FreshDirect's Secret to Tantalizing Its Customers

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FreshDirect is on a mission to do things bigger and better. It has no choice.

A decade has passed since the online grocer started delivering sustenance to New York City residents. Eventually it expanded geographically to Long Island and Westchester counties, and categorically to new offerings such as prepared meals. It began to outgrow its headquarters in the Queens neighborhood of Long Island City and, a few years ago, started casting about for alternatives. New Jersey Governor Chris Christie tried to lure the company and its 2,000-plus jobs with $100 million in tax breaks, but New York wound up winning the day with an offer of $120 million in tax breaks and cash. The 500,000-square-foot facility in the South Bronx that will serve as its new base of operations gives FreshDirect the capacity to more than double the size of its business.

The time had come for FreshDirect to bust out of its one-market mentality. To go with its new state-of-the-art facility, it needed up-to-the-minute methods and practices. That's one of the reasons why, in 2011, the company brought in Aaron Cano as VP of marketing planning and analytics and Michael Kildale as VP of integrated marketing. Both are unrepentant direct response marketers who have successfully plied their trade at such diverse companies as Barnes & Noble, Chase Bank, and 1-800-Flowers.com. Both value the customer intelligence analytics provides. They rely on it to expand business among current customers and open new accounts among people they've identified as similar to existing high-value customers: affluent, educated people who place a premium on quality food, convenience, or both. Two-worker professional households with kids, for instance, fall right into FreshDirect's sweet spot.

New frontiers

In October FreshDirect took a bold step toward keeping its South Bronx warehouse working to capacity. It made its first move outside of the New York market, taking home grocery delivery to Philadelphia, whose residents learned about FreshDirect's arrival via radio ads—such as “I don't care if you're selling yachts or rutabagas, I want a guarantee.”—aimed at countering objections prospective customers have to not being able to inspect fresh food items before purchase. The City of Brotherly Love was selected as FreshDirect's first expansion market following a demographic data search that Cano and his team conducted. They scanned consumer sets in northeastern cities looking for a critical mass of people who resembled the company's typical New York customers. In fact, some of them were New York customers of FreshDirect. One key factor in Philly's favor was that it had the highest number of transplanted New Yorkers, who were already familiar with the FreshDirect brand.

“From the analytical side, the setup for Philadelphia took a lot of planning,” Cano says. “We started researching the market a year ago. We did phone and online surveys and searched third-party data and our own data, looking to determine the makeup of customers there and how they differed from our customers in New York.”

FreshDirect's battle plan for Philadelphia was constructed with the help of an SAS tool for new customer and market acquisition. Wilson Raj, global customer intelligence director at SAS, explains how it works: “You start with your current customer list and do a typical segmentation looking at demographical, attitudinal, and behavioral attributes. One of the other keys to determine is what we call value-based, which takes into account customers' willingness to spend, revenue contribution, and profitability.”

The next step is acquiring third-party data on prospects in the expansion market, lining it up with desired characteristics of existing customers, and doing a test campaign to identify customers who fit the preferred customer profile. Using data acquired from that test, a second test is run against long-time customer attributes to discern differences and devise a segmentation plan for the new market.

“Now you start homing in on the psychographic profiles in Philadelphia and you can merge it with transactional data from New York,” Raj says. “Then you can extrapolate what the preferred segment looks like in Philadelphia.”

Some of the factors FreshDirect analyzed were price sensitivity, food preferences, media consumption, and brand awareness. Kildale and Cano found that most Philadelphians knew nothing about FreshDirect, but that the food-buying concerns of their target customers closely matched those of New York customers. They also listened to a lot of radio, while stuck in rush-hour traffic, so those 30- and 60-second radio spots served as the clarion call to FreshDirect's entry into the market.

“Ad themes were straight and to the point,” Kildale says. “The trust factor is a big hurdle for us. Is the fresh food ordered online going to meet expectations? We encountered that in New York and instituted a 100% money-back guarantee of product, so that's an important theme in initial ads. We also talk about local sourcing of quality products and sustainability.”

FreshDirect deployed a direct mail campaign to target Philadelphia residents with a trial offer: $50 off each of two initial orders of $125 or more, similar to one the company had launched in New York. The total package included a booklet-sized envelope with a thought balloon reading, “Turn grocery shopping into a ZEN-like experience.” Inside was a letter from a FreshDirect chef bemoaning long lines and poor quality at supermarkets and offering an alternative: an eight-page, four-color pictorial featuring FreshDirect's quality meats, cheeses, produce, and prepared selections. The front and back covers carried stamps reading “Save $100.”

“This is a product of viewing data wisely,” Kildale says. “What we've found over the past two years is that when customers we're targeting get a chance to sample our products four to five times, they stay at a high rate and spend a big percentage of their grocery dollars with us. The problem is, it's hard to find them.”

FreshDirect did it with what Kildale describes as a traditional direct marketing approach, augmented by advanced analytics. First, Cano and Kildale created a profile of  FreshDirect's best customers, identified people in their own database who fit that description, and then appealed to people like them—identified through third-party lists—with a mailing that presented the $100-off deal.

“We think we're a little smarter at the way we go about locating prospects outside our database, and it has paid off,” says Kildale, who notes that the response rate from the mailer has been double that of previous direct mail programs.

While FreshDirect's marketing brain trust already understands who its customers are, finding out what those customers really want can get complicated, because it involves variables beyond what cuts of meat they prefer. FreshDirect needs to consider other factors, such as what day they like to order, when they prefer to have deliveries, or what types of deals might compel them to order more often.

“Who is loyal and what does that mean?” Cano asks. “Loyalty is bred in different people in different ways. There are customers who have to have a case of soda delivered at a certain time on a certain day or they won't buy [any other items].”

Deciphering this complex loyalty formula is where data analysis has had its biggest effect on how the marketing department operates at FreshDirect. “It's helped us get smarter about what we choose to focus on and, even more important, what we choose to ignore,”

Kildale says. “We have a better understanding of what merchandise to provide customers and even what time of the day to communicate with them.”

The website's the thing

On the day after Christmas 2012, however, FreshDirect's chief channel of communications with its customers shut down. Somebody had forgotten to reregister the website domain and it went dark during the lead-up to New Year's. The company lost an entire day of orders.

It was the second crisis the online delivery grocer had faced in the space of two months, the first being Hurricane Sandy in October, which limited the areas where it could deliver groceries. If there was a silver lining to these shutdowns, it was that it provided  FreshDirect with unusual insight into the minds of its customers, many of whom took to Facebook and Twitter to plead with the online grocer to restore service.

“Until these crises occurred, we didn't realize how passionate people were about us. These are not things people say in surveys, but they say them in social media,” Kildale observes. “We don't have a store where we can engage with people, so social [media] gives us open access to ideas about what we do well and what we can do better. Social media is less about prospecting and ROI and more about interactions with customers.”

While it's certainly gratifying for a brand to know the strength of its customers' emotional connection, there's no denying that a website shutdown for a company like FreshDirect is a disaster. The most important customer interactions—transactional ones—happen on FreshDirect's website, which is for all intents and purposes its storefront. Without a website, the company may as well not exist.

Fortunately, FreshDirect restored the website within 24 hours. This hiccup notwithstanding, it's apparent how much attention the company places on its Web presence. After all, while the online grocer can compete with every supermarket in New York, every supermarket in New York can compete with FreshDirect. Even if the company offers the best food at competitive prices and delivers it, and even if people have no problem paying the delivery fee, people still like to go into supermarkets to squeeze the melons, smell the bakery, and talk to the butcher. Therefore, freshdirect.com is a food content encyclopedia that attempts to draw consumers in and keep them with information and personalized deals.

A look at the meat page of the website quickly sums up FreshDirect's consumer proposition of quality, selection, sustainability, local sourcing, and personalization.

Click on the burger icon and you're taken to a page offering eight varieties of patties, including Kobe beef and short rib versions not likely to be found at the D'Agostino's on Third Avenue. Heading the offerings are five burgers from Pat La Frieda, a longtime supplier of quality meats to restaurants in Manhattan. If you didn't know that already, you're told about it in the two-paragraph description of the dry-aged beef burger you've clicked on. (It would be flagged “Your Fave,” if you've ordered it previously.) Just about every one of the thousands of items on the website carries such detailed content, appealing to the quality-driven, socially conscious FreshDirect consumer.

Channel strategies in aisle five

To get people to its website, FreshDirect's outreach to consumers consists primarily of email and direct mail. It hasn't invested in search, because few people search “home grocery delivery.” The company's mobile app, which like its website offers a personalized experience to users, is also a major point of contact. A Quickshop option allows customers to call up all orders they've made, pick one, and reorder or modify it.

The quality theme is carried over into emails that present deals and click-throughs to the website or to social media pages. Depending on what products they've purchased regularly in the past, FreshDirect customers will receive customized emails alerting them to products becoming available in season, such as blueberries from California or salmon from Alaska.

“We are at a disadvantage to the local grocers because of the human contact they offer,” Kildale says. “So we counter that by talking a lot about the product, why it's fresher and better, and getting that message to a customer at the right time.”

Timing receives much attention from the data analysts at FreshDirect, since one key advantage it has over supermarkets is that customers can shop its website 24-7, any day of the year, and from the comfort of their sofa or bed, if they like. Time and convenience are also factors that have FreshDirect's marketers contemplating how to use mobile to move the business forward. At this point, Kildale says, there's no ironed-down mobile promotional strategy—FreshDirect is just starting to look into it.

A well-stocked store

“What we focus on now is giving customers the kinds of choices that are going to make them more high-value customers,” Cano says. “What's changed here in the past few years is that we now have the reporting tools and the analytical tools that allowed us to go into the company's annals of customer data and process it in a way that marketers are able to use it.”

It's like the master mechanic in FreshDirect's truck depot corrected a glitch in the transmissions that allowed the fleet to go farther on less fuel. “The data and the questions have always been out there and we haven't had the ability to get the answers,” Kildale says. “I think now we have the ability.”

Perhaps he's right. One recent FreshDirect reviewer on Yelp noticed a change. “I used FreshDirect when they first started, many years ago. They were just OK. They used to do things like forget to pack half your order and take weeks to process your refund. So I stopped using them,” she wrote. “I started back a few months ago and they have definitely changed. The last few months I've always had positive customer service experiences.”

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