Loyalty marketing entrepreneurial opportunities in ...

Loyalty marketing entrepreneurial opportunities in Greece: A grocery Retailers’ perspective Naoum K. Tsolakis1*, Charalampos Ath. Tziogas2 Industrial Management Division, Department of Mechanical Engineering, Aristotle University of Thessaloniki 1* [email protected], [email protected]

Abstract: The Greek economic recession has a major impact on retailers. Their sales have been declined dramatically and are unable to keep their customers engaged. The main reason is the high taxation and the consequent reduction on the population’s income. Traditional marketing efforts seem to have no positive effect towards the sales volumes, and retailers and suppliers struggle to find new ways of attracting customers and retain their sales at reasonable levels. The solution can be a loyalty marketing services provider which will assist corporations in gaining insight about their customers, current and prospective ones. Nevertheless, it is imperative that retailers put aside the product-centric and profits-centric orientation they were used in utilizing during the last decade. They have to establish a customer-centric philosophy throughout their operations to manage withstand the current dismal economic situation. Kotler explains that the "80-20 Rule" is valid in the marketing industry, and is even more pronounced for the B2C channels. However, companies confront many difficulties in communicating and interacting effectively with their customers. To that end, a specific loyalty marketing services’ provider could offer to its corporate clients the expertise to grow and retain their customer base by providing unparallel services tailored to the expectations of each individual customer. Therefore, this study provides a literature review of the loyalty marketing sector and further aims in analysing the market, operational and financial feasibility of a conceptual a loyalty marketing agency called CuSight, tailored to the needs of the Greek grocery retailers. Keywords: Greek economic recession, grocery retailers, loyalty marketing 1. Introduction Under the pressure of the contemporary financial recession in Greece, especially during the initial stage of the abrupt economic downturn in country during the period 2008-2010, along with the strict legislation and taxation measures imposed by the national government, innovative approaches need to be adopted by retailers to foster their viability, competitiveness and profitability. Particularly, high unemployment rates (12% according to the Hellenic Statistical Authority in August 2010, approximately 26,6% today), and the subsequent loss of consumers’ confidence, provided a sound verification of the fact that retailers in Greece were struggling to maintain their share over the consumer’s "wallet". As a result, there were, at that time, large expenditures on ineffective marketing practices with no substantial results. Greek retailers had to realise that to overcome the obstacles in this new changing environment, they needed to understand their customers’ particular requirements. Therefore, this study presents a review of a loyalty marketing entrepreneurial opportunity in Greece, especially during the initial stage of the recession in the country, and further aims in analyzing its entrepreneurial potential in terms of market, operational and financial feasibility. The rest of the paper is organized as follows. In Section 2, a conceptual loyalty marketing agency called CuSight, tailored to the needs of the Greek grocery retailers, is presented. The business aspires in understanding customers’ requirements, establishing effectiveness in the consumer reach process and improving promotional outlays of retail companies. The main aim is to analyse the appeal that underlined innovative practices in customer relationship management may have to retailers within the specific Greek market. Following, in Section 3, the market potential of CuSight within the Greek marketing and supermarket sectors is presented. In addition, in Section 4 key financial aspects of CuSight are highlighted. Finally, the paper concludes with a discussion of main findings and study conclusions in the last Section.

2. CuSight: Entrepreneurial Idea The proposed entrepreneurial idea is a loyalty marketing service agency called CuSight. Its main purpose is to offer business intelligence consulting, and marketing support services within the Greek retailers’ and manufactures’ market. The name of the company derives from the phrase "Customer Insight" which depicts the venture’s core value proposition to its collaborating companies and partners. Unlike other marketing companies, CuSight places the consumer at the centre of business operations. The corporate mission is to: “Help brands and organisations in Greece to develop an integrated and profitable engagement with the consumers, so as to deliver increased brand value to its corporate clients”.

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In brief, CuSight will generate unique frameworks to embed customer insight to collaborating retailers. This involves creating customer profiles and clusters by combining geodemographic, lifestyle and point-of-sale (POS) scanner data (Gruen and Shah, 2000; Wedel, Zhang and Feinberg, 2004). Through applying innovations in data analytics, the venture proposal aims to increase its clients’ market share and enhance their loyalty scheme towards the relevant market. The core operations of CuSight will help the collaborating clients to realise profits, decrease their marketing expenditures and be more effective concerning the domains shown in Figure 1.

Figure 1: The main domains in which CuSight aims to assist its collaborating clients. Over time, CuSight’s effectiveness will be further increased due to the learning curve effect. Following the initial collaboration through the pilot program in specific clients’ stores, the acquired experience will help CuSight to attract new clients, deliver even greater quality services and become the standard in loyalty marketing consulting in Greece. When the venture is launched, it will target the grocery retailers’ market. This is defined as the attractive beachhead for CuSight. The selected target market enables the possibility to replicate the provided offerings to other retailers, generate demonstrable results and provide ease of access to other market segments (Moore, 1998). CuSight’s nature of operations does not allow a potential entrepreneur in focusing on a specific niche in terms of offerings. However, CuSight must focus on a niche in terms of clients. Following the increase in taxation rates and nationwide reductions in salaries, grocery retailers are in need of new methods to retain and increase their market share. Before proceeding, it is imperative to state that entrepreneurs need to resolve a number of queries to confirm emerging business opportunities (Timmons, 2008). CuSight, as a new venture proposition, will be evaluated based on three axes (Mullins, 2006), as these are articulated by the research questions below: 1. The market and industry attractiveness of the business idea. 2. The operational perspective of the proposed idea through analyses techniques, growth models and technological requirements needed to deliver the promised services. 3. The financial and risk analysis, the most important perspective concerning the attractiveness of the idea.

2.1 Market Positioning As stated earlier, the new venture proposal is called CuSight. The company’s name derives from the "Customer Insight" that it aims to provide to the collaborating clients. CuSight will operate in the "Marketing Services" sector. The venture will position itself as providing comprehensive loyalty marketing consultancy services by combining data-mining activities and analytic processes. The term "comprehensive" refers to the fact that CuSight will be based on data available from demographic, lifestyle and point-of-sale (POS) scanner data sources. Regarding the research outcomes, there is a clear market opportunity for CuSight. It is strongly believed that CuSight is a viable venture proposition. To be more specific, the project appears to be feasible for the following reasons: 1. The initial capital required is small. This will be covered from grant money provided by the Greek government to enhance entrepreneurial activities at the current financial downturn.

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2. 3. 4.

There has been a prolonged period of decline on grocery retail sales volumes. Extended market and industry analyses have been conducted, both in the UK and in Greece, which verify the necessity for CuSight’s services in the Greek market. The formulation of a skilled management team possessing all the required analytic skills will consist the initial intellectual property of the company.

2.2 Core Services The CuSight brand aims to provide marketing consulting services to assist its corporate clients to develop customer loyalty schemes within the Greek market. The idea itself may not be innovative. However, from the conducted market research (Tsolakis, 2015), Greek retailers and marketing companies have not yet developed scientific processes in analysing and approaching their potential customers. CuSight is initially planning to introduce the following services: • Advanced Customer Analytics: CuSight will combine data from various sources (i) geodemographic data sources, (ii) lifestyle data sources, and (iii) retailers’ club card data sources. After the data has been collected, advanced analytic procedures will follow to create customer clusters according to similar characteristics to gain greater insight on them. These generated profiles will make it easier to predict customer trends and tailor promotion and marketing activities so as to be more effective. • Data-Mining Services: Databases need to be updated because market trends and customer needs change rapidly. Additionally, the data sources (e.g. geodemographics) have their own deficits and may be obsolete (i.e. census data are collected every 10 years in Greece). • In-Store Digital Marketing Services: CuSight will provide its analytics for directing suppliers’ product advertisements directly to smart digital marketing appliances. When a customer approaches a product, an advertisement will be directed to each individual customer based on their consumer profile. These will be the epitome of the providing services, as information will be projected on the screen in an effort to drive consumers increase their basket size (i.e. dynamic promotions, store directory, in-store route finder).

2.3 Unique product proposition Loyalty marketing services is a new marketplace in Greece. CuSight is a unique business proposition for the Greek market as it regards customer insight as the most significant source of prosperity for the retailers. In contrast, marketing services in Greece provide limited services concerning only advertisements and promotional techniques that target to boost sales only for a short period of time. The advantage of CuSight is that it aims to establish and invest on long life customer loyalty by regarding customers as a valuable asset and not as a contemporary buyer. CuSight places the customer on the centre of a retailer’s operations. What is more, through understanding customers and filling the knowledge gaps in customers’ requirements, corporate clients and suppliers diminish the redundant expenditures to ineffective marketing and promotional activities.

3. Market Analysis 3.1 The market demand According to ICAP (2009), the Greek Marketing market was worth €3,038.9 million in 2008, compared to €1,796.7 million in 2001 (annual average growth rate of 7.8%). CuSight has identified as its initial target market that of the grocery retailers’. There are key reasons for this choice: i. Companies in this sector have large customer databases as they merchandise fast moving consumer goods. ii. The nature of the grocery market enables direct contact with consumers. iii. The market conditions have changed dramatically due to the financial recession in Greece and official reports demonstrate that food consumption will "fall" between 5%-6% by the end of the current year, even if prices will continue to decline.

3.2 Competitive advantage CuSight’s strength is its unique selling proposition in a new marketplace. As it was stated previously, CuSight will provide marketing and business intelligence services to its corporate clients based on a comprehensive analysis of data from multiple sources. Relying on advanced and complicated analytics, CuSight is going to cluster a retailer’s consumers based on their consumption habits and try to increase their basket size. The venture is going to leverage all the free available data to develop its own geodemographic systems as well. Thus, the corporate clients will have the possibility to fill their knowledge gaps, and retain and increase their customer base more effectively. This will provide CuSight a first mover’s advantage (as marketing companies in Greece do not currently emphasize on utilizing census 96

data or on providing loyalty marketing services) and credibility as the learning curve will increase after the collaboration with the initial customers. In the global scheme, a significant number of large competitors exists, both in UK and in the USA; CuSight has to take benefit of the available lead time before these companies start operating within the Greek territory. However, because of the high corporate taxation in Greece (26%), it is unlikely that these large players will enter the Greek market as they seek for large rate of returns (RoR) on their investments.

4. Financials 4.1 Funding requirements As previously mentioned, such a business proposition could basically be financed by bootstrapping. The start-up requirements are estimated to be €16,000. This amount could be provided by personal savings of a potential entrepreneur. The start-up requirements include the legal formation of the business, personnel insurance fees and purchase of registered software.

4.2 Revenue Model

Figure 2: Revenue model of CuSight. CuSight’s revenue model will be based on a Business-to-Business (B2B) trading. In addition, CuSight, after it has attracted more than one corporate client, it will establish a subsidiary company which will publish monthly reports containing sales analyses about suppliers’ products. These reports will be available to the suppliers through a monthly subscription fee. In order, however, to publish these reports, data from the grocery retailers are needed to be leveraged. More explicitly, the three main revenue streams are described below (see Figure 2): 1. The long term relationships with retailers, which are viewed as significant partners. • CuSight is going to be remunerated by retailers for helping them increase their profit margins and like-forlike (LFL) sales. CuSight will charge an amount of €1.300 per served store. • Resources covered at cost by client. 2. Share revenues from subsidiary’s operations with the retailers. • CuSight will provide customer insights to the retailers’ suppliers. CuSight will obtain a 30% of the revenues from the published reports. CuSight is expected to earn €150 for every report that a supplier or manufacturer purchases. 3. Retail Media. In-store digital marketing operations. • Given the fact that Greek’s customer basket size can be increased while in-store, CuSight will provide its analytics to direct suppliers’ advertisements to each individual consumer. For providing this service

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CuSight will charge every supplier €2 per day to deliver messages for their products directly to potential customers.

4.3 Financial Projections CuSight will facilitate three revenue streams as described in Section 4.2. There are some seasonal variations due to the different consumption trends in Greece. For example, consumption rates are greater during Christmas and Eastern holidays due to the high ratios of religious people in Greece. Thus, suppliers will be of greater need of CuSight’s services to better monitor their sales volumes. A set of assumptions for the future years are detailed in Table 1 to illustrate the conservative approach taken. Table 1: Assumptions concerning the financial projections. General Assumptions  Bootstrapping by operating from home offices.  Seed Funding: €16.000 from personal savings.  3 initial employees (including salaries, health insurance, travelling expenses, mobile phone bills).  In all scenarios the first year is the pilot program and during this period the company will not charge the retailer for the provided services.  Monthly fee of €1.000 for leveraging each grocery brand’s data.  Additional 1 employee hired for every 2 stores served.  Net corporate profits in Greece are eligible for a flat taxation rate of 24%.  Annual inflation rate of 3%. Revenues are projected, for three (3) scenarios namely base, optimistic and pessimistic, to increase over the years (see Figure 3). CuSight will have a cash break point on March of year three.

Figure 3: Break even analysis on the cash balance of operations.

4.4 Risk Analysis Overall, the risks that have been identified to limit CuSight’s potential are the following: 1. The success of the pilot program established with the first corporate client. A failure to implement successfully the program and yield positive results can endanger the viability of the company. In case the first pilot program fails, CuSight is willing to extent it for another year to better in an effort to increase the availability of the data and reduce the variance in the analytic results. 2. The risk not to receive market acceptance exists, after extending the pilot program and successful results are yielded. Furthermore, grocery retailers may decide to invest on their in-house marketing operations to provide loyalty marketing services and thus avoid profits dilution. 98

3.

4.

In case CuSight does not establish a pilot program with the initial clients, there is a risk to attract the market interest for the provided offerings. Afterwards, if a contract is signed, there is a risk to yield successful results due to the lack of market experience. There is also the risk that CuSight attracts more retailers to enhance its databases and subsequently its expertise and independency. CuSight is more valuable when it does not rely on a solely data provider client.

5. Discussion CuSight can become a robust entrepreneurial activity if it is launched properly. Theoretical analysis confirms that in the current economic downturn retailers in Greece need to incorporate innovative approaches in their marketing practices if they aim to carry on their scope of operations and remain profitable. A loyalty marketing consultancy agency can help retailers fill their knowledge gaps towards their customers. As a result, customers will be satisfied and will reward retailers for opening effective communication channels with them. In addition, loyalty marketing services provide greater benefits than the traditional marketing and advertising efforts. Finally, delivering quality results and becoming the standard loyalty marketing service provider in Greece, will make CuSight less vulnerable to downward risks.

References Gruen, T.W. and Shah, R.H., 2000. Determinants and outcomes of plan activity objectivity and implementation in category management relationships. Journal of Retailing, 76(4), pp.483-510. ICAP, 2009. Greek marketing & advertising 2009. Athens, Greece: ICAP Management Consultants Group. Moore, G., 1998. Crossing the chasm: Marketing and selling technology products to mainstream customers (2nd eds.). Chichester, United Kingdom: Capstone Publishing Limited. Mullins, J., 2006. The new business road test: What entrepreneurs and executives should do before writing a business plan (2nd eds.). Edinburgh, Scotland: Prentice Hall. Timmons, J., 2008. New venture creation: Entrepreneurship for the 21st century (8th eds.). New York, U.S.A.: McGraw-Hill Higher Education. Tsolakis, N., 2015. Entrepreneurial prospects in loyalty marketing: Real-world grocery retailers’ market survey & conceptual case study. Procedia - Social and Behavioral Sciences, 175, pp.3-11. Wedel, M., Zhang, J. and Feinberg, F., 2004. A model-based approach to setting optimal retail markups. Michigan, U.S.A: University of Michigan Business School.

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