loyalty program overview

8/7/2019 Loyalty Program Overview

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Loyalty Program Overview

Almost 80 percent of shoppers in the Europe now belong to at least one loyaltyprogram and the trend is fast catching up in India but how well do they really work?The short answer: not as well as they might have been. We look at why, and analyzehow advances in customer data collection are helping some companies to revise theirLoyalty business strategies in different ways.

There are frequent shopping programs, frequent flyer programs, frequent mall cardsand frequent petrol programs. There are points at the pump schemes, Service taxholidays and, some of them even donate to charities like CRY for people who usetheir Credit card reward points.

There are plastic cards, smart cards, thermal cards, magnetic strips Co-branded CreditCards. Within the next couple of years players like Airtel, Reliance, are working on

using 802.11 to Flash your mobile phone at a reader as you whiz through checkout,and you'll get a couple of rupees knocked off your bill.

Call it the loyalty craze. According to our Research, more than 80 percent of Europeconsumers now have at least one loyalty card or program of some kind, and thenumber of people with two or more is estimated to be one-third of the shoppingpopulation and research suggests the loyalty card explosion is showing no signs ofletting up anytime soon. Credit Card companies are offering programs by tying upwith various Shopping establishments to offer discounts and lure the customerstowards using their shops and Credit Cards.

While loyalty cards, Shopping Festivals and prizes have always been, first andforemost, a cheap way for businesses large and small to start tracking their customersshopping habits, more customers than ever now consider themselves entitled tospecial treatment, a marketplace psychology spawned in the 1980s by the airlineindustry's invention of frequent flyer miles, one of the first loyalty programs.Originally devised to generate better data on the most popular routes, the airlinesbroke what was a "one price fits all" standard and introduced a "some people are morespecial than others" psyche that has changed the global marketplace forever.

Do Loyalty Programs really work?

The short answer: not as well as they might have been. It's all in the execution. Someshopping establishments say their loyalty program is key to new revenue growth.Thanks largely to the data analysis of the data collected these companies have boastedretention rates and highest profit per customer in their respective industries evenduring tough economic times and cutthroat markets. But the majority of companiesare still struggling to get it right.

Satisfaction versus Loyalty

There is still a yawning gap between the percentage of people who say they'resatisfied with a business and those who consider themselves "loyal" to that business


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and who are intent on maintaining the relationship and continuing it into the future.Many companies have figured out how to deliver satisfaction, but they've not yetfigured out how to earn loyalty anywhere near those levels. This loyalty gap can beparticularly pronounced in industries where competition is harshest and growing.

Most customers continue to do business with the top retailers, but are less thanpleased with the relationship they now have with them, while most customers aresatisfied with the relationship they are not loyal. That means most retailers cannotcount on their customers being loyal they are venerable to competition. Loyalcustomers talk up a company to their friends, family, and colleagues. In fact, such arecommendation is one of the best indicators of loyalty because of the customerssacrifice, if you will, in making the recommendation. When customers act asreferences, they do more than indicate theyve received good economic value fromthe company; they put their own reputations on the line. And they will risk thosereputations only if they feel intense loyalty

Where do most Loyalty Programs go wrong?

Most company loyalty programs don't slice data finely enough to distinguish betweencustomers who would recommend a particular business to friends and those whowould not. Knowing this could mean millions of additional revenue for companies.The tendency of loyal customers to bring in new customers at no charge to thecompany is particularly beneficial.

Many companies also tend not to do enough with their loyalty program data to makethe customer feel special. Rewards programs cost companies, on average, between 2percent and 10 percent of a customer's total spending at a given store. Once you haveidentified the top 20 or 30 percent of your customers, many companies tend not tomarket to the bottom tier because it's not economical, and end up leaving a majorityof their customers frustrated or unable to accrue enough points to make participationin these programs seem like a real advantage.

But don't underestimate the value of trying. Food retailers, for example, lose up to 40percent of their new customers within three months. One of the big benefits of asuccessful loyalty card program is that stores can quantify new-customer losses andintroduce programs designed to retain or woo back the most profitable. "Without aloyalty card, one has no clue about the size of the inflow and outflow of new

customers," What does this mean for the bottom line? Learning to play the loyaltycard game better can help companies reap big cash rewards.

Data shows truly loyal consumers are 15 times more likely than high-risk customersto increase spending with a particular store. Profits rise as a customer's relationshipwith a company lengthens. Customer defections have a surprisingly powerful impacton the bottom line, when defections are cut in half, the average growth rate more thandoubles.

It's not enough to have CRM. You need the hearts and minds of the customers to closethe loyalty gap. IT needs to take the lead in loyalty programs because it's just about

the only department that can coordinate between business processes, external data-


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analytics vendors and the executives who can translate output into action, Whatdoesn't work anymore is treating all customers alike.

Vodafone kills two birds with one customer loyalty program

August 20, 2009

With GDP in Spain expected to contract by 4.2% in 2009 and by 1% in 2010,Spanish mobile operators are finding that recruiting new customers has become a

challenge and are going the extra mile to retain existing ones. But thats not enoughthe operators know they need to keep their clients spending too. Vodafone Spain iskilling both birds with one loyalty program: Vodafone Puntos. While the initiative isclearly having a positive impact on the operators market share, it is also likely to

increase smartphones sales and consequently boost Vodafones revenue fromadvanced data services.

Vodafone Puntos is simple: The operator awards points to its most loyal customers,and by accumulating a specific number of points, customers get certain discounts.Those who remain with Vodafone the longest, and those who spend more, are likelyto collect the most valuable prizes. Most recently, Vodafones customers were giventhe opportunity to use points to upgrade their handsets. For example, a postpaidcustomer can get a Nokia N95 for free for 9,600 points (see Exhibit 1).

Exhibit 1: Vodafone Puntos handset upgrade program

Source: Vodafone

So far the program has met its main objective, increasing Vodafones subscriber totalin Spain by 0.5% in the quarter ended June 2009. This is remarkable not onlyconsidering the hard times the Spanish economy is going through these days, but alsoin light of the performance of other Vodafone subsidiaries in Western Europe: theoperator reported a decrease in the number of customers in several large WesternEuropean markets. Vodafones German operations, for instance, reported a Q2decline in the number of customers of almost 2% from Q1, followed by Italy and theUK with 1% declines.

Although the Puntos program has been successful in terms of churn stabilization, its

objective goes furtherencouraging customers to upgrade their mobile phones. Forthose who use up their points to upgrade their terminals, further awards, such as free


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nights in a hotel, await. As more customers opt for high-end handsets such assmartphones, it is likely that the operators advanced data service metrics willimprove too.

While more promotions sounds like a risky move in this economic climate, I believe

Vodafone Spain is making a wise choice even if this means giving up on some profitsin the short term. By maintaining a stable market share in Spain now, Vodafone willsee strong post-recession growth. Furthermore, the operators should understand thatmore advanced handsets in the hands of its customers translate into more usage ofadvanced data services and thus increased data revenue (see Exhibit 2).

Exhibit 2: Smartphone sales vs mobile data revenue as percentage of total mobile

revenue

Source: Pyramid Research Spain Mobile Data Forecast and Spain Handset Forecast,

Q2 2009

While it may sound paradoxical that mobile operators should forgo revenue now byoffering subsidies on the most expensive handsets, this strategy is, we believe, thebest way to address the economic situation and prepare for post-recession growth.Most European operators, facing increasing churn, are engaging in more aggressivecustomer retention strategies anyway. By focusing more on keeping their mostlucrative customerssmartphone usersas well as on increasing their numbers bypromoting handset upgrades (as Vodafone seems to be doing) and on encouragingcustomers to use their mobile data networks, operators will keep their marginscomparatively stable in the current economy and increase them once the economyimproves. In other words, todays short-term survival strategy will turn into a winnerin the medium term. For a more detailed analysis see Pyramid Researchs new EuropeInsider .


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Stela Bokun, Senior Analyst

Related resources:

Europes Smartphone Market: Sustained Growth Is at Risk

Europe Telecom Insider published August 2009While vendors and operators are still seeing smartphone growth despite the recession,we believe market participants should implement strategies that are more likely tomaintain sales volume during the downturn and expand business once the economyimproves. This Insider examines the impact the economic downturn will have onEuropean smartphone sales in the medium term, offering guidance to on how tomitigate the effects of the economic slump and prepare for post-recession growth. Itprovides Pyramid Researchs five-year forecast on smartphone adoption in Europeand examines in more detail the market-positioning strategies of the leading

smartphone vendors: Apple, Nokia and RIM.

Central & Eastern Europe Mobile Handset Forecasts

Forecasts published quarterlyOur Mobile Handset Forecast products provide complete pictures of handset sell-through in each of four Central & Eastern European markets. The Excel outputincludes five years of historical data and five years of market projections for metricssuch as total handset sales, handset sales by network technology, new handset sales(by technology, by technology generation, by feature set), smartphone handset sales,vendor market share and handset ASP. We believe our Handset Forecasts are superiorbecause they capture sell-through (units sold to end users) rather than unit shipments(sales from manufacturers to distributors) and rely heavily on our Mobile DemandForecasts. Moreover, they are based on extensive field research, and a consistentmethodology that is applied to all markets.

Western European Mobile Handset Forecasts

Forecasts published quarterlyOur Mobile Handset Forecast products provide a complete picture of handset sell-through in each of France, Germany, Italy, Spain and the UK. The Excel outputincludes five years of historical data and five years of market projections for metricssuch as total handset sales, handset sales by network technology, new handset sales

(by technology, by technology generation, by feature set), smartphone handset sales,vendor market share and handset ASP. We believe our Handset Forecasts are superiorbecause they capture sell-through (units sold to end users) rather than unit shipments(sales from manufacturers to distributors) and rely heavily on our Mobile DemandForecasts. Moreover, they are based on extensive field research and a consistentmethodology that is applied to all markets.

Latin America Mobile Handset Forecasts

Forecast published quarterlyOur Mobile Handset Forecast products provide a complete picture of handset sell-through in each of 18 Latin American markets. The Excel output includes five years

of historical data and five years of market projections for metrics such as total handsetsales, handset sales by network technology, new handset sales (by technology, by
http://www.pyramidresearch.com/store/ins_eur_090812.htm?sc=PP090820http://www.pyr.com/mhfcst.htm?sc=PP090820http://www.pyramidresearch.com/mhfcst.htm?sc=PP090820http://www.pyramidresearch.com/mhfcst.htm?sc=PP090820http://www.pyramidresearch.com/store/ins_eur_090812.htm?sc=PP090820http://www.pyr.com/mhfcst.htm?sc=PP090820http://www.pyramidresearch.com/mhfcst.htm?sc=PP090820http://www.pyramidresearch.com/mhfcst.htm?sc=PP090820


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technology generation, by feature set), smartphone handset sales, vendor market shareand handset ASP. We believe our Handset Forecasts are superior because they capturesell-through (units sold to end users) rather than unit shipments (sales frommanufacturers to distributors) and rely heavily on our Mobile Demand Forecasts.Moreover, they are based on extensive field research, and a consistent methodology

that is applied to all markets.

Vodafone builds loyalty with Air Miles program -Vodafone Group PLC; Air Miles Travel PromotionsLtd

Vodafone Group Plc. [VOD] introduced Vodafone Advantage, a loyalty program forexisting and new subscribers. The program, which is offered through an exclusive

agreement with Air Miles Travel Promotions Ltd., awards air miles based on airtimeusage and other promotions. For example, customers in the program earn one air milefor every [pounds]10 spent on calls and line rental.

They also earn 10 air miles for joining the program, 10 air miles for each quarter theycontinue to subscribe to Vodafone, from the point they join Vodafone Advantage, and10 air miles on every anniversary of when they joined the loyalty program. The airmiles can be used for British Airways flights, discounts on holiday travel packages,hotel discounts, tickets for the cinema, theater and theme parks, cruise and ferry traveland other bonuses. Vodafone first will offer the program to its 2.8 million customersin the United Kingdom through a direct mail invitation.


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Vodafone launches loyalty program Bonus Bank

Vodafone is promoting its new loyalty program Bonus Bank - by sending a doubledecker bus on a tour of Sydney and Melbourne. The bus, which was launched bymodel Jennifer Hawkins is filled with giveaways and freebies.

The announcement:

Sydney, Australia 30 September, 2010: Jennifer Hawkins launched the maidenvoyage of Vodafones Bonus Bank Bus, a vintage double decker bus, kitted out withbonuses today. The Bonus Bank Bus will promote Vodafones new Bonus Bankloyalty program that offers real rewards aimed at prepaid mobile customers. TheBonus Bank Bus follows the results of a Galaxy survey* which looked intoAustralias attitudes towards the value of loyalty reward programs.

Hawkins and Australias hottest male bus conductors farewelled the Vodafone BonusBus on its maiden voyage with 20 lucky passengers joining the journey.

The Vodafone Bonus Bank Bus tour will tour Sydney until Wednesday 6th October,when it heads to Melbourne for an equally action-packed week (October 8- October13). The public is invited to experience the bus and its bonuses for free alongcommuter routes, universities and key events in each city including the NRL GrandFinal, Sydney Harbour, Bondi Beach, Federation Square, St Kilda Beach and manymore locations. Whether you are enjoying the early commuter routes to work or a latenight trips home after a long day, there are plenty of bonuses to enjoy, including,News Ltd newspapers, Time Out magazines, Carmans muesli bars, Nandos wraps

and burgers, Nintendo games, Boags beer, Krispy Kreme doughnuts, Crust Pizzas,Kit Kats and more. The Bonus Bank Bus will also be giving out one Sony EricssonX10 daily to a lucky traveller who has registered for Bonus Bank.

Anthony Dureau, General Manager of Consumer Marketing, Vodafone said,Vodafones Bonus Bank Bus will be used as a vehicle to transform consumerperception that loyalty programs dont reward customers. Vodafones survey revealed81 per cent of respondents believe loyalty programs offer little benefit, are toocomplicated to use, and are mostly a waste of time. The survey also found that 63 percent would like dollars rather than points for rewards and 47 per cent want rewardsthat are more relevant to them.

Vodafones Bonus Bank is set to buck general consumer perception that loyaltyprograms dont really reward them. Forget tricky points or complicated rewardprogram structures, for every prepaid Vodafone voice recharge, Vodafone will givecustomers 10 per cent of their recharge amount back in Bonus Bank dollars forcustomers to redeem or subsidise a handset of their choice from an extensive range ofhandsets available from Vodafone, said Dureau.

Vodafone is encouraging all its prepaid voice customers to join Bonus Bank.Membership is free and easy to set-up and access. Customers are asked to simplyregister for Bonus Bank by Texting BONUS to 126687, or through Vodafoneswebsite, www.vodafone.com.au/bonusbank. Each time a prepaid voice customerrecharges, 10 per cent of the recharge amount is deposited into the customers Bonus
http://www.vodafone.com.au/bonusbankhttp://www.vodafone.com.au/bonusbank


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Bank account as Bonus Bank dollars. Customers are advised to use their MyVodafoneaccount details to login-in and access their Bonus Bank accounts.

To ensure loyal customers are rewarded, customers need to have saved $10 in BonusBank dollars and have held membership for 90 days before redeeming.

Executive


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summary

TheIndian telecom

industry has been regularly beatingtargets. Recently, the telecomsubscriber base exceeded the targeted

500 million almost 15 months before


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the end 2014 deadlines. Going by thecurrent growth, it is estimated that

India will have 800 million mobilesubscribers in 2012. In wirelesssegment GSM, CDMA and FWPwireless subscriber base has increasefrom 471.73 million in September 2009

to 488.40 million at the end of October2009 at a monthly growth rate of3.53%.

Vodafone Essar is the Indian subsidiaryof Vodafone Group and commencedoperations in 1994 when itspredecessor Hutchison Telecomacquired the cellular license forMumbai. The company now hasoperations across the country with over106.34 million customers. Vodafone isthe world's leading international mobilecommunications group withapproximately 341 million

proportionate customers as on 31


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March 2010. Vodafone currently hasequity interests in 31 countries across

five continents and around 40 partnernetworks worldwide. Vodafone Essar isowned by Vodafone 67% and EssarGroup 33%. It is the second largestmobile phone operator in terms of

revenue behind Bharti Airtel, and thirdlargest in terms of customers.Vodafone Essar Digilink Limitedoperates as a subsidiary of VodafoneEssar Limited in Rajasthan, UP

(EAST) Haryana after acquiring AirCelDigilink in 2003. TRAI Report on theIndian Telecom Services PerformanceIndicate that Vodafone gross revenuechange Rs 5,500.82 crore from quarter

March 2009 to Rs 5,470.53 inquarterJune 2009.

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