Group No.

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1. Importance and value addition of a customer loyalty program for a public transport organization such as the IRCTC

Loyalty programs are often part and parcel of a comprehensive customer relationship strategy
Relationship Marketing was first defined as a form of marketing developed from direct response marketing campaigns which emphasizes customer retention and satisfaction, rather than a dominant focus on sales transactions. As a practice, Relationship Marketing differs from other forms of marketing in that it recognizes the long term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages The benefits of using a loyalty program to obtain customer information are summarized below: - Shift - Acquire new customers - Lift - Increase the spending of existing customers - Retention - Improve the natural churn rate of customers - Profit mix - Shift spending to higher margin products

Fundamentals of Loyalty Marketing

For loyalty programs, communications used to focus on tangible benefits - what we call the "ER" words. That is to say, "Our program is..." 'Bigger,' 'better,' 'faster,' 'easier.' These words have ceased to have meaning. Everything works now. These are the table stakes. As such, the market has changed in that consumers are demanding more. Rewards have evolved in the marketplace from being a nice little extra for one's loyalty to being perceived as an entitlement (partly the result of the commoditization of loyalty programs). Concurrently, consumers have shifted, to some extent, away from a desire for possessions to a desire for experiences - partly due to changing demographics. Overall, consumers are looking for the meaningful (which includes value and relevance). The rising tide of expectations necessitates that loyalty marketers develop truly innovative loyalty programs, utilizing loyalty marketing best practices.

Building a Winning Loyalty Program Strategy

Regardless of how you develop your loyalty program - based on hard benefits (e.g. a currency) or soft benefits (e.g. access, special privileges, exclusive partner benefits and offers) - make

sure there is alignment between your customer and the loyalty program i.e. the program supports the customer experience and not the other way around. There truly is a sequence you need to go through in developing a loyalty program. Too many program designers take short cuts and jump to platform selection or program execution and don't do the basics:

Program Objectives Program Positioning Program Strategies Financial Analysis Value Proposition Currency Strategy Business Analysis Data Analysis Platform Selection Segmentation & Test Plan Measurement Plan Exit Strategy

The different kind of loyalty program

1. Rebate Programs/Cash Back

Although similar to discount programs, which are immediate rebate programs allow participants to accrue financial benefits from purchases that are saved up and redeemed after a set threshold or time period. These benefits can be tracked over time but often involved a rebate of a percentage of total purchases over a month or quarter. The rebate is often in the form of a gift certificates to drive customers back to the store. Rebate can be in the form of a dollar value or a percentage value. Pros - Relatively simple to communicate and understand, depending on the offer structure - Although discount based, it avoids the "discount on every purchase" mentality - Rebates in the form of gift certificates can often drive customers back to the store - Does not require much administration - Cheaper to administer than a points based scheme (although difference can be marginal dependent on size of rebate/cash back - Can allow tiered offers for highest value customers Cons - Does not provide instant gratification

- Rewards profitable and unprofitable customers alike - Can be expensive depending on the rebate thresholds - Disguised discount program affects margins - Can alienate infrequent shoppers - Easily emulated by competition Rebate/Cash back programs have become increasingly popular because while avoiding immediate discounts, consumers often feel they are accruing value. Although the program can be expensive, the rebate dollars often drive customer back to the store. 2. Discount Programs As is implied by the name, discount programs are programs that offer a specified percentage off (or a dollar amount for large purchases) of the retail purchase price. This can be product specific or offered on the total basket of purchases. The distinction from rebate programs is rather than accrue the benefits, discount programs typically apply instant benefits to participants at the point of sale. Pros - Simple to consumers - Instant gratification - Deeper discounts can be used tactically - Usually easy to administer

Cons - Discount implies that regular prices are too high - Difficult to exit the program - Can be easily duplicated in the marketplace - Can alienate infrequent shoppers

- Discounts affect margins Discount programs are typically the easiest to administer loyalty program offering. However, discounting products for members is expensive and it is difficult to exit such a program once it is launched. An example of a successful discount program is Canada's oldest, best known, best loved reward program - Canadian Tire Money - often suggested as a replacement for the nation's weak currency.

3. Points Programs To avoid the negative connotations of discounting, many loyalty programs us a points "currency" to allow participants to keep track of their earned benefits. Typically, consumers earn additional points by buying goods and services from the issuing retailer and can include bonus products, bonus thresholds and partner opportunities Pros - The basic premise is simple for consumers to understand - Can be difficult to match because earning and reward thresholds can be easily adjusted - therefore can offer greater competitive advantage - Can allow more targeted, flexible and imaginative promotions e.g. points for special purchases - Avoids price discounting - Can use points promotions on brands that do not allow discounting - Can use to reward employees - Currency can be resold to vendors to help support the program - Enable the collection of customer data to put in place targeted promotions and crossselling opportunities - Breakage (The difference between points issued and points redeemed) Cons - The proliferation of points programs is confusing for consumers

- The "halo effect" of programs where thousands of points are required to earn a benefit devalues all points programs - Depending on the community, loyalty program fatigue can be an issue - Requires investment in redemption opportunities - More complex to put together and manage an attractive customer proposition requires management of the currency including customer service - Need to put a contingency on the balance sheet for outstanding points

Program Measurement The following elements are all tied to customer advocacy, which is tied to customer loyalty - all of which affects your brand: Simplicity = Make my life simple, don't confuse me with too much information Benevolence = Understand my issue and take my side in getting a resolution Trust = Doing what's right, honoring promises, and protecting customer's privacy Transparency = Rates and fees are crystal clear, and comparisons are available

2. Illustration of two relevant customer loyalty programs that can be benchmarked for setting a loyalty program for IRCTC
There are 3 levels of Membership: Blue (Neelvarn) Card - There are no pre-requisitions to be a member of Blue Card Silver (Rajat) Card Need to travel 1500 Km. An annual fee of Rs 2000. Gold (Swarn) Card - Need to travel 2000 Km. An annual fee of Rs 3500.

Benefits: Priority on Waitlist Select your preferred seats Up gradation to Silver Card at redemption of 15000 points Up gradation to Gold Card at redemption of 20000 points Transfers of points among Silver & Gold Cards Access to Partner Hotels Bonus of 25%extra points on every travel 15% Discount on Partner Holiday Tours

Blue ok ok ok -

Silver ok ok ok ok ok -

Gold ok ok ok ok ok ok ok ok

Partner Services: Hotel Indigo Hotel International Hotel Maharaja Indian Airlines Raj Travels