Customer Loyalty Schemes - Case Study Example

Executive Summary –TESCO TESCO has been pioneer in the implementation of customer loyalty schemes which had greater intensity of response and also paved way for business excellence due to customer retention. The application of six sigma concepts and DMAIC technique to design a customer loyalty program is the most commendable business proposal. The Business report focuses the action taken on the Define, Measure, Analyze, Improve and Control phases and also the resulting outcome discussion is also correlated with the DMAIC phases. Using six sigma concept and application through DMAIC technique, loyalty club card program was designed and introduced. TESCO also focuses on direct strategies with the primary objective on customer retention by promoting customer loyalty schemes attracting more customers to scale up the business prospects using proven quality approaches like six sigma implementation. Due to the customer loyalty programs, TESCO has been successful in increasing the Target Customer base, achieving customer reliability and loyalty at a higher degree. Customer Loyalty schemes must be designed using SMART technique Specific: Focusing on specific market segment, product line which needs more focus on customer loyalty Measurable The outcome of the schemes should be transcended to cost benefit analysis relating customer perception and increase in business propositions Attainable The loyalty schemes should involve trait of practicality so that the customers can easily attain the suggested benefits. There should be balance in retail industry offerings and the money spent by customer. Realistic The Customer loyalty schemes are not for brand promotions confined to brochures and not practiced in reality. So Customer Loyalty schemes must be designed with realistic options with more transparency of the process. Loyalty schemes like free trips to Singapore for two by random selection are not realistic schemes. Time bound The customer loyalty schemes should be defined for a specific time frame and the timeline should be communicated to customers well in advance to avoid disappointment. Introduction The Business report on operations management based on the technique of lean six sigma .The Company focused is TESCO –one of the most popular retail stores in the global chain., tools applied and the outcome of implementation of lean six sigma process is explained in detail Company profile www.transnationale.org/companies/tesco.php TESCO is a known player for grocery multiple chains focusing on organic food sales in UK and Central Europe has a leading stock of about 1000 to 1500 organic lines. TESCO has partnered with many leading suppliers as a measure to increase demand and supply. TESCO has close affiliations with wide range of organizations to improve CR performance, share data, knowledge and ideas and deliver specific programme. They include: British Retail Consortium Business in the Community Cancer Research UK Carbon Disclosure Project The Climate Group Key Facts on Operation Management technique–Lean Six Sigma TESCO has applied lean sigma technique in the supply chain management process in order to achieve excellence customer loyalty program. The schematic diagram on the Supply Chain Management of TESCO One of the Key processes useful for implementation of 6 Sigma is the DMAIC technique Fundamentals of DMAIC Technique with steps DMAIC stands for Define, Measure, Analyse, Improve and Control Implementation of DMAIC technique for ensuring the customer loyalty program Important strategy adopted by TESCO is to focus towards higher quality and increasing safe product based on the expected standards set by suppliers. Some of the Key strategies implemented by TESCO in terms of achieving excellence in customer loyalty using six sigma –DMAIC technique is as follows Define Phase To design a baseline method to gain insight on average customer loyalty based on the current scenario. Key observation required for this strategic focus is Examine target customer base and their loyalty percentage Examine and understand the customer loyalty pattern using market segmentation strategy for a more detailed analysis on the strength and weaknesses corresponding to customer loyalty. Measure Phase It is important to measure the results consistently and accurately.. Re-evaluation of loyalty rate in analyzing the extent of customer loyalty To implement the tactical approach encouraging the metrics to correlate with long term customers. Analyze phase To analyze on the customer profitability scenarios based on different time lines for better understanding of customer expectations. Some of the key findings include Calculation of the acquisition costs and service costs to calculate the average customer revenue for a given time period. Average customer revenue is calculated by subtracting the acquired cost from the total cost. This will also provide an insight in the time taken for a new customer to emerge as a profitable customer over a period of time. Improve Phase Set a target loyalty rate for effective management of customer satisfaction It is observed that the longer it takes to become profitable, the higher the loyalty rate needs to be. Establishing and monitoring loyalty KPI (to be defined by management) and correlate loyalty directly to business performance. Control Phase Define methods to review the marketing tactics for improving loyalty If the current loyalty percentage is not satisfactory then the company focused on series of tactics to identify the root cause and implement corrective action. If current loyalty does not comply with the set targets, action plan for improving loyalty as a key business objective should be devised with process owners and review dates for improving customer loyalty. The increase in customer loyalty percentage can be calculated based on the same. Engage a statistician for doing data analysis to and interpret the key factors correlating to long-time customers or customers who attrite. Then, establish effective marketing and customer service practices and campaigns that specifically focus on encouraging the factors that are correlated with long-term customers. These phases are reviewed in a sequence for obtaining better results Outcome of lean six sigma application in TESCO Base level strategy Many companies are using lean logistics management to save money and TESCO is one example. With lean logistics, companies can eliminate waste along with huge opportunities for savings while increasing the satisfaction of the end customer. Focusing on TESCO At TESCO’s, with lean logistics system, The total throughput time, from the filling line at the supplier to the customer leaving the store with the cola, has declined from 20 days to 5 days. The number of inventory stocking points has been reduced from five to two, and The supplier’s distribution center for the items has disappeared. Out come of DMAIC technique Loyalty programs designed on the basis of application of DMAIC concept To identify the profitable customers and reward them for their loyalty towards TESCO.This practice is one of the best example for acquiring customer relationship management Data mining tools and analytical software to facilitate easy purchasing of the customer by saving time by easy retrieval of customer information to avoid repetition Introduction phase of loyalty program TESCO decided to introduce a loyalty program based on the key focus areas. As a test run to gauge the momentum of the loyalty program, it decided to run the club card in three stores. In order to get more impressive results, TESCO teamed up with dunnhumby and conducted a test and learn approach in their global chain of 12 stores and then designed the TESCO club card program for profitable customers. Important features of TESCO club card program –The Measure phase and Analyze phase http://www.tesco.com/todayattesco/index.shtml Pricing: Investments of two billion dollar within 5 years lead to reduction of prices on significant items pertaining to groups belonging to various lifestyles Promotion The promotions are evaluated based on customer insights and minimize the overall costs involved in promotion .The various probing questions generated on the factors listed below can identify the customer insights and information are listed below    Shopper’s usage “Who uses them “ Shopper‘s liking of product “Who likes them”.    Is there any way to focus the promotion to the customers?    How they can take investment from promotions and utilize the same back to business? The above promotional strategies facilitated 60% of less promotions .reduction in the management cost and re-investment of money for further business prospects facilitating price reduction and have a more effective and tailored promotions. Shared Insight –Improve and Control phase TESCO’s has provided access to customer information which is gained from the club card program to good suppliers, media companies, researchers, space planners etc. Success story of TESCO club card programme TESCO’s Club card program has its widespread reach on 10 million active households and records a sales value of 85% of weekly sales. The success of the loyalty programme is because of the commitment of TESCO to treat customers as individuals focusing on key areas of multidimensional customer segmentation and tailored communications. Customer Segmentation is done on the basis of cost conscious, mid-market purchasing segments, and up-market purchasing segments, which are in turn, are segmented again to have options like healthy, gourmet, convenient, family living, and so on. These sub segments are then segmented further and relevant communications are tailored to each. It is found that after the implementation of club card programme, there is 52% increase in sales and growth rate higher than the industry average within a period of 5 years .There is 150% increase in the business expansion and Store openings of TESCO which in turn has increased the number of outlets. Conclusion The Business report stresses the application of six sigma technique to design a customer loyalty program in TESCO and details the outcome of 6 sigma technique and highlights the improvement Six sigma strategy application on TESCO provides a clear cut insight on customer loyalty program ,their need, ways of customer satisfaction and ways for business expansion. References Berman, B. and Evans, J. (2006) Retail management. 10th ed., Prentice Hall. Cox, R. and Brittain, P. (2004) Retailing – an introduction. 5th ed.,Pearson. Dawson, J. (2006) Strategic issues in international retailing. London: Rutledge. Dawson, J. (2005) International retailing plans and strategies in Asia. New York: Hadleigh. http://www.mhhe.com/business/opsci/pom/businessweek.htm www.icmrindia.org/casestudies/catalogue/Operations/OPER050.htm - 24k - www.improvementandinnovation.com/features/articles/case-study-design-six-sigma-dfss Read More