Research Spotlight

Indexing Consumer Activity

Rapid digitisation and urbanisation have led to depersonalised transactions in the Indian retail industry. These changes heighten the need for computing consumer activity indices to help retailers understand and predict future consumer behaviour. Academics and retailers shared insights on consumer indices in a workshop organised at ISB on November 22, 2017.

Consumer engagement is pivotal to every business. It is the magic that reflects consumer loyalty and boosts revenues and profits. What’s more, consumer engagement helps predict future consumer purchases. Engaged consumers build stronger, more meaningful and lasting relationships. They promote the company’s products by referencing, are influencers on social media and provide feedback to the company on improving products and services.

How can retailers know if they have engaged consumers?
With information on purchases alone, a consumer activity index can measure the level of consumers’ direct engagement. The construction of the index is no easy matter, however. It is no surprise that such an index has not been computed yet in India.

On November 22, 2017, the Indian School of Business (ISB) hosted a workshop that focused on designing consumer activity indices for the Indian market. The development of the index is to be based on initial transaction-level data collected by Loylty Rewardz, a company that manages loyalty programmes for over one billion profiles across debit and credit cards, while processing 2.5 billion transactions per year.  The company has awarded over 30 billion loyalty points thus far.

The workshop provided a platform to academics and senior executives from the Indian retail industry to use industry benchmarking to discuss the development and use of consumer activity indices.

Professor Rajendra Srivastava, Dean of the Indian School of Business, and Novartis Professor of Marketing Strategy and Innovation reiterated the need for consumer activity indices in the Indian context, given the rapid transformation of India’s digital economy. Digital transformations call for systematic approaches that can keep track of offline and online market transactions. They also heighten the need for trustworthy information on the impact on the Indian retailing industry. Professor Srivastava especially highlighted the immense need for facts and predictive analysis to support market-informed decision-making with a focus on consumers from Indian Tier 2 and Tier 3 cities.

Why consumer activity indices today
Mr Bijaei Jayaraj, Founder and CEO of Loylty Rewardz, noted that personal and individual interactions were common in India until a few years ago. It was not uncommon for the retailers and consumers to chat about products, prices, the weather, and family. This personal interaction helped retailers keep track of consumers’ preferences and provided them with an understanding of consumers’ engagement levels.

But in recent times, rapid urbanization, digitization and e-business have broken down these relationships, breeding high levels of depersonalization in the Indian retail industry. This is why retailers need consumer indices.

The science behind the consumer activity index
Professor V Kumar, Editor-in-chief of the Journal of Marketing and Regents Professor, Richard and Susan Lenny Distinguished Chair Professor of Marketing, and Executive Director of the Centre for Excellence in Brand and Consumer Management at the J. Mack Robinson College of Business at Georgia State University argued that retailers need to understand the ‘overall’ behaviours of consumers.

Past behaviour predicts future behaviour to some extent. Drawing on the results of a study that he conducted with a team of scholars that includes Professor Amalesh Sharma (Texas A&M University), Professor Shaphali Gupta (MDI), and Dean Raj Srivastava, Professor Kumar examined drivers such as recency and frequency of purchases, cross product buying, cross channel buying, duration of buying and others that can predict consumers’ future spending. The beauty of this index is that it can be computed at the regional, city, product category and retailer levels.

In roundtable discussions, retailers and academics discussed the dimensions and challenges to be considered in formulating the indices. Retailers agreed that greater drilling down of data and development of models was required in order to come up with insights based on product category and geography. Terming the mission of developing consumer indices to be a “movement”, Professor Srivastava reiterated the need for periodical meetings, updates and reports about the progress on data aggregates and model development.
Catherine Xavier is a writer with the Centre for Learning and Management Practice.