Chapter 2 Literature Review
2.6 Strategic 4C Analysis of CRM Tactics Used by Retailers in Taiwan
Figure 2-10 Occurrence of Asset Specificity (Chiou 2010)
2.6 Strategic 4C Analysis of CRM Tactics used
Chiou (2010) proposed a strategic 4C model that provides a comprehensive and applicable framework for marketers to strategically and objectively review how actions implemented have solved the efficiency of marketing exchange so that tactics are aligned with strategy and resource. 4C refers to 4 major types of costs that influence on the efficiency and effectiveness of marketing
exchange, which includes (1) Explicit unit-utility cost; (2) Information search cost; (3) Moral hazard cost; (4) Asset specificity cost. The lower these four costs are, the more willing customers are to exchange with sellers, resulting to better efficiency of marketing exchange.
Explicit unit-utility cost is the total utility that a customer received comparing with cost paid, which is the first cost that customer will compare with options from rivals. Thus, the lower unit-utility cost is, the more competitive a company, a CRM program or a product is. This type of cost is an explicit cost and also called C1 cost.
However, Chiou (2010) observed in many practical cases that many products have low explicit unit-utility cost (C1) but it is not necessarily that they will
No Asset Specificity Cost
Asset Specificity Cost Established
Asset Specificity Cost Increase
Before Exchange After Exchange
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always be accepted by the customer. Chiou (2010) believes that there are three types of implicit costs that influence the customer’s decision, which are information search cost (C2), moral hazard cost (C3) and asset specificity cost (C4).
Information search cost (C2) is the cost that the customer needs to invest time or money on collecting more information in order to reduce information
asymmetry. The lower this cost is, the better will be for customer.
Moral hazard cost (C3) is the cost of risks. Whether the seller keeps its promise on delivery or product working as claimed is a risk cost that the customer would bear in mind. The lower this cost is, the better it is for the customers.
The last type of 4C, asset specificity cost, or called C4 is the hold-up cost after the completion of transaction. This switching cost is formed as both sides invest tangible or intangible asset on it. When this relationship ends, so does this asset. Loyalty point awarded from loyalty scheme is an example of this type of cost.
The lower these four costs are, the better efficiency of marketing exchange before transaction is. The higher the asset specificity cost (C4) is, the higher hold-up force is toward the customer.
This research has studied the some common CRM tactics used by top
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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
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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