Tuesday, May 15, 2012: 08:58:17 PM


Measuring Loyalty

In conversation with Moumita Chakraborty, Vijay Bobba and Florian Wolfframm from PAYBACK, discuss how ‘loyalty’ is going to be the new game changer

Florian Wolfframm - Head Marketing & Rewards, PAYBACK

In what way does PAYBACK India’s loyalty programme help brands?
From the business perspective, you may ask why is loyalty important? Loyalty programmes are relevant ,because whatever segment you operate in, there will be competition. There are segments, especially in India, where the competion is super heated up, for example in telecom. In other segments, there are products whose value proposition does not differentiate them from the ir competitors, as is the case with gas stations. Even in retail, where the organisation is currently not that strong, only a few big retail companies are competing with each other. So even in a growing market it is about the competition. The real question is, how does one create a distinct identity for oneself that the customer identifies and recognises.

Companies can try to reposition themselves differently from their competitors, but there is not much change that one can effect. Products and prices cannot be changed beyond a certain point. Another practice that is prolific in India on the pricing and promotion front, is the system of offering discounts and the ëbuy 1 get 2í offers. This strategy is somewhat useful to push sales forward in a tactical way, and companies are safe for a specific period of time. But that does not really create customer loyalty, which is what companies need right now.

Vijay Bobba – MD and CEO, PAYBACK India

This is where loyalty programmes create an artificial differentiator for the business, to give customers a reason to come back to the store. From the customersí perspective, they suddenly get something that they did not expect earlier. We say coalition is the best way to approach loyalty programmes, because this allows the customer to get rewards not only from Big Bazaar or HPCL, but also from other brands. So if the customers are using their credit card to shop for groceries, book online tickets or even buy gas for their cars, they accumulate loyalty points on all of these transactions, which they can redeem later in a coalition elsewhere.

The final value proposition for partners is that, through this mechanism they can set up a tool that is relevant for the customer and also fulfill their business objectives. From a loyalty perspective, they acquire new customers and make the old ones come back and repeat purchases and, within that, increase the spends at the store while they are there. We believe loyalty is one of the best marketing tools available today.

How does one individual retailer benefit from this programme?
We have got 12 mn customers already and the number is growing by the day. When Big Bazaar joined our loyalty programme a few weeks ago, there was an acquisition effect because the 12 mn customers who already have a card with us and redeeming points elsewhere, can now start coming to Big Bazaar too and earn points. Of course we will not take a competitor of Big Bazaar into the programme, as doing so will render the whole idea redundant. This programme always works on an exclusive basis, because we want to give a value proposition to the customer: for instance, the customer must go to Big Bazaar for food and groceries shopping.

How do you look at expansion in India, especially in the Tier I and Tier II cities?
First and foremost we have not worked with players who do not have a countrywide reach. Ideally, we look for the first or the second-ranked company, in terms of national market share. If it is the biggest player, we help them to maintain their leadership and if it is the second-ranked player then we help them in overtaking the firstóthat is the plan. Secondly, these partners are those companies that consume the bulk of a consumerís daily spends, for example expenditure in groceries, standardised apparel etc. Even at a tier I level there is a second category, wherein the players are national but their products do not occupy a majority of daily spendings. This category includes jewellery or specialty retail such as a chain of saree shops or a chain of home dÈcor and luxury furnishings. There, we typically do not opt for exclusive partnerships, because it is a matter of customer choice. So, in the first category we create enough of a customer choice through national players, as mentioned earlier, and in the second category, we look at national speciality stores that do not cover a bulk of daily spends. The third category is for regional players with a large number of stores, with a localised presence; for example, Trust Pharmacy in Bengaluru that has around 70ñ80 locations around Karnataka.

We have already covered the metros, and with the expansion of organised retail even to tier II cities, there will come a point when we will have to do localisation. However, bulk of the retail spends in India, around 70 to 80 percent, is in the top eight to ten cities. So we are going to be whererever the consumers are. We try to follow these trends and reach there rather than start at a new location. Having said that, as of now, we are present in more than 90 cities.

What are the new technologies that are driving customer engagement?
This was a very interesting task when I personally came to India from Germany two years back. At that time the big and successful engagement methods in Germany were centred on a physical point statement. It meant that every single member of our group gets a physical letter every month, stating his/her point status along with personalised top offers. For instance, if consumers are heavy gas purchasers, we give them 200 points on their next gas purchase. It is the same strategy that we follow here, but the channels that we use here are quite different. The idea of physical statements and related logistic issues belong to old school now that we are in a digital era. We will be engaging customers through the digital platform. The first channel is the internet, since 10 percent of the Indian population is already online and 30 percent expected to be by 2015. The second channel for sure is the mobile platform, since around 70 percent of the population has a handset. However, only 30 percent of this figure can access the Internet applications through their phones, and only 3 percent are actually doing that. Therefore we will look to increase our presence there; the key is more intelligent messaging than just an SMS. For smartphones, we have an application that caters to their points and other account-related information. So we have initiated a differential technology model that takes different steps to reach out to customers through various technologies.

The third one is the most crucial, it tries to go beyond regular social media advertisements and tries to increase interaction among customers about the product. For example we could offer 200 points or rebates to our customerís for simply ëlikingí our loyalty programme on Facebook, or inviting a friend to join. Last but not the least, we are looking at interesting solutions to bring our loyalty programme into the store, where the customer finally ends up. One of the things that we are trying is , to build terminals or kiosks at our partnersí stores, where customers can access their account information and point balance etc. So this is what we call ëtalking digitallyí to the customer at a personalised level.

Vijay:We are communicating in a much more engaging and a personalised manner with each of our customers, and we want to be wherever our customers are, through whatever digital medium they use. It does not mean that we are creating a special loyalty programme for the social media; we are just saying that we want to be on the same platform as our customers. We are building robust infrastructure to engage the customer wherever he/she is.

Is the technology for multiple level customer engagement already in place?
Vijay:Some of it is on track and some of it is in the testing mode. At some sites suh as letsbuy.com or futurebazaar.com or even bookmyshow.com, consumers can see that we are as integral as a Visa or a Master card at the check-out point. We are tangible as an online currency. The user can go to stores and redeem their points offline, or simply order online and redeem them online itself.

Florian:The big advantage of being an international loyalty provider is that we have these aggressive solutions in place. In Germany, the mobile application is one of the most successful ways of communication with the consumer. All that we have to see now is that if these ready-made solutions fit into the Indian market and then migrate it over here. So it is only a matter of which solution to roll out when. The kiosks and the apps are already in Germany, with all the retailers and partners present.

What is your market size for consumer rewards programme in India?
Let us say the retail industry spends $100 bn, and let us assume that companies set aside 1 percent for their consumer rewards programme. Of this, the percentage that goes to the customer and the service provider is in the ratio of 70:30. So the consumer ends up with 0.7 percent of $100 bn and the service provider gets 0.3 percent of the total sum. That is how we look at it. You can apply the same philosophy everywhere. We know this market is massive; the penetration is still very small because it is at its infancy.

Why did PAYBACK choose to come to India and not to any other emerging market?
Florian: PAYBACK, in Germany, could not get any bigger, so internationalisation was our next step. We are very cautious; we have been running the programme in Germany since 2000, and only went to the first other country in 2009. We chose Poland because it was nearby and it was an emerging market in the European context. This served as a test run for us. It was very successful and it is currently the most important loyalty programme in Poland. Among emerging markets, India is the largest and the most interesting one. China could also have been one, but the opportunities there did not really work out for us. We are working upon Brazil, but India was an opportunity because we found a partner in I-mint, who was already doing this. Besides in India, for any venture you need a partner who knows the market.

Apart from India, we are looking to launch in Mexico very soon and are also looking at Italy very closely. So, we are looking at both saturated and emerging markets, because loyalty can fit for any market or business environment. The critical part about coalition loyalty is that you have to tie up with a network of partners. So be it Future group or ITC, they all need to say yes to the coalition.

How can retailers use CRM data effectively to enable it to bring returns?
Vijay: If you are an effective retailer and you are really paying attention to customer loyalty, you are perhaps also keeping track of who your customers are. Then, you gradually start to increase interactions with your immediate customers in the neighbourhood. A prime example would be Amazon.com, which is the best metaphor for what a neighbourhood store is on a global scale with their personal touch. This is the broad context.

Florian: It starts with customer insights, which brings data to the retailers for the first time in their history, so they know what percentage of customers are coming back. They also know how frequently they come in a month and also how much their participation is in the PAYBACK programme. So now they know and get information on a personalised level, and they know that over time, they will be seeing differential data over differential purchase groups or segments. Once they can analyse this data, it becomes much easier to set longterm and short-term goals. We can offer customers coupons and rebates, tell them that they will get bonus points if they spend on a certain segment, which is a tool for deeper engagement with the consumers. So it is more about the one-to-one experience.

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