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BOOKSTORE BUSINESS CASE
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The bookstore NSMS, Using SMS in a Loyalty Program
(The name NSMS and other names has been changed in accordance with the clients
wishes)
Introduction:
Ms. Maria Caras 28 is working for the Philippine book retail chain NSMS in
the Marketing department. In the beginning of 2002 the Marketing Director Mr.
Yin Mihn decides to put Maria in charge of the faltering customer loyalty
program. As Mr. Mihn is saying: "We have had this program for years but nobody
seems to know about it and the few people who do know about it don't use it"
and further "The market is becoming more and more price sensitive, we need to
make a difference."
Loyalty Programs
Loyalty programs are strongly linked to the concepts of "Relationship
Marketing" (RM). The theoretical foundation for this branch of marketing
says that in reality it is much cheaper to retain a good customer than
to get a new one. Therefore, businesses must ensure that their existing
customers are happy and get at least the same treatment as existing customers.
It is also a characteristic of RM that repeat business is much cheaper than
"one off" business. Frequent customers don't ask as many questions and
generally buys more per visit than "one off" customers.
In general, this is the kind of customers you would like to have as a business.
Many businesses have recognized this and have installed various loyalty programs
that cater especially to this customer group. Many airlines has a "frequent flyer"
package or chains of gas stations also uses this kind of points based loyalty
programs, generally the more you use the products from the business the cheaper
it gets (!) or you can use the points to get extra "free" products from the
company. Usually you need to sign up for the program and there are normally a
minimum number of points you have to have before you can redeem your points.
NSMS had such a program:
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For every 20 PhP you spent you would get 1 Point until you had 250 Points after
this you would get 1 Point per 10 PhP. In effect you would get 10% discount for
purchases above 5,000 PhP.
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1 point on the program equals 1 PhP value in the store.
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You have to have a minimum of 100 Points before you could redeem your points.
The Problem With Loyalty Programs
However, many companies don't like to give away money, and even more companies
have a serious problem when it comes to measuring things. So in the heat of
everyday business many companies forget that the loyalty programs are there to
cater for their best customers, and they make it almost impossible to redeem the
points, suddenly reduce the value of the points collected or even worse abandon
the programs. The key to a loyalty program is to make it worth your while to do
repeat business with a company. NSMS had in this case an example of a customer
loyalty program that was half heartedly implemented and almost impossible to use
for the customers. One fraction in the stores management considered this a success.
"We have this great loyalty program and it costs us almost nothing to
run" and "people collect the points but they never redeem value"
There was no way for a customer to find out how many points he had collected
except to go to a store and ask the clerk on duty. In reality the program did
not have the intended effect of making the heavy users more loyal to the chain
but had the opposite effect of making them angry about the way the store behaved
towards them.
The Background
When Maria Caras was looking into the problem she started by analyzing the
company database, in reality less than 0.5% of the stores turnover was given
as discounts to customers. She also found that most of this was most probably
from students who ganged up and shared one card (of the customers that actually
redeemed points most had bought multiple copies of the same title). She also
took a couple of days off from the office and went to a number of local branches
in Metro Manila and talked to customers, mainly the ones buying many titles.
She found that only 10% of the people she talked to had heard of the program and
about half of them was using the program to save points. However, only one
customer had redeemed points from the system. The qualitative study matched the
quantitative study perfectly, but that was of no comfort to Maria. She concluded
that for the program to work, it must:
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Be advertised in the store so that the customers are reminded that it is
there. And advertisements may be in the form of poster and consistent
reminder by cashiers to every customer to present their loyalty card.
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Encourage all customers who buy for more than PhP 1,000 to register with
the program.
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Inform the subscriber his available points and what can he redeem with
those points.
The Business Opportunities:
Maria had noticed that quite a number of customers were sending text messages
while in the store and she herself id a fanatic texter. So, she thought that
using SMS text messages to both redeem points and inform about text messages
was the ideal combination.
The system would work this way:
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During registration the customer would be asked to provide his
cell phone number.
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This number would also work as a reserve number (backup) in case the
customer had forgotten the registration card.
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If the customer wanted to pay for a purchase using the collected
points he would at the desk, send a SMS to a standard number with a
special code given to him by the cashier.
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The customer could at any time query this number about how many
points was on the balance (each query would cost the customer 1
point but using the system to pay would be free).
Maria thought about it a little longer and then added:
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If the customer had been inactive for some time, like three months
then NSMS could use a number of tactical measures to "lure" the customer
back into the store.
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NSMS could send a SMS message to the customer saying "if you come to our
store before the weekend we will add X points to your balance of Y Points"
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NSMS could send targeted advertising like Amazon.com advertising special
promotions like buy the latest "Harry Potter book" (we know you bought
the first 3 and here is a new one out, buy it now)!
The objective of using SMS as the technology vehicle in the NSMS loyalty
program was primarily to get the heavy users to feel that there was a special
advantage of using NSMS bookstores, less so to make money from the program. By
making collecting points and the following pay out an integral part of the
activity in the NSMS book store for the heavy users, Maria thought that this
would do the trick of getting the loyalty back on track for his specific group.
The Cost
Establishing the system cost NSMS 300,000 PhP in upfront investment. Of the
approximately 500,000 different customers that visited the stores every year,
about 50,000 would benefit from the system. Maria estimated that about half
would join and the cost to the company would be less than 6 text messages per
year, this is a total cost of 15 PhP per customer that joins the system, If just
one more book was sold per 10 heavy users then the system would run at a profit
within the first year.
Conclusion
In Maria's words when she rounded off the presentation to Mr. Yin Mihn:
"A smooth running loyalty program is no just good business it is an
excellent opportunity to show our loyal customers just how much they mean
to us".
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