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Every
marketer''s dream of attracting customers with unflinchingly
loyalty comes true… with artificial intelligence,
says Dr Kaustubh Chokshi, CEO of UK-based Intelligent
Business Systems
 It''s
a fickle world out there. In an age when people change
jobs and partners almost as often as they change hats,
it''s small wonder that every marketer dreams of attracting
customers who will be unflinchingly loyal to the products
and services of his company. Finding, attracting and retaining
such loyal customers in a competitive and crowded marketplace
are an ongoing challenge. While customer satisfaction
is the basic starting-point for retention, full-fledged
loyalty goes far beyond — it cannot merely be bought,
but rather, has to be earned.
The
relationship between the 21st century customer and the
vendor is a complex one. From basic marketing research,
promotions and sampling, marketing methodology has evolved
to encompass more innovative ways of capturing customer
loyalty. In the retail trade particularly, there has been
a rising trend towards loyalty card programmes, in the
hope that such schemes would guarantee customers return
to a particular outlet or chain rather than an turn to
the competition.
Loyalty
cards — a ''hygiene factor''
Loyalty programmes in some form or the other (such as
saver stamps, card or sticker series collections, etc)
have existed for centuries. The electronic version, based
on smart cards, became popular just over two decades ago,
with frequent flyer programmes offered by airlines. It
soon expanded to cover the hotel industry, followed by
most other major industries catering to individual consumers.
Now there are programmes for frequent flyers, frequent
buyers, frequent diners, frequent players, and myriad
other schemes. But, in essence, most of these schemes
are mere electronic replacements of their paper predecessors.
A
study conducted by the Gartner Group revealed that American
firms spent over $1.2 billion on loyalty programmes in
the year 2003. Jupiter Research says that over 75 per
cent of consumers have at least one loyalty card, and
a third of the US shopping population has two or more.
Other surveys by Forrester Research and the META Group
indicate that spending by organisations on loyalty programmes
have exploded in the last few years and show no signs
of abating in the near future. As the organised retail
sector expands in India, so will the number of loyalty
cards that consumers carry around in their wallets.
But
is there anything that differentiates those cards from
each other? At the outset, when loyalty programmes were
not widespread, they did have considerable utility, because
they rewarded high-value customer and actually built loyalty
around customer bases. But ultimately, competitors also
cottoned on, and loyalty programmes became synonymous
with point systems. There has been little or no concerted
effort to understand the individual needs of the consumer;
it''s a one-size-fits all attitude.
When
nearly everyone in the marketplace offers a points reward
system, the system itself no longer remains a differentiator.
In the airline, hotel and organised retail sectors, point
systems have become a cost of doing business, a hygiene
factor--having one is not a differentiator, but not having
one is damaging. Whether such systems actually build loyalty
is anybody''s guess. Further, each organisation needs to
ensure that the customer carries its loyalty card in preference
to those issued by the competition.
Dynamic
customer relationship
It would not be an exaggeration to state that the days
of traditional loyalty card programmes based purely on
reward points accumulation are numbered. Not only is the
cost of sustaining such programmes increasing, but also
the impact on the sponsoring organisation''s business model
and bottom line are questionable, to say the least.
It
has now become clear that rewards and benefits that are
not personalised (hence often unusable) cannot cultivate
loyalty; they may instead only serve to irritate or anger
the consumer. For most retail businesses, consumers first
select stores driven by requirement and convenience. The
retailer, thus, needs to rise to the occasion and make
consumers aware that their specific requirements and desires
are known. This is possible only if the loyalty plan can
be personalised to the customer''s tastes. The best marketers
deliver this kind of simple, valuable relationship in
the course of daily business, and not as a benefit the
customer must "earn."
Any
customer relationship management programme that includes
a loyalty scheme must hence be able to go beyond customer
demographics and total spends in order to develop customer
categories. Both known and unknown consumer behaviour
and psychographics have a bearing on the segmentation
of consumer preferences. Thus the retailer needs to keep
a close eye on the performance analysis of the different
marketing channels used by the organisation. Further,
to make such schemes effective, a complete analysis of
existing and proposed product-mix alternatives needs to
be made, in order to match promotional pricing and special
offers with potential risk.
The
primary benefit of a loyalty programme to the sponsoring
organisation is not consumer loyalty per se, but the opportunity
to build relationships with individual customers in gathering
purchase tend and product information, with a view to
achieving better focus and targeting, improving operational
efficiencies and ultimately altering consumer behaviour
for enhanced profitability. For this to happen, the information
collected from the loyalty programme must serve as an
input to improve and fine-tune core operations such as
product selection, displays, advertising, pricing, etc.
AI
to the rescue
Of course, with traditional, logic-based software it would
be impossible to achieve the above goals and overcome
all the prevalent limitations. There needs to be a high
level of decision automation in the customer profiling
and rewards personalisation process. Further, the profiling
needs to be accurate even when there are gaps in the data
pertaining to a specific customer; and, the profiling
and personalisation need to dynamically evolve as the
consumer behaviour, buying patterns and status change
over a period of time. All this can only be achieved with
software that has Artificial Intelligence technology at
its core.
Nevertheless,
for any loyalty card system to be truly successful, it
needs to have a wide range of data pertaining to a customer.
That''s why any loyalty scheme worth its salt ties together
many products and services--across brands, industries,
sectors and geographies. While the data on each loyalty
cardholder is being built up, techniques such as Bayesian
inferencing are used to fill in the gaps.
AI
software based on neural networks is especially designed
to recognise patterns in the transaction data. Over a
period of time the likes and dislikes, attitudes and behaviour
of each customer participating in the loyalty card programme
emerges, and the resultant categorisation is obviously
more meaningful than that based only on demographics and
spends. This sets the stage for Precision Marketing exercises,
which help in the anticipation of the needs and wants
of customers, rewarding them for their profitable and
desired behaviour. Such a loyalty programme, which delivers
relevant and worthwhile communications to customers at
precisely the right time in the purchasing cycle, would
definitely have positive fallout in terms of customer
satisfaction, loyalty and yields.
The
sky is the Limit
Once the structure of the loyalty card programme is set
to ensure collection of large amounts of consumer data,
as well as provide for personalised and relevant rewards
to ensure loyalty and continuity, there is no limit to
the ways in which the AI system can be trained to automate
decisions pertaining to a wide variety of marketing scenarios.
For instance, in a supermarket, the raw data can be put
through the AI engine, transforming it into information
and knowledge that enables sophisticated levels of prediction:
The supermarket can gain deeper insights such as —
how discounts and promotions impact the sales trends;
which items are selling the best in each department; what
trends are patterns are emerging that may have an impact
on future sales; which marketing channels are more effective;
what product-mix works best, etc — and then use these
insights for fine tuning the entire marketing operation.
Customers
may indeed be fickle-minded in today''s world of myriad
options. But an AI-based loyalty card programme that offers
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