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Kroger Quarrel With P&G All About Relationships

In the recession, customer relationship management has become a bigger issue for retailers, and not only for upscale specialty stores that have been pioneering the strategy but mass-market retailers such as supermarkets.

In fact, relationship management may have had a bearing on a recent tiff over electronic coupons that ended a deal between Kroger (KR) and Procter & Gamble (PG).

Relationship management takes many forms. Upscale retailers such as Sephora invest in it heavily because much of their revenue comes from a relatively small part of the population and largely from repeat customers who can pay for the pricey package of goods and services it provides.

By their nature, mass-market chains have a harder time applying relationship management strategies than more service-oriented specialty retailers. Their stores are largely self service and their promotions emphasize price rather pampering. But it's not as if they don't try. The greeter who staffs the door at Walmart (WMT) is an example of mass-market relationship management, one that has been remarkably successful for its simplicity. More recently, the development of loyalty card programs and social networks on retail web sites have emerged at new relationship management endeavors.

Borge Hald, the CEO of Medallia, a customer experience management company that has worked with Sephora to help it enhance shopper relationships, said retailers recognize today that customers have become more selective in where they shop. Accomplished at customer service as it is, even Sephora has had to reevaluate its programs. Medallia, which specializes in soliciting and analyzing direct customer feedback, helped Sephora reconstitute services it offered but shoppers seemed to underutilize. For example, Medallia and Sephora discovered that some services the retailer offered took too long for most customers to fit into a visit. When it discovered the problem, Sephora reconstituted the services so they could be accomplished faster, and they gained in popularity.

Ultimately, the goal of customer relationship management is to enhance or simply establish a characteristic experience that is consistent, unique and can be defined for consumers in a way that makes it particularly attractive. To put it another way, retailers are trying to constitute a brand using their stores in a manner that's similar to what their suppliers do using products.

Hald said that mass-market retailers traditionally accepted the roll of pipeline between consumer package goods companies that developed goods based on their perceptions of shopper needs then marketed them to generate the demand that drove products through stores. Today, however, retailers face competition from many different retailers that sell a lot of the same products in various configurations and through different store environments. Hald said supermarket operators, the original pipeline stores, had become interested in his services as more retailers add substantive food operations and more consumers, prompted by the recession, try them out. Alternative grocery store retailers have proven adept at branding themselves. Supermarket operators have watched Whole Foods (WFMI), Trader Joe's and Aldi gain on that basis.

As retailers shift from driving sales through product-oriented promotions to marketing themselves as brands, their relationship with their suppliers changes. Sometimes that process doesn't proceed smoothly.

Last week, reports emerged that Procter & Gamble and Kroger had ended a program that allowed consumers to download P&G coupons directly onto the supermarket operator's loyalty cards. Kroger, through its work with Dunnhumby USA, has been developing a more elaborate and sophisticated loyalty card program to help it build customer relationships. Despite some disappointing elements in its latest results, Kroger CEO David Dillon said the company's customer loyalty initiatives had helped it build market share in the third quarter.

According to reports, the end of the retailer/supplier couponing relationship came about after Kroger decided to end links between the downloadable Procter & Gamble coupons and elements of P&G's website that promoted its brands through sample offers and other deals.

Kroger's move enhanced its brand by emphasizing its role in providing the coupons. At the same time, it denied Procter & Gamble the opportunity to tout its involvement and discuss initiatives that weren't confined to the relationship with Kroger. In the course of getting closer to customers, retailers are confronting situations where they are coming into conflict with suppliers. Just ask Costco (COST) and Coca-Cola (KO) about that. A new chapter in the supplier/retailer dynamic is emerging, and it won't be written without more conflict.

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