Oberweis Dairy: A Story of the High Value of Analytics

If you’ve never given thought to the value of analytics, the story that follows will prove to be a reminder of its worth.  The story concerns Oberweis Dairy in Aurora, Illinois.  Bruce Bedford, Vice President of Marketing Analytics and Consumer Insights for Oberweis Dairy, joins host Brent Leary to share the story of how analytics resulted in a 30% increase in customer retention.

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Small Business Trends: Can you tell us a little bit about your background?

Bruce Bedford: I might have a bit of an unusual entry into the world of marketing. I actually began my career as an engineer. I have a PhD in Chemical Engineering. I began working as an engineer doing all sorts of design projects for large corporations. Then I made my way into the world of business and marketing after a couple of years of engineering work.

Small Business Trends: Can you tell us about Oberweis Dairy?

Bruce Bedford: Oberweis Dairy has a network of retail dairy stores where we sell fresh fountain ice cream treats, cones, mike shakes, banana splits and sundaes. We actually sell fresh bottled milk as well, and a wide range of other products. We have 47 stores located throughout the Midwest.

The second line of business is a home delivery business where all of those grocery items we sell in the retail stores can be delivered right to you door step. We do that generally on a weekly standing order basis.

Then, because we manufacture our own dairy products, we distribute those through a network of regional and national grocery store chains – places like Costco, Target, etc.

Small Business Trends: Lets talk about the in-store experience. You had a lot of folks coming in and the lines were backing out of the stores. How did you tackle that challenge?

Bruce Bedford: When the weather gets nice, the ice cream business really takes off. We observed people might stand in line for quite a while, but generally they were stuck behind a person who was looking at our menu boards trying to determine what appealed to them at the moment.

As we looked deeper, we realized we were exacerbating the wait time by having a menu board layout that wasn’t nearly as efficient as we might have liked.

We began a study of that problem to understand if there was a better layout we can produce with a goal of minimizing wait times. Immediately we determined reordering the ordering process flow would be beneficial. However, as soon as we started doing that, the concern came that in reordering the flow of the menu board, it is very likely that we can shift the product mix in such a direction that we lowered the average ticket value. We call it value for transaction.

We went through a pilot phase program where we tested a variety of designs for the menu boards. Through a series of analysis we determined there was one particular design that solved two problems. We were able to measure a decrease in wait times. And we were able to determine people were selecting items that increased the revenue per ticket.

With that insight, we redesigned the menu boards for all locations throughout the Midwest. We achieved a dramatic increase in profitability per ticket as well as decreased wait times. In fact, we found that one of the items that was not a large mover in the past actually increased by over 80%.

Small Business Trends: You went into this trying to improve the experience of the customer by decreasing their wait time in line, but also increased the revenue per transaction?

Bruce Bedford: Absolutely. That really highlights the power of an analytical approach.

Small Business Trends: You also did a program using your analytical approach to determine a way to build customer retention around your home delivery business?

Bruce Bedford: We maintain an old fashioned home delivery business where we deliver farm fresh milk right to the doorsteps of tens of thousands of homes across the Midwest.

For a company our size, there are some very large national competitors that distribute their products across the nation. Our focus of getting product out to customers’ doors on a regular weekly basis is very important. Once we obtain a customer, it’s critical that we are able to maintain that business over a long period of time. Simply because it costs quite a bit to acquire a new customer.

One of the most popular promotions for our sales team had been a free delivery offer. We deliver our products with a standard product price. The product price is the same whether you go to one of our dairy stores, or whether we deliver the products to your home. We compensate for the additional cost of delivery by charging our customers a modest delivery fee of $2.99 per delivery.

With the promotion, we historically waived that fee for six months. That is roughly 26 deliveries. What we discovered through a technique called survival analysis, was that the retention of customers who took advantage of that free delivery offer was actually not that great. In fact, we found out that at the six-month mark, customers tend to drop off at a fairly rapid rate. So we thought, what is going on with that six-month mark?

We realized if you consider the difference between the 26th and the 27th delivery for customers on one of those promotions, there is no change in value from their point of view. The only thing is that they are now seeing an increase cost of $2.99 from us. We thought, ‘What if we offer a promotion, but don’t create a scenario where there is a such a sharp contrast at that six month mark?’

We used the Valpak Blue Envelope Service to put out a couple of competing coupons and did a randomized AB test, where we sent a coupon offering the six months free delivery. The way that works is, it turns out to be about $100.00 worth of value. Because we also offer a free Porch Box with that promotion. That Porch Box adds another $25 of value to the whole offer.

We also created a second promotion that stretched the time of the promotion out to one year where we offer a $.99 delivery for one year, basically reducing the cost of delivery by $2.00 with each transaction. In the course of doing that, the headline still read ‘$100 savings.’  So the direct mail pieces looked very similar, with a little bit of difference in the construction of the offer.

We sent that out to two random groups. We found a statistically insignificant difference in response rates. Both coupons performed exactly the same when it came to receptivity. We tracked those customers in both groups for a year and found the retention rate for the group receiving the $.99 delivery offer retained at a substantially higher rate. Approximately 30% higher than the group receiving the free delivery for six-month offer.

Small Business Trends: It doesn’t sound like a huge difference, 99 cents versus free. But I guess you identified the bargain-hunters and as soon as they saw the “free” wear off they were out?

Bruce Bedford: We hypothesized that there is psychological effect happening there. Most people hate the idea of giving up value that they know they already have acquired. What we discovered is, if we can continue to have value hanging out there that the customer can claim, they would continue to desire that value.

The value of the program is the same in both cases, $100 savings. In the one example with the six month free delivery, you get all of that value in the first six months. In the second one, it takes you at least a year to claim that value.

What we hypothesized is that people are willing to stay around for a long time if they know there are additional savings to be had. By the way, a 30% increase in retention translates into millions of dollars in added value. The power of analytics has allowed us to unlock this.

Small Business Trends: Bruce where can people learn more?

Bruce Bedford: You can go to Oberweis, or visit us on our Facebook page.

 

This interview demonstrating the value of analytics is part of the One on One interview series with some of the most thought-provoking entrepreneurs, authors and experts in business today. This interview has been edited for publication. To hear audio of the full interview, click on the player above.

This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it's an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.

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