Loyalty gains

Retail and services companies are trying out innovations in their loyalty programmes.

Have you ever been upgraded to business or first class because of your frequent flier points? Or had a new pair of trousers delivered home, altered to the right length? These little extras made you feel special, didn't they? Chances are, you'll probably fly that airline more often or travel a few extra miles just to shop at that store.

Whether it is airlines, hotels, retail chains or credit cards, companies that offer loyalty programmes know all too well the value of a customer who comes back.

Typically, little freebies for a faithful customer "" free car parking, gift vouchers, value redemption of points earned "" go a long way in engaging customers and encouraging them to spend more often on your products and services.

Retail analysts estimate that in some companies close to 40 per cent of sales comes from loyalty programme members.

Taking on from such insights, companies are looking at newer initiatives to generate effective loyalty programmes. Market analysts point out that loyalty programmes are not about winning goodies or bribing customers into using your products. The programme has to be built in a way that it creates an affinity and closeness with the customer.

Over the years, companies have experimented with various ways to keep their customers coming back for more. The latest is the coalition loyalty programme, with backing from companies such as ICICI Ventures and the Tata Group. But more on that later. First, a bird's eye-view of changing loyalty programme strategies.

Points to rewards
The goal of most loyalty programmes is to empower the consumer with choice and reward them suitably "" with the added advantage to the company of establishing two-way dialogue with customers and learning about their spends at the store. If the rewards and extras offered to the customers are based on these insights, the company stands to gain more, believe retail consultants.

For instance, online travel company Makemytrip.com offers subscription to a travel magazine to its loyalty programme members. These are special issues that carry holiday offers, which will ideally encourage the customer to book a vacation through Makemytrip.

"Loyalty programmes if used effectively can be more than just a brand trying to deliver a message to customers," says Sachin Bhatia, co-founder and chief marketing officer, Makemytrip.com.

Retail chain Shoppers' Stop, which launched its loyalty programme First Citizens Club in 1994 and has over 630,000 members now, agrees.

Says CEO Govind Shrikhande, "The loyalty programme can be a win-win situation for both consumers and companies if it is built not just on points but on good offers as well."

Shoppers' Stop tried to connect with customers through regular communication that include offers and information.

Between October and December every year "" the high spending, festive season "" the stores offer prizes like iPods, watches and so on to First Citizens who spend beyond predetermined limits. The gifts are chosen carefully to have enough aspirational and notional value so that the customer feels he's got himself a real deal.

"The aim should be to incentivise customers to use the product "" loyalty card, store "" by giving them high redemption value in whatever they do," advocates Vijay Bobba, co-founder of Loyalty Solutions and Research (LSRL).

Funded by ICICI Ventures, LSRL recently launched the i-Mint loyalty programme that works across eight brands. On i-Mint, for instance, partner HPCL offers 200 bonus points to customers on their first fuel purchase using the i-Mint card.

Even, airlines and banks, believe that customers will come back to them if they see immediate value. Kingfisher has tied up with hotels like Taj that offers discounts on stay and so on.

Girish Jha, general manager, marketing, Kingfisher, says, "Loyalty programmes have the ability to leverage with customers at various touch points. This helps the company to retain them at a value, which makes customers feel special."

Every company, thus, ensures that they don't miss out any opportunity to make their consumer feel special. HDFC Bank, for instance, runs a special campaign on occasions like birthdays and anniversaries, where consumers get some discounts on the amount spent on the card.

"Offers like these help us move the customer to a control zone, where they tend to become loyal users of the card. The success of such special programmes is anywhere between 25-30 per cent," says Ajay Kelkar, VP and head "" marketing, HDFC Bank.

Coalition rules
If loyalty to one is good, loyalty to many must be even better. Several companies are now joining up to build loyalty not just to their product, but across a whole range of products and services.

The age of the coalition loyalty programme is here "" a concept that has been successfully accepted in markets like Europe and Canada with programmes like Nectar and Air Miles, respectively.

The Nectar programme has 50 per cent of all UK households as their members. Likewise, 70 per cent of Canadian households who are part of this programme can earn and burn (read: redeem) points across 100 participating Canadian companies.

In India, coalition programmes have been launched by companies such as the Tata group and LSRL. The Tata card, launched in February 2006, works across 18 brands and services, including Tata AIG, Reader's Digest, Bharat Petroleum and so on. I-mint, too, covers brands like Airtel, HPCL, Lifestyle and so on.

The points earned on coalition loyalty programmes can be redeemed across any of the brands and at any give time.

You could, for instance, shop for trousers at a retail store and use those loyalty programmes to book an airline ticket to Goa.

Zaid Farooqi, head, Tata Card, says, "Multi-brand coalition programmes helps consumer earn points much faster than before and get rewards almost instantly. At the same time, the brand benefits as they can engage a vast customer base of other partners with minimum monitoring."

So, even if for customers it means they can carry less plastic cards with them as a result of multiple redemption touch points, players like Lifestyle, who runs both their in-house and coalition loyalty programme are not complaining.

"A coalition programme helps us share costs on a loyalty programme and gives access to a large database. But, at the same time, our in-house loyalty programme continues to remain a favourite with our customers. Thus, both the programmes together may even help us gain more than 60 per cent of sales," says Shankar, VP "" marketing, Lifestyle International.

Retail analysts, Technopak seems to agree. "The earning of points on single brand cards is slow as compared to a multi-brand card, due to limited usage. Thus, the customer will not see immediate value. Therefore, to increase the customer retention opportunity, a coalition card will be helpful," says Harminder Sahni, director, Technopak.

Measuring success
If customers sign on loyalty programmes for rewards, do those gifts and points redemption become a huge drain on the companies? The answer is a resounding no.

"Redemption of points against a purchase of minimum value is an investment. When customers redeem more points it reflects that they see value in the programme and are willing to spend more," explains Farooqi.

If numbers are a way to measure success, then Shoppers' Stop's claims spell success. According to company figures, 62 per cent of its sales are from its loyalty programme, and its redemption is as high as 90 per cent.

"We measure the success through the share of sales contribution by first citizen members and further track this bond through studies like customer satisfaction index or dissatisfaction about the programme," say Shrikhande.

But, Ashish Choudhary, programme manager, Net Carrots Loyalty Services, warns companies on the effectiveness and positive results of a loyalty programme.

To reap benefits of the programme, companies need to be patient, he says, "Most companies look at loyalty programmes as a cost, as they do not see immediate results. This is when the value of loyalty programme dips." That explains why companies are careful and budget for just one to two per cent of the sales from loyalty programmes.

Further, Bobba insists that the points redemption system must operate on a comfort zone. He says, "A company must retain the minimum value for point redemption anywhere between 40-60 per cent of the purchase value."

Bobba adds, "This way the companies will not find points redemption as a drain, as customers would have spend a respectable amount to earn those points and customers, too, will see some value in the gifts and rewards earned against the purchase value."

HDFC, thus, gives easy monthly instalments for payment of credit card bills, for an amount of over Rs 5,000.

Market analysts, however, feel the challenge still remains in measuring the success or converting the invisible customer to active customers.

But, companies are certain that they will make every customer feel special either by providing better service and promoting trust or more choices through its loyalty programme.

CUSTOMER SPEAK

Ever wondered if those feedback forms really work? Well, most companies ensure that their loyalty programmes go beyond points, rewards and gifts. Companies further judge the success of their loyalty as a combination of behavioural (sales) and attitudinal measures, with the objective to deepen the existing customer relationship.

"Once you become a part of the loyalty programme, the transaction data can be captured to run special offers and introduce customised products," says Tata's Farooqi. A Mumbai-based city retailer, for instance, introduced trousers with odd waist size "" between 33-35 inches "" for women, based on customer feedback.

Shankar, vice president, marketing, Lifestyle, warns that it is not always easy to incorporate changes based on consumer feedback.

He explains, "If the changes are possible at the regular or organisational level and are expected to increase sales, then it is possible to incorporate changes." So far, Lifestyle has introduced the ethnic range of clothing for women, based on feedback.

Even, companies like Raymond, who have launched their loyalty programme, Premium circle in August 2005, feel such feedback is important.

Aniruddha Deshmukh, president, Raymond Retail, says, "Loyalty programmes gives us an insight of what a customer buys and prefers in terms of colours, sizes, styles and so on. Such insights, even helps us to run a specific campaign for a select customer group that would make them feel special."