University of the Witwatersrand

MMSM

Second Quarter 2020

CUSTOMER EQUITY MANAGEMENT

BUSA 7070

GROUP ASSIGNMENT

SYNDICATE 2

Nontsikelelo Mazibuko – 1055817

Mbongeni Tshuma – 768716

Cleo Magano – 2412772

Anele Mpetshwa – 2387594

Marina Maema – 392178

Table of contents;
1. History and overview 3

2. Objectives of the program 4

3. Program evaluation 4

3.1. CEM Strategy 4

3.2. CRM Strategy 6

3.4. Strategy critique 7

3.4.1. Acquisition 7

3.4.2. Retention 7

3.4.3. Add-on 9

4. Recommendations 10

4.1. Data management 10

4.2. CRM and CEM Management 11

5. REFERENCES 14

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1. History and overview

The Pick n Pay Smart Shopper programme was launched in 2011. The
programme was modernised in 2017 in an effort to make it more relevant and
cost-effective. The modernisation of the programme also meant that customers
enrolled on the programme could earn greater personal discounts than before.

At inception, the Smart Shopper programme gave customers 1 point for every R1
spent in store, thus customers could get R10 for 1000 points. This meant that
customers earned 1% of their cash back. Over the years this has changed,
customers now get 1 point for every R2 spent. This effectively means that
customers get 0.5% cash back. Despite this change, however, the Smart
Shopper programme continues to be a favourite in South Africa. This was proven
when the programme was voted the best loyalty programme in South Africa for
the 6th consecutive year in 2019.

Previously customers could only collect points from swiping their cards at Pick n
Pay, but the company has now engaged partners in an effort to make sure that
customers get more from the programme. Meaning that customers can now earn
points from BP, Europcar, Tyme Bank and Planet Fitness. Further, customers
can redeem their points and spend in store or they can use these points to get
discounts from Steers, Spur, Ster Kinekor, Wimpy, Netflorist and Intercape.
Customers can further use their points to donate to charities such as the
Mandela Day Food Drive, SPCA, Pick n Pay School Club and Age in Action.

Points are loaded on the card 5 days after purchase has been made and these
points are valid for up to 12 months from the date they are loaded. Pick n Pay
currently has over 7 million Smart Shoppers and these accounted for 65% of
sales in 2018. In 2019 the company spent R6.6 billion in personalised value for
Smart Shoppers and redemptions grew by 30% compared to the previous year.

Pick n Pay uses the Smart Shopper programme to engage with customers. This
is because through the programme, the company can track all transactions made

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 by the card holder thus gaining insights on customer lifestyle, value, age, gender,
shopping times as well as which products are bought together. This information
allows the company to target the right customer through the most suitable
channel for them. Customers receive a personalised message weekly, with
discounts on the items most relevant to them. The Pick n Pay Smart Shopper
programme has evolved to allow “cardless swipes” using the Smart Shopper
App. Further, the programme allows different members of the household to each
have a card, linked to the main card holder as this ensures more points are
always earned that a member uses their card.

2. Objectives of the programme;

Pick n Pay was the first retailer in South Africa to reward customers for every
purchase made. Dowling and Uncles (1997) state that loyalty programmes allow
companies to have a strong CRM with customers thus ensuring return business
and repurchasing. Duffy (1998) adds that loyalty programmes have been used by
companies to ensure a competitive advantage and customer retention through
creating strong relationships.

The Smart Shopper programme sought to;

 Enable Pick n Pay to have a competitive advantage, through attracting new

customers and customer retention.
 Reward customers for every purchase made.
 Enable Pick n Pay to offer personalised discounts to customers through
learning their purchasing behaviour.
 Enable Pick n Pay to communicate with customers.

3. Program evaluation

3.1 CEM Strategy

Customer equity measures the total value of all customers and retailers use it to
measure the expected future behavior of their customers. This concept is based

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on the 3 equity drivers which are value equity; brand equity and relationship
equity. The value equity is the main driver of the smart shopper loyalty program.
Customers want to spend their money in a retailer where they can get value of
their money back. The relationship equity (Retention Equity) is created from
customer’s intentions to maintain a relationship with a brand, over and above the
value customers derive from their objective and subjective assessment of the
brand (Evanschitzky et al.., 2011). When Pick n Pay customer see value equity
from buying at the store a strong relationship between the retailer and the
customer will develop and it will increase more repeat purchase thereby
increasing the Customer Life Time Value. Customers are involved in repeat
buying when they are satisfied with the product and the customer service they
receive from the firm.

Rust et al..(2000) argues that a firm’s retention programs and relationship

building efforts can build equity by conferring tangible (e.g loyalty program points)
and /or intangible benefits to its customers. In order to strengthen such
relationship equity most retailers like Pick n Pay uses key levers like smart
shopper loyalty programs. This loyalty program maximizes the likelihood of
retaining customers and the size of their future purchases. Program loyalty is a
far more important driver of purchase behavior. This implies that company loyalty
primarily attracts customers to a particular provider and program loyalty ensures
that once inside the store, more money is spent (Rust et al..2000; Lemon et
al...2001). Pick n Pay uses their smart shopper loyalty program in Acquisition,
Retention and Cross selling to their customers. Customers get attracted to Pick n
Pay by the rewards of the points they get with each purchase when they swipe
the card. They acquire new customers through this loyalty program by signing
them up so that they can retain them and encourage the repeat purchase to earn
more points.

According to Rust et al..,2001; Lemon et al..,2000, for loyalty programs to be

effective, three criteria must be met. First, customers need to earn points
frequently enough to accumulate enough rewards. Second, the rewards must be

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perceived as meaningful and worth receiving to customers. Third, the firm’s
margins of its goods or services need to be high enough to justify a loyalty
program. If these conditions are not met loyalty programs may deteriorate into an
industry-wide prisoner’s dilemma game where firms suffer from being forced to
fight loyalty wars and from eroding margins.

3.3 CRM Strategy

Figure 1. CRM Strategy Mix (Frow and Payne 2009)

The above diagram (figure1) shows the type of the CRM strategy that is currently
being adopted by Pick n Pay through their smart shopper loyalty program. With
this CRM strategy Pick n Pay uses the data they have for their customers on
smart shopper program to profile them in segments as per their interests,
shopping behaviors/ patterns. By segment the customers on characteristics helps
the firm to know on which customers to invest more on and which ones are
regular buyers not to invest more in customizing their relationships. Pick n Pay is
currently making use of such data to send weekly specials brochure to customers
by analyzing or observing the data of their previous buying patterns. In addition,
they make use of such data to cross sell and upsell to their customers. They use
the data to entice customers to buy similar or other recommended products.

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Looking at the way they are using customer data from the smart shopper
program, Pick n Pay are slowly moving into the individualized CRM strategy,
though they haven’t got to a point of providing highly individualized customer
service.

3.4 CRM strategy critique

There are 5 stages in a CRM strategy for loyalty programmes these are:
emerging, basic, competitive, highly developed and best practice (Lesoba
Difference, 2020). The Smart Shopper programme is a basic programme where
campaigns are knowledge based and the IS level of sophistication is
comparatively low to their competitors noticeably Woolworths which has a highly
developed CRM system. The current CRM strategy Pick n Pay uses has several
benefits however, there are several features that the company needs to address
in the current strategy that is being employed. Despite the high uptake and
activity on the Smart Shopper loyalty programme, the programme has
weaknesses.

3.4.1 Acquisition

For customers to sign up for the Smart Shopper programme, they are required to
do so in store where they will fill in a form and provide their personal details
where a cashier will assist them, and only then will they receive a physical card.
While customers can begin earning points immediately after they have received
the card, it means customers that begin their shopping experience online, are
unable to start earning points because the process begins in store with a physical
card.

As an acquisition tool, Smart Shopper does not offer anything distinctly different
from its competitors to drive people to move from one loyalty programme to this
specific one, which poses a problem. In comparison to the Woolworths Rewards
programme that offers an instant 10% off upon registration, Smart Shopper
customers only receive benefits once they start accumulating points and there is
no instant motivation to begin to use the programme.

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3.4.2 Retention

Retention is the most important reasons for having a loyalty programme. It is

important for companies to attract new customers but more importantly is to
retain the base. High customer retention helps ensure profitable growth in the
company. There are a few aspects of Smart Shopper that hinder the active
engagement and retention in the programme. Once customers have successfully
opted into Smart Shopper and begin to earn points through their various
purchases, the points achieved only reflect after 5 days after purchase. This
means that the customer is unable to utilize the points they have until this 5-day
waiting period has lapsed. This does not provide for a seamless customer
experience with the loyalty programme.

While the mechanism of the loyalty programme is very direct, customers earn
points from purchases made at the stores or at the BP filling station, nothing else
is involved. The lack of gamification or any form of competitive elements does not
give consumers any other reason to remain on the programme other than to
continuously collect points to later redeem. According to Hwang & Choi (2020,
p.365) gamification involves “taking the essence of games–fun, play,
transparency, design and challenge–and applying it to real-world objectives
rather than pure entertainment”. The lack of gamification in the loyalty
programme denies the user of a more enjoyable experience; customers are likely
to respond more positively to loyalty programs that have a gamification
component to a conventional one (Hwang & Choi, 2002, p.373).The absence of
this from Smart Shopper leaves the Smart Shopper at a disadvantage to more
engagement in the programme.

The points accumulation process of 1 point for every R2 spent from a customer
perspective given the pricing that Pick n Pay has on its items means that
customers could feel that they do not see value in Smart Shopper as it takes a
significant amount of time and a significant amount of purchases in order to get
anything worth redeeming; there is a low reward percentage. Customers that
have been using Smart Shopper for an extended period, do not have any

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incentive to keep the same card or the same number. There are no guaranteed
benefits for staying loyal to the programme or anything that is offered to active
members to recruit other people.

3.4.3 Add- on

Pick n Pay is one of the largest supermarket chains in Africa and has a
significant presence across the SADC region; notably in Common Monetary
Areas (CMA) Lesotho, Namibia and Eswatini. The presence of Pick n Pay in
these countries has allowed the company to expand its footprint and gives the
people in those countries access to the loyalty programme as well. However,
despite Smart Shopper being available outside of South Africa, consumers are
unable to earn points or to spend any of their smart shopper points. This is a
missed opportunity particularly in the CMA because there is no need for currency
conversion and while the stores in the different countries provide the same
experience that one would get in South Africa, the lack of inclusion of Smart
Shopper is a weakness of the programme. Smart Shopper points could be
earned according to rules of home country and entice customers who are
shopping in the different countries to remain shopping with Pick n Pay as they
will still be receiving the same benefits.

Query resolution for a customer would involve going on to the website, contacting
the customer care line and engaging with Pick n Pay on social media. The digital
channels are used as general communication channels and not there is not
enough to address any direct communication channels with the patrons with no
dedicated channels directed specifically for smart shopper

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4. Recommendations:

4.1 Data Management:

Pick n Pay smart shopper is said to currently have a book of 7 million registered
participants or smart shoppers as they are often referred to. The 65% recorded
sales from smart shoppers in 2018 is also quite commendable as it then does
indicate that customers still see value in the program and that there is active
participation despite revised points back.

Added to what Pick n Pay is already doing we also recommend a few things
which could add value to the program and assist them with their customer
retention over a period of time. First; we propose that they perhaps revisit or
review their current dormancy policy which accommodates shoppers in their
books or database for a period of 24 months before ultimately deactivating their
smart shopper cards. Our view is that 24 months is a very long period and has
the potential of inflating the base with inactive cardholders. We recommend that
they look at shortening it to between 6 and 12 months as that may provide an
accurate account of customers activities. Someone who has not transacted for 6
months or longer is in our view as good as lost to the program.

We also recommend that they explore ways of rewarding the purchase frequency
as that speaks to genuine loyalty by a customer. These could be in a form of
further instant rewards or even spot prizes. Surely someone who purchases
more frequently deserves some form of appreciation compared to other

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customers and it also goes without mention that that token of appreciation will
also encourage them to remain loyal to the brand and not just the program.

Pick n Pay, through its smart shopper, also has an opportunity, presented by the
extensive database, to proactively engage at various stages of their program
membership or through a display of certain purchase patterns. For instance, a
not so active cardholder can be proactively engaged in efforts of improving their
frequency of purchase. Similarly; a frequent shopper can also be engaged
through messages of appreciation which could go long way in retaining them.

4.2 CRM & CEM Management

According to Pick n Pay, there were 8.9 million Smart Shopper cardholders in
South Africa in 2015 (Pick n Pay, 2015); the 2019/2020 financial report suggests
7 million Smart shop cardholders, which is a slight decline comparatively. Despite
Pick n Pay Smart shopper being the second highest loyalty program in terms of
activity of 85% in South Africa; the current statistics do however suggest a
noticeable decline in activity since the points back model or approach was
reduced in 2015. Some research studies such as the one conducted in Cape
Town by Jessica McCulloch titled “the effects of the Pick n Pay Smart Shopper
programme on customer brand loyalty” does reveal that most of the respondents
did not find the points or cash back percentage that attractive or motivating.

In the context of this slight decline in activity or usage over the past few years;
we therefore propose a few recommendations for Pick n Pay’s consideration as
part of their Smart Shopper program and they are as follows:

Pick n Pay Smart Shopper consider enhancing the rewards for online smart
shoppers, in particular, from the 1 point per R2 spent to the previous 1 point per
R1 spent, as this will not only assist them with the digital adoption but it will also
assist the program with driving increased online participation and take up,
especially now under Covid 19 and even beyond as most retailers globally are
shifting to online platforms as a way of decongesting traffic in their physical
stores. So, we suggest that Pick n Pay utilize the Smart Shopper program to

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entice a change in customer behavior as their online participation is also not as
high comparatively. It can be achieved even if they restrict to just a year in order
to manage the rewards costs. This approach would be similar to how most banks
such as standard bank are approaching the issue, by rewarding credit card
purchases more than they do for debit cards because that is the behavior they
are driving as credit card is more profitable for banks given profits made from
interests.

Pick n Pay to explore various ways of incentivizing smart shopper registration or

take up as a way of enticing non-members. Again; these may be in a form of spot
prizes or 500-1000 points immediate availability during sign up. These may assist
Pick n Pay with ensuring that they can arrest their current slight decline seen on
their base. This approach of signup incentive could also serve as a once-off
induction for new joiners of the program which is still a very reasonable and
affordable acquisition drive considering how expensive it is to recruit new
customers.

Pick n Pay Smart Shopper has another acquisition opportunity in a form of group
savings schemes or stokvels as they are popularly known in South Africa.
Stokvels, particularly groceries stokvels groups, do participate in bulk purchase
at most retailers, including Pick n Pay. This mostly occurs towards the end of the
year or the beginning of the year for some. Smart shopper is in its current form
not catering for stokvels despite their huge spend. Perhaps Pick n Pay should
begin to look at how they can incorporate them in Smart Shopper program as
part of their CRM strategy to ensure that they only retain them, but to also attract
other stokvel groups that are currently buying from competitors such as Makro,
etc. Herein also lies an opportunity to not only lock the stokvel itself but to also
strategically acquire members of the stokvels themselves as individual shoppers.
It is said that a stokvel has an average membership of between 15 to 27
members as revealed a study on stokvels conducted by fin24 around financial
inclusion and the informal economy.

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There is also an opportunity for Pick n Pay to explore enhancing their
personalization through bespoke or tailored messaging or communications to
their base or Smart Shoppers on significant days in their lives such as birthdays,
etc. and then offer them points or discounts offers. These efforts could go a long
way in making customers feel special and their birthday being memorable. The
database already does possess the customers’ date of birth and/or identity
number and there won’t be any extra effort required in building such a capability.
Makro, as one of the competitors, are already doing something similar for their
customers on their birthdays whereby they provide them with between a R50-
R100 off on their birthdays.

Cross border integration, particularly for CMA countries (Common Monetary

Areas), also presents a unique opportunity for Smart Shoppers across these
aforementioned areas to accumulate/earn and redeem their points. Pick n Pay as
one off the large retailers with presence in most countries in the continent could
find this suggested interoperability of their systems and their designs to be of
significant value to their customers across the continent, particularly CMA
countries where there’s no exchange applicable. Pick n Pay currently has a
separate smart shopper program per country in the continent where they have
presence.

Introduction of other forms of non-financial rewards for smart shoppers could also
go a long way and become a valuable milestone for most customers. This is
especially quite vital now as most smart shoppers are beginning to closely
scrutinize the 1 point per R2 reward as being insignificant. These non-financial
rewards could be in a form of spa voucher, weekend away, etc. Others reward
partners could also be encouraged to participate and share the costs for such
rewards in order to ensure costs containment.

Jessica McCulloch study also interestingly revealed that some of respondents

expressed some appetite for a tiered loyalty system. In their own words;
respondents feel that they should be given a higher point to rand percentage
based on their amount and frequency of spend. In other words, Pick n Pay

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 should use a tier loyalty system, whereby customers earn higher points on their
spend based on the frequency and amount spent at Pick n Pay, i.e. Someone
who spends R3 000 a week at Pick n Pay is level gold and earns R4 worth of
points for every R100 spent; someone who spends R1 000 a week at Pick n Pay
is level silver and earns R3 worth of points for every R100 spent, a person who
spends less than R1 000 is level bronze and earns the current R1 worth of points
for every R100 spent.

5. References

Hwang, J. & Choi, L., (2020) “Having fun while receiving rewards? Exploration of
gamification in loyalty programs for consumer loyalty”. Journal of Business
Research. 106(1), pg.365-376.

McCulloch Jessica, A TRIANGULATION STUDY TO EXPLORE THE EFFECTS OF

THE PICK N PAY SMART SHOPPER PROGRAMME ON CUSTOMER BRAND
LOYALTY 2016

Eighty20 & tritech media; 2018 loyalty programme member engagement survey,
2018

Payne, A. F .T. and Frow, P. E. (2005): A Strategic Framework for CRM, Journal of
Marketing, 69 (4), pp.167–176.

Thakur, R., Summey, J. H. and Balasubramanian, S.K. (2006): CRM as Strategy:

Avoiding the Pitfall of Tactics, Marketing Management Journal, 16 (2), (Fall), pp.
147–154.

Rust, R.T; Zeithmal, V.A and Lemon, K.N (2000): Driving Customer Equity, New
York; Free Press

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Uncles, M. D., Dowling, G. R., & Hammond, K. (2003). Customer loyalty and
customer loyalty programs. Journal of Consumer Marketing, 20(4), 294–316.

Vogel, V; Evanschitzky, H and Ramaseshan B (2008): Customer Equity Drivers and

Future Sales, Journal of Marketing, 72, pp 98 -108

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