Safeway Gives Away the PDA

FRAMINGHAM (03/16/2000) - Meta Group Inc. analyst Gene Alvarez says Safeway has trumped other grocery chains that try to hook shoppers with product discounts and "loyalty" cards. "With those, you're buying loyalty with margin," he says.

"I'm loyal for this transaction only."

Safeway also has discount-based loyalty cards, but its PDA adds "service-based loyalty," a concept Alvarez predicts will become more common in U.S. retail chains during the next three years. That brand of loyalty is more long-lived because the PDA enhances the entire shopping experience every time, not just for specific discounted items, he says. And the data mining, which builds the timesaving customer-order profiles, introduces in the shopper's mind a "switching cost" that inhibits a move to competitors.

Safeway thinks of its PDA technology not just as a way to collect orders but as a way to communicate with customers. "When IBM Research and I sat down to design Easi-Order, we wanted something available to anybody, anytime," says Mike Winch, CIO at $14 billion, U.K.-based Safeway PLC, which is no longer associated with U.S.-based Safeway Inc. "We wanted an easy way for customers to communicate with Safeway and us to them. And we didn't want the complication of PCs or logging on to the Internet." This customer communication is highly personalized, Winch adds. Easi-Order customers see on their PDA screens suggested orders based on past purchases. But they also see suggested buys tailored to demographic data collected by Safeway. "We don't present meat promotions to vegetarians or baby products to pensioners," he says.

Winch says the Easi-Order PDA will someday morph into a PC-less Internet portal. "We will go beyond Safeway's product portfolio, and whether you want theater tickets, airline tickets or information about a particular area of interest, we'll make that available."

"The strategy of most retailers today is a product-push strategy," says Christian Nivoix, worldwide general manager for IBM's distribution sector. Now a few companies are adding a complementary customer-pull strategy in which customers are pulled into the store or coaxed into ordering specific items, based on knowledge of their preferences and demographics, he says.

Safeway is ahead of the game because it started to build a repository of customer data five years ago - something competitors can't quickly match, Nivoix says. "This push-pull strategy is the strategic thrust that will make the difference between winners and losers in the near future in the retail industry," he says.

Easi-Order was developed jointly by Safeway and IBM's research laboratory in Hawthorne, N.Y., in an IBM program called First of Its Kind. Now available in the Basingstoke store only, Easi-Order will be in some 200 stores around the U.K. within three years, says Jeremy Wyman, Safeway's business solutions manager.

Some of the challenges of implementing the systems are surprisingly mundane, such as building the special Easi-Order processing areas in the stores. They require a special service desk, computer terminals, printers and refrigerators for holding the orders. "It's not always easy to get a plumber, carpenter and electrician working together," Wyman explains.

And there's the cost of the PDAs, which Safeway gives away. With the built-in scanner, they cost Safeway $400 each in low volumes. Making matters worse, a number of customers apparently use them as electronic organizers, with no intention of ordering through them. Wyman says the cost will come down with higher-volume buys, and Safeway is considering other schemes - such as carrying paid advertising - to offset the cost.

Another worry is that Easi-Order will reduce impulse buys. Several customers told Computerworld that they're now less likely to buy things they don't really need. Safeway's response: to use those smart data-mining techniques to tempt shoppers with promotional items they just can't refuse. For example, Safeway pushes baby products to new mothers through Easi-Order, based on birth notices obtained from a government health agency.

There are some compensating factors to a possible loss of impulse sales. Graham Rutt-Mouret, who does all the shopping and cooking for his family of four, says he spends about $130 per week via Easi-Order. He says Safeway ought to waive the $5.75 per order charge it tacks on. But he says he feels he's joined an elite class of shoppers because he no longer has to queue up at the checkout counter. He says he's less likely now to shop at Safeway's competitors' stores.

"I see myself as a different kind of customer now," he says.

Says Alvarez: "That's exactly the kind of feeling you want to generate from a good customer relationship management strategy."

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