When Kroger sends coupons to its customers for products that they had purchased in the past, it achieves a 50 percent coupon redemption rate. This extraordinary level—the average rate is about 3 percent—suggests the grocery chain is doing a good job making its customers more loyal.

Kroger co-owns DunnhumbyUSA, a data-mining and marketing firm that analyzes customer data to gain insights into customer behavior. The company targets its coupons to customers who will use them specifically, rather than at random. Dunnhumby also uses the data to determine merchandise assortments in the stores, promotions, pricing, and placement. The company can see, for example, that Tide detergent sells well in certain areas but that Gain sells better in other areas. Kroger then can make sure that its inventory gets distributed appropriately to the different regions.

DunnhumbyUSA also analyzes customer data for Coca-Cola, Home Depot, Kraft Foods, Macy’s, and General Mills. These companies can gain customer insights and react to predictions of customer behavior, which makes them better positioned to survive in today’s environment. Many companies collect a lot of data about their customers but cannot use them to drive their business strategy. Kroger, in contrast, has 55 million card holders and leverages all of their information to ensure they stay loyal grocery shoppers.

One concern some people have about this type of customer analysis involves privacy. Companies invest in long-term relationships with their customers, which may suggest they are unlikely to abuse the information that they have. In addition, by tracking purchases, it offers better deals on the items that each customer buys most. Thus, for many customers, the slight invasion of privacy is worth it, especially if they can save money, even if the company does know that they prefer Baked Lays to Ritz Chips.

Discussion Questions:

1. How has Kroger changed the way its customers receive and use coupons?

2. Can other stores follow Kroger’s approach successfully?

Dan Sewell, “Kroger Uses Loyalty Data to Target Coupons,” Associated Press, January 6, 2009.