The Crossword Loyalty Program

Crossword was ranked the 6th most admired retailer in India by Businessworld for the year 2006. In 2007, it won the Images Retail ‘Retailer of the year’ award in its category.

Crossword has come a long way since its humble beginnings in 1992 in Mahalakshmi, Mumbai. Now it’s a Shopper’s Stop subsidiary with 48 stores spread across 13 cities in India. Crossword started its loyalty program in 1999 and now it boasts of a 100,000+ member base. The program rewards 1 point for every forty rupees spent. Members also get exclusive offers and information about promotions, among other benefits.

My wife is an avid reader and, to a much lesser extent, so am I. She has been a Crossword loyalty program member for over 4 years and has accumulated over a 1000 points in our fortnightly visits to the store. I like the shopping experience at Crossword. But their loyalty program is no more than a point reward system. It has its benefits but there is so much wasted potential in this kind of a program.

What would a good loyalty program for Crossword look like?

There is a huge opportunity for a loyalty program in an industry like this. A good loyalty program would not only be able to help Crossword cultivate loyalty amongst customers to ensure they continue patronizing the business but also help them acquire information relating to their customers’ spending habits

Customer acquisition

There are 2 elements to acquisition –

• Enrolling more customers
• Enrolling them better

Enrolling more: Acquiring customers for the loyalty program should be an on-going activity at all times with special promotions from time to time. The process should be clearly laid out, unobtrusive and above all, fast.

Better enrolling: The enrollment form is handier than it seems at first glance. This is your chance to get discerning information from the customer –demographic, geographic and lifestyle. Simply put, who are the customers? Where do they live? What are their likes and dislikes?

What would influence customer behavior in a book store?

Age – surely. Gender – probably. Profession – maybe.  Marital status – maybe not.  Presence of children in the household – for sure.

Residence address is more than just contact information for the customer. It can be useful in customer segmentation as well as store analysis (mapping the reach of a store using loyalty data).

Similarly, email address is more than a marketing channel. Its presence or absence can also differentiate customer behavior.

A customer’s personal and professional interests also influence the buying behavior and should be captured.

All this information can easily be captured via a one page form requiring less than 5 minutes to fill.

Data Management

At the simplest level, there is a customer database containing all the above-mentioned customer information. There is a transaction database which contains all POS information. There is a store database containing store attributes like address, size, number of employees etc. Customer Id, transaction Id and store Id link up the 3 databases. All insights will be derived by combining these 3 sets of information (who is buying? What are they buying? Where are they buying? ) in various ways.

Advanced analytics

Customer segmentation: Customer segmentation for Crossword would be based on a combination of buying behavior and customer geo-demographics. The segmentation scheme could look something like this:

And so on….

More details on customer segmentation in this post (Customer segmentation).

RFM Segmentation: RFM would be a useful tool in this case. An RFM segmentation would classify the customers on the basis of their activity (recency, frequency and monetary value). The RFM segments would be overlaid on the behavioral segments that we derive in step 1 above.

More details on RFM segmentation in this post. (RFM Segmentation)

Trip Mission Analysis: Trip mission segmentation would classify all transactions under a handful of trip missions based on product propensities and transaction history. Examples of trip missions for Crossword could be –

“Need a book” – Customer came in looking for a specific book

“Hangout trip” – Customer doesn’t have a specific book. Exploratory trip

“Gift Occasions” – Need a gift for someone

“Kids’ trip” – Centered around the child.

The idea behind trip missions is that every customer goes to a store for a specific purpose. Understanding trip motivations helps the retailer understand the ‘why’ behind the ‘buy’.

More details on trip mission segmentation in this post. (Trip Mission)

Store Segmentation: Crossword has 50 stores in 13 locations spread all over India. Different stores behave differently depending on their location and customer base. This exercise will identify groups of stores that behave similarly and form store segments.

The store segmentation can be based on either the customer segmentation (group stores which have similar customer profiles) or trip segmentation (group stores which have similar trip distribution).

My feeling is that a store segmentation based on customer profile would be more powerful in Crossword’s case. However, I may experiment with both the techniques to see where I get better differentiation.

More details on store segmentation in this post. (Store segmentation)

Market Basket analysis:

Market basket analysis is the process of analyzing transaction data to drive value for the business. In its simplest form, it measures and identifies pairs of products which sell together.

MBA, if handled intelligently, can provide very valuable insights to the retailer.

How would Crossword use Market basket analysis?

• Which categories of books sell together? People who buy science fiction also buy children’s fantasy.
• I would create a list of my 100 top-selling books, I would identify books/authors/products which sell with my top-sellers. People who buy Harry Potter also buy Garth Nix.
• How do I optimize store layout? Which books should I place in my best-sellers shelf-space?
• Which categories of books are purchased most often by people who buy toys/music?

Amazon is a considered to be the God of market basket analysis, collaborative filtering and such techniques. What Amazon has done for its online users, Crossword can do for its loyal customers.

Marketing Activities

The loyalty program coupled with advanced analytical techniques will provide valuable insights into customer behavior. This information will be used to design marketing and promotional activities for the store chain.

Marketing activities will focus on growing the most profitable customer segments and increasing the profitability of other segments. Differentiated strategies will be applied to different customer segments and store segments.

In-store promotional activities will be based on product affinities to make them more relevant and thus more attractive to the customer. Sophisticated modeling techniques will help design targeted campaigns. Customer interests (both stated and empirically observed in the data) would be profiled extensively. Customers with similar interests would get similar offers.

A good loyalty program would help Crossword increase its membership base (5-10%), improve retention and thus customer lifespan (20-30%) and drive spend/customer (10-15%). Simply put, a good loyalty program would help Crossword get more customers, retain existing customers and increase customer spend at its stores. Overall benefits can be quantified by building a lifetime value model for each customer.

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