Financials

<p style="text-align: justify;"><span data-preserver-spaces="true">Customer acquisition and retention are the two key metrics for any brand in the market. Brands across the globe compete for customers' attention to grab a part of their spending. While in an ideal scenario, once you've acquired the customer, you only need to keep the customer engaged, this is not what generally happens. According to Dominique Crie from the University of Sciences and Technologies Lille, almost a third of the acquired customers become dormant just after the first engagement with the brand.</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">It is here when loyalty/loyalty programs come into the picture. The general perception in the market for Loyalty Programs is that there's an earning and burning of points and in this process you get customer information which can be utilised for future engagements. While the understanding is partly correct, there are numerous objectives that can be achieved through a Loyalty Program. Infact as a marketer it is our duty to first probe the brand to understand why they intend to build such programs. Some of the objectives can be customer acquisition, customer stickiness / retention, referral, customer engagement, cross sell, upsell, creating a brand recall, brand repositioning or even engage the customers in the brand's social initiatives. However, Loyalty Programs run by most brands in India have proved to be largely ineffective. In other words, they neither fulfill the objective with which the brands use them nor does the customer realise their importance.</span></p><p style="text-align: justify;">&nbsp;</p><p style="text-align: justify;"><strong><span data-preserver-spaces="true">Reasons for Ineffectiveness of Loyalty Programs</span></strong></p><p style="text-align: justify;"><span data-preserver-spaces="true">Barring few Loyalty Programs such as the erstwhile Jet Privilege (rebranded to InterMiles), there are hardly any programs that have created long-term recall &amp; stickiness with customers. The primary reasons that contribute to the failure of the loyalty programs are:&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Firstly, Brands do not clearly communicate the value of the loyalty program to make the customers understand its importance.</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Secondly, from the customer's perspective, there's very little value that the customer can realise by earning / burning. Thus, the customer doesn't see much material benefit in engaging themselves with these programs.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Thirdly, most loyalty programs are offered in plain vanilla form without building any engagement through Gamification, constant nudges to customers or periodic offers.</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">In fact, it would be fair to say that a lot of brands are themselves neither clear with the objective nor have a roadmap with which they want to drive their Loyalty Programs. It leads to Loyalty Programs becoming mere transactional instruments rather than becoming an engagement engine.</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">&nbsp;</span></p><p style="text-align: justify;"><strong><span data-preserver-spaces="true">Lending &ndash; The big booster for Economy</span></strong></p><p style="text-align: justify;"><span data-preserver-spaces="true">Lending in India is still in a nascent stage. According to a report published by Research and Markets, the global lending market size is ~$7 trillion in 2021 whereas Indian Lending space is currently only ~$200 Billion.</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Even after being operational for a few decades in India, credit card companies have only been able to sell ~72 million cards. In fact, most credit card customers have at least 2-3 cards, which means the unique credit cardholders in India would be a meager 30 million out of a population of 1400 million.</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Although, with the advent of BNPL (Buy Now Pay Later), this market has become dynamic, but still it's highly under-penetrated.&nbsp;</span></p><p style="text-align: justify;">&nbsp;</p><p style="text-align: justify;"><strong><span data-preserver-spaces="true">Reasons for Low Penetration of Lending Instruments in India</span></strong></p><p style="text-align: justify;"><span data-preserver-spaces="true">Lending is an instrument that's driven by information. Information plays a crucial role as it helps to decide the loan amount or size of the loan, loan duration &amp; the interest rate at which the loan can be extended. In layman terms, the more information that a financial institution (Bank, FinTech, NBFC, BNPL) have about a person seeking loan, the higher the amount can be extended as loan, the longer the duration for which the loan can be given and the lower the interest rate which the customer needs to pay. In short, information is needed to determine the creditworthiness of the customer. Although India has one of the largest unorganised lending ecosystem, the organised market still remains very small because of the lack of availability of the above information.</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">&nbsp;</span></p><p style="text-align: justify;"><strong><span data-preserver-spaces="true">Lending &amp; Loyalty - An unexplored connection</span></strong></p><p style="text-align: justify;"><span data-preserver-spaces="true">Lending &amp; loyalty are two such tools that are extremely promising yet underutilized in the market. Customers don't see great value in loyalty as it doesn't bring good incentives for them and lending doesn't happen extensively because of the limited information available for a majority of the Indian population.</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">A way to solve this problem is to start seeing both of them as one connected piece. Let's understand this through an example:&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">On an average a customer gets 1 point for every 100 rupees spent and 100 points are generally equivalent to 100 rupees of redemption amount. It means the customer receives 100 rupees cashback for every 10,000 rupees spent or in other words INR 10,000 spend brings INR 100 earnings to the customer. In most cases INR 100 redemption amount is not even the average purchase value for the customer and hence not very lucrative for the customer since the customer can't complete even a single purchase with the redeemed amount.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">However, if instead of focusing on just the Loyalty conversion, brands start offering credit facilities to their customers basis the Loyalty Points or spending that the customer has done with the brand, the entire economics will change.</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">For example, a customer having 100 points would have spent at least 10,000 rupees with that brand. Let's assume the average purchase amount for the customer is INR 1000. So instead of giving INR 100 as redemption amount, if the brand starts extending, say, INR 1000 to the customer as a credit line, this would mean the customer is getting the amount for 1 subsequent purchase from the brand.</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">&nbsp;</span></p><p style="text-align: justify;"><strong><span data-preserver-spaces="true">Benefits for Brands</span></strong></p><p style="text-align: justify;"><span data-preserver-spaces="true">By creating such a value proposition for the customers, the brands can have multiple benefits.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">First, the brands can increase the customer stickiness with the brand. The improvement in customer stickiness means improved brand loyalty.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Second, the brand&rsquo;s loyalty points start translating into credit score for customers. This will increase customer&rsquo;s loyalty towards the brand. The customer may also start acting as an influencer for the brand brining in more customers for the brand in the form of his / her friends &amp; relatives.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Third, customer receiving credit from the brand gets locked with the same brand for multiple transactions, thus reducing the customer&rsquo;s exposure to competitor brands. In a normal scenario for every transaction that a customer does on a brand, there are x transactions that the customer does on competitor brand because of non existence of any loyalty with the brand. The brand can even analyse this basis customers&rsquo; improved CLV (Customer Lifetime Value).&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Fourth, the brand saves time, effort and money that gets invested in bringing back inactive or churned out customers.</span></p><p style="text-align: justify;"><strong><span data-preserver-spaces="true">Benefits for Customers</span></strong></p><p style="text-align: justify;"><span data-preserver-spaces="true">Customer also enjoys multiple benefits with this arrangement.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">First, customers start receiving easy access to credit from such brands where they are transacting/buying regularly.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Second, customers can also expect getting higher credit and at a lower rate of interest.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Third, channel partners of brands start getting working capital loans from the brands which can prove to be a big differentiator thus improving channel partner&rsquo;s loyalty towards the brand.</span></p><p style="text-align: justify;"><strong><span data-preserver-spaces="true">Benefits for Lenders</span></strong></p><p style="text-align: justify;"><span data-preserver-spaces="true">The lending partners have the following benefits:</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">First, the opportunity to lend to a base for which sufficient information is available with their brand partners, making these loans secure.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Second, these loans are for financing particular purchase or for working capital loans hence can only be used for making specific payments which further makes them secure for the lender.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Third, lender has the possibility of getting additional revenue from their brand partners basis the incremental business.&nbsp;</span></p><p style="text-align: justify;"><span data-preserver-spaces="true">Fourth, lenders can lend to a larger customer base that&rsquo;s safer for lending by partnering with loyalty aggregators.</span></p><p style="text-align: justify;">&nbsp;</p><p style="text-align: justify;"><span data-preserver-spaces="true">To conclude, while Loyalty will help in generating the right set of insights around consumer purchase pattern &amp; predictions on future purchases, Lending will help in driving the sales by pre-empting the customer's purchase cycle thereby making it a win-win for all stakeholders: end customers, channel partners, brands as well as lending institutions.</span></p><p style="text-align: justify;">&nbsp;</p><p style="text-align: justify;">&nbsp;</p><p style="text-align: justify;">&nbsp;</p><p style="text-align: justify;">&nbsp;</p>