LOTTE mart NSG the importance of customer loyalty improvement in sale performance

LOTTE Mart NAM SAI GON-THE IMPORTANCE OF CUSTOMER LOYALTY IMPROVEMENT IN SALE PERFORMANCE Chapter 1: Company background 1.1 LOTTE GROUP LOTTE Corporation is multinational Top Five large

UNIVERSITY OF ECONOMICS HOCHIMINH CITY

International School of Business

LE VU BINH

LOTTEMART NAM SAI GON-THE IMPORTANCE OF CUSTOMER LOYALTY IMPROVEMENT IN SALE

PERFORMANCE

MASTER OF BUSINESS AMINISTRATION

SUPERVISOR: Assoc Prof Dr TRAN HA MINH QUAN

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Table of contents

Chapter 1: Company background 4

1.1 LOTTE GROUP _ 4 1.2 LOTTE Mart Viet Nam 6 1.3 LOTTE MART NAM SAI GON (NSG) _ 9

Chapter 2: Symptom: Sales of membership declined 9% comparing last year 10

2.2 Rivals 13 2.3 Retail Market Trend: 14

Chapter 3: Problems Identification 18

3.1 Potential problem: 18

3.1.1 Products (assortment) does not adapt to membership’s needs _ 183.1.2 Customer Loyalty’s benefits is unattractive _ 193.1.3 Lack of shopping experience _ 213.1.4 Bad attitude of staffs 22

4.2 Validate cause _ 33

Chapter 5 Alternative solution 35

5.1 Solution 1 Invite expert to train CRM skills for marketing staffs 35 5.2 Solution 2: Personalized promotion to loyalty membership 37 5.3 Solution 3: Apply 80/20 rule to increase volume of top membership group

occupied highest (only focus on Lead group & Loyal group as mentioned

above) 39 Chapter 6: Action Plan 41 Chapter 7 Supporting information 42

Table of Figures

Figure 1: Profit & Lost performance………7

Figure 2: Vietnam retail Sales……….10

Figure 3: Evolution of modern trade chains by chanels……….12

Figure 4: Retailer analysis-AC Nielsen……….13

Figure 5: Customers landscape……….15

Figure 6: Loyalty performance analysis………16

Figure 7: Loyalty Analysis by nationality……… 16

Figure 8: Loyalty analysis by generation……… 17

Figure 9: Category sale yearly report ……… 19

Figure 10: Retail customer Analysis by AC Nielsen………20

Figure 11: Retailer imagery Analysis by AC Nielsen……… 22

Figure 12: LOTTE Mart Camera AI Analysis………23

Figure 13: LOTTE MART CRM report 2nd half 2019……… 28

Figure 14: Rivals analysis by author……… 29

Figure 15: Loyalty survey by Nielsen ………30

Figure 16: AC Nielsen retailer pricing analysis………31

Figure 17: Derived important ranking by Nielsen………32

Figure 18: Cost benefit 1 by author’s synthesis ……….36

Figure 19: Loyalty group segmented……….37

Figure 20: Cost benefit 2 by author’s synthesis……… 38

Figure 21: Loyalty focusing ………39

Figure 22: Cost benefit 3 by author’s synthesis……… 40

Figure 23: KPIs estimation with solutions campaign……… 41

Table of Diagram Diagram 1: LOTTE Group Core Values……….5

Diagram 2: LOTTE Mart VN Catch Phrase 2020……….6

Diagram 3: LOTTE Mart Viet Nam Organization Chart……… 8

Diagram 4: LOTTE Mart Nam Sai Gon Organization Chart ……… 9

Diagram 5: Initial Causes & Effect Map………24

Diagram 6: Final Causes & Effect Map……….34

However, in LOTTE Mart Nam Sai Gon, after analyzing annual report and relevant others, the store is facing imperative problems that sales of customer loyalty went down 9% comparing 2018 Utilizing different literature, together with customer surveys, in-Dept employee’s interviews, the author identified main problems to impact shopping decision of membership Findings indicated that potential problems listed as Products (assortment) does not adapt to membership’s needs, customer Loyalty’s benefits is unattractive, lack of shopping experience, bad attitude of staffs The author recognize main cause of problems is low competitiveness of member benefits And designing solution that the company should acquire and serve core customers in various segments, concentrate on increase revenue of top sales membership group with privilege benefits

In summary, the thesis show main problems, main cause and how to make most reasonable solutions based on literature reviews and experience as well

LOTTE Mart NAM SAI GON-THE IMPORTANCE OF CUSTOMER LOYALTY IMPROVEMENT IN SALE

PERFORMANCE Chapter 1: Company background 1.1 LOTTE GROUP

LOTTE Corporation is multinational Top Five largest group of South Korea, LOTTE start business from June 28, 1948, established by Mr Shin Kyuk-ho Korean businessman in Tokyo LOTTE expanded its business in the whole country, South Korea by the establishing confectionery company in Seoul on Dec 18, 1959 LOTTE developed strongly to become South Korea’s biggest business group at fifth position LOTTE Group include more than 90 business subsidiaries that hiring over 60,000 staffs appealed in such diversified field as confect manufacturing, financial services alcohol, resorts, health and beauty, retail, personal care, industry chemicals, electric, Information Technology, construction, publish, and entertainment LOTTE owns additional businesses in Taiwan, Philippine, India, Indonesia, Vietnam, India, America, Great Britain, China, Russia, Philippines, Uzbekistan and Poland

History:

• 50 years to develop LOTTE Confectionery to be a global business

• 1960: Modernization of food industry

• 1970: Develop of food industry and reinforce diversification of business

• 1980: Entry to the 10 Korean businesses

• 1990: Provision of foundation for global management

• 2000: Focus on the main capability to be a multi-national business

• 2010: Vision, the powerful development for multi-national business to leading company

Mission: “We enrich people’s lives by providing superior products and services that our customer love & trust”

Vision: Creator of Lifetime Value to develop strong growth over the upcoming 60

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vision “Lifetime Value Creator” means our resolution to create LOTTE a brand that deliver our clients with the so real value into their lives

Core Values: The core value that all LOTTE employee must wish toward so that

LOTTE could finish practical mission and vision, those are Respect, Originality, Challenge

LOTTE’s Corporate Culture: Find ways to generate bigger value by all your

employees sharing their hearts and thoughts LOTTE is generate a unique creating culture that enhances social value through mutually beneficial relationships between the various stakeholders of the company, as we ensure employee well-being

value-by how to respect everyone's different lifestyles and build business value through innovation and consolidation of ideas

Diagram 1: LOTTE Group Core Values

1.2 LOTTE Mart Viet Nam

Being subsidiary of LOTTE group has been in Viet Nam for more 10 years Specializing in selling consumer goods, groceries, fashion, electronics & so on We have 14 stores in the whole Viet Nam, located in big provinces such as Ho Chi Minh,

Ha Noi, Can Tho, Da Nang, Vung Tau, Nha Trang, Phan Thiet,

Diagram 2: LOTTE Mart VN Catch Phrase 2020

With the strategic vision to 2023, LOTTE Mart Viet Nam aims to become ”Viet Nam No.1 innovative Retail company” & “Viet Nam No 1 online Fresh Grocery Mall” on Speed L online channel The Catch Phrase of 2020 “Think Fresher, Do better” target encourage and motivate all employees to keep the creative and innovative mindsets

at works, always putting efforts to make the works better improve A always – fresh

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mindset will lead to better work performance and environment, upscaling in product quality, better service, and accordingly provide customer fresher and wonderful shopping experience

Business Performance (Profit & Loss 2019)

Figure 1: Profit & Lost Annual performance

Total net sale of 2019 achieved 105.4%, increased 18% comparing with 2018 While growth of profit gained 19.3% EBIDA is 4,545,100,000,000 vnd and achieved 107, 6% In general, performance of LOTTE Mart VN in 2019 compassed as expected

(Unit: 100 mil VND, %)

Net sales 35,076 100.0 39,895 100.0 13.7 47,090 100.0 105.4 18.0 Sales profit 8,385 23.9 9,935 24.9 18.5 11,855 25.2 104.8 19.3

MD profit 3,872 12.7 4,587 13.3 18.5 5,620 13.8 103.8 22.5 S&A Expense 7,249 20.7 7,839 19.6 8.1 8,875 18.8 102.2 13.2 Personal 2,040 5.8 2,285 5.7 12.0 2,632 5.6 105.3 15.2 Wat er&Elec. 1,230 3.5 1,327 3.3 8.0 1,416 3.0 101.0 6.7 Promot ion 576 1.6 661 1.7 14.7 637 1.4 92.6 ▲3.6 Rent 623 1.8 657 1.6 5.4 749 1.6 97.6 14.1 Depreciat ion 1,539 4.4 1,554 3.9 0.9 1,546 3.3 98.2 ▲0.5 General Ex. 1,241 3.5 1,355 3.4 9.2 1,896 4.0 108.2 39.9 Operat ing profit 1,137 3.2 2,096 5.3 84.5 2,980 6.3 113.2 42.1 EBITDA 2,676 7.6 3,650 9.1 36.4 4,525 9.6 107.6 24.0 Net int erest 2,056 5.9 2,515 6.3 22.4 2,673 5.7 106.5 6.3 Profit Before Tax ▲1,006 ▲2.9 ▲720 ▲1.8 28.5 241 0.5 418.3 Gain

Jan.~Jul.

2017 (13H)

2018 (13H)

2019 (14H)

Diagram 3-LOTTE Mart Viet Nam Organization Chart

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1.3 LOTTE MART NAM SAI GON (NSG)

LOTTE MART NSG is one of 14 stores in Vietnam, located in 469 Nguyen Huu Tho, District 7, HCMC The store occupies highest sales share & is main impact of sales growth rate in total chains in Viet Nam

Diagram 4-LOTTE Mart Nam Sai Gon Organization Chart

Chapter 2: Symptom: Sales of membership declined 9%

comparing last year

2.1 Vietnam retail market

Although many fluctuations have experienced, Vietnam's retail market is still one

of the most engaged markets globally

According to EU-VN business networks, Vietnam nation is taken into consideration

as one of the region’s most engaged markets for abroad investors with a steadily rising GDP and booming foreign direct investment, a pattern that is estimated to retain stable

in the coming years GDP is estimated to achieve €208.1 billion in 2018

According to The Economist (EIU), Vietnam and India are leading retail growth in Asia, the region with the highest sales growth rate in the world Vietnam and India will

be the two countries with the fastest growth in retail sales in the world in 2020 Vietnam retail sales has been growing stably since 2017 at 12%

Figure 2: Vietnam retail Sales

According to the World Bank's forecast, expenditure of Household will rise

by an average of 10.5% per year along with the growth of the middle class

According to Nielsen, Vietnam Retail Sales will keep growing at 12%-12.6% in

2020 Despite Covid-19, store expansion still growth significantly, driven by small format leading by minimart (increasing 62%)

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Viet Nam is one of fastest developing consumer markets in Southeast Asia Vietnam has all the necessary conditions to expand and grow in the retail field: GDP grow, politic is stable, population is young, middle class is increasing, incomes is rising, urbanization is fast, and standards of living is outstanding With the fastest growing middle class in Southeast Asia, Vietnam has achieved phenomenal growth in the retail sector The trend is able to be continued in the next, delivered the demographics of young population relatively and strong client’s expenditure behavior Actually, the development of digitalization retail and electronic commerce and omi-channels in Vietnam is the leading trends to see: by 2020, Vietnamese e-commerce is always expected to develop strongly about size Ants will

be second only to Indonesia in Southeast Asia

The growing income of clients is considered as the reasons for the booming for retailing market of Vietnam Euro monitor (Market research firm) commented that by

2030, Vietnam will become the second biggest city market in Southeast Asia in of number of clients and the top most expenditure

Vietnam's Ministry of Construction increased from 23.7% in 1999 to 38.4% in the past year, with economic growth in urban areas 2.5 times that of rural areas, according to the Ministry of Construction Analysts from financial figure service supplier Fitch Group forecast that Vietnam's private consumption growth will be strong, up 7.5% over the same period in 2019, accelerating from 7.0% Compared to the same period in 2018 Analysts trust personal growth of consumption to go up to 6.8% from the same period

in 2020, but still strong Development of the outlook of labor market can be the main driver of personal consumption growth, in the mean while lower inflation will also stimulate spending

Mr Hippo emphasized that Vietnam will be the most potential consuming markets in Asia, together with China, Indonesia, the Philippines, India

Figure 3: Evolution of modern trade chains by chanels

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2.2 Rivals

Figure 4: Retailer analysis-AC Nielsen

Vingroup acquired a lot of brands such as Vien Thong A, Fivimart, GM Vietnam, Shop

& Go, Queenland Mart, etc., VinMart drive many expert trust that the group was

preparing a big plan to be leading Nevertheless, on December 3, 2019, VinCommerce, the owner of Vinmart officially declared to be member of Masan Group Accordingly, VinCommerce, VinEco and Masan Consumer will merge together to transform Vietnam's leading consumer goods and retail group

According to both of 2 leaders of groups, this deal target to optimize the strength of each party's operation with the ambition to generate a big group of consuming goods – retailer with strong competitiveness and biggest scale in Vietnam Beside manufacturing, the new business owns a network of 122 VinMart supermarkets and

2,600 VinMart + stores located in 50 cities and provinces And, Vingroup also delared

merging of VinPro & Adayroi.com into the VinID application

Vietnamese retailer Saigon Union of Trading Co-operatives (Saigon Co.op) continued to reinforce speed of opening chain in all models: Co.opmart, Co.op Food, Co.op Smile In June, Saigon Co.op also purchased 15 stores of Auchan supermarket Saigon Co.op officially developed a luxury business model called Finelife supermarket

to target premium customers whose income is in the top A and B, and live in residential areas or apartments in large urban areas Thailand retailer giant MM Mega Market, acquired Metro Cash & Carry and officially opened the first MM retail supermarket in Vietnam in Hanoi last year

Central Group (owner of Big C Vietnam system) opened a supermarket named GO! MARKET in Hanoi, which is the first market under this name in Vietnam Earlier,

in 2018, Central Group had opened the GO! Mall in My Tho (Tien Giang).Competitors

of LOTTE Mart NSG: According to AC Neilsen’s analysis; the key rivals of LOTTE Mart NSG are BIG C, Vinmart & Coop Extra SC Vivo, Cresent Mall which developed and opened several branches in 2018, especially Coop Mart Extra SC ViVo & Big C

2.3 Retail Market Trend:

According to Vietnam Report, Some key trends of the Retail industry in the next 3 years, those are Environmentally friendly products; Focus on customer experience; The involvement of AI (chatbot, automatic payment…); Focus on Social Communication; The rise of small /new retail units Besides that, top 5 drivers will lead Vietnam retail industry such as Supply chain optimization, New Sales & Marketing strategies, M&A, Expand the existing product lines, New customer segments for

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existing products Specially, Omni channels (Multi channels) will change totally retail

in the next 10 years

Figure 5: Customers landscape

LOTTE Mart seems to attract older shopper than CoopMart, Big C, VinMart & Aeon

According to business performance report 2019, Sale of member (customer loyalty)

6 Basket price of member 531,000 450,000 -15%

Figure 6: Loyalty performance analysis

Figure 7: Loyalty Analysis by nationality

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Generation

Gen B (40-59) 44,817 8% 29,400 6% Gen X (60-79) 180,520 32% 166,600 34% Gen Y (80-94) 252,095 45% 269,500 55% Gen Z (95-up) 84,032 15% 24,500 5%

Figure 8: Loyalty analysis by generation

Symptoms are analyzed as follows

As above KPIs performance 2019, comparing with last year, although total sale

revenue increased, sale of membership in NSG store has declined from 540

billion down 490 billion, minus 9% Number of loyal shoppers (member invoice)

reduced 8% compared to 2018 In the meanwhile, customer came to store to buy 3.1

times per month in last year, hence, this year drops 2.8 times

LOTTE Mart NSG has still not met increasingly diversified needs of audiences While competitor update trendy products very quickly to serve customer such premium, eco-

friendly, organic, international…also strong development of E-commerce

LOTTE Mart customer loyalty is not enough engaged to retain current member & recruit new as well As the chart, sale share of Gen B is 6%, Gen X is 32%, and Gen

Y is 55% Especially, Gen Z is emerging expenditure generation, although rate of member is 15%, but sale only account for 5% comparing with total

As analyzed, Sale of member customer decrease 9% is symptom of LOTTE Mart

Nam Sai Gon As if member sale of LOTTE Mart NSG kept increasing trend, it would contribute growth rate remarkably in total sale performance of company

& Group

Chapter 3: Problems Identification 3.1 Potential problem:

Accordance with research & survey report together with in depth interviewed members of LOTTE Mart VN, LOTTE Mart NSG, customers We recognized several following potential problems listed

3.1.1 Products (assortment) does not adapt to membership’s needs

Assortment in retailing involves the quantity and type of products displayed by stores for consumers to buy Consumer assortment perceptions have been shown to

be one of the top three criteria to pull customer to supermarket and is one of core factors to prevail in retailing and increase sales as well Therefore, retailers concentrate on upgrade products to create competitive advantages

According to Briesch, R A et al (1) quantity of brands which be offered

in retail products has a good effect on choice of store for most consumers, in the meanwhile quantity of assortment per brand, sizes per brand, and portion of assortments that are special to the store (one for presence of private labels) have a bad effect on store choice for consumer

However, customer seems to have negative responses to categories of LOTTE Mart Non-Active member Gen B, (membership but no sell in latest 9 months) Ms Trang Thi

Le said “I am living in Sky Garden Apartment (High income area), I do not care price, and however, I fell difficult to find organic, natural items for my family LOTTE Mart need to improve this issues to engage high income customer” Active membership Gen X, Mr Kim Jang Oh, Korea man living in Sunrise City apartment in front of LOTTE Mart commented that “Products in International zones is not diversified as wine, confectionary, I must buy essential items in An Nam Gourmet”

Dining utensils are making a mark for shoppers by spending time returning to busy households and providing important health and lifestyle trends Nevertheless, according to category yearly report, growth of meal solution decrease 11.5%, basket value decline 27.6%, this means customer still come to supermarket but they have very few choices of enjoying processed dishes as ready to cook, ready to eat, hot deli, cold deli & so on Non-active member Gen Y (membership but no sell in latest 3 months), Mr Nguyen Hai The responded via phone “LOTTE Mart have few delicious dishes to adapt my quick meal for modern family like mine”

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Figure 9: Category sale yearly report

3.1.2 Customer Loyalty’s benefits is unattractive

Membership is extremely precious property which decide existing of corporation Loyalty of customer influence almost all important metric to operate a business There

is no loyalty of customers that willing to purchase, the business will not survive New client have tendency to save more to acquire, and will not expense as much money

as loyal, repeat clients Retaining client to return is very critical to success of business

According to Allaway et al (2) Loyalty programs involve retailers' centralized effort to build traffic of store, increase shopping cart sizes, and increase the frequency

of generating deeper relationships with their customer base Luxton claims the use of programs of loyalty as a tool for companies to increase loyalty of clients is very essential because they trust that both consumers and the company can gain the benefits from it Non-active member Gen X, (membership but no sell in latest 3 months) Ms Le Thi Dinh said that “I often get discount coupon or gift from Coop Mart

on my birthday, but LOTTE Mart is not ever” Active member Gen Y Le Van

complained that “I have been a member of LOTTE Mart for 5 year with monthly high expenditure, nevertheless, I am not considered as VIP member, I really disappointed”

Dried Food Meal Solution Non Food Fresh Food Fashion

Net sales growth rate (%) No of Invoice growth rate (%) Basket Value growth rate (%)

According to AC Nielsen’s analysis, only 24% new shoppers want to become preferred member of LOTTE Mart, while competitors are better such as Aeon, CoopMart, Emart respectively 29%, 37%, 36%, because rivals have a lot of special offers to loyal members

The author called Ms Tran Nhu Y, non-active member Gen Z (member do not purchase products within 6 months) and responded that “I stop shopping in your store anymore because your member policy did not meet my needs & and I moved to Coop Mart Extra”

Figure 10: Retail customer Analysis by AC Nielsen

Non-active member Gen X (membership but no sell in latest 5 months) Ms Nguyen Thu Phuong said that “I like to shop in AEON Mall because they have a lot of special benefits on member day ” Active member Gen Z Mr Hung added “Member of Vinmart

get back 3% discount, but LOTTE Mart only 1%”

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3.1.3 Lack of shopping experience

The future of retail is optimizing customer experience including offline or online (Palexy CEO) Customer experience is the most interesting chance to company in upcoming year, with simple reason; the businesses that concentrate on customer experience will deduct churn and rise revenues reaching to higher profits!

According to Cruz, Et et (3) all the audience usually feels uncomfortable because

of difficulty in seeking a items Despite these big stores often have visual signage to conduct customers for specific products, sometimes these signage are also difficult to seek

Customer experience & customer service and seem to be interchangeable A Company could not survive without its audiences, and that is why businesses are centralized on way to win strategy and perhaps more importantly, sustain current customers Bloomberg Businessweek surveyed that “Giving a great customer experience” has been a leading strategic goal

Non-active member Gen Z, Hoang Bach Hop said that “I like shopping experience in VinMart by using Scan & Go, I come store, scan what I want by App and go back, staff deliver to my home”

Active member Gen Y, Mr Nguyen An commented that “Why store Nam Sai Gon does not pay by Grab Moca, It is so fast & convenient?”

According to AC Neilsen report, almost shopping experience factor of LOTTE Mart

is lower than competitors such as “Convenient to get to”; A place where it’s easy to quickly find what I need”; “well presented product display”; clean and hygienic store

According to Song, S (4) when the living quality improves and life value changes, shopping evolves into a deep activity that a lot of motivations involves experience With buying activities analyzed as experience of client, this research redefines factors of buying experience as leading experience from a happy ideas and experience in the context of valuable shopping The beginning experience is identified as Sensory, Affective, Intellectual, Behavioral, and Relational experience The experience is considered procedurally that is defined as Decision convenience, Access convenience and Benefit convenience The above factors of experience show

an influence on the engagement of shopping websites

Figure 11: Retailer imagery Analysis by AC Nielsen

3.1.4 Bad attitude of staffs

According to Veloso, C (5) perceived quality of service significantly affects satisfaction of clients Perceived value and service quality are the key factors that determine satisfaction of andience In addition, the quality of retail satisfaction of audience and perceived value significantly influence the intent of the behavior of the purchase

The attitude of an employee deciding whether a customer will buy from a store or a nearby retailer In order to create good retail sales, retailers must first commit to ensuring that employees and colleagues, with a great positive attitude, before the store focuses on processes or grading

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Front office staff Tran Thi Vi said that “Actually attitude of security guys, house keeper

are so impolite when serving shoppers, categories staffs are not wholehearted to consult products to customers” Directly interviewed with active members in store Ms

Nong Thi Hai said that “I really likes shopping in LOTTE Mart so much Recently, it seems store staff attitude go down, staffs did not care my attention as before She does not see welcome, smile in their faces I felt unsatisfactory” Non-active member Gen Z - Mr Le Hoang Hai Yen complained that “I often go to your store, however, your staff almost introduced me about member card, also benefits when being members Sometimes, customer is crowed, she had to wait more 10 minutes, but did not hear excuse from store, I really disappointed about caring services”

Camera AI also showed that 40% of customer must spent 5% minutes at POS (Point

of sale) for payment on weekend as below report

Figure 12: LOTTE Mart Camera AI Analysis

The author called non active members Gen Z (members do not buy in the last nine months) Ms Nguyen Thi Le complained that “I will never buy in LOTTE Mart anymore because house keeper abused her indirectly when I dropped items by mistake, although shopper excuse to house keeper

Below is initial Cause & Effect Map

Diagram 5- Initial Cause & Effect Map

3.2 Validating problems

Lack of updated products (Assortment)

According to Terblanche, N S (6) Supermarket customers Interact with the value of

goods that lead to loyalty while loyalty customers of health, beauty and lifestyle (HBL)

retailers, as a result of the positive relationship between interactions with their value

goods and front office staff

According to Singh, A K., & Kapoor, R.A (7) assortment of retailer is defined as a

mixture of items carried by a retailer The purpose of choosing some of item from list

of products is to optimize the retailer's goals, e.g profit, when considering constraints

such as limited space available to impressions, budgets are determined for the number

- Inconvenient traffic inside store

- Slow digital reaction

Bad

Customer

service

Lack of shopping experience

C

F

Sales of membership decrease 9%

Unattractive Loyalty’s benefits

Lack of

updated

products

- Low discount policy

- Lack of special offers for member

- Lack of continuous cares