For loyalty marketers, this is a country full of promise, says Kelly Hlavinka. 

The world’s second most populous country offers tempting opportunities for loyalty marketers. As these new possibilities emerge, there are also tough challenges – but India appears primed to step up its loyalty game.

To get a sense of the intensity of the surging Indian marketplace, picture people – me among them – queued up in a winding Disney-like line just to get into a Mumbai hypermarket called the Big Bazaar. 

Inside, I find customer chaos, with every crammed aisle featuring Kmart-like ‘blue-light’ specials announced by hawkers shouting into megaphones. Some of these hawkers occasionally climb up the merchandise pallets to run contests and games to help move their wares. Meanwhile outside, where the lines of people awaiting entry curl through the open-air marketplace, vendors in tiny stalls go about their business, talking and haggling with customers just as they have done for centuries – all without a megaphone.

Such contrast is typical of India, a vast country of 1.15 billion people with a relatively small percentage of middle and upper-class citizens on one extreme and a significant portion of its population still living in grinding poverty on the other. It’s a modern country with a growing economy and a reputation as an information technology superpower, yet more than 30 per cent of the population remains illiterate. And, only about a quarter of its population lives in urban areas; the rest live in small, rural villages with little access to technology.

My recent stay in Mumbai illuminated how these contrasts affect the burgeoning loyalty industry in this country. And, I learned even more during the conference I had journeyed to attend: India’s Loyalty Summit 2010. Economic and cultural contrasts provide specific challenges to loyalty marketing in this fast-changing part of the world and they form a vivid metaphor for the evolution of loyalty marketing itself. Promising opportunities abound, from proprietary formats in the growing retail vertical to budding coalition programmes across industries, which have sparked an infectious entrepreneurial energy among those working in the industry.

At the summit, I heard amazing stories of new technology startups, new analytical capabilities and new programme ventures that have recently launched from more than a dozen Indian companies. 

Yet, serious challenges must be overcome if India’s loyalty marketing industry wants to take its efforts to the next level.

“The loyalty market in India is in a very early stage of maturity, but it’s maturing rapidly,” says Bijaei Jayaraj, founder and chief executive officer, Loylty Rewardz Mngt Pvt Ltd, a loyalty rewards programme management company that manages schemes such as FreedomRewardz, a debit card loyalty programme for State Bank Group customers with more than 69 million members, and WorldMiles,

an airline-independent frequent-flyer programme for Deutsche Bank Visa Platinum and Signature credit card customers.

That maturity is partly due to a growing infrastructure in organised retail, a growing use of media such as mobile and growing prosperity within the population, says Praphul Misra, CEO of NetCarrots Loyalty Services, which runs customer loyalty programmes, employee incentive and reward programmes and dealer/channel incentive programmes. “With the growing prosperity, there’s a whole new consuming class, much like consumers globally – so it creates a fantastic opportunity from a loyalty perspective, depending on the target market.”

An ever-changing landscape

Though the India market is still relatively unexploited, Jayaraj explains it is also becoming increasingly complex and competitive as more private equity pours into a growing retail sector. “It’s becoming increasingly important for organisations to understand their customers in a more systematic and professional way,” he says. “India used to be made up of small retailers or mom-and-pop shops where the shopkeepers and customers knew each other personally – by name, their father and grandfather and family.” In today’s growing marketplace, however, as some retailers move toward becoming national chains, knowing customers individually becomes impossible – and access to data and data analysis becomes far more important.

That’s where loyalty programmes come into play, says Vijay Bobba, founding CEO and managing director of i-mint, a Mumbai-based coalition loyalty rewards programme launched in 2006 that now claims more than nine million members, more than 2,000 network partners and 3,000 points of presence. “For businesses, their interest is in future access to customer data,” he says. “And the only way you can build customer data is to have some kind of loyalty programme.”

As is fairly typical of most markets, India’s earliest loyalty programmes were based in the travel and hotel industries and those verticals remain strong as loyalty marketing expands across the country. 

For example, Brian Almeida, group managing director of Direxions, a loyalty marketing and direct marketing agency with offices in Mumbai, Kolkata, Delhi and the US, says his company began by managing programmes such as the British Airways Executive Club in South Asia, Jet Airways’ JetPrivilege programme, and the Taj Inner Circle. Direxions today runs India’s largest fuel programme for Bharat Petroleum, a smart-card programme with more than two million members.

Today, more financial services companies have integrated loyalty into their offerings and retailers such as gasoline retailers, grocers and department stores have developed loyalty programmes.

“Three or four years ago, the primary focus for retailers was real estate,” Almeida says. “Today, they are more focused on how to acquire customers, how to retain the customers and what kind of margin they need to be offering.”

Next generation challenges 

The next generation of loyalty marketers and programmes faces some significant systemic challenges as they seek to expand their efforts. For example, despite its huge population, only about a million households make more than US$60,000 annually, limiting the number of people able to regularly participate in some kind of reward programmes – those who can afford, say, to fly on an airline, stay at a hotel, or shop at a more expensive store.

In addition, compared to the US, India’s consumers are savers; nearly 24 per cent of their salaries are saved. Combined with the fact that only 20 per cent of India’s customers are considered bankable, there’s not a natural tracking mechanism on credit and debit purchases for a vast percentage of economic transactions.

Large retail formats, while seeing growth, remain a small percentage of India’s total retail landscape – 93-95 per cent of retailers are typically small convenience stores. The national chains that could anchor a partnership or coalition are, in general, still evolving.

Finally, consumer awareness of loyalty programmes, explains Loylty Rewardz’s Jayaraj, remains low. However, awareness is increasing as new loyalty programmes spring up regularly. “Given that this is a large country, (programme introductions) are beginning to happen in a rapid fashion and people are beginning to understand what this space is  all about,” he says.

Despite these issues, however, no-one should underestimate how quickly India will catch up to markets that have been running loyalty programmes for decades.

Firing up India’s loyalty future

The future of India’s loyalty industry is bright, believes Direxions’ Almeida. “A lot of new technology is coming in, with many new players and more brand competitiveness,” he says. “Those brands are going to look at retention and loyalty programmes far more than they have in the past.”

The prospect of partnerships and expanded coalition programmes, too, hold a great deal of promise in India, say experts, since such business models offer consumers a greater value proposition and small to mid-sized businesses a way to increase reach alongside national chains.

“I strongly believe coalitions appeal to the core of the Indian psyche,” says Praphul Misra. “Indian consumers are value-conscious customers and if they are able to generate value from across multiple sectors of the purchase basket, from fuel, to grocery to my telecom bill, I think we are responsive to a value proposition like that.”

Coalitions do face obstacles, of course. “India is such a large geographic area that it’s difficult to get large national players that have an equal presence across the country,” says Almeida, which may result in “a lot of partnerships or coalition programmes where a few partners are national. We know of at least five of the large industrial houses that are evaluating coalition loyalty programmes across their product and service lines.”

For i-mint, the idea of a coalition programme offered “an opportunity to bring on hundreds and thousands of small to mid-sized merchants who were willing to be part of the network,” says Bobba. “But it also became clear that unless we had very large partners on day one with a reasonable national presence and some kind of consolidation, we would not even have a head start.”

There are other positive signs: For example, data-gathering may become easier if India’s Unique ID project – a government initiative in which every individual will be assigned a personal identifier – takes off at the end of 2010. “The cleanliness, accessibility and integrity of this data will become very positive for the industry,” says Almeida.

And while for many Indian companies, retention and cultivating customer growth remain low priority, several forward-thinking companies are already encouragingly far along in adopting customer-centric strategies, including HSBC’s Total Relationship programme, Tommy Hilfiger’s strong front-line component featuring store ‘champs’ and MyBonus, a pilot smart-card coalition-like programme with more than 100,000 mom-and-pop stores already signed up. As well, department store Shoppers Stop’s First Citizen programme, with 1.5 million active members, uses programme data from their most profitable customers to conduct significant work in modifying store and shelf layout and testing ‘community-based’ messages and initiatives – such as regional festival tie-ins – to influence consumer behaviour.

However, when it comes to customer growth and the resulting expectations, some experts include an advisory: “I would caution them not to expect too much in terms of loyalty being the fix for driving growth,” says NetCarrots’ Misra. “Loyalty may not be able to be a panacea, but it will probably give you insights which will then help you sustain the growth.”

Still, it’s clear those now in the Indian loyalty industry will have an early-mover advantage. By applying loyalty principles today, companies will forge loyal customer relationships before the battle for share of customer becomes a crisis.

For Bijaei Jayaraj, that early-mover advantage is essential as the Indian market prepares for a loyalty revolution. “The market is undergoing a drastic change as organisations begin to understand the importance of maintaining a quality database, understanding their consumers’ behaviour and developing the ability to reach out to those consumers on a one-to-one basis,” he says. “It’s probably a multi-billion dollar opportunity given the size of the country and the economy.”

And when it hits that figure, you’re sure to hear about it – no need for a megaphone.

 COLLOQUY partner and contributing editor Kelly Hlavinka is a frequent speaker on the subject of loyalty.