Customer Relationship Marketing: Current Status and Prospects for the Food Retailing Industry

E.B. 2003-02The supermarket industry has been developing customer relationship marketing (CRM) programs and strategies for over 15 years. At this point the impacts of CRM on the supermarket industry are mixed at best. Despite the potential to radically change the way supermarket business is conducted, there is also the possibility that CRM could be marginalized by supermarket companies as just another management fad. This study employed a combination of literature review, retailer surveys, interviews with supermarket and manufacturer executives, and consumer focus groups to examine CRM in the U.S. supermarket industry. Our research focused on identifying the current status of CRM programs, on the role of CPGs in those programs, and the industry-specific issues constraining the realization of full CRM benefits. This report also presents an overview of the future direction of CRM theory with perspectives on the supermarket industry. Despite over 15 years of development in the supermarket industry, and more than three-quarters of sales transacted with loyalty cards, and several hundred million dollars invested in technology and programs, customer loyalty has not been significantly increased because most consumers belong to multiple programs that offer mostly undifferentiated benefits. Even though the underlying premise of CRM is that loyal customers are less price sensitive, contributing to their potential higher profitability, the major benefit offered by retailers and perceived by consumers in frequent shopper programs is price discounts. While retailers surveyed reported very positive results from their CRM Programs (e.g. increased transactions, shopping frequency, transaction size, overall sales, gross margin, net profit, and return on marketing investment), some of these trends are counterintuitive, perhaps reflecting the misuse of price discounts and other tactics that undermine CRM’s foundation. Fast-paced lifestyles limit the appetite of most consumers for targeted marketing activities, generally, and, the efforts of supermarket and CPG companies, specifically, are perceived as intrusive for most consumers. The importance of customer service cannot be overemphasized in determining the success or failure of retailer CRM programs. All the technology and analytical skills in the world will not prevent poor customer service from driving customers to competitors. At the same time, the critical role of store employee turnover in the success or failure of customer service cannot be overemphasized. For most retailers, the customer service issue will not be resolved until employee turnover is controlled. As manufacturers continue to scrutinize the efficiency of their trade spending and retailers increase their dependence on trade promotion dollars, CRM initiatives could be limited by the internal retailer tug of war over how trade funds will be spent. At the same time, manufacturers and retailers must work closely together to meet the needs of their shared customers. By sharing information, learning and resources, the seemingly divergent goals of building both store loyalty and brand loyalty perhaps can be met simultaneously. While funding and technology are the most pervasive barriers to CRM realization, relieving those constraints will be meaningless if the cultural issues that plague most retailers are not resolved. Organizational and cultural issues will prevent the attraction and retention of sufficient people with the technical, analytical, and customer service skills needed at all levels of the organization to make CRM succeed. According to leading academics and business visionaries, the future of CRM involves a dramatic shift in the identification and valuation of assets. Given the similarities in the physical assets such as locations, stores, products, and services across most retailers today, visionary retailers will realize that assets that will give them competitive advantage in the future are their customer relationships or customer equity. Now is the time to begin transforming retail companies into customer-centric organizations driven by the realization that customers are the only truly valuable assets