So you want to launch a loyalty programme…

( I wrote this in July, 2005. My colleague Pabitra Chatterjee had helped me improve it)

Why do you want to launch a loyalty card programme?

Because if you give back a bit you can increase your sales;

Because all your competitors are doing it;

Because you want your customers to carry a sexy plastic card with your brand name on it, and perhaps even get them to show it off to others;

Because it’s ‘in’;

Because you want to retain your customers;

Because it will have great impact on customers’ loyalty to your brand;

Because it’s a new add-on feature that’ll help your sales team improve penetration;

Because it will improve your profitability on customers;

Because you believe such a programme is completely accountable – you know how much you put into it, and how much you get back;

Because …

The list above is not exhaustive, but indicative. These are some of the reasons we have heard our clients put forth between the three of us over the past 15 years in business.

None of the reasons mentioned are right or wrong; they merely illustrate the expectations most marketing heads have from a loyalty programme they have, or wish to create.

Are these expectations reasonable? More accurately, can a loyalty programme deliver against these expectations?

Having launched and managed over 30 loyalty programs in India and studied hundreds of programs across the globe, we believe we are in a position to answer this question with a fair degree of accuracy. In fact, we have been able to arrive at some kind of a theory (perhaps, calling it a ‘law’ would be more like it), which, we believe, will work in every situation, across any product or category.

One thing you should not expect

But before we go further, let’s talk a bit about one of the reasons we listed earlier: I want to run a loyalty programme because if I give points sales will go up.

Let’s say you are the CRM head of a company that makes and sells readymade garments for women, traditional kurtas and salwars. You sell these through 100 exclusive stores. On an average, you sell to 1,000 women a day, and the average bill amounts to Rs. 1,000. That is a sale of Rs 1 million a day, adding up to Rs 300 million a year.

You operate on a 10% profit, that is, Rs 30 million.

You have reasons to believe that your brand enjoys a great deal of loyalty among its buyers, and a fair percentage of your customers visit your stores repeatedly every year.

Your strategy: If you can (a) make sure that these loyal customers stay loyal, and (b) make them buy more you can ensure substantial increases in the value and volume of sales, overall.

You introduce a loyalty programme, offering all your customers ‘points’, equal in value to 2% of your selling price, for every purchase they make. Your loyal customers should be able to figure out that the points add up to quite a bit over the year, and they would, therefore give you more business, more regularly.

Sounds so simple and correct, but this is what actually happens:

Each time your customers earn and redeem points, your realization drops by Rs 2%, that is, to Rs 980 instead of Rs 1,000. More to the point, your profits drop from Rs 100 to Rs 80.

That’s a 20% drop in profits!

How much must average sales increase to make up? A little math shows you need a 23% increase just to get profits back to where they were.

Let us imagine your company somehow meets, even beats, the 23% growth target, and the bigwigs of your company have now assembled for the yearend review. If you are expecting your colleagues’ congratulations, you are in for some disappointment.

The Channel Head points out sales are up because of the new, improved display he has created at every showroom.

The Production Head would like to take credit for sales increase too. He thinks it is the new range that did the trick.

The HR Head thinks it as the new training programme and initiative scheme for the channel team.

The Sales Head knows it is because he kicked ass, often literally.

The Finance Head may not be too pleased with the drop in profitability; he has to find innovative ways to prune cost.

Finally, the CEO, who is perhaps pleased about the sales increase, though not too happy about near flat bottom line, soothes ruffled features. “It’s a great team effort boys,” he declares, “but there’s certainly scope for improvement.” In other words, “Well done, but not good enough.”

Assuredly, the set-up will be far worse if sales increase by, say, 15%. That would mean a drop in profits. Will you accept responsibility? Unlikely. Will your colleagues accept that? That is unlikely too. Was the programme not supposed to be accountable, and were you not going to have clear input-output ratios!

The fact is, of course, that you cannot make a one-to-one link between loyalty programmes spends and members’ purchases, any more than you can unambiguously attribute sales figures to other marketing spends. You will not say, “Rs x of sales were due to advertising, Rs y of sales were due to distribution, and new features in product brought in Rs z,” would you.

So you should not expect a loyalty programme RoI, leave alone try to measure one.

(If you must have a RoI for the loyalty programme, you can create a control group, keep them out of the loyalty programme, and track their purchases. Be forewarned that the results from such an experiment would be open to all manner of explanations and arguments.)

The real problem, frankly, is elsewhere. A well-run loyalty program is all about measuring – spend per customer, frequency of purchase, success of sales promotions, changes in purchase behaviour over time, how closely actual buyers’ profiles meet those being targeted by advertising, customer satisfaction – just about everything anyone can imagine.

In a way, it measures the RoI of a company’s marketing on its top customers. It is perhaps understandable for other marketing departments to demand that the loyalty programme should be able to demonstrate its own impact on the top-line and bottom-line.

Unless you explain and sell the programme internally, and unless other departments see it complementing their efforts, such demands, unfair as they are, will continue to threaten loyalty initiatives.


What a loyalty programme can do

Time to re-look at loyalty programmes.

We think a loyalty programme can deliver only on the following three expectations, and all of these together will automatically drive loyalty:

  1. Help you identify your most valuable customers
  2. Allow you to understand what is valuable to them
  3. Give you permission to communicate with them.

How? Read on.

How to start

Let us begin by categorically stating that you should not offer a loyalty programme to all your customers – only to your most valuable customers.

Why? Because these are the people who give you 80% of your sales, and 100% of your profit. Typically, a customer pyramid looks like this:

Your figures will differ but the shape of your pyramid will not be radically different.

If you limit your programme to the top 20%, you will be able to give them rich rewards and exclusive privileges, which they will appreciate. In turn, they will share important data with you.

On the other hand, if you broad base your programme, you will only spread your management and rewards budgets too thin, and satisfy no one.

In addition, by confining your loyalty programme to your top customers, you make sure that their opinions get the extra importance they deserve.

“Quite sensible,” you say, “But in my business, how do I find out who my most valuable customers are – I don’t even know who my customers are?”

Well, that is the first objective of a loyalty programme: To help you identify your most valuable customers.

Depending on the kind of business you are in, this could be a cakewalk, or a challenge. Let us explain:

If you are, say, a mobile company, you can easily find out almost everything about the heavy users – their names, addresses, bill values, how many numbers they call often, at what times, whether they roam in India or abroad, and the rest. So can a bank and credit card. You can study and act on all this useful information without abusing the customers’ privacy.

In several other cases (airlines, hotels) data can be collected if the front-end staff, that is, people in sales and customer service, is a little careful (for example, Raj Bhatia shouldn’t become Rj Bhatia or Raj Bhata).

However, in other categories, say a restaurant or a retail chain, getting initial information could be a challenge. Where and how do you begin?

The first thing you must do is a thorough audit of all the transactional data you have. Bill amounts. Payment methods. Credit or debit card numbers that keep turning up repeatedly. Combinations most often ordered. Seasonal variations. Offers that worked, and that did not. Believe us, most companies bewail the lack of data without attempting to find out any of these. Even if the data is around, it is rarely put together in a single document.

Warning 1: This is tedious work. However, it can reveal immediately usable data.

Equally importantly, it can reveal deficiencies and ‘political’ issues that will have to be sorted out before launching a loyalty programme.

Not very long ago, we walked out of a mega loyalty programme in the planning stage, when it became quite clear from our initial investigations that (a) the client’s sale reporting process was a disaster and (b) they would do nothing to rectify matters.

Once you have the initial data, you offer all your customers some kind of incentive (‘points’ linked to purchase) to get them to share their profile and purchase data with you. If managed well, this should give you a workable customer database within a year.

No matter which business you are in, you can quickly identify your most valuable customers.

Warning 2: A year is a short time in database marketing. If you are in a tearing hurry, choose another path. As Sherlock Holmes said, “It is a capital mistake to theorize before you have all the evidence. It biases the judgment.”

You may stop us here and ask, “If we are offering points, haven’t we already launched a loyalty programme? Also, aren’t we (authors) contradicting ourselves when we advice that you should offer incentives to all customers?”

You are right about the first point. Whether you like it or not, if you award points over a year, your consumers will definitely see it as your loyalty programme. All the more reason to do the initial data audit, and get some idea of what you are getting into.

The second point is somewhat trickier. While you advertise your programmes to all members, you must also design it in a way that only your top customers will find it worthwhile to sign up.

The conditions for redeeming rewards, at least in terms of minimum spend and tenure of membership, have to be such that only above-average, long-term customers can take advantage of them. (Another reason for doing the initial data audit is get guesstimates for these conditions.)

For example, Flying Returns (the Indian Airlines-Air India frequent flyer program) allowed redemption only after you logged 30,000 points, a threshold only a genuine frequent flyer could have achieved – not many flyers can take 38 Mumbai-Delhi flights or equivalent in a year! The Titan Signet programme we manage for Titan Industries allows redemptions only after six months and upon accumulating 200 points – a condition most members will not be able to fulfil unless they make a repeat purchase, which incidentally is the key objective of the program.

You may even want to introduce an enrolment fee.

We certainly recommend one. For example, when Indian Airlines and Air India launched Flying Returns, you had to pay Rs 1,000 to enrol. Nearly 120,000 passengers found this a reasonable fee, way back in 1994-1997!

Apollo Tyres’ loyalty programme charged a fee of Rs 500, creating a pool of Rs 2 crores – from 40,000 truck owners – within a month of launching the programme. For Monsanto’s Dealer Loyalty programme (Monsanto is a herbicide brand) we charged Rs 250 as joining fee. Ditto for a loyalty programme we created for Hewlett Packard’s channel partners. Even for a paanwallas’ programme, we charged Rs 75. They were more than willing to pay.

Until recently, all credit cards had an enrolment fee and annual fee they charged all their customers. Shopper’s Stop’s First Citizen’s Club charges Rs.150 as enrolment fee.

An enrolment fee makes eminent sense, for 3 reasons:

  1. It lets big spenders self-select.
  2. It lets the customer rethink his relation to the brand. When a frequent flyer pay Rs 1,000 to register in Flying Returns, he agreed to fly the top two airlines despite their poor record on punctuality. They accepted the fault up front.
  3. The fee insulates the programme from stakes within the organisation. In Flying Returns, the membership fee covered the cost of managing the programme for first three years. For credit cards, the fee covered the acquisition expenses, the cost of plastic, the membership kit, monthly statements and minimum profits!

Before we move to the next section, we must clarify a small matter. If pricing deluxe models out of average customers’ reach is fair business, targeting loyalty programmes only at the top spenders seems fair too. There is nothing more to it

How much should we give?

An oft-asked question is, “What percentage of sale value should we give the members in form of ‘points’? 2%? 5%? 15%?”

Credit cards typically give 1% back. Airlines could give you 5-9%. Hotels offer as much as 10%. Westside gives back 2%. Titan 4%. In Apollo Tyres programme for truck owners, we offered a mere Rs.100 for a tyre worth Rs.10,000 – 1%. Tesco, the UK retailer, also offers 1%.

All sorts of figures seem to meet with fair degrees of success. Therefore, perhaps a better question to ask is, “How much is enough to get the data we want?” After all, the objective behind giving points is getting their data, not doling out your profits!

Our recommendation: Just give enough to keep members’ interest in the programme alive, that is, give away a percentage that makes the redemption threshold achievable for the above-average customer.

The place to start is setting the right redemption threshold. Here is how we would go about it:

The rule of the thumb states that the bottom 70% customers contribute less than average revenue per customer. Only the top 30% bill more than average.

A good threshold, then, is 110% the average annual revenue. If points stay valid over two years, then your threshold should be 220% the annual average.

Keeping the threshold just over the average ensures that only your top 20-25% customers can redeem. And that the programme interests only those who are already in that group – or have the potential to be in it, if they switch their custom from your competitors to you. Elitist? Sure, that is what a loyalty programme is supposed to be, an exclusive club for your company’s elite customers.

In our experience, most loyalty programmes seem to have inexplicably low redemption thresholds, almost as if they want to reward everyone. This only drains out revenues. Worse, by spreading out the rewards budget too much at the bottom, too little is left to wow the crème de la crème. So, they do not get interested.

Perhaps it is the sales promotion mentality at work – many small prizes, a few big ones. May we point out that sales promotions are tactical and short-term while loyalty programmes are – or should be – strategic and long-term? The two must have very different economics.

Another observation is that 9 out of 10 loyalty programmes are caught in the ‘points loop’. They begin and end in points.

Once they have customers’ profile and transaction data, they can seriously start a many pronged loyalty programme, to retain, up sell and cross sell. Instead, all they do is ‘points account management’ – credit points, send points statements, get redemption forms, and fulfil rewards requests…

Take Flying Returns (Indian Airlines) and Jet Privilege (the Jet Airways). You fly, you get points, you reach a certain threshold, you redeem your points for air tickets, and then start all over again. Substitute programmes from any other category – retail, hotel, credit card, B2B – and you get more or less the same story.

Some even become rather good at it. We are often reminded that Jet Privilege has won an international award. Raj is a member of this award-winning programme, and he can assure you that this award must be for efficient points management (like an ISO certification), not for managing customer relationships.

No doubt, points are important, and need to be managed efficiently. Nevertheless, to limit a loyalty programme to points management is to grievously undermine its potential. When a loyalty programmes degenerates to that level it should be thoroughly overhauled, or scrapped.

“May I call?”

There is another valuable function: it gives you permission to communicate with your most valuable customers.

When a customer signs into your loyalty programme – fills up an enrolment form, accepts his membership kit, signs his membership card – he says, in effect, “You can call, write or email me. I’ll give the communication that you send me the attention you think it deserves.”

In today’s ultra-communicated world, where you literally spend crores to be just seen or heard, this permission is an invaluable gift.

Unfortunately, it is enormously under-leveraged.

Jet Airways has sent no more than 4 communications over the last 6-8 months. Flying Returns rarely communicates with its customers beyond mileage point’s statement. Colleagues who are members of Shoppers Stop, Globus and Westside loyalty programmes have similar complaints.

Between us, we own at least 10 credit cards. Rarely do any of them make any effort to communicate. All we get is bill inserts meant for the whole world.

B2B is no better. Our phone company does little beyond the promotions enclosed with their monthly bill.

Our bank did not even think it necessary to inform us we have been upgraded to Preferred Banking status, leave alone explain the accompanying privileges. We just received a new and different chequebook! What’s the point, one wonders, of conferring privileges if they don’t result in more business – because the customer never got to know what he can get.

Some of you might quip that you have the opposite problem. You get too much mail, much of which you do not read, and it is all from the very loyalty programme promoters we are accusing of under-communicating.

Well, answer this: “What was the last time you got an offer that made you fall off your chair?

When last did your ‘favourite’ credit card, or airline, or hotel try to up sell or cross sell something to you that made the marketer in you admire the way they were interpreting the data you shared by using your loyalty card?”

If our collective experience is anything to go by, your answer is, most probably, “Never.”

This brings us back to the vicious cycle we discussed in the previous section – no data analysis, therefore no insights, therefore insipid offers and irreverent communication. In other words, junk and spam (the right mail to the wrong person).

Yet it is not too difficult to imagine what a sensible direct marketing manager and a competent database administrator can do if they join hands to use members’ data. Allow us to make a few random, and fairly obvious, suggestions:

  • An airline can offer bonus points on sectors that a member flies most often. This communication will not only be read but also acted on. For just a few hundred points, the airline will be able to protect a fair amount of business. It will also keep the customer from flirting with competing airlines on his regularly travelled sectors, which can easily account a third of his travel, if not more.
  • A landline telephone company can give bonus talk time to corporate customers for intra-company calls, both local and STD, as long as it is the same service at both ends. First, this will encourage clients to sign up countrywide contracts. Second, it just may lead to diktats that executives should use their landlines as far as possible.

(Unbelievably, service providers are often blissfully unaware of the total size of their current billings from a corporate client, let alone the potential business they can get. They are a long way from consolidating separate lines into accounts.)

  • It is about time retailers started segmenting their loyalty card members, and targeting their offers. Perhaps they do not yet have the data that will allow them to customise newsletters, as, say, Tesco does. But the ragtag leaflets that we get, often with our names misspelt, are too little, too ad hoc, too mass market.

The possibilities and ideas are limited only by the amount of data we have, and, more importantly, by the amount of analyses we do.

Let us take a positive example. Select members of Titan Signet, a loyalty programme we manage, receive up to 14 communications a year. Each mail or email shot is preceded by data analysis. And, as far as possible, based on an insight derived from the data. The communications persuades members to visit World of Titan showrooms to buy another watch.

In an infrequently purchased category like watches, these communications average 4 to 6% conversion (at times sales-to-spend ratios are mind-boggling), proof that targeted communication not only increases profitability but also enhances loyalty.

(A caveat here. Please do not compare Indian figures with figures from the West. Our populations and markets are as different as chalk and cheese.)

To end this section, let us go back to the permission we talked about in the beginning of this section. While signing up a member tells us, “You can talk to me. As a matter of fact, I’ll look forward to great offers from you, fashioned on the data that I’ll share with you.

“Over time you can – and should – get to know me better. I’ll expect your communication to reflect that.

“But woe betide you if you abuse my trust to send me junk!”

That is reasonable, isn’t it?

The biggest payoff

How do you manage your customers’ loyalty better? You customise your offerings to what your valuable customers value the most.

To do that, you first need to group them into a manageable number of segments, using parameters like:

  1. Recency of last purchase (R)
  2. Their frequency of past purchases (F)
  3. Total monetary value of purchase (M)
  4. Variety of purchases, across the brands you offer (V).

(Admittedly, these parameters come from the mail order and catalogue industries in the USA, and it is fashionable to dismiss them as inadequate. Even so, they do provide a good place to start for both B2C and B2B customers.)

So you analyse the transaction data you have gathered, and match it to customer profiles. For example, you can segment your top 30% into Platinum, Gold and Silver. Typically, your top 2% customers will be Platinum, the next 3-5% Gold, and the balance 15-20% Silver.

Besides transactional data, you must also ask your staff, who regularly deal with your customers. You can conduct feedback surveys, focus groups, and create customer advisory boards too.

Ideally, you should use good mix of hard (transaction) and soft (feedback) data to arrive at a marketing programme for ‘locking in’ your best customers.

What can such a programme include? That’s best illustrated with a few random examples:

  • A clothier like Arrow or Tommy Hilfiger can easily get extra business by sending catalogues to their best customers (sizes and necessary alternations already known), letting them order over phone, and delivering the purchases to their homes or office.
  • Jet Privilege can start by automatically checking-in Gold Members the moment they make a booking, making sure that they get their preferred seat.But can they also make sure that the passenger’s regular newspaper is awaiting him at his seat, and he does not have to ask for it?Can someone call these members once every three months to check their travel plans over next couple of months, and share some useful information: This may be particularly useful for members who’re travelling abroad?

Can they, occasionally, waive something from their Terms & Conditions, or override company policy, to make a customer feel good about giving his business?

(Recently Jet did exactly the opposite to Raj, a Jet Privilege Platinum Member. They refused to count a flight, much less award points on it, because the ticket was less than full price. Their way of telling a loyal customer, “We don’t want your business unless you’re so dense that you’ll more than the lowest price on offer on every trip, never mind the fact that our ads tom-tom fares that are 50% to 75% lower. Please fly our competitor!”)

  • A hotel can create systems for recording every frequent guest’s likes and dislikes, and judiciously incorporating these.
  • A retailer like Shoppers Stop can do more preview sales or weekly special night shopping exclusively for its best customers.Similarly, valet parking could be offered instead of just refunding parking charges. To avail the facility, a customer would just have to call in advance and give her car make and number, and a valet would be waiting for her. “Wow, a valet waiting for me to park my car?”
  • A mobile phone company can allow its biggest customers longer grace period for paying their bills. Alternatively, give substantial discounts for bills paid well before last date. They can conduct a survey to find out which handsets these customers are planning to buy (or have recently bought), and then work out special offers from manufacturers. Or even gift subscribers free minutes equal to their age on their birthdays!

There are plenty of things, big and small, that marketers can do for their top customers. Many more customer-bonding (and profit enhancing) opportunities become obvious once customers’ profile and transaction data is analysed.

Yet, few marketers bother to investigate data. Those that do, do so very infrequently.

Why? The reason is not hard to seek. Actually, there are two.

First, there is no pressure. As long as acquisitions are on target and sales are on course, and you can meet your targets by depending on the law of averages – otherwise known as mass marketing – executives need not take customer data seriously.

Therefore, no analysis is done, even though the technology and expertise are both easily available. (Quite a few Indian firms are doing complex analytics for Western clients. Hmmmm.)

When we started our careers, business houses from the days of Raj dominated the market. Most of them had a similar attitude about the market. “Make it and they’ll buy,” was their mantra. Today, almost all of them have been wiped out.

However, the new mantra – “Advertise it and they’ll buy” – has probably overstayed its welcome too. Witness the surfeit of sales promotions.)

The second reason is that many marketing executives are woefully ill informed about what data and software means in real life. Recently, a credit card issuer sent us their most valuable customers’ data, broken by merchant establishment. Their question: Which merchants should we tie-up with to bring long-term benefits to our customers?

When we reverted with the cost and time it’d take to go through the data (a few thousand rupees and 3 weeks, respectively), the client representative actually laughed at us, saying it was a couple days’ job, and that he could it himself!

Who would explain to the young man that it would take at least 10 days to just ‘clean up’ the data, and select the records that are analysable? When will he understand that the price of doing it wrong – these were his top 20% customers – far exceeds the cost of doing it right?

Our recommendation to all marketers is to budget time and money for analysing data right at the beginning of the loyalty programme, even reduce the value of points slightly if need be. Because unless you analyse you will neither get any insights into what’s valuable for your customers, nor any ideas on what you to add value. And your customers will continue flirting with competition.

Winding up, your loyalty programme tells you what really works, and what will most probably work. And lets you put faces on bills, especially the big bills.

It helps answer multi-crore rupee questions like: Where should we open our new branches? Which brand extensions are likely to work for us? Will we be better off if we increase the share of BTL in our marketing spend, or vice versa? Should we extend working hours by 2 hours? Is our pricing strategy right, or are we paying undue attention to poor spenders?

At the least, it drastically reduces your dependence on intuition (actually, gut feel) and third-party market research.

We are not rubbishing market research. Far from it, we’re trying to point out that the best loyalty programmes are, essentially, self-funded market research into the customers who contribute most of your sales and almost all your profits.

This research tells you how to manage your best customers. It can also tells you, if you ask the right questions, a good many things about managing your business.

That is probably the biggest payoff you can expect from a loyalty programme.

Let’s sum up

We will go through the 4 steps of a Loyalty Programme, but let us first quickly recap our main viewpoints:

A loyalty programme can achieve 3 things:

  1. Help identify your most valuable customers
  2. Learn what is most valuable to them
  3. Get permission to communicate with them.

Together, these 3 will help you improve retention and customer profitability:

  1. You do not always need points or cards to run a loyalty programme. Many a time (telecom, credit cards, banks), the data is readily available and needs to be acted on. In some cases (airlines, hotels), the transactional data is recorded but not consolidated; with improvements in technology, the latter can be achieved without resorting to cards and points. Then, there are categories like retail where we have to ‘pay’ customers to let us track purchases. Also, we have to approach customers directly for profile information, satisfaction surveys, future usage plans, that is, anything outside transactional data. Points are the customary currency for buying such data.
  2. Loyalty points need not burn a hole in your pockets, provided you set the redemption threshold right.
  3. Most loyalty programmes do not go beyond points’ management. Predictably, they become boring for the consumers and irrelevant for the marketer. While giving away points and rewards are important, they are just a means to an end, which is up sell, cross sell and retention.
  4. To use a programme to its full potential you must analyse the data you collect through it. The analysis will throw up important insights that will help you figure out what is, and will be, valued most by your best customers.
  5. You use these insights to tailor your offerings to your core market. If you can efficiently – loyally – serve your top-20% customers you are just about guaranteed to have a very profitable business. That, very simply, is the core of loyalty marketing.
  6. All loyalty programs give us permission to communicate with our customers. In today’s over-communicated world, this can be invaluable. We must use this advantage to the hilt by making the communication as relevant and exciting as possible. And never abuse the trust by sending junk mail and spam.

Having taken you through all the possible dos and don’ts of running a loyalty programme, let’s now show you how you can go about creating a successful loyalty programme that can help you retain, up sell and cross sell to your customers.

There are 4 steps:

  1. 1. Find who your most profitable customers are.

Your loyalty programme must focus on these customers. Essentially, you must fix your rewards thresholds in such a way that only big spenders would get prizes; if there’s a potential big spender somewhere, the programme benefits must be good enough to entice him to ‘reveal’ himself; others will automatically lapse or exit your programme.

  1. 2. Set Targets

Against each group, write down their current annual sale, and if possible, the profit they contribute.

Add two new columns and fill these up:

Column 1: Desired Sales

Column 2: Up-sell & Cross-sell budget – the amounts you are willing to spend, excluding points (if any), on achieving the Desired Sales target.

Your chart may now look something like this:

Segment Proportion
of customers
Sales/Year (Rs.) Up-Sell & Cross-Sell
Budget (Rs.)
Current Desired
A 2% 10,000 12,500 500
B 3% 7,000 10,000 500
C 15% 3,000 5,000 250
D 30% 1,000 1,200 25
E 50% 350 400 10
  1. 3. Create a Calendar

Further, segment your customers using parameters like Recency, Frequency, and Variety, and others that your data analysis may suggest. Then plan the activities and communications that you will do with each segment. You have two aims:

  1. Make them buy more and meet your up-sell and cross-sell targets. The only way you can achieve that is by making exciting, relevant offers based on consumer insights generated by your data analysis.
  2. Make them feel good about your brand. You can achieve this through regular communication that reinforce the brand benefits, and gifts and gestures – tickets for movies and plays, greetings on special days – that show your appreciation. You do these simple things without a second thought for personal friends. Think of your best customers and brand ambassadors as your business friends, and you will know what to do.

What is important is to ‘do it’, not fantasise. With a plan and a budget in place, the above is actually very easy.

  1. 4. Review

Every quarter you have to revisit the sales and profit figures of all your customers. Compare and see the improvements (or declines) in these figures over previous quarters. Conduct a detailed appraisal of each activity to see which ones have worked, and which ones did not. Review your next quarter activities in light of your learning in previous quarter. Make changes where necessary – beef up some, drop others, repeat winners, etc.

We call this the Up Sell Cross sell Engine.

If you follow the above process, you would have implemented a retention, up-sell and cross-sell strategy for your existing customers. This will work, irrespective of whether you have a points-based loyalty programme or not. More important, you would have provided your business an edge only the customer information can help achieve.

Conclusion:

A loyalty programme must help you achieve higher sales from your existing customers while it improves retention. The first step is to gather customer and sales data, and then segment the customers by their respective value. Set a growth target and assign a budget against each customer segment. Finally, create a calendar of activities and keep reviewing every three months to keep on course.

If you do this, you would have learnt to leverage your most valuable business assets – customers!

One Comment

  1. Jeetu said:

    Excellent writeup! Superb in terms of data as well as the style of writing! Will definitely refer to this again & again..

    February 19, 2013

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