Loyalty Programmes: A Saviour in Slowdown

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Today’s chief marketing officers confront a painful reality: Their traditional mass marketing model is broken. A rising tide may lift all boats; a falling one reveals who has invested wisely in marketing and at right times. Engagement with customers over a life cycle is the new model for success and loyalty programmes have to fulfill the gap even in recessionary times

A Lifestyle Inner Circle Silver membership nets two points for every Rs 100 spent with each point worth only 60 paise. But a member needs a minimum of 166 points to redeem for benefits. In another instance, Rs 150 spent on Speed petrol at Bharat Petroleum’s petrol pump will earn 25 points, or Star Bazaar’s Clubcard, where for every Rs 200 spent the consumer gets one point, equal to Re 1 in value. These are the kinds of loyalty programmes implemented by leading retailers to capture 70 percent of the share of the consumer’s wallet. Most companies see loyalty as only “points” in either case where behavioural loyalists are likely to walk away from a brand as soon as a better offer comes along and emotional loyalists are likely to revisit and riding out the hard times even when a competitor offers a better option.

But does giving customer one or two points on a purchase of Rs 100 or Rs 200 with asterisk conditions to redemption really create loyalty in times like today? Are these rewards juicy enough carrots for the customer to keep coming back to the same retailer? What is loyalty all about in times like recession and how in this competitive world, “loyalty” as concept is booming and customer loyalty programmes have become an essential part of most of the marketing programmes planned by companies and brands?

The loyalty programme market in India is pegged at about Rs 5,000 crore; retail accounts for two-thirds of that, and travel and financial services for 10 percent each. The rest comes from other sectors including hospitality and also channel loyalty initiatives etc.

“Loyalty is no longer about points, discounts, miles or rewards, rather loyalty points as a method of building loyalty is myopic and in fact a lazy marketer’s dream. Give them points and they will come back is an absolute myth today. Discounts don’t have memory and so most programmes come out with points. But according to the 2011 Colloquy Customer Loyalty Census, of the $48 bn worth of perceived value in reward points and miles distributed by American businesses annually, one-third goes unredeemed by consumers. Companies lose money on time and effort, and customers get no more value from the businesses to which they are supposedly loyal,” says Ajay Kelkar, Co-Promoter and Chief Operating Officer, Hansa Cequity. “Not all brands need a loyalty programme. Those that are truly aspirational (Apple) and those that anyways provide total value for money to the customers (Walmart) can afford to not have a loyalty programme,” feels Vijay Bobba, CEO and MD, PAYBACK India. “For others who fall between these two ends of the positioning spectrum, loyalty cards are a great way to identify customers, chart their shopping behaviour, demographic and behavioural profiles, etc.,” he further adds.

PAYBACK India runs a unified loyalty programme for several brands including Future Group, ICICI Bank and travel portal MakeMyTrip. Its presence is marked in more than 3,000 points of sales at over 100 locations across the country. It is the largest and only coalition programme of India with multiple online and offline touch-points.

Typically in the recessionary period, the customer buying patterns shift from discretionary spends to only monthly baskets, and also promotional items are more prone to be picked even if it means change in brand. So the challenge retailers face is to keep discretionary spends on with value addition for the customer. “In recession, people become more price sensitive and shop around for better deals. In this context, companies offering loyalty programmes have an advantage. Increased switching cost and stronger relationship with customers through a loyalty programme retain many customers that might otherwise be lost,” says Siddharth Singh, Director, Fellow Programme in Management, Associate Professor of Marketing, Indian School of Business.

A large reason behind HyperCity’s confidence in these times was their spends and frequency-related booster programme along with targeted communication. They started incentivising customers not only on their regular monthly basket products but also at overall category spends viz. additional 100 points of purchase of apparel worth Rs 1,500 and it multiplies on more visits. “Since one point equals Re 1 and there is no redemption criteria, customer can immediately redeem at cash tills. This offsets the financial strain during recessionary times. We also started partnering with our concessionaires (spas, salon, eating joints, etc.) instore and in mall, which gave additional reasons for customer to come back,” states Darshana Shah, Senior Vice President, Marketing and Visual Merchandising, HyperCity Retail.

With 7.5 lakh loyalty programme members contributing more than 55 percent of their sales, HyperCity has more reasons to strengthen such programmes. Also an internal study at HyperCity reveals that members generally shop more than non-members and are more frequent visitors to the store with 45 percent more items per shopping basket than of non-members. This clearly shows that the size of cash memo of members is twice that of non-members.

“We have seen that sectors such as automobiles, real estate and international travel have been more impacted by the slow economy. But consumption is still upbeat when it comes to smaller indulgences such as apparel, accessories, beauty and home categories. A customer would probably delay the purchase of a car, but wouldn’t feel the need to postpone buying a handbag, a watch or a perfume. We have not been impacted by the environment,” shares Vinay Bhatia, Customer Care Associate and Senior Vice President, Marketing and Loyalty, Shoppers Stop. He further adds that the Shoppers Stop Loyalty Program is one of the largest in the sector with over 3 million members who contribute to more than 71 percent of sales annually. “The best of them all in place in the space of retail is the Shoppers Stop Loyalty Program. When the chips are down, programmes such as these deliver. While there is a total degree of promiscuity in the realm of loyalty card usage, programmes that manage their customers will reap better benefits than the rest,” says Harish Bijoor, Brand Expert and CEO, Harish Bijoor Consults.

Loyalty programmes allow to spend disproportionately on the 20 percent consumers who give 80 percent revenues. A slowdown also demands a larger focus on the consumer and analytics which can give deeper insight to reformulate product offerings. At Blackberrys, lean season comes up with exclusive promos and point related promos for its 2.5 lakh members. It works both ways since the member feels privileged and special while brand gets footfalls from its loyal members. This trend is quite uniform for most regions; however, single-store cities register a higher repeat contribution in comparison to multiple store cities. In the last three months, around 30 percent of total sales came from repeat customers, i.e., barring the enrollment purchases, while the CRM contribution to sales has been an average of 60 percent of total sales. The PAYBACK Greencard programme has more than 4 million members over a total of 77 stores, of which 40 are in tier I cities accounting for over 60 percent of total member base and sale contribution. These figures show an alarming loyalty base created by single-brand loyalty programmes in India with steady footfalls even during the economic slowdown. But is a successful loyalty card programme only about sales and revenue at the end of the day? With so many players in the market, what are brands doing today to beat the heat?

Loyalty is to ensure that the customer feels privileged and respected by the retailer for the business he gives and is also rewarded for it. Sunil Goklani, VP Retail, Blackberrys, says: “Programme’s bigger objective is also to increase the share of wallet by constantly communicating to members, but the end objective is not to make the sales happen but to increase the involvement of our loyal customers so that they feel a greater affinity towards the brand. We want to be able to create experiences and memories for our customers as a reward for being our companion in the brand journey. Our points system, rewards, etc. are all based around this thought process. At Pantaloons, members are provided with benefits ranging from free parking and complimentary home drops to assist shopping and free shipping across the country other than the exclusive sale previews.”

In order to engage customers, loyalty programmes should allow them to see “value.” It is about the way, processes, technologies, ideas and interactions engage an individual with the brand over the consumer life cycle to achieve multiple results. The purpose of every loyalty programme is to help marketers acquire new customers, retain the existing loyal ones and increase wallet share of spends. This type of strategy has to be played out in the exact moments where customers interact with the brand, may be in the shopping cart, in the store, or while using their mobile application or online shopping. According to V Rajesh, Retail Expert and Consultant: “Loyalty programmes are essentially CRM. This is different from cards and not just earn and burn tool. CRM is a completely different thing of which loyalty card is only one of the elements. Retailers who assume that a loyalty card with points would lead to loyalty are deluding themselves.”

Companies should know when a consumer in their database has redeemed an offer and not send them a reminder or any other communication, other than a thank you or suggestion based on that purchase. Bhatia shares: “Our findings showed us that Bengalis celebrate Durga Puja not just in West Bengal but also in other pockets outside of West Bengal where they reside, such as Delhi, Mumbai, Hyderabad and Bengaluru. To capitalise on festive shopping during Durga Pujo and to connect with our Bengali customers, we identified Bengali surnames in our First Citizen database across such cities. We sent these shortlisted customers a promotional offer linked to their festive purchases. This exercise led to a Rs 1.5 crore contribution to the top line.”

“At HyperCity, 65 percent of the shopping basket of Discovery Club Card holders consists of food and grocery, 10 percent is fashion and 25 percent is general merchandise. We give them value in terms of not just points across items which are part of their monthly basket but also lots of boosters across categories such as private label products, fashion, electronics, home, seasonal fruits and vegetables and other FMCG branded products. Campaigns for select segment of members are run, which are based on their shopping history,” informs Shah. “Blackberrys has taken a conscious decision to not run a card-based loyalty programme; instead the customers are registered with their mobile numbers. Apart from the points one earns on his purchases, we also offer birthday discount and gift, welcome gift, EOSS preview special discount, festive gifts, and new collection notification as special privileges,” says Goklani.

Many companies feel that it is rare for customers to not accept loyalty programmes because they are happy when they are layered with offers and rewarded with Rs 100 or Rs 250 off vouchers. Kunal Mehta, Co-founder, Inloyal, a division of Forysta Ventures, believes that the concept of loyalty card programme is very nascent in India as compared to the more mature markets in the West. However, the Indian market has realised the importance of such programmes, for example, a leading lifestyle retailer derived 65 percent of the sales in 2008 from its just over 1 million members. In 2011, the retailer was not only able to significantly increase its members, but also the proportion of sales from them. He derived 73 percent of the sales from just over 2 million members and generated a total profit of Rs 7,518 lakh. Some of the leading programmes in the country have claimed that a whopping 70-80 percent of their sales come from loyal customers, and that is quite a statement. But the same doesn’t stand true for all retailers and majority of them are still grappling to get their loyalty programmes in line.

The effectiveness of a loyalty programmes can be measured by answering questions such as: How appealing are the loyalty programme’s main features to customers? Does the desire to obtain high value reward lead consumers to increase their spending and frequency? How differently do loyalty programmes perform across various store formats? Why are certain customers’ loyalty reward points lying dormant and unused? Is there still a “disconnect” in terms of acceptance of loyalty programmes in India despite surging numbers? If so, how do companies build a programme that connects and engages customers at multiple touch points?

Every loyalty programme ought to start with an objective that is financial-metric driven. “Definitely loyalty programmes play a key role in terms of protecting sales for many large retailers. I don’t see too many companies focussing on ‘privileges’, consumers want value which ‘points’ cannot give them; they want to feel privileged and recognised when they shop,” says Kelkar. According to Bobba: “A good point-based loyalty programme should see redemption of at least 50 percent of the points. There are very few such loyalty programmes in India and no programme crosses 70 percent. A good loyalty programme should have presence across markets and channels for easy sign on and instant redemption. The misconception that loyalty programme is a pure discount initiative needs to be clarified.”

“In India, we are implementing basic forms of loyalty programmes while across the world over they have evolved significantly. A loyalty programme must be part of the wider strategy in order for a company to set up systems to collect the right kind of data. This data, along with appropriate analytics, then can be exploited to strengthen one-to-one relationship with customers and create value. Strangely in India, companies do not collect, maintain, and analyse customer data the way it is done in well-managed companies globally. Until enough companies are able to do so, loyalty programmes that transcend boundaries of a company would be at risk,” states Singh.

Organised retail has low penetration in India. Collaborative back ending of points would always have a great shopper/consumer attraction. “Payback is quite successful today in India. Again, whether it will benefit the retailer remains the question. If the data is used properly, there is a strong connect with the shopper which is what will create loyalty. Otherwise the customer is motivated by points and in the context of collaborative offerings, very soon retailers will start to fight over points. In such a case, the shopper will gravitate to anyone who gives more points and this would create data that is actually misleading,” says Rajesh. The crisis is hitting hard and marketing accountability is number one priority today. There is a need to show the return on marketing investments. Focussing on loyal customers and investing marketing money disproportionately in effective loyalty programmes will be a reality especially for retail, banking and service marketing sectors. “We have just about commenced our journey in the space of loyalty programmes. We are yet to climb the hierarchy of it all. It will happen, but give it another five to six years when modern retail really takes off,” feels Bijoor.

In India, the marketers are struggling with what “good” looks like at the last mile. For instance, at a food outlet, a cashier who is also handling clients at the billing queue is the one who is supposed to convince the non-members to become one. India needs many coalitions but programmes need to be far more focussed about the “consumer proposition.” Coalition programmes should tap into a consumer need which is compelling and then build on that. With such a heterogeneous country, one size will not fit all and it will be hazardous to copy-paste an existing model.Coalition is a set up that works in a data-rich environment. It not only helps a retailer to know what a consumer is buying from him but also what she is buying from others. “However, Indian retailers need to take into account their own data before getting into concept such as coalition. A retailer must track his own pricing, merchandising and promotions before taking on a multi-partnering concept like coalition,” feels Singh. Education and how it can potentially change the life of a young person could be one potential need that a program could tap into. Upromise is an example in the education niche of the power of the coalition model. More than 10 million participants in the Upromise programme aspire to improve on this compelling statistic – just 28 percent of Americans graduate from a four-year university. Marketers need to be innovative to make coalition loyalty work in India. India is a very heterogeneous market. Coalition loyalty has worked well in strongly homogenous markets such as Canada, UK and Germany. Fragmented consumers are like a jigsaw and coalition loyalty has to be thought differently to service markets such as India. Much more innovation needs to drive both the consumer proposition and the communication efforts.

What would be a game changer in India is the integration of mobile and social media into loyalty programmes. “In a recent innovation, French retailer Celio has launched a unique social loyalty programme. In this programme, the consumer gets points not only for transacting with the Celio store but also for positive social engagements. I believe that digital can actually power a lot of ‘one to one’ conversations. Often I see marketers referring to typical mass marketing paradigms while analysing their digital success,” says Kelkar. So a Tata Docomo or a Shoppers Stop may say they have 3 or 5 million Facebook fans. But how are they connecting these numbers to advocacy, influence and commerce. So loyalty will increasingly move towards a digital avatar.

Organised retail in India is less than 2-3 percent of total retail spends, which makes it harder to effectively bring in a large number of smaller retailers into a coalition programme. Maybe the innovation required for India is that a consumer goods company leads such a coalition and brings in its distribution muscle across small retail. Now that would be a real game changer. “The future lies in absolutely knowing who your customer is and delighting every customer in a custom fashion. It also lays in the fact that loyalty programmes need to move out from the desks of the retailers into the hands of the customers. This is where new-age platforms like Inloyal will play a huge role. Empowering the customer to manage and control his loyalty memberships, rewards and interactions with the retail merchants will give a new dimension to loyalty and Inloyal is giving both the retail merchant and his customer just the perfect solution for that. Loyalty programmes are going to be the most dominant marketing tools in the coming years for enhancing retail performance,” shares Mehta.

*This article was originally published in the March 2014 issue of IMAGES Retail.


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