Loyalty Program Overview

Almost 80 percent of shoppers in the Europe now belong to at least one loyalty program 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 analyze how advances in customer data collection are helping some companies to revise their Loyalty business strategies in different ways. There are frequent shopping programs, frequent flyer programs, frequent mall cards and frequent petrol programs. There are points at the pump schemes, Service tax holidays and, some of them even donate to charities like CRY for people who use their Credit card reward points. There are plastic cards, smart cards, thermal cards, magnetic strips Co-branded Credit Cards. 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 Europe consumers now have at least one loyalty card or program of some kind, and the number of people with two or more is estimated to be one-third of the shopping population and research suggests the loyalty card explosion is showing no signs of letting up anytime soon. Credit Card companies are offering programs by tying up with various Shopping establishments to offer discounts and lure the customers towards using their shops and Credit Cards. While loyalty cards, Shopping Festivals and prizes have always been, first and foremost, a cheap way for businesses large and small to start tracking their customers shopping habits, more customers than ever now consider themselves entitled to special treatment, a marketplace psychology spawned in the 1980s by the airline industry's invention of frequent flyer miles, one of the first loyalty programs. Originally devised to generate better data on the most popular routes, the airlines broke what was a "one price fits all" standard and introduced a "some people are more special 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. Some shopping establishments say their loyalty program is key to new revenue growth. Thanks largely to the data analysis of the data collected these companies have boasted retention rates and highest profit per customer in their respective industries even during tough economic times and cutthroat markets. But the majority of companies are still struggling to get it right.

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

You need the hearts and minds of the customers to close the loyalty gap. This loyalty gap can be particularly pronounced in industries where competition is harshest and growing. lose up to 40 percent of their new customers within three months. Rewards programs cost companies. In fact. Data shows truly loyal consumers are 15 times more likely than high-risk customers to increase spending with a particular store. in making the recommendation. between 2 percent and 10 percent of a customer's total spending at a given store. Once you have identified the top 20 or 30 percent of your customers. Customer defections have a surprisingly powerful impact on the bottom line." What does this mean for the bottom line? Learning to play the loyalty card game better can help companies reap big cash rewards. such a recommendation is one of the best indicators of loyalty because of the customer’s sacrifice. external data- . Loyal customers talk up a company to their friends. but are less than pleased with the relationship they now have with them. Food retailers. Many companies also tend not to do enough with their loyalty program data to make the customer feel special. but they've not yet figured out how to earn loyalty anywhere near those levels. on average. many companies tend not to market to the bottom tier because it's not economical. and colleagues. the average growth rate more than doubles. Knowing this could mean millions of additional revenue for companies. if you will. Most customers continue to do business with the top retailers. One of the big benefits of a successful loyalty card program is that stores can quantify new-customer losses and introduce programs designed to retain or woo back the most profitable. But don't underestimate the value of trying. When customers act as references. That means most retailers cannot count on their customers being loyal they are venerable to competition. family. they put their own reputations on the line. Profits rise as a customer's relationship with a company lengthens. and end up leaving a majority of their customers frustrated or unable to accrue enough points to make participation in these programs seem like a real advantage. while most customers are satisfied with the relationship they are not loyal. one has no clue about the size of the inflow and outflow of new customers. It's not enough to have CRM. for example. IT needs to take the lead in loyalty programs because it's just about the only department that can coordinate between business processes. The tendency of loyal customers to bring in new customers at no charge to the company is particularly beneficial.and who are intent on maintaining the relationship and continuing it into the future. And they will risk those reputations 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 between customers who would recommend a particular business to friends and those who would not. "Without a loyalty card. when defections are cut in half. Many companies have figured out how to deliver satisfaction. they do more than indicate they’ve received good economic value from the company.

it is also likely to increase smartphones sales and consequently boost Vodafone’s revenue from advanced data services. its objective goes further—encouraging customers to upgrade their mobile phones. But that’s not enough— the operators know they need to keep their clients spending too. a postpaid customer can get a Nokia N95 for “free” for 9. customers get certain discounts. further awards. Exhibit 1: Vodafone Puntos handset upgrade program Source: Vodafone So far the program has met its main objective. increasing Vodafone’s subscriber total in Spain by 0. followed by Italy and the UK with 1% declines. For example. are likely to collect the most valuable prizes. What doesn't work anymore is treating all customers alike.2% in 2009 and by 1% in 2010. Vodafone Puntos is simple: The operator awards points to its most loyal customers. for instance. While the initiative is clearly having a positive impact on the operator’s market share. 2009 With GDP in Spain expected to contract by 4. such as free .600 points (see Exhibit 1). but also in light of the performance of other Vodafone subsidiaries in Western Europe: the operator reported a decrease in the number of customers in several large Western European markets. and those who spend more. Spanish mobile operators are finding that recruiting new customers has become a challenge and are going the extra mile to retain existing ones. Vodafone Spain is killing both birds with one loyalty program: Vodafone Puntos. Those who remain with Vodafone the longest. This is remarkable not only considering the hard times the Spanish economy is going through these days. Vodafone’s customers were given the opportunity to use points to upgrade their handsets. Vodafone’s German operations. reported a Q2 decline in the number of customers of almost 2% from Q1. Although the Puntos program has been successful in terms of churn stabilization.5% in the quarter ended June 2009. Vodafone kills two birds with one customer loyalty program August 20.analytics vendors and the executives who can translate output into action. Most recently. and by accumulating a specific number of points. For those who use up their points to upgrade their terminals.

By focusing more on keeping their most lucrative customers—smartphone users—as well as on increasing their numbers by promoting handset upgrades (as Vodafone seems to be doing) and on encouraging customers to use their mobile data networks. facing increasing churn. this strategy is. await. By maintaining a stable market share in Spain now. we believe. In other words. . the best way to address the economic situation and prepare for post-recession growth. it is likely that the operator’s advanced data service metrics will improve too. are engaging in more aggressive customer retention strategies anyway.nights in a hotel. I believe Vodafone Spain is making a wise choice even if this means giving up on some profits in the short term. Vodafone will see strong post-recession growth. Furthermore. As more customers opt for high-end handsets such as smartphones. today’s short-term survival strategy will turn into a winner in the medium term. For a more detailed analysis see Pyramid Research’s new Europe Insider . Most European operators. the operators should understand that more advanced handsets in the hands of its customers translate into more usage of advanced 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. While more promotions sounds like a risky move in this economic climate. operators will keep their margins comparatively stable in the current economy and increase them once the economy improves. Q2 2009 While it may sound paradoxical that mobile operators should forgo revenue now by offering subsidies on the most expensive handsets.

they are based on extensive field research and a consistent methodology that is applied to all markets. Italy. by feature set). offering guidance to on how to mitigate the effects of the economic slump and prepare for post-recession growth. The Excel output includes five years of historical data and five years of market projections for metrics such as total handset sales. and a consistent methodology that is applied to all markets. handset sales by network technology. by technology generation. We believe our Handset Forecasts are superior because they capture sell-through (units sold to end users) rather than unit shipments (sales from manufacturers to distributors) and rely heavily on our Mobile Demand Forecasts. we believe market participants should implement strategies that are more likely to maintain sales volume during the downturn and expand business once the economy improves. Central & Eastern Europe Mobile Handset Forecasts Forecasts published quarterly Our Mobile Handset Forecast products provide complete pictures of handset sellthrough in each of four Central & Eastern European markets. Moreover. Spain and the UK. Western European Mobile Handset Forecasts Forecasts published quarterly Our Mobile Handset Forecast products provide a complete picture of handset sellthrough in each of France. Senior Analyst Related resources: Europe’s Smartphone Market: Sustained Growth Is at Risk Europe Telecom Insider published August 2009 While vendors and operators are still seeing smartphone growth despite the recession.— Stela Bokun. Germany. smartphone handset sales. by technology generation. handset sales by network technology. handset sales by network technology. Moreover. smartphone handset sales. new handset sales (by technology. The Excel output includes five years of historical data and five years of market projections for metrics such as total handset sales. by feature set). Latin America Mobile Handset Forecasts Forecast published quarterly Our Mobile Handset Forecast products provide a complete picture of handset sellthrough in each of 18 Latin American markets. This Insider examines the impact the economic downturn will have on European smartphone sales in the medium term. Nokia and RIM. We believe our Handset Forecasts are superior because they capture sell-through (units sold to end users) rather than unit shipments (sales from manufacturers to distributors) and rely heavily on our Mobile Demand Forecasts. vendor market share and handset ASP. they are based on extensive field research. new handset sales (by technology. new handset sales (by technology. by . vendor market share and handset ASP. The Excel output includes five years of historical data and five years of market projections for metrics such as total handset sales. It provides Pyramid Research’s five-year forecast on smartphone adoption in Europe and examines in more detail the market-positioning strategies of the leading smartphone vendors: Apple.

. from the point they join Vodafone Advantage. 10 air miles for each quarter they continue to subscribe to Vodafone. and a consistent methodology that is applied to all markets. a loyalty program for existing and new subscribers. The program. cruise and ferry travel and other bonuses.8 million customers in the United Kingdom through a direct mail invitation. Moreover. Vodafone first will offer the program to its 2. customers in the program earn one air mile for every [pounds]10 spent on calls and line rental. They also earn 10 air miles for joining the program.technology generation. Air Miles Travel Promotions Ltd Vodafone Group Plc. and 10 air miles on every anniversary of when they joined the loyalty program. discounts on holiday travel packages. by feature set). awards air miles based on airtime usage and other promotions. Vodafone builds loyalty with Air Miles program Vodafone Group PLC. they are based on extensive field research. which is offered through an exclusive agreement with Air Miles Travel Promotions Ltd.. vendor market share and handset ASP. We believe our Handset Forecasts are superior because they capture sell-through (units sold to end users) rather than unit shipments (sales from manufacturers to distributors) and rely heavily on our Mobile Demand Forecasts. smartphone handset sales. hotel discounts. theater and theme parks. The air miles can be used for British Airways flights. For example. [VOD] introduced Vodafone Advantage. tickets for the cinema.

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The Bonus Bank Bus will also be giving out one Sony Ericsson X10 daily to a lucky traveller who has registered for Bonus Bank. there are plenty of bonuses to enjoy. Nintendo games. The announcement: Sydney.October 13). Australia – 30 September. www. including. The Bonus Bank Bus will promote Vodafone’s new Bonus Bank loyalty program that offers real rewards aimed at prepaid mobile customers. Kit Kats and more. when it heads to Melbourne for an equally action-packed week (October 8. Time Out magazines.by sending a double decker bus on a tour of Sydney and Melbourne. Carman’s muesli bars. which was launched by model Jennifer Hawkins is filled with giveaways and freebies. “Vodafone’s Bonus Bank is set to buck general consumer perception that loyalty programs don’t really reward them. “Vodafone’s Bonus Bank Bus will be used as a vehicle to transform consumer perception that loyalty programs don’t reward customers. or through Vodafone’s website.vodafone. 2010: Jennifer Hawkins launched the maiden voyage of Vodafone’s Bonus Bank Bus. The Bonus Bank Bus follows the results of a Galaxy survey* which looked into Australia’s attitudes towards the value of loyalty reward programs. General Manager of Consumer Marketing. Membership is free and easy to set-up and access. The survey also found that 63 per cent would like dollars rather than points for rewards and 47 per cent want rewards that are more relevant to them. Vodafone will give customers 10 per cent of their recharge amount back in Bonus Bank dollars for customers to redeem or subsidise a handset of their choice from an extensive range of handsets available from Vodafone”. St Kilda Beach and many more locations. Sydney Harbour. Forget tricky points or complicated reward program structures. Hawkins and Australia’s hottest male bus conductors farewelled the Vodafone Bonus Bus on its maiden voyage with 20 lucky passengers joining the journey. a vintage double decker bus. The Vodafone Bonus Bank Bus tour will tour Sydney until Wednesday 6th October. Nando’s wraps and burgers. Vodafone said. are too complicated to use. for every prepaid Vodafone voice recharge. Vodafone is encouraging all its prepaid voice customers to join Bonus Bank. The bus. 10 per cent of the recharge amount is deposited into the customer’s Bonus . Federation Square. kitted out with ‘bonuses’ today. Boag’s beer.Vodafone launches loyalty program ‘Bonus Bank’ Vodafone is promoting its new loyalty program – Bonus Bank . Customers are asked to simply register for Bonus Bank by Texting BONUS to 126687. Each time a prepaid voice customer recharges.au/bonusbank. said Dureau. Whether you are enjoying the early commuter routes to work or a late night trips home after a long day. Vodafone’s survey revealed 81 per cent of respondents believe loyalty programs offer little benefit. News Ltd newspapers.com. and are mostly a waste of time. Krispy Kreme doughnuts. Anthony Dureau. Crust Pizzas. universities and key events in each city including the NRL Grand Final. Bondi Beach. The public is invited to experience the bus and its bonuses for free along commuter routes.

To ensure loyal customers are rewarded.Bank account as Bonus Bank dollars. Customers are advised to use their MyVodafone account details to login-in and access their Bonus Bank accounts. Exec utive . customers need to have saved $10 in Bonus Bank dollars and have held membership for 90 days before redeeming.

Recently. the telecom subscriber base exceeded the targeted 500 million almost 15 months before .sum mary The Indian telecom industry has been regularly beating targets.

CDMA and FWP wireless subscriber base has increase from 471.40 million at the end of October 2009 at a monthly growth rate of 3.53%. Vodafone Essar is the Indian subsidiary of Vodafone Group and commenced operations in 1994 when its predecessor Hutchison Telecom acquired the cellular license for Mumbai. Vodafone is the world's leading international mobile communications group with approximately 341 million proportionate customers as on 31 .73 million in September 2009 to 488.the end ± 2014 deadlines. it is estimated that India will have 800 million mobile subscribers in 2012.34 million customers. In wireless segment GSM. Going by the current growth. The company now has operations across the country with over 106.

and third largest in terms of customers.53 in quarterJune 2009.March 2010.500. It is the second largest mobile phone operator in terms of revenue behind Bharti Airtel. TRAI Report on the Indian Telecom Services Performance Indicate that Vodafone gross revenue change Rs 5.82 crore from quarter March 2009 to Rs 5. Vodafone Essar is owned by Vodafone 67% and Essar Group 33%. Vodafone currently has equity interests in 31 countries across five continents and around 40 partner networks worldwide. Vodafone Essar Digilink Limited operates as a subsidiary of Vodafone Essar Limited in Rajasthan.470. . UP (EAST) Haryana after acquiring AirCel Digilink in 2003.

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