Knowing Your Customers:

"About 41% of retailers have, or are in the process of developing, databases that will enable them to track consumer purchases, as well as behavioral and demographic data."
Progressive Grocer, 11/96

The above quotation points to the importance that serious retailers place in knowing their customers. In the case of private or investor-owned businesses, knowing the customer is a market- and profit-driven goal. Knowing as much as possible about potential customers' spending patterns, lifestyle preferences, incomes and education levels allows retailers to make better decisions regarding store location, product selection, advertising content and placement.

Cooperatives, though they may vary in the degree to which they acknowledge the fact, share these market and profit drivers with conventional businesses. More importantly, as consumer-owned businesses, cooperatives also have a principled interest in knowing their customers; serving customers is their very reason for being.

In this article, I will:

• discuss the importance of developing member and customer databases to help meet the mission of serving your member-owners' needs while addressing the market and profit drivers;
• present three specific ways to do so: surveys, member applications, and at the checkout.

Cooperatives and databases

Cooperatives have an inherent advantage over privately-owned stores when it comes to gathering information about customers, insofar as, in most cases, the majority of a co-op's customers are also its owners. And any customer who is not an owner of the cooperative where they shop is a potential owner. Another advantage that cooperatives have is that they are likely to be perceived as adhering to higher standards of integrity than, say, a large supermarket chain. Members should feel confident that any information that they give to the cooperative will stay within the cooperative and not be viewed as a valuable commodity that can be sold to manufacturers or outside market research firms to help subsidize a coupon or frequent shopper program.

What information about your customers do you want to collect, and how will you use the information that you do collect? The answer to the second part of this question logically determines the answer to the first part. Before discussing how to collect information we must establish why.

Every day, a cooperative's managers make decisions including what products to carry, how to price them, what to promote, where to place ads and what to put in those ads. Without sophisticated POS (point of sale) systems to provide management with data to inform those decisions, many managers use SOP (seat of pants) systems - the value of which should not be underestimated. SOP is arguably highly effective at ground zero marketing, where quick decisions about product selection and promotion can be made effectively, based upon some amount of data combined with the grocer's instinct and experience. But the need for accurate customer data increases as the questions that need answering move further off the shelves and more in the direction of developing new product categories, putting together an ad campaign, developing a marketing plan, or looking for a new store location. To illustrate:

Suppose you have noticed a drop-off in the number of daily customers. You are sure that you lost a lot of them to a new store that opened recently and that offers a better selection of product than your store. You have reacted by increasing your product department's offerings and dropping prices. You want to advertise this to your lost shoppers, but you are not sure which newspapers they read or radio stations they listen to. You want to place your ads where you think they will do the most good. However, if you had previously collected information about your customers' media preferences, this decision could be made more easily and with less risk.

Or, say your current store is bursting at the seams, and you think it may be time to open a second store. You know the typical natural foods shopper fits the following profile: well-educated, relativelyhigh income, and white. A lot of your customers seem to fit this description, but you sense there are some significant variations on that theme. In estimating the size of your potential market, you can obtain demographic information for the population in your trade area, but you would like to construct a profile of your current customer base to see how it compares. If you had collected income, education and other key demographic information about your customers, this process would go more quickly and accurately.

The types of information that I have been discussing can be imagined to run generally along a spectrum defined on one end by functions related to Operations, on the other by those related to Planning, and in the middle of the spectrum by issues around Marketing. (See graph.) While various forms of customer data can be used to improve results at many points along this spectrum, specific types of data are more applicable for different functions. Operations refers to the daily, more repetitive functions that can fall under the umbrella of Merchandising. Customer data that can inform these functions include age, family size, income levels, dietary restrictions, nutritional needs, ethnicity, etc.

Data Spectrum

Operations

Marketing

Planning

Age
Family Size
Income Levels
Dietary Restrictions
Nutritional Needs
Ethnicity
Media Preferences
Lifestyle Values
Hobbies/Interests
Other Stores Used
Frequency of Shopping
at Your Store
Educational Attainment
Location of Residence
Location of Workplace
Methods of Transportation
Store Volume from
Geographic Area

Specific data that inform Marketing functions are media preferences, "lifestyle" values, where else your customers shop, and frequency of visits to your store.

At the Long Range Planning end of the spectrum, important data include income and education levels, location of customers' residences, location of customers' workplaces, methods of transportation, and the dollar volume of purchases from various geographic sectors. It is safe to say that at this end of the spectrum, all data is relevant, since the goal is to make the best estimates ofyour cooperative's market strengths and opportunities.

Three good vehicles for collecting customer information are: surveys, the membership application/renewal form, and the checkout counter.

Customer surveys

Surveying customers should be an ongoing function at all cooperatives. Because the marketplace that you operate in changes over time, your customers' options and preferences also change, and periodic surveys are one method of staying in touch with those changes. Surveys also track your cooperative's performance over time, as customers react to changes that have been put into effect.

Conducting a successful survey requires a fair degree of work and planning, from determining the objectives, to designing the questions, to distributing it and collecting responses, to collating and making sense of the input. So while a survey can be used to answer a specific question, it should also be used as an opportunity to refresh some of the key data in your customer files, such as your current customer profile, and customer shopping patterns and preferences. Over time, you can track the results from survey to survey to discover important trends that may be affecting your business.

One practice that I have observed in some cooperatives is restricting surveys to members only. While it certainly is important to know what your owners are thinking, it is just as important to know what your non-member shoppers are thinking. Non-member shoppers can hold up a valuable mirror to the cooperative, reflecting what the "outside" world thinks of it.

As you analyze the results of your survey, remember that even with a full customer survey, you are not assessing the opinions of people who do not shop in your store, and thereby are missing important information. You can either set out to survey these non-customers or include in your analysis the fact that they haven't been reached.

Membership applications

When a customer decides to become member-owner of the cooperative, another valuable opportunity for the co-op presents itself. The Progressive Grocer article cited earlier goes on to say that "some of the sources (of customer data) include customer courtesy and check cashing cards, frequent shopper programs, shopper surveys and customer lists developed by the pharmacy and photo departments." The membership program is the vehicle that conventional retailers are mimicking with their courtesy/frequent shopper cards. With their POS technology, supermarkets are able to turn a relatively small amount ofpersonal information into a marketing gold mine, by tracking customer purchases on an item by item basis, thereby developing profiles of individual customers as well as aggregate information. Supermarkets typically use these profiles to attempt to build store loyalty, and they are also sold to companies whose business is built around targeting consumers.

Whenever I perform a market study, one of the first questions I ask of the cooperative is, "What kind of member data do you have, and in what format do you have it?" The usual answer is that the co-op has a member list which contains only basic information such as name, address, phone number and joining date. With such limited information, it may be possible to develop a sense of the store's trade area by looking at how groupings of members are concentrated in various geographic areas. In itself, this is an important capability. However, this information is one dimensional.

It tells us where most of the members live, but it doesn't tell us who these members are and what they are like. We can't tell how old they are, what their interests are, how much education they have and what they buy, so we are left to infer the makeup of the trade area, usually based on the assumption that those who live closest bring in the greatest sales volume. And lastly, a member list only tells us about members. It ignores the other portion of the sales base: nonmember shoppers. In some situations this can represent as much as 50 percent or more of the co-op's business.

Referring back to the spectrum of data that I described above, the information in such a member list serves very few purposes. I recommend that cooperatives design their membership applications to better capture the data that will put the cooperative in a stronger position to assess and meet the needs of its member-owners. Members should be asked to provide the following information:

residence, date of birth, family size, income, educational attainment, dietary preferences/restrictions, hobbies and interests, favorite newspapers, magazines, radio and TV stations, family vehicles, primary means of transportation, place of work, how they found out about the co-op, why they are joining.

Understandably, much of this information would be considered sensitive by most members. The cooperative should structure its application so that all but the basic information needed to maintain a member's records (name, address, phone, amount of investment) is kept separate from the rest of the information; i.e., a member can supply their age, income, etc., anonymously. The cooperative should explain that this information will be kept confidential and not allowed outside of the cooperative, and that it is used solely to enable the cooperative to monitor the makeup of its member-owners in order that it can better serve them. Your member-owners should understand that you are helping them by compiling this data.

This information must be kept in a format that is easily compiled, analyzed and readily available. It should become part of the regular reporting to management and to the board, in order that they can be kept abreast of the makeup of the membership.

Checkout counters

Another source of data that a cooperative has at its disposal is the checkout counters. For stores that have computerized POS systems up and running, linking purchases to customers is usually not a problem. Tying this purchase data to address information in the customer's file allows for the development of a customer map showing the geographic spread of the cooperative's sales. This is valuable information for planning for another location, and also can be used to develop current marketing plans, since it shows the geographic areas that the cooperative may be failing to draw from.

While it is relatively straightforward to access this information using fullblown POS systems, there are other lower tech approaches that can yield useful results. One co-op that has found a relatively low cost approach to gathering this type of data is Food Conspiracy in Tucson, AZ. They have been using a frequent buyer software application (developed by Customer Knowlogy Inc., of Palmdale, CA) that allows them to tie purchases to a member number. While Food Conspiracy does not scan purchases or use any of the other features normally associated with POS, they are able to successfully track member patronage and shopping patterns. Such software is becoming increasingly available and affordable as many types of retailers look to implement frequent buyer programs.

At a lower level of technology, many register systems allow the cashier to enter an account number along with a purchase, and will give a daily readout of the activity on that account. While the number of accounts may be too limited to apply to all members or shoppers, a number could be assigned to each zip code in the store's trade areas and shoppers could be asked for their zip code when they reach the register. In this way, a store could perform periodic geographic sales tracking studies that would give it information on where its sales were coming from. (A more precise mapping can be done using census tract numbers rather than zip codes. Since few people know their census tract number, the store would need to provide a list of tract numbers in a conveniently accessible form for customers if it wanted to tie purchases to census tracts.)

In any of these scenarios non-member purchases can be tracked by issuing check cashing cards to non-members. To get the card the person will need to give you his/her address, which allows you to tie the sale to a location. Sales to people without such a card could be tied to a zipcode or census tract account number, as above.

To summarize: gathering information about your customers can make you more effective at meeting their needs and planning for your cooperative's future. The three methods discussed -- surveys, member applications, and at the checkout -- can best be used to capture information in the following ways:

Survey:
Shoppers' habits, perceptions and opinions, demographics.

Membership Application:
Address, age, family size, income range, educational attainment, dietary preferences, media preferences, hobbies/interests, mode of transport.

Checkout:
Linking sales to geographic location, shopping patterns.