Shopper information collected through customer-loyalty programs can be a powerful tool for tailoring the product selection in a retailer's pet aisle.
Big Data is a big deal in today's business environment. It has completely revolutionized how some retailers do business - influencing decisions about everything from product selection and placement to marketing.
But many mass and grocery retailers are behind the curve in utilizing customer information to the fullest, says Jeff Weidauer, vice president of marketing and strategy at Vestcom (vestcom.com). Vestcom works with food and drug retailers in the U.S., offering shelf-edge communication utilizing the retailer's data, including pricing information and product placement information.
Weidauer says recent industry data shows that 65 percent of retailers don't think the business of retailing is fundamentally different today than it was 20 years ago. "That's a scary thing, because [the industry] is absolutely fundamentally different," says Weidauer, who has held a variety of positions in the grocery channel, including category manager.
Retailers that do not recognize how much the industry has evolved over the years may be missing out on an opportunity to increase profits by efficiently collecting and leveraging information on today's pet-owning customers. All too often, retailers tend to take a cookie-cutter approach to product selection in the pet aisle. Many major chains look at data on the regional or national level and never drill down into store-specific pet shopper data when making decisions.
But looking at customer demographics on a store level can be enlightening.
Ed Cebular, vice president of sales at Petsport USA, which makes pet toys and accessories for the mass and grocery market, gives the general example of two stores, the first of which is in a large city. "Most pet owners living in large cities tend to have smaller breeds of animals," he explains. "Therefore the size of the toys, dog food, etc., will be adjusted to that area."
He compares that to a smaller grocery store in a very rural area, which he says will likely have a smaller pet section, just because they have less floor space. It seems clear that customers at store A are likely looking for very different products than those shopping at store B. "So, you will not get the variety and selection [in the 'B' store as in] the 'A' store," says Cebular.
As Cebular's example demonstrates, looking at demographics for a store's geographic location can provide some basic guidelines for stocking its pet aisle - for example, areas where small pets are the norm will do better with products for smaller animals, and areas that skew toward a demographic with higher incomes in wooded areas might want to consider birdseed or bird feeders.
But even that is still a fairly broad way of looking at customer demographics. Loyalty programs can actually provide much more detailed information, helping retailers to get a more specific view. "If you could start to understand shopper behavior at the shopper level and know that this person is inclined to buy these types of products - I know that they're going to buy these products week in and week out - I don't need to discount those products," explains Weidauer.
Another example, he says, might be a shopper who consistently buys product X every week. If the company has data showing other people sort of like that shopper, who also purchase product X regularly, have a tendency to buy product Y, then maybe that shopper can be persuaded to buy product Y.
In the pet aisle, that might mean looking at a customer who purchases a new all-natural pet food; if other customers who purchase that pet food also tend to buy an all-natural toy or treat, perhaps the store can convince this new customer to also purchase that toy, either with cross-merchandising or with customer-specific couponing.
"That's a very simplistic view," Weidauer says. "But the point that is you can start to understand how to market to shoppers, but in a way that feels that you're helping them and less like they're being marketed to."
Much of the data necessary for that kind of analysis is already being collected in most stores with a loyalty program. Yet often retailers are afraid to use it; or, if they do try to use it, they try to do so internally, which is a big mistake says Weidauer.
He explains that most retailers simply don't have people with the specialized knowledge it takes to look at all of that data and figure out which key takeaways are important. Instead, he recommends outsourcing the actual analytics.
An added benefit to doing this is that whoever is then hired to analyze the data is seeing information from a number a retailers, giving them both the data specific to one store and a broader picture of the industry as a whole.
SELLING TO THE MASSES
Not only can insights provided by mining customer data be interesting - they can also be extremely profitable.
Gary Hawkins was CEO of Green Hills Farms, an independent grocery store in Syracuse, N.Y., until 2011. When Hawkins was running Green Hills Farms it was one of few retailers collecting that kind of data. "Early on it gave [us] a very new understanding of our business," he says. He learned that over a year's time approximately 30 percent of the store's customers provided 70 or 80 percent of the store's total revenue.
Now Hawkins runs Hawkins Strategic, where he offers high-level consulting and advisory services to retailers, brand manufacturers and technology firms focused on the understanding and use of shopper data to create business gain. He's seen again and again that a small percentage of high-value customers actually drive the majority of a store's sales.
Understanding who spends the most money in a store's pet aisle and what those customers purchase can help grocery and mass retailers gain powerful insights that will allow them to better compete with pet specialty retailers.
"Rather than trying to be everything to everybody, you start understanding who your best customers are and skewing your values, your operations, services, etc., to them in hopes of getting even more business from them, of retaining them better over time and ultimately attracting other customers like them," Hawkins explains.
For example, customers may only purchase dog shampoo once every six months, but if those customers are the store's high-value customers, it's a category the store should keep - even if it has a slow turn over. If the store were to stop carrying that shampoo customers might go elsewhere to find it, increasing the chances that they might buy their other pet needs somewhere else as well.
Evaluating product selection this way keeps stores more profitable by catering to their best paying and most loyal shoppers. Yet, most stores continue to focus instead on product sales volume, which often completely fails to isolate this kind of nuanced information.
"A lot of the times [sales volume] numbers are really a reflection of just what's been put on shelves and the placement of different items on the shelf, not an accurate reflection of the right positioning of products on a shelf or the right product mix," says Lily Lev-Glick, principal and chief insights officer of Shopper Sense (shopper sense.com). Shopper Sense is a consultancy that works to provide shopper insights and help plan in-store strategies for implementing those insights.
Lev-Glick says that making decisions purely on sales volume can become a self-fulfilling prophecy; in other words, it doesn't offer true insights. This leads sales to plateau, rather than helping retailers to continually bring in new products and stay on trend.
Alternatively, if a retailer tracks shopper data, it is better able to identify rising trends that appeal to its existing customers. If, for example, high-value customers frequently purchase all-natural or organic pet goods, the store can increase the amount of shelf space given to pet products in those categories. It can bring in new natural or organic pet products and send out coupons just to high-value shoppers, driving them back into the store for additional purchases.
This strategy works particularly well for add-on or impulse purchases. Cebular says customers often buy Petsport USA toys when they are shopping for pet food and see a deal on pet accessories that is just too good to pass up - now imagine that not only is it a good deal on an impulse product, but it's something that matches their other buying criteria, as gleaned from their shopper data. The chance that they'll make the impulse purchase goes up dramatically.
Retailers can then increase the sale potential even more by making these products highly visible. After all, even products that are on-trend and that high-value shoppers would love to buy won't move if no one knows the store has added them to its selection.
HIGHLIGHT THE ASSORTMENT
Bringing in a new product to capitalize on existing store-specific shopper trends is a great strategy - but the store also needs to make sure shoppers know the products are there.
For example, Blue Dog Bakery makes healthy all-natural dog treats. Its products would be a good fit in a store where high-value shoppers are looking for more natural options. Yet Kyle Polanski, the company's CEO, admits that merchandising can have a great impact on the success of his products at a particular retailer - even at a particular store.
"Consumers who are familiar with our brand will seek us out, but new consumers often stumble upon us because a store features us on an endcap, in an advertisement or in a display," Polanski says. "If the product is in the back corner or in a shelf position that is difficult to notice, it is really hard to get the customer's attention." That may seem obvious, but since retailers can't promote every product, all the time, products can fall through the cracks.
Data that helps retailers understand which products meet the needs of the store's most valuable customers can therefore help retailers prioritize what products to give endcap advertising, which to include in the store's circular and which they can simply give a good shelf placement.
Further, it provides insight into which of the many trends from pet specialty will do well in that specific store. It can sometimes take a long time for trends that start in the specialty market to make their way into larger retailers, simply because stores don't want to bring in products "on trend," just to find out the trend was a fad.
One example of this is the natural trend "There is a lot of work to be done in grocery to catch up to the trend toward authentic natural products," says John Gigliotti, founder and CEO of Whole Life Pet Products, which makes Tail Mix Treats for dogs and cats.
The natural trend has been building for the last decade across a variety of categories, but many non-specialty retailers have failed to adapt their pet product offerings in a way that would allow them to capitalize on it. Even some of those who recognized the trend for what it was have sometimes failed to take advantage of this knowledge, simply adding only a few token items with a "natural" label. "Grocery and mass channels need to realize that there is a huge difference between products marketed as being natural and those that actually are," says Gigliotti. "Today's pet parents are educated and can tell the difference."
From recognizing trends to helping to establish the best products for raising store-wide profits, understanding customer data is a powerful tool for retailers who take the time to take advantage of it. After all, pet owners aren't the only ones who should be doing their research.
