Strategic Insigth Into Retail

A STRATEGIC INSIGHT INTO RETAIL LOYALTY
Sunil Basavaiah Sanjai Velayudhan June 2009
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A STRATEGIC INSIGHT INTO RETAIL LOYALTY

Table of Content

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Introduction Loyalty in Retail Comparisons of Leading Loyalty Programs Core features of Retail Loyalty Program 4.1 Common Features of Retail Loyalty 4.1.1 Customer Profile 4.1.2 Cross Channel Member Enrollment andRedemption 4.1.3 Perform Extensive Segmentation & Targeted Marketing 4.1.4 Quick Promotion Creation 4.1.5 Flexible Tiers 4.1.6 Statement Management 4.1.7 Flexible Accrual rules 4.1.8 ROI Analysis 4.1.9 Transaction Processing 5 Technology Consideration 6 Pain points of Legacy Systems 7 Comparison of Leading Loyalty Solutions 8 Case Studies 8.1 Nectar Loyalty Program 8.2 Tesco Clubcard LoyaltyProgram 8.3 Malina Coalition Loyalty Program 9 ITC Infotech’s Unique Positioning 10 Conclusion 11 References 12 Appendix

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A STRATEGIC INSIGHT INTO RETAIL LOYALTY

1. Introduction
“ Loyalty is a positive belief, generated over the course of multiple interactions, in the value that a company and itsproducts and/or services provide, which leads to continued interactions and purchases over time.” Loyalty can be defined as a customer’s sustained commitment to a company as demonstrated by repeat purchases, increased wallet share, and positive word-of-mouth referrals. Research indicates that when a company can command such loyalty, the benefits include, but go considerably beyond, incremental revenue.Loyal customers go out of the way to use company’s services. With increased usage come increased revenues. It is an accepted fact that word of mouth is the strongest form of endorsement for a company’s product, service or brand. In an HBR study, Frederick Reichheld and W. Earl Sasser identified numerous bottom-line benefits of customer retention.1 They found that loyal customers purchase more,they will pay higher prices, they are easier to service, and they help expand the customer base by giving positive referrals. They established that a mere 5% increase in customer retention increases an organization’s profitability by 25 percent. Acquiring a new customer can cost as much as 5 times of keeping an existing one. Having said this, loyalty programs can be expensive to develop and maintain.The program cost varies from sector to sector. Airlines and Hotels, have a very high fixed cost and run low on variables cost. Unsold inventory and distress inventory offers exciting avenue to reward customers. The cost to fly an additional person who purchased his or her ticket with points is trivial. On the other hand every point that a retailer awards has to be paid for the company by cash.Other associated costs for loyalty are attributed to system those system costs. System costs involve the cost of technical infrastructure, the software cost and the integration costs. While many firms have been successful in implementing loyalty programs, not all the loyalty programs have delivered the intended results. Failure to identify the long term nature of loyalty and failure to differentiatethe loyalty offerings have resulted in proliferation of loyalty programs. Customers often hold multiple memberships and shop around multiple stores based on need and available discounts. This trend doesn’t lead towards any sort of long sustaining relationship. In a recessionary environment, when consumer spending is at an all time low and discounts is the rule of the day, marketers should take alook at ways to add value to the customer. It is so very critical to understand the need of the customer and offer highly personalized service at the most appropriate of times.

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A STRATEGIC INSIGHT INTO RETAIL LOYALTY

2. Loyalty in Retail
A consumer today interacts with retailers on a daily basis – while shopping for his grocery needs, buying apparels or...