Evolution Of Loyalty Rewards & The Call For ROI

The rise of Indian consumerism and growth of digital media have led to a boom in independent loyalty programs that use smart analytics and mobile technology to enhance their attractivity and keep pace with the connected consumer, but their survival is also at stake. Daily deals sites are emerging as new age competitors to these traditional programs who are now facing the demand of ROI from brands. Let's take a look at what's happening in the loyalty rewards space.

The loyalty space has taken its time to evolve, according to Vijay Bobba, CEO and Managing Director, Loyalty Solutions & Research Ltd (iMint), speaking to us at the sidelines of the Consumer Insights Forum. "We conceived the idea of a comprehensive loyalty program with a card in 2004 and it was ahead of time. Innovation in digital media did not exist. In 2008, nobody was listening to ideas about customer retention. Few chains had loyalty programs in place - Planet Fashion had them, and Shopper's Stop and Lifestyle also had had them and are now double the size. Now retail is mature and getting steady profits. Retail has evolved now and there is better infrastructure today for loyalty programs to be launched," he said.

iMint now has 25 million members, of which 30-40% are active customers and spend once a month. The 5 year old company is now consolidating its operations in Bangalore, shifting its headquarters from Mumbai. It employs 350 and recent clients include Amex and FernsnPetals. The company is working with 12 online portals including ticketing portal BookMyShow and shoe e-tailer Yebhi.

There are different kinds of companies catering to different needs in this space - there are ofcourse the retail chains and hyper stores such as Shopper's Stop or Pantaloons with their inhouse loyalty programs, and then there are CRM providers such as Capillary Technologies Pvt Ltd, which integrates its cloud-based CRM solution inTouch with billing and point of sale outlets and uses mobiles to deliver discounts to consumers. Its CRM processes 2-3 million transactions per month, which are worth a total of Rs 500 crore. The company works with 60 brands and a pool of 10 million consumers. Ad agencies with project management expertise engage customers while plain-vanilla analytics providers focus on deriving patterns from actual purchase data and panel data.

Coalition loyalty programs are another buzzword. Consumer electronics provider Videocon's subsidiary Loyalty Management Insights Network & Exchange Pvt Ltd (Loyalty Mine) offers MyCard, which can be used for a range of products from retail to groceries and from home durables to lifestyle products. Its partners include Satya Paul, Sansui, FernsnPetals, Kenstar, BigFlix and Surat Diamond Jewellery. Aggregators of gift vouchers and certificates such as the recently launched GiftCardsIndia.in by SociaLinked are also springing up.

ROI From Loyalty Programs

Though brands are continuing to infuse investments in loyalty programs, spending 0.75-2.5% of their revenues on them, they are now demanding ROI from these programs. "We have seen rising demand for instant analytics as compared to the traditional loyalty programs, which take 2-3 years for RoI," notes Krishna Mehra, founder, Capillary Technologies.

Bobba breaks down the numbers, comparing costs of loyalty programs with advertisements. Today, according to him, the cost of acquisition of luxury customers is around Rs 1000 for a typical brand. For masses, this is around Rs 200-300. He shares that his clients spend Rs 10 lakhs on advertising, which have a response rate of 1-2% and conversions (actual sales) come down to one-tenth of that. "Instead, through loyalty programs, you would get demographic information and targeting of the customer at 50% of the cost. The offer would amount to 30-40% of cost and communication costs are under 10%," he says.

Real Time Offers On The Mobile

While most loyalty programs use mobiles as a medium to communicate offers, through an SMS once a week, Capillary targets customers with real time offers on their handsets to increase the chances of a sale. "When a loyal customer is in a store and has purchased 2 shirts, we are able to immediately analyse the information and offer him a discount on buying jeans, which translates into faster turnaround time. We send the coupons immediately to their mobiles so there is a stronger call to action," he explains. The company's Unwind campaign witnessed 90% redemption of discount offers by 75 lakh users.

Capillary is ramping up fast and foraying into new markets. It is already present in the UK and Middle East markets and plans to expand into US, Europe and S.E.Asia markets by the end of 2011. The company intends to spend $1-2 million this year on expansion and hiring this year.

Are Daily Deals Loyalty Program Killers?

Some question the very principle behind loyalty programs and if points are the right way of building loyalty or retaining the customer?

Kunal Behl, CEO, Jasper Innovative Marketing Solutions, which owns the group buying site Snapdeal.com terms loyalty programs as "delayed gratification" versus "instant gratification" provided by daily deals. "Delayed gratification did well traditionally, but in the last 5 yrs and going forward it will work only with the airline and hotel industry. In today's fast paced world, people do not have the time to wait for their points to accumulate to buy a product," he said.

Bobba defends loyalty programs as being different as they allow users to leverage the points and reach out to customers who are vary of discounts.  There is a new way to reach the shy consumer - the Web 2.0. However, it appears that social media integration has still not taken off amongst loyalty programs in the country with brands using Facebook and Twitter as marketing tools and litte else. "We are still far removed from Foursquare concepts in India. Facebook and Twitter are goal posts. Right now, they are being used to target the emerging yuppie segment and help the brand - honestly, it's very early age," says Bobba.