I do not mean to question your work experience, Dwayne, but rationalizing is a well know feature of organizational behavior. That is to say, organizational actors tend to justify their actions in terms of the dominant organizational ideology i.e. beneficial effects for the mythical bottom line, even though the real effects are either unknown or less than stellar. In other words, corporate execs & their consultants may say or even believe that loyalty cards improve their bottom line, because improving the bottom line is expected of them, but that does not necessarily mean that it is actually the case.
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The issue isn't merely my "work experience" but my close participation in and observation of the whole thing in motion: from design and engineering through implementation and final results. When you watch the numbers flow, (a truer indicator of the situation than the happy talk of marketeers) you're in a good position to know the bullshit to real ratio.
And from this observation I can tell you that many of these systems work almost exactly as advertised.
However, your general point is taken. Indeed, were it not for a non-disclosure agreement, I could tell you a story - still unfolding - about 8 million dollars worth of hubris made of over-promising sales people, easily duped, technically retarded execs, over-extended software and a foolish attempt to fit the proverbial square peg (in this case, a proprietary data mining platform) into a round hole: described in official circles as adding up to a smashing success.
Wojtek wrote:
Obviously, connecting demographic info gathered through loyalty cards to sales may offer some marketing advantage in the beginning - no dispute here. However, from the example you quote the main advantage would be to the manufacturer of the product rather than the retailer, who has the choice between different manufacturers and thus dump those who do no sell. Yet, it is the retailer not the manufacturer who issues the loyalty cards - and that itself begs a question why?
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Even in this burgeoning age of direct sales via the Internet, manufacturers are dependent upon retailers. The more information large-scale retailers possess, the greater their leverage over, or at least, negotiating power with, suppliers.
Sony, for example, maintains an online store named "Sony Style"; you can buy almost all Sony products through this virtual store. Sony Style is a relatively low-cost venture which provides the Tokyo-HQ'ed company with a middleman-free method of making sales. Even so, Sony must deal with Best Buy et. al. who remain a major outlet for their product line.
To the extent this remains the case, and, to the extent that Best Buy and fellow corporate travelers can use sales and demographic data to negotiate more attractive terms, (see for example: Toshiba's situation with the now orphaned HD-DVD format) the balance of power between maker and seller is, if not exactly tipped decisively in the retailer's favor, nudged enough in that direction to make the investment in tracking methods worthwhile.
Consider the case of Walmart (WMT).
According to an archive search, WMT has been mentioned on list about 500 times. I'd wager that for perfectly understandable reasons most of these posts are about that despised company's excessively unfriendly labor practices and effect upon smaller retailers. Often overlooked is their remarkably deft use of sales tracking databases (not necessarily linked to loyalty cards) as leverage over manufacturers/suppliers.
And not just sales tracking DBs but also databases keeping track of a manufacturer's costs. Using this data, and their near monopoly position in several regions of the US, WMT has been able to dictate terms to their suppliers, reversing the power dynamic established in the age before data mining.
Imagine a WMT exec saying the following to a supplier:
'We know your widget cost X+0 dollars to make. You're charging us X+3 to carry them. Because of your well-regarded name, you're demanding prime store positioning and marketing support. I'm holding a report - output from our tracking DB - which shows that your product isn't doing very well in WMT stores in the following key regions. We're essentially the only game in town in those regions which means we're the only major outlet for your product. Here's what we suggest: move your manufacturing facilities to Shenzhen, China. Doing so will enable you to lower your manf. costs. Next, you will change the price you charge us to X+1. We will determine store placement and depth of marketing commitment based upon the aggregate results of our ongoing data gathering.'
No need to imagine; this is almost exactly the sort of thing that happened as the WMT empire was built.
About this, see:
Is Walmart Good for America?
<http://www.pbs.org/wgbh/pages/frontline/shows/walmart/>
Putting aside the title's somewhat sentimental and nationalist tone, this is a good documentary about, among other topics, WMT's powerful use of information technology for command and control.
Wojtek wrote:
But more importantly, even if the data gathered through loyalty cards offered a substantial advantage to the retailer (or the manufacturer), as you claim - it is also clear that such an advantage would disappear if all retailers used the same data collection method. That is to say, when all retailers collect similar information, no one has a competitive advantage, and their relative position against each other remain more or less the same.
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In a way, all retailers *are* using the same data collection method. Back-end database platforms may differ and some orgs may be smarter than others - i.e., some, such as WMT, are more nimble at collecting, analyzing and making swift use of data - but in the abstract, the method is the same.
Large-scale retailers seek competitive advantage by accurately identifying their market segment and, at a finer level, uncovering that segment's habits and exploitable self-image (WMT, low income value seekers, Target, aka TGT, middle and upper income big box shoppers, etc). These efforts may or may not produce a "substantial advantage" but they do offer *enough* of an advantage to make them cost effective.
Next up on our program, a detailed discussion of the use of business intelligence tools such as Cognos. Stay tuned!
.d.