look into the benefits of multi channel marketing. Multi channel marketing has been one of the daunting challenges that marketers face today. The decreasing trust in traditional media coupled with its rising costs compels business to seek for other avenues to reach out to their customers and create awareness about their respective products and services. The secret is on integrating the effectivity of the different channels to come up with a most cost effective direct line to the target customers. Another evolution introduced in recent years is on the targeted consumer segmentations. If in the 1980’s, classification of consumers was done through post code and neighbourhood clustering and the 1990’s was all about lifestyle databases, the 2000’s is all about individual segmentation (Barry, 2009). Paradigm Shifts Because of these marketing trends that continue to shape the present and future of the business landscape, it became necessary to entertain the idea of different paradigm shifts in marketing. Some of the essential ones which are directly relevant to customer behaviour and profiling are the rising acceptance for multi channel marketing, the shift from transactional marketing to relational marketing and the more efficient use of database management as a powerful tool to understand the business’ target customers better. Multi channel marketing approach has accepted the diminishing effectivity of traditional media and has set its sights on integrating new media in the campaign. Although it is believed that there is simply an augmentation not a replacement of the media being utilized. A survey of IBM Best practice in Multichannel retailing as reported by Alex Patron in a seminar entitled, Targeting for Multi Channel Marketing revealed that customers spends 114% more for those who were exposed to two channels and 148% more for three channels (Patron, 2009) If in the past, marketing is focused more on mass marketing and was creative driven, the present platform require target marketing and relies on data to properly track the path towards consumers’ acceptance. In what they call before as push marketing, where they utilize panel data and media planning silos, present times call for is now known as pull marketing where it is all about media attribution and one hundred percent census coverage (Patron, 2009). The challenge on understanding and properly utilizing the possible fusion is in coming up with the best possible integrated database which will be the platform for understanding the target customers better. As the business world moves toward niche marketing, the marketers come face to face with the actual customers. Yet, without proper understanding on the profile and behavioural patterns of the customer, it could be harder to convert the encounter to the much desired sales possibility. This is the take off of both the new trend in relational marketing and database metrics. Relational marketing has been believed to have replaced traditional marketing since the 1990’s. The focus has shifted to single purchase goal to repeated or loyal customer schemes. Many studies have accepted that it is less costly to maintain loyal customers than actively seek new ones. This has been the fundamentals of many customer loyalty programs introduced in recent years which took many forms, designs and styles. In the past, there had been contentions that relationship marketing was only a new term and a phenomenon (Gummeson, 1997) yet the subsequent years that ensued proved that the concept of relational marketing would outlast its detractors and would prove that it could be the secret to outlast the competitors. The formulation of CRM or Customer Relationship Management created a new discipline which gave rise to software that supports and enhances this concept in 2000 and beyond (Moseley, 2003). At the forefront of this new concept are two new marketing models: the learning relationship and engagement. Marketing experts Pepper and Rodgers as cited by webtrends in its white paper about best practices for Relationship Marketing believed that each interaction with the customer adds data to the existing database about the customer’s profile especially on the behaviour profile aspect. Succeeding transactions are more convenient and could even a friendly level which becomes the basis of the customer’s loyalty. This deeper relationship brought by greater insights on the customers’ behaviour and preferences should help the organization prevent its customers from going astray and losing them to competitors which are offering duplicate products or services (webtrends). Customer profiling has been regarded as a mainstream technique nowadays. Especially in the grocery retail industry, understanding who your customers are and being one step ahead of them makes the organization better prepared to serve the consumer according to the specific preference or buyer behaviour. These days, the advancement in technology has also considered these concepts as it evolves to provide better conveniences. Technological innovations provide better assistance to organizations in seeing through the goals and objectives that they have established especially with regard to customer profiling. Role of Technology As technology evolves to accommodate the different needs and requirements of not just individuals but also companies and organizations, it has contributed to the aim of understanding customer behaviour patterns through the introduction of RFID system, analytics, database management softwares and others that all contribute to the setting up of each customer’s profile. Radio Frequency identification system or RFID has been attempted to be widely used and groceries are not spared. The goal is to understand the buyer behaviour pattern of the specific consumer just as he stepped into the aisle of the grocery store. To achieve this, some companies have been creative in the use of the RFID tag. Even the grocery carts are now used as portals in understanding the customers as their habits and preferences are communicated to the database while he goes in and out of the grocery aisles. While some brands and multinational companies boldly attached the chip to even their tags as it could lend assistance to their quest to build the customer’s profile after the purchase was made. Many database management softwares as well as database providers abound in the market. These had been proliferating in recent years targeting the businesses that have been awakened to the many advantages of customer profiling and database metrics. They have also evolved fairly well to adapt to the different customization needs of business and organizations. At the fundamental level, all these new tools are available to the marketer and the business owner because of the breakthroughs in information and communications technology. The computer and especially the internet had been at the forefront of providing all these innovations which directed the different shifts and changes that shapes the market today. Behavioural Patterns and Customer Profile Even if the talk about customer profiling and behavioural patterns abound in the present business set up, it takes a long route to get there. Yet, for those who have successfully found the way, the benefits that could be reaped could spell its effectiveness in maintaining loyal customers, racing ahead of the competitors and proving its success in an intensely competitive business world. Integrating the different concepts of multichannel marketing, relational marketing and database metrics provide the relevant and essential information needed by grocery retail towards customer profiling that could provide biographical analysis, segmentation and better targeting. The recent economic downturn has emphasized the different values that grocery retailers must uphold in order to stay afloat in good and bad times. Many have turned to severe cost cutting measures just to tide the company over. “But retailers cannot survive, much less thrive, on cost cutting alone. Survival will also require a renewed and improved focus on the value of increasingly fragile customer relationships. The goal of creating meaningful customer relationships is understood as a fundamental tenet of retail (Delk et al, 2009). In a report compiled by Deloitte (Delk et al, 2009), they have put forward four important steps for grocery retail to understand and properly implement in order to win the competition. The first is to segment the customers and then make sure that planning and execution of promotions and markdowns as well as pricing are necessarily aligned with the proper segment. The other two steps are to “develop a more effective and aggressive loyalty program by focusing on the right segments” and “use data to get local in a meaningful way and target the right segments (Delk et al, 2009)”. Looking at the four strategies, the focus is on proper segmentation and targeting of the customers of the grocery retail outlet. The basic goal of segmentation is create specific groups with common interests, behaviour, motivation and characteristics. However, there is no one standard of segmentation and it varies from one organization to the next. But more important than coming up with the best clustering of the market is the perfect selection of market positioning through the utilization of the different channels and data available to the company. If the segmentation strategy is designed according to the requirements of both the company and its customers, the retailer will have the better ability “to execute and then measure results across the marketing, merchandising, service, and operations areas of the enterprise” (Delk et all, 2009). Going back to the entire scenario, segmentation could only be effectively done through the proper utilization of data. There are three basic ways to do segmentation. One is to segment according to value, the other is by behaviour and the last is on geodemographics. Segment by value indicates the frequency and monetary value. “The segmentation metric is a good way of identifying a group’s likelihood” (Patron, 2009) to do a specific action or make an expected response. It could give an insight into the customer’s possibility of a purchase or even just an interest on the company’s advertisement. Segmentation based on behaviour is regarded as a more effective way of looking into the consumer’s behaviour pattern. It supposes that future behaviour is necessarily influenced by past actions and behaviour. It goes deeper into the consumer’s probable intentions and motivations to understand better what makes the person tick. While geodemographics is basically clustering the customers based on geographical locations, age, gender, income bracket and other basic facts. Mark Patron (2009) suggests that this is still the best option for retail as geodemographics is utilized through the comparison of actual sales versus the potential of the market. In a research study conducted by Bukenya and Mukiibi entitled Segmentation Analysis of Grocery Shoppers in Alabama (2009), they have come up with a comprehensive segmentation of the local consumers according to their buyer behaviour patterns. These on the other hand were from a collection of data gathered about the different customers of the grocery retail industry. Bukenya and Mukiibi (2009) were able to come up with three distinct clusters of consumers: the Back to Natural, the Typical and the Convenience Driven consumers. The largest segment is the Typical consumers who see grocery shopping as just a routine activity. They put priority on “convenience, safety, low prices and fast service (Bukenya and Mukiibi, 2009). The Back to Natural Consumers were those who put emphasis on the grocery’s choices of organic and natural foods and environment friendly products while the cluster with the least percentage came from the Convenience Driven or those that look at grocery stores as a place to meet with friends and to casually enjoy the grocery store’s ambiance (Bukenya and Mukiibi, 2009). The origin of this very important information on segmentation started with the different data gathered from the consumers in the entire industry. After the available data had been processed and evaluated, it became the basis of the different clusters of the segmented markets. As earlier discussed, the most important factor after biographical analysis and segmentation is the effective targeting of the specific markets. This is the challenging task for the customers. More than the other concepts and strategies, it is the proper fit between the segment and the other subsequent activities of the business which include selecting the best combination of multi channel marketing and the different approaches to relational marketing. Database Metrics There are a number of database metrics that grocery retail could employ in its bid towards customer profiling and customer behaviour patterns. Data mining is done for “market segmentation, customer profiling, risk analysis and other applications” (Nan-Chen and Kuo-Chung, 2009). However, integration of data takes on more steps to come up with a comprehensive consumer profile. It is a triangle approach with data repository at the bottom and data mining at the top. Many database related companies specialize in the different process of database management. But if the case of grocery retail is towards geodemographics, the most relevant tool for the business owner is the integration of the different available data about the locality and the demography of its consumers. The combination would properly outline the profile of the organization’s consumers and their buying behaviour and motivations. Yet despite this, other data metrics could also be put into place which include the use of RFID and the transactional analysis of the customer. Past purchases in grocery outlets are usually determinant of present and future purchases. Usage of Database Metrics The main idea of using database metrics such as viper uses the concept of looking for similar characteristics and seeking for intersections of these based from the data on the database. From the tons of information in the database, the software would look and group together the characteristics to come up with a feasible percentage from the gathered data which could be used from the different marketing efforts. For example, a grocery retail would like to have an idea on the segment which patronizes corn chips. It wants to know who to target and how to proceed with the marketing in the targeted segment. Specifically, it aims to know the specific age and behavioural tendencies of the group. All these could be delivered by the database software. In this example, it could show that the primary consumers are teens and girls. They usually make the purchase when they have bonding moments with their friends. With the assistance of this information, marketing the corn chips will be aimed towards this segment. Possible attraction points to encourage purchase would be teens enjoying moments with their friends while they are munching on the chips. The database metrics was able to narrow and effectively segment for better target marketing. Looking Ahead The future of using database management and database metrics as relevant tools towards customer profiling, segmentation and targeting is far and bright. However, some necessary steps must be looked into by the organization to ensure the effectiveness of utilization of data to look into behaviour responses and patterns. First is that the strategic direction of the company must be firmly set up as this will be the basis of future strategic decisions. The next step is very important in determining the data needs of the organization and on its own involves three stages. “First, identify the customer and market data needed to gain the most relevant insights. Second, identify the gaps between the data that exists (or are easy to access) and the data needed. Third, analyze the value and feasibility of filling those gaps” (Delk et al, 2009). It is also important to fully operationalize. “The process must extend to customer touch-point functions such as merchandising, marketing, pricing, and customer service” (Delk et al, 2009) in a consistent and thorough manner. The last very important step is to set up a monitoring and evaluation program that would provide the proper check and balance in the way the company operationalizes its database management technique. The success factors must be determined to accurately duplicate the process while flaws and shortcomings must be taken as learning process to be inputted back into the strategic design. Conclusion In the long haul, the relevance and importance of data metrics could be the main indicator of the success or failure of a business in a highly competitive industry. Having a solid background for understanding the different buyer behaviour and responses provide the best platform in the ultimate segmentation of the consumers. In effect, the value of the proper clustering of the consumers affects the customer targeting capabilities of the organization. These targeting activities are concerned with the proper market positioning as well as accurate selection of the multi channel mix. The subsequent activities and transactions with the specifically targeted customer provide data that goes into the database again which will included in customer profiling. With all these taken into consideration, it shows a bigger loop that goes on and on. In the end, database metric becomes a significant aspect of the new concepts in relational marketing and multi channel marketing. These new paradigms have become the determinants of the success or failure of business in this rapidly evolving and highly competitive business world. Bibliography 2010 Marketing Trends Survey. http://www.strongmail.com/pdf/SM_Trends2010.pdf. Accessed 18 February 2010. Bell, A. 2009. Targeting for multi-channel marketing. 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