“Smart” Loyalty in Petroleum Retail

“Smart” Loyalty in Petroleum Retail
By Kishore K Somaraju
WIPRO TECHNOLOGIES
EXECUTIVE SUMMARY
The old retail truism of having the right product at the right place at the right time is now being adjusted to
include “for the right customer”.
Modern Loyalty programs are ideal tools for achieving these expectations. Loyalty programs make a lot of
sense for retailers: they allow rewarding best customers through discounts, special promotions, gifts, etc. in
exchange for a better knowledge of his customers and new purchase patterns identification.
This paper takes a look at the way Best in Class loyalty programs are defined (in terms of practices and
processes). It also reinforces the obvious advantages of having a well-managed loyalty program in place. Also
outlined are some best practice business levers for each stage of Loyalty program cycle. And finally a brief on
Smart Loyalty & Customer Intelligence Technical Architecture & Process Flow is brought to light.
TABLE OF CONTENTS
Introduction ................................................................................................................4
Customer Retention – What difference it makes!!......................................................5
Loyalty Card Programs Benefits: Customer Standpoint...............................................6
Fuel Cost Savings..........................................................................................................6
Security & Controls........................................................................................................6
Exception Monitoring......................................................................................................7
Flexible Billing Options.....................................................................................................7
Loyalty Card Programs Benefits: Retailer Standpoint...................................................7
Roadmap Levers in each stage of a Smart Loyalty Program.........................................8
Smart Loyalty & Customer Intelligence Technical Architecture....................................10
Integration at Point of Interaction.........................................................................................10
Real-time Customer Data Store...........................................................................................10
Customer Intelligence Analytics...........................................................................................11
Operational Customer Segmentation.....................................................................................11
Campaign and Loyalty Rules...............................................................................................11
Data Quality & Integrity....................................................................................................11
Loyalty Program Support Services........................................................................................11
Measuring Effectiveness of Customer Loyalty Program...............................................12
Emerging Trends...........................................................................................................13
Conclusion....................................................................................................................13
Appendix......................................................................................................................14
References..................................................................................................................14
About the Author..........................................................................................................14
“Smart” Loyalty in Petroleum Retail
Introduction
Loyalty programs are a great way to entice customers to keep returning to your stores as they seek to gain rewards on
routine purchases. Finding the right fit when it comes to a loyalty program will help store operators differentiate their
offering and could generate a steady stream of repeat customers.
The main purpose of a loyalty program is to retain regular customers, to increase commitment from occasional
customers and to acquire new ones.
Some of the expectations of the companies are:
Increase the
amount of
product
purchased
Higher
customer
retention
Lower price
sensitivity
What is
expected from a
successful fuel
card loyalty
program?
Increased single
brand loyalty
Competitive
differentiation
Greater
consumer
resistance
to competitor
offers
Parameters of a successful fuel card loyalty program
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Loyalty programs are initiated by businesses with two main goals:
• Primary goal: Acquisition of information relating to their customers' spending habits
• Secondary goal: Actively cultivate loyalty amongst customers to ensure they continue patronizing the business
Loyalty programs may offer benefits in a number of different ways. Many loyalty programs offer a sustained discount
(such as 10%) for a period of time. Others offer a discount once certain criteria have been met, for example, a 20%
discount on a single purchase at the convenience store once a customer has spent $50 at the fuel station. Others offer
points which may then be redeemed for products which may or may not be directly related to the business.
Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behaviour —
behaviour which is potentially of benefit to the firm.
Ultimately, the success of loyalty programs depends on how well the business uses the data it gathers to further refine its
policies and loyalty programs.
Customer Retention – What difference it makes!!
There are many reasons why retaining a customer makes business sense. Some of these are:
Enterprise Loss is Competitor's Gain!
If an enterprise doesn’t retain its customer, competitor will gain the customer.
It Costs You More!
It is 6-9 times more expensive to get a new customer than to retain one.
Loyalty reaps Rewards!
A loyal customer base could contribute nearly 40% of the enterprise turnover.
5% makes the Difference!
Companies can boost profits by nearly 100% by retaining just 5% more of their customers.
20/80 Rule applies here too!
20% of customers contribute 80% of the turnover (currently analysts are speculating a 20/65
scenario-but the big picture remains).
Retention decreases Churn!
Customer retention decreases churn-rate (rate at which customers change service providers). This is
especially critical in technology driven industries.
Retention increases LTV!
The estimated Lifetime Value (LTV) for a combo store with fuel & grocery/supermarket of a customer with a family of
four in the US is approximately $350,000. Value surrendered by not retaining a customer could severely erode top and
bottom lines. The implications are thus, obvious.
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Loyalty Card Programs Benefits: Customer Standpoint
Today’s loyalty card schemes empower the customers to get the
most out of every drop of fuel they buy. They are simple and easy
to use, which is important for busy customers on the move and
they leave the station with an experience of getting quality fuels
whilst earning rewards.
There are many key advantages and reasons to choose the fuel
loyalty card:
• Fuel cost savings
• Security & controls
• Easy to check your daily fuel transactions and spending!
• Exception monitoring
• Flexible billing options
Apart from the key benefits discussed in
this section, there are some more generic
benefits of fuel card customers:
• Saving money
• Convenience factor with ease of
payment (speed and simplicity)
• Special offers/discounts for card
holders
• Feeling of belonging to a membership
community
• Possibility of receiving other financial
services (For Example, Barclaycard
Freedom, Tesco Club card, etc)
Fuel Cost Savings
The fuel cards have one of the most robust fuel saving programs. Using fuel cards usually saves customers 1-5% or more
on their cost of fuel. This is attained through administrative savings as well as a discount on the cost of fuel. Fuel card can
offer customers a cost plus pricing model or retail minus pricing at several locations.
Security & Controls
The fuel card is as secure as an armoured car for your fuel purchases:
• Assign fuel cards to vehicles, drivers or any combination
• Lock to pay at the pump only to restrict fuel purchases inside the store
• Driver ID & odometer prompting protects from unauthorized fuel use
• Block after hours or weekend fuelling
• Restrict purchases to specific stations or brands
• Fuel Only, Fuel & Maintenance or Fuel, Maintenance & Other
• Spending limits can be set for each fuel card, per day, week or even month
• Fuel transactions can be restricted by dollar and/or gallon amount or transaction per day, week or month.
The high level of controlled spending limits & restrictions which can be customized from card to card will help promote
spend savings and enhance card security. Full internet access to all transactions through online management tools help
customers to track, control and record their spending with respect to fuel and conveniences.
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“Smart” Loyalty in Petroleum Retail
Exception Monitoring
Exceptions such as time of day variances, excess fuel tank capacity, pattern discrepancies, product variances, and excess fuel
purchases made to the account could be automatically e-mailed to key contacts or the card holders themselves.
Flexible Billing Options
Today’s fuel card has flexible (including weekly, bi-weekly, monthly) billing terms. Customers will receive an e-invoice
for their transactions.
Loyalty Card Programs Benefits: Retailer Standpoint
Benefits
?
Increase customer acquisition
?
Increase customer spends and
?
Increase frequency of spend
?
Increase customer satisfaction
?
Stimulate customer reactivation
?
Maintain customer retention
?
Increase customer referrals
?
Increase customer lifetime value
Impacts
?
Customers identification enables deeper relationship
marketing
?
Identification of market trends and customer behaviors –
who buys, what, when, where, how much, how, etc
?
Increasing in sales volume and margins
?
Triggering other opportunities (For Example, financial
services)
?
Triggering of one of the most important marketing
weapons, the “word of mouth” – this happens
automatically if the deal is really good
?
Differentiation
?
Reduce markdowns
We can summarize the value as below:
Value for the Retailer
Value for the Customer
Drive Bottom-line sales growth
Get more for every dollar spent
Understand how customers shop to drive
desired behaviour
Receive promotions that reflect individual
buying preferences
Save marketing dollars by reducing waste on
low-return promotions
Easy to use; register and participate with a swipe/dip/
tap of a credit, debit or store loyalty card
Increase redemption rates
Instant rewards are simple; no paper coupon clutter,
and everything is conveniently accessed through the card
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Roadmap Levers in each stage of a Smart Loyalty Program
Stage Lever
Technology Requirements
Process Details &
Organizational Alignment
Stage Description
Collect & Cleanse
Analyze & Deploy
Interact & Optimize
Develop Data Model &
Collect Customer Information
Analyze, Segment
& Implement Program
Leverage Customer Data &
Increase Pervasive Interaction
Conduct focus groups &
customer research
Analyze customer product
& transaction information
to establish customer
segments
Marketing & merchandising leverage customer data
to determine product mix,
promotional strategies &
investments.
Develop loyalty roadmap
& strategy
Finalize customer intelligence,
loyalty roadmap & strategy
Customer facing teams to
become an extension of the
loyalty and promotional
strategy by providing assisted
selling, enhancing service &
recommending appropriate
products
Develop data model &
populate with customer data
Establish loyalty program
rules, thresholds, policies
& success criteria
Explore organizational
re-alignment & cross
functional metrics
Train customer facing teams
to implement the program
and explain the benefits
to customers
Investigate the use of
consulting firms in strategically
developing the program
Create & execute mass
advertising, batch promotions
& in-store/location collateral
Formulate a committee
comprising marketing,
merchandising, IT and
consulting vendors
Provide customer facing team
incentives for registering
new customers
Create the program
technology framework
& budget
Implement & integrate
analytical planning,
operational segmentation,
campaign management &
loyalty rules applications
Define functional
requirements & identify
software vendors
Integrate the program into
advances selling technology
framework
Deploy & format loyalty
program interfaces for multiple
devices viz. kiosks, digital
signs & mobile technology
Define & implement
operational customer database
Leverage data cleansing
software or service
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“Smart” Loyalty in Petroleum Retail
Stage Lever
Measurements
Stage Description
Collect & Cleanse
Analyze & Deploy
Interact & Optimize
Develop Data Model &
Collect Customer Information
Analyze, Segment
& Implement Program
Leverage Customer Data &
Increase Pervasive Interaction
Data collection ratio
New members
New members
Customer expectations
Conversion
Conversion
Brand awareness
Frequency
Up sell
Market Basket
Service Levels
Dormancy
Employee productivity
Margin
Turn
Customer Interaction
Lifetime value
Data is collected via reverse
append of credit card
or telephone number
Customers register for the
program, be it manual
application, kiosk, online,
telephone etc
Customers receive
electronically and card
is optional
Customers may receive
promotions that retailer
is testing which may not
be affiliated to a loyalty
program, but used to test
offers and help create
segments
Members have online access
to order history, applicable
promotions, services &
product recommendations
Consistent and individualized
promotions, discounts,
services and recommendations
at every interaction across
channels
Members will receive mass
advertising and can redeem
rewards, discounts
and promotions
Optimized self service
and assisted selling experience
Source: AMR Research
This roadmap provides details regarding process, organizational alignment, technology requirements, key
measurements, and customer interaction for each of the stages. Retailers will need to tweak existing processes and
procedures and invest in technology to support these activities.
Retailers should understand that the loyalty program journey will be undertaken in parallel with other initiatives,
particularly the high-level strategy of enhancing customer interactions with advanced selling technologies and building
a demand driven supply network. All these initiatives are tightly integrated and rely on each other. Thus, these initiatives
must move together.
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“Smart” Loyalty in Petroleum Retail
Loyality & Customer Intelligence Technical Architecture
Point of Interaction
Web enabled
Corporate
Portal
SAP
Enterprise
BW
Frirewall
Third Party
Network
Operational
Customer
Segmentation
Customer
Intelligence
Analytics
Real-time Customer Data Store
ETL
Middleware
Loyalty
Customer
Data
Warehouse
Data Quality & Integrity
Loyality Program Rules Engine
POS
Kiosk
Mobile
Web
Call Centre
Partner Service
Loyalty Program
Support Services
Data Quality &
Integrity
Source: AMR Research
Successful technology architecture to support a smart loyalty program requires the following components:
Integration at Point of Interaction
Integration component manager new/revised customer data flow into operational customer database and allows real-time
integration of loyalty rules through any point of interaction media viz. POS, in store kiosks and Web etc.
Real-time Customer Data Store
This data store acts as a central repository for customer data, standardizing, cleansing, aggregating and organizing the
information to enable analysis and syndication.
Customer Intelligence Analytics
This component provides predictive modelling, data mining and analytics to enable users to extrapolate information about
customers and better understand marketing, merchandising, and promotion activities that will likely influence behaviour.
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“Smart” Loyalty in Petroleum Retail
Operational Customer Segmentation
This component sits on top of the real-time customer data store to provide segmentation in preparation for campaign
execution. It allows business users to create slices of different customer segments based on answers to predefined
attributes without deep analytical regimen or time consuming data crunching. (For Example, “show me customers that
purchased 1000 gallons of fuel in March”.)
Campaign and Loyalty Rules
This component enforces program design and rules by using a complex set of business rules to process incoming data.
These rules define program characteristics such as:
• A number of points any customer can earn on each type of transaction
• The start and expiry time-lines of a rewards program to which a member is linked
• The rewards that a particular member is eligible to redeem
• Additional bonus opportunities for members
• The thresholds that trigger applicable offers and discounts
Campaign rules set the parameters for outgoing marketing programs such as e-mail, kiosk advertising, etc. Loyalty rules
set the parameters for incoming customer redemption of applicable rewards.
Data Quality & Integrity
This component is responsible for cleansing customer information and cross-referencing this information with third party
databases.
Loyalty Program Support Services
This component creates and fulfils loyalty cards, marketing material and rewards. This component also allows contact
centre operations to support operational enquiries from customers. Fulfilment and service functions are often
outsourced by retailers to third party service providers.
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“Smart” Loyalty in Petroleum Retail
Measuring Effectiveness of Customer Loyalty Program
Once the customer loyalty program is in place and running, the enterprise needs to monitor various parameters so as to
measure the effectiveness of the whole exercise.
These various parameters could be:
• Subscription Rate – actual number of sign-ups versus the budgeted figure for a given period
• Sales -Total member spending versus non-member spending for a given period
• Average bill value – member versus non-member
• Member Retention rate – Number of members active after one year of subscription
• Profitability
• Member Life Time Value (LTV) – An increase in LTV indicates a successful CLP
A research project was conducted for a major fuel loyalty program pioneer in the US. 50,000 loyalty customers and 4.8
million transactions were analyzed for a period of 14 months. Highlights of the research are given on the right.
The study clearly shows that a smart loyalty program is effective in increasing purchase frequency and basket size from
loyalty customers. In addition, the retailers would see the success of the loyalty program in getting fuel only customers
back inside the store to make store purchases as well.
?
Loyalty customers spent 36% more than regular customers.
?
Average transaction size of loyalty customers grew 25% over the period.
?
Loyalty members purchase frequency more than doubled from 1.79 to 4.08 times per month.
?
29% of non - loyal fuel purchases were paid in the store while 58% of loyalty fuel purchases were
made in the store.
?
The percentage of double category buyers (Fuel & Store) increased by 22%.
?
38% of loyalty fuel purchases in the store included store items.
?
26% of non - loyal fuel purchase in the store included store items.
?
Between 1,500 to 2,500 consumers enrolled into the loyalty program per store.
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Emerging Trends
To spice up loyalty programs, more chains are crafting partnerships between non-competitive entities. Grocers sending
people to fuel retail outlets as part of their reward mechanism, a win-win for both of them, is one such example.
Also on the horizon of this decade, we can expect to see more channels integrating an ongoing cause with a loyalty
program. One great example is Shell and Safeway partner with a coalition called Air Miles in Canada, which integrated
the cause of going green and being more eco friendly into their program. Customers can earn rewards from buying green
products at certain retailers, get a bonus for buying that product, and can redeem points for ecologically responsible
items. This also encourages more socially responsible behavior, which is also an overall consumer trend.
Another emerging trend is a shift in how the data is being used to communicate promotions. Data gathering reveals a
wealth of information about customers, but a lot of companies don’t look at that data for insight. In the next five years
the companies that are going to do the best in this space are going to be the ones who turn their attention to the treasure
trove of data they’ve gathered. This data provides insight provides about your most profitable customers and how you
can market to them more effectively.
Many marketing chains are sending coupons, special offers, bar codes to mobile phones in order to reach customers
where they are, but it is important for them to see that this strategy works as the risk is the customer most of the times
write-off such offers as SPAM.
Conclusion
Rewards offered through loyalty programs will continue to be a key differentiator. With so many loyalty programs
available to consumers through multiple market channels it will be a necessity to offer creative and personal rewards.
Consumers will increasingly demand more offers that are relevant to their personal needs and interests.
Loyalty programs recognize and reward the best customers of a business. Nearly one-third of U.S. consumers (32.3%)
consider their participation in retail rewards programs to be “more important” as they seek to stretch their household
budgets in the recessionary economy.
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“Smart” Loyalty in Petroleum Retail
Appendix
References
• [2005]. James A. O’Brein, George M. Marakas. Management Information Systems.
• [2006]. AMR Research Survey. Loyalty Programs that actually create Loyalty – Retail Imperative.
• [2009]. Barry Berman, Joel R Evans. Retail Management.
About the Author
Kishore K Somaraju works as Senior Consultant, Oil & Gas, within the Energy & Utilities vertical of Wipro Technologies.
With over 16 years in downstream retail automation, Kishore brings with him rich experience from companies like IBM
and Reliance and adds a synergistic value to Energy & Utilities vertical of Wipro.
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ABOUT WIPRO TECHNOLOGIES
Wipro is the first PCMM Level 5 and SEI CMMi Level 5 certified IT Services Company globally. Wipro provides comprehensive IT solutions
and services (including systems integration, IS outsourcing, package implementation, software application development and
maintenance) and Research & Development services (hardware and software design, development and implementation) to corporations
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Wipro's unique value proposition is further delivered through our pioneering Offshore Outsourcing Model and stringent Quality
Processes of SEI and Six Sigma.
WIPRO IN ENERGY & UTILITIES
The Energy and Utility division of Wipro Technologies is one among the Top 10 IT solution providers to the E & U industry across the globe.
The Energy & Utilities business unit has worked with over 75 top Energy and Utility companies across North America and Europe in
regulated as well as deregulated markets providing solutions in areas such as Customer Care, Billing and Settlement, Work and Asset
Management and Grid Operations covering all industry sectors --- Electricity, Gas, Oil and Water.
The cumulative experience of over 5,500 person years spans IT Consulting, Systems Integration, Business Process Outsourcing,
Application Development and Application Management services.
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