Home Retail Know Your Customer

    Know Your Customer


    In a chat with , Caroline Papadatos, Senior Vice-President with LoyaltyOne International, argues that loyalty programmes entail much more than merely offering points – they are very potent devices to identify and understand your customers and their buying habits.

    How do you think FDI will change the retail landscape of India?

    I think we are going to see two things happening. One is modernisation and the other is scale. I think every retailer will have to scale in order to build the brand and create a footprint. The focus on retail performance is going to be very high. Retailers will need to be even more diligent about their store operations, product quality and customer experience.

    In an amusing sort of way, the kiranas have retained a solid advantage over modern retailers. They know their customers by name and have a relationship with them. They also offer monthly credit and just-in-time service. Many times, they know more about the products than the customer and things are delivered right at their doorsteps. The biggest challenge for retailers in India as they modernise will be how to maintain an intimate relationship with thousands of customers, and that’s where I think loyalty has a role to play.

    How do you think loyalty programmes can help retailers in India?

    Loyalty is not just a programme, it’s a device to identify customers. Once the retailer knows his customers, he can start to build some understanding of how they shop. Every time a customer uses the loyalty card, not only is he getting some rewards but his buying pattern is also being detected by the retailer. So, instead of doing mass campaigns and trying to assume that everybody who is 25 wants the same things, a retailer can now say that he has a segment of customers who come in to buy utility goods, another buys only luxury goods, and so on.

    The retailer can thus have differentiated experiences for different customer profiles. He can actually organise his store accordingly, based on what he knows about his customers. In India, people think of loyalty as offering their customers a bunch of points that will make them happy. But loyalty is much deeper than that. It’s a for knowing your customers. A loyalty card is just the first step in identifying them and then learning more about them. You can see every transaction they do, and when you have that, you can do many things like rewarding customers differently.

    The second thing is recognition. If somebody is your best customer, the worst thing you can do to him is to fail to recognise him when he comes to your store. It is absolutely necessary for a competitive retailer to know his best customers.

    Also important is creating communication that is relevant to the customers. If a retailer knows what his customers buy, he can send tailor-made messages to them. In India, retailers are still relying on very basic information like anniversaries and birthdays, but in the new world of retailing, you need to know 20–30 things about a customer, otherwise it won’t be possible to have an effective relationship with him.

    All these things require only one thing – data – and retailers need to invest heavily in collecting it. Loyalty programmes are a very good way to do that. Today, these programmes are seen by the Indian retailers as an extension of their brand. They want to put a great logo on the loyalty card but they are not really thinking about it in terms of a great retail asset. Once they start collecting and using the data of customers, they will become truly competitive. In fact, there are six stages of loyalty programmes and I can safely say that Indian retailers have managed to cross only the first three – there are three more to go.

    What are the main differences between the way Indian and global retailers approach their loyalty programmes?
    I think what’s missing in India compared to the matured markets in the West is the fact that retailers here are yet to learn to use the customer information properly. They are using market segmentation in terms of SEC A, B, etc. They analyse these in the way that “each segment will be having roughly around 300 million customers, which will be growing over the next five years.” I think this type of segmentation and market information is too large to be targeted effectively by the Indian retailers. It is not going to be enough.

    In Europe and North America, the average food-and-grocery retailer would have 50 or 60 analysts at a time analysing customer data. That information helps them decide which products to buy and where to put them on the shelves, who to target, and the pricing strategy. In other words, retailing in the West is a highly analytical exercise.

    I think Indian retailers are yet to have access to that kind of information. They are currently much more focussed on brand marketing than analysing data. In India, brand marketing is stronger whereas in the matured markets, customer marketing is stronger.

    What kind of innovations can happen in terms of loyalty programmes in India?
    We are in the process of launching a coalition in the Indian market, which is again a marvel that exists in many matured markets. This is a loyalty programme with a single currency that can be used with multiple retailers. It’s something like the Euro, a common currency used all over Europe. Take that analogy and use it in terms of a coalition of retailers – imagine if brands like and got together to offer a common loyalty programme. This would mean a customer will be able to collect more points quickly.

    The average Indian consumer has more than three loyalty cards and he accumulates small number of points on each card, which do not give him any substantial reward. We already know that if there are not enough rewards on a loyalty card, the customers don’t shop that frequently. Also, the big difference between a normal loyalty card and a coalition programme is that all the discretionary and non-discretionary spends of a customer will be reflected on one common platform, and help him in accumulating more points.

    Also, I don’t want to focus only on points as the sole benefit of loyalty cards. Points are, of course, something that every customer enjoys, but what they also get over a period of time is improved service. For instance, during the time of promotions, instead of doling out the same 5 percent discount to every customer, a retailer can actually give 20 percent discount to those sections of his customers who he knows are going to spend more due to the promotions. It not only benefits the retailer, it also creates long-term value for the customers.
    That is much more than mere points because the retailer is using his intelligence to give more value to the customer which will force him to come back again to the store. When done right, the loyalty programmes change the way a retailer markets his products, benefiting all the stakeholders along the way.