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modern-trade retailers in Taiwan (Appendices 8 Carrefour HaoKang
Card-Appendices 24 Extra point item). Each tactic has been analyzed from 4C perspective in order to understand the primary or secondary effects that these tactics can produce. These tactics are summarized by the sequence of 4C effect as below (Table 2-8 4C analysis on common CRM Tactics within CRM program of leading modern trade retailer in Taiwan):
Tactics reduce customers’ cost (C1c): cash discount related tactics directly help reduce customers’ cost to pay (C1c) as customers enjoy immediate benefit from cost reduction. cash discount, immediate cash discount on counter product, point redemption for cash discount, point redemption for gifts, point redemption for member price item, birthday month discount are examples of common tactics used.
Second type of tactics that reduce customers’ cost (C1c) is coupon related tactics that provide extra value that allow customers to reduce cost to pay, such as online coupon, coupon passport, and target POS coupon.
Tactics increase customers’ utilities (C1u): E-commerce, mobile app, member-exclusive check-out counter, card personalization design service increase customers’ convenience to shopping, and thus provide more utilities to customers.
Tactics reduce customers’ information search cost (C2): E-commerce, mobile app, direct mailed DM, internet website, and social network
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increase the communication efficiency between card members and CRM programs.
The other type of tactics are target POS coupon, member price and extra point items which may help get customer’s attentions on product selection process, and thus have secondary effects on reducing information search cost (C2).
However, the primary effect that these types of tactics bring to the customers is cost to pay (C1c). Customers pay attentions to these
‘selected’ items due to the benefits provided from these tactics.
Tactics increase customers’ asset specificity cost (C4) after transaction:
Member related activities and club are examples of tactics that help building relationship with customers.
The other type of tactics increase customers’ asset specificity cost (C4) are point reward related tactics, which help customers perceive value when points are rewarded to them.
After transaction is finished, the points that customers earned become the hold-up costs for customers and thus this force drive customers to the store again. However, this force is vanished when customers redeem their points in the next trip.
Therefore, the primary effect that this type of tactics produce is to reduce
‧
cost to pay (C1c) and secondary effect is building up asset specificity cost (C4) cost after transaction is completed. Point reward, point multiplication, double points on the use of co-branded credit card inside the store or outside the store outlets, extra point items are the examples.
Table 2-8 4C analysis on common CRM Tactics within CRM program of leading modern trade retailer in Taiwan (data source: Appendices 8 Carrefour
HaoKang Card-Appendices 24 Extra point item)
Note:
1. Downward arrow sigh (↓): reduce; Upward arrow sign (↑): increase 4C cost
C1
(c)C1
(u)C2 C3 C4
Cash deduction
↓↓Immediate cash discount on counter product
↓↓Member day- discount
↓↓Point redemption for cash discount
↓↓Point redemption for gift
↓↓Point redemption for member price item
↓↓Birthday month discount
↓↓Coupon Passport
↓↓Online Coupon
↓↓Point Reward
↓↓ ↑Member day- point multiplication
↓↓ ↑Points reward on Co-branded card with
external shops
↓↓ ↑Double points on Co-branded card
↓↓ ↑Member Price
↓↓ ↓Extra-point item
↓↓ ↓ ↑Target POS Coupon
↓↓ ↓↓E-commerce
↑↑Mobile App
↑↑ ↑↑Member exclusive check-out counter
↑↑Card design service
↑↑Direct mailed DM
↓↓Internet Website
↓↓Social Network
↓↓Member relational activity
↑↑Club
↓↓ ↑↑CRM Tactics
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2. Double arrow sign (↓↓): primary effect in increase /reduce 4C cost 3. Singe arrow sign (↓ or ↑): secondary effect in increase /reduce 4C cost 4. Blank: effect on reducing 4C cost is not obvious
From strategic 4C perspective, leading modern trade retailers tend to
concentrate their CRM programs resource on reducing overall cost (C1) and information search cost (C2), less address on reducing risk cost (C3) and asset specificity cost (C4) (Table 2-9 Strategic 4C analysis of CRM tactics used by retailers in Taiwan).
For example, Carrefour, the largest hypermarket in Taiwan, uses point mechanism to reduce customers’ cost to pay (C1c) and use member-only check-out counter and mobile app to increase customers’ utilities (C1u). In addition, Carrefour is more involved in using target actions to communicate with its members and thus reduce customers’ information search cost (C2) such as direct mail, social network, mobile app, and online, target POS coupon, etc.
Among these target actions, it is worth noted that Carrefour is capable of personalizing its offer at point of sales (POS) and online, implying that it may have higher level of customer insight and analytics. Generally, linking large customer database with point of sales (POS) system and being able to personalize offer requires tremendous investment on retail and relational technology as well as analytics.
In terms of reducing moral hazard cost (C3), Carrefour has a call center equipped with systems that handles complaints and contact history, which
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links to loyalty point systems, and customer management system.
To fine-tune the CRM program and tactics focus, this French retailer should consider aligning its resource to reduce reducing moral hazard cost (C3) while build up asset specificity cost for customers (Table 2-9 Strategic 4C analysis of CRM tactics used by retailers in Taiwan).
PX-mart, the largest supermarket chain store in Taiwan, chooses to keep only basic point mechanism, without inventing more tactics on reducing C1.
PX-mart now is testing possibilities on C3 and C4 by creating Beauty & Health Club online (Table 2-9 Strategic 4C analysis of CRM tactics used by retailers in Taiwan).
Different from other retailers in this study, 7-eleven, the largest convenience chain store in Taiwan, is operating two loyalty schemes simultaneously:
stamps program and iCash card program.
Due to the nature of an anonymous card program, iCash is limited to traditional point mechanism and incapable of target communicating and offer. Both schemes focus on reducing customers’ cost to pay (C1c). 7-eleven is using its e-commerce platform to break through this obstacle.
Overall, 7-evelen as a brand continues to innovate on providing convenience to drive customer in store. Therefore, convenience store segment obviously is competing on providing customers with convenience (C1 utility). However,
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7-eleven might have invested a bit more resources on cost to pay (C1c) tactics.
Therefore, to fine-tune the CRM program and tactics focus, 7-eleven should consider shift its loyalty scheme focus to reduce moral hazad cost (C3) and increase asset specificity cost (C4) (Table 2-9 Strategic 4C analysis of CRM tactics used by retailers in Taiwan).
Watsons, the largest drug store chain in Taiwan, seems to be engaged deeply in unit-utility cost (C1), especially on reducing customers’ cost to pay (C1c), rather than improving utility (C1u)
This resource deployment might bring unexpected side-effect to the customers.
Take Watsons’ member benefit for example: immediate cash discount on counter product. Once a customer becomes a member of Watsons, this member will enjoy a year-round 10% discount on all counter products.
This action though can lower customers’ cost to pay (C1c) in the short run, but may also increase customer’s perceive risks, a moral hazard cost (C3) as customers may see this tactics only as a promotion in different form. In worst case, customer may consider Watsons’ price image not trustable (Table 2-9 Strategic 4C analysis of CRM tactics used by retailers in Taiwan).
Another example of Watons’ member benefit is is Member day’s point
multiplication, which is a periodical point reward events for member on every
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Saturday. The original purpose of this event was to create C1 advantage so that Watsons members would feel favorable being as member; however this periodical event may, in contrary, create another hold-up force that attract member to purchase ONLY on Saturday rather on the rest of days. Retailer, like Watsons, should be carious with this type of tactics design.
Besides deploying heavily resource on C1 tactics, Watsons has adopted different channels to communicate with customers in order reduce information search cost (C2). In addition, Watsons has been active using celebrity as its agent of loyalty scheme. Every year Watsons would select a few VIP members to join celebrity reunion. This is a good example of C4.
To be better fine-tune the CRM program and tactics focus, it is suggested for Watsons to take long-term perceptive to operate this relational campaign as routine rather than a one-off event so that more opportunities can be created to dialogue directly with customers and build up this asset specificity with
customers in the long term.
Costco, the leader of warehouse club in Taiwan, is a largest club program itself.
It selects the specific customer segment by requiring annual membership fee and therefore Costco has already good advantage on information search cost (C2). Current practice of CRM tactics used by Costco remains on reducing customers’ to pay (C1c) and less on other three types of 4C cost (Table 2-9 Strategic 4C analysis of CRM tactics used by retailers in Taiwan).
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To fine-tune CRM program in the long run, Costco should continues to use its customer database to understand their customers better and leverage these insights and design club activities for building long term relationship with customers.
In summary, this study observed that loyalty schemes reviewed play limited roles on using loyalty scheme as strategic tool for relationship building.
Instead, many of them in seems to use loyalty scheme as promotional tool.
Retailer should stop and review its current program to understand where it is and map out where to go (Table 2-9 Strategic 4C analysis of CRM tactics used by retailers in Taiwan).
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Table 2-9 Strategic 4C analysis of CRM tactics used by retailers in Taiwan
C1(c) C1(u) C2 C3 C4
Point Reward
↓↓ ↑
Double points on
Co-branded card ↓↓ ↑
Points reward on
Direct mailed DM ↓↓
Internet Website ↓↓
Online Coupon ↓↓
Target POS Coupon ↓↓ ↓↓
Mobile App ↑↑ ↓↓
Social Network ↓↓
Point Reward ↓↓ ↑
Coupon Passport ↓↓
Direct mailed DM ↓↓
Internet Website ↓↓ member price item ↓↓
Point redemption for
gift ↓↓
Card design service ↑↑
Internet Website ↓↓
E-commerce ↑↑ ↓↓
Social Network ↓↓
CRM Tactics 4C analysis
2 Costco Gold Star Card Co-branded
Credit Card 1 Carrefour Hao-kang Card
Co-branded Credit Card No. Company CRM program
3 PX mart FreeCard
4 7-eleven iCash Card Stamps program
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1. Downward arrow sigh (↓): reduce; Upward arrow sign (↑): increase 4C cost 2. Double arrow sign (↓↓): primary effect in increase /reduce 4C cost
3. Singe arrow sign (↓ or ↑): secondary effect in increase /reduce 4C cost 4. Blank: effect on reducing 4C cost is not obvious
2.7 Proposed Diagnostic Framework
This research takes Davenport and Harris’ (2007) analytical maturity model and Chiou’s (2001, 2006, 2010) strategic 4C model to develop a diagnostic framework for CRM programs in the retailer sector.
Diagnostic framework is a two-step analysis that first uses analytical maturity model (Davenport and Harris 2007) to define a retailer’s level of analytics and classify its analytical stage. Analytical maturity model was built based on literature and data across different industries and thus their definitions are applicable to define retail industry.
C1(c) C1(u) C2 C3 C4
Direct mailed DM ↓↓
Internet Website ↓↓
E-commerce ↑↑ ↓↓
Social Network ↓↓
CRM Tactics 4C analysis
No. Company CRM program 5 Watons Pamper Card
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Second, for each of analytical stage, strategic marketing 4C model (Chiou 2001, 2006, 2010) is applied to analyze CRM program and to identify the priority This chapter is thus structured in this sequence.
Figure 2-11 A diagnostic Framework for CRM Program in Retail
Analytically Impaired Organization
Davenport and Harris (2007) defines stage 1 analytically impaired organization as companies that have some desire to become more analytical but lack both will and skill to do They may lack the hardware, software, and skills to do substantial analysis, and their senior management may also lack any interest in analytical competition. Key question often asked by companies of this stage is what happened in their business. This stage is also called “flying blind stage”
as companies of this stage have neither distinct capability nor customer insight
C3
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
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generated from data.
By this definition, retailers in Taiwan who are still in their early stages of business are suitable to be classified as analytical impaired origination;
Retailers of this stage hardly have capability or resource in operating a CRM program as they lack the will and skill to do so.
It is advised to get accurate data to improve operations as the first goal for stage 1 organization (Davenport and Harris 2007).
Retailer at this stage may consider to start with collect customer data via any form of CRM program. For example, stamps scheme or proof of purchase are two options that are relatively simple, quick to implement and require less resource; however, both types lack the level of insight to support them in the long run (
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Table 2-10 Loyalty Scheme Options at different analytical stage (data source:
summarized by this study)).
Localized Analytics Companies
Localized analytics companies are companies do analytical works in some areas but not enough to affect the compans’ competitive strategy. Questions they care about are like what they can do to improve this activity or how they can understand their business better. What they primarily lack is any vision of analytical competition from senior executives. Even for those companies that have some of the same technology as firms at higher stages of analytical activity, but do not put it to strategic use will be grouped in this category (Davenport and Harris 2007).
By this definition, many retailers in Taiwan would lie in this category, such as PX mart (supermarket), 7-elevent (convenience store) and FamilyMart (convenience store), Cosmed (drug store), A-Mart (hypermarket).
Retailers at this stage are suggested to set goal to use analytics to improve one or more functional actives (Davenport and Harris 2007).
Retailers at this stage should have ability to lunch some type of CRM programs on their own, for example, anonymous card base scheme can be an option.
For those would like to rely on analytical support from third-party partner, such as banks or independent loyalty scheme partner, they may consider
co-branded credit cards scheme or, cross-category promotion scheme due to their short time and resource required to implement (
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Table 2-10 Loyalty Scheme Options at different analytical stage (data source:
summarized by this study)).
Analytical Aspiration Organization
Stage 3 organizations, “the analytical aspirations”, realize the importance of analytics, have visions and ambitions to compete on this basis, yet have not started the implementation. Often, organizations at this stage still have difficulties mounting a cohesive approach to analytics across the enterprise (Davenport and Harris 2007).
By this definition, Stage 3 retailers should have ability to begin efforts for more integrated data and analysis and may already have data at customer level, rather than transaction level only, and thus some level of customer insight is expectable if they have comparable analytical capabilities as stage 3 retailers.
Many CRM programs at this stage may exist in the form of co-branded credit card scheme, cross-category promotion scheme, and anonymous card-based scheme and some may be readily to operate its own registered card-based programs.
From point of view of analytical maturity model, retailers at this stage should set objective to use analytics to improve a distinctive capability (Davenport and Harris 2007). Consequently, retailers at this stage may consider migrating their CRM programs into a high insight level, retailers with anonymous card-based
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scheme or cross-category promotion scheme should consider turning their CRM programs into a registered card-based one in order to get more customer insights.
Analytical Companies
Stage 4 organizations, “the analytical companies”, are in transition to analytical competition but still face some challenges to get to stage 5. They have skills but lack the will to compete on this basis, do not consider analytics as firm’s strategic competencies yet, or senior management are not passionate about competing on this basis (Davenport and Harris 2007).
Applying this definition into retail industry, a stage 4 retail company, has enterprise-wide perspective, is able to use analytics for point advantage, thinking of use analytics for innovation and differentiation, and with medium level of customer insight.
Retailers at this stage may have ability to use their loyalty and customer data to segment their customers, understand their purchase preference, and target different segment groups with different treatment and communication.
Most of retailers of stage 4 should be already have registered card-based scheme and therefore, they may consider to migrate to CRM-capable loyalty Scheme (
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Table 2-10 Loyalty Scheme Options at different analytical stage (data source:
summarized by this study)).
In addition, Davenport and Harris (2007) suggests stage 4 organizations to set goal to build broad analytical capabilities for differentiation in order to migrate to next analytical stage.
Analytical Competitors
Stage 5 organizations, “the analytical competitors”, supported by analytics, have distinctive capabilities that set them apart from competitors. They are taking an enterprise-wide approach, and their executives are committed to analytics and their analytical initiatives are ambitious enough to produce financial nonfinancial results (Davenport and Harris 2007).
By this definition, analytical retailers should focus on building broad analytic capability for differentiation. Consequently, stage 5 retailers should be able to operate a CRM-capable loyalty scheme and analyze its enterprise-wide CRM data for innovation and differentiation and building true relationship with customers. When a loyalty scheme reaches to this stage, it becomes a genuine CRM program (
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Table 2-10 Loyalty Scheme Options at different analytical stage (data source:
summarized by this study)).
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Table 2-10 Loyalty Scheme Options at different analytical stage (data source:
summarized by this study)
Note:
Suggested: suggested options, according to analytical capability, for retailers at each analytical stage.
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Analytically
Operational Level No data Transaction level
Customer level Customer level Customer level
Customer knowledge No Limited Low Medium High
Stamps Scheme Suggested
Proof of Purchase
Scheme Suggested
Anonymous
Card-based scheme Suggested Suggested
Co-branded Credit
Cards Suggested Suggested Suggested Suggested
Cross-category
promotion scheme Suggested Suggested
Registered Card-based
scheme Suggested Suggested
CRM-capable Loyalty
Scheme Suggested Suggested
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Chapter 3 Current state of CRM program in retail industry
More and more industries are adopting customer-centricity as part of success formula to business. Now this trend comes to retail industry. 75% of retailers believe customer-centricity is a “top three success factor” and 80% of retailers expect an increased focus on consumer centricity in 2009 (IDC 2009).
Loyalty scheme has become an important tool of CRM designed to identify, reward, and keep profitable customers (Kumar, Reinartz 2007). For same reason, virtually every industry has been adopting loyalty (Kumar and Reinartz 2006).
Many retailers begin with the development of loyalty scheme as their first step to anchor the relationship. The growth of loyalty scheme has been obvious in the U.S. Currently, four out of five American over 18 (84 percent) have at least one retail loyalty card, up from 74 percent in December 2010 (ACI Worldwide Study 2011).
It seems this trend is still upward. Recently, Staples, the world’s largest office products company recently launched a new customer loyalty scheme in France (Market Watch 2012), a market that is already full of rivals CRM programs. Combined with these observations, it is expectable that these trends will continue to move upward in the near future.
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3.1. Global Trends in Retail CRM programs
This study also discovered this increasing obvious trend globally. 7 out of 10 world’s largest retailers now are offering some forms of CRM programs. Most of them started with loyalty programs, the most primitive form of today’s sophisticated CRM programs (Table 3-1 Adoption among Global Top 10 Retailers (data source: summarized by this study)). The following analysis attests to this growth.
Table 3-1 Adoption among Global Top 10 Retailers (data source: summarized by this study)
Wal-mart, the world’s largest retailer has not had a named CRM program in the past to drive customer loyalty. Instead, Wal-mat has been focused on working
Retail Sales
16 No loyalty scheme
2 Carrefour S.A. France $121,519 Hypermarket/Sup ercenter/Supersto re
33 Carrefour loyalty card Program
3 Tesco PLC UK $94,244 Hypermarket/Sup
ercenter/Supersto re
13 Club card Program
4 Metro AG Germany $89,311 Cash &
Carry/Warehouse Club
33 Metro Loyalty Card Program.
5 The Kroger Co. US $82,189 Supermarket 1 My Kroger Plus
Program
6 Schwarz
Unternehmens Treuhand KG
Germany $79,119 Discount Store 26 No loyalty scheme.
7 Costco
Wholesale Corporation
US $77,946 Cash &
Carry/Warehouse Club
9 Costco membership Program
8 The Home Depot, Inc.
US $67,997 Home
Improvement
Improvement