Daily Bazar Case Study

Case Facts:
Daily Bazar is a leading supermarket chain in India.
Everyday Rewards is a Loyalty Program run by Daily Bazar
Customers swipe Everyday rewards card during every purchase to get bonus points

Daily Bazar collects the purchase details of the customers.

Large retailers in India are using their loyalty programs to send out offers to their
customers through different channels, e.g. Email or direct mail.

Example of offer:
Get X-times points if you shop at Daily Bazar supermarkets and spend at
least Rs.Y (in category Z), the offer is valid until DD/MM/YYYY

For each customer the incentive, threshold, for what (total store/categories) and
offer period can vary. Therefore the parameters X, Y, Z, and offer period DD/MM/YYY
can be different for each customer

Problem Statement:

In what way retailers maximize their profit with the customers who received the
offer?

How would you use customer transactions to optimize these parameters?

The aim is to know the customer better so that they can be given what they want.
This
most obviously manifests itself in the communication of offers and promotions to
loyalty
members. The objective is to combine more data sets with information derived from
different divisions of a retailer, such as financial services, and from third party
sources.

When a customer makes a purchase and gets his loyalty card punched, the systems
reads all his/her purchase details and is recorded in a database which is used to
study the consumer preference and behavior, likes or dislikes, demographics, price
range and quantity.
Since Daily Bazaar is a large retail chain, the data set is extremely large. By
segmenting (Segmentation) this large set of data (Big Data) into broad categories
and clustering (Cluster Analysis) into set of groups (Customer Profiling) in such a
way that parameters in the same group are more similar to each other than to those
in other groups, we get to know about the preference pattern of our customers. For
example, if we have 10 customers, we divide them into 3 groups, like in groups of 3,
3 and 4 and then we categorize all 10 into family size, age, income group etc. So,
one group can be, for example, Medium Sized Family, High-income group. Similarly,
we can do a lot of permutation and combination to find different group size and
categories. Once we place all data in appropriate tables, we know about behavioral
findings from these that will help in enhancing the relevancy of future offers.

Large chunks of data collected per user per transaction (Big Data) and data
collected through loyalty cards tells what customers prefer to buy, how much
quantity are they buying, tells about the preferred brand, how much customer is
willing to spend for a particular brand. This extremely large set of recorded data is
then segmented (based on preference ,demographic, spending habits,
psychographics and lifestyles ,Attitudes, Purchase Behavior
etc) and grouped into clusters to deliver intelligent and personalized offers to its
customers

This data from clusters is analyzed to study the preference and behavior patterns of
customers.
Data can be used through various Data analytics methods

Demographics and Lifestyle analysis

Factor analysis

Preference analysis

CRM Data analysis

Nectar analysis

Next important thing is to establish association rules between items purchased to

cross-sell one item with other that is if A is purchased B is also purchased so place
them closer.
Now that we have data from customer transactions and loyalty cards, we should
target optimizing the above parameters(X, Y, and Z, a validity of offer given in case)
as we have an idea of customer preference. *******For example, Even if you haven't
handed over your details and product preferences through a loyalty scheme, it's
likely you have used a debit or credit card to pay for your shopping at some point.
The store can track the transaction for a particular basket of groceries one week
and how much was spent with the same card number the next time .If the store
does not see the card for some time they know that customers are lapsing. They
use it to measure the effectiveness of promotions and events.
When you have a loyalty card or shop online, the supermarkets will build up a
demographic profile of you, and collect data about how loyal you are, what you buy
and how much you spend. They can then change what you see when you log in to
make it easier to find the products their data suggests you will buy, and in-store
they will use their data to make decisions about what they sell or plan store layout,
that is where to place which item as per the customers preference.
Finally based on our study of customer preference, retailers should make
promotional campaigns to retain customer and target promotional offers through
the mail, phone calls etc. with help of Customer Relationship Management (CRM).
The CRM approach tries to analyze data about customers' history with a company,
to improve business relationships with customers, specifically focusing on customer
retention, and ultimately to drive sales growth. One important aspect of the CRM
approach is the systems of CRM that compile information from a range of different
communication channels, including a company's website, telephone, email, live
chat, marketing materials, social media, and more.
Retailers like Daily Bazaar should be aware of the variety of relationships (Relational
intelligence) a customer has with a firm. Companies must be good at capturing

demographic data, such as gender, age, income, and education, and connecting
them with purchasing information to categorize customers into profitability tiers.

Based on the analysis of customer transactions we can also create priority customer
base. The parameters can vary from purchasing frequency, the amount spent, kind
of goods and loyalty shown towards Daily Bazar.

Value proposition for Loyalty customers:

Loyalty program members who redeem points to obtain rewards are more likely to
continue, or increase, their spending and use of the underlying product or service
and stay engaged with the program and brand longer.
As the table below illustrates, the profitability of a loyalty program can be evaluated
by examining the difference between incremental revenues generated by profit and
incremental costs.

Profitability of Loyalty Programs (Revenues - Costs)

Incremental Revenues

Incremental Costs

Ancillary revenue (e.g., membership fees, point sales, partner payments)

Rewards redemption and accrued liability

Increased purchase frequency

member events)
Increased purchase volume
email)

Cost of soft benefits (e.g., perks, recognition,

Program communications (e.g., advertising, mailings,

Reduction in customer churn rate

maintenance
Willingness to pay premium

Information technology investment and

Enterprise training and support (e.g., call centers)

Increased advocacy and referrals

Business unit overhead (e.g., staffing payroll and benefits)

The objective of our program should be to achieve the ideal balance between
incremental earnings (revenues) and incremental redemptions (costs), with the goal
of attracting "profitable" members and generating maximum incremental profits to
the program sponsor.

How could you classify and group customers for a specific department, e.g.dairy,
who share similar shopping behaviors?

Customers can be classified and grouped in a specific department statistical

techniques like Segmentation. We need to divide all the customers into smaller
subgroups or segments in order to identify psychological and socio-demographic
correlates of target behaviors or values.
Next, we have to group all set of objects in such a way that objects in the same
group (cluster) are more similar (in some sense or another) to each other than to
those in other groups (clusters)
Next, we have to discover patterns in large data sets. The overall goal of the data
mining process is to extract information from a data set and transform it into an
understandable structure for further use (Data mining).

This data from clusters is analyzed to study the preference and behavior patterns of
customers.
Data can be used through various Data analytics methods

Demographics and Lifestyle analysis

Factor analysis

Preference analysis

CRM Data analysis

Nectar analysis

The process of data analysis involves data collection and processing.Data

processing involved data cleaning.Once the data is cleaned, it is analysed through
various exploratory data techniques. Descriptive statistics such as the average or
median may be generated to help understand the customer preference. Data
visualization may also be used to examine the data in graphical format, to obtain
additional insight regarding the customer profile within the data.

Customer profiling starts with the identification of relevant information regarding all
the satisfied existing customers and then try to target new prospects with matching
profiles. The profiles of customers can be categorized differently according to some
influential variables present in their profile.
For example, lets examine the following two customer profiles:
1. This profile shows the customer visits every month. He lives in a high society
area and continuously buys costly snacks like Cornitos Nachos Chips.
2. This profile shows, the customer visited the Daily Bazaar regularly for 3 months,
but has never visited in last 2 weeks.
The first profile clearly indicates that the customer characteristics are demographic.
The second profile can be depicted as a behavioral profile.
The following steps depict an ideal profiling technique:
Gathering demographic related and influential information from existing
customers.

Encapsulate this information in profiling database to each customer record.

Attach more relevant information like behavioral characteristics (recent

purchases, sales historical view etc) and some other related information to each of
the profiles.
Implement the variables and strategies that determine the best and worst
customers.
Applying these effective variables to non-customers profiles to identify
valuable prospects.

Does a Daily Bazaar customer include more high-income group or middle-class

group? Baby Boomers, Gen-Xers, or Millennials? Which ethnic groups are
represented in the customers? If they are homeowners, how likely are they to
purchase home furnishings, renovate their homes, or spend leisure time

landscaping their yards? To analyze market opportunities for Daily Bazaar we need
to examine data from customer patterns. Current and projected demographic,
lifestyle and consumer spending data can provide this information and classify and
group customers for a specific department who share similar shopping behaviors.

What objectives would you choose for each of these customer groups and how
would these parameters look like?

The quality of a segmentation system is directly related to the data that goes into
them. High quality and useful systems allow you to predict consumer behavior. The
objective is to read correct consumer behavior and profile of customer as the main
aim of reading behavior patterns and preference of customer is to increase sales
and all statistical techniques involve costs.
While categorizing the data into various groups, we should group them on basis of :

Preference

Demographic

Spending habits

Psychographics and Lifestyles

Attitudes

Purchase Behavior

Socioeconomic

Fashion Trends

Festival/Season Effects

Few of the parameters would be:

Males

Females

Average Household Size

Median Age

Age Less Than 18

Age 16 or More

Age 25 Or More

Age 65 or More

Median Household Income

Average Household Income

Per Capita Income

Education: High School

Education: Some College

Education: Associate Degree

Education: Bachelors Degree

Education: Graduate Degree

Occupation: Executive

Occupation: Professional

Occupation: Technician

Occupation: Sales

Occupation: Clerical

Occupation: Services

Occupation: Production

Season Effects

Festival Effects