Predominantly a large retail player phenomenon, adoption of customer loyalty programmes is cutting across channels, while the IT solutions enabling them are becoming highly verticalised and analytics driven. Will FDI give loyalty programmes a shot in the arm?
By Heena Jhingan
It shouldn’t come as a surprise, if the first one to wish or post you a complimentary coupon on your birthday is your favourite brand of apparels or an e-tail store where you have placed a couple of modest orders in the recent past. It might appear overwhelming, but in business parlance that is an indirect RoI or RoL (Return on Loyalty) that you have earned by staying loyal to the brand or the store. After all, loyalty pays.
The adoption of loyalty programmes in India is at a nascent stage. While it is difficult to estimate the exact figures in terms of spending, some leading retailers have started investing in loyalty programmes. According to industry estimates currently, in India, there are about 20 mn people, who are enrolled in top 10 organised loyalty programmes, the number is very small compared to a population of 1.2 bn. Going by the industry predictions, almost 50% of consumer brands in India are taking their loyalty programmes seriously and are likely to flush in investments to rev up their IT infrastructure to support these programmes.
The retail industry is one of the fastest growing industries in India, estimated be $ 470 bn in 2011, accounting for nearly 35% of GDP. The industry has been growing at 10% CAGR over the past six years. The IT spending in retail, has however been very small. A recent study estimated IT spending by retail in 2011 to be about $ 1.6 bn.
Going by research firm Gartner’s prevision, retail industry is likely to chart steady growth in 2012 – 2015, where IT spending is predicted to reach11.8%. Caeser Peter, Director – CRM & CX Solutions at Oracle pointed that of this entire spending, only 5-8% is being directed towards the consumer loyalty programmes (CLPs).
Redefining loyalty
By no means is loyalty an overnight fad of the retail industry. It has always existed since the earliest form of trade. Over the years, the definition of loyalty got complex, multi-tiered in factors and attributes that it gradually became difficult to be captured by the store managers, who mostly dealt with spreadsheets. One thing has remained unaltered is the customer stickiness, the fulcrum behind loyalty programmes As the businesses grew large and organised, the established players roped in Chief Marketing Officers to track the nerves of their customers and retain them.
“In the past even if customer data was being collected, the elements of data quality was not being addressed right. There were similar issues with the product data as well. Now there are software solutions to plug those gaps, giving way to more effective loyalty programmes,” said Anshu Dubey, Associate Director, PwC India.
IT enabled and verticalised
Currently, battling an identity crisis, in a fragmented set up, the loyalty programmes are generally perceived as extensions of Customer Relation Management (CRM) applications and data capturing methods.
Dubey pointed that sadly, CRM has classically been related to as a grievance redressal platform, and there hasn’t been a major shift in that understanding. Loyalty platforms are not about handling grievances, but about promotions and rewards.
Even though there are independent CLP (Customer Loyalty Programme) platforms, available in the market many retailers avoid considering them. Subhashis Saha, CTO, Apeejay Surrendra Group that runs the bookstore chain Oxford Bookstore reasoned that integration of such third party solutions can be challenging. “If the retailer is using a hosted model for ERP and CRM, which many online retail stores today are doing, they are bound by contracts and they may not be able to add such solutions to their infrastructure. We are using TCS hosted solutions, so we decided to use their CLP solution as well.”
Rituperna Sengupta, Senior SME – Retail Practice, Mahindra Satyam, noted, “Many large and mid sized retailers are focusing on capturing customer data, but they are not sure about what to do with that data. Most of the loyalty programmes are of similar kinds – ie they are largely points driven – where customer purchases, accrues some points and redeems it. The market has to mature to understand that loyalty is much more than this. It involves customers sharing information, responding to surveys and promotions, alerting you of service problems – in short adopting a brand. Indian consumers and retailers have a long way to go in this field.”
There are vendors like Sonata Software, who believe that loyalty programmes are non-existent in India. Sayinath AG, Associate Vice President – BI & Analytics Services, Sonata Software, said, “Customers can be fairly anonymous, fragmented information is not available to help retailers design loyalty programmes with that precision.”
Peter of Oracle was of the view that a loyalty programme is not just about putting an IT solution in place, there is are several clauses related to subscription, redemption and other processes that sit at the back end and they need to be managed.
This management cost is one of the biggest deterrents for the players to invest in these solutions. Besides, it is also about the maturity of a player and his business priorities. “In retail, all the businesses do not have high margins, in cases margins could be as thin as 1%. After an initial thrust on store management, many players found it more prudent to open new stores or introduce new products rather than investing in IT,” explained Dubey.
Some leading retailers, like Future Group, Landmark, Reliance and Shoppers’ Stop are taking loyalty programmes to the mobile phone platforms, which are not as expensive. To reduce the costs of loyalty programmes some of the IT companies, are hosting these platforms in the Cloud.
However, there is a huge scope of IT yet to be leveraged for these reward programmes. The industry has begun taking baby steps to capture and mine the data properly in order to understand customer buying patterns and use the same for targeted promotions and real time, location based, personalised messaging . Predictive analysis tools are yet to be used to predict customer churn and ways to arrest it.
The most critical bit here is the fact that solution providers should be able to offer business-specific loyalty programmes. On a macro level, the requirements of loyalty programmes vary for different industries like telecommunications, finance and retail. However, there is scope of further breaking it down within a vertical. So, the solution providers have to ensure that the solutions are industry specific and applicable across channels.
“We do have clients, who are buying such solutions, but it is still a long way to go. A day will come when big retailers will be able to provide better customer experience based purely on loyalty,” Peter said.
Of new media & platforms
The consumers today are shopping across channels, including brick and mortar stores, e-commerce, m-commerce and catalog formats. Loyalty programmes aligned with social media and mobile commerce are increasingly affecting the brand experience.
Some aggressive shoppers are burdened with so many loyalty cards that they don’t even bother to carry one while shopping. Many IT organisations are coming up with a model of partnering with different organisations to develop a robust redemption rules engine, which would enable a single loyalty platform across different retailers.
“Under pressure to increase footfalls in the malls, some of the mall owners are contemplating cross-stores and cross-products loyalty offers, informed Sudesh Agarwal, CIO, Landmark Group.While this model has its own challenges, it is catching up fast and many IT organisations are investing in these.
The biggest trend in the CLP space to watch out for is mobility—for both organised and unorganised retail market. The customers can be issued virtual loyalty cards that allow them to check their points and new promotions. For unorganised market, mobile comes across as an affordable technology.
Organised players look at mobile as a more reliable customer authentication tool. “It serves two purposes — it checks misuse of the CLP offering, at the same time also helps in tapping the correct transactional data, Saha said.
Mahindra Satyam, along with Tech Mahindra has developed a similar coupon platform and a mobile solution to better manage promotions. With an increasing penetration of smartphones and Internet in the country, mobile opens an opportunity to break free from the bounds of static promotional campaigns. While the likes of Shoppers’ Stop have already adopted mobile coupon solutions, Oxford Bookstore has just begun thinking about it.
Like it or not, social media has become an important part of our lives today, and becoming central to giving online retail a boost. Hence, the CLP platforms are now being closely tied up with social media websites, to provide one stop platform for promotions, customer feedbacks and redemption visibility.
According to Forrester, ecommerce market is expected to grow the fastest within the Asia Pacific region at a CAGR of over 57% in 2012 – 2016. These trends will demand greater need for integration between the social media and the CLP platforms.
Technological interventions
Technology has enabled users get rid of many baggages, simplifying shopping experience by making it cashless, and now finally we move towards a cardless ecosystem. In case of consumer loyalty as well, things have come a long way from physical vouchers, smart cards to now simple mobile offer codes, all thanks to news milestones in technology.
Bluetooth started off in India as a good technology for marketing, however, it could not be very effective to drive loyalty programmes.
The market has set high expectations from mobile technologies. Sengupta said, “Going forwad, NFC and barcode scanning would part of the Loyalty platforms. Customer loyalty programs in a NFC enabled phone means clear and convenient interface. We can track the exact number of points and even see the products we can spend these points on. NFC also provides easy and fast access to these loyalty programs. In addition to bringing in an element of ‘wow’, they also enhance consumer convenience (easy to access information and transact) and reduces per customer time at the till (easy to redeem).”
Dubey was of the view that using technologies like RFID, another technology which is aiming to redefine loyalty by offering better service with notification to sales associate as the customer enters the store, could create room for innovative loyalty programmes that could be extended to billing and payment systems. He added that at present it is an expensive technology and investments within India may take a longer time for adoption.
All these technologies need a strong IT backbone to ride on, which is missing from most chapters of the Indian retail story. Sunil Bhave, Vice President , Fujitsu, Consulting India emphasized that while a large number of organised retail stores were still pulling along with legacy systems, the ones falling under the unstructured retail bucket are worse with no or negligible IT deployment. To talk of IT enabled loyalty programmes would amount to being over ambitious.
“In many countries analytics came as the next industry wave after ERP, which was not a case in India. Heterogeneous Indian retail industry followed a heterogeneous IT adoption approach,” Bhave said, adding that some focused on expansion and invested in store management, merchandise management solutions and others put in their money in supply chain management solutions. The management bit did not extend to analytics in terms of sentiment analysis, supply chain analytics, etc.
Loyalty programmes in both structured and unstructured form of retail is challenging as it is termed as “one click” wonders. Loyalty programmes can increase repeat customers – if aimed to design exclusive offers by understanding the customer needs and the best price. IT here can also play a big role in doing targeted campaigns by analysing the data, and churning out offers that bring both RoI to retailer and RoL to the customer.
Analysts believe that with change of lifestyle, the growing middleclass with disposable income and with government announcement on FDI on retail, there is an immense opportunity for large and small retailers, which will see an alteration in retail landscape. Currently, the mid-sized retailers are still in the process of streamlining their transactions. The sector will continue to see investments in supply chain, logistics management, business intelligence and analytics systems, which in turn will revolutionise the concept of loyalty in the Indian retail.
