Loyalty Program Overview

Almost 80 percent of shoppers in the Europe now belong to at least one loyalty
program and the trend is fast catching up in India but how well do they really work?
The short answer: not as well as they might have been. We look at why, and analyze
how advances in customer data collection are helping some companies to revise their
Loyalty business strategies in different ways.

There are frequent shopping programs, frequent flyer programs, frequent mall cards
and frequent petrol programs. There are points at the pump schemes, Service tax
holidays and, some of them even donate to charities like CRY for people who use
their Credit card reward points.

There are plastic cards, smart cards, thermal cards, magnetic strips Co-branded Credit
Cards. Within the next couple of years players like Airtel, Reliance, are working on
using 802.11 to Flash your mobile phone at a reader as you whiz through checkout,
and you'll get a couple of rupees knocked off your bill.

Call it the loyalty craze. According to our Research, more than 80 percent of Europe
consumers now have at least one loyalty card or program of some kind, and the
number of people with two or more is estimated to be one-third of the shopping
population and research suggests the loyalty card explosion is showing no signs of
letting up anytime soon. Credit Card companies are offering programs by tying up
with various Shopping establishments to offer discounts and lure the customers
towards using their shops and Credit Cards.

While loyalty cards, Shopping Festivals and prizes have always been, first and
foremost, a cheap way for businesses large and small to start tracking their customers
shopping habits, more customers than ever now consider themselves entitled to
special treatment, a marketplace psychology spawned in the 1980s by the airline
industry's invention of frequent flyer miles, one of the first loyalty programs.
Originally devised to generate better data on the most popular routes, the airlines
broke what was a "one price fits all" standard and introduced a "some people are more
special than others" psyche that has changed the global marketplace forever.

Do Loyalty Programs really work?

The short answer: not as well as they might have been. It's all in the execution. Some
shopping establishments say their loyalty program is key to new revenue growth.
Thanks largely to the data analysis of the data collected these companies have boasted
retention rates and highest profit per customer in their respective industries even
during tough economic times and cutthroat markets. But the majority of companies
are still struggling to get it right.

Satisfaction versus Loyalty

There is still a yawning gap between the percentage of people who say they're
satisfied with a business and those who consider themselves "loyal" to that business
and who are intent on maintaining the relationship and continuing it into the future.
Many companies have figured out how to deliver satisfaction, but they've not yet
figured out how to earn loyalty anywhere near those levels. This loyalty gap can be
particularly pronounced in industries where competition is harshest and growing.

Most customers continue to do business with the top retailers, but are less than
pleased with the relationship they now have with them, while most customers are
satisfied with the relationship they are not loyal. That means most retailers cannot
count on their customers being loyal they are venerable to competition. Loyal
customers talk up a company to their friends, family, and colleagues. In fact, such a
recommendation is one of the best indicators of loyalty because of the customer’s
sacrifice, if you will, in making the recommendation. When customers act as
references, they do more than indicate they’ve received good economic value from
the company; they put their own reputations on the line. And they will risk those
reputations only if they feel intense loyalty

Where do most Loyalty Programs go wrong?

Most company loyalty programs don't slice data finely enough to distinguish between
customers who would recommend a particular business to friends and those who
would not. Knowing this could mean millions of additional revenue for companies.
The tendency of loyal customers to bring in new customers at no charge to the
company is particularly beneficial.

Many companies also tend not to do enough with their loyalty program data to make
the customer feel special. Rewards programs cost companies, on average, between 2
percent and 10 percent of a customer's total spending at a given store. Once you have
identified the top 20 or 30 percent of your customers, many companies tend not to
market to the bottom tier because it's not economical, and end up leaving a majority
of their customers frustrated or unable to accrue enough points to make participation
in these programs seem like a real advantage.

But don't underestimate the value of trying. Food retailers, for example, lose up to 40
percent of their new customers within three months. One of the big benefits of a
successful loyalty card program is that stores can quantify new-customer losses and
introduce programs designed to retain or woo back the most profitable. "Without a
loyalty card, one has no clue about the size of the inflow and outflow of new
customers," What does this mean for the bottom line? Learning to play the loyalty
card game better can help companies reap big cash rewards.

Data shows truly loyal consumers are 15 times more likely than high-risk customers
to increase spending with a particular store. Profits rise as a customer's relationship
with a company lengthens. Customer defections have a surprisingly powerful impact
on the bottom line, when defections are cut in half, the average growth rate more than
doubles.

It's not enough to have CRM. You need the hearts and minds of the customers to close
the loyalty gap. IT needs to take the lead in loyalty programs because it's just about
the only department that can coordinate between business processes, external data-
analytics vendors and the executives who can translate output into action, What
doesn't work anymore is treating all customers alike.

Vodafone kills two birds with one customer loyalty program

August 20, 2009

With GDP in Spain expected to contract by 4.2% in 2009 and by 1% in 2010,

Spanish mobile operators are finding that recruiting new customers has become a
challenge and are going the extra mile to retain existing ones. But that’s not enough—
the operators know they need to keep their clients spending too. Vodafone Spain is
killing both birds with one loyalty program: Vodafone Puntos. While the initiative is
clearly having a positive impact on the operator’s market share, it is also likely to
increase smartphones sales and consequently boost Vodafone’s revenue from
advanced data services.

Vodafone Puntos is simple: The operator awards points to its most loyal customers,
and by accumulating a specific number of points, customers get certain discounts.
Those who remain with Vodafone the longest, and those who spend more, are likely
to collect the most valuable prizes. Most recently, Vodafone’s customers were given
the opportunity to use points to upgrade their handsets. For example, a postpaid
customer can get a Nokia N95 for “free” for 9,600 points (see Exhibit 1).

Exhibit 1: Vodafone Puntos handset upgrade program

Source: Vodafone

So far the program has met its main objective, increasing Vodafone’s subscriber total
in Spain by 0.5% in the quarter ended June 2009. This is remarkable not only
considering the hard times the Spanish economy is going through these days, but also
in light of the performance of other Vodafone subsidiaries in Western Europe: the
operator reported a decrease in the number of customers in several large Western
European markets. Vodafone’s German operations, for instance, reported a Q2
decline in the number of customers of almost 2% from Q1, followed by Italy and the
UK with 1% declines.

Although the Puntos program has been successful in terms of churn stabilization, its
objective goes further—encouraging customers to upgrade their mobile phones. For
those who use up their points to upgrade their terminals, further awards, such as free
nights in a hotel, await. As more customers opt for high-end handsets such as
smartphones, it is likely that the operator’s advanced data service metrics will
improve too.

While more promotions sounds like a risky move in this economic climate, I believe
Vodafone Spain is making a wise choice even if this means giving up on some profits
in the short term. By maintaining a stable market share in Spain now, Vodafone will
see strong post-recession growth. Furthermore, the operators should understand that
more advanced handsets in the hands of its customers translate into more usage of
advanced data services and thus increased data revenue (see Exhibit 2).

Exhibit 2: Smartphone sales vs mobile data revenue as percentage of total mobile

revenue

Source: Pyramid Research Spain Mobile Data Forecast and Spain Handset Forecast,
Q2 2009

While it may sound paradoxical that mobile operators should forgo revenue now by
offering subsidies on the most expensive handsets, this strategy is, we believe, the
best way to address the economic situation and prepare for post-recession growth.
Most European operators, facing increasing churn, are engaging in more aggressive
customer retention strategies anyway. By focusing more on keeping their most
lucrative customers—smartphone users—as well as on increasing their numbers by
promoting handset upgrades (as Vodafone seems to be doing) and on encouraging
customers to use their mobile data networks, operators will keep their margins
comparatively stable in the current economy and increase them once the economy
improves. In other words, today’s short-term survival strategy will turn into a winner
in the medium term. For a more detailed analysis see Pyramid Research’s new Europe
Insider .
— Stela Bokun, Senior Analyst

Related resources:

Europe’s Smartphone Market: Sustained Growth Is at Risk

Europe Telecom Insider published August 2009
While vendors and operators are still seeing smartphone growth despite the recession,
we believe market participants should implement strategies that are more likely to
maintain sales volume during the downturn and expand business once the economy
improves. This Insider examines the impact the economic downturn will have on
European smartphone sales in the medium term, offering guidance to on how to
mitigate the effects of the economic slump and prepare for post-recession growth. It
provides Pyramid Research’s five-year forecast on smartphone adoption in Europe
and examines in more detail the market-positioning strategies of the leading
smartphone vendors: Apple, Nokia and RIM.

Central & Eastern Europe Mobile Handset Forecasts

Forecasts published quarterly
Our Mobile Handset Forecast products provide complete pictures of handset sell-
through in each of four Central & Eastern European markets. The Excel output
includes five years of historical data and five years of market projections for metrics
such as total handset sales, handset sales by network technology, new handset sales
(by technology, by technology generation, by feature set), smartphone handset sales,
vendor market share and handset ASP. We believe our Handset Forecasts are superior
because they capture sell-through (units sold to end users) rather than unit shipments
(sales from manufacturers to distributors) and rely heavily on our Mobile Demand
Forecasts. Moreover, they are based on extensive field research, and a consistent
methodology that is applied to all markets.

Western European Mobile Handset Forecasts

Forecasts published quarterly
Our Mobile Handset Forecast products provide a complete picture of handset sell-
through in each of France, Germany, Italy, Spain and the UK. The Excel output
includes five years of historical data and five years of market projections for metrics
such as total handset sales, handset sales by network technology, new handset sales
(by technology, by technology generation, by feature set), smartphone handset sales,
vendor market share and handset ASP. We believe our Handset Forecasts are superior
because they capture sell-through (units sold to end users) rather than unit shipments
(sales from manufacturers to distributors) and rely heavily on our Mobile Demand
Forecasts. Moreover, they are based on extensive field research and a consistent
methodology that is applied to all markets.

Latin America Mobile Handset Forecasts

Forecast published quarterly
Our Mobile Handset Forecast products provide a complete picture of handset sell-
through in each of 18 Latin American markets. The Excel output includes five years
of historical data and five years of market projections for metrics such as total handset
sales, handset sales by network technology, new handset sales (by technology, by
technology generation, by feature set), smartphone handset sales, vendor market share
and handset ASP. We believe our Handset Forecasts are superior because they capture
sell-through (units sold to end users) rather than unit shipments (sales from
manufacturers to distributors) and rely heavily on our Mobile Demand Forecasts.
Moreover, they are based on extensive field research, and a consistent methodology
that is applied to all markets.

Vodafone builds loyalty with Air Miles program -

Vodafone Group PLC; Air Miles Travel Promotions
Ltd

Vodafone Group Plc. [VOD] introduced Vodafone Advantage, a loyalty program for
existing and new subscribers. The program, which is offered through an exclusive
agreement with Air Miles Travel Promotions Ltd., awards air miles based on airtime
usage and other promotions. For example, customers in the program earn one air mile
for every [pounds]10 spent on calls and line rental.

They also earn 10 air miles for joining the program, 10 air miles for each quarter they
continue to subscribe to Vodafone, from the point they join Vodafone Advantage, and
10 air miles on every anniversary of when they joined the loyalty program. The air
miles can be used for British Airways flights, discounts on holiday travel packages,
hotel discounts, tickets for the cinema, theater and theme parks, cruise and ferry travel
and other bonuses. Vodafone first will offer the program to its 2.8 million customers
in the United Kingdom through a direct mail invitation.
Vodafone launches loyalty program ‘Bonus Bank’
Vodafone is promoting its new loyalty program – Bonus Bank - by sending a double
decker bus on a tour of Sydney and Melbourne. The bus, which was launched by
model Jennifer Hawkins is filled with giveaways and freebies.

The announcement:

Sydney, Australia – 30 September, 2010: Jennifer Hawkins launched the maiden

voyage of Vodafone’s Bonus Bank Bus, a vintage double decker bus, kitted out with
‘bonuses’ today. The Bonus Bank Bus will promote Vodafone’s new Bonus Bank
loyalty program that offers real rewards aimed at prepaid mobile customers. The
Bonus Bank Bus follows the results of a Galaxy survey* which looked into
Australia’s attitudes towards the value of loyalty reward programs.

Hawkins and Australia’s hottest male bus conductors farewelled the Vodafone Bonus
Bus on its maiden voyage with 20 lucky passengers joining the journey.

The Vodafone Bonus Bank Bus tour will tour Sydney until Wednesday 6th October,
when it heads to Melbourne for an equally action-packed week (October 8- October
13). The public is invited to experience the bus and its bonuses for free along
commuter routes, universities and key events in each city including the NRL Grand
Final, Sydney Harbour, Bondi Beach, Federation Square, St Kilda Beach and many
more locations. Whether you are enjoying the early commuter routes to work or a late
night trips home after a long day, there are plenty of bonuses to enjoy, including,
News Ltd newspapers, Time Out magazines, Carman’s muesli bars, Nando’s wraps
and burgers, Nintendo games, Boag’s beer, Krispy Kreme doughnuts, Crust Pizzas,
Kit Kats and more. The Bonus Bank Bus will also be giving out one Sony Ericsson
X10 daily to a lucky traveller who has registered for Bonus Bank.

Anthony Dureau, General Manager of Consumer Marketing, Vodafone said,

“Vodafone’s Bonus Bank Bus will be used as a vehicle to transform consumer
perception that loyalty programs don’t reward customers. Vodafone’s survey revealed
81 per cent of respondents believe loyalty programs offer little benefit, are too
complicated to use, and are mostly a waste of time. The survey also found that 63 per
cent would like dollars rather than points for rewards and 47 per cent want rewards
that are more relevant to them.

“Vodafone’s Bonus Bank is set to buck general consumer perception that loyalty
programs don’t really reward them. Forget tricky points or complicated reward
program structures, for every prepaid Vodafone voice recharge, Vodafone will give
customers 10 per cent of their recharge amount back in Bonus Bank dollars for
customers to redeem or subsidise a handset of their choice from an extensive range of
handsets available from Vodafone”, said Dureau.

Vodafone is encouraging all its prepaid voice customers to join Bonus Bank.
Membership is free and easy to set-up and access. Customers are asked to simply
register for Bonus Bank by Texting BONUS to 126687, or through Vodafone’s
website, www.vodafone.com.au/bonusbank. Each time a prepaid voice customer
recharges, 10 per cent of the recharge amount is deposited into the customer’s Bonus
Bank account as Bonus Bank dollars. Customers are advised to use their MyVodafone
account details to login-in and access their Bonus Bank accounts.

To ensure loyal customers are rewarded, customers need to have saved $10 in Bonus
Bank dollars and have held membership for 90 days before redeeming.

Exec
utive
sum
mary
The Indian telecom
industry has been regularly beating
targets. Recently, the telecom
subscriber base exceeded the targeted
500 million almost 15 months before
the end ± 2014 deadlines. Going by the
current growth, it is estimated that
India will have 800 million mobile
subscribers in 2012. In wireless
segment GSM, CDMA and FWP
wireless subscriber base has increase
from 471.73 million in September 2009
to 488.40 million at the end of October
2009 at a monthly growth rate of
3.53%.
Vodafone Essar is the Indian subsidiary
of Vodafone Group and commenced
operations in 1994 when its
predecessor Hutchison Telecom
acquired the cellular license for
Mumbai. The company now has
operations across the country with over
106.34 million customers. Vodafone is
the world's leading international mobile
communications group with
approximately 341 million
proportionate customers as on 31
March 2010. Vodafone currently has
equity interests in 31 countries across
five continents and around 40 partner
networks worldwide. Vodafone Essar is
owned by Vodafone 67% and Essar
Group 33%. It is the second largest
mobile phone operator in terms of
revenue behind Bharti Airtel, and third
largest in terms of customers.
Vodafone Essar Digilink Limited
operates as a subsidiary of Vodafone
Essar Limited in Rajasthan, UP
(EAST) Haryana after acquiring AirCel
Digilink in 2003. TRAI Report on the
Indian Telecom Services Performance
Indicate that Vodafone gross revenue
change Rs 5,500.82 crore from quarter
March 2009 to Rs 5,470.53 in
quarterJune 2009.