Can we make consumers Loyal?
Million Dollar Question, I wish I could answer that. Recently I made some one who stunned me by the basic premise. We want to run a loyalty program for a set of consumers
So, the basic premise of recognition and customisation, the holy grail of direct marketing and loyalty programs went out of the window. Interesting, but more on that later...
I feel it's critical for anybody to answer 2 basic questions
Why do we want to do the loyalty program? A loyalty program is a process, the expectations should be set every 3 months, speak to customers / meet the members, get into the data, chk the impact. There is nothing wrong in changing the objective after 6 months. Most of the times we are fixated with the no of members which we can garner and not the quality n returns, the members are giving.
Are u in sync with the current Technology and Trends? RFID, Blue tooth, internet , mobile.......In my mind technology is core to any loyalty program. One - in terms of consumer behaviour , Two - reaching out to the consumer. There are many brands which can run the entire program only thru a consumers mobile and the e-mail id he/she has.
Below is an article (Brand Equity) which explains how Shoppers Stop, one of the largest (& oldest) loyalty program in India and some others are coping with the change.......
A pointless exercise?
Last month, Vishal Kumar received a rude shock when he went shopping at Shoppers’ Stop in Malad, Mumbai. At the billing counter, he was told by the staff that the loyalty points accrued over a year as a First Citizen Club member of Shoppers’ Stop had lapsed, as had his membership.
The staff went on to add that all members had been informed of the changes in the loyalty program via SMS, which Kumar hadn’t shared. This was in addition to the store announcing a 30% cut in reward points for its six-lakh strong First Citizen Club members, early in April.
The staff went on to tell him that his membership wouldn’t be renewed and he’d have to apply afresh. An exasperated Kumar remarks, “In spite of the plethora of changes, there was absolutely no communication by mail from Shoppers’ Stop.” It’s certainly not the only jarring note to be hit by a loyalty program. In the first week of August, Lifestyle’s Inner Circle echoed Shoppers’ Stop by sending out a note via SMS to members, informing them that their reward points were slashed by 30%. So, if previously a bill of Rs 10,000 yielded Rs100 as reward, after the cut, one could expect only Rs 70.
On the face of it, slashing reward points, or even telling customers they can’t redeem them beyond a certain time frame seems perplexing. Eight years after it launched its rewards program, Shoppers’ Stop garners nearly 62% of its revenues from the First Citizen Club. A little over half of Westside’s turnover is credited to Club Westside, with nearly five lakh members.
The mismanagement of loyalty:
Dig deeper, and the real truth begins to emerge: there are too many retailers running reward programs that aren’t very different from each other. So, while it is simple to acquire new customers, making them spend more at the store is far from easy. In fact, according to Ajay Kelkar, marketing head, HDFC bank, “In India, marketers looked at loyalty programs as a promotion-led customer acquisition device.” What’s more, running a rewards program costs a pretty penny — and thinking of it as a cost rather than an investment seems to be the dominant line of thinking.
Most reward programs are started for the sake of beefing up frequency of visits to the store. Yet last year, a major retail chain discovered that out of 35,000 new members, barely 5,000 visited a second time, throwing the entire cost-benefit equation out of gear. That’s not all.
Most retailers tend to over-rely on reward points. To make matters worse, says Harsh Vardhan, director, Kandor Solutions, a business analytics company, “Most initiatives by retailers are benchmarked against credit card loyalty programs. These offer just 1%-2% as rewards, but retailers haven’t understood that credit card usage is much higher than consumer spends at stores.” So for every Rs 1,000 spent at the store, the customers ends up earning no more than Rs 20.
Whereas, for most credit card customers, the spends tend to average around Rs 20,000-Rs 22,000, according to an ICICI Bank estimate. This magnitude of spending makes a 2% reward more significant than what a retailer has on offer. Lacking the incentive to stay committed to any single program, most customers flirt with the competition.
The result: a growing number of people hold multiple loyalty cards. A retail study conducted by Kandor showed that nearly 50% of reward program participated in three or more such programs.
Besides, many members do not redeem their points. Retailers privately admit that redemption rates could range between 35%-50%. That poses an accounting challenge. All unredeemed points have to be shown as contingent liability (liabilities that may or may not be incurred and which depend on the outcome of a forthcoming event) and therefore affect the bottomline.
Quick-fix:
So what do retailers typically do? They can try to induce customers to spend all their points within the same year. But thanks to inertia, that isn’t always easy. The other solution is limiting the liability to a fixed period, a year for instance. Shoppers’ Stop, however, claims it faced a different problem. It chose to extend the validity of reward points to two years, presumably to enable a greater amount of redemption. The result: redemption rates, says CEO Govind Shrikhande, jumped to an alarming 90%. That once again threw the cost-benefit equations out of whack, forcing the chain to slash reward points.
In many ways, it is a Catch-22 situation. Clearly, marketers need a new way to reward loyalty which goes beyond mere points. There is strong logic for continuing with loyalty programs — marketers reckon that the cost of customer acquistion is five times greater than that of retention. What then is the way forward?
One of the important learnings has clearly been the need to offer meaningful rewards and segregate the high-value spenders from customers who aren’t adding any revenue. Shopper’s Stop has been among the early movers in this direction.
According to Shrikhande, “We have been offering spot rewards like free movie tickets to shoppers above a certain threshold, in addition to points.” Yet, not everyone agrees with this strategy. Industry sources say that time and again, rewards like movie tickets aren’t going to work as well as thoughtful rewards from their own portfolio.
Shoppers’ Stop is currently the only retail chain that has segregated it’s users into three groups, based on their spends. Others are only just beginning to segregate high-value customers. Kabir Lumba CEO, Lifestyle, adds, “We have invested in analytics giving us more details on spends, and we can now tailor our rewards.”
United, we stand: Perhaps the most interesting way forward is coalition loyalty program. It involves a group of partners collaborating. i-mint, launched in early August by the ICICI Venture-funded Loyalty Solutions and Rewards (LSRL), is the first, and thus far, only coalition program in India. Already, six companies have signed up as partners, including Lifestyle, ICICI Bank, HPCL, Airtel, Indian and makemytrip.com. Rather than customers garnering small amounts across different programs, they could be members of a single loyalty scheme which aggregates rewards. According to Vijay Bobba, CEO, LSRL, “The companies that have signed up are in categories that involve frequent usage, or have high consumer spends.” The ‘points velocity’ — the rate at which they earn additional points — will be great since they earn them across a spectrum of companies. Bobba says the objective for i-mint would be to increase redemption to nearly 50%-60% of all points, up from what he reckons is currently 30%.
Partners entering the loyalty program see a substantial reduction in operating costs. B Madhivanan, general manager, ICICI Bank says, “The total costs could be cut by nearly 30% just by joining a coalition loyalty program with like-minded partners.” Besides, points would no longer remain a contingent liability and go off the books completely if a company would merge its existing loyalty program into a coalition. According to Bobba, redemption can either be with any of the six partners, or from a selected list of i-mint rewards. Globally, two successful precedents of coalition loyalty programs exist. In the UK, Nectar, which is partnered by many of the UK’s leading retail chains including Sainsbury’s and Debenhams, has signed up nearly 55% of all the UK households to its loyalty program. In Canada, AirMiles started off as purely an aggregator of airline points, but has expanded to include more than a hundred companies. So will it be successful in India? Not everyone is convinced.
A coalition program could disconnect the loyalty between the customer and the company, since it’s purely transactional and rewards-driven in nature. Adds Kelkar, “They work best in a country where the market is more homogenous and less fragmented.” Vardhan concludes: “The quality of the merchandise has to be single most important offering in a competitive market to gain loyalty.” Many global retailers have begun to use their loyalty programme to target specific merchandise at select customers. It’s a new game that local retailers are likely to graduate to.
