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 customer’s 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 Cost of soft benefits (e.g., perks, recognition, member events)

Increased purchase volume Program communications (e.g., advertising, mailings, email)

Reduction in customer churn rate Information technology investment and maintenance

Willingness to pay premium 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, let’s 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: Bachelor’s Degree

• Education: Graduate Degree

• Occupation: Executive

• Occupation: Professional

• Occupation: Technician

• Occupation: Sales

• Occupation: Clerical

• Occupation: Services

• Occupation: Production

• Season Effects

• Festival Effects