Loyalty programme, as is wildly spread today was first conceived in 1981 by
American Airlines and was known as AAdvantage. It quickly turned into a source
of competitive advantage and other airlines were forced to respond in kind.
Further development is well known: loyalty programmes soon outgrew the confines
of the airline industry. The expansion that started in closely linked industries
(e.g. car rental and hospitality industry) later advanced into retail trade,
banking and insurance, service industry etc.
1. Underlying aim of loyalty programme was to act as exit barrier for existing customers and also to act as bait for new customers. It is widely believed Loyal customers not only shop themselves, but, if they are treated well they land up recommending others as well – mode of most potent - free word of mouth advertisement
2. To roll out an end to end loyalty programme, companies spend a lot not only in terms of visible discounts or addition of monetary value to loyal customers, but, lot of time, money, IT resources, hardware and man hours are devoted to sustain the same. Loyalty programme does not necessarily mean ‘Repeat Business’ only. The data so available to the companies is also used for variety of purposes, like :-
Discern purchasing pattern to streamline supply chain and stocking.
- Add value to company’s valuation.
- Improve customer care and relationship.
3. Overall, a company may take major marketing policy decisions based on the data available through its loyalty programme.
GROUND SITUATION
4. So far so good. But the fact is that retailers all over the world have serious problems of having dishonest employees on board. Staff dishonesty is common . To be specific, there have been serious criminal cases of loyalty programmes being misued by dishonest employees causing loss to the company to the tune of $ 80,000/- in one specific case only. Another study shows that multiple redemption of loyalty bonus costs half a billion dollars to the company
5. Since the problem of staff dishonesty is real, lets see how the loyalty programmes are being misused by dishonest employees :-
- Company can loose money or merchandise directly.
- Sweet Hearting.
- Fraudulent accumulation of bonus points on loyalty cards by internal staff.
THE CAUSE
6. Putting it simply – loose controls in the business are the primary reason for such dishonesty spreading around and that is contagious as well. Since Dishonest employees have strong code of conduct amongst themselves , it is difficult to detect as well. Most important is the fact that the victim in this case is not ‘visible’ to offender and hence no guilt feeling of offender.
MITIGATION PROCESS – RECOGNIZING THE PATTERN
7. Since most of the loyalty programmes are riding on business internal IT back bone, by default, we have data stored in data warehouse. Such data can be used to discern a fraudulent usage of loyalty card or discount coupon. Suitable data can be generated with the following threshold values indicative of fraudulent transaction:-
- Gift card / coupons have unique bar code or serial numbers. A report could be generated when such gift card / coupon have been encashed for multiple times.
- When a loyalty card has been swiped for multiple times at the same store (say for example 5 times a day), the data could be flagged for ground checks as it is generally not possible for a customer to shop that many times a day. Such situation would come up if few customers have not got themselves enrolled for loyalty programme, but, internal staff having personal loyalty card or loyalty card in the name of his / her relative, is being swiped to get accumulations for themselves or for their relatives and friends against the purchases made by customers without loyalty card.
- Businesses can design other threshold values based on specific processes of their respective businesses.
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