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The International Reviewof Retail, Distribution andConsumer ResearchPublication details, including instructionsfor authors and subscription information:http://www.tandfonline.com/loi/rirr20
Retail micro-marketing:strategic advance orgimmick?Cristina ZilianiPublished online: 15 Apr 2011.
To cite this article: Cristina Ziliani (2000) Retail micro-marketing: strategicadvance or gimmick?, The International Review of Retail, Distribution andConsumer Research, 10:4, 355-368, DOI: 10.1080/09593960050138921
To link to this article: http://dx.doi.org/10.1080/09593960050138921
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Retail micro-marketing:strategic advance or gimmick?
Cristina Ziliani
Abstract
The � rst goal of the paper is to de� ne the concept of micro-marketing, overcoming the‘specialized’ perspectives and de� nitions that have prevailed so far. Micro-marketingrelates to ways of controlling environment complexity, facilitated by informationtechnology and required by highly competitive markets. Such control has three forms:segmentation, which reduces complexity to a controllable number of variables; organiza-tion, which absorbs a certain amount of complexity by modelling the structure ontothe environment; technology, which explores complexity and dominates it throughsimpli� cation.
The second goal is to demonstrate that micro-marketing can build a sustainedcompetitive advantage. Finally, the theoretical implication of the diffusion of a micro-marketing approach in the retailing industry is discussed. The areas of strategy,organization, channel relationships, and customer satisfaction are examined. Shouldmicro-marketing become widespread in the retailing industry, we argue that its � nalresult would be increased welfare for the consumer, as long as retailers capitalize onthe power of information and stand as a ‘countervailing power’ to suppliers in thechannel.
Keywords
Retail marketing, loyalty marketing, market segmentation, strategy, Europe.
Introduction
This paper deals with an emerging topic in retail marketing practice: micro-marketing. The word ‘micro-marketing’ has appeared frequently in marketingand retailing literature. Its meaning ranges from market analysis technique todirect marketing tool, to promotional activity, and more.
The � rst goal of the paper is to investigate the origin of the concept, in orderto provide an exhaustive de� nition that broadens the ‘specialized’ perspectivesthat have so far prevailed in the debate. The term micro-marketing, whatever thesubject matter, relates to ways of controlling the environment’s complexity,
Cristina Ziliani, Istituto di Economia e Direzione delle Imprese, Facolta di Economia,Universita di Parma, Via J. F. Kennedy 6, 43100 Parma, Italy. Tel: 1 39 0521 902393;Fax: 1 39 0521 902436; E-mail: [email protected]
The International Review of Retail, Distribution and Consumer ResearchISSN 0959-3969 print/ISSN 1466-4402 online © 2000 Taylor & Francis Ltd
http://www.tandf.co.uk/journals
Int. Rev. of Retail, Distribution and Consumer Research 10:4 October 2000 355–368
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facilitated by information technology and forced by the increased competitive-ness of today’s markets. The topic of complexity control is central to strategicthought and marketing theory. Today, it has three forms: segmentation, whichreduces complexity to a controllable number of variables; organization, whichabsorbs a certain amount of complexity by modelling the structure onto theenvironment; technology, which explores complexity and dominates it throughsimpli� cation. We argue that these three concepts are at the core of micro-marketing.
The second goal of the paper is to demonstrate that:
c micro-marketing is strategic not only in nature, for it is aimed at respondingto the variety/variability of its market, but also in practice, in that it can build,under certain conditions, a sustained competitive advantage;
c micro-marketing builds advantage for the company in the form of theintangible assets of trust and know-how, and this is done through incrementalimprovements in a process sharing much of the logic of direct marketing.
The third, and last, goal of the paper is to discuss the implication of thediffusion of a micro-marketing approach in the retailing industry. Several areasare discussed: strategy, organization, channel relationships, customer satisfac-tion.
We argue that the � nal result of the diffusion of micro-marketing practice inthe retail industry is an increase in welfare for the consumer, as long as retailerscapitalize on the power of information released by the micro-marketing processitself and stand as a ‘countervailing power’ to suppliers in the channel.
The theoretical tools for the analysis can be found in marketing managementliterature, and in the corpus of theories of the � rm: speci� cally, we refer tocontributions in relational marketing, the resource-based view of the � rm, andthe strategic impact of information technology. The context is the Europeanretailing industry. The object of analysis is the retailing company, caught in theprocess of evolution of the retailing function towards an autonomous marketingrole and towards technology-based organizational complexity. The empirical toolis a survey of forty leading European retailers1 to investigate current retailmarketing practice with an emphasis on loyalty marketing activities, carried outby the author from May to November 1997, and updated in November 1998.
Concept of micro-marketing
The term micro-marketing has been used in marketing literature with referenceto both suppliers and retailers. On the industrial side, the marketing manage-ment literature de� nes micro-marketing as ‘a process of � ne segmentation of themarket made possible by information technology’ (Tedlow and Jones 1993: 25).In marketing research literature, micro-marketing is de� ned as ‘the use ofcustomer information systems to reach highly responsive customer segments ina highly automated way’ (Bessen 1993: 151), a de� nition that makes explicitreference to the direct marketing logic. In the relational and direct marketingarea, micro-marketing:
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refers to the careful geographic segmentation of consumers by manufacturerstrying to break the stranglehold of product proliferation in stores. . . . This issophisticated segmentation, and it is an important strategy by manufacturersfor dealing with supermarket chains, planning shelf space, and allocatingproducts one store at a time.
(Peppers and Rogers 1993: 27)
The three given de� nitions depict micro-marketing as subtle segmentation ofthe � nal market supported by information technology. The last de� nition, inparticular, makes reference to the context and the causes: in the US thedeveloped retail industry and its sizeable retailing companies clash with thematurity of most consumer goods markets, characterized by wide productranges. The bottleneck of limited shelf space forces suppliers to analyse localmarkets to � ne tune (segment) their offer as much as possible.
On the retail side, micro-marketing is de� ned as the strategy of ‘targetingspeci� c audiences, typically store-speci� c audiences, for the purpose of market-ing to them with the right message and appeal’ (Management Horizons 1996:17). It is suggested that a store’s trade-area peculiarities are relevant enough touse as segmentation criteria, and worth investigating in order to tailor the store’smarketing mix. Lugli shares a similar view, de� ning micro-marketing as ‘theactivity of differentiating assortment and pricing by store within the same storeformat according to the characteristics of local demand and supply’ (1996: 1).The differentiated proposal relies primarily on assortment and pricing, two ofthe retail mix variables, and the process takes place within a store format. If weagree with Lugli (1993), whose de� nition of strategic activity applies only tothose aimed to the introduction of different store formats, we conclude that, initself, micro-marketing is not strategic but operative. We shall discuss this pointunder the ‘micro-marketing and strategy’ heading. Besides, it is interesting tounderline that a certain degree of customization in the retail offer depends onthe retailer’s ability to enlist local suppliers, whose products are rooted in thecommunity’s consumption patterns.
So far, micro-marketing has been regarded as segmentation based on geo-demographical criteria even on the retail side. A new perspective, however, hasbeen opened up by Woolf (1996), with his research in customer speci� cmarketing (CSM), which is a strategy concerned with understanding theeconomics of the customer base, leveraged on customer loyalty and enabled byIT and card programmes: such strategic orientation translates on the operativelevel into marketing to each customer segment in a more intelligent way thanever before. A wider concept than CSM is customer relationship marketing(CRM), where the focus is on information intensiveness, in that a CRMorientation makes it necessary to collect, measure, and monitor data on one’scustomers’ shopping behaviour and focus on the most pro� table segments inorder to maintain an individualized relationship. CRM is a broad conceptualumbrella that encompasses the following set of practices:
c frequent shopper programmes, also known as continuity promotions, that vary insophistication from stamp collection to microchip cards;
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c preferred customer programmes, aimed at pinpointing, rewarding, and keepingthe customers whose behaviour is most desirable from the retailer’s point ofview;
c database marketing programmes, borrowed from the direct marketing industry,and concerned with targeting speci� c groups whose responsiveness is rankedhigh according to purchase history and demographic records.
While these programmes are marketing activities, customer relationshipmarketing is a strategy driver, an orientation that considers the retailer’s businessto be identifying, studying, talking with, and satisfying loyal customers. The in-depth understanding of the customer base has always been at the core of theretailing business, but the ‘retail revolution’ has made the expanding companieslose sight of their market (customer base), which is known today only in termsof number and average size of bills. The phenomenon is similar to the rise ofmass production in the industrial sector. Just as mass production, after rising,began to fall as technology offered both insight into market complexity – andsegmentability – and ways to respond through economies of scope, todayopportunities for segmentation are also dawning on the retailing industry. Thisis well expressed by Reynolds (1995) who sees micro-marketing as the marketingorientation of modern retailers, as opposed to the old mass retailing.
In conclusion, the revised de� nitions of micro-marketing stress only the kindof market variability which is more relevant to the speci� c business: geo-demographical for producers and behavioural (e.g. frequency and amount) fordistributors. Before the retail revolution, shopkeepers used to be aware of thebehavioural diversity of their customer base, and often discriminated conditionsaccordingly, for example, by granting or refusing credit. At the same time, thedifferences among trade areas were of little relevance for single businesses. Withthe modernization of the industry, spatial variability became relevant,2 while thedifferences in behaviour and customer ‘importance’ faded as large-store formatsattracted more and more anonymous shoppers. In recent years, a cluster oftechnologies – POS scanners, databases, and loyalty cards – has emerged to helpretailers escape the trade-off. We can therefore give a more complete de� nitionof micro-marketing as the orientation of retailers to measure and respond punctuallyto both the spatial and the behavioural complexity of their market, facilitated byinformation technology. Measuring complexity is a problem of segmentation;responding to complexity is a matter of organization; doing it punctually is aproblem of technology (Cozzi et al. 1988). Micro-marketing contains all declen-sions of complexity control – the essence of strategy – and can therefore beregarded as strategic in nature.
Micro-marketing � rst step: the loyalty scheme
An increasing number of retailers today run frequent shopper programmes orpreferred customer programmes, and most perform some sort of micro-merchandising (i.e. assortment/pricing differentiation per trade area), thereforedeclaring that they are ‘doing micro-marketing’. Actually, frequent/preferredcustomer programmes deal with the variability of the customer base within thestore, while micro-merchandising responds to the variability of demand between
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stores. Such activities, which are usually run separately in the company,3 arepartial answers to complexity. Only when preferred customer programmes andmicro-merchandising work together interactively is a proper micro-marketingorientation in place, and both spatial and behavioural variability dealt with. Todo this, the � rst step is the introduction of a programme based on plastic cards,in order to collect sales data by customer.
Loyalty schemes, � rst introduced in the US with the support of a plastic cardand with the purpose of substituting the inconvenient and ubiquitous coupon,have been known in Europe for decades: the British Green Shield Stamps andthe Italian Bollini Vege being the forerunners some thirty years ago. Loyaltyschemes – also known as continuity promotions – ful� l the objectives of above-the-line promotions: store-image enhancement, price image, excitement, salessupport in ‘slump’ periods, and, above all, shaping customers’ buying habits bydelaying the moment in time when their behaviour will be rewarded. Card-basedloyalty schemes work the same way, but the opportunity to match the anonymoussequel of bills registered by the store information system with the names anddemographic data of cardholders is a major breakthrough in retail marketingpractice. The retail function has always been performed with less informationthan required. Before the introduction of POS scanners, retailers did not evenknow how much they were selling until they walked the aisles at the end of theday. Today, they know the performance of each single item, but very little aboutwho is buying it, the exception being polls and surveys carried out from time totime over samples of customers. The introduction of plastic cards providesinteresting demographic information which retailers can sift through to betterunderstand their customer pro� le and use as a benchmark for future assortmentand promotion decisions. We regard card-based loyalty schemes as the � rstnecessary condition, but by no means a suf� cient one, for implementing a micro-marketing orientation as de� ned above. Our survey of forty European retailers(see note 1) who have introduced loyalty card schemes corroborates this opinion.We have concentrated the analysis on this speci� c micro-marketing tool for tworeasons. First, for most retailers loyalty programmes are the highest degree ofmicro-marketing performed so far, and, second, they are willing to discloseinformation on the topic. The same cannot be said for more sophisticated micro-merchandising and format-de� ning activities.
To classify existing schemes we introduce the matrix in Figure 1. From theretailers’ viewpoint, loyalty schemes can be classi� ed according to: a) thecriterion used to differentiate conditions and b) the degree of detail insegmentation. On the side of differentiation, there are schemes geared aroundprice discounts or around prizes and exclusive incentives, labelled below-the-lineand above-the-line schemes respectively. Over time, schemes have been evolvingfrom a pure below- or above-the-line orientation towards a mixed offer compris-ing discounts, gifts, privileges, and services, as illustrated in Figure 2. Moreinteresting, for our purpose, is the degree of segmentation. There are fouravailable options:
1 Mass scheme: a scheme that differentiates only between cardholders and non-cardholders. This is the introduction level for programmes and it is necessaryfor the diffusion of the card among at least 80 per cent of customers. It allowssavings on the promotional budget,4 but it is easily imitated.
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2 Cluster scheme: a few customer groups are outlined according to thedemographic information disclosed at time of request of the card: students,singles, families with children, pensioners, etc. Tesco is the conspicuousexample of a successful programme working at this stage.
3 Category scheme: this represents a discontinuity in dif� culty and outcome,because it requires scanner data to be captured at single EAN-code level:information can be obtained and promotional offers designed by matchingcardholder data with single items in her/his basket.
4 One-to-one: this is extreme and impractical to accomplish, although severalretailers are interested in direct marketing experiments and the retailerUkrop’s, in the US, boasts a real one-to-one promotional programme.
In practice, most programmes are clearly positioned above or below the line attime of launch, but borders tend to blur with time as more features are added tothe scheme. Besides, programmes tend to proceed towards more sophisticated
Figure 1 The loyalty card scheme matrix
servicesprivilegesgiftsdiscounts
� IMMEDIATE� – at till� – through Catalina� – ‘straddle pricing’� DELAYED� – in-magazine
coupon� – coupon mailing� – shopping list
� gift� self-liquidating offer� lower prices on
partners’ products� sweepstake� social marketing –
charity
� home delivery� parking� remote shopping
(phone, fax, PC)� ‘extended
assortment’ oncatalogue
� samples� ‘shopping evenings’� tasting� gift catalogue� gift delivery� house organ� ‘gold’ and/or ‘plus’
cards
� payment card� financial services� insurance products� multi-vendor scheme� travel agent� electronic
supermarket� internet provider
Figure 2 Differentiation criteria used by European retailers in loyalty card schemes
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segmentation, typically from mass to cluster level. It is likely that most retailerswill maintain programmes routinely on a cluster level while occasionally‘sampling’ the category level, due to the exaggerate cost of capturing and storingEAN-level data for the whole customer base.5
The diffusion of loyalty marketing practices in the retail industry is in itself asensible shift in retail operative marketing, which has been mainly geared aroundtraf� c-building activities since the process of modernization began. Loyaltyprogrammes force retailers to redirect efforts from hi-lo price to a more coherentprice image, to reduce out of shop advertising, and to concentrate on the‘intelligent loss’ of some traf� c: the most promiscuous shoppers, insensitive tothe advantages of loyalty. However, loyalty cards are no more a strategic changethan POS scanners are: there is an initial asymmetry in fruition of their bene� tsdepending mostly upon management vision, but such advantage tends to erodewith time and imitation by competitors. Loyalty programmes can be strategicinnovations for some retailers and gimmicks6 for others. This underlines the factthat loyalty cards are mere enablers: their potential lies in the information theyunlock, and the strategic relevance of information depends on the ability ofmanagement to interpret it and translate it into appropriate action. Even retailerssuch as Marks & Spencer have yet to tap the information ‘pool’ of theirdatabases. With regard to this, there seem to be dis-economies of scale, in that alarge company – and programme – size hinders a viable data-capturing, analysis,and action approach. Like POS scanners, cards display ‘hard’ bene� ts and ‘soft’ones: they are introduced because they increase ef� ciency, but the strategicpotential lies in effectiveness. Strategic potential is a concept that variesaccording to the chosen de� nition of competitive advantage: in Porter’s (1985)view of competitive advantage, information is relevant if it helps reduce cost orcreate differentiation. In a resource-based view of the � rm, information isrelevant if it builds intangible assets for the � rm. Loyalty schemes can work toreduce costs (marketing budget main items: price reductions and advertising)and differentiate product (as far as the scheme has distinctive features, and thereexists some sort of feedback between data analysis and retail-mix decisions). Inthe retail business, though, where imitation is broad and easy, Porterianadvantages are not easy to sustain.
It could then be argued that loyalty schemes build a sustainable advantage inthe form of switching costs, but even those do not last long in an industry wherecustomers integrate purchases on a routine basis. Nonetheless, these are mostcommonly the advantages retailers declare themselves to be seeking whenintroducing a loyalty programme. We believe that the most interesting per-spective is offered by the resource-based view of the � rm: the relevance ofloyalty programmes lies in the ability to increase the intangible assets of trustand know-how of the � rm. The relationship built with customers by listening totheir needs and preferences through data analysis and responding with retail-mixadjustments is company speci� c and very dif� cult for competitors to imitate.Focusing on those customers who display a greater tendency towards becomingloyal is bound to modify the retailer’s customer base. With time it will tend tobe composed only of those customers who experience an alignment betweentheir needs and the company’s proposition, and will therefore naturally result insatisfaction and true emotional loyalty.7 Again, to do this, certain segments of
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customers need not be listened to: this change of perspective is more dif� cult toimplement than any multi-million hardware and software investment, given themass-marketing approach of most continental retailers.
Effects of retail micro-marketing
The survey of European loyalty schemes (see note 1) suggested that micro-marketing activity impacts on several aspects of a retailer’s and supplier’sbusiness and marketing strategy and competitive position. We discuss, from atheoretical point of view, some of the most interesting implications, beginningwith company-speci� c effects, then broadening the horizon to other actors in thevertical channel, such as suppliers, competitors, and consumers.
Micro-marketing and strategy
With reference to Porter’s (1985) general strategy matrix, retailers face four well-known options. Those willing to enter new markets or introduce new storeformats are only indirectly helped by micro-marketing: the information-intensive processes of micro-marketing provide useful insight and act as ‘train-ing’ for decision makers.
It is in current markets and store formats, though, that micro-marketingreleases its potential, both as a defensive and an offensive tool. Micro-marketingactivities take place within a speci� c store format: if we accept that only activitiesconcerned with the introduction of a new store format are truly strategic (Lugli1996), then it must be concluded that micro-marketing works on the operativelevel. Strictly speaking, in fact, literature attaches more relevance to macro(different formats) than micro segmentation. If we consider the resource-basedview of the � rm as paradigm, micro-marketing is in all ways strategic. Byattracting customers more likely to be loyalty-prone and closer to the retailer’sproposition, loyalty marketing increases satisfaction, trust, and barriers to exit,thereby defending the company market share and improving the inner quality ofsuch share. By contributing to differentiating store image and proposition,loyalty marketing can also attract competitors’ customers and work as anoffensive tool. The retail strategy is in essence a permanent effort to maintaindifferentiation from competitors: prompt imitation and evaporation of distinc-tive features soon frustrate retailers charging their loyalty scheme with such atask. A prerequisite of loyalty-building activities is a distinctive company (store)image, in the same way that brand loyalty can be built only upon brandawareness. Experience in the � eld of industrial continuity promotions shows thatit is strong brands which bene� t most from such schemes, while purchasers ofminor brands are just hunting for rewards and quickly reverse their preferenceswhen the prize is earned.
A retail scheme does not create store positioning, in that this is multi-dimensional. Loyalty programmes work on consumers’ attitudes in the same wayas direct marketing: they save resources, act deeper, can operate secret bilateraldiscrimination (e.g. direct mailing of special offers to certain customers), andproduce information to re� ne actions. Such logic is no alternative for a mass-
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marketing approach to store-image building. It is therefore necessary for the twoactivities to work coherently. For example, if the retailer’s institutional commu-nication is geared to low prices, the scheme should be below-the-line, etc.Otherwise, dissonance may arise in the shopper’s mind, thereby increasing,instead of reducing, the level of uncertainty in decision making. Successfulretailers have declared that relevance of loyalty scheme and coherence withstrategy are achieved only by involving management at all levels in the micro-marketing effort.
Micro-marketing and pricing
The adoption of micro-marketing impacts directly on the retailer’s long-termand short-term pricing policy. In the � rst place, the increased informationintensiveness of assortment and promotion procedures allows for a more sensiblereaction to market signals, even minor ones, but aims at steadiness. On the onehand, by encouraging experiments, micro-marketing fuels competition: it is wellknown that occasional discrimination loosens oligopolistic control. On the otherhand, by discriminating systematically, the retailer can create switching barriersagainst competitors, therefore lowering the level of competition. The fragmenta-tion of the store-price image – resulting from offering different discount levels,‘card-only’ offers, cluster speci� c prices, and straddle pricing – makes pricecompetition more dif� cult. The overall effect depends on the propagation ofcluster, category, and one-to-one price discrimination actions: European retailersseem less prone to such discrimination than their American counterparts, andmore willing to increase customer loyalty by moving away from a massive hi-loprice attitude towards an everyday low-price policy (EDLP). It is known thatEDLP requires more resources, and some are released through more ef� cientpromotion and assortment decisions. Micro-marketing could work as enabler ofEDLP for a broader range of companies than today; because loyalty marketing isin its infancy in most European countries, though, effects on long-term pricingare far from clear.
Micro-marketing and service quality
There is no doubt that micro-marketing activities contribute to improving thequality of a retailer’s offer. In general terms, when a loyalty programme isintroduced, investment is made in information and decision-support systems,and data control, cleaning, and standardization are carried out – think of theproblems concerned with EAN codes – so that the quality of information fordecision making is boosted. Merchandising, stock turnover, and assortmentdecisions are, for example, directly affected by higher-quality coding. On a moresophisticated level, by analysing the performance of items, brands, and categoriesin promotional actions and cross- tabulating it with customer segments, theretailer can take information-intensive decisions: the assortment and stock quality– a major component of the multi-dimensional concept of quality in the retailingindustry – are improved. Moreover, a loyalty orientation impacts on the averagequality of items in assortment. When a traf� c orientation prevails, the overall
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objective of low prices can lead retailers to carry low-quality products: whenloyalty is at stake, assortment decisions are shifted from low prices to quality. Inthe French distribution system, where the emphasis is on low prices, loyaltymarketing is only now appearing and most schemes are merely delayed pricecuts. The same can be said for the quality of pricing: the data-managementactivities above contribute to reducing price discrepancy between shelf and bill,and help improve the mix of promotional activities and related pricing.
Last, but not least, the new attention being paid to the value of therelationship – people, not transactions – emphasizes the role of training andinvolving personnel, the most important component of service quality.
Micro-marketing and hierarchies
It is often claimed that the need to introduce technology at every level of theretailing business will result in a wider gap between multiple retailers with acentralized managerial structure and the so-called organized distribution (OD),i.e. buying groups and voluntary unions, where power and competencies arefragmented and not evenly distributed between headquarters, distribution cen-tres, and stores. Besides, in certain European countries, OD centrals haverecently been going through a vocational crisis. Our survey has shown that theurge to introduce loyalty programmes has � lled, on the one hand, the marketingrole of centrals with new meaning. These claim to be able to co-ordinate micro-marketing activities ef� ciently for their partners. On the other hand, ODretailers face particular dif� culties in implementing micro-marketing: in the � rstplace, the company is organized into several ‘channels’, and each channelmanager has a need to access data and information of interest in order to de� nespeci� c assortment, pricing, and promotional actions. Second, the degree ofcentralization of micro-marketing decision making must be agreed upon: forexample, store owners claim that they should be the only owners of customermailing lists, and strongly oppose centralized direct marketing actions.
In Italy, former Euromadis, the second largest grocery retail organization,which has recently undergone disintegration and reorganization, appointed aloyalty manager, answerable to the marketing director, who is responsible for thedesign of the programme reward scheme, advertising package, managers and storepersonnel training, data collection in a central warehouse, report generation, andexception control. Data regarding the number of cardholders involved in promo-tions per cluster, category, and brand are used by the centre to negotiate withsuppliers, design new promotional activities, and are also sold. Last, but not least,co-operatives’ loyalty schemes have proved a success in many countries, thrivingon the positive image of companies which are perceived as having a ‘social mis-sion’ and being committed to fair and warm relations with customers.
Micro-marketing and channel relationships
Retail micro-marketing not only impacts on a � rm’s horizontal competitiveness,but also on vertical relations with suppliers. When retail activities cease to
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address solely consumers’ shopping habits and move on to in� uence consump-tion preferences, they also cease simply complement to industrial activities andrivalry explodes. Micro-marketing provides retailers with new proprietary non-transparent communication channels to customers, through which preferencesmay be addressed and modi� ed. This goal has up to now been performed withother tools, for instance private labels.
Just as with co-packing, suppliers display different attitudes: a few are simplynot interested, others will try to get free rides on what they regard as a tacticaltool, others will see loyalty programmes as strategic opportunities. The place ofsuppliers who show no interest is soon taken by others who become sponsors,partners, or information purchasers. The majority of suppliers show greatinterest in the distinctive features of loyalty programmes: they are direct,ef� cient, pro� table, measurable, exclusive, new, and information-intensive mar-keting channels.
Micro-marketing is direct, in that it reaches the customer when she/he iscloser to the act of purchasing than do mass media. It is ef� cient, because thereis no dispersion of message, which reaches someone who actually shops in acertain store and concerns merchandise which is actually carried by the store. Itis pro� table, because a loyalty orientation distracts retailers from price wars andimpacts favourably on suppliers’ margins. It is measurable, thanks to the supportof information technology, and responds to the brand leader’s concern withtransparent negotiation. It is exclusive, because it allows unique programmesponsorship per category for a certain period of time. It is new, because it allowsthe trial of new tools such as club magazine advertising, coupons, and direct mailby cluster and category. It is information intensive, supplying producers withrich and punctual information on very speci� c targets.
Micro-marketing offers new opportunities for partnership: it is up to theretail industry to exploit them properly or use the programme only to drag inadditional contributions. If retailers want to deliver superior value to consumers,they will choose as sponsors strong brands, whose preference is consolidated inthe customer base. It could be argued that followers and the like are dis-criminated against. This is not a matter of market share, though, it is a matter ofdistinctive image: local suppliers with a strong brand image can easily – andpro� tably – enter the loyalty programme. Only suppliers devoid of any distinc-tive image and appeal will suffer, but this again could be in favour of theconsumer. With new tools available, the competition between suppliers andretailers to provide superior value to consumers improves the result for thelatter. It is therefore desirable for retailers to proceed towards higher degrees ofautonomy in marketing activities in order fully to represent a countervailingpower in their own right.
Micro-marketing and consumers
Retail micro-marketing thus turns out to be an orientation to customer satisfac-tion: in the retail industry, where products are intangible and choice is complex,such orientation greatly increases the delivered value for consumers. Besides, ithas been discussed how micro-marketing improves service quality and, thanks tothe massive introduction of technology, such improvement does not necessarily
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result in higher costs and prices. On the consumer side, residual worries can befound regarding the privacy of personal data, which are disclosed whensubscribing to a loyalty programme. As direct and database marketing practicesspread in consumer markets, they contribute to shaping consumers’ opinions onwhat is fair or unfair. In the era of mass marketing, the key social criteria forjudging suppliers were product safety, price fairness, truth in advertising: thedevelopment of database usage has broadened the horizon to include, amongrelevant issues, the means and techniques employed to identify and choose targetsegments. All direct marketers face a mobile frontier, and by no means anobjective one, since the concept of privacy is customer speci� c: there aredifferent thresholds of sensitivity to personal data manipulation. Last, but notleast, it is questionable whether current concerns are about the right side of theborder. In other words, consumer associations discuss the legitimacy of beingincluded in mailing lists, but in the United States cases have already arisen aboutlegitimacy of exclusion, which could result in social discrimination based onincome, neighbourhood, race, and so on. Retailers know – and the case of thesingle European currency is bound to prove this – that, when uncertaintyincreases, there is a role to play in reassuring customers and an opportunity toincrease trust and thereby loyalty. We argue that, with the diffusion of a loyaltyorientation, the retail industry will add to its traditional functions of assortment,pricing, and service delivery a new role of protection of the information thatenables customization. In the words of Cespedes and Smith, ‘with increasedselectivity comes added responsibility’ (1993).
Stimuli for future research
The survey of micro-marketing activities in the retail industry prompts severalstimuli for further investigation. On the loyalty side, it is clear that behaviouralvariables tell more about the value of a customer for the retailer than they tellabout the strength of the relationship. It is therefore necessary to continueinvestigating the concepts of trust, loyalty, and customer satisfaction, in order toconceive satisfactory measures for the ef� cacy of micro-marketing. Second, acritical area that has often been overlooked is the area of marketing-budgetallocation between traf� c- and loyalty-building activities. An attempt was madeby Blattberg and Deighton (1996) from a producer’s point of view, but in theretail business there is a higher number of variables related to the heterogeneityof the assortment, the different marketing role of product categories, and thetwo-edged goal (loyalty and traf� c) of retail marketing activities. A third area ofresearch is concerned with vertical relationships. New contributions are neces-sary to shed light on the shift in the balance of power connected to possessionand use of relevant information by one of the parties, and on the mechanismsgoverning the prevalence of con� ict, collaboration, or contract aspects in thecomplex relationship between supplier and retailer. A fourth area of interest isthe application of direct marketing strategies and techniques to retailers who alsohave a ‘brick and mortar’ business, unlike the mail-order companies whichoriginally developed such strategies. Last, but not least, comes the task ofverifying our suggested conclusion, i.e. the increase in consumers’ welfare,
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particularly with regard to perceived satisfaction, and in the light of increasingworries about personal privacy.
Brie� y, our mostly theoretical discussion of the strategic relevance of micro-marketing awaits con� rmation or dis-con� rmation by future studies based onempirical evidence of how retailers are actually using the new opportunitiespresented by loyalty schemes.
Notes
1 The � rst phase in the research project consisted of a comprehensive analysis ofliterature on the topic of loyalty schemes, with an emphasis on collecting allrelevant information on the operations of leading European retailers. Seventeenindustry and business magazines were also examined and company web siteswere visited. The second phase of the project involved interviews with marketing,sales, information systems, or external relation managers in forty major retail com-panies, including: Tesco, Sainsbury’s, Safeway, Marks & Spencer, W.H. Smith,Superquinn (Eire), KBB, Albert Heijn (NL), Carrefour, Auchan, Casino, GaleriesLafayette (F), Sonae (P), K Group (FIN), Migros (CH), Standa, Sma, Conad, Coop,SoGeGross, Iperal, Euromadis (I), Ukrop’s, Lees, Big Y, Green Hills Farm (USA),Morgan Tuckerbag (Australia). Most interviews were conducted via telephone ore-mail. The author interviewed Italian retailers personally and visited at least one pointof sale for each company. Results of the survey are presented in detail in Ziliani(1999).
2 Today retailers manage spatial variability by differentiating pricing and assortment,although the differentiation effort is still limited, especially in less developed retailsystems. It should be noted that buying groups and voluntary unions have anadvantage here: due to their local roots, their offer is generally closer to speci� c marketpreferences.
3 Usually, marketing and promotion personnel manage frequent/preferred customerprogrammes, whereas buyers, with the aid of different and separate informationsystems, take assortment decisions.
4 By offering price cuts only to card owners, retailers exclude occasional shoppers andthose who do not bother subscribing to the programme who often show ‘cherry-picking’ behaviour: it has been demonstrated (see Ziliani 1999) that, when allowed tobene� t from special offers, both categories often display negative margins, resulting innet waste of promotional budget for the retailer.
5 They can choose to capture data at EAN level and run category promotion activ-ities only on one segment of customers, for example, the most pro� table 10 per centor the central 30 per cent of the distribution. Otherwise, they can capture EAN dataonly for a given period of time and given category, to run a joint promotion with asupplier. This orientation is also encouraged by major market analysis companies suchas AC Nielsen and IRI Infoscan, which run several schemes in outsourcing forretailers.
6 In 1995 Sainsbury’s dismissed as a ‘promotional gimmick’ the introduction of Tesco’sClub Card. Shortly after, Tesco declared an 8.9 per cent increase in turnover (against4.3 per cent the previous year) and ascribed it to their loyalty scheme. In a few months,Sainsbury’s hastened to react with the launch of their own Spend & Save card, whichsoon had to be withdrawn and was later substituted with the current programme,Reward Card.
7 A low turnover rate in the customer base (churn), coupled with little or no increase inthe size of rewards offered through the scheme, could be a good indicator that theretailer has entered this virtuous loop.
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