October 23rd, 2008

Personalized Store Ads Take Off

By David Kesmodel
The Wall Street Journal

Big Marketers Start to Embrace Pitches Tailored to Reflect Shoppers' Buying Habits

For years, supermarket cashiers have handed shoppers coupons as they left the checkout aisle. These days, shoppers often get narrow paper strips printed with something else: ads related to the shopper’s own buying habits.

Recently, Stouffer’s has used such ads to encourage buyers of its single-serve frozen entrées to join its Dinner Club. Joining the club allows consumers to earn points for buying the Nestlé unit’s products. The points can be used to bid for rewards like TV sets and magazine subscriptions.

Targeted ads like these began appearing in some of the nation’s major grocery stores about two years ago, but big consumer-product companies like Nestlé, Coca-Cola and Kraft Foods are just starting to buy them in significant numbers, as they and other marketers put more emphasis on reaching the right consumer at the right time.

The checkout ads range from messages encouraging shoppers to try a brand that competes with one they just bought, to others urging them to buy a new flavor of a product they buy regularly.

“It’s a really effective way to reach a consumer,” says Brett White, head of marketing for Stouffer’s, which has bought such ads for about a year. Indeed, Stouffer’s said the response rate to the checkout ads for its Dinner Club was 10 times as high as for similar ads that ran in freestanding newspaper inserts.

The company behind the ads is Catalina Marketing, a closely held marketing-services firm in St. Petersburg, Fla. Catalina, armed with data provided by retailers about shoppers’ buying habits, showed Stouffer’s that 6.7% of all shoppers accounted for 80% of its single-serve volume. So, Stouffer’s targeted ads at many of these regular buyers, bypassing those who hadn’t bought its products.

Catalina learns which shoppers buy a particular product by tapping into the vast reservoir of data retailers collect from customers who use loyalty cards. Stores offer such cards to their customers as a way of tracking their purchases, typically in return for discounts or access to special promotions.

Catalina’s network is composed of 23,000 retailers, including grocery giants like Kroger and Safeway, which give Catalina access to data on roughly 90 million of the 111 million U.S. households. Catalina offers some consideration to the retailers, but it wouldn’t elaborate.

To avoid privacy concerns, Catalina says it doesn’t use or store any data that would personally identify the shopper, says its chief executive, Dick Buell.

Instead, each household’s information is tagged with an encrypted 40-character number. When a shopper provides his loyalty card to a cashier, a computer reads the number linked to that card, and Catalina’s printer generates a relevant ad message.

The Catalina service is starting to take off as marketers see positive returns on their investments. The firm says it now has clients running multimillion-dollar campaigns. And it expects revenue growth from the targeted-ad service to exceed 25% this year.

Some of its clients are locking up deals for a specific category of product for as much as a year, says Mr. Buell.

GlaxoSmithKline PLC has bought ads for its Tums antacid to target shoppers around holidays like the Fourth of July and Thanksgiving, when they tend to eat more heavily. Catalina serves up the ads to shoppers who have bought Tums in the past.

Glaxo found that about 60% of shoppers shown the ads come back and buy Tums, says Larry Whalen, senior innovation manager for the Tums brand. “We are pushing more money into more targeted programs where we can really measure the result,” he says.

Moët Hennessy USA, a unit of French luxury giant LVMH Moët Hennessy Louis Vuitton, ran targeted ads late last year and early this year for two California wines—Newton Napa Valley Claret and Newton Chardonnay—that it was introducing at Tom Thumb and Kroger supermarkets in Texas. “We felt there was an opportunity to get lost on the shelf, so we knew we needed to get out of the blocks quickly,” says Bryan Moreno, market director for Texas.

The company targeted ads at shoppers who had bought wines in the same price category—about $20 a bottle—over the past year. The ads gave sales a lift, Mr. Moreno says, and were much more cost effective than the brand’s traditional strategy of offering tastings at grocery stores.

Still, the strategy isn’t foolproof. No one knows how many shoppers look at the ads or how many of them get left in shopping carts. Catalina says a Cornell University study it commissioned in 2003 showed 80% of consumers read its coupons “most of the time.”

Mr. Buell says the service tends to be most effective in driving customers to buy more of a product or try a newly launched product. It is less effective at getting shoppers to cross categories, buying a beverage, for example, from a manufacturer whose cereal they like.

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