economics

May 31, 2010

Sam’s Club Personalizes Discounts for Buyers

Filed under: Uncategorized — ktetaichinh @ 7:18 pm
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On a recent evening, for instance, Angela Otero stopped by the Sam’s Club in Secaucus and printed out four pages of eValues offers at a bright green kiosk near the front door, including $50 off a plasma television, $3 off a 30-pack of toilet paper and $2.50 off a box of meatless burgers.

Ms. Otero said she had used eValues since it started in August and found that the discounts covered “the majority of things I want.”

“The detergents, TV dinners once in a while,” she said, scanning through her printout of deals. “There’s a dollar off Bounce. I use that all the time.”

“It’s basically my own grocery list,” she said.

Linda Vytlacil, vice president for member insights and innovation at Sam’s Club, said coupons normally had a response rate of 1 percent or 2 percent. With eValues, she said, as many as 20 percent to 30 percent of eligible customers collect the discount they are offered.

The program is available only to Sam’s Club’s “Plus” members, who pay a higher yearly membership fee than do regular members. They can view the deals by e-mail, on the Sam’s Club Web site or at store kiosks.

“There’s no clipping coupons,” Ms. Vytlacil said, adding that eValues offered “highly individual relevant offers specific to each Plus member. All they have to do is purchase the product, and the savings are automatically applied at checkout.” Like other membership clubs, shoppers must present a card at checkout.

The eValues program is the latest iteration in the fast-growing field known as predictive analytics, which uses vast amounts of data to spot trends and anticipate consumer behavior.
Two of the best-known users of applications of predictive analytics are baseball executives, who scour statistics to find overlooked superstars, and the online DVD rental service Netflix, which suggests movies its customers might like.

The dating service eHarmony also uses the practice to match potential mates, and eLoyalty, which sells customer service technology, uses algorithms to analyze customer calls to make them more effective and efficient.

For instance, based on a day’s worth of calls, eLoyalty can predict which customers are likely to cancel their accounts. Using that information, a company can then call back those customers to try to save their business and can use the initial call to train its employees to do better.

“The goal is to have customer service reps speak to the customer in the way they want to be spoken to,” said Jason Wesbecher, eLoyalty’s vice president for sales and marketing. “We are trying to rescue customers trapped in service hell.”

Of course, retailers have long tried to decode consumer behavior, through surveys or test panels, or by using crude forms of data analysis. During the last decade or so, many retailers have amassed huge amounts of data through loyalty programs or membership cards, like those provided by Sam’s Club and its rival, Costco.

But retailers have generally done little with the information, other than using the cards as a branding opportunity or to offer broad discounts
Working with FICO, the company best known for providing credit scores, Sam’s Club has improved its ability to predict what each customer will buy and the time frame in which that purchase will occur.

For any product discount, Sam’s Club can vary the message and price in the communication received by the customer, said Andrew N. Jennings, FICO’s chief research officer. Aside from the cost savings, tailored messages to consumers can also highlight specific product attributes that a particular consumer typically seeks, like “organic” or “environmentally friendly,” he said.
The messages are aimed at encouraging repeat buys or enticing a first-time purchase, while avoiding conflicting promotions, Mr. Jennings said.

Some privacy advocates worry that customers are becoming too willing to allow corporations to gather and exploit their shopping histories. Most users of the data, Sam’s Club included, insist they have rigorous protocols to protect customer privacy.

And for all of its sophistication, there is no guarantee that eValues will be a hit. Most shoppers observed during several recent visits to the Secaucus store went about their shopping seemingly oblivious to the eValues kiosk.

In several instances, shoppers stopped to use the kiosk, but a scanner failed to read the bar code on their cards, forcing employees to manually type in their membership numbers.

Still, some shoppers said they were impressed by the deals they were receiving using eValues. Ricardo Mayoral printed out four pages of deals at the kiosk, including discounts on orange juice, ice cream sandwiches, televisions and chicken breasts.

“I got like $2 off the bananas, a $1 off the Toasted,” he said, referring to a package of crackers in his cart. Mr. Mayoral, 36, said the best eValues deal yet was $300 off a $1,200 television.

“I remember that day,” he said later. “I came to buy food, and I bought two TVs.”

Brad Bogan, 44, who works near the Secaucus store, said he signed up for a Plus membership during a recent promotion and had more than covered his costs with eValues savings. (Plus members pay $100 a year; regular members pay $40.)

Even so, convenience sometimes trumps value. Mr. Bogan is not renewing his Plus membership because his office is moving farther away from the Secaucus store and there is not a Sam’s Club near his home.

“We use BJ’s more than we do Sam’s,” he said, referring to BJ’s Wholesale Club. “There’s a BJ’s right down the street.”

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