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Next week, the first LEAD (Loyalty, Engagement, Analytics, Digital) Marketing Conference is scheduled to convene at the Westin O’Hare in Rosemont, Illinois, and it is a mark of how important these issues are – even in a time of recession – that registrations are beyond expectations.

As described on the conference website, “The LEAD Marketing Conference is the first retail-centric conference to focus on understanding and leveraging these effective and emerging technologies which are crucial to attracting and maintaining shoppers, as well as providing much-needed differentiation in today's competitive marketplace.” Among the keynote speakers: Candace Adams, former Senior Director, Customer Experience at Walmart; Mark Heckman, VP/Marketing for Marsh Supermarkets; Stephen Vowles, Senior Vice President, Stop & Shop/Giant Supermarkets; and Gary Hawkins, president of Hawkins Strategic, author of “Customer Intelligence,” and CEO of Green Hills, a family-owned supermarket in Syracuse, NY.

To get a preview of the kind of issues that will be discussed at the LEAD Marketing Conference, we engaged with Gary Hawkins in an exclusive e-interview about his topic: “Retail 3.0: The Next Generation Retail EcoSystem,” a new concept developed by Hawkins Strategic.

MNB: You describe Retail 3.0 as “relevant, personalized marketing to individual shoppers, supported by realtime marketing and supply chain synergies, built on a foundation of shopper-identified transaction data.” But I can hear retailers all over America saying, ‘That’s fine…but I’m in a recession, I’m competing with Walmart, and I’ve got to focus on price, price, price.” How would you respond?

Gary Hawkins: Retail 3.0 is about information, and leveraging that information, both product- and customer-based, to create competitive advantage. Retailers without shopper-identified transaction data, such as Walmart, are blind to the most important part of their business. They are able to see product-based sales and margin information, they may even be masters of managing product logistics, but they are not able to see - and individually market to - the shoppers that are actually driving their business.

A majority of supermarkets have a loyalty program in place through which they gather shopper-identified transaction data, which is fundamental to targeting relevant promotions to individual shoppers. But, how many retailers are really leveraging that information? How many are combining that with email, web, mobile, and other ways of inexpensively communicating personalized promotions and content to their shoppers? The answer is, not many. And yet these retailers are overlooking a very potent weapon they already have to use in today’s retail battles.

Personalized, relevant marketing drives sales, shopper retention, and provides further opportunity to collaborate with suppliers to deliver meaningful value to shoppers. As retailers build their digital communication interaction with shoppers, it provides an opportunity for cost savings through decreasing less effective yet expensive mass marketing.

Though the economy has been a brutal one, we are seeing forward-looking retailers invest in infrastructure, systems, and solutions that are part of the Retail 3.0 world. I was talking recently with the CEO of a supermarket chain facing brutal competition in a part of the country hit hard by the recession. This executive is investing in technology infrastructure to position his company for growth even in the current environment.

Many of the pieces of Retail 3.0 deliver strong ROI and gain in their own right. The real excitement begins when these different systems and solutions literally get connected, changing the retail paradigm.

MNB: You seem to point to dunnhumby-type analytics as being the kind of differential advantage that can provide enormous advantages in today’s marketplace…and yet there don't seem to be that many companies availing themselves of this kind of technology. Is there more going on in this arena than it appears at this point? And if it is so important, why do companies as big as Publix and Supervalu – which you describe as “customer intelligence have-nots” – seem to think it is not critical to long-term survival?

Gary Hawkins: Retailers that Hawkins Strategic has described as “customer intelligence have-nots” are aggressively searching for how they can enter the fray. They realize the significant value creation that can flow from shopper data. Their challenge is how to obtain vast levels of shopper-identified transaction data without launching a “me too” loyalty program, which many of these retailers refuse (rightly!) to do.

There is no question that the success of the Kroger-dunnhumby partnership has generated strong interest throughout the industry. In addition to the significant sum of incremental trade promotion money Kroger is accessing, the company has financially outperformed all other supermarket companies over the past five years. Kroger has even outperformed Wal-Mart until very recently. This superior financial performance, driven by monetizing and operationalizing the insights gained through their shopper data, has garnered the attention of other retail executives, driven in no small part by Wall Street analysts putting Kroger forth as the benchmark. All this has been noted by the other big players - and each of the Tier 1 supermarket retailers, and a number of larger Tier 2 retailers, are engaged in active discussions searching for their “dunnhumby-like” dance partner.

Certainly, vast insight can be gained by marrying transaction data with panel data and other third party sources; Walmart generates significant insights that they are able to monetize. But, those retailers who have high quality shopper-identified transaction data are in a superior position to follow the Kroger-dunnhumby path and capitalize on the Retail 3.0 ecosystem. As we have suggested in the Retail 3.0 series of Position Papers (available at www.hawkinsstrategic.com), those retailers without shopper-identified transaction data will become increasingly disadvantaged in the marketplace, both in terms of financial performance and in delivering a strong value proposition to shoppers.

MNB: You talk about personalized data leading to personalized marketing. Give me an example of how this would work…and what a retailer would be able to do with information to drive sales and profits.

Gary Hawkins: There are countless opportunities to transform the marketing and shopping experience using shopper-identified transaction data, i.e., a detailed record of a shopper’s purchasing history.

We can see how Stop & Shop is already working to leverage this through their Scan It! system, targeting promotions to the shopper’s handheld scanner as she moves through the store. Kroger is utilizing shopper data to target promotions to individual shopper households via their quarterly mailings.

But a very clear example is provided by Green Hills. Each participating customer receives personalized promotions each week based upon their shopping history, communicated via email, web, and kiosks in-store, with the customer-specific discounts delivered automatically into the transaction. In place for over three years, shoppers participating in the SmartShop system impact a significant portion of Green Hills revenue. Participating shoppers spend more and shop more frequently than non-participating customers. Personalized marketing is very powerful.

Personalized marketing will continue to grow in importance as more and more consumers have special dietary needs, lifestyle interests, and associated health & wellness concerns. There is a tremendous opportunity for the industry to leverage a Retail 3.0 ecosystem to take every shopper’s needs into account in how they market to them.

MNB: Does that mean mass marketing is dead?

Gary Hawkins: No. Mass marketing is not dead. But it will absolutely evolve as the Retail 3.0 ecosystem takes hold. Mass marketing has a strong role to play in branding and positioning, in addition to communicating various marketing programs. But mass marketing is no longer the most effective way to communicate all promotions. There is an optimum blend or balance between mass marketing, personalized marketing, and more traditional loyalty marketing.

As we outlined in our latest 3.0 Position Paper, Shopper Marketing, it is possible in the Retail 3.0 ecosystem to at last measure marketing in terms of the actual number of shoppers realized in the store. With this guide, a retailer can begin to understand the impact and effectiveness (or lack thereof) of their mass marketing, and search to find the optimum marketing blend as evaluated by the customers in the store and the cost to attract those customers.

MNB: To what extent is Retail 3.0 the purview of big chains with financial and technological resources? If not, give me an example of how an independent or small chain might be able to use it to compete more effectively with a behemoth?

Gary Hawkins: The big chains certainly have a financial advantage in terms of being able to fund investment in the technology infrastructure required for Retail 3.0. And, to relate this back to your first question, we are seeing a number of the larger companies indeed making those investments.

Historically, as retailing came to rely on technology to realize supply chain efficiencies and make store-level operations more effective, smaller retailers became increasingly disadvantaged. This was compounded by national brands’ increasing focus on the largest ten or fifteen retailers who drove most of their revenue, and to a great extent ignoring smaller retailers and even regional chains who simply could not move the needle for a national brand.

This bleak environment for smaller retailers is changing, though, and changing rapidly. We are seeing technology providers realizing there is opportunity to provide sophisticated solutions to smaller retailers using a Software-as-a-Service (SaaS) model. Things like price optimization and pricing systems are now available to smaller retailers. Even sophisticated loyalty solutions are being made available such as Retalix’s for smaller retailers in the StoreNext network.

It is in the area of loyalty that smaller retailers are best able to shift the competitive battle their way. Small chain retailers and independents are essentially closer to their customers and are far abler to build relationships with their shoppers using loyalty systems. And, as smaller retailers begin to truly understand their business in terms of shoppers, they are able to more quickly and aggressively shift their priorities and investments to align with the opportunities than larger companies can.

MNB: Where does Walmart fit into the Retail 3.0 continuum?

Gary Hawkins: Walmart can and does participate in the Retail 3.0 ecosystem to a large degree, but not completely. They have world-class capabilities relative to supply chain logistics and are becoming much more sophisticated marketers. The one area, though, where they cannot close the loop today, and where they will be challenged to in the future, is fundamental to the Retail 3.0 world: delivering relevant, personalized marketing to their individual shoppers.

Walmart does not identify shoppers to their transactions on a massive scale. Other retailers like Kroger, Green Hills, and countless others, are able to do this via their loyalty programs, the loyalty card or key tag identifying the shopper. Interestingly, however, Walmart does have this data available to them through their Sam’s Club division: being a membership club, the company does gather historical shopping data tied to the shopper.

MNB: If indeed there has been a supply chain power shift to consumers, does this make one of MorningNewsBeat’s central tents even more true: that the most effective loyalty program is the one that demonstrates consistent store loyalty to the shopper, rather than the other way around?

Gary Hawkins: It is very challenging, perhaps even impossible, to make a shopper loyal to a retailer without the retailer being loyal to the shopper. In our view, the 3.0 Retailer is able to create and extend this loyalty by providing a superior value proposition to each shopper in the form of promotions and information relevant to each shopper’s interests and needs.

Take, for example, the exploding number of consumers with special diet needs (e.g., diabetic) or lifestyle interests (e.g., organic). How can a retailer effectively market to all these different interests using mass marketing and mass promotion? If I’m a diabetic, I have no interest in the ice cream and soda advertised on the front page of the flyer. At the same time, the retailer is challenged to justify the cost of marketing to a smaller segment of their overall shopper base.

Historically, as marketers increased marketing refinement, moving from mass to segments to individuals, the business gain was mitigated by the increased cost of the marketing effort. In the world of Retail 3.0 and low-cost digital channels, it is less expensive to market to individual customers—and doing so creates enormous business gain from increased shopper spending, improved retention over time, improved ROI on marketing investments, and the opportunity for cost savings gained through reduced mass marketing spend. This paradox is transformational, and we do not believe many in the industry fully comprehend its importance.

For more information about the LEAD Marketing Conference, go to:

http://www.leadmarketingconference.com/