Introduction

1.India Retail Sector

Retail industry can be classified into two broad categories organized retail and unorganized retail. 1. Organised retail - Those traders/retailers who are licensed for trading activities and registered to pay taxes to the government. 2. Unorganised retail It consists of unauthorized small shops - conventional Kirana shops, general stores, corner shops among various other small retail outlets - but remain to be the radiating force of Indian retail industry.

Overview Retail industry, being the fifth largest in the world, is one of the sunrise sectors with huge growth potential and accounts for 14-15% of the countrys GDP. Comprising of organized and unorganized sectors, Indian retail industry is one of the fastest growing industries in India, especially over the last few years. According to the Global Retail Development Index 2012, India ranks fifth among the top 30 emerging markets for retail. The recent announcement by the Indian government with Foreign Direct Investment (FDI) in retail, especially allowing 100% FDI in single brands and multi-brand FDI has created positive sentiments in the retail sector.

Emerging Areas Some sectors that occupy a prominent position with the retail industry are: Apparel Retail: Everybody understands the impact of fashion and textiles on the environment. Almost $19.5 billion were spent on online apparel shopping in the year 2009 and increasing since then.

Fashion & Lifestyle Retail: In India the vast middle class and its almost untapped retail industry are the key attractive forces for global retail giants wanting to enter into newer markets, which in turn will help the retail to grow faster. Food & Beverage Retail: Backed by huge potential and changing lifestyles, the food and beverage retail market is growing at a robust 30-35 per cent per year. Pharmaceutical Retail: Driven by therapies like anti-diabetic, vitamin, anti-infectives and dermatology, it accounted for a robust 15% growth in 2011. E-commerce or E-tailing the next big revolution: With the advent of e-commerce in the retail industry, retail stores are facing stiff competition from e-stores. The rising demand for eshopping has lead to a new debate cropping up in the world.

Factors driving growth are:

Emergence of nuclear families Falling real estate prices Growing trend of double-income households Increase in disposable income and customer aspiration Increase in expenditure for luxury items Large working population Low share of organized retailing Growing liberalization of the FDI policy in the past decade

Indian apparel sales

are expected to reach an estimated $25 billion this year, having grown in excess of 10 percent over the past 5 years1a growth rate faster than that of the overall India retail marketand the trajectory is expected to continue [Exhibit 1]. In India, apparel is the second largest retail category (behind food and groceries), representing approximately 10 percent of the total market. This growth is being driven by a number of factors:

Increase in disposable income. By 2005, 21 million of Indias 210 million households already earned more than $4,000 a year, qualifying them for membership in what we call the consuming class. Based on McKinsey research, by 2015 the number of consuming class households will likely triple to 64 million. New occasions. As the lifestyles of Indias prospering urban consumers have evolved, their clothing needs have broadened, reflecting more varied usage occasions. For men, clothing choices once came primarily in three basic categories: home-wear, work clothes, and special occasionwear. Now, with more socializing opportunities, men are buying more sophisticated combinations of outfits: party wear, sports wear, clothes for hanging out at the mall. Not long ago, for example, men from Indias northern regions only required a good dark suit or Sherwani, the traditional long coat, to cover big occasions and important celebrations. But over the past several years, men have begun to supplement those staples with expensive Westernstyle jackets, and collared shirtssome in funky patterns and cut for a night on the town, others in stripes or checks for casual meetings with important business associates. Today, Indians are more inclined than consumers in other markets to buy apparel for a specific purpose. Indeed, 38 percent of Indian respondents to a recent McKinsey study said they were highly likely to buy apparel for special eventsa significantly higher proportion than in Brazil (5 percent), Russia (3 percent) or China (6 percent).2 Family celebrations and weddings continue to eat up an enormous share of Indian consumers clothing budgets.

Growth in the womens segment.Historically, the mens apparel market in India has been significantly larger than the womens apparel market. With only 20 percent of Indias urban women in the workforce, womens wardrobes have traditionally been limited to home wear and items for special occasions. Now, women are more willing to dress differently when they venture beyond the hometo shop, for example, or visit a school or office.

Fashion increasingly a form of self-expression. Increasingly, Indian consumers are embracing the idea of fashion for its own sake, as a means of self-expression, and not merely as a functional purchase. Television, movies, advertising and the Internet bombard todays Indian consumer with new ideas about style, even as American-style shopping malls lure them away from traditional marketplaces. Traditional clothing remains central to the way consumers dress, and the quality and craftsmanship of classic Indian clothing have drawn rave reviews in recent years from some of the worlds leading designers, style magazines, and fashion blogs. In a recent McKinsey survey of Indian consumers, 62 percent said they thought it was important to keep up with trends. More than ever, Indian consumers are experimenting with combining styles, as seen in the recent Indo-fusion, boom, which mixes the silhouettes of the East with the comfort cut of the West.

Over the next five years, we expect this growth to continue and the size of the market to nearly double. The increase will come partly from continued gains in disposable income, but its not just that Indians have more to spend. As they prosper, Indian consumers will naturally continue to spend more of what they earn on what they wear. Our experience suggests consumers

worldwide typically spend an average of 5-6 percent of total income on apparel, but the figure is often significantly higher in emerging markets. Consumers in Chinas larger cities, for example, spend 10 percent of their income on clothing, nearly double what their counterparts in Indian cities spend.3 That higher propensity to spend on clothes has helped to make Chinas apparel market 4-6 times larger than Indias. Brazils consumers similarly spend more per capita on clothing than either Indias or Chinas. Besides continued momentum from the trends mentioned above, we see two additional forces that will inject further growth into Indias apparel sector:

Further urbanization and the comparative youth of Indias population. At present, just 29 percent of Indias population resides in cities, among the lowest urbanization rates of any nation in the world. But that has been changing. Over the next 20 years, we expect the number of Indians living in cities to grow by 300 million, where they will don new styles and fashions to match new lifestyles. A large percentage of these new city dwellers will be in their twenties, and making first-time choices for whole categories of clothing items including denims, shirts, and even shoes. Continued rise of organized retail. Large, branded store chains where products are systematically stocked and displayed, will speed the transformation of consumer preferences. For now, organized retail accounts for less than 20 percent of all Indian apparel purchases; the rest takes place in tiny, family-run shops. But over the past five years, scores of shopping malls have opened on the outskirts of Indias largest cities and the trend is sure to accelerate. New formats on the scene include export overrun discounters, international franchises, hypermarkets, and luxury European boutiques.4

These changes will have far-reaching implications for designers, manufacturers, and retailers targeting the Indian apparel market. Spanish fashion giant Inditex (Zara) has announced plans to enter India this year. Fast Retailing (Uniqlo) has pegged 2012 for market entry. But as in the fashion industry everywhere, success in India will depend on getting many things right at once: figuring out what consumers want, developing a profitable retail concept, and building a solid team. How, then, to compete in this promising but fast-changing market? We see three success factors:

Shape the category. Winners will innovate occasions, looks, and wardrobes; the focus will therefore be broader than just building brands. This is already being done in some areas: over the past three years, for instance, major jewelry brands have revived a 5,000 year-old sacred day known as Akshay Tritha, which now accounts for the largest single-day jewelry sales in India. Similarly, the Friday dressing concept, introduced by one apparel brand, asked young professionals to buy brighter colors for Fridays, expanding the wardrobe in the process. Equally critical will be innovating styles: sareesuits, for example, and other fusion approaches that simplify otherwise difficult-towear

apparel have thus far proven more successful than typical Western suits and evening dresses. There is even a place for more cutting-edge trends such as organic clothing: apparel retailers Van Heusen and Arrow recently launched 100 percent organic lines made of cotton, linen, and natural dyes.5

Focus on inventory and markdown management. Today, apparel is one of Indias most attractive business segments due to its high margins [Exhibit 2]. Looking at an index based on the cost of a basic white shirt, we have found that Indian apparel prices have doubled over the last decade, and tend to be 25 to 30 percent higher than in China as a result of supply chain inefficiencies and restricted competition. We expect that situation to change as Indias fashion industry draws new players and capital in years to come. For one thing, apparel retail in India relies heavily on sales promotions and special events. Tempting as it will be to bring Western concepts like fast fashion and large assortments to India out of the gate, innovation has its risks, including higher markdowns and lower sell-throughs if the new offer or collection is not a hit. And uncertainty on inventory management and ordering in the absence of historical sales data is likely to be the norm. Winners will need to get the back-end operations right much earlier than the scale of the market suggests: managing margin through smarter in-season markdowns, a disciplined balance between corefashion and high fashion, managing inventory through a proper mix of made-to-order and later engagement rates, and keeping 50 to 60 percent of regularly restocked items at the core have become part of a winning retail formula. Though optimum margins on these pieces of clothing may not be as much as the more expensive, high-impact fashion pieces, they keep customers coming back regularly. The high fashion range should be advertised and showcased, but kept only to 10 to 15 percent of inventory to reduce the impact of markdowns.

Take a segmented view of the market. As in many other emerging markets, not all consumer segments or geographies are the same. Our research, for example, shows that some segments of apparel shoppers spent 20 times more than othersdriven not only by income, but also by lifestyle. For example, consumers in the north tend to spend more than in other regions due to cooler climates and different approaches to social occasions. Similarly, retailers cannot ignore the smaller cities, which will drive apparel growth opportunities, even for more expensive brands. Benetton, for example, recently hit $100

million in sales in India, and is targeting $250 million within the next 3-4 years, largely by targeting smaller cities, which are already contributing about 20 percent to the companys growth and growing much more quickly than in the larger markets.6 Winners who want to build real scale in India will be those who understand the market in a granular manner, and then own the customer throughout their lifecycle with a portfolio of brands, price points, and formats.

2.LOYALTY PROGRAMS

A rewards program offered by a company to customers who frequently make purchases. A loyalty program may give a customer advanced access to new products, special sales coupons or free merchandise. Customers typically register their personal information with the company and are given a unique identifier, such as a numerical ID or membership card, and use that identifier when making a purchase. Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behavior behavior which is potentially beneficial to the firm. Various loyalty cards In marketing generally and in retailing more specifically, a loyalty card, rewards card, points card, advantage card, or club card is a plastic or paper

card, visually similar to a credit card or debit card, that identifies the card holder as a member in a loyalty program. Loyalty cards are a system of the loyalty business model. In the United Kingdom it is typically called a loyalty card, in Canada a rewards card or a points card, and in the United States either a discount card, a club card or a rewards card. Cards typically have a barcode or magstripe that can be easily scanned, and some are even chip cards. Small keyring cards (also known as keytags) which serve as key fobs are often used for convenience in carrying and ease of access. By presenting the card, the purchaser is typically entitled to either a discount on the current purchase, or an allotment of points that can be used for future purchases. Hence, the card is the visible means of implementing a type of what economists call a two-part tariff. Application forms usually entail agreements by the store concerning customer privacy, typically non-disclosure (by the store) of non-aggregate data about customers. The store uses aggregate data internally (and sometimes externally) as part of its marketing research. These cards can be used to determine, for example, a given customer's favorite brand of beer, or whether he or she is a vegetarian. Where a customer has provided sufficient identifying information, the loyalty card may also be used to access such information to expedite verification during receipt of cheques or dispensing of medical prescription preparations, or for other membership privileges (e.g., access to a club lounge in airports, using a frequent flyer card).

Benefits of loyalty Program

1. Retain your existing customers

The effect of the customer retention rate on actual, bottom-line customer numbers cannot be over-estimated. Global loyalty marketing consultant and author , Brian Woolf, has developed several invaluable reports which can be used to show the

effect both overall and for different customer segments. His reports have shown that, in just five years, a company with a 70% customer retention rate will have lost two to three times as many customers as a company with a 90% retention rate. Not only does a loyalty program provide a practical, hard reason for continuing to buy (the accumulation of points toward a reward, or higher levels of service) but it also provides information about the customers that allows their needs to be met more efficiently and effectively. This in turn makes them more likely to remain customers. In addition loyalty program operators often report that, once a customer starts redeeming rewards, enthusiasm rises. In addition to simply retaining customers, the data from a loyalty program can be used to better cater to their varying needs. Companies typically use this data to segment their customers for the purposes of marketing, sales and customer services. But customers are more complex than that. Their needs and desires differ from time to time, from occasion to occasion, and depending on the reason for the transaction.

2. Acquire new customers

A loyalty program should attract new customers to the business; how effectively will depend on how exciting and how valuable the rewards seem to be to the target audience. Acquiring customers is essential to any business, but it can be expensive if compared to nurturing existing good customers. It should not be the central focus of a loyalty program; there are cheaper and more effective ways of acquiring customers. However, Brian Woolfs work for leading retailers on many continents has led him to believe that it is far more profitable to retain and up-sell existing customers than to attract new ones. Using a four-year profile of new customer behavior from a leading retailer, he has shown that, one year after becoming a customer, only two out of each thousand new customers (0.2%) were in the top customer segment and only twelve (1.2%) were in the second segment. Over half were inactive. Between 95% and 96% of the new arrivals were either in the lowest segment or had left by the end of the year. However, quality of new customers acquired can be raised by careful use of the existing data of a loyalty program. This

can be used to establish the demographic particulars of existing best customers, and then to target prospective customers with similar demographics in acquisition campaigns.

3. Move customers up-segment

By grading rewards (for example, offering extra points for exceeding a specified spend threshold in a time period), customers can be moved up from one spend level to the next. A good example of this is TCC, a provider of best customer marketing program, which skews its rewards to encourage lower spending customers to move up through the spend segments. In one of the examples, the top spending bands contribution to sales increased by 41%, the next band down increased its contribution to sales by 45% and the lowest spend band decreased its contribution to sales by some 7%.

4. Deselect unprofitable customers

It can be more profitable to lose bad customers than to gain new ones. Cherry pickers (who buy only your discounted lines and nothing else) cost you money, as does any low-spending customer. They cost more money to service than they generate. Designing a loyalty program that rewards better customers without rewarding this segment at all gives them less reason to stay. Hawkins Strategic found that in the companys own supermarket, only around three in ten customers actually generate enough profit to cover the cost of servicing them. What about the other seven? Does it make sense to keep them as customers? To a certain extent it does: if they can be identified through a loyalty program, efforts can be made to move them up through the segments and hopefully they will become more profitable customers. Moreover, while possibly not generating profit directly, they are contributing to the size of the business and also contributing to fixed operating costs (rent, rates, utilities and so on). However, the worst of the worst could probably be profitably lost. So far, it seems that only financial institutions have gone as far as actually closing unprofitable customers accounts. The generally

adopted approach is simply not to reward them in any way and hope that they will leave. A graphic example of how important intelligent deselection can be is Professor Philip Kotlers adaptation of the Pareto Principle, in which the top 20% of customers generate 80% of the profits, while the bottom 30% of customers eat up 50% of the profits that the others produce. Now thats a good reason to actively fire your least profitable customers.

5. Recover defected customers

The success rate in approaching lost customers can be three to four times as high as it is when prospecting for new customers. For example, the rate for converting prospects might typically be 5%, while that for reactivating inactive customers might be as high as 15-20%. There are several reasons why customer win-back has a greater chance of success than acquisition; You have advantages with lost customers that you dont have with prospects, including informa tion about their past purchase history, where and how to reach them, and their preferred communication channel.

6. Increase Customer Lifetime Value (CLV)

Customer Lifetime Value is increasingly being recognized as one of the most important measures of the worth of a customer. It takes into account not only the customers value now but the expected value over their projected lifetime as a customer. It is arguably the best way a marketer can demonstrate unequivocally that a programme is working: the CLV of targeted customers will rise.

7. Best customer marketing (BCM)

Best customer marketing involves spending more time, effort, and money on the best customers in order to maximize the return on investment. The strategy has been honed to a fine art by marketers such as Brian Woolf and Hawkins Strategic.

Not surprisingly, the principles of best customer marketing are the driving force behind the leading loyalty program in the world today.

8. Build relationships
Building customer relationships is crucially important but not always as straightforward as it might seem. It has been said that relationship marketing is powerful in theory but troubled in practice an unpalatable concept but probably one with which many marketers could identify. If ever there has been an example of many a slip tween cup and lip, counting on the building of relationships with all and sundry in order to generate profits must be somewhere near the top of the list. Building a relationship with customers leads to improved behavioral loyalty and thus to increased bottom-line profits. In fact it doesnt always work like that. It has been argued that attempting to partner with all customers, regardless of their characteristics, might not always be the best way forward. There are factors that alter the importance of the relationship/behavior/profits equation quite significantly. Age is just one of these factors. Studies carried out in the UK in the 1990s concluded that customers under 45 were most loyal and those over 65 were least loyal. Yet other studies found no clear relationship between age and loyalty. It used to be thought that older customers were more loyal to brands than younger customers but even that is changing, with some studies finding no clear relationship.

9. Create advocates
Advocacy is one of the highest forms of loyalty that a customer can show. Advocates are so satisfied and pleased with your offering that they tell their friends and associates. And to most people, a personal recommendation is far more convincing than any amount of promotional material.

10. Adjust pricing levels

A loyalty program can help formulate pricing structure. If enough best customers are happy to buy a product at a particular price there seems little point in reducing that price simply to attract cherry-pickers. The effect of changing prices can also be studied for example, which customer segments buy significantly more or less.

11. Respond to competitive challenges

A good loyalty programs ability to tie purchases to individual customers allows quick and accurate identification of customers who defect when new competition opens nearby. They can then be enticed back with customer-specific special offers or even direct contact. By way of example, a fairly small retail store had to face up to a competitor opening a much bigger store on the same parking lot. In anticipation, the small store was extensively remodelled, causing considerable disruption. Over the period of remodelling (a matter of several weeks) turnover dropped by 40%. However, a loyalty program enabled management to identify regular shoppers and mail them a letter thanking them for their patience and enclosing some special offers. All but 183 customers returned to the store. The store management team then sent handwritten invitations and a US$10 gift certificate to those 183 customers. All but three returned. After the new competitor opened, the smaller stores whole customer database was mailed an offer containing US$5-off coupons for US$50 orders in each of the following twelve weeks. Any customer using all twelve received an extra US$10 certificate. The result was that sales actually rose by between 6% and 7% over the months following the new opening. The competitors store (which was approximately twice the size) achieved less than half the sales of the remodelled store. This shows the power of knowing who your customers are.

12. Select stock lines effectively

Knowing what your best customers buy frequently helps choose which lines to stock and which lines to expand on. When your stock range is adjusted to suit the more profitable types of customer that you already have, the entire store will naturally begin to appeal to more of the same types of customer, and a slow but sure process of customer cloning begins, eventually leading to the removal of less profitable customer groups by simply dropping the lines that only those groups tend to buy, and building up the lines that better customers prefer.

13. Plan merchandising optimally

Basket analysis can identify what lines are bought at the same time, particularly by best customers, and planograms can be planned accordingly to encourage crosspurchasing. The apocryphal story of a retailer (usually said to be Wal-Mart) discovering from basket analysis that men who buy diapers also buy beer (the refined version includes on Friday evenings) may be true or not. However, this story, regardless of its origin, does illustrate the potential of the principle in its own bizarre way. Data similar to this is used widely to plan planograms for store merchandising. Of course, on one level, plain basket analysis without a loyalty programme is enough for this purpose. But add the dimension of knowing who the customer is, how much they spend, and where they live and you can confidently decide whether it is worth putting a display of diapers in the beer aisle on Friday evenings or not!

14. Reduce promotional and advertising costs

Because advertising can be targeted instead of untargeted, significant savings can be made. There is no need to send out thousands of flyers that will be thrown away unread, or take pages of newspaper space that is irrelevant to many of the readers. And targeted advertising works measurably. The more sophisticated type of loyalty program such as the UKs Tesco Clubcard can not only target advertising material almost individually to its many millions of members but it can accurately measure the response rates to those advertisements. If Mrs Smith is sent a coupon for money off Whitesmile toothpaste, the system knows whether or not she

redeems that coupon. That information is valuable not only to Tesco, but to the makers of Whitesmile toothpaste. Tescos Clubcard magazine, packed with targeted money-off coupons, is mailed to approximately 13 million customers four times a year. Not only does this form of advertising save Tesco money; it earns Tesco money. National UK magazines are reported to charge between 5,000 and 7,000 per page for advertising. Tesco is said to charge up to 37,000 for an A5 page (roughly half the size of a standard A4 magazine) and brands pay it because it works. Buying space in the magazine is an accountable investment toward measurable sales; one particular toilet tissue brand saw a 27% increase in sales after advertising in this way. The cost-saving advantage of targeting can be astonishing. In one instance, a firm mailed an offer to 450,000 of its better customers. The mailing generated US$22 in revenue for each US$1 spent. On analyzing the response data, it was found that 97% of sales came from 13% of the zip codes. Can you imagine the difference that that made to the profitability of future mailings?

15. Select new trading sites

Selecting a site for a new store is no longer a case of sticking a pin in a map, or choosing a site on a hunch. The loyalty card enables you to profile the demographics of best customers and because it is often likely that the best prospective customers will have similar demographics choose new locations much more accurately. In addition, if the addresses of existing customers are known, they can be plotted geographically and sites can be chosen where there are outlying pockets of customers or gaps in coverage.

Ss:sales
2011-12 22980 million Members first citizen over 2.5 million