Smart Loyalty in Petroleum Retail

By Kishore K Somaraju

WIPRO TECHNOLOGIES

EXECUTIVE SUMMARY
The old retail truism of having the right product at the right place at the right time is now being adjusted to
include for the right customer.
Modern Loyalty programs are ideal tools for achieving these expectations. Loyalty programs make a lot of
sense for retailers: they allow rewarding best customers through discounts, special promotions, gifts, etc. in
exchange for a better knowledge of his customers and new purchase patterns identification.
This paper takes a look at the way Best in Class loyalty programs are defined (in terms of practices and
processes). It also reinforces the obvious advantages of having a well-managed loyalty program in place. Also
outlined are some best practice business levers for each stage of Loyalty program cycle. And finally a brief on
Smart Loyalty & Customer Intelligence Technical Architecture & Process Flow is brought to light.

TABLE OF CONTENTS
Introduction ................................................................................................................4
Customer Retention What difference it makes!!......................................................5
Loyalty Card Programs Benefits: Customer Standpoint...............................................6
Fuel Cost Savings..........................................................................................................6
Security & Controls........................................................................................................6
Exception Monitoring......................................................................................................7
Flexible Billing Options.....................................................................................................7

Loyalty Card Programs Benefits: Retailer Standpoint...................................................7

Roadmap Levers in each stage of a Smart Loyalty Program.........................................8
Smart Loyalty & Customer Intelligence Technical Architecture....................................10
Integration at Point of Interaction.........................................................................................10
Real-time Customer Data Store...........................................................................................10
Customer Intelligence Analytics...........................................................................................11
Operational Customer Segmentation.....................................................................................11
Campaign and Loyalty Rules...............................................................................................11
Data Quality & Integrity....................................................................................................11
Loyalty Program Support Services........................................................................................11

Measuring Effectiveness of Customer Loyalty Program...............................................12

Emerging Trends...........................................................................................................13
Conclusion....................................................................................................................13
Appendix......................................................................................................................14
References..................................................................................................................14
About the Author..........................................................................................................14

Smart Loyalty in Petroleum Retail

Introduction
Loyalty programs are a great way to entice customers to keep returning to your stores as they seek to gain rewards on
routine purchases. Finding the right fit when it comes to a loyalty program will help store operators differentiate their
offering and could generate a steady stream of repeat customers.
The main purpose of a loyalty program is to retain regular customers, to increase commitment from occasional
customers and to acquire new ones.
Some of the expectations of the companies are:

Increase the
amount of
product
purchased
Higher
customer
retention

Lower price
sensitivity
What is
expected from a
successful fuel
card loyalty
program?

Increased single
brand loyalty

Competitive
differentiation
Greater
consumer
resistance
to competitor
offers

Parameters of a successful fuel card loyalty program

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Loyalty programs are initiated by businesses with two main goals:

Primary goal: Acquisition of information relating to their customers' spending habits
Secondary goal: Actively cultivate loyalty amongst customers to ensure they continue patronizing the business
Loyalty programs may offer benefits in a number of different ways. Many loyalty programs offer a sustained discount
(such as 10%) for a period of time. Others offer a discount once certain criteria have been met, for example, a 20%
discount on a single purchase at the convenience store once a customer has spent $50 at the fuel station. Others offer
points which may then be redeemed for products which may or may not be directly related to the business.
Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behaviour
behaviour which is potentially of benefit to the firm.
Ultimately, the success of loyalty programs depends on how well the business uses the data it gathers to further refine its
policies and loyalty programs.

Customer Retention What difference it makes!!

There are many reasons why retaining a customer makes business sense. Some of these are:
Enterprise Loss is Competitor's Gain!
If an enterprise doesnt retain its customer, competitor will gain the customer.
It Costs You More!
It is 6-9 times more expensive to get a new customer than to retain one.
Loyalty reaps Rewards!
A loyal customer base could contribute nearly 40% of the enterprise turnover.
5% makes the Difference!
Companies can boost profits by nearly 100% by retaining just 5% more of their customers.
20/80 Rule applies here too!
20% of customers contribute 80% of the turnover (currently analysts are speculating a 20/65
scenario-but the big picture remains).
Retention decreases Churn!
Customer retention decreases churn-rate (rate at which customers change service providers). This is
especially critical in technology driven industries.
Retention increases LTV!
The estimated Lifetime Value (LTV) for a combo store with fuel & grocery/supermarket of a customer with a family of
four in the US is approximately $350,000. Value surrendered by not retaining a customer could severely erode top and
bottom lines. The implications are thus, obvious.

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Smart Loyalty in Petroleum Retail

Loyalty Card Programs Benefits: Customer Standpoint

Todays loyalty card schemes empower the customers to get the
most out of every drop of fuel they buy. They are simple and easy
to use, which is important for busy customers on the move and
they leave the station with an experience of getting quality fuels
whilst earning rewards.
There are many key advantages and reasons to choose the fuel
loyalty card:
Fuel cost savings
Security & controls
Easy to check your daily fuel transactions and spending!
Exception monitoring
Flexible billing options

Apart from the key benefits discussed in

this section, there are some more generic
benefits of fuel card customers:
Saving money
Convenience factor with ease of
payment (speed and simplicity)
Special offers/discounts for card
holders
Feeling of belonging to a membership
community
Possibility of receiving other financial
services (For Example, Barclaycard
Freedom, Tesco Club card, etc)

Fuel Cost Savings

The fuel cards have one of the most robust fuel saving programs. Using fuel cards usually saves customers 1-5% or more
on their cost of fuel. This is attained through administrative savings as well as a discount on the cost of fuel. Fuel card can
offer customers a cost plus pricing model or retail minus pricing at several locations.

Security & Controls

The fuel card is as secure as an armoured car for your fuel purchases:
Assign fuel cards to vehicles, drivers or any combination
Lock to pay at the pump only to restrict fuel purchases inside the store
Driver ID & odometer prompting protects from unauthorized fuel use
Block after hours or weekend fuelling
Restrict purchases to specific stations or brands
Fuel Only, Fuel & Maintenance or Fuel, Maintenance & Other
Spending limits can be set for each fuel card, per day, week or even month
Fuel transactions can be restricted by dollar and/or gallon amount or transaction per day, week or month.
The high level of controlled spending limits & restrictions which can be customized from card to card will help promote
spend savings and enhance card security. Full internet access to all transactions through online management tools help
customers to track, control and record their spending with respect to fuel and conveniences.

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Smart Loyalty in Petroleum Retail

Exception Monitoring
Exceptions such as time of day variances, excess fuel tank capacity, pattern discrepancies, product variances, and excess fuel
purchases made to the account could be automatically e-mailed to key contacts or the card holders themselves.

Flexible Billing Options

Todays fuel card has flexible (including weekly, bi-weekly, monthly) billing terms. Customers will receive an e-invoice
for their transactions.

Loyalty Card Programs Benefits: Retailer Standpoint

Benefits
?
Increase customer acquisition
?
Increase customer spends and
?
Increase frequency of spend
?
Increase customer satisfaction
?
Stimulate customer reactivation
?
Maintain customer retention
?
Increase customer referrals
?
Increase customer lifetime value

Impacts
?
Customers identification enables deeper relationship

marketing
?
Identification of market trends and customer behaviors

who buys, what, when, where, how much, how, etc

?
Increasing in sales volume and margins
?
Triggering other opportunities (For Example, financial

services)
?
Triggering of one of the most important marketing

weapons, the word of mouth this happens

automatically if the deal is really good
?
Differentiation
?
Reduce markdowns

We can summarize the value as below:

Value for the Retailer

Value for the Customer

Drive Bottom-line sales growth

Get more for every dollar spent

Understand how customers shop to drive

desired behaviour

Receive promotions that reflect individual

buying preferences

Save marketing dollars by reducing waste on

low-return promotions

Easy to use; register and participate with a swipe/dip/

tap of a credit, debit or store loyalty card

Increase redemption rates

Instant rewards are simple; no paper coupon clutter,

and everything is conveniently accessed through the card

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Smart Loyalty in Petroleum Retail

Roadmap Levers in each stage of a Smart Loyalty Program

Stage Lever

Technology Requirements

Process Details &

Organizational Alignment

Stage Description

Collect & Cleanse

Analyze & Deploy

Interact & Optimize

Develop Data Model &

Collect Customer Information

Analyze, Segment
& Implement Program

Leverage Customer Data &

Increase Pervasive Interaction

Conduct focus groups &

customer research

Analyze customer product

& transaction information
to establish customer
segments

Marketing & merchandising leverage customer data

to determine product mix,
promotional strategies &
investments.

Develop loyalty roadmap

& strategy

Finalize customer intelligence,

loyalty roadmap & strategy

Customer facing teams to

become an extension of the
loyalty and promotional
strategy by providing assisted
selling, enhancing service &
recommending appropriate
products

Develop data model &

populate with customer data

Establish loyalty program

rules, thresholds, policies
& success criteria

Explore organizational
re-alignment & cross
functional metrics

Train customer facing teams

to implement the program
and explain the benefits
to customers

Investigate the use of

consulting firms in strategically
developing the program

Create & execute mass

advertising, batch promotions
& in-store/location collateral

Formulate a committee
comprising marketing,
merchandising, IT and
consulting vendors

Provide customer facing team

incentives for registering
new customers

Create the program

technology framework
& budget

Implement & integrate

analytical planning,
operational segmentation,
campaign management &
loyalty rules applications

Define functional
requirements & identify
software vendors

Integrate the program into

advances selling technology
framework

Deploy & format loyalty

program interfaces for multiple
devices viz. kiosks, digital
signs & mobile technology

Define & implement

operational customer database
Leverage data cleansing
software or service

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Smart Loyalty in Petroleum Retail

Stage Lever

Measurements

Stage Description

Collect & Cleanse

Analyze & Deploy

Interact & Optimize

Develop Data Model &

Collect Customer Information

Analyze, Segment
& Implement Program

Leverage Customer Data &

Increase Pervasive Interaction

Data collection ratio

New members

New members

Customer expectations

Conversion

Conversion

Brand awareness

Frequency

Up sell

Market Basket

Service Levels

Dormancy

Employee productivity
Margin
Turn

Customer Interaction

Lifetime value
Data is collected via reverse
append of credit card
or telephone number

Customers register for the

program, be it manual
application, kiosk, online,
telephone etc

Customers receive
electronically and card
is optional

Customers may receive

promotions that retailer
is testing which may not
be affiliated to a loyalty
program, but used to test
offers and help create
segments

Members have online access

to order history, applicable
promotions, services &
product recommendations

Consistent and individualized

promotions, discounts,
services and recommendations
at every interaction across
channels

Members will receive mass

advertising and can redeem
rewards, discounts
and promotions

Optimized self service

and assisted selling experience

Source: AMR Research

This roadmap provides details regarding process, organizational alignment, technology requirements, key
measurements, and customer interaction for each of the stages. Retailers will need to tweak existing processes and
procedures and invest in technology to support these activities.
Retailers should understand that the loyalty program journey will be undertaken in parallel with other initiatives,
particularly the high-level strategy of enhancing customer interactions with advanced selling technologies and building
a demand driven supply network. All these initiatives are tightly integrated and rely on each other. Thus, these initiatives
must move together.

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Smart Loyalty in Petroleum Retail

Loyality & Customer Intelligence Technical Architecture

Point of Interaction

Web enabled
Corporate
Portal

SAP

Enterprise
BW

Frirewall

Third Party
Network

Operational
Customer
Segmentation

Customer
Intelligence
Analytics

Real-time Customer Data Store

ETL
Middleware

Loyalty
Customer
Data
Warehouse

Data Quality & Integrity

Loyality Program Rules Engine

POS
Kiosk
Mobile
Web
Call Centre
Partner Service

Loyalty Program
Support Services
Data Quality &
Integrity

Source: AMR Research

Successful technology architecture to support a smart loyalty program requires the following components:

Integration at Point of Interaction

Integration component manager new/revised customer data flow into operational customer database and allows real-time
integration of loyalty rules through any point of interaction media viz. POS, in store kiosks and Web etc.

Real-time Customer Data Store

This data store acts as a central repository for customer data, standardizing, cleansing, aggregating and organizing the
information to enable analysis and syndication.

Customer Intelligence Analytics

This component provides predictive modelling, data mining and analytics to enable users to extrapolate information about
customers and better understand marketing, merchandising, and promotion activities that will likely influence behaviour.

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Smart Loyalty in Petroleum Retail

Operational Customer Segmentation

This component sits on top of the real-time customer data store to provide segmentation in preparation for campaign
execution. It allows business users to create slices of different customer segments based on answers to predefined
attributes without deep analytical regimen or time consuming data crunching. (For Example, show me customers that
purchased 1000 gallons of fuel in March.)

Campaign and Loyalty Rules

This component enforces program design and rules by using a complex set of business rules to process incoming data.
These rules define program characteristics such as:
A number of points any customer can earn on each type of transaction
The start and expiry time-lines of a rewards program to which a member is linked
The rewards that a particular member is eligible to redeem
Additional bonus opportunities for members
The thresholds that trigger applicable offers and discounts
Campaign rules set the parameters for outgoing marketing programs such as e-mail, kiosk advertising, etc. Loyalty rules
set the parameters for incoming customer redemption of applicable rewards.

Data Quality & Integrity

This component is responsible for cleansing customer information and cross-referencing this information with third party
databases.

Loyalty Program Support Services

This component creates and fulfils loyalty cards, marketing material and rewards. This component also allows contact
centre operations to support operational enquiries from customers. Fulfilment and service functions are often
outsourced by retailers to third party service providers.

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Smart Loyalty in Petroleum Retail

Measuring Effectiveness of Customer Loyalty Program

Once the customer loyalty program is in place and running, the enterprise needs to monitor various parameters so as to
measure the effectiveness of the whole exercise.
These various parameters could be:
Subscription Rate actual number of sign-ups versus the budgeted figure for a given period
Sales -Total member spending versus non-member spending for a given period
Average bill value member versus non-member
Member Retention rate Number of members active after one year of subscription
Profitability
Member Life Time Value (LTV) An increase in LTV indicates a successful CLP
A research project was conducted for a major fuel loyalty program pioneer in the US. 50,000 loyalty customers and 4.8
million transactions were analyzed for a period of 14 months. Highlights of the research are given on the right.
The study clearly shows that a smart loyalty program is effective in increasing purchase frequency and basket size from
loyalty customers. In addition, the retailers would see the success of the loyalty program in getting fuel only customers
back inside the store to make store purchases as well.

?
Loyalty customers spent 36% more than regular customers.
?
Average transaction size of loyalty customers grew 25% over the period.
?
Loyalty members purchase frequency more than doubled from 1.79 to 4.08 times per month.
?
29% of non - loyal fuel purchases were paid in the store while 58% of loyalty fuel purchases were

made in the store.

?
The percentage of double category buyers (Fuel & Store) increased by 22%.
?
38% of loyalty fuel purchases in the store included store items.
?
26% of non - loyal fuel purchase in the store included store items.
?
Between 1,500 to 2,500 consumers enrolled into the loyalty program per store.

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Emerging Trends
To spice up loyalty programs, more chains are crafting partnerships between non-competitive entities. Grocers sending
people to fuel retail outlets as part of their reward mechanism, a win-win for both of them, is one such example.
Also on the horizon of this decade, we can expect to see more channels integrating an ongoing cause with a loyalty
program. One great example is Shell and Safeway partner with a coalition called Air Miles in Canada, which integrated
the cause of going green and being more eco friendly into their program. Customers can earn rewards from buying green
products at certain retailers, get a bonus for buying that product, and can redeem points for ecologically responsible
items. This also encourages more socially responsible behavior, which is also an overall consumer trend.
Another emerging trend is a shift in how the data is being used to communicate promotions. Data gathering reveals a
wealth of information about customers, but a lot of companies dont look at that data for insight. In the next five years
the companies that are going to do the best in this space are going to be the ones who turn their attention to the treasure
trove of data theyve gathered. This data provides insight provides about your most profitable customers and how you
can market to them more effectively.
Many marketing chains are sending coupons, special offers, bar codes to mobile phones in order to reach customers
where they are, but it is important for them to see that this strategy works as the risk is the customer most of the times
write-off such offers as SPAM.

Conclusion
Rewards offered through loyalty programs will continue to be a key differentiator. With so many loyalty programs
available to consumers through multiple market channels it will be a necessity to offer creative and personal rewards.
Consumers will increasingly demand more offers that are relevant to their personal needs and interests.
Loyalty programs recognize and reward the best customers of a business. Nearly one-third of U.S. consumers (32.3%)
consider their participation in retail rewards programs to be more important as they seek to stretch their household
budgets in the recessionary economy.

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Appendix
References
[2005]. James A. OBrein, George M. Marakas. Management Information Systems.
[2006]. AMR Research Survey. Loyalty Programs that actually create Loyalty Retail Imperative.
[2009]. Barry Berman, Joel R Evans. Retail Management.

About the Author

Kishore K Somaraju works as Senior Consultant, Oil & Gas, within the Energy & Utilities vertical of Wipro Technologies.
With over 16 years in downstream retail automation, Kishore brings with him rich experience from companies like IBM
and Reliance and adds a synergistic value to Energy & Utilities vertical of Wipro.

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Smart Loyalty in Petroleum Retail

ABOUT WIPRO TECHNOLOGIES

Wipro is the first PCMM Level 5 and SEI CMMi Level 5 certified IT Services Company globally. Wipro provides comprehensive IT solutions
and services (including systems integration, IS outsourcing, package implementation, software application development and
maintenance) and Research & Development services (hardware and software design, development and implementation) to corporations
globally.
Wipro's unique value proposition is further delivered through our pioneering Offshore Outsourcing Model and stringent Quality
Processes of SEI and Six Sigma.

WIPRO IN ENERGY & UTILITIES

The Energy and Utility division of Wipro Technologies is one among the Top 10 IT solution providers to the E & U industry across the globe.
The Energy & Utilities business unit has worked with over 75 top Energy and Utility companies across North America and Europe in
regulated as well as deregulated markets providing solutions in areas such as Customer Care, Billing and Settlement, Work and Asset
Management and Grid Operations covering all industry sectors --- Electricity, Gas, Oil and Water.
The cumulative experience of over 5,500 person years spans IT Consulting, Systems Integration, Business Process Outsourcing,
Application Development and Application Management services.

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