Wednesday, March 10, 2010

Loyalty Programs: Derive more value from loyal customers

Today, I have become a member of loyalty program of a big retailer. I was very happy to be member of loyalty program as they were offering instant discount of 10% on my total bill. This is my 8th such membership. I am already a member of Kingfisher, Jet Airways, Cross word, Lifestyle, Shoppers Stop, Pantaloon and Park Avenue loyalty programs.

Today, there is a wide array of reward programs in virtually every industry segment. It has become defacto standard in Airlines and Retail industries.As membership in such programs continues to increase, many firms are left wondering whether their programs buy loyalty and increase customer value, or simply add costs without securing repeat business.Lot of organizations have started offering this programs as their competition is also offering such programs.They do not know whether customer loyalty/ reward programs actually influence consumers to change their behaviors, and if so,which factors of a program have the greatest influence.

I am a loyal customer Life Sytle(Retail Chain in India) for past few years, and I am also a member of their loyalty program. I haven't seen any special treatment given to me as their loyal customer in past few years. You are treated like any other customer in the store. Probably, they are offering this program because their competition is also offering similar programs. I like to buy from Life Style because of variety of brands they keep in their stores. One of the striking difference between Life Style loyalty program and other programs is that there is no loyalty program tier like Gold, Platinum, Silver etc. I think program tiers can be powerful incentives and a good way to reward your best customers with the best rewards.

I am also a member of Pantaloon loyalty program in India. They do have various loyalty program tiers. They offer discount based on program tiers. I buy things from Pantaloon just because it is not available in a nearby retail store.They are offering discount on things which I have any bought from Pantaloon.Loyalty programs like this turns loyal customers into price sensitive customers,who are then more likely to defect for a lower priced offer.

Loyalty and reward programs are typically designed to achieve four objectives: increase customer spending, improve retention, maintain competitive position and capture new customer data. But do such programs actually achieve those aims? There’s no doubt that today’s programs yield useful customer data, but what about the other objectives?

In order to achieve other objectives of loyalty programs, you need to analyze transactional data of loyalty members and tweak programs so that you can achieve maximum results.

Typically, BI query and reporting system will help you answer the following questions.

How do people behave in a loyalty program over a long period of time? Do things change as they move through tiers? Does their spending accelerate or decelerate? How do these trends align with customer demographics?

You need business analytics system to address the following questions

"Which segment of customer is most profitable?"
"What products can you cross sell and up sell to this segment?"
"How do you retain most profitable customers and let go non profitable customers?"
"How do I efficiently attract most profitable customer to become member of loyalty program?"

The answers to above questions will help you build loyalty of your customers around brand and the buying experience they have with your organization. This will in turn help you increase revenue from loyal customers.

Monday, March 1, 2010

Business Intelligence Vs Business Analytics

Last week I was presenting business analytics framework to a large audience at one of the partner organizations. There were a lot of questions around business analytics and business intelligence reporting. I think there is lot of confusion between business intelligence & business analytics. I would like to address some basic questions about business analytics in this blog.

What is difference between Business Intelligence(BI) & Business Analytics(BA)?

Business Intelligence word was first coined decades ago. Business intelligence converts data into information. It includes query & reporting, OLAP, interactive dashboards and alerts. It's about analysis on past events, and more reactive in nature. It helps you address the following questions
1. What happened?
2. How many, how often, where?
3. Where exactly is the problem?
4. What actions are needed?

This is a first step towards creating intelligent enterprise.Today, there are many big organizations who are struggling to establish enterprise wide business intelligence reporting platform. It's not enough to compete using BI in today's economic scenario. You need much more than BI to create differentiation against your competitors in today's market place.

Business Analytics converts information into knowledge.It's about predicting future using past data and current events. It's more proactive in nature. It helps you address the following questions
1. Why is this happening?
2. What if these trends continues?
3. What will happen next?
4. What's the best that can happen?

Business analytics can directly impact top & bottom lines. It helps you to

1. Identify segment of people who are more likely to buy your product
2. Identify the best offer among the list of potential offers
3. Identify potential customers who can buy more products and services from you
4. Retain most profitable customers
5. Optimize resources based on various contraints

None of the above is possible using business intelligence tools. All of the above requires usage of statistical algorithms and processes.

BI will give you information like number of stock outs in a store where as BA will give you knowledge like optimal quantity of stock that you need to keep in your store to prevent stock out situations and minimize inventory cost. BI will give information like amount of withdrawals and cash out instances of a particular ATM where as BA will give you knowledge like optimal amount of cash that you need to keep in your ATM based on location, and withdrawal patterns so that you prevent cash out situations and minimize cost. There are several such examples available.

Do you need a Data warehouse to implement Business Analytics framework?

No. It's not necessary to source data from data warehouse for business analytics. You can apply business analytics techniques on data which is directly extracted from source system. You do not have to wait till your data warehouse is implemented as it usually takes anywhere from 12 - 24 months. One of pre-requistite for business analytics is availability of good quality data. It's doesn't matter where it comes from.

How much data do you need to perform Business Analytics?

It's depends on type of analytics that you want to perform. Typically, business analytics techniques requires data from last 3 to 36 months. As mentioned earlier, you need to have good quality data to derive effective results out of business analytics techniques.

According to me business intelligence is a subset of business analytics framework. You must have strategy in place to implement business analytics framework to compete in today's economics conditions. Business Intelligence is just not enough. Be aware of vendors who supply query & reporting tools in name of "Analytics".

You can find more info about business analytics @