UNIT 2 CUSTOMER RETENTION STRATEGIES IN RETAIL
* TOPICS IN THIS CHAPTER :-
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2.1 Introduction
2.2 Customer Retention
2.3 Customer Loyalty
2.3.1 Factors Influencing Customer Loyalty
2.3.2 Dimensions of Customer Loyalty
2.3.3 Stages in Loyalty Development
2.4 Customer Relationship Management (CRM)
2.4.1 Benefits of Customer Loyalty and CRM Programmes
2.4.2 Implementation of CRM Programmes
2.5 Tools and Techniques of Loyalty Programmes
2.5.1 Life time Value of Customers
2.5.2 RFM Analysis
2.5.3 Customer Pyramid
2.6 Customer Services
2.6.1 Types of Customer Services
2.6.2 Features of Good Quality Services
2.7 Summary of this Chapter
2.8 Very Very Important Questions
2.1 INTRODUCTION:-
- To remain competitive in a dynamic and increasingly multifaceted global setting, you need to create an environment in which your customers are at the center of every decision.
- The idea of having a customer-centric approach is the essential element for generating customer loyalty and retention.
- “It is known fact that a 5% increase in customer retention has been shown to increase profitability from 25% to 85%”.
- Customer retention in the marketing effort is considered to be of utmost importance and every marketing professional who knows the cost of acquiring customer will never give it a short treatment.
- In today’s context cost of acquiring customer is far greater than cost of retaining customer.
- Hence, customer retention is the most important part of marketing strategy of every brand as well as that of the retail stores.
- Customer retention ensures that the customer who has bought the product from a retail store or the concerned brand remains with the store or the brand for a fairly long terms.
- Hence, he/she has become loyal to the store or brand, and it is this loyalty that helps the retailer or the brand company to retain with it or the brand for a long time to come.
- “Truly loyal customers cannot imagine doing business with anyone else.
- They are your best means of advertisement because they have become advocates of your company.
- They bore their friends with stories of how great you are” (Shaun Smith and Joe Wheeler, 2009).
2.2 CUSTOMER RETENTION:-
- Customer Retention is a tactically-driven approach based on customer behavior.
- It’s the core activity going on behind the scenes in Relationship Marketing, Loyalty Marketing, Database Marketing, Permission Marketing, and so forth.
- Customer retention is the true indicator of predictable revenue and lasting profitability for subscription billing business models.
- Even the smallest increase in customer retention results in big revenue increases due to the power of Average Customer Lifetime Value (ACLV) which is the average amount of revenue the merchant receives over the lifetime of their relationship with a customer.
- There are four stages in customer relationship cycle which are discussed below:
- The above stages are in alignment with the concept of product life cycle, which states that there are four stages experienced by a product or brand viz. Product Launch; Growth Phase; Maturity Stage, and the Declining Stage.
- During the customer acquisition phase the retailer has to take great efforts in attracting the target consumers to the retail outlet, for which he has to undertake different kinds of promotions so that the customers take effort to visit the retail store and browse through the range to identify the products that can suit his needs.
- The customer, if he is already a buyer of such products from another retail outlet, then the retailer has to undertake special effort, through his sales representatives, not only to convince the customer about the suitability of the product range that can meet customer’s expectation; but will also have to convince customer about the special benefit if any of buying from the concerned retail store.
- Thus, in this stage transactional benefits like special customer attention and service, offer of proper collection/range in the product of interest to the customer, special promotional offers if any, retail store ambience, etc. play very important role in the acquisition of the customer.
- During the customer development phase the retailer tries to make more offerings to customer through up-selling or cross selling thereby trying to develop customer relationship through more number of transactions, and getting the customer back into store for more purchase transactions.
- This is another important part of customer acquisition.
- Here the focus is to make the customer more familiar with store’s offerings and the staff and his/ her experience in the store.
- Thus, setting a stage for converting the customer into a loyal customer.
- The stage after the development is the retention, which every retailer wants to keep it as long as possible, and will make every effort to retain the consumer for a longer period either attached to the retail store or the private labels sold through the retail outlet.
- The retailer makes every effort to stabilize the relationship, and builds trust for its products, store image and services in the mind of the consumer.
- This feeling of trust develops into commitment between the consumer and the store towards each other.
- In order to retain the customer the retailer introduces the customer to its loyalty programmes or other such similar programmes.
- Thereby the retailer provides recognition to the customer for remaining loyal to the retail store or to its products.
- The customer’s continued loyalty is recognized through a series of upgradation in the loyalty program benefits.
- For example, in many large format stores the customer is normally introduced to its classic loyalty program as part of its introductory plan.
- This is upgraded to the silver grade on reaching certain cumulative purchase value.
- There after further upgraded to Gold grade on meeting the cumulative purchase value norms.
- Through different upgradation in the loyalty programs the customer is indirectly informed about its importance to the retail store.
- He/She is also introduced to certain added benefits both through direct transactional benefits in terms of additional bonus points against purchases, as well as non-transactional benefits like special exclusive services and treatment in the store.
- Normally, the technique of offering loyalty program for retention of customer for a very long time is adopted by large format stores and branded exclusive outlets, which have chain of stores.
- As such type of loyalty programmes need a wellorganized point of sales software that can manage the loyalty program data systematically.
- The retailers belonging to other formats, like standalone retailers, kirana stores too have a method of keeping the loyal customers attached to their stores.
- They may offer benefits like special price discounts up to 5% to 10% to the repeat purchasers or regular customers; or offering free home delivery, and delivery of merchandise against phone orders.
- These facilities provide customer not only convenience but gives him/her a feeling of prestige and ego satisfaction, due to differential treatment.
- Thereby, reinforcing, the sense of loyalty, trust, and commitment in the mind of customer.
- Besides, loyalty programmes as above, the retailers also make use of “Customer Response Management” (CRM) technique, by providing loyal customers with information about different schemes and special offerings, besides updating customers with new product offerings.
- Though CRM is basically meant for creating awareness of the store or brand and its offerings.
- In other words it is a mean to acquire customers, but by making use of the available data on customers (mobile numbers / land line numbers, e-mails, addresses, birth dates, wedding anniversary dates etc.) and the special offerings.
- Under the loyalty program the retail store can convert it into an effective means of propagating and enhancing loyalty among its customers.
- Thus ensures that the customer is indirectly kept in the loyalty loop through indirect reminders (through various modes and channels) that he/she is a loyal customer of the store or the brand and must remain in touch with the same, whenever he/she decides to make purchase.
- Thus, simply we can say “Customer Retention is the effort undertaken by a retail store to retain its customers by all possible means that will ensure stability and profitable growth of the retail store”.
- The stage that comes after customer retention is that of customer decline, which is the most dangerous stage for a store.
- It happens because the customer thinks that the store no more satisfies the needs for which he was patronizing it, or there is change in consumer taste or preferences or shift in population.
2.3 CUSTOMER LOYALTY:-
- As per the Madaan KVS, written in his book ‘Fundamentals of Retailing’, Ch 16, pp 264, Tata McGraw Hill, New Delhi, 2009.
- “Customer loyalty is the belief of the customer in supplier‘s offer, the belief is based on value proposition and it usually results in the repeated purchase behaviour”.
- But, one cannot go by only one reason for a repeat purchase from a store; there could be different reasons for making repeat purchases, which may not be purely due to customer’s belief in the store or supplier’s offer.
- One needs to understand store loyalty from different perspectives to get a better insight into the concept.
- Every retailer aims to achieve customer loyalty, which is its prime goal, through the use of retail strategy and promotional mix.
- For example, most retail organizations use discounts to entice customers to buy their merchandise at the end of each season, but that doesn’t do much to guarantee a shopper will ever return to a store or even garner customer loyalty.
- It is very well said by Cheryl Hanna at the “URL http://www.customerthink.com/blog/retail_reward_programs_no_ guarantee_of_customer_loyalty” accessed March 16, 2011, retailers spend billions of dollars on loyalty programs which are designed to bring customers back for repeat business, but a recent poll by Crossview, an organization designed to optimize consumer experiences, revealed that 66 percent of consumers responding to a survey about loyalty programs do not shop at a particular retailer despite promises of earning points for future purchases.
- Loyalty is necessary for ensuring customer patronage that not only helps in developing constancy and longevity for the business but also provides an effective competitive edge to the retail store.
Loyalty has two facets – attitudinal and behavioural
- Sinha P K and Uniyal D P in their book ‘Managing Retailing’, Ch 13, pp 469 – 471, Oxford University Press, New Delhi, 2007,” talked that attitudinal dimensions refer to customer’s favourable attitude towards the store, and thus, recommend it to others; while the behavioural manifestation of loyalty is through patronage of the store.
- As propounded in a research paper written by Prof. P K Sinha, the customer may display patronage to a store but may not be loyal.
- As this kind of patronage is a “spurious” loyalty, which happens mainly due to special price offers or other promotional offers.
- Generally, the deal-prone customers, who are always on the look-out for better offers, usually shift their purchasing to a store, which offers best discounts or price offers, and they may behave for a short period of time like a loyal customer.
- You may notice following behaviours in case of a customer who exhibit store patronage:
● The customer will shop exclusively at the store he/she patronises. This kind of customer is the most loyal customer of the store.
● The customer will spend larger percentage of his/her expenditure on purchase of regular items (say groceries and daily routine items) at the patronised store. This behaviour is seen particularly for shopping of groceries by women, who will prefer to make purchases of most of the items from a single store.
● Whenever he/she makes shopping trips to similar types of stores, then the large percentage of such trips are to the patronised store. For example, whenever the customer wants to buy items that are available in a departmental store, then he/she will make it a point to visit the most patronised departmental store.
● The customer buys a large percentage of quantity at the patronised store. Again this kind of customers tend to buy most number of items in terms of quantity from the patronised store and it is a more common behaviour noticed among purchasers of groceries and low priced routine items.
●The consecutive trips made to a patronised store are significantly more than those made to similar types of competing store. This is under the assumption that the customer’s loyalty will erode over a period of time, because of so many stores making competitive offers. Whenever there are attractive offers for the products which the customer usually buys at a particular store, then the customer will first make a check at the patronised store about the prices and the range being offered by the store, before visiting the store for making a check on the price offers.
- The above behaviours are not mutually exclusive.
- The first behaviour is very rare type in to day’s all-pervasive marketing environment with so much of variety and competition in every kind of products and services.
- Exclusive shopping at a single store is rare, as most of the shoppers are multiple-store shoppers, depending on the type of product categories.
- Generally the behaviours listed at second, third and fourth numbers are more common among Indian customers who patronises their favourite stores.
- In a study done on shoppers’ behaviour with regard to store choice – to identify the drivers for store choice and the store characteristics remembered most after the store visit.
- It was found that drivers for store choice seem to be more basic in nature and tend to be utilitarian as against the general attributes remembered about the store.
- These findings are summarized in Table 2.1 given here below:
| Types of stores | What brought you to this store? | What did you observe about the store? |
|---|---|---|
| Grocery store | ● Proximity to my house. ● Have been visiting for many years ● Personal relationship with shopkeeper |
● Variety of brands ● Convenient timing ● Proximity to residence |
| Durables | ● Quality of merchandise ● Variety |
● In-store services were delightful ● Trustworthiness of the store |
| Chemist | ● Availability of the prescription ● Service was delightful |
● Proximity |
| Books, Music, Lifestyle products | ● Ambience | ● Entertainment ● Ambience |
| Apparel | ● Quality and variety of merchandise ● Ambience |
● Store format/design ● Ambience |
2.3.1 Factors Influencing Customer Loyalty:-
- The factors that influence customer loyalty has been depicted in Figure 2.4.- It has been observed that there are two kinds of “loyalties” which helps build patronage for a store, which are viz.
- Intended loyalty and the spurious loyalty.
- The strategies required for building each of these loyalties are different.
- There are three main sets of variables which have major impact on loyalty.
- These are: store related variables, shopper related variables, and situation related variables.
- These are considered as an important variables as it affects loyalty to the store.
- Let us learn them in more detail.
i. Trade area and location:
- In their work on ‘Managing Retailing’ P K Sinha and D P Uniyal has mentioned about Huff’s model, which states that ‘customer patronage is directly proportional to the utility factors given by square feet and inversely proportional to dis-utility factors given by physical distance”.
- What the model tells us that the store which offers more utility items and is conveniently located offers the main attraction to consumers from nearby areas, as against this is the store which is located at far-off distance.
- Hence, distance becomes a demotivating factor for store preference.
- Thus, convenience and proximity are the main motives for preferring a store and also the main reason for loyalty towards a particular store.
- These are the factors that create loyalty of customers to a kirana store located in their close proximity.
- In recent times it is noticed that customers do not mind going to the far-off shopping centre or mall, if the offerings of the store are better than that of the kirana store, and the store offers better collection of product range; thereby offering more choice to customers for better selection of products and also help the customer to enlarge the purchase- basket size.
So, the dis-utility of distance factor is overcome by the utility factors of the square feet of the store, thus, providing the customer with certain net benefit.
- The customer also experiences better ambience and can do shopping in a relaxed atmosphere in a mall, and may even decide to buy some other items if there is a need, thus, further saving on time factor.
ii. Products
- You have noticed that the trade area does offer certain types of benefits, but finally the type of product assortment and its uniqueness helps to build customer loyalty and patronage towards a store.
- In terms of consumer priorities assortment and variety come after convenience and price.
- It is noticed that consumers are favorably inclined to revisit a store, where they have had positive shopping experiences by way of finding the product assortment which they could not find anywhere else.
- Thus, many large format stores use this customer inclination for better priced and better assortments, by introducing many store brands or private labels in the routinely bought products and grocery items.
- Product categories like cosmetics, baby foods, beauty soaps, and such products where customers have a higher need for ‘quality believability’ are left to national brands.
- The company collection includes all the must-have baby items, pre-sorted to include only the most healthy, stylish and innovative products available - from fun, bright bedding and furniture to gear, apparel, toys, baby care, cleaning products, and more.
- It brings you 100s of world class brands with 1000s of items to choose from.
- With Hushbabies.com, there are no trips to the store, no fuzzy traffic and no hassles – the company offer the best value with free gift vouchers and coupons.
iii. Store Image:
- The image of the store, also have an impact on customer loyalty towards the store.
- Several studies report direct linkages between store image and intensity of store loyalty.
- Store’s image is based on shoppers’ perception of the store in terms of functional and psychological benefits.
- We can classify the functional and psychological benefits as tangible and intangible attributes as shown in the Table 2.2.
| Functional or Tangible Attributes | Psychological or Intangible Attributes |
|---|---|
| ● Merchandise ● Store location ● Sales staff ● Displays |
● Ambience ● Co-shoppers ● Relaxed environment |
- The congruence of self-image with that of the store image strengthens customer loyalty towards the store.
- The inference on store image is drawn from customer’s observation of the co-shoppers, their characteristics and preferences, as well as the store environment determines the store image in the mind of the customer which he/she compares with his/her self- image which helps him/her to decide on his/her attitude towards the store.
- Generally the image of the mall pass on its image attributes to the stores located in the mall.
- Thus, many a time’s customers decide on the selection of the mall based on his/her self- image and thereafter the store in a mall for his/her shopping.
- The image of the mall or shopping centre is decided by the anchor store’s image.
- For example a mall with anchor store being hyper store will have an image of a low-price and low-service mall.
- It has been found that the store image is the result of an interaction among the mall image, shopper’s socio-economic status and the store type.
2. Shopper-related variables:
- It has been observed that factors such as income, age, and social class of the shopper have greater influence on the shopper’s store patronage decisions.
- It has been also found through research studies that there is strong correlation between shopping orientations and life-style of the shopper with store loyalty and preference for stores.
- Some findings related to shoppers that affect customers’ loyalty to the store are as follow:
● As we have already discussed, the greater the congruence between self image and store image, the greater is the likelihood of customer’s loyalty to the store.
● It has also been noticed that greater the congruence between retail mix elements with the desired benefits by the customer results in greater customer loyalty towards the store.
● There is a direct linkage between customer’s personal values and desired benefits from a purchasing experience in a store. Thus, a store which matches with the desired experience naturally tends to become a patronised store.
● Past experience with the store is one of the major drivers of loyalty towards the store. The experience also becomes the basis of expectation of desired benefits from a purchasing experience from a store.
● The customer tends to purchase a product from a store, where he had a positive experience in his last purchase, as well as if the store is more frequently visited.
- Thus, it must be clear to you that customer uses a variety of factors and information while deciding on a store choice as explained above.
3.Situation related variables:
- These are another set of variables which affect customer loyalty towards the store.
- The variables that affect customer choice of a store are task definition, level of involvement, shopping orientation, and usage of information.
- The task definition and shopping involvement decide on the choice of a store.
- For example if the task is that of a choice of a high priced durable item like Television set or washing machine then the task defines the level of shopping involvement.
- Higher the value of purchase the higher the consumer involvement in purchase decision, which entails that the customer looks at a variety of product related information and also visit the stores which carry such products, before deciding on the brand and the store that matches with his personal choice criteria.
- The customer uses various sources of information while finalizing on the high priced product and the store by checking with their friends and acquaintances who already own the product, or from product catalogues, information on internet, or by directly discussing with the store front staff where he finds the staff is well informed on various product attributes and are able to discuss more objectively the information required by the customer.
- The store selection is done on the basis of factors that correlate with consumer’s selection criteria for the product and the stores that are in tune with each other and assures him/ her psychologically - providing comfort level.
2.3.2 Dimensions of Customer Loyalty:-
- There are different dimensions of customer loyalty as discussed here below:i. Emotional Loyalty:
- The customer develops a kind of emotional bond with the store and its products.
- For example, many customers will like to visit Irani restaurants in Mumbai, to experience their special “Paani-cum Tea” as well as the ambience of the restaurant that reminds them of old memories associated with the restaurant over a period of time.
- This kind of emotional loyalty can also be seen with a kirana store whose owner is like a close acquaintance, which has supported and stayed with the customer in all his ups and downs in his life-time.
- Hence, many customers have a bond with their old kirana store through different generations on both the sides.
ii. Price Loyalty:
- In this kind of loyalty the loyalty is to the product’s price than to the retail store.
- Hence, the customer is open to switch from one retailer to another depending on the price offer on the regular purchased products like groceries and routine purchases.
iii. Monopoly Loyalty:
- Here the loyalty is due to certain compulsions.
- For example a ration shop for a low income group customer or the supplier of Gas cylinders, which are decided on the basis of availability and convenience to the customer.
- First appearing in 1987, Monopoly is now in its 19th year at McDonald’s.
2.3.3 Stages in Loyalty Development:-
- While customer acquisition is key to success, customer retention is the true indicator of predictable revenue and lasting profitability for subscription billing business models.- Even the smallest increase in customer retention results in big revenue increases due to the power of Average Customer Lifetime Value (ACLV) - the average amount of revenue the merchant receives over the lifetime of their relationship with a customer.
- Whether you are a business entity or not, for profit organisation, loyalty plays a major part in the success and growth of your organization.
- Let us learn in detail certain stages of Loyalty Development.
- Normally the evolution of a customer into a loyal customer has to pass through certain stages as discussed in Table 2.3:
| Stages of loyalty | Explanation |
|---|---|
| Prospect | A person whom the company thinks is the target customer or when the customer visits a retail store for making purchase of a product |
| Purchaser | One who buys the product |
| Client | Makes repeat purchase at the store but yet may not be fully convinced about certain factors. A retailer may introduce the customer to its loyalty program |
| Supporter | The customer likes the organisation based on his product experience and the experience at the store, but would like to check one more time before finally confirming his choice of the store |
| Advocate | The customer is now convinced about the product quality and the suitability of the store or the brand/company with his psychological factors |
| Loyal customer | There is some sort of mutual trust based on beliefs and benefits derived mutually. The retail store tries to develop and strengthen the relationship through certain loyalty programmes and related benefits. |
- It all depends on the quality of service and treatment received by the customer from a retail store that may decide on the time taken to convert the customer in to a loyal customer from a mere purchaser of product.
2.4 CUSTOMER RELATIONSHIP MANAGEMENT:-
- Customer Relationship Management (CRM) has been there for ages in various forms, but it has taken a new form since the introduction of large format stores and chain of stores for branded products.
- Developing relationship with customers and securing their patronage for the brand or store has become a crucial factor in the survival and growth of all business and more particularly for retailers of every format and products.
- Through CRM the retailer wants not only to establish relationship with the customer but wants to take it to the next level, whereby both the customer and retailer develop a collaborative relationship which is mutually beneficial in the long term.
- In the new form of CRM, companies have started using sophisticated software for maintaining customer related information and contacting selectively as per the need of the hour.
- Through CRM software, data is stored not only of the current customers but also of the prospective target customers.
- All the major retail chains and brand outlets like shopperstop, Lifestyle, Pantaloons, Central, Westside, Barbie, Titan, Espirit, etc. make extensive use of CRM.
- It is not only propagating information about their product introductions and new seasonal collections but also for keeping customers aware of any special offers.
CRM For Retail
- Blue Bridge’s CRM for Retail software is designed specifically to increase competitive advantage, profitability and efficiencies for retailers, whilst enhancing the customer experience.
- The software reflects the truly multichannel nature of today’s retail world, so can integrate with any customer based activities, from social media to mobile location services and even crowd sourcing.
- This in-depth understanding of customers can then be coupled with the software’s powerful predictive analytics functionality that can, amongst many things, highlight patterns of purchase, suggest segments or statistically predict behaviour.
- This forms an important basis for making strategic decisions plus allows a retailer to closely target marketing activity, through the use of multiple media (SMS, email, mail) increasing revenue and maximising the effectiveness of the marketing budget.
- A reporting tool allows the retailer to assess marketing effectiveness and undertake a return on investment analysis for each campaign.
- The application also includes a module for customer services, using integrated email and advanced search and case management.
- These interactions are added to the customer’s 360° Single Customer View. Source: http://www.bluebridgeltd.com/crmforretail
- In the current scenario, when the cost of promotion and advertising are increasingly becoming prohibitive, CRM technology offers certain definite advantages in combination with the loyalty programs for bringing in new customers and increasing the level of current sales.
CRM as a Process:-
- “CRM is a continuous and iterative process with the motive to convert the customer based information into customer loyalty”.
- It is an iterative process as the process has to keep on repeating the steps necessary for converting the target respondents into loyal customers, and even when the customers are converted into loyal, the process keeps on continuing, with some alteration.
- The process as mentioned by Madaan K V S (2009), consists of six steps as given here below:
1. Acquiring and maintaining customer data-base
2. Analysing customer data
3. Identifying target customers
4. Developing CRM programmes
5. Implementation of CRM programmes
6. Evaluation of performance of CRM programmes
- Each of the steps, given above, needs to be developed in a proper manner, by the retailer, to take maximum advantage of the CRM process.
- The students are advised to go deeper into each of the process by referring books especially devoted to CRM processes.
2.4.1 Benefits of Customer Loyalty and CRM Programmes:-
- To make the CRM tool supportive and helpful to the retail business, it is imperative that it is used in combination with loyalty programme.- With the help of loyalty programme the retailer is able to get vital data about the customer, who is otherwise hesitant to share his/her information.
- Microsoft CRM is a technology that allows organizations to track and leverage every customer interaction to maximize revenue opportunities and improve customer loyalty.
- Microsoft CRM also helps organizations optimize their operations by automating routine tasks and standardizing best practices.
- We can list the following benefits of the CRM and loyalty programme.
i. Lower cost of retention:
- In the current competitive scenario the cost of acquiring a new customer is almost five times the cost of retaining the existing customer.
- The cost of acquisition is high because of series of steps involved like advertisement, prospecting, convincing, selling , servicing, promoting, follow-up and administration including data management, before the customer is converted into a loyal customer.
- Thus, with the use of innovative marketing programs including loyalty programs the retailer tries to keep the existing customers not only happy, but make him feel important and welcome.
ii. Higher profitability:
- The CRM helps in getting new customers into the retail store besides the regular ones, thereby increasing the possibility of faster turnovers, which help in building up gross profitability of the store.
- By providing timely information about the new products as well as on new seasonal collection the customer is kept in the loop and make him feel most preferred customer.
- The information on new collections and products helps in increasing the perceived value of the brand as well as that of the store.
- With the help of CRM the retailer also do cross promotion (promoting other complementary range) and up-promotion (promote products of higher value).
iii. More satisfied customer:
- Through CRM the customer is always in the loop, thereby bringing in certain familiarity about the store.
- The store through effective resolution of complaints, if any, ensures that the customer is made to feel important and wanted, which increases his perception of satisfaction obtained from the interaction.
- For example Big bazaar for the complaints about its private labels ensures a quick resolution of customer complaint.
iv. Micro-marketing:
- The vital information obtained through loyalty programs about the customers help the brand in identifying vital marketing clues, which in turn are used selectively to contact customers for building up relationships.
- For example, information on wedding anniversary about a customer, helps the retailer to make special offer to the concerned customer, on his/her wedding anniversary, to make the occasion a memorable one.
v. Higher store/brand visibility:
- By sending regular reminders to the consumers about special offers and collections the store or the brand is always kept into focus and at top of the mind recall.
vi. Development of store as a brand:
- Through innovative offers and schemes the store name is always kept in the marketing loop, which makes it a well-remembered name in the mind of the consumer.
- Thus, making it a well- recognized brand.
- Shopperstop’s sixty per cent of sales come through its loyal group of customers under its First Citizen loyalty program.
- For making the CRM programs effective it is important to keep constant watch on customers’ needs and their behaviours to make better judgment about their expectations.
2.4.2 Implementation of CRM Programmes:-
- The main motive of CRM is to acquire customer loyalty towards the brand or the store.- Through an effective implementation of CRM customer is made to feel important, proud about his/her association with the concerned store, and are given special treatment in their dealings with the store.
- The CRM calls for continuous upgradation of the data base on various aspects to make it more meaningful and current.
- The customers need to be moved upward in their loyalty grade based on their purchase value in a given period of time and all the information related to their purchases need to be properly analysed and classified for meaningful use.
- Following are the crucial elements of an effective implementation of a CRM program:
i. Customer centric approach:
- CRM process cannot be only product or purchase centric but needs to evolve into a comprehensive approach.
- The customer must not be contacted only to be informed about the new arrivals and discount offers but also need to be provided with benefits on their special occasions like birthdays, anniversaries etc. besides the best wishes of the occasion.
ii. Continuous benchmarking of CRM processes and services:
- The retailer needs to ensure that the processes being followed are in tune with the latest trends and policies followed by the best performers in the concerned retail formats.
- The benchmarking of its current CRM program needs to be done with the international retail chains too to infuse new ideas into their existing CRM program.
iii. Training of employees:
- The success of any CRM is based on the people who are at the front end of the implementation of the CRM program.
- Hence, regular check and upgradation of training inputs to employees is of utmost importance.
iv. Motivating employees:
- Motivation to front employees making phone calls and sending SMSes on mobile phones, need to be properly rewarded based on their performance and quality of their interaction with customers.
- Hence, many credit card companies have nowadays initiated the practice of recording phone call conversation for quality monitoring purpose.
v. Effective use of IT softwares:
- The main pillar of CRM is the IT support.
- Hence, use of effective software is crucial for the successful implementation of the CRM program.
- One of the crucial functions of software is to do data mining by providing useful inputs to the retailer on different aspects of customer profile.
vi. Segmentation of customers:
- In order to provide effective service and response to customers it is necessary that customers be segmented on attributes that will provide important clues to the retailer, which can be used in the implementation of CRM.
- While the retailer starts with a certain standard process in CRM, it is always necessary that the process followed to be checked with the reality of the situation to see if any changes necessary in the current process.
- For doing this the retailer will need to actually check with its prime customers how do they go about their various issues or problems encountered in their dealings with the retailer.
viii. Effective complaint handling mechanism:
- Every CRM program needs to include an effective mechanism for handling complaints.
- Currently many retail organizations selling apparels and other lifestyle products do not have complaint handling process over the phone and needs the customer to visit the retail outlet to exchange the complaint or defective merchandise.
- Most of the retail companies have outsourced their CRM to professional BPOs (Business Process Organizations) including complaint handling process.
- CRM process can fail if the employees handling the CRM are not well motivated and incentivized because it is not only a question of use of best technology but it also involves fully motivated back end team, which understand its true essence.
2.5 TOOLS AND TECHNIQUES OF LOYALTY PROGRAMMES:-
- You had already learnt in our preceding heads about various customer loyalty and CRM programmes and now we are going to discuss elaborately about loyalty programs which provide greater support to retailers in sustaining its growth strategies.
- Many large formats as well as stores with chain of stores go in for loyalty programmes, as the retailers do not want to lose on the opportunity offered by the repeat visits of its customers.
- In order to make the loyalty programmes more focused and an important strategic input retailers need to do proper segmentation of its customer base that will provide it with right clues on type of promotions and CRM policies the retailer must adopt to retain its valued customers.
- Before adopting any kind of loyalty programme it is always useful to have the data analysed and organized.
- Among the techniques used for analysing customers.
- The following techniques are used to organize the customer data.
2.5.1 Life-Time Value of Customers:-
- The data on the existing customers is analysed to find the present value of all the profits generated by a customer against the purchases made by the customer from the store during its lifetime.- For example a customer who makes purchase of Rs 1000 worth of fashion apparels is more important to the store than the customer who makes purchase of same value of routine items like low value T-shirts, under-wears, socks and handkerchiefs; because the profit margin earned on fashion apparels is higher than that earned on routine regular items.
- Similarly a customer who makes one time purchase of grocery in a month is less important than the customer who makes Rs 300 worth of purchases of grocery items every week.
- Thus, a retailer can organize the customers based on the profitability potential of its existing customers and thereby devise a CRM and loyalty programme that will provide different levels of benefits that increases with the customer’s potential to the retail store.
- Thus, the maximum benefits are reserved for customers who have the highest potential.
- Though, the loyalty programme based on profit potentiality looks discriminatory, but in the long-term this kind of programme will be sustainable as it is in relation to spending capability of the store and its customers.
- The software required to analyse the customer data has to be highly sophisticated, making use of variety of customer characteristics for assessing his/her profit potentiality.
2.5.2 RFM Analysis:-
- This is another way of analysing customer data which makes use of customers’ shopping, including spending, behaviour.- It is called RFM based on the three attributes viz.
- Recency, Frequency, and Monetary value as exhibited by a customer in his/her shopping pattern for products from a store.
● Recency: When the last purchase was made?
● Frequency: Number of purchases made by a customer during a given period of time.
● Monetary value: the total spending of the customer during a given period of time.
- For analyzing customer information based on the above attributes the retailer may create classification based on certain criteria.
- Let us understand the above concept through an example as given below:
- A departmental store decided to analyse the information about the customers who made purchases from the store during the summer seasons.
- It decided to categorise the information on recency on two levels –purchases made within last three months, and purchases made between four to six months.
- It decided to divide frequency into three classes - one purchase, two to three purchases, and more than three purchases.
- Monetary value of purchases was divided into two categories up to Rs 2000, and more than Rs 2000.
- The data it received after analysis is shown here below:
| Recency Within last three months | 4 to 6 months | Frequency | Monetary value |
|---|---|---|---|
| 8% | 12% | One purchase | Upto Rs 2000 |
| 12% | 8% | One purchase | More than Rs 2000 |
| 5% | 10% | Two to three | Upto Rs 2000 |
| 10% | 5% | Two to three | More than Rs 2000 |
| 8% | 7% | More than four | Upto Rs 2000 |
| 7% | 8% | More than four | More than Rs 2000 |
- So, from the above data it can be concluded that 8% of customers visited the store for purchase was in the last three months, and made a single purchase up to Rs 2000.
- And, there were 7% of customers who made purchases in the last three months, and made more than four visits for making purchases of more than Rs 2000.
- By making use of the above model we can categorise the consumers into four quadrants as shown here below in Figure 2.15
- The CRM and the loyalty programme for these customers needs to be of best type.
- Then comes “infrequent loyal customers” quadrant.
- The retailer will have to devise loyalty programme that will create more occasions for the customer to visit more number of times to the store.
- Thus, facilitating his/her conversion into a staunch loyalist.
- The next quadrant “Hopefuls” presents another opportunity to retailer to convert these customers into staunch loyalist.
- The customers in this quadrant need to be tempted to make more purchases and of greater value by providing certain monetary and non-monetary benefits that will facilitate their movement into the “staunch loyalist” quadrant.
2.5.3 Customer Pyramid:-
- The retailer can also classify the customers into a pyramid structure to identify the percentage of customers falling into different parts of the pyramid.- Generally the pyramid is distributed into three parts viz. the most valuable segment or the most profitable segment, which is termed as the platinum group; next is the growable segment that offers medium level of profitability, and hence termed as gold group; the third segment is the low value segment and offers low profitability and thus, termed as silver group.
- The pyramid structure is shown in the diagram below for better understanding of customer grouping based on the present value of different customers in terms of their life-time value.
- The customer grouping can also be done making use of data derived from RFM model.
- Thus, gives retailer with indication on strategic inputs necessary to increase the size of the second and the topmost segments.
- The retailer always tries to ensure that the platinum group is taken utmost care of through its CRM and customer loyalty programmes, so that customers from other group would also like to upgrade themselves into this segment.
- Let us take a look at one of the oldest loyalty programmes in existence in India.
- Shoppers Stop launched the large format departmental store concept in India.
- Their successful loyalty programme is called “First Citizen Loyalty Programme”
| Benefits | Classic Moments | Silver Edge | Golden Glow |
|---|---|---|---|
| Membership fee | Rs 150 | - | - |
| First citizen points on net purchase | I reward point for every Rs 100 purchased | I reward point for every Rs 50 purchased | I reward point for every Rs 34 purchased |
| Extra reward points on stop, Life, and Kashish private labels | - | 1% | 2% |
| Programme Partners' reward points | 0.25% | 0.5% | 1% |
| Associate card | Rs 100 | Upto 2: Rs 100 | 2 Free; 3 rd Rs 100 |
| Regular updates | Yes | Yes | Yes |
| Free parking | Yes | Yes | Yes |
| Reserved Parking | - | - | Yes |
| Valet parking | Yes | Yes | Yes |
| Exclusive cash counters | Yes | Yes | Yes |
| Home delivery of alterations | - | - | Yes |
| Exclusive previews of merchandise and sales | Yes | Yes | Yes |
| Free first update | - | - | Yes |
| Out-store offers | Yes | Yes | Yes |
| In-store offers | Yes | Yes | Yes |
| Exclusive in-store and out-store offers | - | - | Yes |
| Parking charges reimbursable against purchases at Shoppers' stop only | |||
● From the above loyalty program it will be clear that the customers holding Golden Glow card are given very special treatment on many accounts. Presently Shoppers’ stop achieves a very high percentage of sales from its loyal customers, to the extent of 60 per cent.
● It is important for the retailer to devise a program that is in tune with its strength and strategy, and is supported at all the levels right from the store representatives, and seniors to its security members.
- Before initiating a loyalty program it will be useful for the retailer to answer the following questions to ensure a successful implementation of the same.
● Is a loyalty program needed for my store?
● Is the program in alignment with the corporate/overall strategy of the store?
● What are the objectives of the program?
● Does the retail store have the required resources?
● How the retailer is going to communicate with the shoppers?
● Would the program be relevant in the long term? Thus, starting a loyalty program has to be a well thought of decision, after taking into consideration every aspect of its successful and long term implementation.
2.6 CUSTOMER SERVICES:-
- It is very well quoted by Madaan KVS, ‘Fundamentals of Retailing’, Ch 16, pp 274, Tata McGraw Hill, New Delhi, 2009 that customer service is the most important attribute of a successful retailer, infact for any business, whether dealing in physical products or services.
- As per the definition of Lovelock “Customer service is task, other than proactive selling, that involves interaction with the customers by telecommunications, mail, or automated processes.
- It is designed, performed, and communicated with two goals in mind: operational productivity and customer satisfaction”.
2.6.1 Types of Customer Services:-
- There are various types of Customer Services which are discussed below:a) Self –service:
- Self- service is generally seen in super markets and hyper stores.
- It is in lieu of lower price offers from the store.
- It is also called do-it-yourself (DIY).
- Self- service is becoming now a day prevalent even in corporates, where instead of providing tea/ coffee through separate staff is provided through vending machines, thereby saving on cost.
b) Assorted services:
- This kind of service is available in departmental stores, where the staff not only helps the customer with product selection but also helps the customer in getting the bill made at the cash counter, and even carries products to the cash counter.
c) Full service:
- Retailers of high priced electronics goods and other high priced products like furniture, cars etc., generally not only help in the right selection of products to the customers but also provide other services like free home-delivery and after sales service, as part of the full service package.
- Normally, it is the effort of every retailer to make the customers experience during his/ her visit to the showroom a memorable one.
- The type of services offered by the retailer depends on the product the retailer is dealing in.
- The common types of services offered by a retailer are mentiend in a Table 2.6.
| Window display |
| Product catalogues |
| Display of merchandise within the showroom, with proper detailing |
| Acceptance of credit cards |
| Free home delivery |
| Car parking |
| Credit facility |
| Shopping carts |
| Gift wrapping |
| Product demonstration – on its usage |
| Alteration of apparel merchandise |
| Repairs and warranties |
- It is retailers endeavor to provide services which are different and better than those of other competing stores, in order to build up customer confidence and loyalty to the store.
- Customer service adds to the overall perception and value of the product, based on the customer’s experience of the service.
- The earlier concept of product quality and pricing being the major differentiating factors have undergone substantial change with the addition as another value enhancing factor.
- It is not only the service offered by the front sales staff, but also the service response from the back end staff – right from the response from the telephone operator to the back end staff dealing with paper work and follow-up also add to the customers’ overall impression about the service and the company offering the same.
2.6.2 Features of Good Quality Services:-
- In order to ensure that the service provided by the retailer matches with the customers’ expectation of service from the retail store, it is necessary to develop parameters of service quality standard.- Customer’s expectation of service standard from a departmental store is very much different from that expected from a super market store.
- Service quality is dependent upon the comparison of customer’s expectation of service at the store and perception about actual performance of service.
- If the perceived quality of service is higher than expectation then the customer will be satisfied and vice versa.
- As per the SERVQUAL model by Parasuraman, Zeithanal and Berry, there are five types of GAP across service industry.
- Applying this model to the retail industry will provide us with vital explanation on the quality standards of service.
- There are certain gaps which are elaborately explain.
i. Knowledge gap:
- It is the gap between customer’s expectation, and the retailer’s perception about the customer’s expectation.
- For example an electronic goods retailer may instruct his sales staff to provide the customer with personalized service with proper product information; but in actuality the customer may think the salesman as over-influencing and interfering with unsolicited advice.
- Such a gap can be removed with proper market research on target customers’ expectations, as well as through observation studies and feedback from sales force.
ii. Standards gap:
- It is the gap between retailer’s perception of quality of services and the actual specification of service quality parameters.
- For example the retailer may feel product knowledge is important in one to one interaction with the customer of fashion apparel, but not sure about the level of product knowledge training to be imparted to the sales staff.
- The best course in such a situation is to study the leading competitors on the service quality standards.
iii. Delivery gap:
- It is the gap between service quality specification and service delivery.
- For example the store may have specified the quality standards for a customized interaction with the customer, but in actuality the sales staff lacks in certain etiquettes while interacting with the customer.
- The remedy is to keep constant check and impart on the job training to the staff; besides imparting communication training to staffs at all levels.
iv. Communication gap:
- It is the gap between service delivery and retailer’s communication about service quality.
- A departmental store may advertise about its customer commitment and quality delivery; but in actuality the store may not have any standard system or procedure to deal with genuine complaints.
- The best way to minimize the gap is to make realistic commitments which are feasible for the retailer to fulfill.
v. Service gap:
- It is the gap between the perceived service and the expected service.
- This is the result of the gaps discussed above.
Thus on the basis of study of GAP model, following are the components of a standard service quality and these are abbreviated as RATER – Reliability, Assurance, Tangibility, Empathy, and Responsiveness.
● Reliability: It is the ability to perform the promised service in a dependable and accurate manner.
● Assurance: It includes competence, courtesy, credibility, and secure store environment. It is the knowledge and courtesy of employees and their ability to inspire trust and confidence.
● Tangibles: It is about physical facilities, lay-out, appearance of personnel.
● Empathy: It includes access, communication, understanding the customer. It is caring and individualistic attention the retailer provides to the shoppers.
● Responsiveness: It is willingness to help customers and provide prompt service.
- Thus, service failure results not only in adverse reaction from customers but also result into negative word of mouth publicity, which is the most damaging aspect for the store’s survival.
- Hence, retailer has to constantly undertake innovative methods of training to his sales and back end staff for ensuring delivery of service as per the expected quality standard of service by customers.
2.7 SUMMARY OF THIS CHAPTER:-
● Customer retention in the marketing effort is considered to be of utmost importance and every marketing professional who knows the cost of acquiring customer will never give it a short treatment.
● Customer retention is nothing but ensuring that the customer who has bought the product from a retail store or the concerned brand remains with the store or the brand for a fairly long terms.
● There are four stages in customer relationship cycle as follows:
● Customer Acquisition;
● Customer Development;
● Customer Retention; and
● Customer Decline.
● The retailer makes every effort to stabilize the relationship, and builds trust for its products, store image and services in the mind of the consumer; and this feeling of trust develops into commitment between the consumer and the store towards each other.
● Customer loyalty is the belief of the customer in supplier‘s offer. The belief is based on value proposition and it usually results in the repeated purchase behaviour
● Loyalty is necessary for ensuring customer patronage that not only helps in developing constancy and longevity for the business but also provides an effective competitive edge to the retail store.
● In a study done on shoppers’ behaviour with regard to store choice – to identify the drivers for store choice and the store characteristics remembered most after the store visit – it was found that drivers for store choice seem to be more basic in nature and tend to be utilitarian as against the general attributes remembered about the store.
● It has been observed that there are two kinds of “loyalties” which helps build patronage for a store, which are. Intended loyalty and the Spurious loyalty. The strategies required for building each of these loyalties are different.
● There are three main sets of variables which have major impact on loyalty. These are: store related variables, shopper related variables, and situation related variables.
● The image of the store, also have an impact on customer loyalty towards the store. Several studies report direct linkages between store image and intensity of store loyalty.
● It has been found through research studies that there is strong correlation between shopping orientations and life-style of the shopper with store loyalty and preference for stores.
● Normally the evolution of a customer into a loyal customer has to pass through certain stages viz. Prospecting, Purchasing, Client, Supporter, Advocate, and Loyal customer.
● Through CRM the retailer wants not only to establish relationship with the customer but wants to take it to the next level, whereby both the customer and retailer develop a collaborative relationship which is mutually beneficial in the long term.
● CRM is a continuous and iterative process with the motive to convert the customer based information into customer loyalty.
● Through an effective implementation of CRM customer is made to feel important, proud about his/her association with the concerned store, and are given special treatment in their dealings with the store.
● In order to make the loyalty programmes more focused and an important strategic input retailers need to do proper segmentation of its customer base that will provide it with right clues on type of promotions and CRM policies the retailer must adopt to retain its valued customers.
● Before adopting any kind of loyalty programme it is always useful to have the data analysed and organised. Among the techniques used for analysing customers are: Life-time Value of a Customer and RFM Model.
● It is important for the retailer to devise a program that is in tune with its strength and strategy, and is supported at all the levels right from the store representatives, and seniors to its security members.
● The type of services offered by the retailer depends on the type of the retailer and the product the retailer is dealing in.
● Customer service adds to the overall perception and value of the product, based on the customer’s experience of the service.
● Service quality is dependent upon the comparison of customer’s expectation of service at the store and perception about actual performance of service.
● On the basis of study of GAP model, following are the components of a standard service quality. These are abbreviated as RATER – Reliability, Assurance, Tangibility, Empathy, and Responsiveness.
2.8 VERY VERY IMPORTANT QUESTIOS:-
1. Understand the Concept of Customer Retention.
2. Explain Concept, Significance, and Stages towards the Customer Loyalty.
3. Identify certain variables related to stores.
4. Understand various dimensions to judge the Customer Loyalty.
5. Identify certain phases in loyalty development.
6. Explain the concept of customer retention.
7. Explain the concept and significance of customer loyalty.
8. Discuss the behaviours noticed in case of store patronage.
9. Describe the store choice drivers for different types of stores.
10. Explain the frame-work for store loyalty and patronage with a diagram.
11. What are the different dimensions of customer loyalty?
12. Illustrate the stages in the development of customer loyalty.
13. Explain the benefits of CRM and loyalty programme.
14. What are the crucial elements of an effective implementation of a CRM programme?
15. Explain the concept of Life-time value of a customer.
16. What is a RFM model?
17. What is meant by customer pyramid?
18. Explain the concept of quality standard of service.
