Smart Loyalty Petroleum Retail

WIPRO TECHNOLOGIES

By Kishore K Somaraju

“Smart” Loyalty in Petroleum Retail

EXECUTIVE SUMMARY

The old retail truism of having the right product at the right place at the right time is now being adjusted to

include “for the right customer”.

Modern Loyalty programs are ideal tools for achieving these expectations. Loyalty programs make a lot of

sense for retailers: they allow rewarding best customers through discounts, special promotions, gifts, etc. in

exchange for a better knowledge of his customers and new purchase patterns identification.

This paper takes a look at the way Best in Class loyalty programs are defined (in terms of practices and

processes). It also reinforces the obvious advantages of having a well-managed loyalty program in place. Also

outlined are some best practice business levers for each stage of Loyalty program cycle. And finally a brief on

Smart Loyalty & Customer Intelligence Technical Architecture & Process Flow is brought to light.

TABLE OF CONTENTS

Introduction ................................................................................................................4

Customer Retention – What difference it makes!!......................................................5

Loyalty Card Programs Benefits: Customer Standpoint...............................................6

Fuel Cost Savings..........................................................................................................6

Security & Controls........................................................................................................6

Exception Monitoring......................................................................................................7

Flexible Billing Options.....................................................................................................7

Loyalty Card Programs Benefits: Retailer Standpoint...................................................7

Roadmap Levers in each stage of a Smart Loyalty Program.........................................8

Smart Loyalty & Customer Intelligence Technical Architecture....................................10

Integration at Point of Interaction.........................................................................................10

Real-time Customer Data Store...........................................................................................10

Customer Intelligence Analytics...........................................................................................11

Operational Customer Segmentation.....................................................................................11

Campaign and Loyalty Rules...............................................................................................11

Data Quality & Integrity....................................................................................................11

Loyalty Program Support Services........................................................................................11

Measuring Effectiveness of Customer Loyalty Program...............................................12

Emerging Trends...........................................................................................................13

Conclusion....................................................................................................................13

Appendix......................................................................................................................14

References..................................................................................................................14

About the Author..........................................................................................................14

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IntroductionLoyalty programs are a great way to entice customers to keep returning to your stores as they seek to gain rewards on

routine purchases. Finding the right fit when it comes to a loyalty program will help store operators differentiate their

offering and could generate a steady stream of repeat customers.

The main purpose of a loyalty program is to retain regular customers, to increase commitment from occasional

customers and to acquire new ones.

Some of the expectations of the companies are:

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Higher customer retention

Increased single brand loyalty

Increase the amount of

product purchased

Greater consumer resistance

to competitor offers

Competitive differentiation

Lower price sensitivity

What is expected from a successful fuel

card loyalty program?

Parameters of a successful fuel card loyalty program

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Loyalty programs are initiated by businesses with two main goals:

• Primary goal: Acquisition of information relating to their customers' spending habits

• Secondary goal: Actively cultivate loyalty amongst customers to ensure they continue patronizing the business

Loyalty programs may offer benefits in a number of different ways. Many loyalty programs offer a sustained discount

(such as 10%) for a period of time. Others offer a discount once certain criteria have been met, for example, a 20%

discount on a single purchase at the convenience store once a customer has spent $50 at the fuel station. Others offer

points which may then be redeemed for products which may or may not be directly related to the business.

Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behaviour —

behaviour which is potentially of benefit to the firm.

Ultimately, the success of loyalty programs depends on how well the business uses the data it gathers to further refine its

policies and loyalty programs.

Customer Retention – What difference it makes!!There are many reasons why retaining a customer makes business sense. Some of these are:

Enterprise Loss is Competitor's Gain!

If an enterprise doesn’t retain its customer, competitor will gain the customer.

It Costs You More!

It is 6-9 times more expensive to get a new customer than to retain one.

Loyalty reaps Rewards!

A loyal customer base could contribute nearly 40% of the enterprise turnover.

5% makes the Difference!

Companies can boost profits by nearly 100% by retaining just 5% more of their customers.

20/80 Rule applies here too!

Retention decreases Churn!

Retention increases LTV!

20% of customers contribute 80% of the turnover (currently analysts are speculating a 20/65 scenario-but the big picture remains).

Customer retention decreases churn-rate (rate at which customers change service providers). This is especially critical in technology driven industries.

The estimated Lifetime Value (LTV) for a combo store with fuel & grocery/supermarket of a customer with a family of four in the US is approximately $350,000. Value surrendered by not retaining a customer could severely erode top and bottom lines. The implications are thus, obvious.



Loyalty Card Programs Benefits: Customer StandpointToday’s loyalty card schemes empower the customers to get the

most out of every drop of fuel they buy. They are simple and easy

to use, which is important for busy customers on the move and

they leave the station with an experience of getting quality fuels

whilst earning rewards.

There are many key advantages and reasons to choose the fuel

loyalty card:

• Fuel cost savings

• Security & controls

• Easy to check your daily fuel transactions and spending!

• Exception monitoring

• Flexible billing options

Apart from the key benefits discussed in this section, there are some more generic benefits of fuel card customers:

• Saving money

• Convenience factor with ease of payment (speed and simplicity)

• Special offers/discounts for card holders

• Feeling of belonging to a membership community

• Possibility of receiving other financial services (For Example, Barclaycard Freedom, Tesco Club card, etc)

Fuel Cost Savings

The fuel cards have one of the most robust fuel saving programs. Using fuel cards usually saves customers 1-5% or more

on their cost of fuel. This is attained through administrative savings as well as a discount on the cost of fuel. Fuel card can

offer customers a cost plus pricing model or retail minus pricing at several locations.

Security & Controls

The fuel card is as secure as an armoured car for your fuel purchases:

• Assign fuel cards to vehicles, drivers or any combination

• Lock to pay at the pump only to restrict fuel purchases inside the store

• Driver ID & odometer prompting protects from unauthorized fuel use

• Block after hours or weekend fuelling

• Restrict purchases to specific stations or brands

• Fuel Only, Fuel & Maintenance or Fuel, Maintenance & Other

• Spending limits can be set for each fuel card, per day, week or even month

• Fuel transactions can be restricted by dollar and/or gallon amount or transaction per day, week or month.

The high level of controlled spending limits & restrictions which can be customized from card to card will help promote

spend savings and enhance card security. Full internet access to all transactions through online management tools help

customers to track, control and record their spending with respect to fuel and conveniences.



Exception Monitoring

Exceptions such as time of day variances, excess fuel tank capacity, pattern discrepancies, product variances, and excess fuel

purchases made to the account could be automatically e-mailed to key contacts or the card holders themselves.

Flexible Billing Options

Today’s fuel card has flexible (including weekly, bi-weekly, monthly) billing terms. Customers will receive an e-invoice

for their transactions.

Loyalty Card Programs Benefits: Retailer Standpoint

Benefits?Increase customer acquisition

?Increase customer spends and

?Increase frequency of spend

?Increase customer satisfaction

?Stimulate customer reactivation

?Maintain customer retention

?Increase customer referrals

?Increase customer lifetime value

Impacts?Customers identification enables deeper relationship

marketing

?Identification of market trends and customer behaviors – who buys, what, when, where, how much, how, etc

?Increasing in sales volume and margins

?Triggering other opportunities (For Example, financial services)

?Triggering of one of the most important marketing weapons, the “word of mouth” – this happens automatically if the deal is really good

?Differentiation

?Reduce markdowns

We can summarize the value as below:

Value for the Retailer

Drive Bottom-line sales growth

Value for the Customer

Get more for every dollar spent

Understand how customers shop to drive desired behaviour

Receive promotions that reflect individual buying preferences

Save marketing dollars by reducing waste on low-return promotions

Easy to use; register and participate with a swipe/dip/tap of a credit, debit or store loyalty card

Increase redemption rates Instant rewards are simple; no paper coupon clutter, and everything is conveniently accessed through the card



Roadmap Levers in each stage of a Smart Loyalty ProgramStage Lever Collect & Cleanse Analyze & Deploy Interact & Optimize

Stage Description Develop Data Model & Collect Customer Information

Analyze, Segment & Implement Program

Leverage Customer Data & Increase Pervasive Interaction

Pro

cess

Det

ails

&

Org

aniz

atio

nal

Alig

nm

en

t

Conduct focus groups & customer research

Analyze customer product & transaction information to establish customersegments

Marketing & merchandising - leverage customer data to determine product mix, promotional strategies & investments.

Develop loyalty roadmap & strategy

Finalize customer intelligence, loyalty roadmap & strategy

Customer facing teams to become an extension of the loyalty and promotional strategy by providing assisted selling, enhancing service & recommending appropriate products

Develop data model & populate with customer data

Establish loyalty program rules, thresholds, policies & success criteria

Explore organizationalre-alignment & cross functional metrics

Train customer facing teamsto implement the program and explain the benefits to customers

Investigate the use of consulting firms in strategically developing the program

Create & execute mass advertising, batch promotions & in-store/location collateral

Formulate a committee comprising marketing, merchandising, IT and consulting vendors

Provide customer facing teamincentives for registering new customers

Tech

no

logy

Re

qu

ire

me

nts

Create the program technology framework & budget

Implement & integrate analytical planning, operational segmentation, campaign management & loyalty rules applications

Integrate the program into advances selling technology framework

Define functional requirements & identify software vendors

Define & implement operational customer database

Deploy & format loyalty program interfaces for multipledevices viz. kiosks, digitalsigns & mobile technology

Leverage data cleansing software or service

Stage Lever Collect & Cleanse Analyze & Deploy Interact & Optimize

Stage Description Develop Data Model & Collect Customer Information

Analyze, Segment & Implement Program

Leverage Customer Data & Increase Pervasive Interaction



Me

asu

rem

en

ts

Data collection ratio New members New members

Customer expectations Conversion Conversion

Brand awareness Frequency Up sell

Market Basket Service Levels

Dormancy Employee productivity

Margin

Turn

Lifetime value

This roadmap provides details regarding process, organizational alignment, technology requirements, key

measurements, and customer interaction for each of the stages. Retailers will need to tweak existing processes and

procedures and invest in technology to support these activities.

Retailers should understand that the loyalty program journey will be undertaken in parallel with other initiatives,

particularly the high-level strategy of enhancing customer interactions with advanced selling technologies and building

a demand driven supply network. All these initiatives are tightly integrated and rely on each other. Thus, these initiatives

must move together.

Cu

sto

me

r In

tera

ctio

n

Data is collected via reverse append of credit card or telephone number

Customers register for theprogram, be it manual application, kiosk, online,telephone etc

Customers receive electronically and card is optional

Customers may receive promotions that retailer is testing which may not be affiliated to a loyalty program, but used to test offers and help create segments

Members have online access to order history, applicable promotions, services & product recommendations

Consistent and individualized promotions, discounts, services and recommendationsat every interaction acrosschannels

Members will receive mass advertising and can redeem rewards, discounts and promotions

Optimized self service and assisted selling experience

Source: AMR Research



Successful technology architecture to support a smart loyalty program requires the following components:

Integration at Point of Interaction

Integration component manager new/revised customer data flow into operational customer database and allows real-time

integration of loyalty rules through any point of interaction media viz. POS, in store kiosks and Web etc.

Real-time Customer Data Store

This data store acts as a central repository for customer data, standardizing, cleansing, aggregating and organizing the

information to enable analysis and syndication.

Customer Intelligence Analytics

This component provides predictive modelling, data mining and analytics to enable users to extrapolate information about

customers and better understand marketing, merchandising, and promotion activities that will likely influence behaviour.

CustomerIntelligence

Analytics

OperationalCustomer

Segmentation

Real-time Customer Data Store

ETL MiddlewareSAP

Enterprise BW

Web enabledCorporate

Portal

Third PartyNetwork

Loyalty Program Support Services

Data Quality & Integrity

Point of Interaction

Dat

a Q

ual

ity

& In

tegr

ity

Frir

ewal

l

Loyalty Customer

Data Warehouse

POS

Kiosk

Mobile

Web

Call Centre

Partner Service

Loyality & Customer Intelligence Technical Architecture

Loyality Program Rules Engine

Source: AMR Research



Operational Customer Segmentation

This component sits on top of the real-time customer data store to provide segmentation in preparation for campaign

execution. It allows business users to create slices of different customer segments based on answers to predefined

attributes without deep analytical regimen or time consuming data crunching. (For Example, “show me customers that

purchased 1000 gallons of fuel in March”.)

Campaign and Loyalty Rules

This component enforces program design and rules by using a complex set of business rules to process incoming data.

These rules define program characteristics such as:

• A number of points any customer can earn on each type of transaction

• The start and expiry time-lines of a rewards program to which a member is linked

• The rewards that a particular member is eligible to redeem

• Additional bonus opportunities for members

• The thresholds that trigger applicable offers and discounts

Campaign rules set the parameters for outgoing marketing programs such as e-mail, kiosk advertising, etc. Loyalty rules

set the parameters for incoming customer redemption of applicable rewards.

Data Quality & Integrity

This component is responsible for cleansing customer information and cross-referencing this information with third party

databases.

Loyalty Program Support Services

This component creates and fulfils loyalty cards, marketing material and rewards. This component also allows contact

centre operations to support operational enquiries from customers. Fulfilment and service functions are often

outsourced by retailers to third party service providers.



Measuring Effectiveness of Customer Loyalty ProgramOnce the customer loyalty program is in place and running, the enterprise needs to monitor various parameters so as to

measure the effectiveness of the whole exercise.

These various parameters could be:

• Subscription Rate – actual number of sign-ups versus the budgeted figure for a given period

• Sales -Total member spending versus non-member spending for a given period

• Average bill value – member versus non-member

• Member Retention rate – Number of members active after one year of subscription

• Profitability

• Member Life Time Value (LTV) – An increase in LTV indicates a successful CLP

A research project was conducted for a major fuel loyalty program pioneer in the US. 50,000 loyalty customers and 4.8

million transactions were analyzed for a period of 14 months. Highlights of the research are given on the right.

The study clearly shows that a smart loyalty program is effective in increasing purchase frequency and basket size from

loyalty customers. In addition, the retailers would see the success of the loyalty program in getting fuel only customers

back inside the store to make store purchases as well.

?Loyalty customers spent 36% more than regular customers.

?Average transaction size of loyalty customers grew 25% over the period.

?Loyalty members purchase frequency more than doubled from 1.79 to 4.08 times per month.

?29% of non - loyal fuel purchases were paid in the store while 58% of loyalty fuel purchases were made in the store.

?The percentage of double category buyers (Fuel & Store) increased by 22%.

?38% of loyalty fuel purchases in the store included store items.

?26% of non - loyal fuel purchase in the store included store items.

?Between 1,500 to 2,500 consumers enrolled into the loyalty program per store.



Emerging Trends To spice up loyalty programs, more chains are crafting partnerships between non-competitive entities. Grocers sending

people to fuel retail outlets as part of their reward mechanism, a win-win for both of them, is one such example.

Also on the horizon of this decade, we can expect to see more channels integrating an ongoing cause with a loyalty

program. One great example is Shell and Safeway partner with a coalition called Air Miles in Canada, which integrated

the cause of going green and being more eco friendly into their program. Customers can earn rewards from buying green

products at certain retailers, get a bonus for buying that product, and can redeem points for ecologically responsible

items. This also encourages more socially responsible behavior, which is also an overall consumer trend.

Another emerging trend is a shift in how the data is being used to communicate promotions. Data gathering reveals a

wealth of information about customers, but a lot of companies don’t look at that data for insight. In the next five years

the companies that are going to do the best in this space are going to be the ones who turn their attention to the treasure

trove of data they’ve gathered. This data provides insight provides about your most profitable customers and how you

can market to them more effectively. Many marketing chains are sending coupons, special offers, bar codes to mobile phones in order to reach customers

where they are, but it is important for them to see that this strategy works as the risk is the customer most of the times

write-off such offers as SPAM.

ConclusionRewards offered through loyalty programs will continue to be a key differentiator. With so many loyalty programs

available to consumers through multiple market channels it will be a necessity to offer creative and personal rewards.

Consumers will increasingly demand more offers that are relevant to their personal needs and interests.

Loyalty programs recognize and reward the best customers of a business. Nearly one-third of U.S. consumers (32.3%)

consider their participation in retail rewards programs to be “more important” as they seek to stretch their household

budgets in the recessionary economy.



AppendixReferences

• [2005]. James A. O’Brein, George M. Marakas. Management Information Systems.

• [2006]. AMR Research Survey. Loyalty Programs that actually create Loyalty – Retail Imperative.

• [2009]. Barry Berman, Joel R Evans. Retail Management.

About the Author

Kishore K Somaraju works as Senior Consultant, Oil & Gas, within the Energy & Utilities vertical of Wipro Technologies.

With over 16 years in downstream retail automation, Kishore brings with him rich experience from companies like IBM

and Reliance and adds a synergistic value to Energy & Utilities vertical of Wipro.


Wipro is the first PCMM Level 5 and SEI CMMi Level 5 certified IT Services Company globally. Wipro provides comprehensive IT solutions and services (including systems integration, IS outsourcing, package implementation, software application development and maintenance) and Research & Development services (hardware and software design, development and implementation) to corporations globally.

Wipro's unique value proposition is further delivered through our pioneering Offshore Outsourcing Model and stringent Quality Processes of SEI and Six Sigma.

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The Energy and Utility division of Wipro Technologies is one among the Top 10 IT solution providers to the E & U industry across the globe. The Energy & Utilities business unit has worked with over 75 top Energy and Utility companies across North America and Europe in regulated as well as deregulated markets providing solutions in areas such as Customer Care, Billing and Settlement, Work and Asset Management and Grid Operations covering all industry sectors --- Electricity, Gas, Oil and Water.

The cumulative experience of over 5,500 person years spans IT Consulting, Systems Integration, Business Process Outsourcing, Application Development and Application Management services.

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Smart Loyalty Petroleum Retail