Customer Relationship Management in Retail
Dr. Hemant C Trivedi
Vivek Khandelwal , MICA, Ahmedabad.
Retail in India
Retail industry in India is at the crossroads. One of the major factors playing a role is i ncome – Increase in Disposable incomes of customers across various sectors. The simple answer to effective CRM is a way of differentiation between customers to provide greater value to more valuable customers since t he customer today is far more discerning than he was earlier.
Role of CRM
Every retailer today is aiming at an attempt to make a casual customer into a loyal customer who develops a bond with the retail store he/she visits. Customer relationship management as a transactional exchange helps the marketer to understand the customer's sentiments and buying habits so that the customer can be provided with products and services before he starts demanding them.
In this paper the authors try to study the role of Customer Relationship Management (CRM) in enhancing the Customer Lifetime Value (CLV). A successful and effective CRM programme results in increase of Customers Lifetime Value for the store. The importance of the tangible and the intangible offerings are also discussed. A good CRM Strategy should focus on: Building dynamic relationship with the customer, making CRM the key element to building customer loyalty to a store brand and to build a significant competitive advantage.
We have been hearing a lot about CRM aka Customer Relationship Management in almost all media we come across in our day to day life. Whether it is Newspaper, Outdoor Hoardings or Mailers we receive from hundreds of places etc. What exactly does this connote to a layman? The simple answer to it is a way of differentiation between customers to provide greater value to more valuable customers. The meaning of more valuable would be in terms of the monetary spending received from the customer along with recency and frequency of visit.
Retail in India
India 's largest industry, the retail sector is valued at $200 billion accounting for over 10 per cent of the country's GDP and around eight per cent of the country's employment. It has emerged as one of the most dynamic industries with several players entering the market. Retail industry in India is at the crossroads. It has emerged as one of the most dynamic and fast paced industries with several players entering the market. But because of the heavy initial investments required, break even is difficult to achieve and many of these players have not tasted success so far. However, the future is promising; the market is growing, government policies are becoming more favorable and emerging technologies are facilitating operations.
Retailing in India is gradually inching its way towards becoming the next boom industry owing to a steady increase in the disposable incomes of the middle class households. The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a retail revolution. Modern retail has entered India as seen in sprawling shopping centers, multi-storied malls and huge complexes offer shopping, entertainment and food all under one roof. The key growth drivers of the organised retail industry in India are
Demographics - The Indian population is witnessing a significant change in its demographics. A large young working population with median age of 24 years, nuclear families in urban areas
Working Women – Increase in the numbers of working women population
Services Sector - Emerging opportunities in the services sector
Income – Increase in disposable incomes of customers across various sectors
Customer - The customer today is far more discerning than he was earlier.
Real estate prices – The consistent fall in the prices of real estate
Role of CRM
Expectations of customer is increasing, he asks for more and more value for the same price, and whoever provides him increasing value for money, he buys products from that marketer. Every retailer today is aiming at an attempt to make a casual customer into a loyal customer who develops a bond with the retail store he/she visits.
The entire concept of CRM today has also evolved over a period of time. Customer relationship management is ahead of the transactional exchange and facilitates the marketer to understand the customer's sentiments and buying habits so that the customer can be provided with products and services before he starts demanding. This is possible through the integration of four important components i.e. people, process, technology and data..
Today the term CRM has become a buzzword in the Indian Retail world. There are a host of reasons which can be attributed to the changing consumer paradigm and the role played by the organised retailers in making CRM a happening phenomenon. Every retailer in India today is looking at some or the other form of CRM or its prime constituent loyalty based programme.
In the retail milieu, where generating and retaining footfalls is the greatest impediment to success, the challenge lies in constantly innovating methods of attracting new customers and keeping there interests alive. Loyalty programmes as part of CRM based activity are one of the ways of overcoming this challenge.
Customer Relationship Management (CRM) to Customer Lifetime Value (CLV)
The variety of activities together play an important role in bringing repeat customers and in turn generating positive word of mouth to also increase new footfalls into the store. This leads to the development of an enthusiastic set of customers who can be approached to convey all new developments, events and promotions. Data Mining activities through CRM also provides insights and knowledge about the retailers most valuable customers who result in maximum sales. We also understand the Pareto's Principle which talks about generating 80% of sales from 20% of the customers. This can only happen if the retailer has the 20% as its most profitable customers and not just normal customers. This completely depends upon the kind of business the retailer is into and there is nothing sacrosanct about this understanding.
A successful and effective CRM programme results in increase of Customers Lifetime Value for the store.
Today these and similar kinds of programmes are being run all across India by local as well as national retailers. Let's understand the kind of CRM programme offered by some of the lifestyle retailers having a national presence to lure its customers:
Known as the ‘Green Card' it is divided hierarchically into One star, Three star and Five star. Every point generated at all the levels is equivalent to Rs.1
Criteria for points generation are:
Upto 399 points – One Star – 1 point for Rs.50
400 or more additional points - Three star - 1 point for Rs.40
800 or more additional points – Five star - 1 point for Rs.25
It also stays in touch with its loyal customers through Mailers, SMSes E-mails and Telephone informing them about the developments and promotions.
Known as the ‘First Citizen Card'
Classic Moments – Earn 1 Reward Point for every Rs.100 purchased.
Silver Edge - Earn 1 Reward Point for every Rs.50 purchased.
Golden Glow - Earn 1 Reward Point for every Rs.34 purchased.
Every point generated at all the levels is equivalent to Rs.1
It has a special scheme wherein it offers private label reward points to its silver edge and golden glow members.
Known as the ‘The Inner Circle '
For every Rs.50 spent at any of the stores, 1 point is earned.
For every 100 points earned, gift voucher of Rs.100 is received
Known as ‘Club West'
It offers Classic and Gold membership
Offers 25 and 50 as the bonus points to Classic and Gold members
Classic - For every Rs.50 spent at any of the stores, 1 point is earned.
Gold - For every Rs.40 spent at any of the stores, 1 point is earned.
Known as the ‘ Piramyd Power Club '
It offers Silver, Gold and Platinum cards.
There are discount % which is offered on both Piramyd Store and its supermarket. As one moves from Silver to Gold the discount percent also increases.
Piramyd Power Points are offered on all purchases. Silver, Gold and Platinum are awarded 1 point on every Rs. 80/-, Rs. 60/- and Rs. 40/- spent respectively.
Known as the Privilege Club card
An enhanced version with larger offerings is the ‘Gold Card'
The monetary benefits which it offers is a holiday package depending upon the amount spent. The larger the spending the higher the value of the gift.
Tangible and Intangible Benefits
What is so special in CRM programs which drive the customer back to the store?
It can be better understood from 2 perspectives:
Tangible benefit + Intangible benefit = Loyalty to Brand
The Tangible Value
Discounts, Offers, Promotions, Payback
There are regular discounts offered by a store either as a special scheme, yearly sale discount, mark down discount etc. Over and above such schemes when a store offers additional offer to certain customers selected on certain specific criteria that would become a part of a CRM initiative. Such offers would be any new scheme which is being launched for any particular product or a group of products. For eg. Offer can be a product bundling wherein two products together are clubbed at a special price.
Promotion would indicate stress on any or a group of products for its maximum sale. These are footfall drivers to the store and store keeps on launching some or the other promotion schemes from time to time.
Payback can be linked to the parking fee. There are some stores and malls which charge a token fee for vehicle parking, however the same is reimbursed against any purchase (as specified) at the store.
Loyalty point redemption system
The loyalty points earned by the customers can be reimbursed any time after minimum specific points are generated by the customer.
These are offers either designed for the loyal customers to make them come back or may even be designed for all to showcase and differentiate their offerings from that of the competitors.
The loyal customers are generally automatically upgraded as per the purchase habits and number of points generated.
Exclusive Invites to get-togethers and events
These are invitations meant for loyal customers to make them feel special. Lot of times customers are invited when any celebrity comes to the store for any new launch at the store. Or these may be invitations sent to customers for any event happening in their city or town.
Differentiated offers (linked to behavior)
These are offers which are linked to behaviour of any particular set of customers depending upon a mix of their demographics and previous purchase habits. Lot of times product bundling is done as per the area where the store is located since it catches a specific catchment area.
The customers are invited to provide their suggestions and recommendations for improvement of their shopping experience.
This would mean a retail store offering another discount coupon or some freebie which is connected to a different brand. For eg. Pantaloons store offering a discount to any merchandise purchased from Liberty .
Free Home delivery of altered merchandise
This would be an add-on service to loyal customers by delivering their altered clothes as per their convenient time.
Reserved Car Parking
Offering them space for car parking is like inviting people with arms wide open. The reason for this is the increasing inconvenience customers face to shop on weekends due to non-availability of parking when the stores are huge crowd pullers.
To facilitate and serve the loyal customers better, stores designate special counters both for cash and customer service so that the premium customers can be attended with ease.
Birthday and Anniversary Greetings
To make the customer feel special the stores send greetings and special customized offers to these customers.
Special movie shows
Customers are sent passes of movie shows from time to time
The Intangible Value
The Emotional Connect
This implies the homeliness aspect which the customer feels for the time he/she spends inside the store. It is the inner feeling which they develop for the store. The reasons for visiting may not always be purchase, however if emotional connect is developed with the store then as and when need arises the stores enjoy top of the mind recall from the customers. The emotional connect coupled with strong functional value creates a long lasting relationship with the customer
Eg. The experience with the local grocer and supermarket. At the grocer's the customer has to be clear with the requirements and there is little scope for too many questions. However at a supermarket, the customer is at ease to choose products without any limited time frame.
With the fast changing retail scenario in the country, the role which the entire CRM team plays has changed dramatically. It is quite often also linked to strategy.
The reason for linking the CRM to the overall strategy is to
- Build dynamic relationship with the customer
- To make CRM the key element to building customer loyalty to a store brand
- To Build a significant competitive advantage
Today it takes a lot of thought process and effective thinking to launch an effective and efficient CRM programme. The various examples and the tangibles as well as intangibles point to the importance of the customers aspirations from the retailer. A shopper always wants to feel that he is an important person and more so when he enters a known retail outlet with his guests or relatives. Here CRM plays a major role in meeting customers expectations.
Dr. Hemant C Trivedi is Head – Retail Academic Area at MICA
Vivek Khandelwal is pursuing Post Graduate Programme in Retail Communications Management at MICA