In the early days of the full-line vending revolution, operators found themselves installing their machines in "closed" workplace locations. These accounts generally gave the vending company a large clientele that did not change from day to day, and operators soon recognized the need to keep up interest in the machines. Without the technology we have today, this posed quite a challenge, and discussion began about point-of-sale merchandising and sales promotion in the breakroom or lunchroom.
That discussion has continued ever since. The inability of 1960s (and '70s) technology to handle promotional discounting was recognized as a problem and many operators worked around it by staging periodic "customer appreciation" days. The usual method was to send a supervisor out, every now and then, to stand in the vending area during break periods and offer customers a cup of coffee on the house. Still, industry observers who watched what other retail channels were doing were concerned about vending's apparent inability to match the promotional flexibility and creativity displayed by convenience stores and the "big-box" chains.
With the advent of microprocessor-based control boards in the 1980s, vending machines become much more flexible. The addition of automated data collection and retrieval in the 1990s and its integration with wireless wide-area network hardware and software over the ensuing decade has, at length, given the vending industry the ability to interact with its customers as well as (or better than) c-stores and discount retailers can do. The latest development is the micromarket, which presents a whole new spectrum of opportunity for customer engagement.
But with that opportunity also comes a degree of risk. We now have the ability to track customer habits, and that kind of data inspires thoughts of loyalty programs and other promotions of the kind used in other channels. But what should we really be doing with this information to grow our businesses? It's important to keep in mind that, while consumers are tremendously eager to obtain goods and services at very low prices, the supplier has to make a profit while all this is going on. The vending industry always has been painfully aware that "you can't make it up the volume."
In a recent 365 Insights newsletter, Matt Caston, chief strategy officer for 365 Retail Markets, shared some interesting thoughts on this topic. In his discussion, he referenced a very worthwhile article by Slate magazine columnist Brian Palmer, arguing that retailers should reward customers by offering products and services that address their desires and needs, not for adapting their buying habits to avoid ever paying full price. The publication is online at slate.com.
Caston observed that the "stored value" accounts that more than half of all micromarket customers use for payment have generated excitement on the part of operators and suppliers alike. "For the first time operators not only know exactly what is being sold, but who is buying it and when," he pointed out.
"Here at 365, we agree: it is powerful data, and can be helpful in understanding sales trends and buying behavior," Caston said. "But to me, it's those user accounts with a zero balance and limited or no purchasing activity that hold the most promise." An operator serving a location with 250 employees and selling to half of them will find the real opportunity in attracting the other half.
He said that many operators are telling him, "We need better promotional tools and loyalty programs to get these users in." The key, though, is to come up with programs that will increase sales at the market price. The danger is that discounts and free-merchandise offers reduce the profitability of sales to already satisfied patrons, with no assurance of increasing the customer base.
"365 definitely believes a promotional engine will be of value, but it needs to be built properly and executed with even more care," Caston emphasized. "Otherwise, promotion, discounting and BOGO [buy one, get one] offers will simply establish a new baseline price for your products -- something no one wants!
"We want our operators to optimize sales by offering a quality-differentiated selection of products, in an attractive and enticing environment," the 365 CSO explained. "The most successful retailers know this is a winning strategy." Thus, most of those retailers don't use loyalty programs; they adhere to well-planned, disciplined promotional calendars.
I couldn't agree more, and think that the same reasoning applies to the new generation of vending equipment. Loyalty programs are not always the answer. In most industries, businesses that think they can't compete on service or product quality are not trying hard enough. Lots of companies have gone out of business as their sales volumes increased.