"This Is Costco Calling. Put Down That Sandwich!"

How does a retailer morph the inadvertent selling of dangerous products and its dusty CRM program into a public relations victory? The answer is as old as the telephone. In fact, the answer is the telephone.

The $73 billion Costco is using automated systems that dial the numbers of customers to alert them about product recalls. The system was activated recently to spread warnings about salmonella-tainted peanut butter.

This tactic is hardly new, as many chains—including Price Chopper and Wegmans—have been doing this for at least a year and several very large retailers are exploring it. But Costco is the largest retailer to have launched it on such a large scale.

Craig Wilson, assistant vice president of food safety and quality assurance at Costco, said the company has been mailing product recall letters for about 10 years but activated the phone-alert system some 18 months ago. "We haven't used it all that much," Wilson said, stressing that the company only places phone calls for "Class 1" level recalls. As defined by the U.S. Food and Drug Administration (FDA), Class 1 recalls are the most severe type and involve cases where there is a potential for serious injury or death.

How It Works

Costco, upon being notified of a Class 1 recall situation, does an internal search of its CRM databases to find customers who bought the dangerous product. "Once I have that, I can pull the phone and mail lists," he said. "From there, I write a script. We have voice talent who does the recording."

The actual phone dialing is outsourced to GroupCast, a company that specializes in bulk calling and can place a half-million calls each hour, Wilson said. GroupCast CEO Robert Vogel said his company's other clients include ShopRite supermarkets and several fast-food restaurants. In addition to placing advisory calls to customers, GroupCast also telephones its clients' employees to distribute emergency messages (such as telling restaurant managers to stop making burgers from meat that might be tainted), Vogel said.

Costco requires people to obtain membership cards, and getting one involves not only the payment of a fee but also the submission of contact information. That means the wholesaler has comprehensive personal data on all of its 54 million members. Wilson insisted Costco never sells that information or even uses it for its own marketing purposes. "Some supermarkets are doing that with their loyalty cards," he said. "We don't."

Wilson said prospective Costco members are told that one of the benefits of having a Costco card is they'll be notified in the event of serious product recalls. He also stressed that the detailed nature of the CRM information allows Costco to accurately identify only the customers at risk. "We are not going to call every member," Wilson said. "We are going to call you and say, `You bought ground beef from us on Thursday. It may have e-coli.' We can laser-focus the calls and deliberately get to the four million people who are affected. You don't scare the other 50 million."

Wilson said Costco is working on augmenting the recall-alert system to also issue e-mails. "That is certainly coming," he said. "We think about it all the time: How cool it would be."

Wegmans uses information gleaned from its Shoppers Club database to identify customers who bought recalled products. "If customers have kept their contact information updated in our database, they will receive an automated phone call about the recall with steps to follow for safety and refunds," according to the supermarket chain's Web site.

It also notes that Wegmans "at this time" doesn't send recall warnings to cell phones. Wegmans spokeswoman Jeanne Colleluori said the company didn't want to use up its customers' cellular minutes. However, Wegmans—aware that some people have opted to abandon landlines and instead use cell phones as their home phones--is considering a change to that rule, Colleluori said.

Wegmans doesn't have a hard-and-fast rule about sending alerts for only Class 1 recalls. It reviews each incident and decides if it merits a phone call. Colleluori said the company purposely refrains from issuing alerts for all recalls. "We try to be very mindful of not pushing customers to recall fatigue, where they will stop paying attention to the phone calls," she explained.

Wegman's has used the phone alert system about 20 times since launching the program fourteen months ago. She said the store's customers seem to appreciate the calls.

"Of all the calls completed, meaning we reached a person or their answering machine, only 1.3 percent of those people contacted us and asked us to remove their names," Colleluori said. She noted Wegman's does not use the information gathered through its loyalty card program to otherwise communicate with its customers, nor does it attempt to use the CRM data for any personalized marketing efforts.

Although all this proactive telephony is potentially good for customer relations, it has a legal foundation, given that some retailers have been sued for not having used their CRM data to contact customers about recalls.