EVALUATE CURRENT ENVIRONMENT

1. External Areas Area 1 Area 2 Internal Areas Area 3 Area 4 Area 5 Existing Loyalty Programmes Area 6 Area 7 EVALUATE CURRENT ENVIRONMENT

2. External Areas Area 1 Area 2 Internal Areas Area 3 Area 4 Area 5 Existing Loyalty Programmes Area 6 Area 7 Content Page • Overview 3 • Assessment areas in the EVALUATE stage • Market and Competition 6 • Customer Behaviour and Needs 7 • Company Figures 8 • Products and Channels 9 • Marketing Strategy and Positioning 10 • Loyalty Strategy and Organisation 11 • Existing Loyalty Programme 12 • Conclusions and Change Plan 13

3. External Areas Area 1 Area 2 Internal Areas Area 3 Area 4 Area 5 Existing Loyalty Programmes Area 6 Area 7 Overview of the Evaluate Stage for Loyalty Programmes (1/3) The evaluate stage for loyalty programmes is based on an assessment of the current situation The assessment has internal and external areas to look at The assessment approach is slightly different, when a company already has loyalty programmes • An assessment of the current situation concerning customer loyalty has to be done before designing new programmes or changing existing loyalty schemes. This assessment empowers the company to find out about the areas with the highest need for improvement and the case for change. • The loyalty assessment starts with an analysis of the current market structure. Porter defines the five forces in the industry, which affect the development of an industry. Based on the industry structure, a detailed analysis of the customers behaviour and their (future) needs are necessary to find out the level of importance of loyalty programmes in the mind of the customers. • Based on that external view, an internal assessment of the company and its products helps identifying the business case for loyalty programmes. It also includes an analysis of the distribution structure and the current positioning of the company to their customer segments. • When a company already has specific loyalty programmes, the approach is slightly different. In addition to the areas above, several other areas must be taken into consideration; the current programme structure, the offerings, the loyalty organisation, the IT environment, the financial aspects and the communication of the programme.

4. External Areas Area 1 Area 2 Internal Areas Area 3 Area 4 Area 5 Existing Loyalty Programmes Area 6 Area 7 Overview of the Evaluate Stage for Loyalty Programmes (2/3) External Areas • Area 1: • Market and Competition • Industry figures • Change driver • Barriers of entry/ exit • Rivality and competitive forces • Area 2: • Customer behaviour / needs • Customer figures • Customer segmentation • Customer buying behaviour • Customer needs • Future trends Approach, when there are no existing loyalty programmes Internal Areas • Area 3: • Company figures • Overall figures • Financial figures • Loyalty specific figures • Area 4: • Products and channels • Product lines • Customer touchpoints • Service business • Area 5: • Marketing strategy / positioning • Target groups • Positioning strategy • Loyalty awareness • Future issues Approach, when a company already has existing programmes Existing Loyalty Programmes • Area 6: • Loyalty strategy/ organisation • Loyalty strategy • Loyalty structure/ organisation • Loyalty and finance • Loyalty and IT • Loyalty and communication • Area 7: • Existing loyalty programme ... • Objectives and target groups • Offering/ programme structure • Cost and benefit

5. External Areas Area 1 Area 2 Internal Areas Area 3 Area 4 Area 5 Existing Loyalty Programmes Area 6 Area 7 Overview of the Evaluate Stage for Loyalty Programmes (3/3) The assessment can be done by interviews or workshops with members of the executive board One has to count between 2-4 weeks when conducting the assessment seriously • The assessment of the current situation concerning loyalty can be done by interviews or workshops with members of the executive board. In addition, a detailed understanding of the industry and the buying behaviour is crucial for success. • Interviews with customers can also be very powerful, when analyzing the current loyalty situation. These pre-tests can be done before envisioning the programme and built the basis for the future offering. • There is no exact time frame conducting the assessment. Nevertheless it takes 2-4 weeks for a detailed analysis of the current situation and for developing a change plan. • During this time, it‘s very important to have a direct contact with several company employees as well as with customers of the company. In addition, the company has to secure a lot of important performance measures, which provide an insight about the performance of the future loyalty programme.

6. Area 1: Market and Competition Area 2: Customer behaviour/ needs External Areas Internal Areas • Area 3: • Company figures Area 4: Products and channels Area 5: Marketing strategy/ positioning Area 6: Loyalty strategy/ organisation Area 7 - ...: Loyalty programme Existing Loyalty Programmes Assessment of the External Areas - Market and Competition Comments/ Evaluation: Questions in this area: • How many competitors are relevant in the industry? • What are the barriers of entry for new competitors? (e.g. long term customer relationships; high investments in R&D; others) • How fast is the industry growing? Is the growth based on new or existing customers? • How strong is the competition? • How similar are the products and services? How big is the chance of changing to a competitor from customers perspective? • How transparent is the offering of the different competitors to the customers? • What are the competitive forces in the industry? Is the competition mainly based on price or on new product development? • What are the risk of substitution within the industry? • Are there any legal constraints/ barriers, which are relevant when thinking about customer loyalty and customer retention? • Which loyalty programmes are common standard in this industry? • What are barriers of exit for existing competitors? (e.g. long term contracts; service contracts) • How long does it take, until the customer must renew the bought products and services? Loyalty programmes are most appropriate, when .. there is a high proportion of existing customers, that are creating the growth in the industry. there is a relatively high risk of loosing customers to other competitors. there are low barriers of entry for new competitors, but high barriers of exit for existing ones. there is is lot of ongoing business with existing customers and a fast cycle time, until an existing customer buys again the same or a similar product or service. there is a high transparency of the products, services and prices offered by the company and its competitors. Overall estimation for this area: • negative impact when starting a loyalty programme • unknown impact when starting a loyalty programme • positive impact when starting a loyalty programme

7. Area 1: • Market and • Competition Area 2: Customer behaviour/ needs External Areas • Area 3: • Company figures Area 4: Products and channels Area 5: Marketing strategy/ positioning Internal Areas Area 6: Loyalty strategy/ organisation Area 7 - ...: Loyalty programme Existing Loyalty Programmes Assessment of the External Areas - Customer Behaviour and Needs Comments/ Evaluation: Questions in this area: • How easy is it for a customer to chose another product, when buying it again? • How loyal is the customer in the industry? What are churn rates/ defection rates of the existing customer base? • Can the loyalty be significantlty rised with a retention programme? What is the loyalty currently based on? • What are the buying criteria for the customers in this industry? Is the buying decision based on intensive information gathering or on more informal and/ or emotional feelings? • How many percent of customers already take part in a customer loyalty programme? • How many percent of the revenues make 20% of the customers? • How is the market segmented? What are the relevant buying criterias in each customer segment? How does the segmentation affect the loyalty programmes planned or currently in use? • How much money does an average customer spends per year in this industry? What is the lifetime value of the customer in each segment? • How much does the customer segment and product decision affect other product/ service buys? How big is the chance of cross- or up-selling in this industry? • Can the company currently identify the products and services bought by each individual customer? Loyalty programmes are most appropriate, when .. churn rates are high, winback costs are high and the awareness for loyalty programmes is high. there is is no intensive information gathering, when buying a new product/ service. the market consists mainly of undecided customers and low brand loyalty. there is only a small amount of customers, making a large amount of the turnover/ profit. the buying criterias are not only short term focused but considering also long term advantages due to the loyalty programme. the lifetime value as well as the spending per customers and year are high. there is a large opportunity for ongoing business with each customer. Overall estimation for this area: • negative impact when starting a loyalty programme • unknown impact when starting a loyalty programme • positive impact when starting a loyalty programme

8. Area 1: • Market and • Competition Area 2: Customer behaviour/ needs External Areas Internal Areas Area 3: Company figures Area 4: Products and channels Area 5: Marketing strategy/ positioning Area 6: Loyalty strategy/ organisation Area 7 - ...: Loyalty programme Existing Loyalty Programmes Assessment of the Internal Areas - Company Figures Comments/ Evaluation: Questions in this area: • What is the current market share of the company? How was the market share developing in the last years? • How many customers has the company? What is the churn rate of the customers compared to the industry average? • What is the percentage of turnover the company makes with existing customers? • What is the profit margin and how will this margin develop in future? • What is the current extent of cross selling as well as up selling and what is planned in future? • How big is the brand awareness in the market and in the mind of the customers? On which place is the company rated concerning their brand and/ or their product offerings? • How big are the current investments for retaining current customers as well as winning new ones? How will this figure evolve in future? • How much money is spent per year for customer loyalty programmes? How many percent of the total turnover is that? Loyalty programmes are most appropriate, when .. the percentage of sales with existing customers is high. there is a high market share of the company. there are only a few really important customers, that affect the companies profitability. the brand awareness is high and a customer loyalty programme would be a big surprise. the cross-selling potential is high, if the customers would be loyal to the company. Overall estimation for this area: • negative impact when starting a loyalty programme • unknown impact when starting a loyalty programme • positive impact when starting a loyalty programme

9. Area 1: • Market and • Competition Area 2: Customer behaviour/ needs External Areas Internal Areas • Area 3: • Company figures Area 4: Products and channels Area 5: Marketing strategy/ positioning Area 6: Loyalty strategy/ organisation Area 7 - ...: Loyalty programme Existing Loyalty Programmes Assessment of the Internal Areas - Products and Channels Comments/ Evaluation: Questions in this area: • How many products and services are offered by the company? • How many customers have more than one product/ service from the company? • How big is the chance of cross selling/ up selling with new products at existing customers? • How important is the customer involvement in the product development? • How important is the brand image and the customers attitude towards products and services? • How good is it possible to target existing products and services to existing clients? • To whom does the company sells their products and services: to an anonymous customer, an indirect channel, a known customer or a mix of them? • In which life cycle stage are the products and services? • Will it be possible to retain existing customers due to new products and services offered? • What are the reasons, that customer visit the company‘s point of sales? • How big are investments in own or third party sales channels? Loyalty programmes are most appropriate, when .. they support the companies brand positioning. they lead to cross and up selling opportunities. they enable the company to get a customer masterview and a more detailed approach of the customers buying behaviour. there are high investments in sales and distribution cannels done by the company. the company sells products/ services over several sales channels (e.g. shop, Telesales Center, wholesalers, …) they would sell more to known customers, but these are currently unknown to the company. the company could target its products/ services better with a loyalty programme. Overall estimation for this area: • negative impact when starting a loyalty programme • unknown impact when starting a loyalty programme • positive impact when starting a loyalty programme

10. Area 1: • Market and • Competition Area 2: Customer behaviour/ needs External Areas Internal Areas • Area 3: • Company figures Area 4: Products and channels Area 5: Marketing strategy/ positioning Area 6: Loyalty strategy/ organisation Area 7 - ...: Loyalty programme Existing Loyalty Programmes Assessment of the Internal Areas - Marketing Strategy and Positioning Comments/ Evaluation: Questions in this area: • How many customers does the company has? • Does the company has an effective customer segmentation? • Does the company generate new micro segments based on a customer database? • Is the company positioning itself only as a cost and price leader or are there other positioning strategies? • Is there a firmwide coordination of the opportunities and is there a high potential for cross selling/ up selling? • Does the company serve products and services, that do not completely differ from others concerning price and/ or quality? • Are there changes in the industry (globalization, liberalization, other) that affect the marketing strategy? Loyalty programmes are most appropriate, when .. the company is positioning itself not only on price. the products and services offered do not completely underline the ones from competitors. through a loyalty programme, the market position can be improved/ focused. marketing strategy and programmes must be reviewed due to changes in the industry. Overall estimation for this area: • negative impact when starting a loyalty programme • unknown impact when starting a loyalty programme • positive impact when starting a loyalty programme

11. Area 1: • Market and • Competition Area 2: Customer behaviour/ needs External Areas Internal Areas • Area 3: • Company figures Area 4: Products and channels Area 5: Marketing strategy/ positioning Area 6: Loyalty strategy/ organisation Area 7 - ...: Loyalty programme Existing Loyalty Programmes Existing Loyalty Programmes - Loyalty Strategy and Organisation Comments/ Evaluation: Questions in this area: • Does the company has an own loyalty organisation? • Does the company owns a customer loyalty system (or similar), which allows to target the customer behaviour in the programme? • Does the company has its loyalty strategy and vision and plans for loyalty development within the next few years? • Does the current loyalty programme reflect the current segmentation? • Is it possible to target the customer segments based on a data warehouse and fulfillment infrastructure? • How long does it take to react to an aggressive market campaign from a competitor? • Does the company also involve new medias (e.g. internet; call centers others) for their operations? • Does the loyalty strategy also involves a loyalty card? Which functionalities has the card? • Is there a clear strategy with partners and/ or outsourcer (e.g. for point reduction/ collection) • Are roles and responsibilities clearly defined? Is the loyalty organisation responsible for the contribution of its activities? Loyalty programmes are most appropriate, when .. there is not yet a separate loyalty organisation established. there is no clear future insight/ vision where to go with existing programmes. the current loyalty programme doesn‘t give enough attendance to target groups. there is no technical infrastructure, handling loyalty programme member informations (e.g. for mailings, targeting offers or other) there is no vision about loyalty and technology (e.g. combination with new technologies like smart cards). there is no overview of customer profitability. Overall estimation for this area: • negative impact when starting a loyalty programme • unknown impact when starting a loyalty programme • positive impact when starting a loyalty programme

12. Area 1: • Market and • Competition Area 2: Customer behaviour/ needs External Areas Internal Areas • Area 3: • Company figures Area 4: Products and channels Area 5: Marketing strategy/ positioning Area 6: Loyalty strategy/ organisation Area 7 - ...: Loyalty programme Existing Loyalty Programmes Existing Loyalty Programmes - Existing Loyalty Programme Comments/ Evaluation: Questions in this area: • What are the objectives of the loyalty programme? • Did all objectives set for this programme came true? • Does the loyalty programme directly support the companies value proposition for the target customers? • Does the loyalty programme also supports cross/ up selling apart from customer retention? • Does the loyalty programme meet the customers needs and preferences? • Does the loyalty programme involves the most important customers? How big is „the share of wallet“ and the „participation rate“ of this customer segment? • Is it possible to acquire/ win back new customers with this programme? • Is the programme taking into consideration, that there is a different approach necessary for different customer segments? • What are the barriers of entry/ exit for this loyalty programme? • How easy is it to recognize the non-loyal customer behaviour with the current programme? • What is the customer benefit of the loyalty programme in percentage of his turnover? Does this benefit differ for profitable customers? • Do you know, who your most profitable potential customer will be? How do you handle them? A Change in existing loyalty programmes is most appropriate, when .. the objectives set are not realistic or not met by the company. the programme doesn‘t focuses on highly potential or profitable customers. the programme doesn‘t need the customers needs and expectations. the programme doesn‘t target its approach to specified groups. the programme doesn‘t enables the company to get a true two way relationsship with the customer. the programme is not recognized by the market. Overall estimation for this area: • negative impact of the existing loyalty programme • unknown impact of the existing loyalty programme • positive impact of the existing loyalty programme

13. External Areas Area 1 Area 2 Internal Areas Area 3 Area 4 Area 5 Existing Loyalty Programmes Area 6 Area 7 Conclusions and Change Plan Possible conclusions out of the assessment One key result out of the assessment is a change plan for the envisioning stage • The results of the assessment offers several answers to the following questions: • Is there a need/ case for a new/ renewed loyalty programme? • How will the market and customers respond to loyalty programmes? • What is the level of knowledge and awareness for loyalty programmes? • What are the most important areas for customer loyalty programme? • How good are loyalty programmes structured today and what might be levels for improvement? • The assessment of the current situation enables the structuring of the next activities. A change plan for a new or redesigned customer loyalty project might cover the following topics: • Loyalty strategy, segmentation, targeting and positioning • Loyalty structure, organisation and processes • Loyalty programmes and offerings • Financial calculations and estimations of costs and benefits • Loyalty IT environment (including data warehouse, campaign management and loyalty software developments) • Loyalty communication, fulfillment, internet involvement and cards • An example of a project plan designing a new loyalty programme (point collection and redemption programme) is listed in a separate MS Project File.