Growing with Data-Driven Loyalty Programs - with Norbert Madar from PwC

This talk provides a comprehensive overview of the current e-commerce market, focusing on the challenges retailers face in the evolving landscape. The speaker discusses the impact of factors such as reduced consumer spending, increased competition from global players, and a concentrated market environment. He outlines the historical context of the market, detailing periods of organic growth, hypergrowth during the pandemic, and current import challenges. Furthermore, he emphasizes the importance of data-driven loyalty programs as a strategic approach for retailers to enhance customer engagement and increase purchase frequency, particularly among the emerging Gen Z consumer base. The session concludes with insights into successful loyalty program structures and the necessity for retailers to understand their customers' preferences to remain competitive in a turbulent market.

Hi everyone. Good afternoon. Good to be here for the second time. I'm Norbert M from PWC Hungary. And today I'm going to show you a landscape overview about the situation of the e-commerce market uh and some opportunities uh related to the datadriven loyalty programs. But first, let's talk about the market environment. And what's happening now? What is the situation? Uh which is like a lighthouse. Lighthouse uh

facing with a very stormy condition, very uh windy, very crazy weather. Uh the retail market especially the online retail is acting the same. Uh have to face against many challenges, have to be adaptive in a situation when the when the market is not handy, the market is not easy. But on the other hand, you have to show the direction, show the way uh how to improve, how

to be uh uh competitive against the uh the others and how to be uh better in every way. So what are the situation uh what is the what's happening rapidly changing market environment meaning by that the consumption is reduced uh the people are not shopping as many uh products online as they used to be during the pandemic uh increasing import is another challenge increasing import I mean

by we are facing against the global players facing against all the major e-commerce players coming from abroad And on the other hand, the market is getting more and more concentrated. This concentrated market is a challenge for every player, every retailer. Uh a challenge that you have to solve. Um but before we dig into the solution, let's see what's uh the situation, what was happening in the past

few years. uh back at the period uh before the pandemic there was uh a very easy thing uh a very uh easy market situation we call it organic period uh that was the time when everyone could grow with around 15 to 20% a year without any real strategy without any real help from the uh from the experts without any real knowledge from the market and even knowledge

from the customers and after that There was a hyper growth area. The covid pandemic uh was at that time and everyone who had an online store uh during the pandemic was a big big advantage against the others. And the third period few years ago uh was uh highlighted by the the war and the economic crisis inflation rates and everything which is related to the conception. And the

last one which is happening right now is the import area. This area is uh highlighted by the importance and the growth of the major players who are willing to entering into our markets in the Balkan region and the sea region and it's becoming more and more threat. If you look at the map here is the uh the map of the central and eastern European markets, the biggest

markets, not all of them but the biggest ones. And you can see the logos of the biggest players, biggest e-commerce players and all the major players from Poland. Olegro uh for example has just entered into the Hungarian market. Czecha, Slovakia as well. Emma is already here in Bulgaria for a few years now and also leading uh the market in Hungary and all the players are getting crossber

sales uh more and more importantly because of the challenge of the global players and you can see the balcon here uh without any real uh major player only just started to acquire players and allegro started to enter into this uh small market smaller markets but This is going to change and the bigger players are uh going to appear here as well. And of course, TEU is everywhere

not just in uh the US market. All European domestic markets are affected by the uh by the importance of Teu. Uh let's see it uh in u practical uh side from the Hungarian uh perspective. Here you can see again logos from big players 15 logos. These are the most known well-known players from the Hungarian e-commerce market. uh I mean by most known is based on top of

mind and brand awareness uh KPIs and the first one is imong the second one is also from Czecha and the third one is already teu and you if you look at the logos you will be um uh very familiar with a lot of them and the lot of them is already a marketplace player not just uh teu but for example about you uh AliExpress Sheen uh are

all alo marketplace players and if you look at TEU for example, TEU is the third one already in Hungary uh and they achieved this position uh within a year of entering into our market, the Hungarian market. You can see some key facts for example 2 million customers. They achieved 2 million shoppers in a year in Hungary and 9 million orders and with 300 million euros of GMV

alone in Hungary. And uh to comparison 9 million orders is a double number of the second largest player in the Hungarian e-commerce market double. So 9 million is a huge amount of orders and they are already third uh in terms of brand awareness and can be in the first position within a few months. uh but on the other side marketplace and the model itself can be uh

an opportunity as well for everyone facing against these circumstances facing against the storm like Lighthouse. Uh you can operate a marketplace and be part of this huge network of big marketplace players across Europe. uh and using the advantages of pricing v variety of the wider variety of the products and uh of course uh everything which is uh about the brand awareness but becoming a marketplace is also

very tricky and very challenging uh and demanding um subject to achieve. You can firstly decide the business model what you want to do as a marketplace. You can be a hybrid one with a one P and 3P sword event as well or you can be just only a one P uh pure marketplace or you can be a C toC marketplace like wined if you know that a

price comparison classified side its own. So you have to decide on the business model and it's can be a very hard investment and very challenging to become a marketplace. Uh and not the business model itself is tricky but also to find the right place among your markets. Uh you can be the lowest priced player or you can be a wider choice for everyone who is willing to

buy something in your category. You can be more convenient. But the first and most important thing is to find the sweet spot. Where are your customers and where you want to be in their minds? A low priced, a convenient one or a wider range or a little bit of a mix in every way. So marketplace is an opportunity but not the only opportunity that you have to

uh deal with. The second that uh I want to highlight is uh the Gen Z. uh and uh Jenzi I mean the younger younger generations uh they are becoming more and more uh important within the customer bases uh and you have to deal with them carefully because they are digital natives. They require and looking for personalized offers. They are want to uh get quicker faster response and

not just responses but the deliveries itself. They want to get everything in day within within the the fastest and and more convenient way and they want to do it seamlessly uh with selecting the channels depending on their needs the day of day or depending on their habits. So, Gen Z is also very important and many retailers in our practice are not find uh them attracting because everything

uh can be different for 18 year old and everything can be different for a 30 years old. But uh the oldest Gen Z is now turning into 30. So they can be uh a very uh huge opportunity as well. And the third important trend is the frequency. And maybe this is the the biggest one, the frequency. Uh here is the composition of the online shopper base not

in the sea, not in the Balkan but in Hungary for this example. You can see three major groups in terms of the frequency of the shopping. The first one is those who just rarely shops online. For example, once or twice a year only, typically a present, a gift for someone for Christmas, a birthday or something like that, but nothing for ourselves. The second one is the uh

occasionally shopping uh category. Shopping something uh about three to four times a year, five to six times a year or every two months. And the third one is the most frequent regular shopper base uh shopping online monthly or can be in a daily basis as well. And if you see the composition, you can see that all these three groups are basically in the same size. 30% 38%

and 31% the same size. If a retailer is looking looking at the customer base, maybe the percentages are going to be the same. The regular shoppers only uh responsible for the for the third of the whole amount of the shopper base. But still, if you look at the orders, the order numbers, you can see a very different shape. This group the regular shoppers of 30% are responsible

for 75% of the whole number of orders which is very important if you think about the service levels who wants something to be delivered at the same day the one who is shops very regular this group is not the majority of your shopping base I'm very sure but on the other hand they responsible for the most of the orders And your challenge, everyone's challenge in this situation

when the storm is very heavy and you have to show the way as a lighthouse is to attract this group and convince them to buy or buy online more and more and order something uh in a daily basis at least. So how you achieve it, how you can increase this frequency, what's the what's the sweet spot for this? And uh we as PWC absolutely believe that this

sweet spot this solution is lying in the datadriven loyalty programs to build such a program you can be in a position where you are able to increase this frequency when you're able to convince the users to buy online. But first you have to be in a very good position when you have the strategy. You know what you want to do. we want to achieve and you know

enough about your customers. What we can see is that only a few retail players are know who is the customer, what is the average age, what is the gender, where they live, where they shop and which kind of loyalty programs are they using um uh in a daily basis uh where you can uh gain uh impressions and you have to decide on the loyalty programs attributes. For

example, uh is it going to be a mono or multibrand loyalty program? Is it going to be paid or a free uh model? What's the point? What's the what's the thing that you will collect and how do you collect it? Technically aspect how we can handle it. Uh for let's see some examples. EMAC uh a genius uh program that's the name of it. Genius uh Emac started

it with an app based no physical required no physical card required program and it's a subscriptionbased program with uh a very strong free period of 6 months when you can experience the whole thing and after that you can decide on is it suitable for you or not to pay for it. Uh the second one is Home Depot from the United States. Uh this is also an appbased

business uh card is only received for B2B clients and uh it's a point uh based system where you can get points from every purchase or you can get points from uh from uh every order in online base. Uh and it's a tiered system. Uh the rewards are um um getting bigger and bigger if you order and pay more. uh Best Buy, also an American example, digital membership

without any plastic card uh points per dollar is the model and also a tiered system that you can use for uh IKEA, a well-known DIY player, uh operates a free membership program, also an app-based one without the need of a physical car, but you can uh order it if you want to use it. Um after the examples you have to face other challenges. Uh let's see that

the first you have to decide on what is going to be the value for your clients. What is going to be the value for you as a retailer? What is going to be the channel? Is it going to be an app based one uh plastic card or physical card one? How you will use it? How the customers will earn rewards from it? how they will redeem these

rewards and what you will do with your data. What you will do when you get all these information from your customers, what should you provide for them? Let's see some examples about the value. Uh SPWCV uh analyzed many many programs and uh all of them are providing one of or many of uh these uh uh values for the clients. Let's see the the most popular one is

providing discounts or cash back at the checkout. Discount is the most popular. Uh after the second one, remember Gen Z personalized offers providing them something unique that only they can achieve using the program. And the third one is uh appropriate for the online space is free shipping. Think about Amazon, think about Oza, think about EMAG. Every of these big major retailers are online retailers are providing unlimited

free shipping. uh if you are a member of a loyalty program what does it mean for you? It's it means that you have to pay uh the logistic fee. I mean you by the retailer have to pay for the logistic fee instead of the client. But at the end of the day the client will order more and they don't order for one euro. They will order with

an increased uh basket size uh increased uh average item of order and uh you will get the money. Um let's see the channels uh mobile applications digital loyalty cards and everything is related to the digital space uh are the most common mobile application is the appealing one but also important to highlight the physical cards are still relevant for a certain group within your clients. So we recommend

that you should provide an option at least for the physical cards even if you have just a pure online space. And uh the third one is the rewarding system. How you will uh operate the model. You can provide a point collection system when you can get points after every purchase. You can provide a tier based spending uh rewards uh that depending on the amount of the spending

and the frequency of the spending. And the third one is uh very typical within the digital space is the subscriptionbased system. the subscriptionbased systems are started to appear at the time when the streaming platforms uh uh becoming more and more popular and um after uh the awareness uh of Netflix uh is uh becoming higher all the retail players realize that it can be achieved by them as

well. The customers can pay for loyalty programs if they can get something uh very appealing reward u from from uh the stores. Okay. And at the end uh let's assume what are the the the basics in these circumstances uh when growing is challenging. It's not that easy when it was used to be during the pandemic or before the pandemic and the retail strategies are lacking of real

uh insights from the customers. Uh the the retailers are are thinking about uh the customers that they uh we don't want to collect information because uh maybe if we ask them to provide more details about their circumstances they will go to another uh retailer instead of us. But it's not true. Use that. Use service. Use loyalty programs to get more information from the customers. Loyalty program programs

are also very crucial, very important to develop and and maintain uh and combined with uh loyalty programs, the marketing tools, the marketing automation tools which has also outdated within the C region in many retailers and the customer insights. I already mentioned it's very crucial. So in our side at PWC we are providing a service which can be uh useful for building loyalty programs or going uh uh

and building a strategy for marketing automation. uh we are helping the way of play to find helping them to uh connect the strategy with the business needs and the opportunities and the uh market situation and uh generating uh more customers and more clients at the end of the day. So as a as a conclusion compete and stay ahead that's the question how you can achieve it uh

in this very windy environment you have to know better your customers you have to know your uh know their preferences have to know your needs have to have to know their needs have to know what uh they willing to buy uh next have to think beyond the pricing uh it's not about the price anymore. It's about the service levels. E-commerce uh is uh not about the commerce

anymore. It's more about the service levels. What's your time window for deliveries? What is your marketplace model? How you achieve the service uh at the end of the day. So you have to think about your service levels in this market situation. the same category uh two players within the same category can grow or decrease at the same amount. One is uh one one can grow with a

30% growth rate and the other with the same category, same inventory but not the same service level is u suffering with all these u market environment situations. So increasing the frequency uh with datadriven programs is uh uh crucial and can be a solution. And the third one uh or the fourth one is a crossber sales you have to go abroad and have to try what you can

do with your inventory with your service levels abroad. I'm sure that um if someone uh from Poland Czecha can achieve this position uh providing services from abroad then in this case you will be able to uh do it as well and be the import uh driver of this uh market not the suffering one uh this environment. So going cross border is the ultimate solution and the SPWCV

believe that going cross border is the ultimate uh uh reason or ultimate uh solution for surviving and being storm proof uh in this uh next tier of the market where the import is getting more and more important. Thank you so much for your attention and uh have a nice