The Hindu Business Line : The burden of loyalty

Loyalty programmes often stagnate because of poor planning, and the rewards being seen as insufficient, inflexible or insignificant. How are marketers addressing these concerns?

Soft benefits are assuming great importance as customers evolve. They can be leveraged as differentiators too.

Was all that shopping worth it?

Sravanthi Challapalli

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For every birthday, Sunita, a member at a retail store’s loyalty programme, gets a coupon offering her a small discount if she buys something worth Rs 1,000 or more. The store also often spams her with mail promising her magnificent gifts or in centives if she buys for Rs 5,000. Sunita rarely uses the coupon or acts on the information she gets because she feels the promises aren’t worth the effort of a trip to the store.

Whenever Suresh Kumar visits the mall, he often visits the department store there and buys something usually unnecessary, though inexpensive. It adds to his loyalty points, but that’s not the attraction – what draws him there are the free parking coupons he’s offered, some of which he can stash away for future visits.

There are several among us who have spent vast amounts on our credit cards but found little value in the gifts these companies offer as incentives. Very often, customers find these ‘incentives’ quite unworthy of the amounts they have spent. According to Vijay Bobba, CEO of Loyalty Solutions and Research Ltd which pioneered i-mint, India’s first large-scale multi-partner rewards programme, between 70 and 80 per cent of the points go unredeemed in credit card programmes. Called ‘point breakage’, this statistic serves as a measure of a loyalty programme’s effectiveness. For instance, in a department store, a good loyalty programme would have a point breakage of 65-70 per cent and an inefficient one would hover at 80 and above.

“Consumer fatigue is high,” says Bobba, adding that very often, the average loyalty programme, far from ensuring profitability, starts out with tremendous enthusiasm but stagnates as it eventually become an albatross around the marketer’s neck, bleeding him of money.

Zaheer Abbas, Associate Director, Technopak Advisors, says loyalty programmes in India are still in their infancy. The reasons they often don’t do well is because the points or rewards are “cumbersome to redeem as well as manage across geography, the information gathered will be used to bombard the consumers with marketing and sales calls, and they are complicated in nature (too many forms to fill and so on)”. “There seems to be an inherent lack of trust in a customer about the perceived value in being part of one. In our view very few of them succeeded in this,” he says.

Sluggish schemes

There is the view that standalone programmes are not as effective as coalition programmes as they don’t spread the bounty for either the customer or the marketer. The market has also seen the evolution and rise in the number of co-branded cards, be it fuel companies or department stores or a corporate group that aligns itself with a certain brand of card. i-mint, about two years old, prides itself on having the largest network of partners (a clutch of companies spanning telecom, banking, entertainment, travel, airlines, fuel and retail, not to mention 2,500 merchant outlets).

The “point earn velocity”, as Bobba calls it, is rapid in such programmes as they work by aggregating spends across various categories and the rewards under one umbrella. For instance, a customer could use the ICICI Bank credit card to book tickets on Air India from MakeMyTrip.com, and would be rewarded on three fronts — “it’s the power of multiplicity”, he says. The disappointed “hardly anything” that’s used to describe a measly benefit becomes “something significant” as incentives to shop across the network multiply, says Bobba.

Govind Shrikhande, Customer Care Associate and CEO, Shoppers Stop, acknowledges the efficacy of coalition loyalty programmes. However, he admits they are difficult to manage too. “Coalition cards, which can be used across multiple dischargers, work stronger for the customer as the speed of accrual is much faster. Generally the best combination would be petrol, mobile phone services, airline and a retail store coming together. But it’s a big challenge for all these to work together on points and benefits and share the costs,” he says.

Says Neeti Chopra, Head (Marketing) of Trent, which owns and manages department store Westside, “Cross-format loyalties have become a way of life.” Westside is part of the Tata group which has a co-branded loyalty programme with SBI Card which can be used at the Taj group of hotels, its car dealerships, Westside and its hypermarkets. “There are different schemes and benefits for using certain credit cards, such as discounts. We can fight it or recognise that and work with that,” she says.

Harmeet Pental, Group Marketing Officer, VLCC Healthcare, agrees consumers should be given an option to redeem points across a network of products and services. “Standalone programmes nowadays may be perceived as discount programmes which in the long run can also affect the brand image,” he says.

However, Manjula Tiwari, COO, Esprit India, says, “This is entirely dependant on the strength and innovation of the programme,” asserting that her company’s standalone programme is highly successful. “Depending on the attractiveness of the offer and the timing, even standalone LPs can be effective,” says John Williams, General Manager (Sales) of the Hyderabad-based Maytas Properties, a real estate company which says it revised its programme recently to offer maximum benefits for the customer and give them sizeable discounts on successful referrals.

Things that matter

“Soft benefits” are assuming great importance as customers evolve. According to Sravan Raghunathan, Senior Manager (Marketing) of Chennai-based apparel chain SKC which expects to launch its own loyalty programme in six months, “Loyalty programmes should add value to the shopping experience – preferential parking, billing and so on in addition to awarding points, but no scheme has been able to marry them well.” Also, in a growing economy, the difference between the SEC A and B groups is blurring – a study puts the difference in these customers’ spends for a given set of circumstances at just Rs 25,000 – so there is no need to run after just the richest customers but take aspirational customers too into account, he says.

Soft benefits can be leveraged as differentiators too. “The idea behind the programme is to take the relationship with the customers beyond fine fashion to the realm of fine living,” says Atul Chand, Vice-President (Marketing), Lifestyle Retail Business Division, ITC. Wills Lifestyle, for instance, offers benefits and privileges ranging from exclusive in-store benefits such as ‘priority garment availability’ and doorstep delivery anywhere across the country to lifestyle privileges in fine dining restaurants, exotic holidays, stay at ITC hotels and invites to exclusive events and shows. Sanjay Kristofer Quadros, Front Office Manager at Chennai’s Courtyard by Marriott says the global hospitality chain uses the information generated from the Marriott Rewards programme to make a guest’s stay across its hotels as seamless as possible, and also has tie-ups with 18-20 airlines whereby guests can redeem points for travel arrangements.

Shoppers Stop’s loyalty programme, First Citizen, has evolved along with customers and competition, says CEO Shrikhande. A number of new initiatives, such as previews of sale, special passes for events, special offers on products and enabling earning of points outside the stores, have been added. “Marketers are looking at increasing the frequency of customer’s visits and spending across multiple categories,” he says.

The power of multiplicity

LSRL’s Bobba makes the point that in many categories of shopping, standalone programmes are flawed because they often do not have the scale to bring the average costs down nor do they have a refined objective. “How often does a customer constantly shop at the same store, say, for clothes?” Acquiring new customers, getting them to spend, and getting them to come back and spend more are all challenges that can be simplified if the marketer makes it worth the customer’s while. This is where a multi-partner programme comes in handy, dividing up marketing costs as well as distributing the rewards and incentives among the network members. Further, the breadth and depth of the information such a scheme yields is a goldmine to exploit as its analysis can yield a more comprehensive reading of a customer’s shopping habits and tendencies across a gamut of categories, which is not possible in a standalone programme or one with a limited number of partners, says Bobba.

V. K. Mathew of the Thiruvananthapuram-based IBS Software, which makes and markets a loyalty management product called iLoyal to airlines, says the flexibility of redemption is what gives loyalty programmes an edge. “Meaningful redemptions could even lower costs for an airline. It can even mobilise traffic. In fact, as passengers are given opportunities to travel more through a frequent flyer programme, it creates a liability for the airline. Why not give them incentives to travel during non-peak season and mobilise traffic instead,” he says, adding that airlines stand to gain immensely if the load factor (passengers carried in proportion to the number of seats available) is increased even by 5 per cent, which imposes only a nominal burden on administrative costs incurred.

Bobba says redemptions in i-mint have leapt from a few hundreds in number to somewhere between 15,000 and 20,000 in the last six months. The goal is to achieve point breakage between 40 and 50 per cent, but that could well take another four years.

Technopak’s Abbas says there’s time yet before one can see a loyalty programme as an intelligent information analysis tool. Not only should a good programme gather relevant and precise data with minimal interruption to the customer, it has to be simple, seamless across geographies and offer rewards that meet customer’s perceived needs.

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The burden of loyalty