Change to meet your Needs

Wednesday, November 18, 2009

IN SEARCH OF A FINE BALANCE

Fair Foods Ltd is a popular retailer of foods, with prominent outlets in large malls in all the six major metros. It was promoted three years ago by Mukesh Dikshit, and has clearly established itself as the country’s market leader with almost 6,000 customers visiting its outlets on any given day. Fair Foods has a strong supply chain in place, and an ERP system which daily tracks what food items have been sold in each outlet, and calculates the items and quantities, which need to be stocked the next day. The sophisticated system combined with the management’s experience over the last three years enables Fair Foods to forecast demand with some degree of accuracy. The management team is young and computer savvy, and continuously looks for ways to automate operations in order to cut down on manual mistakes. Because of the push by credit card companies, many Fair Foods customers have begun to pay for their purchases by credit cards. Fair Foods’ CIO, Arvind Desai, wants to use this trend to refine the forecasting process and also use data mining techniques to increase wallet spend. Not so long ago he studied in London and experienced first hand the loyalty programs and CRM initiatives used by large chains such as Waitrose and Sainsbury. Arvind is convinced that both Fair Foods’ topline and bottomline would benefit tremendously from using these tried and tested management tools. He also sees the CRM initiative as a means to block competition. Mukesh however is not sure whether Fair Foods should plunge into a CRM program. He understands that a CRM initiative cannot be half hearted, and is worried about the large changes which would probably have to be made to the company’s back-end processes, as well as the costs involved. To clear the air, Mukesh calls the entire management team to a brain storming session. Arvind begins the session by outlining the benefits as he sees them. “Companies must innovate to add more value and ensure greater customer satisfaction,” says Arvind, “and the cornerstone of good CRM is enhanced value offerings to the customer. Companies that break away from the beaten track, that go beyond the typical plain vanilla offerings, become great successes. ICICI Bank was not the most favoured retail bank till a few years back. Today it boasts of more than 10 million customer accounts thanks to its enhanced value offerings. We are in foods, and hence can easily develop a range of enhanced value offerings just as in banking ICICI has developed the ATMs, phone banking, internet banking, 8 AM – 8 PM banking etc. Other banks are trying to emulate them but they’ll always play catch-up. Now none of ICICI’s offerings are really new – they are just new in India. In the west these are established offerings. Similarly, the offerings I am suggesting are also tried and tested. Even FMCG companies like Amul are using the Internet to practice CRM. By visiting Amul’s cyberstore- www.amul.com- customers can choose and order products and even specify the time and date when they would like it to be delivered to their home apart from enjoying the privilege of choosing from the entire range of the products. ” While Arvind is clear that CRM is the way forward, the team quickly splits into two camps, one for CRM and the other hostile to the idea. Marketing, headed by Kumar Sonu, and HRD head Shirin Batlivala tilt towards Arvind, but CFO Srinivas Pandu and operations head, Pranab Chowdhury are sceptical. “Of course we are interested in enhancing customer satisfaction,” agrees Srinivas smoothly, “but I am sure you must be aware of the fact that IBM has recently conducted a global survey of CRM projects, which discovered that only 15% of current CRM projects are fully successful. This fact is corroborated by other failure statistics in the ERP/MIS areas.” Arvind refused to be goaded. Keeping his expression amiable, he responds with, “Yes, I read the report thoroughly, and it also points out that the success rate can be improved to as high as 80% through proper business process methodology and prioritization. As Fair Foods IT head, I have to say that software technology can take us only so far in any CRM initiative. We can be an even larger and even more profitable company if we are committed to CRM through the points I have just outlined. Allow me to elaborate further.”

“You mentioned IBM. IBM turned itself around by becoming a one-stop shop for its customers, and selling complete business solutions, and not just its own hardware. We have seen how Airtel by tying up with Blackberry and adding email communication to its telephony services is fulfilling more customer needs. ICICI’s basket of offerings cover the whole gamut of needs that customers may have – banking, home loans, car loans, credit cards etc. Now because we are a food retailer, with thousands of SKUs, we can easily develop enhanced value offerings. The difference between today and three years ago is the quality of our data. Three years ago, we had a computerized system, which tracked every item we sold. Today, because more and more customers are paying by credit card and not cash, we can easily track them down and contact them. For example, we compete with the local kirana who can deliver more or less between 8 am and 8 pm. If we mine our data carefully, we can work out every customer’s weekly requirement pattern, and also make home deliveries.”

“Home deliveries! But if they don’t come into our outlets, how can we entice them to spend more?” asked Pranab heatedly. “India is not an evolved market. It has taken us years to introduce customers to variety, to break down the disinclination to try something new. We have spent so much effort in making our stores friendly for both servants that shop on behalf of rich housewives as well as the middle class male doing the big weekly shopping, and everyone in between. How will they know that something new is on offer if they don’t come into the shops?”

“We get considerable revenue from in-store advertising because media planners know that over 6,000 customers visit our outlets every day. If the footfall crashes, this revenue will disappear,” added Srinivas. “Moreover, we don’t really know whether databases truly work. Most databases are just a collection of names and contact addresses. I know of cases where credit card subscribers are inundated with subscription offers of sundry magazines most of which are of no interest to them. Mass mailing to all members of the database is the name of the game.” “I agree that there is blatant abuse and misuse going on around us and that this gives a bad name to database marketing besides being an appalling waste of a database. Needless to mention, the success rate of this effort is very low and demoralizing for the marketer,” chipped in Kumar who has been silent until now. “Therefore, one needs to refine and append the data in a database to ensure that critical intelligence is garnered from the database and put to good use. And as Arvind mentioned, we ourselves will be generating our database.” “I recently met the marketing head of Johnson & Johnson who uses a database of pregnant women to send them offers for the purchase of baby care products, and it makes perfect sense,” continued Kumar. “Likewise, a publisher of Hindu mythology related multimedia software gave away free Hanuman Chalisa CDs to create a database of people interested in Hindu mythology. Later, he sent them offers for purchase of a digital rendition of Bhagavad Gita. In this way, databases should be refined to generate significant leads. Looked at from another angle, it fits in with a basic tenet of CRM of choosing the right customers (and therefore being able to serve their needs better). I am confident that we can do this.” “Can we personalize the offers?” asked Shirin. “Surely the next logical step after landing a customer is to understand the individual customer? Each customer has a unique set of needs and demands.” “A mass marketer fails to distinguish the individual customer’s needs but in our case we can certainly mass customize,” answered Arvind. “Let me give you two very different examples. A bookshop treats all customers alike but firstandsecond.com treats each customer as a distinct individual. Say two visitors to the firstandsecond site are interested in books on marketing, the sophisticated site differentiates between them by quickly finding out that one is interested in Brand Management (and shows her books on brand management) while the other’s interest lies in CRM, and pulls those out for him. A traditional bookshop can have just shelves dedicated to management books (or at best Marketing Management).” “Further” added Kumar,”In a recent article in Business Express I read how even traditional companies are finding ways to personalization. To take on international majors like Revlon and Maybelline, Lakme started using CRM. It set up a dozens of beauty salons across the country where it has Lakme beauty advisors who interact directly with customers and advise them. This helps the company get first hand knowledge of customer preferences. As a result sales at the outlets are growing by 42%. This is way above the 10%-25% enjoyed by the 60,000 outlets that sell Lakme products sans advisors. “Everything sounds nice when it is on paper”, said Pandu. “All companies plan to deliver high value to customers but most of them fail when it comes to walking the talk. The factor that separates the good and bad companies is the value delivery process. Take the case of the popular cell phone company Reliance. It lured customers, by promising them the best services at the lowest possible rates. But in a recent survey conducted by IDC (quoted in www.cellphoneusers.co.za), 24 out of 100 Reliance subscribers had complaints with regard to billing. Despite the zany advertisements and high decibel promotions to entice customers, the value delivery process let the customers down. If Reliance, which has both infrastructure and financial support, failed in its CRM initiative, how will a small company like ours succeed?”

Mukesh who was patiently listening to the arguments, remembered something he had learned during an executive development program last year. The professor, an authority on CRM had suggested collaborating with suitable partners was sometimes a viable and better alternative than delivering shoddy services. Mukesh remembered successful partnerships that had worked in India such as rediff.com using Business Standard for the business news section of its portal. Should they follow the partnership route?

The professor also emphasized that the real challenge was to sustain value delivery and build a long lasting relationship with customers. He had raised the example of Fevicol, which reaches out to over 100,000 carpenters through its newsletter that also helps in carpenters bettering their craft.

Breaking off his reverie, Mukesh paid attention to Shirin’s arguments. “With customer attrition rates hitting the roof, the primary challenge for us is to ensure customer retention. It costs about ten times more to acquire a new customer than to serve an existing one. And the key to customer retention is to understand the individual customer’s behaviour and predict her needs and demands. With a proactive effort, we will be able to make the customer immune to competition’s offers at least most of them. “

The meeting was coming to an end. But CFO Pranab was not impressed. “A lot of CRM initiatives end up being glitzy and jazzy but make little impact to customer convenience”, he declared. Arvind felt frustrated listening to Pranab’s views. He thought he had a strong case for Fair Foods to implement CRM. Even though failures of CRM are much talked about, a number of success stories testify to the potential that CRM holds. With his team members not reaching a consensus, the onus was now on Mukesh to take a decision.

Solution

Customer Loyalty: 1. Memberships/ credit/ debit cards

2. having substitutes as options

3. Sticking to quality

With the latest CRM solutions, food service operators can:

Develop comprehensive guest profiles from reservation information and demonstrate that the operation is in touch with their needs.

Drive guest-centric data down to the transaction level, allowing employees using CRM technology to deliver greater value to the guest.

Generate an accurate profile of the spending patterns of guests, allowing the operation to create guest-centric marketing for increased loyalty and spending.

In the pre-Retail Boom days, consumers used to depend on the grocery shops in the neighborhood. Moreover they were more dependent on the shop owner, who were quiet familiar with the needs of his customers. So the customers used to rely mainly on his suggestions regarding new better products launched in the market. This association with the grocer used to bind the customers for years to come.

So in those days these grocers used to follow the same principles that retailers required to be successful: Loyalty, Good Quality and Right Price. But they used to manage this with their own intelligence. With the increase in market volume it has become impossible to a person or a group of persons to keep track of their customers while increased competition and market saturation has led to poaching of competitors’ customers. So came CRM which is nothing but an attempt to regain the customer intimacy. Goal of any CRM is to create and maintain customer loyalty which is less costly to serve and hence more profitable in the long run. Because it may be seen that 30 % of loyal customer may account for 80% of the sales.

Moreover, it helps in increasing operational and marketing efficiency by customizing database marketing, using different techniques like Data Cleansing and consolidation. It also helps in customizing pricing strategy and building offers for individual customers thus increasing interaction and loyalty.

As through CRM customer profiling can be done, so their behavior pattern can be studied in order to give value added service.

The use of such technology also increases the bar of competition, thus shielding the company from competition as customer loyalty thus gained requires a lot of effort from competitors to steal. And this helps the economy for the company better as it is always cheaper to retain than to win a new customer.

So CRM should be used in Fair Foods Ltd. for increasing the revenue per square feet of the stores. But also some more measures should be taken like introducing membership cards and customers should be encouraged to use them through different offers (e.g. discounts or lucky draws) or points given for their use and special prices for bulk purchase. It is through CRM the company should forecast the customers future requirement and plan to increase the product offerings in the stores accordingly.

CRM in place such a retail company can think of better technology like implementation of RFID based solutions in future for further operational efficiency.

3 comments:

Anonymous said...

It is extremely interesting for me to read the post. Thanks for it. I like such topics and anything that is connected to this matter. I would like to read more soon.

ICICI Bank said...

Dear Dibyendu,

Thanks for the mention.

Regards,
ICICI Customer Service Team.

Anonymous said...

Kool.....very interesting post. Like to hear more soon. I like to share one more blog.

http://changemanagementprocess.blogspot.com/

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