The Case Of Customer Retention

SYNOPSIS: Garud Courier Services was just discovering the first rule of customer management: all customers are equal, but some are more equal than others. Focusing on the latter, the company's top management thought, would help it address the customer-attrition problem that it had been facing. Then, it realised that it could use an infotech-enabled technique called Customer Relationship Management to understand the requirements of its customers better, and that it could either design one in-house, or buy one from a vendor and customise it to suit the company's unique needs. Decisions. Decisions. Decisions. Helping CEO Sunil Garg make them are Blue Dart's Malcolm Monteiro, ICICI's Sanjay Sharma, Tata Infotech's H. Vishwanathan, and Global Telesystems' Yash Sahni. A BT Case Study.

The delicious irony of it all was not lost on Sunil Garg, the 42-year-old CEO of India's second-largest courier company, the Mumbai-based Garud Courier Services (Garud). He had just received a letter from Ravi Sharma, the General Manager (Purchase) of Shree Raj Chemicals, a Rs 150-crore manufacturer of leather chemicals, terminating the company's contract with Garud. Garg flipped the letter, and looked at the envelope stapled to it; he didn't know why, but someone in his secretariat obviously believed that, being in the courier business, Garg needed to know not just the message, but the medium too. True enough, just as Garg had guessed, the envelope attached to the ''Dear John'' letter was marked with the distinctive carrier-pigeon logo of Skyway, Garud's arch-rival and the market leader.

The Conceptual Context: From Commodities To Brands

The idea is not new. Ever since trade first began, every marketer has known that the only sustainable long-term competitive advantage a business can have is a base of effectively-managed, reasonably loyal, profitable customers-at least in the aggregate. It doesn't really matter what a business does; its intrinsic value lies in effectively providing something that someone else wants, and is willing to pay for, preferably, over and again.

However, the perception of value in a market changes both over time and across segments. Value is driven not only by customer and market life-stages, but by factors such as changing customer-knowledge, -preferences, and even -habits. Besides, not all companies have the same competitive advantages in delivering value. The key is to find the best fit, and a zone in which the company is most competent to compete and, hopefully, dominate.

To find the best strategies, the business must ask itself some seemingly simple questions: which individual, group, and even market is how valuable to me? Today and in time to come? What is valuable to that individual, group, or market? What can I realistically do to deliver that value at a profit? And, most importantly, how do I manage my customer touch-points and delivery-systems as effectively as possible to ensure my long-term profitability?

Finding answers to these questions is by no means easy when you have hundreds of thousands of customers and millions of transactions. As a result, until recently, for most businesses, finding the answers was really an academic exercise. Even if you had the right ones, there was little you could do to implement the resulting strategies. How could you, for instance, deploy the knowledge of who a valuable customer is and who isn't if you were, say, a hotel chain to tell your front-office staff that he or she be treated with additional care?

The promise of today's CRM technologies is exciting. Raw processing-power and software-capabilities can help you identify and, therefore, invest more wisely in retaining your more profitable customers. Help you clone them onto your prospects-database to define more effective customer-acquisition strategies. Cut back investments on not-so-profitable customers, and identify chronically-unprofitable customers, whom you can then ''lose'' to your competition. Do all this-and more by effectively managing your customers as strategic assets.

Perhaps the clincher in favor of implementing CRM comes from the Net. With on-line customers, databases, and profiles; real-time customer interaction management; and active content, successful companies will be those who understand their customers best, and can leverage that knowledge most effectively to their own benefit. CEOs, in brief, who are expert practitioners of CRM.

There is a chance that, even as you read these words, someone is about to change the dynamics of your business. Someone who understands your customers better. Who can deploy this understanding to dominate the profits potential of your market. Chances are this is someone who understands the potential of CRM and the Net. Can you afford to ignore this possibility? Perhaps you can. Then again, perhaps you cannot.

Think about it.

As a CEO who took pride in his hands-on style, Garg was aware of the numerical significance of the letter: the number of customers Garud had lost in the last 2 years, between 1996 and 1998, had now reached 352. The company had, however, managed to add 400 new accounts during the same period, ensuring that the total number of customer accounts remained roughly the same at 7,500. But there was a common thread running through several of these 352 companies that worried Garg: half were medium-sized enterprises, and 1 in 4 had moved from Garud to Skyway.

Garg was aware that customer loyalty wasn't particularly high in the courier business. At the low end of the market, customers looked at cost and physical access, and at the high end, at speed of delivery and quality of service. Garud didn't expect to be able to compete with the large number of small companies crowding the low end. But the company wished to acquire the resilience to manage churn at the high end.

It wasn't that Garud didn't know the reason for this fragmentation. Companies, typically, used the services of different couriers for different services. A company using one courier to reach locations within the country would opt for another for destinations without. Or it would tap one courier for customised services and another for standardised ones. The obvious solution-providing a comprehensive range of services to all its clients-had not escaped the managers at Garud. Only, they had never got around to exploring the modalities of it, and developing the operational expertise to do so. It had been a mere 6 weeks since Garg had asked Gopal Rana, Garud's Vice-President (Marketing), Kiran Patel, its Vice-President (Finance), and Abhay Khurana, its General Manager (Customer Service), to find out just what it would take to become all things to all people.And how much it would cost to do so.

The idea suggested itself to Rana, a 32-year-old MBA from the Indian Institute of Management, Ahmedabad, who had cut his teeth marketing toothpaste to the masses, at a watering-hole. Patel, Khurana, and he, all roughly in the same age-group-Patel was 36, and Khurana, 29-and from a similar background-the other two were MBAs too-had hit it off from the moment they started working together; again, within a few months of each other. They were excited at the prospect of finding a way to improve their customer service and grow the business. So, when, at the end of their preliminary meeting, Rana suggested retiring to a nearby pub for a quick drink, Patel and Khurana welcomed the idea.

The one quick drink became two slow drinks as the conversation veered around the new house Rana was buying, Khurana's impending marriage, and Patel's 7-year-old daughter's prowess at tennis. When it was time to leave, Rana offered to pick up the tab. ''I am eligible for a 30 per cent discount every time I eat here since I am a member of their first citizen's club,'' he said by way of explanation. And then it hit him. ''Why don't we do something similar?'' he asked Patel and Khurana.

His logic was, as always, impeccable. Garud could not offer a comprehensive range of services to all its customers. But it could do so to its high-value customers. Rana's definition of high-value customers: those who billed more than Ra 1 lakh a month. This filter pared down the number of relevant customer accounts in Garud from 7,500 to 600. But these accounts-the majority from medium and large companies-accounted for more than 60 per cent of the company's turnover. Another round of refills was ordered as the 3 decided to thrash out the details.

Patel was not sure whether revenues should form the basis for deciding high-value customers. ''We cannot afford to ignore the profitability factor,'' he said. ''We should limit our focus to the top 200 customers who generate both revenue and margins. These are the people who should be willing to pay a premium for quality service. Eventually, the 3 decided that the focus of their customer-retention initiatives would be the top 200 customers in terms of revenues and profits after accounting for seasonal variations; and high-profile customers who did not contribute much in terms of sales volume but had a positive rub-off on the company's image.

Help came from an unexpected source: a note from Anil Kamath, the company's Vice-President (HRD), addressed to Rana:

I know you are working on a proposal for a customer-retention plan. I was interviewing a hr manager from Skyway for a position with us. In the course of the interview, he explained their retention blueprint. Skyway has 20 cross-functional teams working on customer-retention. A typical team comprises 3 people-one each from marketing, finance, and customer service-and handles 8 to 10 corporate customers. The performance of these teams is measured on 2 parameters: repeat business from existing customers, and new business generated through customer-referrals. Indeed, I understand that all managers in Skyway are rated on an annual Customer Satisfaction Index (CSI), and that 20 per cent of their incentives is linked to their individual CSI score.

I have some experience with such indices. I remember that we tried to develop one when I was with the Hindustan Development Bank. The research-agency we commissioned to do this used a 4-D model, called rare, to rate the performance of the bank's counter-staff:

While all 4 are relevant measures, none, we found, was easily quantifiable. And the difference between 2 successive ratings was, often, quite large even in the absence of any significant initiatives to improve customer service.

Keeping this in mind, I have started working on a CSI for Garud. It is a fairly ambitious index, incorporating about 20 quantifiable measures. I shall discuss this with you once it is ready. Finally, I believe that Skyway has developed an in-house software that helps it track the needs of its customers on a regular basis. I have also read some articles on a ERP-like package called Customer Relationship Management that does the same. Do you think the solution to our problems lies in that direction? Hope this is of some use.

It was. A week after Kamath's note was received by Rana, a spotless white Fiat Sienna drove up to the entrance of Garud's modest corporate office in downtown Mumbai. A waiting executive whisked away the car's sole passenger, a rather-studious-looking individual, to a conference-room on the second floor of the building where Rana, Patel, and Khurana were waiting for him.

''Thanks for coming, Harish,'' said Rana. ''This is Harish Bhasin,'' he continued, turning to Khurana and Patel, ''the CEO of Integer Consulting, the No. 1 CRM consulting company in the world. He is here to give us a crash-course on CRM, and answer our queries. Harish, this is Abhay, our General Manager (Customer Service), and this is Kiran, our Vice-President (Finance). The floor is all yours.''

''Thanks, Gopal,'' began Bhasin. ''When a company has a large base of customers and is operating in a high-volume scenario, as Garud does, the key to survival is standardisation. At the same time, the key to competitive advantage is differentiation. That is where customisation and CRM come in. When a company customises, it finds itself having to manage a series of trade-offs: between costs and revenues, for instance, and between current losses and future profits. So, it is important to limit the exercise to a select band of customers who can meet your business goals...''

Rana interrupted Bhasin at this stage: ''Let's say we have a database of 600 customers we wish to retain at any cost. How does CRM help us retain them?''

''I am a little surprised by your choice of words, Gopal,'' said Bhasin. ''At any cost, you say. Well, how far would you go to retain customers? You need to be clear about your basics. Without that clarity, the database will not be in sync with your business goals. In fact, most failures in CRM can be traced to this. There are other issues you must consider. What kind of infotech interfaces would you need? Do you want to enable access to the database from different locations? What kind of firewalls should you provide? How does CRM help? It helps you understand the customer's needs by developing a profile of each of your customers on the most frequent destinations, ordering-schedules, delivery-timings, priority-patterns, and special requests. You can use the data to suggest alternative routes, faster delivery-mechanisms, and the bundling of packages. The options are unlimited...''

''But do we need a software package to track customer needs?'' interrupted Khurana. ''We do it regularly any way. For instance, we came to know that the Cincinnati-based Edward Pharma Inc., a key customer of Garud, would conduct field-trials for a new drug it was to launch worldwide in 2005 in India. We offered to deliver pathological samples of 200 volunteers from 75 locations in India to the company's R&D centre at Manila within 24 hours. And we did this every alternate day for 2 years. The company saved the costs associated with setting up a testing-centre in India amounting to nearly Rs 3 crore.''

Bhasin smiled: ''That is what we call a life-stage trigger-point in CRM lingo. You caught one. CRM will ensure that you catch all.''

''That's impressive,'' said Patel, ''but how much will we have to invest in setting up a CRM system?''

''If we are looking at a customer-base of 600 and, say, about 20 interfaces, the cost of the hardware and the software would be around Rs 35 lakh. There are other costs, like training. Of course, you can design it in-house if you have a fairly competent infotech department. But only as long as the project is headed by a senior manager, who can bring in the business perspective. One of the first issues that you will have to tackle is data-cleansing. You need to build a database that is uniform, reliable, and provides a consistent view of the customer. This is by no means an easy task. Thanks to tools like data-warehousing, you can, usually, install a CRM and get it moving in about 4 months.''

After discussing their findings with Garg, the team recommended that Garud develop and implement a CRM package in-house. With Garg's mandate, Rana commandeered the resources of the company's infotech department and, actually, managed to develop a CRM package. However, it was while implementing it that Garud ran into problems. The system was generating huge amounts of customer data, like usage- and destination-patterns, without coming up with insights on the customer that the company could leverage to improve its service-quality. Six months after implementing CRM, Garud was still losing customers.