Description
Study on various loyalty programmes in depratment stores
CUSTOMER RELATIONSHIP MANAGEMENT
CUSTOMER LOYALTY PROGRAM MAJOR RETAIL STORES
SUBMITTED TO: PROF. SRINIVASAN
SUBMITTED BY: : JIS GEORGE (04) , PALLAVI TANNA (25), NEERAJ SHARMA (17), PRATEEK JAIN (08), AMIT KHANDELWAL (28) YEAR: 2005-06 DIPLOMA IN RETAIL MANAGEMENT MANAGEMENT, K.J. SOMIYA INSTITUTE OF MANAAGEMENT STUDIES AND RESEARCH
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ABSTRACT A CRITICAL ANALYSIS OF THE CUSTOMER LOYALTY PROGRAM BEING RUN BY MAJOR RETAIL STORES IN INDIA WITH SPECIAL EMPHASIS ON APPLICATIONS OF CUSTOMER RELATIONSHIP MANAGEMENT The organized retailing in India is expected to cater 3% of the total market sales in Retailing in India by 2006. In our dissertation we have highlighted the major facts about the organized retailing in India. We have highlighted the major retailers and have presented their Loyalty programs. Most of the organized retailers in India have similar loyalty programs compared to international retailers that have differentiated loyalty programs. As the CRM process in the Indian retailing sector is still at a initial phase so we cannot really predict the future of organized retailing in India. We hope this contributes to the loyalty of major organized retailers in India.
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INTRODUCTION Retail Sales, which amounted to about Rs 7,400 billion in 2004, expanded at an average annual rate of 7% during 2002-03. With the upturn in economic growth during 2003 retail sales are also expected to expand at a higher pace of nearly 10%. By the year 2008, the Indian retail industry is expected to grow by another 24%. In a developing country like India, a large chunk of consumer expenditure is on basic necessities, especially food- related items. Hence, it is not surprising that food, beverages and tobacco accounted for as much as 71% of retail sales in 2003. The remaining 29% of retail sales are non-food items. The share of food related items fell over the review period, down from 73% in 1999. This is to be expected as, with income growth, Indians, like consumers elsewhere, spent more on non-food items compared with food products. Retailing as in the other parts of the world will be taking a major shift in India. Therefore, there will be advent of lot of retail chains in all sorts of retailing. Indian Retail is gearing up to provide customers an international shopping experience. Loyalty programs, which give consumers rewards for repeat purchases from particular stores are common in the market today. The retail industry is very large. Retail is the country’s largest source of employment after agriculture, has he deepest penetration into rural India, and generates more than 10% of India’s GDP. With close to 12 million retail outlets, India has the highest retail outlet density on the world. In spite of this, retail is also India’s least evolved industry. In fact, it has not even been accorded the status of an industry. Defining Retail Trade: The retail trade sector comprises establishments engaged in retailing merchandise, generally without transformation, and rendering services incidental to the sale of merchandise. The retailing process is the final step in the distribution of merchandise; retailers are, therefore, organized to sell merchandise in small quantities to the consumers and not for resale.
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Retailing In India Retailing in India can be classified under two heads: organized and unorganized retailers. Unorganized retail is the dominant mode of retailing in the country with organized retailing contributing to roughly around 2% of the whole market. The unorganized retail formats are typically mom-and-pop stores, with very basic offerings, fixed process, zero usage of technology, and little or no ambience. These are highly competitive outlets, drawing on free land (unregistered kiosks or traditional property), unpaid/cheap labor (family members or village children paid below minimum wages) and zero taxes. Many of them also leverage the low or no cost of family labor to provide services like home delivery that would be uneconomic for any organized retailer. Traditional formats such as rural counter stores, kiosks, street markets and vendors have low productivity potential because of their unorganized systems and processes. These formats have emerged largely due to the absence of alternative employment and typically require employees with very low skills. These formats can, and do, serve to absorb agricultural labor. They are; however, very important as they account for two-thirds of the sector’s output. Organized retailing in India is gaining wider acceptance. The development of the organized retail sector, during the last decade, has begun to change the face of retailing especially, in the major metros of the country. Experiences in the developed and developing countries prove that performance of organized retail is strongly linked to the performance of the economy as a whole. This is mainly on account of the reach and penetration of this business and its scientific approach in dealing with the customers and their needs. In spite, of the positive prospects of the industry, Indian retailers are facing some challenges (see Appendix: Evolving Real Estate) which have stymied its growth.
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The Changing in Indian Consumer There is distinct evidence to suggest that the Indian Consumer, irrespective of her socioeconomic origin, be on a self-appeasement mission. Greed is good and she wants more of the best that life has to offer. As she traverses this path, we find that she defines fulfillment “materialistically and emotionally” no different from her more moneyed counterpart. SEC- based classifications notwithstanding1; the Indian consumer is out to seek pleasure and lifestyle. 177 million households in India are at various stages of defining their “self” from the “common”. The asset acquisition rate of the average Indian consumer has been on the rise ever since India opened its markets in 1991, and is expected to grow at an even greater rate. Also, the Indian consumer is more discerning and demanding than ever, especially due to the increased levels of exposure to international lifestyles and better levels of education. Shopping is increasingly becoming a family experience, showing a clear shift from the need-based shopping trends of the pre-liberalization India. Also, a whole segment of post-liberalization children, constituted by a whopping 100 million 17-21 year olds is coming of age, and the segment is spending like never before. One noticeable trend in this regard has been the rise in the spending capacity of the Indian middle class. The Euromonitor retail survey estimates that there has been close to a 20.9% growth in the real disposable income of the Indian middle class in the four-year period of 1999-2003. Complementing this growth in income is the rise in the middle and high-income population itself. This demographic segment, which is widely believed to be a main driver of the global retailing industry, has been rapidly growing at a pace of 10% per annum over the past decade. Also of significant importance is the rise in the affordability of the Indian consumer. A host of their related factors like falling interest rates and easier availability of consumer credit have facilitated the Indian consumer’s affordability. Also, the increasingly
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competitive nature of the Indian market in categories like FMCG2 and consumer durables has increased consumer spending, by ensuring availability of a greater variety and quality of products at never before price points.
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Customer Relationship Management (CRM) CRM is a management approach that seeks to create, develop and enhance relationships with carefully targeted customers to maximize customer value, corporate profitability and shareholder value. CRM leverages information technology (IT) to implement relationship-marketing strategies. Already customers are getting actively involved, either directly or indirectly with production processes. They make suggestions, they ask for smaller, brighter, easier-to-use products. CRM is not a tool that is specific to any industry type, so there is no one single definition of Customer Relationship Management. It is up to the organization to formulate one for itself in order to achieve the CRM goals that it sets for itself. Companies that have adopted CRM regard every customer as an individual with specific needs and tailor their services accordingly. Information Technology comes into the picture to help manage Customer relationships in an organized way. On an average a company has only a 5 to 20 percent probability of making a successful sale to a new prospect but has a 60 to 70 percent probability of selling again to active customers. It would be wiser to invest in encouraging an existing customer to purchase again. Companies that followed up lapsed cases experienced 20 to 40 percent successful sales. Without a doubt customer retention is vital to every company's long-term profitability and success and CRM, through target selling and customer loyalty programs, can help to motivate the best customers and to remain loyal as a method of increasing revenues internally. Rising customer expectations have stiffened the competition among companies to improve their customer support services. Today’s customer has access to the latest technological devices that give him instant information, allows him to make instant transactions, buy, sell or transfer money, he has access to it all over his palm top, PDA, mobile phone or desktop. Today’s customer is knowledgeable, he knows what he wants and the Internet is a powerful tool in his hands.
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More than ever, customers today have an important role to play in the product lifecycle. Customers are continually pressing for improved support services in terms of product coverage, business-ease, response-time and price (or at least value-for-money!).” With a wide variety of services available at competitive prices and easily accessible at the click of a button, improved customer services are becoming the need of the day. Customers are driving companies to migrate from being purely product-centric to purely customercentric, taking care of all customer requirements even before they are demanded. From current customer trends, it is easy to define the future customer. The volume of information available via the Internet will make the future customer a knowledgeable one. As more customers and businesses go online, the Internet will foster a global community that communicates at real-time. Customers will have access to a wider variety of products and prices to choose from. To stay ahead of competition, companies will have to anticipate customer needs even before a need arises. As more and more women began to drive two wheelers in India, the smarter manufacturers realized that one factor that might hold a sari-clad woman back, would be having to kick-start her bike. Along came the self-starter button and presto, a surge of women two wheeler drivers! The success of companies will depend on how well they are able to predict customer behavior, anticipate requirements and provide for them. The future customer will have a larger stake in the company’s project plans, his input will have value and his feedback will be consequential to the development of products or the way a service is delivered. This implies a significant alteration in the supply chains that we see today.
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Figure 4
The CRM strategy should include: (a) Operational CRM: Automating interaction with the customers and sales force, and (b) Analytical CRM: Sophisticated analysis of the customer data generated by operational CRM and other sources like POS (Point of Sales) transactions, web site transactions, and third-party data providers.
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A typical retail organization has a huge customer base and often customer's needs are fairly differentiated. Without the means to analyze voluminous customer data, CRM Strategy is bound to be a failure. Hence, Analytical CRM forms the core of a retailer's customer relationship strategy. Marketing and sales functions are the primary beneficiaries of Analytical CRM and the Main touch points from where the insights gained about the customer are absorbed in the Organization. Analytical CRM uses the key business intelligence tools like data warehousing, data mining, and OLAP to present a unified view of the customer. Following are some of the uses of Analytical CRM In Retailing Customer Segmentation Customer segmentation is a vital ingredient in a retail organization's marketing recipe. It can offer insights into how different segments respond to shifts in demographics, fashions and trends. For example it can help classify customers in the following segments 1) Customers who respond to new promotions 2) Customers who respond to new product launch 3) Customers who respond to discounts 4) Customers who show propensity to purchase specific products Campaign/ Promotion Effectiveness Analysis Once a campaign is launched its effectiveness can be studied across different media and in terms of costs and benefits; this greatly helps in understanding what goes into a successful marketing campaign. Campaign/ promotion effectiveness analysis can answer questions like: Which media channels have been most successful in the past for various campaigns? Which geographic locations responded well to a particular campaign? What were the relative costs and benefits of this campaign?
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Which customer segments responded to the campaign? Customer Lifetime Value Not all customers are equally profitable. At the same time customers who are not very profitable today may have the potential of being profitable in future. Hence it is absolutely essential to identify customers with high lifetime value; the idea is to establish long-term relations with these customers. The basic methodology used to calculate customer lifetime value is - deduct the cost of servicing a customer from the expected future revenue generated by the customer, add to this the net value of new customers referred by this customer, and discount the result for the duration of the relationship. Though this sounds easy, there are a number of subjective variables like overall duration of the customer's relation with the retailer, gap between intermediate cash flows, and discount rate. We suggest data mining tools should be used to develop customized models for calculating customer lifetime value. Customer Loyalty Analysis It is more economical to retain an existing customer than to acquire a new one. To develop effective customer retention programs it is vital to analyze the reasons for customer attrition. Business Intelligence helps in understanding customer attrition with respect to various factors influencing a customer and at times one can drill down to individual transactions, which might have resulted in the change of loyalty. Cross Selling Retailers use the vast amount of customer information available with them to cross sell other products at the time of purchase. This effort is largely based on the tastes of a particular customer, which can be analyzed using BI tools based on previous purchases. Retailers can also 'up sell' - sell more profitable products - to the customer at the time of contact.
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Product Pricing Pricing is one of the most crucial marketing decisions taken by retailers. Often an increase in price of a product can result in lower sales and customer adoption of replacement products. Using data warehousing and data mining, retailers can develop sophisticated price models for different products, which can establish price - sales relationships for the product and how changes in prices affect the sales of other products. Target Marketing Retailers can optimize the overall marketing and promotion effort by targeting campaigns to specific customers or groups of customers. Target marketing can be based on a very simple analysis of the buying habits of the customer or the customer group; but increasingly data mining tools are being used to define specific customer segments that are likely to respond to particular types of campaigns.
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Figure 5
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Designing a customer loyalty program Customers' expectations are increasing. They want: service, products that meet their Needs, value for money and added benefits. In response to this, retailers are stepping up. Their promotional activity to the extent that sales and special offers have become Everyday affairs, rather than end of season stock clearances. As a result margins are Being eroded to dangerously low levels. Some retailers have introduced card-based collector schemes that give electronic points According to the customer's spend, which are subsequently exchanged for gifts or Discounts. The more strategically minded retailers are introducing systems that monitor Customer behavior in order to respond better to their increasing demands. Both Approaches are commonly known as customer loyalty programmes, however, the latter Approach is the only one that is sustainable and really merits being considered as such. The basic electronic points schemes are just another way of delivering a promotion and rely upon giving a higher value incentive to differentiate from the competitors. The objective should be to maintain the customer's loyalty, not by bribery, but by offering a Better service, thus preserving margins and profitability. This section examines the elements that need to be considered when designing a customer loyalty programme. It defines the strategic objectives and examines what components of the scheme are needed to achieve the benefits, including mechanics and customer rewards. Finally, it reviews some data analysis techniques that can be used to refine the scheme in the light of experience gained from running targeted promotions.
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What is Customer Loyalty? Customer loyalty involves building a long-term relationship between the supplier and the individual customer in order to improve profitability. To achieve this the supplier needs to understand the customers' spending habits and know what products they currently buy (and don't buy) so that any communication can be meaningful. Customers respond better to someone who understands their special needs - a personalized approach offering products that are really relevant is more likely to produce the required result. Ideally, all customers need to be approached with something that motivates them to spend more if maximum growth is to be achieved, which is not possible from a single, all encompassing campaign. If traffic through the store needs building or a supplier has a new product, the focus will be on ways of attracting new customers. In all cases there is an essential need to know and understand the spending habits of existing customers and what entices new shoppers into the store. A successful scheme is one that engenders sustainable, long-term loyalty at an affordable cost. This cannot be achieved with bribery alone, the customer needs to feel wanted and special. It should be embraced with a comprehensive customer care programme. Objectives and Benefits When designing a customer loyalty programme it is, first, important to agree the strategic objectives. These will differ from scheme to scheme. To increase profit the aim will be to change customer behavior and, in particular, they’re buying habits. In a declining market customer retention may be the only objective.
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A number of key objectives and the benefits to expect are discussed below: • • • • • • • • • increase the turnover and profit customer retention establish long term relationships improve product awareness develop advocates increase frequency cross sell departments reduce mark-downs improve the effectiveness of direct marketing
Increase Turnover and Profit In any business, other than a declining market, the key aim of a customer loyalty scheme must be to increase profitability - there is no point in rewarding customers for their loyalty and getting nothing additional in return. To be worthwhile increased loyalty must result in increased spend (i.e. turnover), whilst retaining reasonable margins, thus improving profits. Recent tests have shown that a spend related reward scheme can increase average spend by 30%, however, a realistic target would be 10 to 20% on a long term basis. Customer Retention Clearly, one approach to retaining existing customers is to offer a suitable reward scheme. However, giving away something to those customers who would have made the purchases anyway is not cost effective. Instead of expensive "give-away's" the customer needs to be given special privileges as a member of an elite and prestigious club. By raising the self-esteem of the customer and communicating on a personal level with worthwhile information, and making offers which are relevant, the perceived value can be made to appear high but at a relatively low cost.
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Establish Long Term Relationships By definition, this should be one of the aims of all customer loyalty schemes. It is widely Accepted that it is a lot easier (and more cost effective) to sell to the existing customer base. Also, some organizations establish a dialogue with their customers in order to obtain regular feedback on its products and services rather than conducting ad-hoc customer surveys. It is vitally important to know the customer's view of new and existing products and to gauge their reaction to targeted promotions. Improve Product Awareness A loyalty scheme that restricts redemption to November and December will increase the frequency during the key months when Diwali products are on display, therefore increasing awareness. Also, the availability of a new product can be communicated to those customers likely to be interested with the aid of a suitable customer marketing database. Develop Advocates Personal recommendation is the best way of attracting new customers - a genuinely loyal Customer will become an advocate for the organization. Two recent trials demonstrate the pulling power of a loyalty scheme. With no advertising other than point of sale within the stores dramatic increases in club membership were seen. In both cases a loyalty scheme was devised for members of a long established club.
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Increasing Frequency Out of town stores normally have a higher average spend than high street stores because Customers want to make it worthwhile to travel the distance. Consider the gain to be made with one additional visit per customer where the average spends is RS 300 and the annual frequency is 4. This situation is, again, often related to the customer segment and suggests targeted offers would be beneficial. An appropriate reward scheme might be visit related for, example, spend over RS 300 on 4 occasions within a month to earn a reward, or a free instant win prize on each visit. Cross Selling Departments High street chemist chains stock a wide variety of products and often enjoy high frequency but very low averages spend. This is partly as a result of an association certain customer groups have with a particular product, for example, ladies may buy cosmetics on a regular basis but nothing else. If this situation can be identified there is an opportunity for cross-selling departments. Reduce Mark-Downs These days mark-downs have increasingly become a standard way of selling rather than a Mechanism for clearing unwanted or ends of season stock. This has resulted in eroded margins and reduced profits. A loyalty scheme will reduce the need to employ these tactics. Where stock needs to be cleared an alternative to price reductions is to make special offers to loyalty customers. This has the added benefit of increasing the value of the loyalty scheme to existing members and providing a powerful reason for new customers to join. Improving the Effectiveness of Direct Marketing Mails are costly. Indiscriminate mass mails are wasteful and even more costly. Whereas there is, perhaps, little scope to reduce the cost per person of direct marketing, 'hit' rates
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can be improved dramatically by targeting those customer groups most likely to respond to the product(s) on offer. This means a bigger return from the campaign or an equivalent return from fewer mailed customers. To achieve this we need to understand what products are likely to appeal to particular customers groups. Elements of a Successful Scheme Since, by definition, a scheme needs to be long term and cost effective, the customers' interest needs to be maintained. To achieve this it is important to: • • • • Make the scheme understandable and easy to use Offer a reward with wide appeal and a high perceived value Communicate with the customer in a way which is meaningful to them Establish a way of "locking-in" the customer
The Mechanic There is no universal reward mechanic that will work for everyone. It has to be designed taking into account the: • • • • • • Strategic objectives Retail operation Frequency of purchase Value of purchase Average spend Customer types and groups
Whatever is appropriate it is essential to communicate to the customer what he/she has Earned. In a reasonably high frequency outlet this will normally mean telling the customer his/her cumulative "points" balance at the point of sale at every purchase. Statement based schemes where the customer is informed at three monthly intervals are only appropriate for low frequency operations. Constantly reminding the customers of the benefits that are accruing will maintain interest and motivate them to reach their target
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even quicker. Depending upon the objectives the "points" can be related to one of the following: Spend To increase average spends. There may be a minimum purchase necessary and increasing Level of points or discounts earned for an increasing spend. Particularly useful for low value products. For example: 1 point for every RS 50 done by most of the retailers in India. Frequency Appropriate to build traffic through the store, where the propensity to spend is already high for visitors. Also, useful to make customers aware of new products on display in the store at the start of a new season. For example: spend RS 300 on 4 separate visits in a month and receive 100 bonus points. Period Special offers to attract customers on light days. For example: double points on Mondays. Product/Department Provides the means by which suppliers can participate in the scheme by funding special offer points. The Reward To motivate the customer to participate the choice of reward is vitally important. Of course, it is highly dependent upon the type of customer, but in all cases it should be: • Attractive and desirable to the target audience.
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•
Achievable in a reasonable timescale whilst bearing in mind that the customer should be made to work for his/her reward but not feel that it is only appropriate for the very high spenders. Increasing value rewards for increasing spend enables the impatient to receive some reward quickly to get them "hooked".
• • • •
A range of rewards to give broad appeal to a wide range of customers. A high perceived value to make it a genuine reward for loyalty. Low actual costs. Can be achieved by offering shelf products, which have an in-built A cash-in dates so that the liability can be calculated and cleared down. Interestingly, a Cut-off date does increase spend as customers strive to maximize their points before
Margin.
Closure.
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Types of Reward These fall into four categories: Own Goods For example: gift vouchers, discounts or services. Generally low cost because the reward has a built-in margin. Applicable when the product is desirable and is not replacing genuine purchases that would have been made anyway. Perhaps surplus product can be used (as long as it is still desirable). Not appropriate if there is no direct benefit to the customer or his/her family such as free petrol to a company car driver. Currencies For example: Most of the airlines use in India Free Air Miles, which can be used for discount travel, holidays, car hire, hotels etc. Provides a good mechanism for broadening the appeal and providing a range of rewards easily. Gift Catalogues Gifts as in terms if Vouchers given by Retailers to their customers. Affinities Increasingly popular for schools, charities etc. The reward has to be appealing to the charity concerned. Though hardly any retailers use it in India. Funding the Reward It is important to understand from the outset how the reward is to be funded and to calculate the likely cost (and the benefit). Again, the strategy will depend on the individual retailer's circumstances and objectives.
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Examples are as follows: • • • • • • Increased spend Increased frequency (and hence spend) Reduce mark-downs Increase margins Offer spare capacity (e.g .hotel rooms, travel seats etc) Increased privileges (at little or no cost)
The aim should also be to retain customer's loyalty through the relationship marketing by making full use of the database. The reward can be reduced over time. Some retailers look to their suppliers to fund their promotions by offering rewards based entirely on individual product purchases. However, it is important not to confuse supplier led brand switching schemes, which have no place in a customer loyalty scheme. The purpose is to increase spend not switch it from one product to another. Capturing Customer Data In the right hands a marketing database presents an exciting opportunity to increase the value of existing customers as well as providing a means of attracting new ones. However, as many retailers, suppliers and service providers have already discovered, it can be an embarrassingly expensive millstone if not properly thought through. Storing data is expensive. Before embarking upon the building of a marketing database it is important to have clear objectives. Categories of Data to Capture It has already been pointed out that storing data is expensive so it is important to capture only that which is really needed. The category of data detailed below is a comprehensive list of what can be collected.
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Customer Details This is fairly static data including: Name and address Family and ages Job and income level Residence (own, rent) Credit cards held Interests? Special needs etc. etc. Not all customers will give all this level of information on first asking. It is, however, possible to deduce certain details later. For example: if payment method is captured on each purchase we can soon learn what credit cards are held, if toys are purchased we can gain details of the children from the guarantee registration card, etc. Frequency How often does this person visit the store? On what days of the week? Hour of the day? Is the frequency increasing or decreasing? Do certain types of in-store promotions or mailing campaigns effect the frequency? Regency When did the customer last visit. Is this potentially a lost customer? Spend Is this increasing as required? Does it vary by customer profile? Do particular types of promotions affect it?
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Sites Visited Is the customer loyal to a particular store? What distances are traveled, on what days? Will this customer travel give the right incentive? Products Purchased Offers Departments Lines what special offers are taken-up? what is the level of spend by department? How does this vary by season and promotion? what is the typical shopping basket of this individual? Capturing the data can be relatively straightforward but it is unlikely that anyone will really need to maintain a history of each and every product item purchased by each and every customer. For a large supermarket chain this would amount to approximately 500 gigabytes per annum!
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Monitoring, Measuring and refining the Scheme As has been stated earlier in this paper it is important to define the objectives at the start and design the scheme and system around achieving those objectives. The dichotomy is that in order to design an effective scheme there needs to be a good understanding of the customer and one of the purposes of the system is to capture data to achieve this. Therefore, designing a successful scheme has to be an iterative process: 1. Design basic scheme 2. Implement system 3. Monitor customer behavior 4. Measure response and performance 5. Refine the design in the light of experience 6. Return to 2. Above It is not the purpose of this paper to examine ways of analyzing customer data, however, two statistical techniques (regression and cluster analysis) are mentioned as examples for targeting and segmentation. Considerable advances are being made in this area with the emergence of "intelligent" techniques, which are self-learning (e.g. neural networks). Targeting Targeting customers is a way of improving the response rate to promotions. This involves Measuring the size and characteristics of the target audience and the response and behavior to various offers, and then using the data to improve the offer. A common technique for this is regression analysis, which is based on past behavior: • • • Identify customer purchasing characteristics or attributes Score individuals according to the characteristics Target the high scoring individuals in future promotions
Customer characteristics are purchase related (e.g. frequency, average spends,
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Departments/products purchased, stores visited etc.) but can also be linked to lifestyle data. The high scoring individuals (i.e. those with common characteristics) are expected to yield a higher response rate. Segmentation Segmentation involves defining customer groups and devising separate marketing approaches to each group. Customers within a segment are as similar as possible and customers in different segments are most dissimilar. It is expected that customers in the same group will react to promotions in a similar way. Cluster analysis is a statistical technique for segmentation. This again relies upon identifying like characteristics, which can be lifestyle based but preferably uses purchasing data: • • • • Identify customer purchasing characteristics or attributes Divide into large number of segments Reduce segments to a manageable number by combining segments with close Market to customers in same segment
Characteristics (nearest neighbor method) This technique enables appropriate and relevant offers to be made to customer groups, which builds stronger relationships since the marketing is more meaningful to the individual customers. Whereas there is every likelihood that in five years time most retailers will have a customer loyalty scheme of some form, it is important to carefully analyze the objectives and the benefits that are expected. And then to constantly review the benefits that is actually being achieved and refines the programme accordingly. In summary, you should only embark on such a system if one or more of the following is true: You can benefit from knowing your customers and they’re purchasing behavior You have an attractive proposition that is sustainable over the long term There is a competitor threat emerging that can be defended by locking in your customers
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Into long term loyalty programme Your competitors are implementing a scheme (?) It will retain your share of a declining market The cost/benefit analysis shows that profitability can be increased as a result
Customer Loyalty Programs of Retailing in India A loyalty programme is an advanced stage of a well-managed CRM process and must be graduated to and not jumped into. Launching a loyalty programme depends on the Life State of a mature CRM system, data maturity and organizational preparedness. It needs some amount of investments in technology, specialized software, statistical tools and logistics. Earned rewards program by most of the retailers in the form of vouchers in India are actual cash payoffs, differed or otherwise and need efficient management. The best loyalty programmes are driven out of customer anaytics that work on mature data.When customers opt in to a permission-based loyalty programme, they are more milling to share information as well, enabling retailers to create a dialogue with customers. Clearly, there is no one, right way to market through any one channel, but there is and a a right loyalty that way all to market are to customers can been help. in included across A the several successful customer and channels, programme relationship marketing programme have
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volunteers and profitable customers The organized retailers in India have started with their loyalty programmes for instance Pantaloon: Green Points, Shoppers Stop: First Citizen, Ebony: Elite club, Lifestyles: The Inner Circle and Westside: Club West these loyalty programmes are in built up with the CRM strategies for each companies. Though every loyalty club has its pros and cons to the program but the main reason of worry for the organized retailers in India is the amount of average Walk Ins purchasing from the stores. The people visiting the Malls or
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specific store locations unlike, Wal-Mart in US these companies haven’t yet been able to fulfill the need of the customers towards the loyalty club. As part of our dissertation research shows that most of the loyalty clubs in India are similar in their purchase schemes and privileges. we would further support in other sections of the dissertation.
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Loyalty Program of Organized Retailers Westside Trent LTD’s Westside stores promise customers an international shopping experience and value-for-money. High quality, contemporary designs and a plethora of products have been successfully balanced to create the ultimate shopping experience. What began as just one store at Bangalore, has now expanded to other cities, such as Mumbai, Hyderabad, Chennai, New Delhi, Pune, Kolkata, Nagpur and Ahmedabad. All merchandise at the store, except cosmetics and perfumes, bears the Westside label, with the range being constantly updated, and contemporaries. The Westside stores have several departments to meet the varied shopping needs of customers. These include the menswear, womenswear, lingerie, kidswear, household accessories, cosmetics and perfumes sections. Complementing the shopping ambience, is a coffee shop, Café West, managed by the Taj Group. The store enjoys a unique positioning as a 100 per cent private label merchandise store. It comes out with 35,000 new designs every year. In house brands include Richmond and Urban Angels, besides store brands Westside and Westsport. The customer loyalty program is discussed in detail in the Appendix. The loyalty programme Club West has a membership of 200,000 customers, who are offered services like Privileges. Name of the Loyalty Club: Club West. Aim: To provide customers with the finest shopping experience with enhanced rewards
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Eligibility: Classic Gold Same day purchase of RS Same day Purchase of RS 2000 or cash payment of RS 5000 Associate Membership Profile form Gourment West Special discounts at YES YES selected restaurants Treasure West Special offers from our key partners Privileges West Complimentary drinks at Café West Exclusive Shopping Hours YES Invites for Special events Home Delivery after Alternation ( on minimum purchase of RS 2500 ) YES YES YES YES 150 YES YES 1 point for every RS 50 1 point for every RS 40 spent YES spent YES
Enrolment
Other Benefits: 1) Exclusive shopping hours only for members during sales
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2) Advance intimation of all in-store promotions and special offers through direct mailers 3) Special discounts on dining at select restaurants
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SWOT Analysis on Loyalty Program Strengths • • • Exclusive customer friendly staff Loyalty follow up through different customers is excellent Exclusivity to brand building done on televisions and media. Using brand endorsers like Yuvraj Singh is a fruitful effort. The company should also mention about loyalty club benefits • No extra value added questions asked unlike other retailers
Weakness • • • Online up gradation unlike other retailers for loyalty club members not done High cost on sending mailers to different addresses Importance of card designing not taken properly compared to other retailers
Opportunities • • Up gradation to new technology to enhance customer shopping experience The gap between customer relationship management and customer loyalty needs to be updated towards organization core values in terms of service • Expansion plans to towns above 1 lakh in population could be a good option
Threats • • • Competition is catching up with the retailers in the same industry USP needs to be carefully guided in order to gain competitive and customers loyalty The linkage between what a customer wants and prefers If not satisfied would transfer customers to different retailers
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Lifestyles Lifestyle, the department stores chain from Dubai based Landmark Group, started operation in India in the year 1998, with the mission to be market leader in the large format-retailing segment. Currently the company has 9 stores across 4 cities in the country. These outlets together occupy 320,000 square feet of retail space. While Mumbai has three Lifestyle stores, Chennai, Hyderabad, Bangalore, and Gurgoan have one each. Sizes of the stores vary between 27,000 square feet and 55,000 square feet. One distinct advantage is that the stores leverage upon global supply chain of over 300 stores in the Middle East for the Indian operations. Private labels contribute about 10 percent of the total sales. Lifestyle stores have arranged their merchandise under five different sections. Namely Splash men’s and ladies wear, Shoe Mart footwear and leather accessories, Baby shop kidswear, toys, infant basics, nursery furniture, Home Center home furnishings, gifts, Lifestyle perfumes and cosmetics, health and beauty accessories and adult gifts. The customer loyalty program is discussed in detail in the Appendix. The Inner Circle, boasts of a 240,000 strong membership and it contributes to about 40 percent to total sales. Name of the Loyalty Club: The Inner Circle Aim: Provide extended value to customers who frequently shop at Lifestyle Stores Eligibility: A customer who makes a purchase of RS 2500 on a single visit or Payment of RS 150 towards the loyalty club. For every RS 50 worth of goods purchased by the customer, a customer earns 1 point. Every 100 points collected entitles you to get a Gift Voucher of RS 100. Other Benefits: 1) Haute and Spicy In house fashion magazines by world of fashion
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2) Every outlet has a coffee island managed by Qwiky’s 3) Discounts and exclusive invitees to get together events
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SWOT Analysis Strengths • • • • Most admired large format retailer at IFA 2003 and 2004 Distinctive image about Lifestyle as a brand on consumer perceptions No 1 retail company by Business World for year 2003 Customer oriented programmes like SMS, Made for each other and Shop a surprise would help walk ins in the store Weakness • • • Manually handled loyalty program apart from the auto generated card number Nothing about the store on the Website Data feeding and sending the reports daily to the central office in Chennai needs a lot of hard work for official use Threats • A consumer can redeem the same points twice in a day if he happens to walk in different Lifestyle stores on a single day • Development of Customer Loyalty program yet to match with the Customer Relationship management towards the specific company goals • Advantage to competitors in the form of Loyalty simplicity
Opportunities • • Online up gradation is a necessity for Customers as well as the company The price ranges of products is for the elite class urban consumers who need extra benefits other then the simple loyalty program unlike other retailers
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•
Explore and compare the loyalty program of US retailers to out smart the rival companies
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Shoppers Stop A group of K Raheja’s Shoppers Stop LTD is considered the pioneer in providing Indian consumer a taste of international class shopping when it opened its first department store in Mumbai in 1991. Today, it is a chain of more then 16 stores across 9 cities in India. It covers about 600,000 square feet of retail space. The chain is also credited for being the largest retailer for hi end popular fashion brands like Levi’s Strauss, Pepe, Arrow, Zodiac, Ray-Ban and Swatch. Shoppers Stop was the first retailer in the country to have bar coded garments, co branded credit cards and retail ERP. It acquired “Superbrand” status in 2003. The company has also been recognized as “best IT user in retail by NASSCOM- Economic Times. Shoppers stop has a vibrant loyalty programme First Citizen with more than 320,000 members. Name of the Loyalty Club: First Citizen Aim: Experiencing the loyalty to total commitment by the company towards its customers in terms of value for money Eligibility
Benefits First Citizenship First
Golden Glow -
Silver Edge -
Classic Moments RS 150
Citizen 1 Reward Point for 1 Reward Point for 1 Reward Point for RS 34 every Purchased RS 50 every RS 100 purchased purchased
Reward Points ( on every net purchases)
Extra Reward points 2% on Stop!, Life, Kashish
1%
-
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Program
Partners 1%
0.5%
0.25%
Reward Points Associate Card 2 free ( 3rd RS 100 ) YES (RS 100 for YES ( RS 100 ) upto 2) Regular updates Exclusive Counters Free Parking YES YES Golden YES YES YES
Cash Exclusive
Glow Cash Counter YESserve basis reserved YES YES
parking on first cum
Valet Parking Free First Update
YES YES
YES -
YES -
Home Delivery of YES Alterations Out Store offers YES
YES YES
YES YES
Exclusive Previews YES Merchandise & Sale
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SWOT Analysis Strengths • • • Best IT supported Customer Loyalty program in India USP of the company being in high regard as one of the best retailers Product Authenticity of World Famous Brands in house
Weakness • • Complicated points Systems but, very well supported by statements online Follow up to customers unlike other retailers isn’t done to match with the standards maybe because of lack of skillful manpower in the organized retail sector Opportunities • Being a market leader in the use of IT supported systems the company should also start building on new technologies like finger print customer loyalty programmes • Introduction of new cards relating to college goers should be introduced to attract them to shop • Smart card to be used like swipes to enhance the card exposure
Threats • • Loosing out on urban middle level consumers to Pantaloon Expanding the stores to semi urban areas is necessary otherwise other retailers would catch up with the sales and brand presence • Need to promote shoppers stop as a brand on television commercials like Westside
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Ebony A unit of Delhi- based Ebony Retail Holdings, the Ebony store is one of the new retail companies in India. Ebony started its first department store in October 1994, and by March 2004 it had eight operational stores covering 150,000 square feet of retail space. The stores aim to provide customers an experience of world class merchandise at affordable prices across all the categories. Ebony sells menswear, womenwear, lingerie, kidswear, household accessories, cosmetics, perfumes, books, music, personal care, cosmetics, jewellery and luggage. The store’s private label, ETC contributes about 22 percent of the apparel sales. It has also come up with a new concept of Studio Ivory collections of designerwear for the middle income segment. Besides, the company also has a concept bookstore called Wordsworth Ebony runs a successful loyalty programme, Ebony Elite Club, which has enrolled 50,000 members. Name of the Loyalty Club: The Ebony Elite Club
Aim: To provide customers with online shopping experience as well as enhance value shopping to employees Eligibility
An applicant becomes eligible to apply for Elite Club Silver Membership when he/she has purchased merchandise worth RS 2000/-* or above from any Ebony store, or on payment of RS 100/- as enrolment fee.
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An applicant becomes eligible to apply for the Elite Club Gold Card Membership when he/she has purchased merchandise worth RS 20,001/-* within his/her Silver Card Membership tenure (2 years).
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SWOT Analysis Strengths • • • B2C business model for the Website for Customer Loyalty Strong market presence in North India Outlets specifically suited towards Market Areas
Weakness • • To small as a retailer to expand the areas of business The brand is loosing out in identifying its customer relationship program compared to other retailers • Up gradation of skillful people working in the organization necessary
Opportunities • With the B2C Website the company should look to expand and tie up with other web portals like India Times to gain customers • Expand operations in other parts of India
Threats • • Small retailers near by to the areas of the shop like Big Jobs in South Ext. Need to introduce Category Management in the store formats
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Pantaloon In 1999 Kishore Biyani, CEO of Manz Wear Pvt. LTD changed the companies name to Pantaloon Retail (India) LTD. The company now operates with 37 stores in 4 distinct retail formats across the country – lifestyle (Pantaloons), food and grocery (Food Bazar), discount hypermarket chain (Big Bazar) and seamless mall (Central). In all they cover 954,000 square feet of retail space. Today, Pantaloon is the largest retailing company in India in terms of value.. Pantaloons loyalty programme Green Card has an impressive membership of about 400,000 and the company is clearly a leader in the industry when it comes to retail knowledge base and supply chain management practices, which is focus area for a retail. Name of Loyalty Card: Pantaloon Green Club Aim: Enhance the value of shopping through a family store The company uses the software called “SAICOM” for the purpose of its loyalty program called the Green Club. The system works as follows : MEMBERSHIP : Purchase bills over Rs. 2500 are presented to the GSD counter where the form duly filled is submitted to the employee for updation of the records. The customer is immediately given a Green Card with a specific number which is noted down in our records and updated later with the corresponding customer details in the SAICOM ADDING OF POINTS : Later whenever, the customer presents the card for billing the points are added to his card through the SAICOM software within the next 48 hours. REDEMPTION : If the customer needs the redemption then the SAICOM software verifies the number of points in the account and makes the customer eligible for an issue of a green voucher. The voucher is then redeemed while billing for products at pantaloon.
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Eligibility:
Privileges Green Points Green Bonus Green Statements
One Star 1 point for RS 50 NO Every 3 Months
Two Star 1 point for RS 40 YES Every 3 Months
Five Star 1 point for RS 25 YES Every 3 Months
ADD- on- Card for 1 ADD- on Card 2 ADD- on Cards 3 ADD- on Cards Family Members Green Promotions Green Offers Green Drop Green Exchanges Green Service Desk Green Events Green News Green Channel free YES YES NO Upto 60 days YES NO YES No free YES YES YES Upto 90 days YES 2 Events per year YES YES Rs 100 per card free YES YES YES Upto 90 days YES 6 Events per year YES YES Free
Additional ADD- on RS 100 per card Cards ( Max 3 )
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SWOT Analysis Strengths • • • • Capturing the largest market share among retailers in India Fast value creation and realization in semi urban markets Enhanced Brand image in the form Big Bazars, Food Bazar and Gold Bazar The Website Recently launched has not been properly managed in terms of Customer Loyalty Program Weakness • • • Website yet to be fully integrated with the support systems Customers only able to check points on stores from where card has been issued Follow up on customers not properly managed unlike rival firms like Westside
Opportunities • • • Marketing functions can be enhanced with the official launch of Website Modernization of Customer Loyalty Service Desk Corporate Social Responsibility can be done with the word green to enhance customer values • Special Theme based launches can be done in order to generate higher sales
Threats • The shoppers stop customer loyalty program is very well organized. Pantaloon needs to upgrade Information Technology in the product in order to match with the companies customer relationship management
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Conclusions And Recommendations 1) To study and analyze the gaps if any in the customer relationship strategy of Pantaloons in India Limited The gap between the consumers and the company CRM is not very wide. The Indian retailing industry is just opening up to the world. we think in the coming years we would be able to see a significant development in this area. Though our study of the loyalty program is too early we think the company can cater to the customers in a more convenient way. The company needs to overall upgrade the website and also the customer service desk at the store. A person who is a privileged customer has to benefit from the purchases he or she makes at the store. we think the frequency of the purchases should be increased. we would recommend the following: a) Have in store space for counters to entertain people which can act as a crowd pulled and also jump sales b) Upgrade the website and make Online purchases available to start
c)
Upgrade the software of Saicom so that if on a given day a store has double points giving to customers it can fulfill the needs
d) The track of data purchased by the customers need to follow up with special invitees e) Marketing of the best loyalty program in India could be beneficial for the store and also increase the profits 2) To study and analyze the customer loyalty program of Pantaloon Retail India Limited and compare with other retail outlets The Pantaloon Loyalty program is similar to all the organized retail outlets in India with the only difference of Adding points during the sale period. we think its too early to predict the future of the shopping loyalty programs in India. The only recommendation we have apart from the things mentioned above is to identify the club with some social cause. The name itself of green can be identified with increasing awareness about plants in the world. we think this would prove a reason for people to buy and also cater to the services towards the environment.
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3) To assess the opportunities of strategic alliances to generate traffic customer loyalty Traffic at the store can only be generated if the location and the facilities at the nearby stores are convenient. That is, combinations of a wholesome entertainment along with the shopping experience. The tie-ups with Bank Credit Cards would be handful but, it should also help the company to get a automatic privilege customer. One way to increase the traffic would be to have in store display counters of games in the store that would always keep a shopper wanting to walk around the stores more. The retailers also need to see how are their employees integrated to their systems. we think they should also do a organizational employee survey in relation to their attachment towards the organization and also integration of new and upcoming technology in the organization. Overall we think, The Customer Loyalty and the CRM strategies in India should lead to a new developing concept about Customer Experience Management. Customer Experience Management is an Extension to CRM.
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Future of Loyalty Programs in India Think beyond the card You cannot expect good results from implementing a loyalty program with a standard activity and rewards aimed at everyone. So where do you start. If you are thinking of revising you current loyalty programs you need to ask your loyal shoppers for input on program design that can yield valuable insights early on data driven segmentation along the multiple dimensions can point to a wealth of new tactics for you marketing strategy. In the end, retailers must strategize loyalty for all their consumers. Program membership is only means of getting at loyalty and not everyone will respond to your program. A store cannot aim to achieve much by just issuing a numbered card and rolling out points. Loyalty programs can even be invisibly, if necessary, the loyal customers should get special treatment regardless of membership in the program. Retailers will need to respect privacy, identify and enroll customers with minimal effort on the customers part build customer knowledge incrementally and across all touchpoints and increasingly sharpen their marketing messages to speak to the specific needs of both card members and non card members. As the loyalty program director of large retail outlets suggests “future of a successful loyalty program as a transition from mass customer marketing to a more personalized in store experience and one on one dialog with our best customers”. It is the collection and analysis of customer data that will enable the company to implement this futuristic vision.(see Appendix : where retail executives want to spend money to improve their loyalty programs) Think beyond the price It is an inescapable fact many customers are moved by price. But lifestyle, complementary goods or convenience moves others. Research has shown that although price is an important determinant for a customer choosing among retailers, merchandise selection, quality, store cleanliness, location and loyalty programs are also significant factors.
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A single retailer concurrently serves the needs of different consumer types. You need to invest in understanding attitudes and behavioral drivers and tune programs so that they speak differentially according to different customer needs. If you understand your customers, you can push the right lever for the right customers. High value customers might not mind paying more for a certain product, if there are other appeals to a particular store. Conversely, low value customers might be more opt to purchase items if they are discounted (hard benefits). Additionally, you can identify which benefits turn off certain customers. Next generation programs will offer tiered benefits according to deep understanding of customer segments using advanced analytic tools, a leading high end retailer was able to create 294 distinct segments within their loyalty programs just by blending three dimensions of customer information. ( see Appendix Multi dimensional customer insights lead to tiered loyalty marketing ) taking that point of departure the retailer selected a set of marketable segments that would receive the most enticing mix of benefits hard and soft and targeted their interests. The prerequisite of moving beyond this segment is to understand your customer deeply. Think beyond the price By leveraging advanced analytic, retailers can take into consideration customer purchasing behavior and make predictions about future purchases. Moreover, through similarity and consistency analyses, it becomes possible to tweak the benefits and promotions to optimize the appeal of the store space to as many consumers as possible. Advanced analytic also allows for integration of household data in profiles and transactions, enabling marketing to be geared entire household needs. Moreover, analytic has evolved to a stage where customer micro segments can be identified and acted upon to optimize market spend (see Appendix: Evolution of analytic technology). Retailers can now ask: what is the value of each customer that you cater to or that you might cater to? It is important to remember that a loyalty program is not just about rewarding loyal customers, it also is about gaining valuable intelligence on how customers think and act.
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Next generation loyalty programs are beginning to take that the use of data not only for personalizing loyal shopper’s experiences. They are making loyalty data actionable both downstream (customization) and upstream (core marketing strategies), across to store design, branding and merchandising. Think beyond retention More loyalty-marketing experts really agreed that a loyalty program is geared towards retaining customers. An innovative program can also attract new customers. These innovations have happened more often in non-retailing sectors, where rewards program are a point of competitive differentiation. Innovative loyalty programs attract new members who fall into the following two groups: 1) Entirely new customers 2) Existing customers who are now visible as a result of program enrollment These members in turn influence friends, family and co-workers, as purchases spokes people influencers. Retailers are experiencing the age of informal spokespeople, who rely on peer-to-peer communication, blogs, online chat rooms, shopping guides and comparison sites. Positive publicity in this environment can be a powerful marketing force. Setting up a program that provides incentives for current members to enroll new members is one way to increase such buzz. Involving employees to talk to consumers and share recommendations is another. The next generation, retail loyalty programs will be able to leverage these newer opportunities aiming to turn loyal customers into ambassadors for the retailer, increase their share of voice in the market and thereby attract new customers.
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Think beyond the program Loyalty programs should not be relegated to just another departmental activity. They need to be grounded as in a firm wide commitment to customer centricity, broadly understood (by management down to sales clerks), managed (to bolster the customer experience through every active and passive touchpoint) and leveraged (by using data to inform more intelligent initiatives). Accordingly, loyalty programs should take into account all of the company’s strengths and leverage them whatever and when ever possible all employees from the CEO down to the sales representatives of the company. Some retailers are experimenting with involving employee more integrity into the program. One of caveat is that the inclusion of employees in the program will require instating anti fraud protections, since employee fraud has been a drain on some programs. Investment in these safeguards is well worth it. When you consider that happy employee is by far a company’s greatest asset of advocacy. The power to acquire and retrain customers can be significantly strengthen by ensuring that employees at every level enthusiastically support the loyalty program. 10 Practical Steps for Retailers 1) Look beyond your own industry 2) Initiate a self critical discovery process 3) Start asking questions about customer value 4) Start talking to people across the organization 5) Generate ideas about enhancing the customer experience 6) Experience all the different customer touchpoints personally 7) Ask customers what type of benefits they most desire 8) Ask yourself ten things you want to get out of the relationship with your different tiers 9) Talk to customer loyalty experts 10) Dare to invest
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Books: Speed of Light, By Paul Greenberg Websites
•
www.retailyatra.com www.agencyfaqs.com www.indiaonestop.com/retailing.htm www.ebonyclick.com www.pantaloon.com www.wessidestores.com www.shoppersstop.com www.lifestylestore.com
•
• • • • • •
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doc_528432687.doc
Study on various loyalty programmes in depratment stores
CUSTOMER RELATIONSHIP MANAGEMENT
CUSTOMER LOYALTY PROGRAM MAJOR RETAIL STORES
SUBMITTED TO: PROF. SRINIVASAN
SUBMITTED BY: : JIS GEORGE (04) , PALLAVI TANNA (25), NEERAJ SHARMA (17), PRATEEK JAIN (08), AMIT KHANDELWAL (28) YEAR: 2005-06 DIPLOMA IN RETAIL MANAGEMENT MANAGEMENT, K.J. SOMIYA INSTITUTE OF MANAAGEMENT STUDIES AND RESEARCH
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ABSTRACT A CRITICAL ANALYSIS OF THE CUSTOMER LOYALTY PROGRAM BEING RUN BY MAJOR RETAIL STORES IN INDIA WITH SPECIAL EMPHASIS ON APPLICATIONS OF CUSTOMER RELATIONSHIP MANAGEMENT The organized retailing in India is expected to cater 3% of the total market sales in Retailing in India by 2006. In our dissertation we have highlighted the major facts about the organized retailing in India. We have highlighted the major retailers and have presented their Loyalty programs. Most of the organized retailers in India have similar loyalty programs compared to international retailers that have differentiated loyalty programs. As the CRM process in the Indian retailing sector is still at a initial phase so we cannot really predict the future of organized retailing in India. We hope this contributes to the loyalty of major organized retailers in India.
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INTRODUCTION Retail Sales, which amounted to about Rs 7,400 billion in 2004, expanded at an average annual rate of 7% during 2002-03. With the upturn in economic growth during 2003 retail sales are also expected to expand at a higher pace of nearly 10%. By the year 2008, the Indian retail industry is expected to grow by another 24%. In a developing country like India, a large chunk of consumer expenditure is on basic necessities, especially food- related items. Hence, it is not surprising that food, beverages and tobacco accounted for as much as 71% of retail sales in 2003. The remaining 29% of retail sales are non-food items. The share of food related items fell over the review period, down from 73% in 1999. This is to be expected as, with income growth, Indians, like consumers elsewhere, spent more on non-food items compared with food products. Retailing as in the other parts of the world will be taking a major shift in India. Therefore, there will be advent of lot of retail chains in all sorts of retailing. Indian Retail is gearing up to provide customers an international shopping experience. Loyalty programs, which give consumers rewards for repeat purchases from particular stores are common in the market today. The retail industry is very large. Retail is the country’s largest source of employment after agriculture, has he deepest penetration into rural India, and generates more than 10% of India’s GDP. With close to 12 million retail outlets, India has the highest retail outlet density on the world. In spite of this, retail is also India’s least evolved industry. In fact, it has not even been accorded the status of an industry. Defining Retail Trade: The retail trade sector comprises establishments engaged in retailing merchandise, generally without transformation, and rendering services incidental to the sale of merchandise. The retailing process is the final step in the distribution of merchandise; retailers are, therefore, organized to sell merchandise in small quantities to the consumers and not for resale.
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Retailing In India Retailing in India can be classified under two heads: organized and unorganized retailers. Unorganized retail is the dominant mode of retailing in the country with organized retailing contributing to roughly around 2% of the whole market. The unorganized retail formats are typically mom-and-pop stores, with very basic offerings, fixed process, zero usage of technology, and little or no ambience. These are highly competitive outlets, drawing on free land (unregistered kiosks or traditional property), unpaid/cheap labor (family members or village children paid below minimum wages) and zero taxes. Many of them also leverage the low or no cost of family labor to provide services like home delivery that would be uneconomic for any organized retailer. Traditional formats such as rural counter stores, kiosks, street markets and vendors have low productivity potential because of their unorganized systems and processes. These formats have emerged largely due to the absence of alternative employment and typically require employees with very low skills. These formats can, and do, serve to absorb agricultural labor. They are; however, very important as they account for two-thirds of the sector’s output. Organized retailing in India is gaining wider acceptance. The development of the organized retail sector, during the last decade, has begun to change the face of retailing especially, in the major metros of the country. Experiences in the developed and developing countries prove that performance of organized retail is strongly linked to the performance of the economy as a whole. This is mainly on account of the reach and penetration of this business and its scientific approach in dealing with the customers and their needs. In spite, of the positive prospects of the industry, Indian retailers are facing some challenges (see Appendix: Evolving Real Estate) which have stymied its growth.
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The Changing in Indian Consumer There is distinct evidence to suggest that the Indian Consumer, irrespective of her socioeconomic origin, be on a self-appeasement mission. Greed is good and she wants more of the best that life has to offer. As she traverses this path, we find that she defines fulfillment “materialistically and emotionally” no different from her more moneyed counterpart. SEC- based classifications notwithstanding1; the Indian consumer is out to seek pleasure and lifestyle. 177 million households in India are at various stages of defining their “self” from the “common”. The asset acquisition rate of the average Indian consumer has been on the rise ever since India opened its markets in 1991, and is expected to grow at an even greater rate. Also, the Indian consumer is more discerning and demanding than ever, especially due to the increased levels of exposure to international lifestyles and better levels of education. Shopping is increasingly becoming a family experience, showing a clear shift from the need-based shopping trends of the pre-liberalization India. Also, a whole segment of post-liberalization children, constituted by a whopping 100 million 17-21 year olds is coming of age, and the segment is spending like never before. One noticeable trend in this regard has been the rise in the spending capacity of the Indian middle class. The Euromonitor retail survey estimates that there has been close to a 20.9% growth in the real disposable income of the Indian middle class in the four-year period of 1999-2003. Complementing this growth in income is the rise in the middle and high-income population itself. This demographic segment, which is widely believed to be a main driver of the global retailing industry, has been rapidly growing at a pace of 10% per annum over the past decade. Also of significant importance is the rise in the affordability of the Indian consumer. A host of their related factors like falling interest rates and easier availability of consumer credit have facilitated the Indian consumer’s affordability. Also, the increasingly
1
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competitive nature of the Indian market in categories like FMCG2 and consumer durables has increased consumer spending, by ensuring availability of a greater variety and quality of products at never before price points.
2
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Customer Relationship Management (CRM) CRM is a management approach that seeks to create, develop and enhance relationships with carefully targeted customers to maximize customer value, corporate profitability and shareholder value. CRM leverages information technology (IT) to implement relationship-marketing strategies. Already customers are getting actively involved, either directly or indirectly with production processes. They make suggestions, they ask for smaller, brighter, easier-to-use products. CRM is not a tool that is specific to any industry type, so there is no one single definition of Customer Relationship Management. It is up to the organization to formulate one for itself in order to achieve the CRM goals that it sets for itself. Companies that have adopted CRM regard every customer as an individual with specific needs and tailor their services accordingly. Information Technology comes into the picture to help manage Customer relationships in an organized way. On an average a company has only a 5 to 20 percent probability of making a successful sale to a new prospect but has a 60 to 70 percent probability of selling again to active customers. It would be wiser to invest in encouraging an existing customer to purchase again. Companies that followed up lapsed cases experienced 20 to 40 percent successful sales. Without a doubt customer retention is vital to every company's long-term profitability and success and CRM, through target selling and customer loyalty programs, can help to motivate the best customers and to remain loyal as a method of increasing revenues internally. Rising customer expectations have stiffened the competition among companies to improve their customer support services. Today’s customer has access to the latest technological devices that give him instant information, allows him to make instant transactions, buy, sell or transfer money, he has access to it all over his palm top, PDA, mobile phone or desktop. Today’s customer is knowledgeable, he knows what he wants and the Internet is a powerful tool in his hands.
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More than ever, customers today have an important role to play in the product lifecycle. Customers are continually pressing for improved support services in terms of product coverage, business-ease, response-time and price (or at least value-for-money!).” With a wide variety of services available at competitive prices and easily accessible at the click of a button, improved customer services are becoming the need of the day. Customers are driving companies to migrate from being purely product-centric to purely customercentric, taking care of all customer requirements even before they are demanded. From current customer trends, it is easy to define the future customer. The volume of information available via the Internet will make the future customer a knowledgeable one. As more customers and businesses go online, the Internet will foster a global community that communicates at real-time. Customers will have access to a wider variety of products and prices to choose from. To stay ahead of competition, companies will have to anticipate customer needs even before a need arises. As more and more women began to drive two wheelers in India, the smarter manufacturers realized that one factor that might hold a sari-clad woman back, would be having to kick-start her bike. Along came the self-starter button and presto, a surge of women two wheeler drivers! The success of companies will depend on how well they are able to predict customer behavior, anticipate requirements and provide for them. The future customer will have a larger stake in the company’s project plans, his input will have value and his feedback will be consequential to the development of products or the way a service is delivered. This implies a significant alteration in the supply chains that we see today.
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Figure 4
The CRM strategy should include: (a) Operational CRM: Automating interaction with the customers and sales force, and (b) Analytical CRM: Sophisticated analysis of the customer data generated by operational CRM and other sources like POS (Point of Sales) transactions, web site transactions, and third-party data providers.
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A typical retail organization has a huge customer base and often customer's needs are fairly differentiated. Without the means to analyze voluminous customer data, CRM Strategy is bound to be a failure. Hence, Analytical CRM forms the core of a retailer's customer relationship strategy. Marketing and sales functions are the primary beneficiaries of Analytical CRM and the Main touch points from where the insights gained about the customer are absorbed in the Organization. Analytical CRM uses the key business intelligence tools like data warehousing, data mining, and OLAP to present a unified view of the customer. Following are some of the uses of Analytical CRM In Retailing Customer Segmentation Customer segmentation is a vital ingredient in a retail organization's marketing recipe. It can offer insights into how different segments respond to shifts in demographics, fashions and trends. For example it can help classify customers in the following segments 1) Customers who respond to new promotions 2) Customers who respond to new product launch 3) Customers who respond to discounts 4) Customers who show propensity to purchase specific products Campaign/ Promotion Effectiveness Analysis Once a campaign is launched its effectiveness can be studied across different media and in terms of costs and benefits; this greatly helps in understanding what goes into a successful marketing campaign. Campaign/ promotion effectiveness analysis can answer questions like: Which media channels have been most successful in the past for various campaigns? Which geographic locations responded well to a particular campaign? What were the relative costs and benefits of this campaign?
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Which customer segments responded to the campaign? Customer Lifetime Value Not all customers are equally profitable. At the same time customers who are not very profitable today may have the potential of being profitable in future. Hence it is absolutely essential to identify customers with high lifetime value; the idea is to establish long-term relations with these customers. The basic methodology used to calculate customer lifetime value is - deduct the cost of servicing a customer from the expected future revenue generated by the customer, add to this the net value of new customers referred by this customer, and discount the result for the duration of the relationship. Though this sounds easy, there are a number of subjective variables like overall duration of the customer's relation with the retailer, gap between intermediate cash flows, and discount rate. We suggest data mining tools should be used to develop customized models for calculating customer lifetime value. Customer Loyalty Analysis It is more economical to retain an existing customer than to acquire a new one. To develop effective customer retention programs it is vital to analyze the reasons for customer attrition. Business Intelligence helps in understanding customer attrition with respect to various factors influencing a customer and at times one can drill down to individual transactions, which might have resulted in the change of loyalty. Cross Selling Retailers use the vast amount of customer information available with them to cross sell other products at the time of purchase. This effort is largely based on the tastes of a particular customer, which can be analyzed using BI tools based on previous purchases. Retailers can also 'up sell' - sell more profitable products - to the customer at the time of contact.
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Product Pricing Pricing is one of the most crucial marketing decisions taken by retailers. Often an increase in price of a product can result in lower sales and customer adoption of replacement products. Using data warehousing and data mining, retailers can develop sophisticated price models for different products, which can establish price - sales relationships for the product and how changes in prices affect the sales of other products. Target Marketing Retailers can optimize the overall marketing and promotion effort by targeting campaigns to specific customers or groups of customers. Target marketing can be based on a very simple analysis of the buying habits of the customer or the customer group; but increasingly data mining tools are being used to define specific customer segments that are likely to respond to particular types of campaigns.
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Figure 5
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Designing a customer loyalty program Customers' expectations are increasing. They want: service, products that meet their Needs, value for money and added benefits. In response to this, retailers are stepping up. Their promotional activity to the extent that sales and special offers have become Everyday affairs, rather than end of season stock clearances. As a result margins are Being eroded to dangerously low levels. Some retailers have introduced card-based collector schemes that give electronic points According to the customer's spend, which are subsequently exchanged for gifts or Discounts. The more strategically minded retailers are introducing systems that monitor Customer behavior in order to respond better to their increasing demands. Both Approaches are commonly known as customer loyalty programmes, however, the latter Approach is the only one that is sustainable and really merits being considered as such. The basic electronic points schemes are just another way of delivering a promotion and rely upon giving a higher value incentive to differentiate from the competitors. The objective should be to maintain the customer's loyalty, not by bribery, but by offering a Better service, thus preserving margins and profitability. This section examines the elements that need to be considered when designing a customer loyalty programme. It defines the strategic objectives and examines what components of the scheme are needed to achieve the benefits, including mechanics and customer rewards. Finally, it reviews some data analysis techniques that can be used to refine the scheme in the light of experience gained from running targeted promotions.
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What is Customer Loyalty? Customer loyalty involves building a long-term relationship between the supplier and the individual customer in order to improve profitability. To achieve this the supplier needs to understand the customers' spending habits and know what products they currently buy (and don't buy) so that any communication can be meaningful. Customers respond better to someone who understands their special needs - a personalized approach offering products that are really relevant is more likely to produce the required result. Ideally, all customers need to be approached with something that motivates them to spend more if maximum growth is to be achieved, which is not possible from a single, all encompassing campaign. If traffic through the store needs building or a supplier has a new product, the focus will be on ways of attracting new customers. In all cases there is an essential need to know and understand the spending habits of existing customers and what entices new shoppers into the store. A successful scheme is one that engenders sustainable, long-term loyalty at an affordable cost. This cannot be achieved with bribery alone, the customer needs to feel wanted and special. It should be embraced with a comprehensive customer care programme. Objectives and Benefits When designing a customer loyalty programme it is, first, important to agree the strategic objectives. These will differ from scheme to scheme. To increase profit the aim will be to change customer behavior and, in particular, they’re buying habits. In a declining market customer retention may be the only objective.
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A number of key objectives and the benefits to expect are discussed below: • • • • • • • • • increase the turnover and profit customer retention establish long term relationships improve product awareness develop advocates increase frequency cross sell departments reduce mark-downs improve the effectiveness of direct marketing
Increase Turnover and Profit In any business, other than a declining market, the key aim of a customer loyalty scheme must be to increase profitability - there is no point in rewarding customers for their loyalty and getting nothing additional in return. To be worthwhile increased loyalty must result in increased spend (i.e. turnover), whilst retaining reasonable margins, thus improving profits. Recent tests have shown that a spend related reward scheme can increase average spend by 30%, however, a realistic target would be 10 to 20% on a long term basis. Customer Retention Clearly, one approach to retaining existing customers is to offer a suitable reward scheme. However, giving away something to those customers who would have made the purchases anyway is not cost effective. Instead of expensive "give-away's" the customer needs to be given special privileges as a member of an elite and prestigious club. By raising the self-esteem of the customer and communicating on a personal level with worthwhile information, and making offers which are relevant, the perceived value can be made to appear high but at a relatively low cost.
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Establish Long Term Relationships By definition, this should be one of the aims of all customer loyalty schemes. It is widely Accepted that it is a lot easier (and more cost effective) to sell to the existing customer base. Also, some organizations establish a dialogue with their customers in order to obtain regular feedback on its products and services rather than conducting ad-hoc customer surveys. It is vitally important to know the customer's view of new and existing products and to gauge their reaction to targeted promotions. Improve Product Awareness A loyalty scheme that restricts redemption to November and December will increase the frequency during the key months when Diwali products are on display, therefore increasing awareness. Also, the availability of a new product can be communicated to those customers likely to be interested with the aid of a suitable customer marketing database. Develop Advocates Personal recommendation is the best way of attracting new customers - a genuinely loyal Customer will become an advocate for the organization. Two recent trials demonstrate the pulling power of a loyalty scheme. With no advertising other than point of sale within the stores dramatic increases in club membership were seen. In both cases a loyalty scheme was devised for members of a long established club.
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Increasing Frequency Out of town stores normally have a higher average spend than high street stores because Customers want to make it worthwhile to travel the distance. Consider the gain to be made with one additional visit per customer where the average spends is RS 300 and the annual frequency is 4. This situation is, again, often related to the customer segment and suggests targeted offers would be beneficial. An appropriate reward scheme might be visit related for, example, spend over RS 300 on 4 occasions within a month to earn a reward, or a free instant win prize on each visit. Cross Selling Departments High street chemist chains stock a wide variety of products and often enjoy high frequency but very low averages spend. This is partly as a result of an association certain customer groups have with a particular product, for example, ladies may buy cosmetics on a regular basis but nothing else. If this situation can be identified there is an opportunity for cross-selling departments. Reduce Mark-Downs These days mark-downs have increasingly become a standard way of selling rather than a Mechanism for clearing unwanted or ends of season stock. This has resulted in eroded margins and reduced profits. A loyalty scheme will reduce the need to employ these tactics. Where stock needs to be cleared an alternative to price reductions is to make special offers to loyalty customers. This has the added benefit of increasing the value of the loyalty scheme to existing members and providing a powerful reason for new customers to join. Improving the Effectiveness of Direct Marketing Mails are costly. Indiscriminate mass mails are wasteful and even more costly. Whereas there is, perhaps, little scope to reduce the cost per person of direct marketing, 'hit' rates
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can be improved dramatically by targeting those customer groups most likely to respond to the product(s) on offer. This means a bigger return from the campaign or an equivalent return from fewer mailed customers. To achieve this we need to understand what products are likely to appeal to particular customers groups. Elements of a Successful Scheme Since, by definition, a scheme needs to be long term and cost effective, the customers' interest needs to be maintained. To achieve this it is important to: • • • • Make the scheme understandable and easy to use Offer a reward with wide appeal and a high perceived value Communicate with the customer in a way which is meaningful to them Establish a way of "locking-in" the customer
The Mechanic There is no universal reward mechanic that will work for everyone. It has to be designed taking into account the: • • • • • • Strategic objectives Retail operation Frequency of purchase Value of purchase Average spend Customer types and groups
Whatever is appropriate it is essential to communicate to the customer what he/she has Earned. In a reasonably high frequency outlet this will normally mean telling the customer his/her cumulative "points" balance at the point of sale at every purchase. Statement based schemes where the customer is informed at three monthly intervals are only appropriate for low frequency operations. Constantly reminding the customers of the benefits that are accruing will maintain interest and motivate them to reach their target
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even quicker. Depending upon the objectives the "points" can be related to one of the following: Spend To increase average spends. There may be a minimum purchase necessary and increasing Level of points or discounts earned for an increasing spend. Particularly useful for low value products. For example: 1 point for every RS 50 done by most of the retailers in India. Frequency Appropriate to build traffic through the store, where the propensity to spend is already high for visitors. Also, useful to make customers aware of new products on display in the store at the start of a new season. For example: spend RS 300 on 4 separate visits in a month and receive 100 bonus points. Period Special offers to attract customers on light days. For example: double points on Mondays. Product/Department Provides the means by which suppliers can participate in the scheme by funding special offer points. The Reward To motivate the customer to participate the choice of reward is vitally important. Of course, it is highly dependent upon the type of customer, but in all cases it should be: • Attractive and desirable to the target audience.
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•
Achievable in a reasonable timescale whilst bearing in mind that the customer should be made to work for his/her reward but not feel that it is only appropriate for the very high spenders. Increasing value rewards for increasing spend enables the impatient to receive some reward quickly to get them "hooked".
• • • •
A range of rewards to give broad appeal to a wide range of customers. A high perceived value to make it a genuine reward for loyalty. Low actual costs. Can be achieved by offering shelf products, which have an in-built A cash-in dates so that the liability can be calculated and cleared down. Interestingly, a Cut-off date does increase spend as customers strive to maximize their points before
Margin.
Closure.
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Types of Reward These fall into four categories: Own Goods For example: gift vouchers, discounts or services. Generally low cost because the reward has a built-in margin. Applicable when the product is desirable and is not replacing genuine purchases that would have been made anyway. Perhaps surplus product can be used (as long as it is still desirable). Not appropriate if there is no direct benefit to the customer or his/her family such as free petrol to a company car driver. Currencies For example: Most of the airlines use in India Free Air Miles, which can be used for discount travel, holidays, car hire, hotels etc. Provides a good mechanism for broadening the appeal and providing a range of rewards easily. Gift Catalogues Gifts as in terms if Vouchers given by Retailers to their customers. Affinities Increasingly popular for schools, charities etc. The reward has to be appealing to the charity concerned. Though hardly any retailers use it in India. Funding the Reward It is important to understand from the outset how the reward is to be funded and to calculate the likely cost (and the benefit). Again, the strategy will depend on the individual retailer's circumstances and objectives.
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Examples are as follows: • • • • • • Increased spend Increased frequency (and hence spend) Reduce mark-downs Increase margins Offer spare capacity (e.g .hotel rooms, travel seats etc) Increased privileges (at little or no cost)
The aim should also be to retain customer's loyalty through the relationship marketing by making full use of the database. The reward can be reduced over time. Some retailers look to their suppliers to fund their promotions by offering rewards based entirely on individual product purchases. However, it is important not to confuse supplier led brand switching schemes, which have no place in a customer loyalty scheme. The purpose is to increase spend not switch it from one product to another. Capturing Customer Data In the right hands a marketing database presents an exciting opportunity to increase the value of existing customers as well as providing a means of attracting new ones. However, as many retailers, suppliers and service providers have already discovered, it can be an embarrassingly expensive millstone if not properly thought through. Storing data is expensive. Before embarking upon the building of a marketing database it is important to have clear objectives. Categories of Data to Capture It has already been pointed out that storing data is expensive so it is important to capture only that which is really needed. The category of data detailed below is a comprehensive list of what can be collected.
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Customer Details This is fairly static data including: Name and address Family and ages Job and income level Residence (own, rent) Credit cards held Interests? Special needs etc. etc. Not all customers will give all this level of information on first asking. It is, however, possible to deduce certain details later. For example: if payment method is captured on each purchase we can soon learn what credit cards are held, if toys are purchased we can gain details of the children from the guarantee registration card, etc. Frequency How often does this person visit the store? On what days of the week? Hour of the day? Is the frequency increasing or decreasing? Do certain types of in-store promotions or mailing campaigns effect the frequency? Regency When did the customer last visit. Is this potentially a lost customer? Spend Is this increasing as required? Does it vary by customer profile? Do particular types of promotions affect it?
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Sites Visited Is the customer loyal to a particular store? What distances are traveled, on what days? Will this customer travel give the right incentive? Products Purchased Offers Departments Lines what special offers are taken-up? what is the level of spend by department? How does this vary by season and promotion? what is the typical shopping basket of this individual? Capturing the data can be relatively straightforward but it is unlikely that anyone will really need to maintain a history of each and every product item purchased by each and every customer. For a large supermarket chain this would amount to approximately 500 gigabytes per annum!
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Monitoring, Measuring and refining the Scheme As has been stated earlier in this paper it is important to define the objectives at the start and design the scheme and system around achieving those objectives. The dichotomy is that in order to design an effective scheme there needs to be a good understanding of the customer and one of the purposes of the system is to capture data to achieve this. Therefore, designing a successful scheme has to be an iterative process: 1. Design basic scheme 2. Implement system 3. Monitor customer behavior 4. Measure response and performance 5. Refine the design in the light of experience 6. Return to 2. Above It is not the purpose of this paper to examine ways of analyzing customer data, however, two statistical techniques (regression and cluster analysis) are mentioned as examples for targeting and segmentation. Considerable advances are being made in this area with the emergence of "intelligent" techniques, which are self-learning (e.g. neural networks). Targeting Targeting customers is a way of improving the response rate to promotions. This involves Measuring the size and characteristics of the target audience and the response and behavior to various offers, and then using the data to improve the offer. A common technique for this is regression analysis, which is based on past behavior: • • • Identify customer purchasing characteristics or attributes Score individuals according to the characteristics Target the high scoring individuals in future promotions
Customer characteristics are purchase related (e.g. frequency, average spends,
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Departments/products purchased, stores visited etc.) but can also be linked to lifestyle data. The high scoring individuals (i.e. those with common characteristics) are expected to yield a higher response rate. Segmentation Segmentation involves defining customer groups and devising separate marketing approaches to each group. Customers within a segment are as similar as possible and customers in different segments are most dissimilar. It is expected that customers in the same group will react to promotions in a similar way. Cluster analysis is a statistical technique for segmentation. This again relies upon identifying like characteristics, which can be lifestyle based but preferably uses purchasing data: • • • • Identify customer purchasing characteristics or attributes Divide into large number of segments Reduce segments to a manageable number by combining segments with close Market to customers in same segment
Characteristics (nearest neighbor method) This technique enables appropriate and relevant offers to be made to customer groups, which builds stronger relationships since the marketing is more meaningful to the individual customers. Whereas there is every likelihood that in five years time most retailers will have a customer loyalty scheme of some form, it is important to carefully analyze the objectives and the benefits that are expected. And then to constantly review the benefits that is actually being achieved and refines the programme accordingly. In summary, you should only embark on such a system if one or more of the following is true: You can benefit from knowing your customers and they’re purchasing behavior You have an attractive proposition that is sustainable over the long term There is a competitor threat emerging that can be defended by locking in your customers
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Into long term loyalty programme Your competitors are implementing a scheme (?) It will retain your share of a declining market The cost/benefit analysis shows that profitability can be increased as a result
Customer Loyalty Programs of Retailing in India A loyalty programme is an advanced stage of a well-managed CRM process and must be graduated to and not jumped into. Launching a loyalty programme depends on the Life State of a mature CRM system, data maturity and organizational preparedness. It needs some amount of investments in technology, specialized software, statistical tools and logistics. Earned rewards program by most of the retailers in the form of vouchers in India are actual cash payoffs, differed or otherwise and need efficient management. The best loyalty programmes are driven out of customer anaytics that work on mature data.When customers opt in to a permission-based loyalty programme, they are more milling to share information as well, enabling retailers to create a dialogue with customers. Clearly, there is no one, right way to market through any one channel, but there is and a a right loyalty that way all to market are to customers can been help. in included across A the several successful customer and channels, programme relationship marketing programme have
assumes that
channels objectives
measurable
established,
that promises are kept. With this foundation in place, a programme can boast the following characteristics:
1.
Visibility: members, shoppers
A a in
loyalty catalogue the store
programme can
must the
be
highly
visible
regardless and join.
of the channel. A Web site can show special offers for programme feature be programme if they'd prominently like to should asked
Cross-promotional materials should be present and easily obtainable.
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2.
Simplicity: To succeed, a loyalty programme must be easy to use in all channels. Minimize the fine print; the more the customers have to figure out, the less they like the programme.
3.
Value:
The
balance
of
reward
and
recognition
must
establish
value
in the customer's mind and motivate incremental purchases. Programme rewards should be credited regardless of where the customer prefers to shop. And while the price of merchandise should be consistent across all
4.
channels, Keep is
don't the
be
afraid made
to by highly
offer the
incentives loyalty
to
encourage If the are of a
customers to try a new shopping experience. Trust: promise program Recent retailer's or promises a with that programme. don't that more for personalized, valued offers shop and service, bombard
participants indicate -
meaningless who online buying
obviously than in one the
available to everyone. studies the customers looking and channels perhaps buying store money
reading
catalogue/leaflet
online-spend
more
with that retailer than single-channel shoppers. The build Retailers this can be best a way cannot the to coordinate base to A to marketing of let turning legacy objectives systems and across interfere into channels and loyalty with is to
knowledge afford base. key
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behaviors executed shoppers
preferences. building programme hand-raising
knowledge
well-conceived
invisible
volunteers and profitable customers The organized retailers in India have started with their loyalty programmes for instance Pantaloon: Green Points, Shoppers Stop: First Citizen, Ebony: Elite club, Lifestyles: The Inner Circle and Westside: Club West these loyalty programmes are in built up with the CRM strategies for each companies. Though every loyalty club has its pros and cons to the program but the main reason of worry for the organized retailers in India is the amount of average Walk Ins purchasing from the stores. The people visiting the Malls or
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specific store locations unlike, Wal-Mart in US these companies haven’t yet been able to fulfill the need of the customers towards the loyalty club. As part of our dissertation research shows that most of the loyalty clubs in India are similar in their purchase schemes and privileges. we would further support in other sections of the dissertation.
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Loyalty Program of Organized Retailers Westside Trent LTD’s Westside stores promise customers an international shopping experience and value-for-money. High quality, contemporary designs and a plethora of products have been successfully balanced to create the ultimate shopping experience. What began as just one store at Bangalore, has now expanded to other cities, such as Mumbai, Hyderabad, Chennai, New Delhi, Pune, Kolkata, Nagpur and Ahmedabad. All merchandise at the store, except cosmetics and perfumes, bears the Westside label, with the range being constantly updated, and contemporaries. The Westside stores have several departments to meet the varied shopping needs of customers. These include the menswear, womenswear, lingerie, kidswear, household accessories, cosmetics and perfumes sections. Complementing the shopping ambience, is a coffee shop, Café West, managed by the Taj Group. The store enjoys a unique positioning as a 100 per cent private label merchandise store. It comes out with 35,000 new designs every year. In house brands include Richmond and Urban Angels, besides store brands Westside and Westsport. The customer loyalty program is discussed in detail in the Appendix. The loyalty programme Club West has a membership of 200,000 customers, who are offered services like Privileges. Name of the Loyalty Club: Club West. Aim: To provide customers with the finest shopping experience with enhanced rewards
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Eligibility: Classic Gold Same day purchase of RS Same day Purchase of RS 2000 or cash payment of RS 5000 Associate Membership Profile form Gourment West Special discounts at YES YES selected restaurants Treasure West Special offers from our key partners Privileges West Complimentary drinks at Café West Exclusive Shopping Hours YES Invites for Special events Home Delivery after Alternation ( on minimum purchase of RS 2500 ) YES YES YES YES 150 YES YES 1 point for every RS 50 1 point for every RS 40 spent YES spent YES
Enrolment
Other Benefits: 1) Exclusive shopping hours only for members during sales
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2) Advance intimation of all in-store promotions and special offers through direct mailers 3) Special discounts on dining at select restaurants
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SWOT Analysis on Loyalty Program Strengths • • • Exclusive customer friendly staff Loyalty follow up through different customers is excellent Exclusivity to brand building done on televisions and media. Using brand endorsers like Yuvraj Singh is a fruitful effort. The company should also mention about loyalty club benefits • No extra value added questions asked unlike other retailers
Weakness • • • Online up gradation unlike other retailers for loyalty club members not done High cost on sending mailers to different addresses Importance of card designing not taken properly compared to other retailers
Opportunities • • Up gradation to new technology to enhance customer shopping experience The gap between customer relationship management and customer loyalty needs to be updated towards organization core values in terms of service • Expansion plans to towns above 1 lakh in population could be a good option
Threats • • • Competition is catching up with the retailers in the same industry USP needs to be carefully guided in order to gain competitive and customers loyalty The linkage between what a customer wants and prefers If not satisfied would transfer customers to different retailers
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Lifestyles Lifestyle, the department stores chain from Dubai based Landmark Group, started operation in India in the year 1998, with the mission to be market leader in the large format-retailing segment. Currently the company has 9 stores across 4 cities in the country. These outlets together occupy 320,000 square feet of retail space. While Mumbai has three Lifestyle stores, Chennai, Hyderabad, Bangalore, and Gurgoan have one each. Sizes of the stores vary between 27,000 square feet and 55,000 square feet. One distinct advantage is that the stores leverage upon global supply chain of over 300 stores in the Middle East for the Indian operations. Private labels contribute about 10 percent of the total sales. Lifestyle stores have arranged their merchandise under five different sections. Namely Splash men’s and ladies wear, Shoe Mart footwear and leather accessories, Baby shop kidswear, toys, infant basics, nursery furniture, Home Center home furnishings, gifts, Lifestyle perfumes and cosmetics, health and beauty accessories and adult gifts. The customer loyalty program is discussed in detail in the Appendix. The Inner Circle, boasts of a 240,000 strong membership and it contributes to about 40 percent to total sales. Name of the Loyalty Club: The Inner Circle Aim: Provide extended value to customers who frequently shop at Lifestyle Stores Eligibility: A customer who makes a purchase of RS 2500 on a single visit or Payment of RS 150 towards the loyalty club. For every RS 50 worth of goods purchased by the customer, a customer earns 1 point. Every 100 points collected entitles you to get a Gift Voucher of RS 100. Other Benefits: 1) Haute and Spicy In house fashion magazines by world of fashion
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2) Every outlet has a coffee island managed by Qwiky’s 3) Discounts and exclusive invitees to get together events
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SWOT Analysis Strengths • • • • Most admired large format retailer at IFA 2003 and 2004 Distinctive image about Lifestyle as a brand on consumer perceptions No 1 retail company by Business World for year 2003 Customer oriented programmes like SMS, Made for each other and Shop a surprise would help walk ins in the store Weakness • • • Manually handled loyalty program apart from the auto generated card number Nothing about the store on the Website Data feeding and sending the reports daily to the central office in Chennai needs a lot of hard work for official use Threats • A consumer can redeem the same points twice in a day if he happens to walk in different Lifestyle stores on a single day • Development of Customer Loyalty program yet to match with the Customer Relationship management towards the specific company goals • Advantage to competitors in the form of Loyalty simplicity
Opportunities • • Online up gradation is a necessity for Customers as well as the company The price ranges of products is for the elite class urban consumers who need extra benefits other then the simple loyalty program unlike other retailers
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•
Explore and compare the loyalty program of US retailers to out smart the rival companies
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Shoppers Stop A group of K Raheja’s Shoppers Stop LTD is considered the pioneer in providing Indian consumer a taste of international class shopping when it opened its first department store in Mumbai in 1991. Today, it is a chain of more then 16 stores across 9 cities in India. It covers about 600,000 square feet of retail space. The chain is also credited for being the largest retailer for hi end popular fashion brands like Levi’s Strauss, Pepe, Arrow, Zodiac, Ray-Ban and Swatch. Shoppers Stop was the first retailer in the country to have bar coded garments, co branded credit cards and retail ERP. It acquired “Superbrand” status in 2003. The company has also been recognized as “best IT user in retail by NASSCOM- Economic Times. Shoppers stop has a vibrant loyalty programme First Citizen with more than 320,000 members. Name of the Loyalty Club: First Citizen Aim: Experiencing the loyalty to total commitment by the company towards its customers in terms of value for money Eligibility
Benefits First Citizenship First
Golden Glow -
Silver Edge -
Classic Moments RS 150
Citizen 1 Reward Point for 1 Reward Point for 1 Reward Point for RS 34 every Purchased RS 50 every RS 100 purchased purchased
Reward Points ( on every net purchases)
Extra Reward points 2% on Stop!, Life, Kashish
1%
-
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Program
Partners 1%
0.5%
0.25%
Reward Points Associate Card 2 free ( 3rd RS 100 ) YES (RS 100 for YES ( RS 100 ) upto 2) Regular updates Exclusive Counters Free Parking YES YES Golden YES YES YES
Cash Exclusive
Glow Cash Counter YESserve basis reserved YES YES
parking on first cum
Valet Parking Free First Update
YES YES
YES -
YES -
Home Delivery of YES Alterations Out Store offers YES
YES YES
YES YES
Exclusive Previews YES Merchandise & Sale
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SWOT Analysis Strengths • • • Best IT supported Customer Loyalty program in India USP of the company being in high regard as one of the best retailers Product Authenticity of World Famous Brands in house
Weakness • • Complicated points Systems but, very well supported by statements online Follow up to customers unlike other retailers isn’t done to match with the standards maybe because of lack of skillful manpower in the organized retail sector Opportunities • Being a market leader in the use of IT supported systems the company should also start building on new technologies like finger print customer loyalty programmes • Introduction of new cards relating to college goers should be introduced to attract them to shop • Smart card to be used like swipes to enhance the card exposure
Threats • • Loosing out on urban middle level consumers to Pantaloon Expanding the stores to semi urban areas is necessary otherwise other retailers would catch up with the sales and brand presence • Need to promote shoppers stop as a brand on television commercials like Westside
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Ebony A unit of Delhi- based Ebony Retail Holdings, the Ebony store is one of the new retail companies in India. Ebony started its first department store in October 1994, and by March 2004 it had eight operational stores covering 150,000 square feet of retail space. The stores aim to provide customers an experience of world class merchandise at affordable prices across all the categories. Ebony sells menswear, womenwear, lingerie, kidswear, household accessories, cosmetics, perfumes, books, music, personal care, cosmetics, jewellery and luggage. The store’s private label, ETC contributes about 22 percent of the apparel sales. It has also come up with a new concept of Studio Ivory collections of designerwear for the middle income segment. Besides, the company also has a concept bookstore called Wordsworth Ebony runs a successful loyalty programme, Ebony Elite Club, which has enrolled 50,000 members. Name of the Loyalty Club: The Ebony Elite Club
Aim: To provide customers with online shopping experience as well as enhance value shopping to employees Eligibility
An applicant becomes eligible to apply for Elite Club Silver Membership when he/she has purchased merchandise worth RS 2000/-* or above from any Ebony store, or on payment of RS 100/- as enrolment fee.
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An applicant becomes eligible to apply for the Elite Club Gold Card Membership when he/she has purchased merchandise worth RS 20,001/-* within his/her Silver Card Membership tenure (2 years).
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SWOT Analysis Strengths • • • B2C business model for the Website for Customer Loyalty Strong market presence in North India Outlets specifically suited towards Market Areas
Weakness • • To small as a retailer to expand the areas of business The brand is loosing out in identifying its customer relationship program compared to other retailers • Up gradation of skillful people working in the organization necessary
Opportunities • With the B2C Website the company should look to expand and tie up with other web portals like India Times to gain customers • Expand operations in other parts of India
Threats • • Small retailers near by to the areas of the shop like Big Jobs in South Ext. Need to introduce Category Management in the store formats
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Pantaloon In 1999 Kishore Biyani, CEO of Manz Wear Pvt. LTD changed the companies name to Pantaloon Retail (India) LTD. The company now operates with 37 stores in 4 distinct retail formats across the country – lifestyle (Pantaloons), food and grocery (Food Bazar), discount hypermarket chain (Big Bazar) and seamless mall (Central). In all they cover 954,000 square feet of retail space. Today, Pantaloon is the largest retailing company in India in terms of value.. Pantaloons loyalty programme Green Card has an impressive membership of about 400,000 and the company is clearly a leader in the industry when it comes to retail knowledge base and supply chain management practices, which is focus area for a retail. Name of Loyalty Card: Pantaloon Green Club Aim: Enhance the value of shopping through a family store The company uses the software called “SAICOM” for the purpose of its loyalty program called the Green Club. The system works as follows : MEMBERSHIP : Purchase bills over Rs. 2500 are presented to the GSD counter where the form duly filled is submitted to the employee for updation of the records. The customer is immediately given a Green Card with a specific number which is noted down in our records and updated later with the corresponding customer details in the SAICOM ADDING OF POINTS : Later whenever, the customer presents the card for billing the points are added to his card through the SAICOM software within the next 48 hours. REDEMPTION : If the customer needs the redemption then the SAICOM software verifies the number of points in the account and makes the customer eligible for an issue of a green voucher. The voucher is then redeemed while billing for products at pantaloon.
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Eligibility:
Privileges Green Points Green Bonus Green Statements
One Star 1 point for RS 50 NO Every 3 Months
Two Star 1 point for RS 40 YES Every 3 Months
Five Star 1 point for RS 25 YES Every 3 Months
ADD- on- Card for 1 ADD- on Card 2 ADD- on Cards 3 ADD- on Cards Family Members Green Promotions Green Offers Green Drop Green Exchanges Green Service Desk Green Events Green News Green Channel free YES YES NO Upto 60 days YES NO YES No free YES YES YES Upto 90 days YES 2 Events per year YES YES Rs 100 per card free YES YES YES Upto 90 days YES 6 Events per year YES YES Free
Additional ADD- on RS 100 per card Cards ( Max 3 )
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SWOT Analysis Strengths • • • • Capturing the largest market share among retailers in India Fast value creation and realization in semi urban markets Enhanced Brand image in the form Big Bazars, Food Bazar and Gold Bazar The Website Recently launched has not been properly managed in terms of Customer Loyalty Program Weakness • • • Website yet to be fully integrated with the support systems Customers only able to check points on stores from where card has been issued Follow up on customers not properly managed unlike rival firms like Westside
Opportunities • • • Marketing functions can be enhanced with the official launch of Website Modernization of Customer Loyalty Service Desk Corporate Social Responsibility can be done with the word green to enhance customer values • Special Theme based launches can be done in order to generate higher sales
Threats • The shoppers stop customer loyalty program is very well organized. Pantaloon needs to upgrade Information Technology in the product in order to match with the companies customer relationship management
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Conclusions And Recommendations 1) To study and analyze the gaps if any in the customer relationship strategy of Pantaloons in India Limited The gap between the consumers and the company CRM is not very wide. The Indian retailing industry is just opening up to the world. we think in the coming years we would be able to see a significant development in this area. Though our study of the loyalty program is too early we think the company can cater to the customers in a more convenient way. The company needs to overall upgrade the website and also the customer service desk at the store. A person who is a privileged customer has to benefit from the purchases he or she makes at the store. we think the frequency of the purchases should be increased. we would recommend the following: a) Have in store space for counters to entertain people which can act as a crowd pulled and also jump sales b) Upgrade the website and make Online purchases available to start
c)
Upgrade the software of Saicom so that if on a given day a store has double points giving to customers it can fulfill the needs
d) The track of data purchased by the customers need to follow up with special invitees e) Marketing of the best loyalty program in India could be beneficial for the store and also increase the profits 2) To study and analyze the customer loyalty program of Pantaloon Retail India Limited and compare with other retail outlets The Pantaloon Loyalty program is similar to all the organized retail outlets in India with the only difference of Adding points during the sale period. we think its too early to predict the future of the shopping loyalty programs in India. The only recommendation we have apart from the things mentioned above is to identify the club with some social cause. The name itself of green can be identified with increasing awareness about plants in the world. we think this would prove a reason for people to buy and also cater to the services towards the environment.
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3) To assess the opportunities of strategic alliances to generate traffic customer loyalty Traffic at the store can only be generated if the location and the facilities at the nearby stores are convenient. That is, combinations of a wholesome entertainment along with the shopping experience. The tie-ups with Bank Credit Cards would be handful but, it should also help the company to get a automatic privilege customer. One way to increase the traffic would be to have in store display counters of games in the store that would always keep a shopper wanting to walk around the stores more. The retailers also need to see how are their employees integrated to their systems. we think they should also do a organizational employee survey in relation to their attachment towards the organization and also integration of new and upcoming technology in the organization. Overall we think, The Customer Loyalty and the CRM strategies in India should lead to a new developing concept about Customer Experience Management. Customer Experience Management is an Extension to CRM.
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Future of Loyalty Programs in India Think beyond the card You cannot expect good results from implementing a loyalty program with a standard activity and rewards aimed at everyone. So where do you start. If you are thinking of revising you current loyalty programs you need to ask your loyal shoppers for input on program design that can yield valuable insights early on data driven segmentation along the multiple dimensions can point to a wealth of new tactics for you marketing strategy. In the end, retailers must strategize loyalty for all their consumers. Program membership is only means of getting at loyalty and not everyone will respond to your program. A store cannot aim to achieve much by just issuing a numbered card and rolling out points. Loyalty programs can even be invisibly, if necessary, the loyal customers should get special treatment regardless of membership in the program. Retailers will need to respect privacy, identify and enroll customers with minimal effort on the customers part build customer knowledge incrementally and across all touchpoints and increasingly sharpen their marketing messages to speak to the specific needs of both card members and non card members. As the loyalty program director of large retail outlets suggests “future of a successful loyalty program as a transition from mass customer marketing to a more personalized in store experience and one on one dialog with our best customers”. It is the collection and analysis of customer data that will enable the company to implement this futuristic vision.(see Appendix : where retail executives want to spend money to improve their loyalty programs) Think beyond the price It is an inescapable fact many customers are moved by price. But lifestyle, complementary goods or convenience moves others. Research has shown that although price is an important determinant for a customer choosing among retailers, merchandise selection, quality, store cleanliness, location and loyalty programs are also significant factors.
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A single retailer concurrently serves the needs of different consumer types. You need to invest in understanding attitudes and behavioral drivers and tune programs so that they speak differentially according to different customer needs. If you understand your customers, you can push the right lever for the right customers. High value customers might not mind paying more for a certain product, if there are other appeals to a particular store. Conversely, low value customers might be more opt to purchase items if they are discounted (hard benefits). Additionally, you can identify which benefits turn off certain customers. Next generation programs will offer tiered benefits according to deep understanding of customer segments using advanced analytic tools, a leading high end retailer was able to create 294 distinct segments within their loyalty programs just by blending three dimensions of customer information. ( see Appendix Multi dimensional customer insights lead to tiered loyalty marketing ) taking that point of departure the retailer selected a set of marketable segments that would receive the most enticing mix of benefits hard and soft and targeted their interests. The prerequisite of moving beyond this segment is to understand your customer deeply. Think beyond the price By leveraging advanced analytic, retailers can take into consideration customer purchasing behavior and make predictions about future purchases. Moreover, through similarity and consistency analyses, it becomes possible to tweak the benefits and promotions to optimize the appeal of the store space to as many consumers as possible. Advanced analytic also allows for integration of household data in profiles and transactions, enabling marketing to be geared entire household needs. Moreover, analytic has evolved to a stage where customer micro segments can be identified and acted upon to optimize market spend (see Appendix: Evolution of analytic technology). Retailers can now ask: what is the value of each customer that you cater to or that you might cater to? It is important to remember that a loyalty program is not just about rewarding loyal customers, it also is about gaining valuable intelligence on how customers think and act.
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Next generation loyalty programs are beginning to take that the use of data not only for personalizing loyal shopper’s experiences. They are making loyalty data actionable both downstream (customization) and upstream (core marketing strategies), across to store design, branding and merchandising. Think beyond retention More loyalty-marketing experts really agreed that a loyalty program is geared towards retaining customers. An innovative program can also attract new customers. These innovations have happened more often in non-retailing sectors, where rewards program are a point of competitive differentiation. Innovative loyalty programs attract new members who fall into the following two groups: 1) Entirely new customers 2) Existing customers who are now visible as a result of program enrollment These members in turn influence friends, family and co-workers, as purchases spokes people influencers. Retailers are experiencing the age of informal spokespeople, who rely on peer-to-peer communication, blogs, online chat rooms, shopping guides and comparison sites. Positive publicity in this environment can be a powerful marketing force. Setting up a program that provides incentives for current members to enroll new members is one way to increase such buzz. Involving employees to talk to consumers and share recommendations is another. The next generation, retail loyalty programs will be able to leverage these newer opportunities aiming to turn loyal customers into ambassadors for the retailer, increase their share of voice in the market and thereby attract new customers.
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Think beyond the program Loyalty programs should not be relegated to just another departmental activity. They need to be grounded as in a firm wide commitment to customer centricity, broadly understood (by management down to sales clerks), managed (to bolster the customer experience through every active and passive touchpoint) and leveraged (by using data to inform more intelligent initiatives). Accordingly, loyalty programs should take into account all of the company’s strengths and leverage them whatever and when ever possible all employees from the CEO down to the sales representatives of the company. Some retailers are experimenting with involving employee more integrity into the program. One of caveat is that the inclusion of employees in the program will require instating anti fraud protections, since employee fraud has been a drain on some programs. Investment in these safeguards is well worth it. When you consider that happy employee is by far a company’s greatest asset of advocacy. The power to acquire and retrain customers can be significantly strengthen by ensuring that employees at every level enthusiastically support the loyalty program. 10 Practical Steps for Retailers 1) Look beyond your own industry 2) Initiate a self critical discovery process 3) Start asking questions about customer value 4) Start talking to people across the organization 5) Generate ideas about enhancing the customer experience 6) Experience all the different customer touchpoints personally 7) Ask customers what type of benefits they most desire 8) Ask yourself ten things you want to get out of the relationship with your different tiers 9) Talk to customer loyalty experts 10) Dare to invest
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Books: Speed of Light, By Paul Greenberg Websites
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www.retailyatra.com www.agencyfaqs.com www.indiaonestop.com/retailing.htm www.ebonyclick.com www.pantaloon.com www.wessidestores.com www.shoppersstop.com www.lifestylestore.com
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