India promises a fast-developing loyalty market

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By: Wise Marketer Staff |

Posted on May 6, 2009

India promises a fast-developing loyalty market

The Indian Loyalty market is in its nascent stages, with most companies and consumers only just beginning to learn about the benefits of customer loyalty cards and programmes, according to Shaju Nair, director of global CRM and loyalty for IBS Software.

The size of the Indian loyalty market is significant, being estimated by IBS at some INR5,000 crore (approx. US$996 million). With a country that has 500 million people under the age of 24, an increasing disposable income and a seemingly never-ending appetite for alignment with all things fancy and trendy, the loyalty market holds great promise, and not only for retailers and CPG brands.

Increased literacy, access to brands, opportunities for international travel, exposure to the global marketplace, and the realisation of the value of customer loyalty are currently key drivers of the growth of the loyalty market in India.

However, the industry is broadly segmented, mostly being represented by airline loyalty programmes, petroleum loyalty programmes, and retail loyalty programmes, all of which have met with varying degrees of success. However, the penetration of these programmes so far has been limited, mainly because they are brand-specific and have not yet provided a holistic benefit for customers.

But before we look into the optimal loyalty model for a developing market such as India, let us first examine the psychology of the average Indian consumer. According to Nair, "India is a land of rising opportunities. The majority of Indian consumers have a history of struggle - not just economic but also social. The competitive nature of society manifests in increased expectations, reduced patience and the need for instant gratification."

These are the needs that any partnership should cater to. The successful ones are those which understand this basic need of the average consumer and come up with schemes to address the unique needs of these people. Indian consumers have always been sticklers for value for money. They want to get benefits for every rupee they spend, no matter where they spend it. They are always interested in aggregating benefits from multiple sources.

So what kind of loyalty model will work in India? While airlines and retailers have been the pioneers for loyalty so far, the single model that IBS sees succeeding is one that transcends a specific brand and goes on to encompass multiple brands across multiple segments. In essence, with a few regional and cultural modifications, this is a coalition loyalty programme in which one platform brings together multiple brands, and through which consumers can reap benefits no matter where they shop.

But every opportunity comes with its own set of challenges. Setting up a coalition loyalty scheme within a country like India definitely has some challenges. For example:

  • Partner acquisition Coalition loyalty players will find it extremely difficult to get partners that subscribe to the programme, and such a programme will be successful only if large businesses with pan-Indian presence and good 'brand recall' are partners. In most cases, such brands already have a loyalty programme in some form or another and may be very concerned about supporting their own brand first. Coalition loyalty operators may also find it difficult to convince individual brands to give up their differences and adopt a single loyalty platform.  
  • Redemption platform There must be a sound and diverse redemption system. There are two aspects to this. First, the loyalty programme needs to have a network of redemption partners and, second, it needs to have the back-end operational strength to cater for a potentially massive number of redemption requests (including activities such as processing, packaging, shipping and so on). It's also better if programme members can conduct redemptions online while individual merchants take care of the fulfillment, although there will be many cases in which merchants don't have that capability and would look to the coalition operator to provide a fulfillment service.  
  • Education While loyalty cards and programmes are known to many, there are even more businesses and individuals that need to be educated about its benefits. Awareness needs to be increased using every media available, whether print, internet, or television. For a loyalty programme to be successful, companies and individuals must be made aware of the concept of loyalty and understand its value in terms that are meaningful to each.  
  • Accessibility Having a loyalty programme is one thing, but getting customers to use it readily and enthusiastically is another thing. The programme needs to be structured in such a way that customers can access it from anywhere in the country, and do so using a ubiquitous medium such as a cell phone.  
  • Financial feasibility All good things cost money, and a coalition loyalty programme is no exception even in a developing market. Apart from the costs of management, IT, and fulfillment, there are other operational costs that also need to be considered. For example, if the programme decides to give a loyalty card to each of its members, this is going to represent a significant cost. The economic model of the coalition loyalty programme should take care of all its costs, both initial and recurring.  
  • Technical feasibility Needless to say, technology forms the backbone of any loyalty programme. For any business wanting to launch such a programme in India, it is preferable that the technology vendor is also local. If you scan the marketplace for such vendors, there are very few technology houses who can provide a ready-made platform that can scale not just to the volumes but also effectively manage the complexities of a large loyalty programme - a platform that is made specifically to meet the demands of a coalition loyalty marketing programme.

    The other key selection criteria should be the focus of the vendor in the loyalty space. The technology vendor should be dedicated to building up the product, constantly keeping track of the latest trends in loyalty and making sure that its product caters for those trends.

Globally, every successful loyalty model is eventually copied by a competitor, and this is equally true in India. But is this necessarily a threat, and how many coalition loyalty programmes can the Indian market support?

According to Nair, India is blessed with a huge population, and one that is young, educated and looking for brand adherence. Loyalty programmes have the potential to thrive in such an environment. As long as the Indian psychology of total value for money is catered for, any number loyalty programmes can exist in theory. Nair's estimate is that, as a nation, India could easily support ten successful nationwide programmes, each with membership of 10 million or more.

So, as India heads along the path toward loyalty programmes, the coalition model seems to be the best choice. Increasingly the coalition will become a customer-driven operation rather than an enterprise-driven marketing initiative and, while individual loyalty programmes can still exist and prosper, most will eventually need to align with coalition programmes to remain attractive to their members - because the average Indian consumer would stand to gain from a wider partner base.

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