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RETAIL VIEW: Sam's Club takes data mining to the next level

When a member of Sam's Club enters one of the chain's more than 600 stores, he or she can go directly to a kiosk located at the front of the store, swipe a membership card and print out a handful of specially designed coupons.

Kristy Reed, manager of corporate communications for the nation's second- largest clubstore operation behind Costco, said that the coupons are individualized to the specific shopper based on his or her shopping history. Ms. Reed said that the data from each shopper are used to create a profile, which is then analyzed via the computer, and the shopper is presented with numerous eValue coupons that can be used immediately in the store.

The Sam's Club spokesperson said that the system works by analyzing each person's shopping history and comparing it with others to identify individualized shopping patterns.

For example, she said that a shopper's profile might reveal that tortilla chips are a commonly purchased item. An eValue coupon greeting that shopper at the store kiosk the next shopping trip may be for fresh salsa.

Ms. Reed said that while the program does group customers according to buying habits, each eValue package of coupons is individual to each customer. Two customers will receive some of the same coupons if they have similar buying habits, but they almost certainly will not receive the exact same mix.

Retail consultant Dick Spezzano of Spezzano Consulting Service in Monrovia, CA, called the effort a "great idea." While mining the data from membership or loyalty cards is not new, Mr. Spezzano said that presenting these coupons to each individual shopper at the store level makes a great deal of sense, as it puts the coupon in the shopper's hand while shopping is top of mind, and it also saves mailing costs.

The longtime retail executive said that supermarkets have been data mining for as long as there have been membership or loyalty cards, but they have not been individualized to the extent that Sam's Club is taking them.

Mr. Spezzano said that in his experience, the information has been used to create clusters of shoppers.

For example, buyers of fresh seafood tend to be the high-profit shoppers in the store, as they also buy more expensive wine and premium produce. Hence a strategy would be developed to mail that group of customers promotions for higher-end items.

Another longtime retailer and retail consultant, Peter Goulet, owner of Pinnacle Sales & Marketing in Saco, ME, agreed that using this type of shopping data for target marketing is an excellent idea.

He said that for many years, retailers have been using the information in a number of different ways, with the most common usage being a broad-based application that gives a retailer specific information about its shoppers as a group. A retailer can mine these data to learn information such as average basket size and market share of specific items.

Mr. Goulet said that the data also could be used for some target marketing, as Mr. Spezzano noted, using shopping similarities to create clusters of people. Mr. Spezzano said that typically, a retailer separates its shoppers into a half- dozen different cluster groups.

Taking the information down to the individual level is the logical next step, said Mr. Goulet, calling it "intriguing" and envisioning how a produce marketer could use that type of service to its advantage.

For example, Mr. Goulet said that a Washington apple supplier might work with a retailer to give a coupon for Washington apples to a consumer that shows a tendency to buy New Zealand apples. Or a supplier of a produce item might direct coupons to a medium user of an item trying to convert him or her to a heavy user.

Ms. Reed of Sam's Club said that the retailer is working with its vendors on the coupon concept. She said that existing vendors are more than welcome to work through their specific Sam's Club buyer to get involved in the target- marketing program.

Steve Lutz of The Perishables Group did sound a cautionary note, saying that scan and loyalty card data analysis has been going on for quite some time, but when a retailer takes it to the individual level, there are some privacy and disclosure issues.

He said that customers do have privacy concerns and that some do not want their shopping habits shared with anyone -- including the supplier of the products they buy. He said that understanding and catering to the buying habits of groups of consumers is different than target marketing the specific buying habits of one individual, and added that there are consumer groups concerned about this potential privacy invasion.

Ms. Reed said that Sam's Club has no concerns about the privacy issue because it is a membership store. She said that the chain's customers are required to purchase a membership and use that card every time they shop. She said that Walmart, which is the parent company of Sam's Club, does not use a loyalty card and has no plans to initiate a similar eValue target marketing program.

Mr. Spezzano has heard concerns about the privacy issues but he does not believe it is a major worry. He said that as long as a retailer is not selling that information or disclosing it to third parties, it should be on solid ground using the data to create value shopping opportunities for its customers.