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Dr Kaushik Mukherjee |
May 03, 2005
Get Ahead presents the TCS Smart Business Case Study Contest for young managers, along with The Smart Manager, the management magazine! We give you a profile and history of a company. All you have to do is study it and post your solution here, upto 500 words. The winning solution stands to win Rs 25,000! The Smart Manager will also publish your photograph and solution in its next issue! Hurry! The last date to post your solution is May 20.
air 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. Its ERP system tracks food items that 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 use the data mining techniques to increase wallet spend. He had studied in London and experienced, firsthand, the loyalty programmes and CRM initiatives used by large chains like Waitrose and Sainsbury.
Arvind is convinced that Fair Foods' topline and bottom line 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 programme. He understands 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 brainstorming 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 ago. 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 ICICI has developed ATMs, phone banking, internet banking, 8 AM - 8 PM banking, etc. Other banks are trying to emulate them but they will always play catch-up. 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 practise 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, "but I am sure you must be aware of the fact that IBM 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 refuses to be goaded. Keeping his expression amiable, he responds, "Yes, I read the report thoroughly. It also points out that the success rate can be improved to as high as 80% through proper business process methodology and prioritisation. As the 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, not just its own hardware. We have seen how Airtel is fulfilling more customer needs by tying up with Blackberry and adding e-mail communication to its telephony services.
"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 computerised system which tracked every item we sold. Today, because more and more customers are paying by credit card, 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?" asks 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," adds 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 there is blatant abuse and misuse going on around us, that this gives a bad name to database marketing besides being an appalling waste of our database. Needless to mention, the success rate of this effort is very low and demoralising for the marketer," chips 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," continues 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 we can do this."
"A mass marketer fails to distinguish the individual customer's needs. But in our case, we can certainly mass customise," answers Arvind.
"Let me give you two very different examples. A bookshop treats all customers alike. But www.firstandsecond.com treats each customer as a distinct individual. Let's 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 could just have shelves dedicated to management books (or at best Marketing Management)."
"Further," adds Kumar, "In a recent article in Business Express, I read how even traditional companies are finding ways to personalisation. To take on international majors like Revlon and Maybelline, Lakme started using CRM. It set up 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 firsthand knowledge of customer preferences. As a result, sales at the outlets are growing by 42%. This is way above the 10% to 25% enjoyed by the 60,000 outlets that sell Lakme products sans advisors.
Mukesh, who was patiently listening to the arguments, remembered something he had learned during an executive development programme last year. The professor, an authority on CRM, had suggested that collaborating with suitable partners was sometimes a viable and better alternative than delivering shoddy services.
Mukesh remembered successful partnerships that had worked in India, like www.rediff.com, using Business Standard for the business news section of its portal. Should they follow the partnership route?
The professor also emphasised that the real challenge was to sustain value delivery and build a long-lasting relationship with customers. He had cited Fevicol, which reaches out to over 100,000 carpenters through its newsletter that also helps carpenters better their craft.
Shirin continues, "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 his/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 is not impressed. "A lot of CRM initiatives end up being glitzy and jazzy but have little impact on customer convenience," he declars.
Arvind is frustrated listening to Pranab. He thought he had a strong case for Fair Foods to implement CRM. Even though CRM failures 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 is now on Mukesh to take a decision.
This is your question:
Is CRM a viable option for Fair Foods Limited? What should Mukesh Dikshit do?
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Published with the kind permission of The Smart Manager, India's first world class management magazine, available bi-monthly.