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Customer Loyalty Programs and Data Mining in the Retail Grocery Industry

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David Hendrix

on 4 January 2013

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Transcript of Customer Loyalty Programs and Data Mining in the Retail Grocery Industry

The wonderful world of Customer Loyalty Cards... Customer Loyalty Programs and Data Mining in the Retail Grocery Industry Presented by:
Dana Hartman
David Hendrix
Thomas Powell
Justin Rietveld Introduction to Data Mining
-Presented by Justin- Advantages and Disadvantages of Customer Loyalty Programs from customers' and retailers' perspectives
-Presented by Dana- The cost of savings...
- Insight into the true savings of Customer Loyalty Programs and the Data Mining that is behind it
-Presented by Thomas- Ethical implications of Data Mining and Customer Loyalty Programs
-Presented by David- Conclusion - The Future Potential of Customer Loyalty Programs and Data Mining
-Presented by Justin- Data Mining Defined: the process of collecting, searching through, and analyzing a large amount of data in a database, as to discover patterns or relationships

Attempt to gain knowledge from masses of data. What is Data Mining? Roughly 30 – 40 years ago.

Not Called “Data Mining”.....”Statistical Analysis”

Two Companies: SAS & SPSS When did it Start? Business transactions
Medical and Personal Data
Surveillance
Games
Digital Media
Virtual Worlds / Web Searches
Reports, Memos, Emails. How is Data Mined? Introduce Club Cards / Value Cards
Target specific markets
Or, individual shoppers

Curb Customer Attrition


Generate more business / revenue Uses of Data Mining - Ability to build marketing models
- Better targeted sales campaigns
- Offer discounts to attract customer
- Maintain existing customer base Advantages To Retailers - Sell certain products together
- Adjust the store layout
- Provide customers with new products Advantages To Retailers - Offered discount prices
- Coupons
- Targeted mailings
- Improved customer service
- Access to new products
- Record of buying history Advantages to Consumers - Too much junk
- Spending more money
- Different service than “better” customers
- Retailers access to too much information Disadvantages To Consumers Customer Loyalty Programs Consumers Retailers - Do you save money using Loyalty cards?
- What if I told you that you won't actually save money?
~ NBC Consumer Alert
~ Any guesses who cost the least
- So what’s the deal?
- How you actually get the discount The True Savings of Loyalty Cards - Loyalty cards are not cheap
~ 30 million to start
~ 5-10 million in annual costs
- How do the stores pay for this?
~ The Consumer (Thanks!)
- Why offer the program in the first place?
~ Data mining & Segmentation The expense of savings Data Mining and Segmentation - Used for direct marketing to consumer
~ Direct mail
~ Coupon promotions
~ Etc..
- What about the “Privacy Policy”?
~ Prohibits selling of your information
~ People use fake name and information
~ Kroger’s actually encourages people to use fake names - To find the elite customers
~ 75% of profits comes from 30% of customers
~ The 30% are the Stores targets
~ Modify the store to capture that 30%
~ Remove items people like us want to give the 30% a better shopping experience. So what’s the real purpose? - 3 tier pricing
~ The actual discounts to the elite
~ MSRP prices to all the loyalty card holders
~ Price gouging to the rest
- No more coupons for us!
- Provide other industries our purchasing habits
~ Insurance companies
~ Banking industry The future of Data Mining Ethical Implications of Data Mining How Customer Data is shared... Target and its
"Guest Marketing Analytics Department" What are the concerns? Consumer Privacy Concerns Deceptive Pricing Tactics Discriminatory Pricing - Sale to 3rd Parties
~ Unidentified "Partners" create loopholes in privacy statements
- Compromised data
~ Data systems can be hacked
~ Employee dishonesty - occurrences of employees secretly selling consumer data to external parties - Simply adjust the "normal price" up prior to an upcoming sale...
~ Ex. Cheese "normal price" went from $3.99 to $5.99 when the chain adopted a customer loyalty savings program...the new "sale price" is simply the old "normal price"
~ Is this an ethics issue?
> When you market the "savings" as a primary value being exchanged for the consumer's spending data...? - Ability to adjusting pricing "on the fly" depending on demand
~ Beverage companies experimented with vending machines that raise the price of beverages on hot days.

Is this an ethics issue? - Ex. Smartmouth.com
- Court cases
(yes, they have been subpoenaed)
- Illegal selling of information
(yes, employees have done so) (for those of you easily frightened, please close your eyes and put on your ear-muffs) Too personal?

No more Brick-and-mortar? Detect Fraud

Increase Marketing Campaign Response

Minimize Risk Future Potential In conclusion, we have:

Described what Data Mining is...
Showed the advantages & disadvantages of loyalty programs to both the consumer & retailer
Provided insight into the true savings & costs of loyalty programs and the data mining they support
Explained the ethical implications involved
Provided ideas about the future potential of loyalty programs and data mining

Questions? Sharing your personal information is only the tip of the ice-berg... Conclusion on the the Ethical Implications of Data Mining and Customer Loyalty Programs Demographic Information...
Where you like to shop...
Annual $ spent on groceries...
Whether you prefer cheetos or fritos...
Whether you are loyal to brands or driven by price Are you pregnant?
Did you recently get divorced?
Are you overweight and starting a diet?
Did you recently lose your job?
Do you spend beyond your means?
Do you like long walks on the beach? Everybody is doing it...
Consumer privacy is paramount
Applying data analytics and not scaring away the consumer may pose a difficult challenge
People go to great lengths to save money (think of the couponing-fad that sparked reality TV shows...)
Each person perceives the use of their personal information, behind the scenes, differently... "The message here to CIOs is two-fold: Designed well, loyalty cards cement a bond with consumers. But they'd better protect household purchase data at all costs or lose trust." - George Rosenbloom, "Chain Store Age" Works Cited
Bosworth, M. H. (2005, July 7). Loyalty Cards: Reward or Threat? Retrieved from Consumer Affairs: http://www.consumeraffairs.com/news04/2005/loyalty_cards.html
Dictionary.com. (2012, November). Data Mining. Retrieved from Dictionary.com: http://dictionary.reference.com/browse/Data+Mining?s=t
Duhigg, C. (2012, February 16). How Companies Learn Your Secrets. Retrieved from The New York Times - Magazine: http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?pagewanted=all&_r=1&
Furnas, A. (2012, April 3). Everything You Wanted to Know About Data Mining but Were Afraid to Ask. Retrieved from The Atlantic: http://www.theatlantic.com/technology/archive/2012/04/everything-you-wanted-to-know-about-data-mining-but-were-afraid-to-ask/255388/
Kroger. (2012, November). Kroger Finance. Retrieved from Kroger: http://www.kroger.com/finance/Pages/default.aspx
Lacey, R., & Sneath, J. (2006). Customer Loyalty Programs: Are they fair? Cambridge: Emerald Group Publishing Limited.
Leeds School of Business. (2004). Personal Information: A New Currency of Exchange. In Technology and Privacy in the New Millennium (pp. 50-59). Boulder: Ethica Publishing.
Rapid Business Intelligence Success. (2008). A Brief Data Mining History. Retrieved from Rapid Business Intelligence Success: http://www.rapid-business-intelligence-success.com/data-mining-history.html
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Rosenbloom, G. (1999, October). Mining data: A loyalty expedition? Chain Store Age, pp. 40-41.
SAS. (2012, November). Data Mining 101 & Predictive Analytics. Retrieved from SAS: http://www.sas.com/reg/gen/corp/1535564?gclid=CITG3OXvx7MCFexAMgodfzoA5w
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Tarnowski, Joseph. "Data mining at Meijer: supercenter chain utilizes store-specific technology tools to meet local market needs. (Retail tech: technology and the business of retailing)." Retail Merchandiser June 2003: 48. Business Insights: Essentials. Web. 30 Oct. 2012.
Vanderlippe, J. (2000, May). What Savings? Kroger 'Card Savings' Exposed as a Sham. Retrieved from CASPIAN: http://www.nocards.org/savings/krogerads.shtml
WCPO.com. (2012, February 20). Target knows when you're pregnant. Cincinnati, Ohio.
Weinstein, S. (1999, June). Building Loyalty. Progressive Grocer, pp. 89-92.
Wikipedia. (2012, November). Data Mining. Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Data Mining
Zaiane, O. R. (1999). Introduction to Data Mining. Retrieved from University of Alberta: http://webdocs.cs.ualberta.ca/~zaiane/courses/cmput690/notes/Chapter1/index.html
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