For centuries the culture of rewarding positive behavior has been a persistent part of every society. It probably started off with early kings giving a rebate on taxes if paid on time and shop keepers opening a line of credit for frequent customers. On the same hand negative behavior was punished with the early kings pretty much beheading people who did not pay their taxes and shopkeepers refusing to sell essential items to people with a bad credit line.
Even in the 21st Century the carrot and stick approach in every day society has not changed. While good behavior is rewarded, bad behavior is punished albeit people not getting beheaded anymore. The management of this behavior has been called by a number of names over the centuries, the most current being Loyalty. While loyalty can be of many types , be it between citizens and a government , or resellers and distributors with a principle the predominant one is the one between a customer and a provider.
Loyalty management inherently follows saturation in a certain industry. The first industries which got hit by this phenomenon were the Hospitality and the airline industries in the late 20th century. What these industries realized was that price wars alone cannot keep a customer with your specific organization. While it will work for a little while, it is just be a matter of time till your competitor came up with a lower price pulling your customers towards them. The industries further realized that in a saturated market what actually can retain your customers is providing something extra in terms of service. This laid the foundation of what is modern loyalty. Concepts of loyalty memberships, loyalty cards, tiers, rewards were all born with this. In the eighties the same phenomenon hit the consumer goods industry with severe competition amongst various department stores.
The nineties did this to the telecom industry. With more and more governments opening up the industry to private players, the monopoly situation enjoyed by telecom providers ended. Every telecom wanted to ensure that the customer stuck to them and did not change the providers frequently. Initiatives like number portability which allowed customers to retain their number even if they want to change a provider, did not help the telecom provider’s case either. As it had done in the past, loyalty followed this saturation, with telecom players rewarding the end customer’s behavior.
There was however a big difference between the telecom providers and the other industries. While the other industries actually sold a physical product or gave tangible services, the services provided by the telecom players was very different. The definition of behavior was also very different for a telecom player. So how did the telecoms reward this behavior?
The early loyalty programs in a telecom were centered around billing amounts and points given if paid on time. Over a period the accumulated points could be redeemed for other services within the same telecom or be used to pay off a bill partially. This however was not a sustainable way of rewarding behavior and following the lead of the airline and the hospitality industry telecom providers started partnering with other organizations to allow their customers to redeem points to purchase anything from a pen to a holiday.
With the advent of convergence and VAS, the telecom providers also realized the fact that certain services they provided are not as profitable as some of the others. For example a local call within the same provider, especially with extremely low pricing, had a very low margin for the provider. On the same hand a customer buying a value added service, be it a ringtone or a wallpaper, was much more profitable. Most of the telecom’s very quickly realized that the cost associated with a point given to a customer is coming out of their pocket directly and can be extremely significant in organizations with a high customer base. This put up a major requirement that the number of points given to an end customer should vary based on the services used and not just a flat number of points based on a billing amount. This meant that depending on multiple conditions, for example usage of the services in a local call, sending a SMS, usage of the phone in roaming, usage of a phone for international dialing or purchase of VAS, should give different points to the customer the more profitable services giving more points thereby encouraging the behavior of the customer to buy more profitable services for a reward.
In today’s scenario almost all the telecom providers have some or the other form of loyalty programs. While some of them might be by invite only, some maybe open for everyone. The way of rewarding behavior has also been evolving over time with some of the providers still giving points on the bill amount, with the more mature providers giving specific points for specific services. While the way of giving points (accruals) may vary, the way to use the points (redemption) typically can be either against Value added services or products from external partners.
As the market evolves, the concept of Loyalty is not restricted to customers alone. This has been extended further to the partners. This is of particular interest in countries where the sales of telecom player’s service to end customer is managed by a retail setup. For example in countries like India, which is predominantly a prepaid market, the services are sold by small shops many of whom have absolutely no brand loyalty and will sell the services of competing products if they get a higher margin in the process. The other aspect to the partner network which needs to be understood is that while the handset or the SIM card or the initial package is a onetime sale, it still goes through a typical consumer goods setup i.e the provider selling to a distributor who sells to a dealer who in turn sells to a retailer. This effectively extrapolates the customer network to include subscribers (end customers), Distributors (First level Customers), Dealers (Second Level customers) and retailers (Third level customers). The carrot and stick approach works here as well. The bonuses paid out to the first, second and third level of the sales chain is dependent purely on the number of products sold, since the first sale is a physical product (SIM card with a plan). However, the retail network is the one which needs to be differentiated since they are also responsible for topping up or recharging the subscribers prepaid connection. This is the recurring revenue all the telecom providers are vying for. Depending on the rewards offered the retailers can convince the subscriber and control the amount which the customer wants to recharge.
In summary loyalty is here to stay , it is just the players who are changing.
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