Service Request SR-kf-013 Paper

Kudler Fine Foods is in the process of developing a new frequent shopper program. Details of this program are described in the Service Request SR-kf-013 and on the sales_marketing.docx.

Write a 2 page paper describing the potential legal, ethical, and information security concerns related to the development of the Kudler Fine Foods Frequent Shopper Program.

Discuss in your paper any specific costs related to these issues that are relevant to your review. These could include fines and other costs related to problems in these areas.

Keep your analysis focused on the requested concerns, not the project itself. Your paper should focus on making management aware of the issues that must be addressed in the new system and should not directly cover the implementation process.

Include in your description how this information system has an effect on the organizational structure.

Kudler Fine Foods has experienced significant growth and is now focused on expanding the services, improving the efficiency of its operations and increasing the consumer purchase cycle as a means to increasing the loyalty and profitability of its consumers.
Strategic Objective: Increase Loyalty and Profitability of Consumers
• Expanding Services (Revenue Increase) – Kudler is offering parties in the store to show customers how to prepare specialty foods. The draw for the consumers is to be trained by world-renowned chefs, local celebrities, other food experts, and even Kathy Kudler herself, and to be invited to exclusive, upscale events. The anticipated outcomes will be to increase the customer purchase rate of high margin food and beverage items and to get consumer to make an evening at Kudler Fine Foods part of their social network. This increased time in the store will increase the overall revenue per visit and increase the frequency of visits to the store. Consumers will receive multiple entries in high-ticket item contests by bringing a friend to the parties. While the firm’s preference is to have the events in-store, guests can have Kudler cooking classes at their home for a price premium. Programs such as this encourage consumer loyalty and word-of mouth marketing.
• Frequent Shopper Program (Revenue Increase) – Kudler’s new initiative is tracking purchase behavior at the individual customer level and providing high value incentives through a partnership with a loyalty points program. The customer purchase behavior patterns will help Kudler refine its processes and offerings to best satisfy their valued customers. Price is not the primary differentiating factor for Kudler consumers; these consumers are focused on quality and finding specialized items. Therefore, rather than providing everyday discounts to the customers for their purchase frequency like lower end markets, Kudler has partnered with a loyalty points program to provide customers with points which can be redeemed for high end gift items, airline first-class upgrades, or other specialty foods.
• Increased Efficiency (Cost Reduction) – Kudler’s is now in a position to focus on internal (both front line and behind the scenes) processes, and how those can be improved to deliver increased value to the customer. From a service perspective, Kudler is benchmarking Nordstrom department stores. In addition, the firm is developing employee training programs and integrating new software systems to facilitate the effort. Marketing has encouraged the purchasing department to find ways to reduce costs of ordering foods and minimize the amount of food to be stored, while also having a zero stock out policy. In response, purchasing has developed a supplier relations program and has solicited the help of marketing to help roll out the program.
Historical Sales Data and Financials
Historically, Kudler Fine Foods has tracked information such as dollar value and profit margin per transaction, dollar sales and profit levels by day, and dollar sales and profit margins by item. However, in an effort to leverage the information to create a more intimate relationship with their customers, the firm is integrating a system to track customer purchase behavior over time. The firm is in the process of developing this system now.
The three department managers are encouraged to check with their counterparts at the other stores on the pricing, quality, and delivery of the merchandise they order. They are also encouraged to combine orders between their stores if they feel there would be a cost savings resulting from ordering a larger quantity of a particular item or multiple items.
Kathy also places purchase orders. Kathy’s purchases relate mostly to unique, capital, or repair items that might be required by an individual store or for items used by all three stores, such as bulk Purchase Orders or Receiving forms.
Prepared purchase order forms are either mailed, handed to supplier salesmen, faxed to suppliers, or sent by E-mail if acceptable to suppliers. Whatever the method used, a purchase order form is always filled out initially and becomes the key tracking and financial document for an order.
Advertising
Advertisements are prepared for local newspapers by Kathy. Advertised specials are offered at all three stores simultaneously. Kathy coordinates the items on sale with the store managers from each store during her weekly operations review meetings to make sure adequate supplies of merchandise will be on hand. Merchandise can be shifted between stores should one store have a higher demand of an item than another store, time permitting.
Accounting
Accounting data is collected by the point-of-sale terminals (cash registers) that are used in each store at check-out to record all items, quantities, prices, taxes and totals for all daily sales transactions.
Inventory Management
Excess inventory is always a concern since it represents company monies being tied up in merchandise that is not moving or generating further income. Excesses can also lead to write-downs of the merchandise.
The department managers are responsible for maintaining high customer service levels for the items they sell, which means carrying higher levels of inventory, but not excessive service levels. Kathy’s policy is that adequate levels of inventory should be maintained to assure that stock-outs do not occur more than 2-3 times a year. This customer service level is discussed during Kathy’s monthly operations review meeting and adjustments to merchandise stocking levels made if warranted. A customer service level of 95% has been a general goal for a number of items carried. 95% means that 95% of the time a customer will find merchandise available in a store. 5% of the time there will be no merchandise due to a previous stock-out. The store decides on an item-by-item basis whether a rain check will be offered customers if an item is out of stock.
Forecasting
Forecasting which items to carry and how much to carry in the future has always been a challenge. Kathy and her department managers utilize historical data on which items and what quantities were sold in the last 2-3 years, especially on holidays. This provides an indication of which items and what quantities to carry in the future. Forecasts are basically an extrapolation of past history to the future. In an increasing sales market, the trend extrapolating forecast works fairly well. The difficulty has always been in determining the forecast’s turning points, from increasing sales to decreasing for example, since significant errors can occur at these points. This is a reoccurring topic in monthly operations review meetings in which monthly sales are reviewed for the last year and monthly forecasts prepared for the next three months, a quarterly forecast for the quarter after that, and for six months for the next six-month period after that. The accuracy of this forecasting method has not been as good as desired and has resulted in the obsoleting of some merchandise and in offering others at drastic discounts.
Merchandise Selection and Pricing
The Kudler stores are no different from any other store in that business success is geared to being able to provide total customer satisfaction. One way to satisfy customers is to offer a changing selection of gourmet foods as they become available since customers always appear to be demanding something new. Kathy considers one of her key responsibilities to be that of identification of new gourmet items that can be offered in her stores. To keep up with what’s available, Kathy monitors what other gourmet foods stores are offering, what’s being advertised in gourmet magazines, what is being shown at gourmet conventions, and what shows up on gourmet Web sites.
After finding some new and interesting items, Kathy usually obtains a small amount of each item and introduces them at one of her operations review meetings. The managers attending the meeting get to sample the items and to offer their comments, suggestions and recommendations on whether to offer the items or not.
In checking on all the new items, especially on what competitors are offering, Kathy is also in a position to determine what current selling prices for the items are. With this information, Kathy and her staff then discuss if and when merchandise prices should be changed and by how much.
The purpose of this sales plan is to help Kudler’s managers prioritize and focus resources in a way that reaches the organization’s objectives. During 2007, Kudler plans to increase customer loyalty by offering added high-margin services, leveraging the firm’s better understanding of customer purchase patterns, and providing more efficient operations. New customers will be acquired through social network marketing and word of mouth. The selling function will support the expansion of services and programs to increase loyalty and profitability of existing customers and to gain new high-margin customers. The theme for this year is outlined below. Let’s make it a great year!
Kudler Sales Plan 2007
Theme: Delight Our New and Existing Customers Through
• New Customer Focused Programs
• Better Information Management
• Targeted Awareness Building
• Increased Behind the Scenes Efficiency and Cost Containment
Sales Plan Contents
Part 1: Strategic sales objectives with corresponding financial goals and roll-out schedules
New Customer Focused Programs
Better Information Management
Targeted Awareness Building
Increased Behind the Scenes Efficiency
Part 2: Tactics by marketing mix, timing, and relationship to strategic sales objectives
Product (existing products and new offerings)
Pricing (pricing, promotions, and discounts)
Promotions (customer and sales)
Place (expansion, emphasis on locations or customer regions)
Part 3: Customer Relationship Management Strategies and Tactics
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Part 1: Strategic sales objectives with corresponding financial goals and roll-out schedules
Strategic Sales Objectives
The objective of the sales organization is to successfully implement programs designed to increase revenue and decrease costs. The sales group will support the rollout of new customer focused Programs, leverage customer information to support sales growth of existing customers, initiate targeted activities to recruit high-profit new customers, and support operational cost-cutting efforts taking place company-wide.
This section will review the following strategic initiatives:
• New Customer Focused Programs
• Better Information Management
• Targeted Awareness Building
• Increased Behind the Scenes Efficiency
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New Customer Focused Programs: Cooking Class Socials
We will initiate specialty cooking classes as a way to increase the consumption of high-margin items among existing customers and to build awareness, trial, and regular shopping among new customers.
Kudler is offering parties in the store to show customers how to prepare specialty foods. The draw for the consumers is to be trained by world-renowned chefs, local celebrities, other food experts, and even Kathy Kudler herself, and to be invited to exclusive, upscale events. The anticipated outcomes will be to increase the customer purchase rate of high margin food and beverage items and to get consumer to make an evening at Kudler Fine Foods part of their social network. This increased time in the store will increase the overall revenue per visit and increase the frequency of visits to the store. Consumers will receive multiple entries in high-ticket item contests by bringing a friend to the parties. While the firm’s preference is to have the events in-store, guests can have Kudler cooking classes at their home for a price premium. Programs such as this encourage consumer loyalty and word-of mouth marketing.
Role of the sales group: The sales group will actively promote these programs to the existing customers and targeted potential new customers in key high-income zip codes. We anticipate that initially, the majority of participants will be existing customers, however, over time, new customers will participate in the programs. The projected mix of existing and new customers is outlined in the table below, along with the projected lift in revenue resulting from the programs.
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Cooking Class Socials
Quarter Description Existing Customers New Customers Projected Revenue Lift
Q1 Direct mail re: classes.

18 Specialty Cooking Classes 90% 10% .75%
Q2 24 Specialty Cooking Classes 75% 25% 1.25%
Q3 Direct mail re: classes.

12 Barbeque Buster Classes

18 Specialty Cooking Classes 65% 35% 1.75%
Q4 12 Customer In-Home Parties

24 Specialty Cooking Classes 50% 50% 3.75%
Total 7.50%
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Better Information Management: Frequent Shopper Program
Our new initiative is tracking purchase behavior at the individual customer level and providing high value incentives through a partnership with a loyalty points program. The customer purchase behavior patterns will help us refine its processes and offerings to best satisfy their valued customers. Price is not the primary differentiating factor for Kudler consumers; these consumers are focused on quality and finding specialized items. Therefore, rather than providing discounts to the customers for their purchase frequency like lower end markets, Kudler has partnered with a loyalty points to provide customers with points which can be redeemed for high end gift items, airline first-class upgrades, or other specialty foods.
Role of the sales group: Sales will be trained on these programs, including in-depth training on data analysis. This is an important facet of our quest to delight the customer.
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Frequent Shopper Program
Quarter Descrption Projected Revenue Lift
Q1 Employee-wide training session

Frequent shopper program rollout .25%
Q2 Assessment and refinement of program

Frequent shopper promotion, increased customer satisfaction .50%
Q3 Frequent shopper promotion, increased customer satisfaction 1.75%
Q4 Frequent shopper promotion, increased customer satisfaction 2.25%
Total 4.75%
Targeted Awareness Building: Direct Marketing and Word of Mouth
Direct mail promotional literature will be sent to high-income zip codes to solicit customers. These pieces will contain information about the array of products and services offered by Kudler. Kudler will be positioned as a place to interact with others interested in exceptional quality foods for entertaining and everyday use.
Role of the sales group: Provide input during the development stages. Participate in the training sessions. Support the roll out of the direct mail piece.
Increased Behind the Scenes Efficiency: Cost Cutting Initiatives
Kudler is now in a position to focus on internal (both front line and behind the scenes) processes, and how those can be improved to deliver increased value to the customer. From a service perspective, we are benchmarking Nordstrom department stores. In addition, an employee training program and new software systems will facilitate the effort. Marketing has encouraged the purchasing department to find ways to reduce costs of ordering foods and minimize the amount of food to be stored, while also having a zero stock out policy. In response, purchasing has developed a supplier relations program and has solicited the help of marketing to help roll out the program.
Role of the sales group: Support cost cutting efforts as needed.
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Part 2: Tactics by marketing mix, timing, and relationship to strategic sales objectives
Product
The frequent purchase program will give us valuable data on customer purchase patterns. Beginning in Q1, sales will work with purchasing to adjust the product offerings on shelf to reflect the needs of our customers. This analysis will evaluate frequently purchased items with their corresponding profit margin and fit within the product mix.
Pricing
The promotions introduced during Q1 such as the frequent purchaser and the cooking classes are designed to be self-funding. We are using a cost-plus minimum pricing strategy to hit our minimum 5% margin threshold, combined with a market-based strategy to build in additional margin around what the market is willing to bear. Rather than offer discounts to our customer, we offer value added services.
Promotions
Direct mail promotional literature will be sent to high-income zip codes to solicit customers. These pieces will contain information about the array of products and services offered by Kudler. Kudler will be positioned as a place to interact with others interested in exceptional quality foods for entertaining and everyday use.
Role of the sales group: Provide input during the development stages. Participate in the training sessions. Support the roll out of the direct mail piece.
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Place
For the sales department, our bonus is contingent, in part, on the successful implementation of the customer promotion programs discussed in this plan. If we meet 100% of the targeted revenue each quarter for the cooking class socials and the frequent purchaser program, then we receive a 1.25% bonus above our base salary and standard commission. If we meet our targets for every quarter, we will earn an additional 2% bonus. This means we have the potential to earn a bonus of up to 7% of our base salary.
At this time, we are focusing on improving our existing locations. However, sales is encouraged to actively consider new ways that we can expand our business geographically in the future.
Part 3: Customer Relationship Management Strategies and Tactics
The frequent purchase program will give us valuable data on customer purchase patterns. Beginning in Q1, sales will work with purchasing to adjust the product offerings on shelf to reflect the needs of our customers. This analysis will evaluate frequently purchased items with their corresponding profit margin and fit within the product mix.