Food for Thought: September 2009

August 28, 2009 - 12:05

Targeting Consumers at the Point of Purchase

Everyone agrees that, in a tough economy, getting potential customers to step into a store is half the battle. Once they’re in the door, nudging them to complete a purchase, particularly of the products you supply, has always proved either costly or largely ineffective. Ornamental suppliers have largely relied on the attractiveness of displays or individual products in an attempt to capitalize on impulse buying.

But new technology is now available that potentially will allow suppliers to target various consumer groups or individual shoppers and increase the odds that a consumer will actually make a purchase — and even help steer them to a specific product. This ability is available in the form of targeted ads provided by cell phone carriers. The technology identifies cell phone users based on their location — parameters can be set to include a certain proximity to a specific retailer or even a presence within that retailer’s store — then sends a message to their phone with the location of a retailer’s store, an ad for a product or even a coupon for a specific product with a time-sensitive validity.

Imagine this: A garden club member is identified as being inside or near a retailer’s location, then she receives a coupon for a discount or special price on a specific product that is valid only for them and for only, say, 30 minutes. Will this technology drive more sales? A number of retailers, including Target, Gap and even shoe and beverage retailers, are currently trialing the technology. Initial findings indicate that if advertising is targeted to a specific retail location, product or promotion that a consumer is geographically close to, they are three to 10 times more likely to read the advertising message than if it were just a general product or promotion ad.

Second-Generation Barcodes Provide Instant Access

New technology from companies such as ScanLife and Jagtag want consumers to use the cameras in their cell phones as scanner to access digital information from “2-D barcodes.” These new, matrix-like patterns can hold much more information than normal striped barcodes: Once scanned, the barcode delivers information from the Web to a cell phone for listening or viewing. The 2-D barcodes deliver digital information on demand to consumers — when they’re most interested in that specific information. Applications include video or sound clips from a tag in traditional print media, product care or usage information from a tag on the product’s packaging, directions to a specific location from an ad on a billboard, bus or TV, and even harvest or freshness information from packaging on fruits, vegetables and other food.

A recent real-life trial placed codes on fast food packaging that took the scanner to a website displaying coupons for future purchases. The 2-D barcodes have been very successful in Japan, where consumers use their cell phones for many more tasks than shoppers in the United States and Europe. Other current tests involve running codes in newspapers, magazines, billboards and TV ads that, when scanned, give a recipe, ingredients, coupons and maps to stores where the products are available.

Can you imagine the information that could be linked to a code printed on a plant tag or container and delivered to consumers as they are standing in front of a product display? What a great way to interact with potential consumers without employing and training a large merchandising force.

Wal-Mart’s ‘One-Stop Shop’ Inspires Imitators

Like it or not, Wal-Mart has been pretty successful in keeping their registers ringing amid a recession that has consumers cutting back spending on both luxuries and essentials. Aware that shoppers are spending less, Wal-Mart realized that the key to keeping them spending and spending more at their stores — rather than a competitor’s — was to get in the door more often. Offering a greater range of necessities, while not a glamorous strategy, has seemed to be effective.

To counter Wal-Mart’s success, competitors such as Target and Toys ‘R’ Us are offering consumables like paper towels, soaps and detergents, personal-care products and even fresh food products. Dollar stores, long a fortress for price-conscious consumers, are expanding their once-limited food offerings and even adding major known brands to appeal to a wider range of shoppers.

Consumables, with their low profit margins, were never considered growth engines. But given the renewed focus on foot traffic, this category is now considered a key factor in driving increases. To be successful in this economy, retailers need their regular customers to shop more often and for more items and attract more new customers as well. Based on sales data from early 2009, about 17 percent of Wal-Mart’s growth in customer traffic came from new customers, and these new shoppers are spending almost 40 percent more per transaction.

For the first quarter of 2009, necessities accounted for almost 40 percent of Target’s sales, while food sales at Family Dollar are approaching 20 percent of sales up from 15 percent. The big issue is whether discount retailers will be able to retain their new customers once the economy recovers. Historically, consumers who have defected to discounters return to retailers that sell more upscale discretionary items when the economy improves. During deep, long recessions, more consumers embrace frugality and adopt this practice as a lifestyle, which could benefit discounters. In an improving economy, customer service — which is often overlooked during a recession in favor of low prices — becomes more important in motivating consumer loyalty.

RFID: Evolution, Revolution or Holding Pattern?

It seems like only yesterday that nearly everyone was predicting a revolution in merchandise and equipment tracking that would have RFID tags on anything anyone could need or want to track. While there were hurdles such as cost of tags, reader accuracy and privacy concerns, the benefits of efficiency, cost reduction and loss prevention seemed to outweigh the obstacles.

But expecting that RFID tags would revolutionize the supply chain from end to end now seems to have been overambitious. RFID has become a classic case of “overpromised and underdelivered,” fostered by miscommunication and misunderstanding. Even though Wal-Mart and the Department of Defense issued mandates that all suppliers employ RFID within a specific time frame, the deadline has long passed, with only a few of the 150 Wal-Mart distribution centers RFID enabled and the defense department’s effort even more incomplete. Most of the obstacles still remain, and some even magnified. Cost of accusation, implementation and integration are still at the forefront. Data privacy and sharing continues to be a major issue. Environmental waste from the chemicals used in the etching is considered hazardous and a major concern to some groups.

Many companies are on the sidelines awaiting proof that the technology works and will bring about a return before making the investment. One exception to this trend is Sam’s Club, which is in a three-phase RFID implementation project. The plan consists of readers on the receiving dock to record deliveries, readers on exit doors for loss prevention and readers in the ceilings to track all items in the store. Pending federal regulation on traceability of pharmaceuticals may also encourage the use of RFID. With a bottle of some tablets worth several thousands of dollars, the cost to tag and record movements can easily produce a ROI while reducing risk and loss. One apparel retailer with a closed-loop system that controls product from manufacturing through distribution and sale has improved inventory accuracy of 99 percent, when compared with 80 percent accuracy in conventional barcode use. Completing store level inventory has also been reduced from 36 man-hours to two and a half man-hours.

While there are some success stories, the recession is also taking its toll on RFID projects. Making decisions to acquire and implement “nice-to-have” technology becomes increasingly difficult in lean times. A mood of caution and fiscal responsibility currently outweighs the desire to acquire and implement costly systems.

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