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A complete analysis of the Trade Loyalty Programs run by ITC Limited along with Hindustan Lever Limited (Super Value Store), and P&G (Top Store).

Table of contents
1.Sector analysis: The FMCG Sector 2.Introduction i.The Market Scenario ii.Why Trade Loyalty Program? iii.What is the Loyalty program? 3.Trade loyalty Programme of HLL and P&G 4.Research Implementation 5.SWOT Analysis 6.Conclusion

Sector Analysis: The FMCG Sector

The FMCG sector is a key component of Indias GDP and is a significant direct and indirect employer. It is the fourth largest sector in the economy and is responsible for five percent of total factory employment in the country. The sector also creates employment for three million people in downstream activities, much of which is disbursed in small towns and rural India. Unlike the perception that the FMCG sector is a producer of luxury items targeted at the elite, in reality the sector meets the every day needs of the masses, across the country. Low-priced products contribute the majority of the sales volume and lower income and lower middle income groups account for over 60 per cent of the sectors sales. Moreover, rural markets account for 56 per cent of total domestic FMCG demand and FMCG outlets reach more villages than any other basic facility such as primary schools or bus facilities. The FMCG sector has several other salient features. It has strong links with agriculture and 71 per cent of sales come from agro-based products; it is a significant value creator with a market capitalization second only to the IT sector and it is a key contributor to the exchequer. The Indian FMCG sector is a total market size in excess of US$ 13.1 billion. It has a strong MNC presence and is characterized by a well established distribution network, intense competition between the organized and unorganized segments and low operational cost. Availability of key raw materials, cheaper labour costs and presence across the entire value chain gives India a competitive advantage. The FMCG market is set to treble from US$ 14.6 billion in 2006 to US$ 33.4 billion in 2015. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. Burgeoning Indian population, particularly the middle class and the rural segments, presents an opportunity to makers of branded products to convert consumers to branded products. (Source: CII Annual Report)

THE MARKET SCENARIO

In India, the market may broadly be divided into two segments. The organized, which consists of businesss with established names and brand presence in the community. We can cite as examples, Fab Mall, Food Bazaar and Big Bazaar. These cater to the urban population that has the luxury of residing in tier 1 cities in India. The unorganized market would consist of the Kirana shops, the large grocery stores, which cater to the people next-door. The age-old method of buying convenience items. However, as in the past, shopping is no longer a chore of necessity, but has become one of choice. The past decade has seen a remarkable change in consumer behaviour. It is no longer localized to the homemaker, but has become more family centric. This change of consumer behaviour has happened due to the influx of media, indeed the bombardment of advertisements that the homemaker is exposed to, every time she flips a magazine page or switches a television channel. Her decision making power and choice has suddenly opened up. We can broadly introspect and come to a single conclusion. PRICE. These large outlets are offering customers a larger variety of goods, services, and attractive discounts. Also the families choice factor has increased tremendously. The homemaker need not be pressed into buying just one brand of breakfast cereal, which is available at her local Kirana outlet, indeed if at all. She now has a blitzkrieg of many brands attractively packed and displayed for her to mull over and make up her mind. The consumer today is spilt for choice in these larger organized outlets.

What is a Trade Loyalty Program?

An effective and lasting trade loyalty program, is a blend of science and art. Art in the sense that it is deigned around loyalty drivers, namely awards and benefits that will attract customers and ensure their loyalty. The art transcends to the communication that the program has with its customers, how the customer is treated and how he is kept abreast of the changes or enhancements that are being made in the program. Now we come to the scientific aspect of designing an effective trade loyalty program. It must be so designed that the ROI does not eat into the sales generated through redemptions. A program, that is so attractive that its point redemption levels soar far above the forecasted redemption pattern, could soon put the program in the red. Therefore we need to strike a balance between the point system and the redemption system. The point system also needs to be keenly and shrewdly thought out, as with a very small reward point, it would be difficult to attract and retain customers to such a program. Also if there is a miscalculation, the program could lead to bankruptcy. A Loyalty is not a gimmick or quick-fix remedy but a serious, long-term growth-enhancing strategy. The program is not a tactic, but a strategy. It's not an application, but a plan. It's not a promotion, but a value proposition. Examining the longevity of such schemes can prove the value of loyalty programs.

Why Trade Loyalty Program?

Loyalty, would to the common man mean faith and something that could be depended on. How does this word therefore work with trade? What or who would the trade need to be loyal to? The answer is simple, the customer. This holds true for both sides of the table, whether you are large sized company, manufacturing and marketing FMCG products, to whether you are the roadside Kirana store.

We need to be loyal to our customers, we need to be in constant touch with them and try and understand what exactly they want. In other words we need to attract them and as a much larger exercise need to hold on to them.

How indeed do we do so? How do we hold on to the customer, who has already become lured to something more profitable and meaningful to his pockets? Incentivise him? Give him an offer that would lure him back to you and want to come back for more? Make that offer an on going one, with benefits that increase and become more attractive and fruitful with his growing spending with you?

All these combined together actually make up a trade loyalty program.

PRODUCT Trade Loyalty Program

AASHIRVAAD
SUNEHRA KAL
Loyalty program - Necessity
To attract the large customer base in the untapped area To keep our existing customer base intact Promote a sense of value and good feeling in the market

Principles
The perceived value of the reward far exceeds the magnitude of the same Benefits - intermittent scheduling of rewards (surprise) can be more effective than regular scheduling Priority Recognition as a valued member of our community Value creation in the trade

Trade view point

Cash value Redemption options Aspiration value Relevance Convenience Immediate gratification More Choice Feel Good factor Does it make sense? Ease of availing reward

Company view point

Deliver tangible value Mix of product/price/service/relationship Effective communication Consistent delivery Monitor cost & profit Differentiation between profitable & non-profitable members

Program Definition Tier Approach

Level

Member Type

Entry Criteria
Rs. 50,000 bill value in a month Rs. 30,000 bill value in a month Rs. 15,000 bill value in a month

Tier 1 Tier2 Tier 3

Platinum Gold Silver

Reward Structure
Point system
Every purchase of Rs. 200 will earn 1 point Extra purchase over the previous month will earn the member additional points over the normal stipulated points

Cash discount
Silver member gets 1.5% Gold member gets 2.5% Platinum member gets 3.5%

Benefits
Branding Conversion of Aashirvaad branded outlet for Platinum members Lit signage board for Gold members Side panels for Silver members Product launches Can initiate new launches at these outlets first Formal launch can happen in the highest performing platinum member in the presence of company personnel Outlet reformatting & merchandising Product visibility Displays Shelf management by product category

TARGET MARKET
This program is unique in the sense, that the way this program has been structured, is yet to happen in the FMCG trade. The members have been broadly distributed into three groups.

Silver, Gold & Platinum.

This program is being run much like a credit card program. Each member will be given a card with an unique number, which serves as your identity and proof of member ship to your category. You will earn reward points for every unit purchased by you in a month. The points that you will accumulate through time, with this program can be redeemed for attractive gifts. There are also surprise gifts and exciting holidays waiting to be won for the top performers in each member ship category The eligibility criteria for each group and the benefits therein have been illustrated in the table below, but a few simple words of explanation is given below. To gain access to the Silver membership, you will have to purchase goods worth Rs. 15000 (Fifteen Thousand only) per month. Purchase over and above that amount will win you surprise points and cash discounts. For our Gold card members, the minimum off take for the month has been fixed at Rs. 30000 (Thirty Thousand only), Platinum members have been benchmarked at Rs. 50000 (Fifty Thousand only). Need less to mention that any purchases over and above this, wins you attractive cash discounts, points and gifts.

Benefits:
Silver, Gold & Platinum member will be rewarded by the cash discount of 1.5%,2.5% & 3.5% respectively. Every purchase of Rs. 200 they will earn one point. Extra purchase over the benchmark will earn the member additional points over the normal stipulated points and extra cash on it.

Reward Structure:
Points 750 1000 2000 3000 4000 5000 6000 7000 8000 9000 Gift Mobile phone Mobile phone or MP3 Player DVD player Mobile phone Microwave Solo Oven(20L) Semi Automatic Washing Machine (5 kg) Semi Automatic Washing Machine (7 kg) Refrigerator (220 Lts) or Digital Camera Television (21'' flat) or Home Theater AC (1.0 ton window AC)

COMPETETIVE LANDSCAPE
Trade loyalty Programmes: This research into trade loyalty programs has been done taking into account two major FMCG giants, namely HLL and Proctor & Gamble. Hindustan Lever has two trade loyalty programs running in the market currently. Super Value Stores and Vijeta. We shall examine both in detail in the following paragraphs. SUPER VALUE STORES: