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Case Study: Customer Segmentation, Loyalty Program, High-Value Markets

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Grocery Store Chain: Customer Segmentation, Loyalty Program Design, High-Value Markets, Dynamic Pricing

An interview with Stefan Boedeker

The Company

A grocery store chain.

The Challenge

The grocery store industry is a low-margin business, and the increase of volume is a high priority. The chain identified key drivers:

  • Identify and retain profitable customer segments
  • Optimize price setting relative to customer sensitivity
  • Acquire new customers from potentially most profitable segments

While developing a new business plan, the chain realized it was not utilizing data gathered from its new loyalty card program and at store terminals. It wanted to better understand where and when customers shop, what they buy, and who was most likely to attrite. The chain was also suffering from customer attrition but felt it had the technology to implement and measure success of a loyalty program. It approached BRG experts to turn raw data into predictive insights to improve the loyalty program.

The Solution

BRG professionals used nearly 100 gigabytes of customer loyalty program data across over 250 stores, including detailed transaction logs, customer profiles, UPC pricing, product hierarchies, and Acxiom demographics. After collecting, consolidating, and standardizing these data systems into a comprehensive database, BRG experts advised on five actions:

  1. Identification and acquisition of potentially valuable customers
  2. Segmentation of the most valuable customers in the existing customer base to be included in specific retention promotions and activities
  3. Determination of each customer’s potential to increase actual spending
  4. Determination of each customer’s sensitivity to price changes 
  5. Determination of cross-selling opportunities based on detailed, customer-specific, market-basket analysis

The Results

The increased knowledge about individual customers and their behavior enabled the launch of one-to-one marketing campaigns, sharply increasing the return on marketing investment. Price promotions were optimized for discount levels, cross-selling opportunities, and timing. Customer-specific dynamic pricing was modeled. Share-of-wallet analysis was deployed to design marketing campaigns to attract customer segments with higher spending potential and retain customers who already spend the majority of their grocery budgets with the store.