Loyalty Program Primer

An article on loyalty (लोयाल्टी for vishesh) programs, that I liked.

It appeared in Mint, sourced from WSJ, Oct ०६ (Vishesh, ६ अक्टूबर), called loyalty plans need to be customised. Can't find the link on the net.

It talks about rewards along two lines -

Tangible and Intangible; and Intrinsic and Extrinsic.

Intrinsic rewards are along the line of the customer trip type (further explained below), while the latter are outside it.

For definition,these are the trip types and their intrinsic rewards:

Hence, or a guy who's come to buy the milk and eggs that he’s run out in 7-11, the trip type is functional – he wants to get in and get out quickly – and the best award will be faster checkout. Giving him a price discount (the most common easy way out approach adopted by retailers) He might buy the promoted item today,but that would not be reinforcing his natural shopping motivation in your store. Because the focus is on the product offered, and not the brand of the store that the customer perceives.
Tangible awards work in low involvement purchases (detergent bar-soap) while intangible awards more in high involvement. Too easy to mull over.

Liked this article. By the way, in case you’re wondering how to identify a trip type of a customer, there are ways (clustering and segmentation on customer type and trip type and then a matrix to define which customer makes what sort of trip).

Sneaky Pricing strategies

I normally don't discuss my work here. But I found these tips to be very common-sensical. Which is what I like about my industry - retail: it touches our everyday life immenself.

Sneaky Pricing strategies

1. Irrational pricing is putting the price of items at say $4.95 instead of $5. The reason is based on memory processing time. Rounding upward involves an additional decision compared with storing the first digits. Furthermore, due to the vast quantity of information available for consumers to process, the information on price must be stored in a very short interval. The cheapest way to do so, in memory and attention terms, is by storing the first digits. Customers think they are getting a better deal than they in fact are. (Besides, by pricing like this, you force the cashier to make change, reducing opportunities for fraud.)
2. The purpose of the discount vouchers is not to save customers money, but to get them to buy products they don’t normally buy, or to buy more of it. Look again at the terms/ offers associated with your loyalty card.
3. Eye level is buy level: Products positioned at eye height sell twice as well, so place your highest margin (not most expensive nor most popular) items there.
4. Known Value Items (KVIs) can be sold below cost to try to beat the competition: these are loss leaders. Margins must be increased by raising prices on other items that are not KVIs, and then upsold with the loss leaders. Consumers exaggerate the perceived value of the savings and tend to spend (more than) they thought they saved. NEVER run a loss leader on an item that os not a KVI.)
5. Buy one Get one free ('BOGOF') has been shown to increase purchases by up to 150%. Unlike 50% off, which actually does save money, 'BOGOF’ deals accustom consumers to buying more of a product than they normally do, so when the offer ends they are likely to carry on buying more.
6. Value add or bundling. Bundle a few complementary products in one package and charge marginally less. Or, add value by slicing/ opening/ cleaning/preparing a product. Anything that spells convenience is worth extra dough – and well beyond the cost of adding the value.

CPI-M on retail

The Red brigade has come up with a masterplan to "regulate" retail. Defiant and obstinate in the face of overwhelming evidence from the brief economic history that India has bore, they actually have the chutzpah to suggest going back to the licence raj regime: a regime which set back development by decades and deliberately shortsupplied generations of consumers.
Another point to note is the smug and naive belief that the very thought of breathing life into a dysfunctional governement entity suffices; the abracadabra too trivial to bother about. Contrast this with the frantic sops being offered in private retail these days to acquire and retain even talent.
Where is the "new" PSU going to get the people to create an entity that can give the Tescos and the Walmarts a run for their money? The present flock, clearly, is too incapacitated to effect that. The answer is obvious, analogous as it is to the "post-liberalization" oil sector. Sops, blatant taxpayers' money-backed sops in the form of subsidies and favored access to distribution: in the face of the PSU's inability to manage half the efficieny in supply chain and distribution of the private-sector competitors; even at twice the cost and thrice the manpower.
Hoping (more foolishly, I feel, as each day passes) that with the dawn of the age of reason, mankind is in the path of slow and steady progress in thought and lifestyle, with a few hiccups here and there, I believe that in a few centuries, when we have finally disposed off these ignoramous, wasteful and self-defeating idealogies, such policies will be viewed in the same rueful light as the inquisitions. Doing irreversible damage to humanity and the cause of reason for the sake of petty politics, miseducated charity and obstinacy to change.

NEW DELHI, MAY 30: After its opposition to FDI in retail trade, the CPI(M) has now prepared the ground for regulating the entry of corporates in the sector by suggesting a system of licensing for organised retail. It has also called for the Government’s intervention to prevent “private monopolies” from developing by asking the Government marketing agencies to compete with large private retailers. It even suggested ways to create big public sector retail chains. Building on the argument that small retailers need policy support to fight organised retail in the light of their falling numbers and the use of monopoly buying power by organised retailers, the party’s framework for regulating organised retail includes a system of licencing in cases where retail outlets went over the “appropriate minimum floor area”. According to the National Policy on Regulation of Organised Sector in Retail Trade: A Proposal, which the CPI(M) has evidently aimed at private players and plans to circulate among political parties for a full-fledged discussion, corporate entities should not be allowed to operate retail outlets below a minimum floor area. Party General Secretary Prakash Karat said the proposals came against the backdrop of the growing retail trade network since the UPA came to power. “We are writing to all political parties. We feel we have made a case for stringent regulations in this and have argued for a licensing system for the entry of the organised sector in retail trade,” Karat said. The proposal says steps should be taken to prevent single large format retailers from entering the market and framing of guidelines to prevent predatory pricing. It suggests ways in which “decaying” government marketing agencies can be revived to compete with the private retailers. “Consolidation of several government marketing agencies in order to create a few public sector retail chains should be seriously considered, which can also invest in developing modern supply chain infrastructure,” the proposal says, while including suggestions for safeguarding farmers interests. Red retail • Authority to grant licences should be with the urban local bodies and there should be transparency in granting licences • A process of open bids to be considered • Separate licences for each format for organised retail based on floor area • Slabs for different retail formats, like discount stores, supermarkets, hypermarkets and shopping malls, also based on floor area • A cap on number of licences that can be given in an area, using the population criterion • Larger retail outlets to be kept out of existing commercial zones and where they are not, the retail outlets should share space at concessional rate with small retailers