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1.

Overall process

Note: The percentages and numbers are indicative

1.1 How Points Flow

1.2 How Cash Flow

Po ts in R ed m ee ed

2. Accrual Process
Rules for Accrual of points can be set using the following means: y y y y Individual Brands will fix the accrual points as per their current structure Gross Margin Percentage Net Margin Percentage Equal Percentage

Option 1: Individual Brands will fix the accrual points as per their current structure At present Brands are rewarding points on purchases and we cancontinue with the same mechanism for providing loyalty points. For example if customer A shops at Tanishq and Tanishqcontinues to award 3.5% of the making charge, the customer earns 35 points for a 1000 rupee making charge. If he shops atEyeplus,he earns 500 points based on a 2.5% accrual from the Vista program. The total points at a central TULIP account for customer A is 535 points. Option 2:Gross margin percentage Brands will reward the customers with points as per their gross margin percentage.Say 1/10th of the gross margin percentage will be given for every Rs.1000 purchase. For Example Tanishq has a Gross margin of 30%,Fastrack has a Gross margin of 20% and Eyeplus has a Gross margin of 10%, then Tanishq will award 3 points for every Rs.1000 transaction,Fastrack will award 2 points for every Rs.1000 transaction and Eyeplus will award 1 point for every Rs.1000 transaction.

Option 3: Net margin percentage Brands will reward the customers with points as per their Net margin percentage. Say 1/10th of the net margin percentage will be given for every Rs.1000 purchase. For Example suppose Tanishq has a Net margin of 20%, Fastrack has a Net margin of 15% and Eyeplus has a Net margin of 8%, then Tanishq will award 2 points for every Rs.1000 transaction, Fastrack will award 2 points (rounded off) for every Rs.1000 transaction and Eyeplus will award 1 point (rounded off) for every Rs.1000 transaction.

Option 4:Equal percentage Brands will reward the customers with points on an arrived fixed percentage which will be same for all Brands. This number will be reviewed periodically by central loyalty team. For example all the Brands will provide 1 loyalty points for every Rs.100 of transaction made. If customer A shops at Tanishq and shops for Rs.5000, he earns 50 points. If he/she walks in to eyeplus and shops for Rs.1000, he earns 10 points.

2.1 Pros and Cons


Options Option 1 : Individual Brands will fix the accrual points as per their current structure Cons The current logic of giving points has been arrived keeping in mind the customer will come back to the same Brand to redeem them. Now since the customer can redeem the points in any of the Titan Brands, this might have an impact in the rewarding appetite. Brands ability to reward decides 1. The way loyalty points are the amount of points given to a given to customer will vary customer year on year basis thus causing confusion. 2. Outsiders / Competitors can come to know which Brand is making more profits and which are not. 3. Since gross margin will be different based on category and products true application of this principle will be infeasible. Brands ability to reward decides 1. The way loyalty points are the amount of points given to given to customer will vary customer year on year basis thus causing confusion. 2. Outsiders / Competitors can come to know which Brand is making more profits and which are not. 3. Since net margin will be different based on category and products true application of this principle will be infeasible. Less Confusion. The logic of 1. Since repurchasing behavior giving points is same across is different across Brands, so Brands. would be the rewarding appetite. Enforcing a fixed percentage goes against this principle. 2. Each Brand is responsible for its own P&L. Therefore enforcing a loyalty levy would not be feasible. Pros The logic of giving points is already been arrived by Brands by keeping in minds their margins/ rewarding appetite and we can continue with the same.

Option 2 : Gross margin percentage

Option 3: Net margin percentage

Option 4 : Equal percentage

3. SERVICE CHARGE
The distribution of service charge will be based on weightage of accrued points given by Brands for a particular customer. For example customer A has made a purchase in Tanishq and earned 400 points. He then walks into Titan and has made purchase for which he earned 100 points. He then walks in to the Fastrack store to redeem on a purchase of Fastrack watch of Rs.500 which has resulted in a new customer generation to Fastrack and thereby Fastrack gives back a percentage of the transaction value. In the above scenario, Tanishq share will be 80% and Titan share will be 20%. However the service charge and the cash transferred for points redeemed will not be on a transaction basis. This will be on a monthly or yearly basis whichever is been agreed upon. Rules for calculation of Service Charge can be set using the following means: y y y Fixed percent Flat fee Flat orFixed percent (whichever is lower)

Note:Customer acquisition cost (this number for every Brand can be calculated using marketing spend for a previous period as well as estimates of new customers for the same period, subject to discussion with the Brand). Option 1:Fixed percent Service charge percent depends on the BrandAverage Salerevenue and customer acquisition cost. Service ChargePercent = (Customer Acquisition Cost / Average Sale Revenue) * 100 Service Charge = Service Charge Percent * Transaction amount For example at Tanishq Customer Acquisition cost is Rs.175 and average Sale revenue is Rs.35000, then Service charge percent will be 0.5%. So now 0.5% of the transaction value will be paid as service charge. Option 2: Flat fee Service charge will be Brand customer acquisition cost. For example at Tanishq Customer Acquisition cost is Rs.175, then Service charge of Rs.175 will be paid for each transaction.However, this service charge of Rs.175 will be same even though the transaction amount is Rs.2000 or Rs.20000.

Option 3: Flat orfixed percent(whichever is lower) Service charge can be either Brand customer acquisition cost or Fixed percent of transaction amount (same as option 1) whichever is lower.

3.1 Pros and Cons


Options Option 1: Fixed percent of typical customer acquisition cost Pros Cons 1. Service charge percent Dependent on correct Customer depends on the average acquisition cost from Brands sale revenue of Brand 2. Service charge to be paid depends on the Transaction amount Less Confusion. Brand 1. Each Brand has its own Customer Acquisition fees Customer Acquisition fees. decides the service charge Enforcing this as a service charge will make a negative impact onBrands with higher Customer acquisition fees (e.g. new Brands) and for Brands with lower UCP. 2. Dependent on correct Customer acquisition cost from Brands 1. Service charge percent 1. Each Brand has its own depends on the average Customer Acquisition fees. sale of Brand Enforcing this as a service 2. Service charge to be paid charge will make a negative depends on the Transaction impact on Brands with higher amount and customer Customer acquisition fees acquisition cost (e.g. new Brands) and for Brands with lower UCP. 2. Dependent on correct Customer acquisition cost from Brands

Option 2: Flat fee

Option 3: Flat or Fixed percent of typical customer acquisition cost

4. How does Accrual and Redemption work? 4.1 For Single Brand
Case 1: Suppose a customer X goes to BrandA and makes a purchase of Rs.100 and earns 5 points for the transaction in the month of Jan 2011. Now Brand A owes Rs.5 to customer X. Now the Profit and Loss statement for the Jan month for Brand A will look like Description (MRP of item Rs.100), Sale (incl. 5 loyalty points) = Actual Cost of item Profit Amount (100-5) = 95 70 25

Now the Balance sheet looks something like this Asset +100 -70 Liabilities Loyalty Point Given 5 Profit 25

Cash Earned Inventory

Case 2: Now suppose the customer X goes to Brand A in the month of Oct 2011. He makes a purchase of Rs.3 in the Brand and redeems 3 of his 5 points. Now Brand A owes Rs.2 to customer X. Now the Profit and Loss statement for the Oct month for Brand A will look like Description (MRP of item = 3), Sale = Actual Cost of item Profit Amount 3 1 2

Now the Balance sheet looks something like this Asset 0 -1 Liabilities -3 2

Cash Earned Inventory

Loyalty Point Given Profit

Case 3: Now suppose the customer X goes to Brand A in the month of Dec 2011. He makes a purchase of Rs.200 in the Brand. Part of the payment is done by user and remaining amount by redeeming points. He pays Rs.198 cash for which he earns 8 points and remaining amount is paid using 2 points. Now Brand A owes Rs.8 to customer X. Now the Profit and Loss statement for the Dec month for Brand A will look like Description (MRP of item = 200), Sale (incl. 8 loyalty points earned) = Actual Cost of item Profit Amount 200 8 = 192 120 72

Now the Balance sheet looks something like this Asset 198 -120 Liabilities 8 , -2 72

Cash Earned Inventory

Loyalty Point Given Profit

4.2 For MultipleBrands


Case 1: Suppose a customer X goes to BrandA and makes a purchase of Rs.10000 and earns 500 points for the transaction in the month of Jan 2011.Suppose he goes to Brand B and makes a purchase of Rs. 1000 and earns 100 points for the transaction in the month of Jan 2011. Now Brand A owes Rs.500 to customer X and Brand B owes Rs.100. Now the Profit and Loss statement for the Jan month for Brand A will look like Description (MRP of item = 10000), Sale (incl. 500 loyalty points earned) = Actual Cost of item Other Income y Service Charge Profit Amount 10000 500 = 9500 9000 0 500

Now the Balance sheet looks something like this Asset +10000 -9000 0 Liabilities 500 500

Cash Earned Inventory Service Charge

Loyalty Point Given Profit

Now the Profit and Loss statement for the Jan month for Brand B will look like Description (MRP of item = 1000), Sale (incl. 100 loyalty points earned) = Actual Cost of item Other Income y Service Charge Profit Amount 1000 100 = 900 700 0 200

Now the Balance sheet looks something like this Asset +1000 -700 0 Liabilities 100 200

Cash Earned Inventory Service Charge

Loyalty Point Given Profit

Case 2a: In the month of Dec 2011 Customer X goes to Brand C and makes a purchase of Rs.600 with the points he has earned. Brand C will have to provide the item to customer X by redeeming his points. Brand A and B will have to pay BrandC, for this transaction. I.e.Brand A will pay Rs.500 and Brand B will pay Rs.100 to share Rs.600 cost. While Brand C will have to shell out some service charge (Rs.54 assumed) to Brand A and B, as they have got loyal customer of A and B. Now the Profit and Loss statement for the Dec month for Brand C will look like Description Sale (incl. 54 service charge paid) = Actual Cost of item Profit Amount 600 - 54 500 46

Now the Balance sheet looks something like this Asset +600-54 -500 Liabilities 0 46

Cash Earned Inventory

Loyalty Point Given Profit

Now the Profit and Loss statement for the Dec month for Brand A will look like Description Sale = Actual Cost of item Other Income y Service Charge given to Brand A by Brand C Profit Amount 0 0 45 45

Now the Balance sheet looks something like this Asset 45-500 Liabilities Loyalty Point Given -500

Cash Earned (Profit Payment made for points redeemed at Brand C) Inventory

Profit

+45

Now the Profit and Loss statement for the Dec month for Brand B will look like Description Sale = Actual Cost of item Other Income y Service Charge given to Brand B by Brand C Profit Amount 0 0 9 9

Now the Balance sheet looks something like this Asset 9-100 Liabilities Loyalty Point Given -100

Cash Earned (Profit Payment made for points redeemed at Brand C) Inventory

Profit

Case 2b: In the month of Dec 2011 Customer X goes to Brand C and makes a purchase of Rs.1000. Customer X will pay part of the amount by redeeming his points and the remaining money is paid by cash. Brand A and B will have to pay BrandC, for this transaction i.e.Brand A will pay Rs.500 and Brand B will pay Rs.100 to share Rs.600 cost. While Brand C will have to shell out some service charge (Rs.54 assumed) to Brand A and B, as they have got loyal customer of A and B. Also Brand C will have to provide 4 loyalty points for the Rs.400 purchase made through cash. Now the Profit and Loss statement for the Dec month for Brand C will look like Description MRP of item=1000, sale =1000- loyalty points service charge Actual Cost of item Profit Amount 1000-4-54 700 242

Now the Balance sheet looks something like this Asset +400+600-54 -700 Liabilities Loyalty Point Given 4 Profit 242

Cash Earned Inventory

Now the Profit and Loss statement for the Dec month for Brand A will look like Description Sale = Actual Cost of item Other Income y Service Charge given to Brand A by Brand C Profit Amount 0 0 45 45

Now the Balance sheet looks something like this Asset 45-500 0 Liabilities -500 45

Cash Earned Inventory

Loyalty Point Given Profit

Now the Profit and Loss statement for the Dec month for Brand B will look like Description Sale= Actual Cost of item Other Income y Service Charge given to Brand B by Brand C Profit Amount 0 0 9 9

Now the Balance sheet looks something like this Asset 9-100 0 Liabilities Loyalty Point Given -100 Profit 9

Cash Earned Inventory