Moving Retail's Marriage from Convenience to Relevance

As Indian consumers become more educated about products available to them, and become more demanding in how they receive these products, marketeers are waking up a stark new reality. Scarcity of choice has changed to abundance, customer has transformed from beggar to king, and a once remote phenomena called "competition" has now arrived in this previously oligarchic market. And this trend will only increase as retail invests expertise, modernizes and consolidates.

Enter the relevance of Customer Loyalty as a tool for driving retention and positive brand experience. Let us explore this a bit further.

Shareholders are now demanding that their management move away from the prior decades' un-tempered growth strategies and towards those that identify "best customers" and their behavioral needs, and focus the business on targeting increasingly more relevant products and offers towards these more profitable customer segments. While at the same time acquiring new customers and trying to move them up the aspirational ladder. Some of this new mindset was born out of the recent economic downturn, when financial services and retail firms has to trim their budgets, squeeze out more value from existing partners and customers, and terminate relationships with unprofitable non-performing ones.

The truth of the matter though, and one that I've experienced as a retail consumer myself, is that most companies do not use their customer data to target their offers, customer service and sales touchpoints are not converted to positive memorable experiences, profitable best customers are not rewarded with special care and benefits compared to the rest, and the name of the promotions game is still discounts discounts discounts. All of this continues to inculcate a detrimental consumer mindset of cherry pickers and value seekers, rather than one that builds long-term preference and interactivity with the best brands. And this culture results in excessive churn. It’s sort of like a marriage, regardless of the fact that you dated and then sealed the deal, if it doesn’t stay a two-way street the couple will not keep investing in each other and the relationship simply will not last.

The better informed companies in India are now going beyond core profitability and brand building, and attempting to reach into the world of one-to-one Targeted Marketing. Everyone can see this rainbow that leads to a pot of gold, but it’s not particularly easy to grab a hold of it and get the formula right. For one, many customers are not even on record within the company and so cannot be profiled let alone targeted. These customers transact anonymously in cash or through payment systems that the retailer does not own or operate. Another issue is that there is a dirth of service providers and analytics tools that know how to translate successes in other developed countries to the Indian context. Yet another issue is that company partnerships, often targeting the same customers, are not adequately tapped for developing actionable customer insights. And of course, there's the issue that some companies think they are something to everybody and so simply cannot focus.

So, how exactly are the more successful retail firms creating credible and sustainable leadership positions for themselves? And how is customer loyalty as a discipline stacking up in India against the backdrop of explosive growth of organized retail?

One loyalty strategy that many are familiar with are loyalty points (or similar currency) programs. The program is used to collect customer data, and in exchange is supposed to drive higher frequency and value of customer interactions with the company's brand and products. A loyalty currency though, much like any monetary stored value, retains its significance only if it is associated with a brand that represents vision, scale, steadiness and relevance for its stakeholders. It has to be cool enough that increasingly more people and businesses use and accept it, and must generate new sorts of value to its currency-holders. And most important, the loyalty currency needs to be conveniently usable for buying (redeeming) necessary as well as aspirational products and services. So, except for the largest banks, retailers and airlines who actually do have sound brands and broad offers, points based loyalty programs for the smaller players have been a super flop especially because customers recognize them as glorified cash-back programs (such as a small cards company giving you an automatic points and a 1% credit to your bill each month). And even for the larger players, their programs are selfishly and lazily focused on creating more "collectors" rather than opening up new avenues for communicating with customers, rewarding the ones that modify their behavior to benefit the company, and creating more opportunities for sampling new and interesting products. The bottom line is that many of these early loyalty players, especially the cards companies and major retailers, have built huge contingent liabilities in points issued but not redeemed because their loyalty members do not see adequate value, convenience and relevance to their habits. The airlines, much like in other countries, are the leader in the loyalty points arena in that travel is typically big-ticket value based and the formula for why travelers value frequent flyer points programs has been well honed.

Another loyalty strategy, and a more recent one, is targeted promotions at retail point of sale (POS), whether in-store or online. Some retailers, payment infrastructure providers, and cards companies have figured out that they can jointly use the POS machine to target marketing offers and promotions at customers much more effectively, right when they are in the store. Whether or not in conjunction with a points loyalty program, this tool is intended to modify the payment experience from one of remorse to one of "surprise and delight" because the customer is awarded on the spot with a gift, product sampler or an expected reward (for example if a promotion has promised them something special for transacting a 3rd time this month, or spending more than Rs 2000 this visit). These sort of programs have been found in many advanced markets in Europe and South East Asia to increase gross billings and margins at retailers (and therefore their partners), and put marketing money to its best use in keeping customers loyal. But in India these sorts of programs are new, expensive and slow to take off because they require significant integration into numerous POS terminal families, require retailers and other players to collaborate much more effectively, and involve some players who just don’t get it yet. Incidentally, such POS based real-time marketing programs add value to co-branded cards and can help in signing up new members to a pre-existing points based loyalty program.

And finally, partnerships have become an integral part of almost everyone's loyalty strategy. Still on the loyalty points front, India has taken the cue from how coalition and umbrella loyalty programs have developed abroad, often starting from an air miles anchor and expanding to involve other complementary partners across industries that collectively reflect a customer's purchase behavior and lifestyle. i-Mint is a notable innovator that is an early player in this domain, and has structured a coalition between the largest private sector bank (ICICI) and other leaders across telco, petrol, general merchandise, airline and online travel agent... plus a number of smaller regional and online partners. In addition, some of the large conglomerates such as the Tatas and Reliance have developed their own umbrella programs across their companies and brands. But, the numbers speak for themselves and are an obvious guide to the strategy of these programs going forward. The redemption rate of points, a key indicator of adoption and engagement, is less than half of what is experienced in Europe. Coalition programs such as these will need to get used to making less money from "breakage" (where points are issued to partners but not redeemed and hence costed by the coalition operator) to making more money from increased rates of redemptions and associated retail loyalty. But the opportunity without a doubt is very real for these coalition programs, as is evidenced by the recent local presence of firms such as Groupe Aeroplan and Loyalty Partner... who have made loyalty work in a big way abroad in programs such as Nectar and Payback, not least by using customer analytics effectively to drive program priorities.

The future of loyalty in India will need to recognize a number of developments, and adjust accordingly. Customers want choice and convenience so loyalty programs will have to cut across spend categories, communications will have to evolve into channels such as mobile and social media, and rewards and redemptions will have to move increasingly in-store not just catalog-based. Customers want more relevance so loyalty programs will need to use customer databases and POS/e-POS terminals much more effectively to target offers, and points scales will need to allow for more timely redemptions against more exciting offers. And customers want to be treated especially well for their continued loyalty, so earn and reward programs will need to give bonuses and other entitlements to those that are more deserving.  Loyalty operators will also need to get a whole lot more creative on their partnerships and redemptions. As in the Nectar UK program, members of payment schemes like Amex can be allowed to convert points to drive increased redemption at point of sale. As in the Aeroplan program, members should be able to encash points to buy music online. As in the US a focus must be given to layering loyalty on top of rapidly increasing debit card spends. As just about everywhere abroad loyalty points should be used to encourage a growing trend towards gift card purchases. Bonus levels of points earning and redemption options can be tied to social and charitable programs as consumers here start to give more to causes. And of course, points programs can be used to facilitate cross-sales across partners.

The jury is NOT out any more on whether loyalty programs are required for businesses to stay competitive in India. It is a must for our rapidly expanding organized retail sector. And it is a must for our demanding and impatient consumers who don’t care to be like George Clooney in ‘Up in the Air’ where he waits donkeys years before he feels adequately rewarded for his airline patronage. And as in other markets, the initial entrants that are clever in the loyalty marketing space and develop the right sustainable partnerships will break out of the pack very soon.

-vikram