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

Chapter 2: Symptom: Sales of membershipdeclined 9% comparing last year 2.1 Vietnam retail market Although many fluctuations have experienced, Vietnam's retail market is still one of the

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

Chapter 3: Problems Identification 1

8

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

occupied highest (only focus on Lead group & Loyal group as mentioned above) 39

Chapter 7 Supporting information 4

2

1

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

in increasing sales & profit performance.

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

In summary, the thesis show main problems, main cause and how to make mostreasonable 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 Koreanbusinessman in Tokyo LOTTE expanded its business in the whole country, SouthKorea by the establishing confectionery company in Seoul on Dec 18, 1959 LOTTEdeveloped strongly to become South Korea’s biggest business group at fifth positionLOTTE Group include more than 90 business subsidiaries that hiring over 60,000staffs appealed in such diversified field as confect manufacturing, financial servicesalcohol, resorts, health and beauty, retail, personal care, industry chemicals, electric,Information Technology, construction, publish, and entertainment LOTTE ownsadditional 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

vision “Lifetime Value Creator” means our resolution to create LOTTE a brand thatdeliver 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

value-between the various stakeholders of the company, as we ensure employee well-being

by how to respect everyone's different lifestyles and build business value throughinnovation 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 Wehave 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 NamNo.1 innovative Retail company” & “Viet Nam No 1 online Fresh Grocery Mall” onSpeed L online channel The Catch Phrase of 2020 “Think Fresher, Do better” targetencourage and motivate all employees to keep the creative and innovative mindsets

mindset will lead to better work performance and environment, upscaling in productquality, better service, and accordingly provide customer fresher and wonderfulshopping experience

Business Performance (Profit & Loss 2019)

Net int erest

Profit Before Tax

(Unit: 100 mil VND, %)

35,076 100.0 39,895 100.0 13.7 47,090 100.0 105.4 18.08,385 23.9 9,935 24.9 18.5 11,855 25.2 104.8 19.33,872 12.7 4,587 13.3 18.5 5,620 13.8 103.8 22.57,249 20.7 7,839 19.6 8.1 8,875 18.8 102.2 13.22,040 5.8 2,285 5.7 12.0 2,632 5.6 105.3 15.21,230 3.5 1,327 3.3 8.0 1,416 3.0 101.0 6.7

1,539 4.4 1,554 3.9 0.9 1,546 3.3 98.2 ▲0.51,241 3.5 1,355 3.4 9.2 1,896 4.0 108.2 39.91,137 3.2 2,096 5.3 84.5 2,980 6.3 113.2 42.12,676 7.6 3,650 9.1 36.4 4,525 9.6 107.6 24.02,056 5.9 2,515 6.3 22.4 2,673 5.7 106.5 6.3

▲1,006 ▲2.9 ▲720 ▲1.8 28.5 241 0.5 418.3 Gain

Figure 1: Profit & Lost Annual performance

Total net sale of 2019 achieved 105.4%, increased 18% comparing with 2018 Whilegrowth 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

1.3 LOTTE MART NAM SAI GON (NSG)

LOTTE MART NSG is one of 14 stores in Vietnam, located in 469 NguyenHuu 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 risingGDP 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 inAsia, the region with the highest sales growth rate in the world Vietnam and Indiawill 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 smallformat leading by minimart (increasing 62%)

Viet Nam is one of fastest developing consumer markets in Southeast Asia Vietnamhas 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 growingmiddle class in Southeast Asia, Vietnam has achieved phenomenal growth in theretail sector The trend is able to be continued in the next, delivered thedemographics 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 toIndonesia in Southeast Asia

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

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

Vietnam's Ministry of Construction increased from 23.7% in 1999 to 38.4% in thepast year, with economic growth in urban areas 2.5 times that of rural areas,according to the Ministry of Construction Analysts from financial figure servicesupplier Fitch Group forecast that Vietnam's private consumption growth will bestrong, up 7.5% over the same period in 2019, accelerating from 7.0% Compared tothe same period in 2018 Analysts trust personal growth of consumption to go up to6.8% from the same period in 2020, but still strong Development of the outlook oflabor market can be the main driver of personal consumption growth, in the meanwhile lower inflation will also stimulate spending

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

Figure 3: Evolution of modern trade chains by chanels

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 waspreparing a big plan to be leading Nevertheless, on December 3, 2019,VinCommerce, the owner of Vinmart officially declared to be member of MasanGroup Accordingly, VinCommerce, VinEco and Masan Consumer will mergetogether 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 ofeach party's operation with the ambition to generate a big group of consuming goods– retailer with strong competitiveness and biggest scale in Vietnam Besidemanufacturing, the new business owns a network of 122 VinMart supermarkets and2,600 VinMart + stores located in 50 cities and provinces And, Vingroup alsodelared 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 Auchansupermarket Saigon Co.op officially developed a luxury business model calledFinelife 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 retailergiant 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 LOTTEMart NSG: According to AC Neilsen’s analysis; the key rivals of LOTTE Mart NSG areBIG C, Vinmart & Coop Extra SC Vivo, Cresent Mall which developed and openedseveral 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 3years, those are Environmentally friendly products; Focus on customer experience; Theinvolvement of AI (chatbot, automatic payment…); Focus on Social Communication; Therise of small /new retail units Besides that, top 5 drivers will lead Vietnam retail industrysuch as Supply chain optimization, New Sales & Marketing strategies, M&A, Expand theexisting product lines, New customer segments for

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) decrease 9% comparing last year.

Figure 6: Loyalty performance analysis

10%

25%

25%

65%

Vietnamese Other Korean

Figure 7: Loyalty Analysis by nationality

Generation Customer Sale by Gen

by Gen (Ea) (mil)

Gen X (60-79) 180,520 32% 166,600 34% Gen Y (80-94) 252,095 45% 269,500 55%

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 3.1times per month in last year, hence, this year drops 2.8 times

LOTTE Mart NSG has still not met increasingly diversified needs of audiences Whilecompetitor 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 ofmember 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 interviewedmembers of LOTTE Mart VN, LOTTE Mart NSG, customers We recognized severalfollowing 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 bystores 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 corefactors to prevail in retailing and increase sales as well Therefore, retailersconcentrate on upgrade products to create competitive advantages

According to Briesch, R A et al (1) quantity of brands which be offered in retailproducts has a good effect on choice of store for most consumers, in the meanwhilequantity of assortment per brand, sizes per brand, and portion of assortments thatare special to the store (one for presence of private labels) have a bad effect onstore 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 busyhouseholds and providing important health and lifestyle trends Nevertheless,according to category yearly report, growth of meal solution decrease 11.5%, basketvalue decline 27.6%, this means customer still come to supermarket but they havevery few choices of enjoying processed dishes as ready to cook, ready to eat, hotdeli, 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”

49,4% 38,6%

Dried Food Meal Solution Non Food Fresh Food Fashion

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

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' centralizedeffort to build traffic of store, increase shopping cart sizes, and increase the frequency ofgenerating deeper relationships with their customer base Luxton claims the use ofprograms of loyalty as a tool for companies to increase loyalty of clients is very essentialbecause 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”

According to AC Nielsen’s analysis, only 24% new shoppers want to becomepreferred member of LOTTE Mart, while competitors are better such as Aeon,CoopMart, Emart respectively 29%, 37%, 36%, because rivals have a lot of specialoffers 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%”.

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 inupcoming year, with simple reason; the businesses that concentrate on customerexperience 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 toconduct customers for specific products, sometimes these signage are also difficult

to seek

Customer experience & customer service and seem to be interchangeable ACompany could not survive without its audiences, and that is why businesses arecentralized on way to win strategy and perhaps more importantly, sustain currentcustomers Bloomberg Businessweek surveyed that “Giving a great customerexperience” 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 redefinesfactors of buying experience as leading experience from a happy ideas andexperience in the context of valuable shopping The beginning experience isidentified 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 experienceshow 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 affectssatisfaction of clients Perceived value and service quality are the key factors thatdetermine satisfaction of andience In addition, the quality of retail satisfaction ofaudience and perceived value significantly influence the intent of the behavior of thepurchase

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

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

Below is initial Cause & Effect Map

shopping

- Bad attitude of staffs - Inconvenient traffic inside store

- Slow payment - Slow digital reaction

- Poor Assortment - Low discount policy

- Unreasonable price - Lack of special offers for member

- Unscientific display - Lack of continuous cares

Sales of membership decrease 9%

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