Episode 2

Re-inventing Retailer Loyalty Programs

Category :  Sales & Distribution

Most companies try hard to win retailer loyalty through various temporary offers and schemes. However, these standard, time bound, volume-slab wise, schemes do not promote any real loyalty (retailers opportunistically shift between different schemes to secure the best possible deal); these schemes exclude small retailers almost completely (as they cannot pick up enough volume to qualify); and often promotes self-dumping (due to greed to qualify for schemes). Consequent results are disruption of price hygiene in the market and poor ROI for channel partners.

Listen to this podcast to find how firms can truly bond with retailers without any of these issues!

You can find our success stories at: https://www.vectorconsulting.in/our-work/

Transcript
Shubham Agarwal : Hello, everyone, welcome to yet another episode of the Counter Point podcast Vector Consulting Group. The company which is hosting this podcast has seen amazing results in the retail environments where we have led business transformations. Some of the clients worth mentioning here are Bajaj electricals, fleet guard filters, parag mill foods, godrej interio, pidilite, among many others, to begin with vector implements pull based replenishment systems, while traditionally you will find push based systems, which are very prevalent, and often the ones that are implemented in companies around the globe. For those of you who might not know the difference between the two systems, it is simply how the sales happens. In one case, when the company decides and pushes material onto the retailer, and tries to maximize the volumes, irrespective of the consumption pattern, it’s basically called a push based system. As you might understand, while when the company gives the material as per the sales consumption as to what is consumed at the retailer, and only good enough stock until the next ordering cycle, it’s called a pull based system. So we at Vector implement these pull based replenishment systems across our clients. Now, Vector is known for implementing these systems. And a significant feature of the solution is the retailer loyalty program, which is what we are discussing today. We’ll also find out if this is what the secret sauce for Vector is because we have had amazing results. We have Sunil Davis from the Vector consulting group with us today, an expert at retail solutions to help us and clear the myths around this topic, and share with us what is the success mantra behind such significant results. So let’s welcome him to the podcast.
Shubham Agarwal : Hi, Sunil. Welcome to the CounterPoint podcast. How are you?

Thank you. Thank you so much. I’m good. And it’s really a pleasure to be out here with you.

Wonderful to have you Sunil. Alright Sunil, so let’s get started. I want to start by asking, you know, if these retailer loyalty programs are the key to success in the retail implementations that you’ve done at vector?

Sunil Davis : Well, the word key puts me off a little, actually, because the answer is no. And I wish I could say that in a bold capital font of 36 because the retailer loyalty program is an enabler to the retail process, which gives us the success. So that’s the way it is.
Shubham Agarwal : Interesting. So in the case studies that we go through, you know, it strongly comes out that regular retail schemes are damaging to the company’s growth is what we have is what I have read through these case studies that we have at Vector, why do you claim that?
Sunil Davis : This part is true. See, if you look at it, in the known history of mankind, sales has always flirted with schemes as the Alexa for growth. You ask any sales guy you say ki scheme dedo growth lelo. But everyone understands it’s a zero sum game. At the end of the day, it’s like a gamble. Sometimes a hit, sometimes a miss. If you look at it, this regular schemes creating damage when we say we have to understand the root cause why this happens. We seldom to the schemes serve what the retailer needs, the scheme is for the retailer, right? But it doesn’t serve what the retailer needs. If you look at it, most significant need of a retailer is a faster shelf space rotation, and a scheme specifically a volume driven scheme. It doesn’t help that costs. So that is where the problem lies. So if I understand you correctly, the faster shelf space rotation is basically an inventory turn for the retailer. Right?
Shubham Agarwal : Absolutely.

Right. But Sunil what I’ve observed and you are right, what I’ve observed with these schemes is every time a new scheme comes up, and you know, different companies have different schemes, and they keep coming up with one or the other. Either the company dumps stocks, or the retailer self dumps in order to lap up the, you know, the benefit that the scheme is giving.

Sunil Davis : Actually Shubham if you look at it the retailer side we just explained, but the joke is seldom that the scheme has the company itself, the entire company’s ecosystem. It actually it’s like what I call it, as you know, ill effect of the bullwhip, it’s a bullwhip ill effect in terms of the sale skew that is brought by the team, the distributor market outstanding the hit on the range selling because you know the faster selling SKU are what comes in the scheme, so the range selling goes for a toss. The focus is always on the big retailers. And this again, put the reach to a kind of like question mark.
Shubham Agarwal : So the reach range distributors outstanding sales skew. Well, you can go on. Finally, if you look at it, the scheme doesn’t really help the retailer, nor does it help the company. We call it it doesn’t even pass that necessary condition of a win win solution. And that’s where the problem lies.
Sunil Davis : Ah right, you’re right, we do see all these effects, and very nicely put the bullwhip ill effects of regular schemes. So now essentially, this is all a part of the push based replacement system. Right?
Shubham Agarwal : That’s right. That’s right.
Sunil Davis : Yeah. But Vector is famous for implementing a pull based system. But then are we saying the pull based replenishment system is not in sync with the regular schemes?
Shubham Agarwal : Yeah, if you look at it, talking about a pull based replenishment system, and promoting a scheme, which at best encourages dumping cannot be spoken in the same breath. So we do have a problem. And not just saying that we cannot have scheme dosen’t answer one big question, because you’re not like a monopoly out there in a market. You’re not the only player in the market, right? We do have this issue.
Sunil Davis : I infact, I had that question in mind. Even if we implement a pull based system, the competition will still exist, right? And they will keep coming up with these schemes and try to dump stocks to corner the space and capital of the channel partners, their retailers and everyone in the chain. How do you tackle that situation then?

Okay this is a question that I kept answering. And in fact, it reminds me of a scene from the Bollywood movie karma.

Shubham Agarwal : Where there is a character played by Dilip Kumar who tells Anil Kapoor, dimag ka istemal karo socho samjho or fir dushman pe hamla karo .You remember the scene?
Shubham Agarwal : Oh right, Oh, yes, yes, I do. And I think Anil Kapoor goes back and reacts Buddha keh raha hai ki socho samjho parkho or tabtak dushman goli marke chala jayega to buddha marwayega.

Buddha marwayega.

Shubham Agarwal : Well precisely that must be the question, which your sales team must be asking as in everywhere we go and implement the solution?
Sunil Davis : Yeah, buddha marwayega is like, you know, the vector marwayega becomes the kind of like of the word that you first tell them about the entire scheme of things. Yes, actually, if you look at it, the sales team does get perturbed, if this has been the way they have been doing for years and years. So it is not very comfortable thought that we are asking to move them or rather move away from the traditional way. And in fact, the early days are really troublesome, you know, there will be one odd retailer who has taken a competitor scheme, there is a WhatsApp photograph about beaming retailer sitting with a shelf space covered with competitors. As people will say, Come on, there is a doomsday out here.
Shubham Agarwal : Well, If you understand what are we dealing with, then this will become clear, because they asked me how do we tackle this situation when you when you put that point? Remember, what are we trying to implement? We are talking about a pull based replenishment system. And we said this takes care of the retailer’s most significant need. And what does that more significant need?

The fastest shelf space rotation?

Sunil Davis : That’s Right. That’s right.
Shubham Agarwal : But then the question still remains how, when the competition is dumping, and probably the gratification is significantly good. Because these schemes do offer a lot of value to the retailer’s.

Correct.

Shubham Agarwal : How do you still tackle that?
Sunil Davis : Very true. And it’s a valid point here. See whenever the sales team comes and complains, we always believe it’s a valid point. And therefore, one needs to understand the process that we’re talking about. Okay, how are we addressing the buying behavior of a retailer? If you look at it, we started by saying the key to success is not the retailer loyalty program. See, the key to success is the process that we talked about. And this process is nothing but a service promise. If you look at the process that we implement, it is talking about a frequent replenishment in most environments is weekly, with almost 100% availability guaranteed. Now, when you give a promise, this is like you know, 100% reliable, with a price hygiene, coupled with the fact that we give a buyback offer meaning I give you something if it doesn’t sell in 30 days, no questions asked, we will take it back.

That’s quite a commitment.

it’s kind of becomes the first hook for the retailer to look at a company’s distributor favorably for the product that he is interested in. So this first hook if we are able to clinch demonstrate, then it comes to that second point that dil mange more, the consumers or rather the competitors giving scheme. How do I counter that? But the first first hook which I said about the service promise, that is most important if you understand that we can talk about how do we address the competition scheme.

Sunil Davis : At this point is clear to you Shubham ?
Shubham Agarwal : Yes, I agree. There is a lot of commitment here. But yeah, I understand where you’re going.
Sunil Davis : So if you understand this now, all you have to do is, if the service promises good, how do I make for a retailer, the service promise as a rewarding experience. Now, this is where the retailer loyalty programs steps in. The basic design of the retailer loyalty program, or RLP, as we call it, is that for every purchase or every product that he buys, he gets some points.
Sunil Davis : Plus if he buys it frequently, say he buys it every week, then we give him a bonus multiplier, the multiplier is as as heavy as 100% means if he is earning, say 10,000 points, he gets additional 10,000 points, that’s for ensuring that he is buying weekly from us.
Shubham Agarwal : Oh that’s lovely. Okay.
Sunil Davis : And he buys a complete range or rather the range which is relevant to his shop, he gets an additional multiplier. Also, this program is what we call as a lifelong program with no expiry date, meaning there are no king of you know

Oh so you keep accumulating it.

you know, timeline, deadline, and no target. Plus there is a milestone rewards for being consistent with the company. Now, if you look at it, we are just trying to make the buying behavior or rather, the right behavior for the retailer more rewarding. And at the same time showing him that he can have the best of both worlds, that is he can get the best of what so called schemes are without said dumping. And by the way, the reward points that we talked about, they have we have this concept called as dream give whatever one desires, whenever one desires, he can redeem it. So this is kind of making the retailer see the benefits of being consistent with the service promise and assured as per sales pattern, he will get the best in terms of the returns as well. So this becomes really a strong proposition.

Sunil Davis : I wonder if it’s just that simple. Because that’s a lot of commitment from the company side. But yeah, when you look at it, without dumping and without the fear of missing out the ill effects of a typical scheme, if one gets the service points and the added benefits. It’s really a powerful tool.

That’s right.

But still, I mean,

Here comes the but, everyone has a but. Yeah carry on Shubham

Sunil Davis : Yes, yeah. And I saw a movie that everything before but is senseless if you don’t get the answer to but so.
Shubham Agarwal : That’s right very good. Go on go on.
Sunil Davis : So the the emotional attachment to instant gratification, because that’s a very powerful word, which is used across these fares. The instant gratification of these schemes which companies provide, including the ones like you know, a scratch card is definitely preferred over
Shubham Agarwal : This is now like the debate of a one nightstand versus a committed relationship.
Sunil Davis : See when you are trying to look at it, this is the kind of debate you’re getting into. Actually see the retailer loyalty program, in essence, accommodates the aspiration of every type of retailer. And there is something which I try to tell the clients don’t try to play God, the retailer is a smart cookie he is a businessman, let him choose what best suits him. Actually the entire program, the construct of it is actually, you know, bringing out that you know, the famous word Sabka Saath Sabka Vikas, this is how the program is designed.
Shubham Agarwal : I agree Sunil and you know, I also believe that jokes in a way have the bare truth, which you very well make here. But I’m still saying how do you, you know, deal with this challenge because I’m sure it comes every every single day with every retailer or every company that you go into.
Sunil Davis : Shubham you are right actually if you look at it, you know, this is kind of a debate of you know, that instant gratification versus a long term benefit. Yeah, this is where you know, I call it as a need for a proper communication. In fact, I remember there was a town hall address of retailers from with one of my clients. And the MD of the company was pointedly asked this question, sir scheme me jo instant benefit milta hai ap keh rahe ho ki apka long term lage rahe yeh kya baat huyi? So, you know, he addressed that very beautifully, he replied by saying, gentlemen, I am proud to present to you a loyalty program, which has the fastest redemption and a lifelong association, both at the same time. This is like your choice, unlike schemes you know, which has a period and a settlement time and all of you know, right settlement time is where your BP increases as the sale of aspirin increases. In our loyalty program. He went on to add one if he wishes to buy or rather take a Mercedes E Class or if one wishes to you know redeem the purchase that he has done today, I assure you that with a click on my app, the gift will be delivered to the address of your choice anywhere in India within seven days. So you can start redeeming instantly, from the first day of the association or on your daughter’s birthday, or on a special occasion, the choice is yours, but all i am saying is dream big and remember, I’m also giving you 10% interest on your accumulated points, like a bank FD after just you know what the entire and the entire group of retailers sitting there stood up and gave him a standing ovation.

Must be this is a very strong speech.

Sunil Davis : So this entire loyalty program is often misunderstood, you know, as like being a long term jisme instant kuch nahi milta arey choice apka hai instant chahiye to instant long term chahiye to long term. Once you understand the game, it becomes kind of like, you know, cut them, the retailers realize someone is doing something good for them, rather than you know, dumping them in stock.

Right now, this is this is wonderful. And I agree. Often, because you’ve worked in a certain way for years before, you tend to not believe in such schemes, which certainly give you a lot of value, real value.

See actually this is what the problem is, you know, the retailer always looks at you with a suspect company kuch kar raha hai to apne fayde ke lie kar raha hai or usme mera nuksan hoga. That thinking, you know that very well, thinking of like a win lose is so prevalent, that it takes some convincing and some you know, the actual showcasing the benefits for him to realize, yes, there is a possibility of having a win win a true Win win.

Right. And I don’t blame the retailers here as well Sunil because you know, they have had the they’ve been marred by times in the past. And that’s why they’re here. So, yeah. But But is there? Is there a catch here? Does this retailer bonding program work in all environments?

I think your but will never end.

That’s my job.

Sunil Davis : Okay talking so talking about a catch see you have to understand, it’s not like a one formula fits all. If you look at it, this retailer loyalty program, it doesn’t fit for i mean, it won’t fit in every retail environment. There are certain boundary conditions. Just to give you an example, I have a client Link pens infact for Link pens, which is a complete retail driven one of the top brands in the pen industry. For them the retailer loyalty program, this doesn’t apply, you understand in their case, there buying unit for a retailer that ticket size and the buying unit in terms of a packet or a tumbler as we call it, and the selling unit as a single pen the ticket size and the this unit of purchase and unit of selling that doesn’t actually make the boundary conditions for the retailer loyalty program. Similarly, another client again a leading company in the Plyboard industry century ply the number one India’s ply company, I will say for them, most of the retailers do not stop the materials, it is a back to back ordering and for this environment, again the standard retailer loyalty program, this doesn’t apply. So we have to understand that retailer loyalty program is not a solution for every retail environment. What one needs to understand is for the environment, are you able to answer one single question, who really is the influencer? And if you are able to get that influencer answer, then ultimately there is a limited budget, which one can spend and we cannot you know, spend the put the budget everywhere

Exactly.

Shubham Agarwal : So these are the things which make you decide and go about the way to implement.

Oh right, so this sounds interesting. And I am happy that you say that, you know, one size fits all is not the solution here. Obviously you have to tweak it for every one.

That’s right. That’s right.

Sunil Davis : I have two things here, which I want to focus but let me first come to budget out of that.
Shubham Agarwal : While system does show a lot of benefits, I’m sure it comes all at an added cost, right? Where does this budget come from for running such an elaborate loyalty program or a bonding program?
Sunil Davis : Okay, that’s again, a very simple answer. See companies generally have some scheme, some BTL budget, some marketing budget. And I said as per the boundary conditions, once you are able to decide if this is the retailer loyalty program is the right way, then it’s all about deploying and using the available budget and making the best leverage out of the same. So it’s a simple case of having the budget, using it the right way and taking the leverage out of it. That’s as simple as it is
Shubham Agarwal : But the how to deploy is the catch here right?. Something that you’re keeping as a secret to yourself. But okay, so let me be very direct here then the loyalty should be given to whom the retailer, the customer or as you said the influencer. How do you decide to which one do you focus on?
Sunil Davis : Well, the again the answer is very simple. Wherever the leverage is maximum, isn’t it obvious?
Shubham Agarwal : Now that seems to be evading and not sharing the secret Sunil.
Sunil Davis : No, no, no. Shubham actually if you look at it see we in Vector are very proud and sometimes very arrogantly, we say the solution is out there on the vector consulting site in the public domain it’s just about understanding the environment. For example, see your question regarding you know, whether it is a retailer, the customer or the influencer see we have to understand the business for example, there are certain products, where there is an involvement of a trade specialist for the buying decision. Like say in case of automobile servicing mechanics are that trade specialists you know, they influence the decision a lot. There are like you know, furniture work contractor and carpenters become the so called influences for construction work the Masons and engineers will play that role for electrical contracts, the electricians will play that role. So, one needs to evaluate who really influences majority of the buying decision, so there won’t be one answer giving you 100%. But what one as we evaluate is, majority of the buying decision is influenced by whom. And if it is a trade specialist, like a contractor, carpenter, mechanic, mason, plumber, electrician, who influences majority of the buying decisions, then mind you, the influencer loyalty program may be applicable instead of a retailer loyalty program. And by the way, an influencer loyalty program can really be a decisive competitive edge, because you’re creating a brand ambassador, who will bring demand for you, and a loyalist who will swear and live by your brand. Well, that’s a great advantage to have.
Shubham Agarwal : It is definitely a great advantage to have but someone swears and lives by the brand. Does this really happen? I’m curious. Can you share some examples here?
Sunil Davis : Shubham, I can definitely. And it’s my favorite topic. But I think we are digressing from the retailer loyalty program to the influencer loyalty program. It’s a new topic, and I think we should not mix the two.

Ah right, Okay. So all right, I agree. And we should stick to the retailer loyalty program for now. Okay, so coming back to the retailer loyalty program, can you give me examples where the retailer is the focal point, and the retailer loyalty program is the right choice. And also some success stories that we have seen in implementations at Vector?

Sunil Davis : I would strongly recommend that for every listener, you can go to the vectorconsulting.in, our website and go through the success stories that are already there. And there are really strong cases. I believe the link is shared, right Shubham?

Yes. So what we’ll do is we’ll share the links to all these case studies in the details to this episode for all the listeners.

That’s great. That’s great.

Sure, yeah.

Shubham Agarwal : So that can be checked. So the success stories, yes, you can go out and check, but trying to answer your question regarding where the retailer is the focal point and the retailer loyalty program is the right applicable choice. I will share an experience with you. We did a study for a client in the vest and underwear segment, they mostly the owner says the chaddi baniyan segment, so when we did the study, we spent days at various billing counters across India, looking at the consumer behavior. And one typical observation for us was 95% of the purchase gets done without the customer hopping to another outlet, it means a person who is coming to buy finishes that transaction irrespective of whether he gets a specified brand, style or color. By the way, we also saw cases whether a person comes in ask for a size and if it is not available they pick one size bigger, but finishes the transaction. Can you imagine the scenario ?
Sunil Davis : Well the consumer behavior what it brings out is this is an environment where there is a brand recall maybe yes, but vast majority of buyers are brand undifferentiated. Now in such an environment, the retailer plays an influential role in placing the company’s brand in front of the customer. Mind you, the retailer will not make a customer switch brand in most of the cases, but the retailer realizes the vast majority are brand agnostic. Then you’ll just try to ensure that the footfall that he has. He doesn’t lose sales by placing what is available, and more importantly, what he considers as a safe bet. Now, this environment gives a great opportunity for the company to win over the retailer with a simple service promise and the retailer loyalty program. We talked about, look, for the retailer, if the service promise and loyalty program is really good for him, and the consumer he finds it, he places something which is safe and the consumer is happy, then if the company is systematically kind of implements this, and from the current universe of 1000s of retailers, if it goes to lakhs of loyalist retailer, then well as Baba Ranchhod Das says, success jhakk marke tumhare piche ayegi. So that’s as simple as it is, in a retail environment.

This is extremely interesting to how a loyalty program could become a win win proposition for the company as well as the retailer. Now, I actually, you know, I had only heard of this Win Win bet in my social economics book in my curriculum, but suddenly, you know, they seem to be a reality too.

Sunil Davis : Good yr, a reality and that too without a but.
Shubham Agarwal : Exactly, yeah. So on the topic of influence loyalty program, what i propose is let’s plan an episode on it, and come back in the next episode, to talk more about it. But just out of curiosity, are there case studies for influencer loyalty program as well that you could share with us?
Shubham Agarwal : Definitely, definitely. And there are As you know, there are so such a big success story out there. And there are stories which will literally give you goosebumps, so let’s keep it for the next episode. And definitely that will be an interesting chat.

Wonderful Sunil. So for all the listeners we will keep Sunil here and come back in the next episode to discuss and explore what is influencer loyalty program? And how can it be leveraged to build as we say, a decisive competitive edge or a DCE for the company. For all the listeners if you have any doubts about what we discussed today, please feel free to write to us on our social media links, or you can write to us on our website as well. The links are in the details to this episode. And for more, you can also check out various other links in the details. Thank you. Until next time, bye bye.

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