Customer Loyalty & EVA by John Durr

HenleyMBA Part

3 HENLEY MANAGEMENT COLLEGE

Student John Durr, 2286/1999

Dissertation:

TITLE

EV+ or EV -, Profitable customer retention, toward a better model for loyalty programmes

“Creating profitable loyalty programmes, using EVA principles in the lead-acid battery industry in South Africa”

Table of Contents: 1. INTRODUCTIO N 1.1 An Overview- Autotech and the South African Lead-acid Battery Industry 1.1.1 The product 1.1.2 The industry 1.1.3 The Organisation

3 3 4 4

1.2 Aims and objectives of the dissertation 1.2.1 The principle aims 5 1.2.2 Key objectives of this dissertation 6 1.2.3 Problem Statement 7 1.2.4 Limitations and Constraints 8 1.2.5 Advantages for Autotech 9 1.3 Initial Interviews 1.3.1 EVA Topic experts 1.3.1.1 Stern Stewart Interview 1.3.1.2 Delloitte & Touche Interview 1.3.2 Organisational Approach to Loyalty Marketing and EVA 1.3.2.1 The Managing Director 1.3.2.2 The Chief Information Officer 1.3.2.3 Finance 1.3.2.4 The Account Executives (AE’s) 1.3.2.5 System Barriers 1.3.2.6 Transformation within the organisation

Literature review

2.1

Introduction

10 10 10 10 11 11 11 12 12 12 13

2.6

Summary of Literature review 42 2.6.1 Introduction 42 2.6.2 Retention Marketing 42 2.6.3 Relationship Marketing (RM) 43 2.6.4 Defining Loyalty 44 2.6.4.1 Those concerned with the scope of LM 44 2.6.4.2 Those dealing with concepts of LM 45 2.6.4.3 Those that attempt to describe the processes of LM. 45 2.6.4.4 Those dealing with LM technologies 45 2.6.5 Measuring LM 46 2.6.6 What is EVA? 46

Methodology and Field Work Organisation

3.1

Choice of respondents 47

2.2 What is Loyalty Management? 2.2.1 Retention Marketing 2.2.2 Application in mature/declining industries 2.2.3 Relationship Management (RM)

15 15

3.2

Confidentiality and feedback 48

19 20

3.3

2.3 Defining Loyalty 2.3.1 The Scope of Loyalty Marketing (LM) 2.3.2 Concepts in LM 2.3.3 Processess of LM 2.3.4 Technologies in LM

22 22 28 30 33

Customer Questionnaire/Survey 48 Purpose 48 Assumptions and content 48 Data collection 49 Data interpretation 49 Treatment of comments 51

2.4

Measuring Loyalty Marketing (LM) and Relationship Marketing (RM) 2.4.1 Measuring Lifetime Value (LTV)

2.5 What is EVA? 2.5.1 Measuring Economic Value Added 2.5.2 The viable EVA centre

3.3.1 3.3.2 3.3.3 3.3.4

34 35 38 40 41

3.3.5

3.4 Inductive customer interviews 3.4.1 Purpose 51 3.4.2 Assumptions and content 51

Draft dissertation- John Durr 2286/1999

3.4.3 3.4.4

Data interpretation 52 Treatment of comments 52

3.5

Stern Stewart Interview 53

3.6

Management reports 53

3.7

Literature Review 53

3.8

Integrating the Literature and the Fieldwork 53

3.9 Suitability of the Methods Chosen 3.9.1 Customer Questionnaire 54 3.9.2 Inductive Interviews 54 3.9.3 Management reports 54

Draft dissertation- John Durr 2286/1999

Results of the Research

4.1

Introduction

4.2 Demographics 4.2.1 Ownership of the outlets 4.2.2 Segmental Differences 4.2.3 Buyer involvement 4.3

55 56 56 57 59

Is the South African Lead-acid Battery industry ready to transact in an electronic environment? 60

4.4

Do loyalty programmes support retention marketing efforts in the lead acid battery industry in South Africa? 4.4.1 Current reward systems- membership 4.4.2 Current reward systems – benefits 4.4.3 Service level dimension

63 63 65 71

4.5

Is EVA a sound basis for the measurement of any reward allocations? 77 4.5.1 Rewarding cost and value drivers 77 4.5.2 The Cost of Capital 78

4.6

Implementation Concerns

4.7

Advantages of the Programme for Autotech

Conclusions and Recommendations

5.1 Recommendations 5.1.1 Identify 5.1.2 Differentiate 5.1.3 Interact 5.1.4 Customise

81 81 82 82 83

5.2

Personal Development

5.3

Limitations of the Findings

5.4

Future research

Bibliography

Appendices

Customer Survey Questionnaire integrated with Inductive Customer interviews

South African Automotive battery, Market trade Split

3. 4.

Customer Profitability Model (Mills et al example) EVA Performance Statement for Account Executives

5. 6. 7. 8. 9. 10. 11.

EVA Flat File Report off operating system What is the Balanced Scorecard? Motivation and Reward, psychological theories Data population, extract from Excel worksheet Inductive Customer Interviews Transcript of Inductive Customer Interview Content Analysis of Inductive Customer Interviews

LI 2.1 2.2 2.3 2.4 2.5 3.1

ST OF TABLES Griffin Annual Customer Defection Rates Brodie’s Transactional vs. Relational Marketing Griffin and Christopher: Customer Lifecycle Peppers et al: IDIC Griffin and Kotler: LTV Calculations Research Results Terminology

17 23 29 31 36 50

LI 1.1 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9

ST OF FIGURES Matrix Structure Kotler’s Relationship Marketing Increased Profits from Retention Heskett’s Service Profit Chain Porters Decline Strategies Cram, What is Loyalty? Knox, Diamond of loyalty Bain & Co, Loyal customers are More Profitable Cram: Nine data Analysis Stewart & Co- The Cost of Capital

4 15 16 17 19 25 26 27 37 39

RESEARCH CHARTS AND FIGURES A6 Chain or Private Ownership A7 Segmental Respondents A8.A Buyer Involvement B2 E-Commerce Benefits C1 Current Reward Memberships C2 Current Reward Benefits

56 57 59 61 63 65

LIST OF APPENDICES

Draft dissertation- John Durr 2286/1999

C4 C5 C6 D1

Reward Programme Requirements Reward Preferences Staff benefits from Programmes? Service Level Importance

67 69 70 73

Section

1 1. INTRODUCTION 1.1 An OverviewAutotech and the South African Lead-acid Battery Industry The author felt it was important to relate some background to both the organisation and the industry in order to establish the need for this investigation. 1.1.1 THE PRODUCT Autotech retails automotive lead-acid batteries (car batteries), which utilise technology 250 year old technology, using lead as a primary ingredient. They are also inevitably the cause of much frustration and inconvenience to consumers when they reach the end of their lifespan as Murphy’s law states that when one’s battery fails, one is normally stuck in the middle of nowhere and needs to be somewhere else urgently. Demand is set at 2.1million units per annum for the local market and is inelastic, as no-one buys a battery “just in case”. In terms of consumer buying behaviour, it is a grudge purchase with strong situational factors. Original Equipment Manufacturers (OEM) hate them because they are heavy, environmentally unfriendly and with a lifespan of 32 months, cause problems with their extended maintenance plans. Recent improvements in technology have led to balanced electronic systems in cars that extend the life of batteries, resulting in a declining demand for the manufacturers of automotive batteries. This, in conjunction with new electric vehicle technology now entering the bus market, has led the industry into the early decline phase of its lifecycle. 1.1.2 THE INDUSTRY Draft dissertation- John Durr 2286/1999

The lead-acid battery industry in South Africa is characterised by an oligopoly structure dominated by Autotech’s two product brands (Willard and Sabat Batteries), which hold a 48% market share. Autotech’s main competitor First National Batteries (FNB) owns a service brand franchise, Battery Centre. Since market demand is inelastic and entering a 1 or 2% decline year-on-year for the first time, it has become paramount to retain market share so that revenue streams can be maintained to meet the ever-increasing cost structures on the one hand and global over-capacity with the consequential dumping of products by large international competitors on the other hand. 1.1.3 THE ORGANISATION Although Willard and Sabat Batteries recently merged to form Autotech, the two brands continue to trade separately in the marketplace. The merger has been a long and slow process with large-scale retrenchments at operating and senior levels in the organisation. One of the merger difficulties has been the different organisational culture with Sabat being a family concern, while Willard has its roots in a large listed company. The situation prevails with the two “camps” easily identifiable. The organisation has adopted a strong task-orientation, using project management methodologies to drive staff toward organisational goals in a more authoritative manner. The merged organisation is structured around geographical lines with 4 areas headed by regional managers, while technocrats with the normal functional titles staff the head office. This represents a Matrix structure with the technocrats designing and implementing systems, while the Regional managers control the operational side of the business. The dissertation author’s role is that of Marketing Manager to the Group as depicted below: M a t r ix o r g a n is a t io n (Fig 1.1)

N o r b e r t C la u s s e n P o w e rte c h C E O M u rra y L o n g A u t o R e p la c e m e n t M D W illa r d & S a b a t

R e g io n a l M a n a g e r KZN

R e g io n a l M a n a g e r W .C a p e

R e g io n a l M a n a g e r G a u te n g

M a n u fa c t u r in g fa c ilit ie s

R e g io n a l M a n a g e r M pum al

L o g is t ic s M a n a g e r

W a r e h o u s e s ta ff A d m in s t a ff D is t r ib u t io n s t a ff S a le s s t a f f

W A D S a le s

W a r e h o u s e s ta ff A d m in s t a ff D is t r ib u t io n s t a ff S a le s s t a ff

W A D S a le s

a r e h o u s e s ta ff d m in s t a ff is t r ib u t io n s t a ff s ta ff

1.2

a r e h o u s e s ta ff d m in s t a ff is t r ib u t io n s t a ff s ta ff

I n fo r m a t io n T e c h n o lo g y

F in a n c ia l D ir e c t o r

M a r k e t in g M a n a g e r

c a ll c e n t r e s ta ff C R M m anager N a t A c c o u n ts x 2 S u p p ly c h a in M a n a g e r

F in a n c ia l M a n a g e r

Aims and objectives of the dissertation The potential of using Economic Value Add (EVA) as a basis for the allocation of rewards to Autotech customers first became evident after an EVA incentive scheme was implemented for the organisations account executives. Draft dissertation- John Durr 2286/1999

EVA is a concept (described more fully in Section 2.5), that factors in the capital costs of an organisation after the net profit, to see what the “true” added value is of any given entity. Although there were several teething problems especially with regards IT integration, the systems now works well, with the account executives on this system showing high performance in the value and cost drivers identified. It seems the old adage “tell me how you will pay me and I’ll tell you how I’ll perform” was at work. The incentive scheme rewards participants in proportion to their performances on these value drivers. The decision to use EVA as the subject for the dissertation was prompted by the fact that the author was briefed to develop a customer rewards programme for the Autotech group. To date EVA had only been used as a measurement system to remunerate employees accountable for business operations and not to measure customers. Stern Stewart & Co, Delloitte & Touche and Henley all confirmed that it would be an interesting field of study to integrate EVA and loyalty reward programmes, to develop a model for measuring and rewarding customer profitability and value to the organisation. 1.2.1 THE PRINCIPLE AIMS The principle aim of this dissertation is to address the question: How should an organisation secure its profitable customers in the face of an early decline industry facing the following issues: •

Intensifying global competition

•

Declining demand in an early decline phase of the product lifecycle

•

Product and service parity

•

Commodity goods with little differentiation

Draft dissertation- John Durr 2286/1999

1.2.2 KEY OBJECTIVES OF THIS DISSERTATION FOR THE ORGANISATION ARE: 1

The dissertation seeks to ensure customer retention/loyalty for Autotech, in a market that finds Autotech brands being increasingly commodified as a result of product/quality parity and the shift to cost and service, as our products reach early decline phase of the lifecycle.

The mechanism to achieve this and the focus of this dissertation is to ensure profitable customers are retained, through a loyalty rewards programme.

To develop a measurement system, to determine if any given customer is profitable or should be “let go”.

Draft dissertation- John Durr 2286/1999

1.2.3 PROBLEM STATEMENT The dissertation evaluates the following aims: 1. Loyalty programme’s will protect profits in a mature and/or declining industry through ensuring customer retention and are preferred to traditional marketing techniques such as discounting and giveaway promotions. 2. EVA principles are preferred to the current financial controls and lifetime value analysis used for customer loyalty reward programmes. This is because they modify behaviour of participants in a positive manner as well as ensuring that you make a “true” profit after calculating the cost of capital invested in the business. An example of the customer’s EVA derived from actual costs attributed to a customer, may look something like this: Contribution - Costs- Cost of Capital Assets Managed

= Customers EVA (Economic Value Added)

As an example, costs of capital incurred for servicing the customer could be the debt incurred for delivery fleets, representatives laptops and vehicles, point of sale equipment, display stands and possible IT infrastructure support and linkages. Let us assume the value of these assets managed is R10’000 for a given customer. A typical customer EVA statement using typical figures, could then look as follows: Customer’s Gross Profit or Contribution Less Costs: Deliveries Reps commissions Claim rate Stock rotations Total Costs

R40’000

= = = = =

R10’000 R15’000 R1’500 R850 R27’350

Contribution Less cost of capital (DEBT@18% p/a)

= =

R12’650 R1’800 (R10’000 * 18%)

Net Profit for that customer

R10’830

Customer EVA = R10’830/Assets managed (R10’000) = R1’083 We can see that once you consider the fact this customer uses capital valued at R10’000, it reduces the customers “real value” from the initial assumed net profit of R10’830 to only R1’083. The reason for this is that one needs to consider that money has been invested in the business to service these customers. (Alternately, your investment could draw interest or rewards somewhere else). The last mentioned figure should then be the base for which funds are allocated to programmes such as loyalty programmes. It also becomes apparent how easy it is to have a negative EVA. This would happen if the capital costs exceeded the profit from that customer for any given year.

Draft dissertation- John Durr 2286/1999

It is important to point out that EVA calculations can also follow conventional Lifetime Value calculations (LTV) in order to further refine them, and so act in support of these concepts. EVA then is really just a calculation to ensure you do not forget the capital costs invested in the business in your profitability calculations. From this point the concept of using EVA toward a better Customer Loyalty model will be referred to by the acronym

CLeva. (Customer Loyalty and EVA). 1.2.4 LIMITATIONS AND CONSTRAINTS Perhaps the key limitation is the fact that EVA as an incentive system for customers has not yet been researched or implemented. This meant that it would be new ground that would require detailed research, trial and error, as well as support from key stakeholders. It will also be shown later that the allocation of costs down to customer level may be a limiting factor, depending on the organisations accounting conventions. A far as researching loyalty marketing, there is plenty of subject matter in the library, but unfortunately the author could not take any of these journals home. As a result the author wrote down and then retyped this information. As always time was a serious constraint, with the pressures of commuting to work (The Author resides in Cape Town and works in Johannesburg, commuting weekends back to Cape Town). Commuting in turn places strain on family life, as one then needs to spend time with your family if you have been away the whole week. This became so serious a problem that the author decided to resign in November 2001, in order to finish his MBA in 2000, so that he could begin a fresh career in Cape Town in 2002. As a result of living in Cape Town, the inductive customer interviews were conducted with customers within that geographical region. This may represent a weakness in the data from these interviews as Cape Town represents only 30% of the business nationally and may have some local perceptions that differ to the national perceptions. The author believes that any discrepancies will be minor since the same entrepreneurial spirit of being independent and making money out of their business essentially drives dealers nationwide. 1.2.4 ADVANTAGES FOR AUTOTECH 1.2.4.1 Marketing Spend The introduction of CLeva for customers would introduce a system where customers are rewarded according to their value to the organisation. In addition it is envisaged that this system will cost less than traditional marketing tools such as discounts and promotions. 1.2.4.2 Pockets of Demand It is hoped that the introduction of a loyalty programme will serve to protect the enduring pockets of demand from migrating to competitors because of marginal price preferences. These pockets of demand tend to be specialists in the

Draft dissertation- John Durr 2286/1999

sales of batteries and have emerged in consumer surveys as the preferred buying channels of the consumer. It is expected that the industry will begin to consolidate and it would be in Autotech’s interest to secure these pockets of demand. 1.2.4.3 Staff Culture It is hoped that the establishment of CLeva will provide a platform for the sales teams, to share a common objective and methodology in terms of managing customers and measurement systems, which will roll out throughout the organisation. It is hoped that CLeva could be the building block of a customer-focussed organisation, away from the current production mindset.

1.2.4.4 Organisational Value Drivers Lastly and most importantly, CLeva aims to establish both the value and cost drivers for customers, in pursuit of managing these toward a more effective attempt at securing profits in a decline industry. It also aims to identify customers according to the positive or negative value they deliver to Autotech.

1.3 Initial Interviews These interviews were held to establish if there was support for the research and in particular for the information needed on a customised EVA customer model. In addition, the purpose was to establish who the stakeholders of this concept would be and more importantly, to establish what the supporting and restraining forces would be for the possible future implementation of this concept. 1.3.1 EVA TOPIC EXPERTS For the EVA concept, both Stern Stewart and Delloitte & Touche who market the concept in South Africa were interviewed, in order to: •

Determine whether they had attempted to utilise EVA, to measure customer performances to date.

•

Establish whether this concept is feasible

1.3.1.1 Stern Stewart Interview Time was secured with Stern Stewart in their Johannesburg office to discuss the dissertation with the branch manager, Anthony De La Harpe. The sole purpose of this unstructured interview was to find out if they had already designed any customer loyalty programmes using EVA principles. Anthony De La Harpe was extremely helpful and spent several evenings with the author developing a prototype model based on Autotech customers. While this was not in the scope of

Draft dissertation- John Durr 2286/1999

this dissertation, it illuminated some key factors with regard to implementing such a system in the future. These interviews also contributed to gaining a deeper understanding of the complexity of EVA theory. 1.3.1.2 Delloitte & Touche Interview Since Delloitte & Touche had already implemented the EVA concept for Autotech’s sales executives they had an understanding of the existing business systems. Their team leader, Brendon Olivier, offered many insights over three meetings to establish if EVA could be applied to Autotech customers.

Draft dissertation- John Durr 2286/1999

1.3.2 ORGANISATIONAL APPROACH TO LOYALTY MARKETING AND EVA Initial interviews were held with management, customers and sales that were the key stakeholders of this programme. The objective of the initial interviews was to establish the objectives of the dissertation to ensure that these: 1. Met the requirements of all stakeholders 2. Enjoyed staeholder support and 3. Helped to reduce barriers that may other wise be encountered by these key stakeholders. A summary of these interviews follows:

1.3.2.1 The Managing Director Murray Long is the Managing Director (MD) to whom the author reports. Since Murray initiated the implementation of EVA with Autotech’s account executives he has a deep understanding of and supports the concept of EVA. He is also aware of the need for retention marketing to defend market share and as such is fully supportive of any ventures that will achieve this. One of the reasons Murray appointed the author to the position of marketing manager was to implement a customer loyalty programme with the objective of customer retention.

1.3.2.2 The Chief Information Officer (CIO) Keith Nickisson has been with Autotech for many years and has built the IT system from inception. He is widely regarded as extremely intelligent, albeit a difficult person at times. His views were not as supportive for the concept as he felt the simple disciplines need to be addressed before new innovative ways of securing customers are tackled. Among these disciplines he notes that our sales teams including the regional managers do not make use of even simple reports to gain an understanding of customers trends, how then will they make use of leading edge customer information? The CIO commented that the loyalty programme would be yet another marketing cost to the organisation and that since the market is inelastic, we could not expect any growth, as competitors would react with price cuts. Keith plays an integral role in implementation as both customer loyalty programmes and EVA programmes are heavily reliable on IT, data integrity and information availability. IT is also the key tool for datamining metrics such as customer churn, customer lifetime values as well as determining key value and cost drivers per customer.

1.3.2.3 Finance Mike Breydenbach is Autotech’s financial manager and responsible for the allocation of costs down to customer level in any given model. His views centred on the fact that Autotech needs to get rid of unprofitable customers and link regional

Draft dissertation- John Durr 2286/1999

managers reward systems into the performance of their customers, much as account executives reward systems are linked by way of EVA to their customer’s activities. 1.3.2.4 The Account Executives (AE’s) The AE’s are Autotech’s Reps on the road. They have fixed calling cycles and are responsible for looking after customers. While they are supportive of a loyalty programme for their customers as this would be another tool for them in their sales kitbag, they are not as excited about the work they would have to do to establish and maintain correct databases and information. They also listed their concern over the customers that appeared to be non-profitable. They were concerned that the company would exit these customers and relied on the older theory that ‘surely we need every sale we can get?” It was evident that they were stuck in the smokestack economies of scale thinking paradigm, without considering the costs of doing business with some customers. The unmentioned fact that they may lose commissions also came through after more informal discussions with them. 1.3.2.5 System Barriers Many people related their concerns over possible people barriers to implementing such a system as a result of the work that would be required as well as internal politics between senior staff. The culture of the newly merged company and support of the executive were primary concerns as were the ability of sales staff to manage the programme. Since Autotech operate in a stable and mature market with a single product line, systems have been developed in detail and recorded in various policy manuals. This means that any new systems need to be recorded with work instructions and approvals at many levels. This takes a coordinated team effort and is a time consuming task. The organisation can be said to be change averse, as every change is met with stakeholder opposition on why it cannot be done with controls cited most often as reasons for this. While this all sounds negative, it is also necessary in order to create a stable business where things are known, to maximise learning curve advantages, which translate into scale benefits. In addition, the attitude to maintaining market share in favour of profits seems to pose a barrier to reward allocations that is based on the actual value added by the customer rather than volume per customer. This could mean that many large customers would not get any rewards if it were found that their actual profits were negative and this would be difficult to manage. These issues were then investigated in some of the questions in the in-depth customer surveys and interviews but will need action if the programme is to be implemented successfully.

1.3.2.6 Transformation within the Autotech organisation Transformation at Autotech is handled by way of a project management approach. This approach helps to link the different cultures and stakeholders toward common goals that are agreed to in workshops. These form the foundation of Draft dissertation- John Durr 2286/1999

Section

2 actions that are monitored and controlled through implementation by the management team. Key to the success of this approach is a professional project manager, preferably external to the organisation, who manages the interpersonal dynamics, as well as the dimensions of project management. Autotech has experienced success with this approach in the past. This dissertation forms part of the project initiation phase and helps to establish a need for the project as well as top-line support. If successful, it will be followed by a ‘scoping’ workshop with all the stakeholders to establish the objectives of the programme.

2. Literature review 2.1 Introduction It is evident that the concepts of Loyalty Marketing (LM), Lifetime Value (LTV), Retention Marketing, Customer Relationship Management (CRM) and Relationship Management (RM) are still relatively new concepts. Although they are now being researched extensively, it is notable that there are few examples and definitions that are universally understood and that these concepts are often referred to interchangeably. It is also apparent that most literature is focussed on Consumer CRM programmes. The author has, however assumed human nature is consistent with both Business-to-Business (B2B) and Business-to–end user Customers (B2C). Marijo Puleo (2001) comments ‘ What we have found is that B2B vs. B2C is really an artificial delineation. It is more accurate to think "B2B2C" - because at the end of the day, there is a consumer whose needs you are trying to address. Someone is concerned about that - probably your customer! This is one of the first things that people need to "get". If you ignore that, you are creating a lot of channel conflict or problems with your distributor.’

Draft dissertation- John Durr 2286/1999

Reward programmes, started by the airline industry in May 1981 when American Airlines launched its 1st frequent flier card, today define most loyalty programmes. Since then points-based schemes have been used widely to influence the behaviour of customers. While these schemes currently range from sophisticated measures of customer buying-behaviour to more simplistic measures of turnover or gross margin, most reward purchase activity and some programmes provide a tangible link and a brand reminder but do not in their own right create loyalty (Cram 2001).

2.2 What is Loyalty Management? Although the study of relationship marketing principles in support of retention marketing efforts is fairly new, some concepts are beginning to emerge as the dominant solutions in this field. The process usually begins with an organisation that wishes to retain its customers. Therefore, we can say that it begins with Retention Marketing. The key tool for Retention Marketing is described as Relationship Marketing (RM) (or Customer Relationship Marketing (CRM)), which again consists of Loyalty Marketing programmes. We will see that Loyalty Management/Marketing (LM) attempts to move Relationship Marketing (RM) to a deeper more fundamental connection with the customer that endures both time and problems. 2.2.1 RETENTION MARKETING Payne, A., and Frow, P. (1999) argues that Retention Marketing forms a major underpinning of Relationship Marketing. They propose the key elements of Relationship Marketing include: ‘The emphasis in the supplier-customer interaction shifting from a transaction (focus on acquisition) to a relationship (focus on retention); maximising the life-time value of desired customers,…’. The rising interest in relationship marketing in the early 1990’s acted as a catalyst to work on the impact of customer retention on profitability. Reichald and Sasser (1990) showed that a small increase in retention could produce dramatic and positive effects on profitability. Recent studies have shown that existing customers are cheaper to retain, than new customers are to acquire. Payne et al (1999) and Kotler (1980), argue that it costs five times as much to get a new customer than it does to keep one. Kotler (1980) offers some advise on defending market share based on War strategies, but these are mainly company strategies and have limited involvement

of the

(Fig 2.1)

customers. Kotler (1980) reflects that

Levels of Relationship marketing

customer retention (which he uses

(Source, Philip Kotler, Marketing Managment, pg.49, Prentice Hall 9th edition, 1997)

interchangeably with the term customer loyalty) is vital and illustrates five different levels of relationship marketing:

Basic marketing Reactive marketing Accountable marketing (After sales enquiries) Proactive marketing (Contacts customer & makes suggestions) Partnership marketing (Works with customer such as Willard in VW assembly line)  Adding financial benefits (Club programmes etc)  Adding social benefits  Adding Structural ties

customers

high margin medium Draft dissertation- John Durr 2286/1999 margin many accountable reactive medium few

proacative partnership

low margin

basic or reactive accountable reactive proactive accountable

Kotler (1980) suggests the following steps to customer retention, the company must: 1. 1st measure its retention rate 2. Then distinguish the causes of customer attrition and identify those that can be managed better 3. Estimate how much profit is lost when customers are lost by calculating their lifetime value 4. Calculate the cost to reduce the defection rate, if it less than the lost profit the company should spend the money to reduce the defection rate. While this explanation does illustrate the importance of partnership marketing it does not fully analyse customer loyalty in detail but focuses on the organizations perspective. Page & Pitt (1996) highlighted the importance of customer retention and developed a model for analysing customer defections and the adverse effect on corporate performance. They continue to demonstrate retention’s importance by identifying strategies for customer retention to overcome this problem. Knox (1998) quotes Reichald and Sasser (1990), showing the dramatic effect on profits of a 5% increase in customer retention across industry sectors in Figure 2.2 (interestingly auto service shows the least effect at 30%): (Fig 2.2)

Profit results from 5% Retention

Software Industrial laundry Insurance brokerage Credit card Auto Service chain

(Source: Knox (1998)

Draft dissertation- John Durr 2286/1999

Griffin et al (2001) state that the average firm loses 20-40% of its customers, affecting profits and growth adversely and damaging employee’s morale. They tabulate the following defection rates by industry: Annual Customer Defection Rates (Table 2.1) Industy

Defection rate

Internet Service Providers US Long Distance (Mainstream) US Long Distance (high usage) German Mobile phone market Clothing catalogues Residential tree & lawn care Newspaper subscription

22% 30 35 25 25 32 66

(Source: Griffin et al (2201))

Heskett et al (1994) developed a ‘service profit chain’ model in Figure 2.3, which describes the linkages between employee satisfaction, customer retention, sales, customer loyalty and profitability. They suggest that customer satisfaction is related to the service value created by employees and an important ingredient of customer satisfaction is the perceived quality of customer service.

(Fig 2.3) Employee retention Internal Service Quality

Revenue growth External service value

Employee Satisfaction

Customer satisfaction

Customer loyalty

Employee productivity

•Workplace design •job design •employee selection & development •employee rewards & recognition •tools for serving customers

Profitability

•Service concept •results for customers

•Retention •repeat business •referral •Service designed & delivered to meet •target customers needs

((Source: Henley MBA “Foundations of Management Workbook ”, 1999)

Griffin et al (2001) further state the following: “Without a doubt, your first defence is strong acquisition and retention programs. There is absolutely no substitute for attracting high-potential customers and retaining them.” They describe the “Big Three” as a model for maximizing loyalty and profits, which all companies must follow. The Big Three model is described as follows: •

Acquisition management - Encompasses al the efforts directed at attracting high-value prospects and turning them into 1st-time buyers

Draft dissertation- John Durr 2286/1999

•

Retention management – Focuses on two areas: (1) strengthening the relationship with existing customers by increasing value of services, and (2) identifying at-risk customers and stabilizing the endangered relationship through active programs.

•

Win-back management – All the efforts associated with recovering and rebuilding the relationship with the lost customer.

Draft dissertation- John Durr 2286/1999

2.2.2 APPLICATION IN MATURE/DECLINING INDUSTRIES This section proved difficult to research as most authors on the topic of loyalty marketing regarded it as a tool for retention of customers but do not relate it to the customers or product lifecycle. Classic lifecycle theory does however; reinforce the need for customer retention as over-capacity creates fierce competition for the remaining customers. Kotler and Porter focus on these areas with their various mature/decline market strategies for competition. Porter (1980) identifies retention and the increasing of a customer’s scope of purchases as more desirable than seeking new customers as a result of the fact that there is more competition for market share and existing customers. Porter continues by emphasising that we need to select our present and future customers, through customer profitability analysis and identify “good” buyers and lock them in. Porter (1998), identifies strategies for declining businesses in Figure 2.4, of which the Leadership, Niche and Harvest are relative: (Figure 2.4)

Has competitive strengths for remaining pockets

Lacks competitive strengths for remaining pockets

Favourable industry structure for decline

Leadership or Niche

Harvest or Divest quickly

Unfavourable industry structure for decline

Niche or Harvest

Divest quickly

(Source Porter 1998)

While Kotler (1980) identifies retention strategies as vital he does not apply this theory in each stage of the lifecycle. He identifies the customer lifetime value however, and illustrates that you should account for total lifetime costs, which decrease over time. Kotler (1980) states that because the cost of acquisition is sometimes higher than the lifetime value, the company is spending more than the customer is worth. We can deduce from this that it would not be beneficial to lose customers, as costs would be incurred to a greater degree upfront for new customers. Since loyalty programmes are essentially aimed at customer retention we can assume that this would be a benefit in this stage of an industry lifecycle.

Draft dissertation- John Durr 2286/1999

2.2.3 RELATIONSHIP MANAGEMENT (RM) Loyalty is a concept central to marketing new paradigm: Relationship Marketing (RM). As Jacoby and Kyner (1973) argue “brand loyalty is essentially a relational phenomenon”. Relationship Marketing (RM) has been defined as follows: •

“Attracting, maintaining and – in multi-service organisations – enhancing customer relationships”. Berry (1983, p.25).

•

“All marketing activities directed toward establishing developing and maintaining successful relational exchanges”. Morgan and Hunt (1994, p.22)“

•

“Relationship management: creating, developing, and maintaining a network in which a firm thrives, that has a long-term orientation and depends primarily on person-to-person communication”. Gummeson (1987, p.10).

•

“…to establish relationships with customers on an individual basis, and then use the information you gather to treat customers differently. The exchange between a customer and a company becomes mutually beneficial, as customers give information in return for personalised service that meets their individual needs.” Peppers and Rogers Glossary (2001).

•

“To maximise the lifetime value of a customer to the organisation”. Peppard (2000).

Peppard (2000) lists the benefits of superior customer relationships as follows: •

An increase in customer retention

•

Relationships build more easily with two-way communication, with a potential to learn from customers

•

Relationship behaviour anticipates customer demands

•

Retained customers are more profitable than attracting new customers and have greater opportunity for cross selling

Grönroos (1997) emphasises the importance of satisfying the long-term value needs of customers by providing more resources and activities than just a core product (goods or services). He provides the following formulae: Customer Perceived Value (CPV) = Core Solution + Additional Services Price + Relationship Costs Not all professionals share in the excitement associated with this new RM approach. Channel marketing has limited usefulness for RM according to Frazier and Antia (1995). They point out that some channel relationships are becoming weaker in the light of hard, cold economic facts that allow transactional but not relational exchanges. Fuan, L. and Nicholls, J.A.F., (2000) note the following on relational and transactional exchanges: 1. Proposition 1- Relationship Marketing will be more appropriate when relational involvement in an exchange is high rather than low. Specifically relationship marketing is appropriate when: a) The exchange is long-term orientated Draft dissertation- John Durr 2286/1999

b) Uncertainty regarding the performance of the other party is high c) The joint planning requirement is significant d) There is mutuality of interest e) Interdependence, co-operation, and needs for internal obligation increase f) More primary personal relations are involved g) The uncertainty of the power balance is high 2. Proposition 2- when the price-based governing mechanism is no longer sufficient, the need for relational bonding between exchange partners will increase…

Unfortunately there are substantial gaps in this literature and Sheth and Parvatiyar (1995) contend the processes in need of further explanation are: •

Managing relational engagement

•

Evaluating the performance of relational engagement

•

Terminating the relationship

•

Enhancing the relationship

2.3 Defining Loyalty Loyalty schemes seem to represent the marketing practitioner’s belief that nurturing customer loyalty is a key factor to business success, linked as it is to the notion of retention marketing. Contributors to the development of RM hail from different backgrounds resulting in different approaches to this area. Hart et al introduce four broad categories to approach RM: •

Scope

•

Concepts

•

Technologies

•

Processes

We will use these four broad categories to provide a framework for our review of Loyalty Marketing.

Draft dissertation- John Durr 2286/1999

2.3.1 THE SCOPE OF LOYALTY MARKETING (LM) A vital question falling within the scope of RM is to what extent does RM encompass the supply chain and other stakeholders? Mattson 1997 distinguishes two types of response to this question: •

Limited, or latent in that it has the potential to exist

•

Extended, which includes all stakeholders in the value and supply chain.

Grönroos (1997) argues that some customers do not warrant the expense of relational exchanges and these relationships should be kept to transactional exchanges, depending on the nature of the product/market, customer needs and wishes, and the competitive situation.

Draft dissertation- John Durr 2286/1999

Brodie et al (1997) offers a more defined differentiation between transactional and relational marketing where ‘transactional’ is the most simple and ‘network’ the most interdependent and complex arrangement between supplier and customer. They illustrate the impact on the organisation along the top and the type of relationship Managerial intent

Decision focus

Managerial investment

Managerial level

Time frame

Transaction marketing

Relational perspective

Transactional perspective

(Table 2.2) Author s table

Customer attraction (satisfy customer at a profit)

Product or brand

Internal marketing assets (focus on 4 P’s)

Functional Marketers (e.g. sales managers)

Shortterm

Network marketing Interaction marketing marketingDatabase

along the vertical dimension in Table 2.2:

Customer retention (satisfy customer, increase profits, decrease risk etc)

Product/brand & customers in a targeted market

Internal marketing assets (emphasising communication, information & technology capabilities)

Specialist marketers (customer service manager, loyalty manager)

Longerterm

Interaction (cooperative relationships for mutual benefit)

Relationships between individuals

External marketing assets (relationship with another individual)

Managers from across functions/ levels in firm

Short or long-term

Co-ordination (interaction between sellers, buyers & other parties across multiple firms, mutual benefit, resource exchange, market access)

Connected relationships between firms (network)

External marketing assets (developing firms position in a network of firms)

General Manager

Short or long-term

Type:

Copulsky et al, supports this view and argues the need to streamline different customer processes, while at the same time delivering customer value and to grow profits by increasing the share of the customer’s wallet instead of the share of market.

Draft dissertation- John Durr 2286/1999

Griffin et al (2001) describe a loyal customer as one who: •

Makes regular repeat purchases

•

Purchases across product and service lines

•

Refers others

•

Demonstrates an immunity to the pull of competition

•

Can tolerate the occasional lapse in support without defecting, owing to the goodwill established through the regular, consistent service and provision of value.

Peppers and Rogers (2001) have developed leading solutions to CRM and include customer loyalty as one of their keys in this regard. Their glossary defines customer loyalty as “The degree to which customers are predisposed to stay with your company and resist competitor offers”. In their white paper on “Building a one-to-one Web Site” they provide an array of tools and techniques to use on your web site that will encourage visitors to turn into customers and then customers to turn into repeat customers or loyal customers. On Loyalty, Peppard (2000) says that brand loyalty- the emotional connection with customers- is built on the front line face-to-face, on the phone and over the Internet. He uses the acronym ICARE •

I- Inquire- ask questions to identify needs or concerns

•

C- Communicate- assure customers that we are eager to meet their needs

•

A- Affirm- confirm abilities and desires to get things done

•

R- Recommend- suggest a range of options

•

E- Express- let the customer know that you are personally committed.

Peppard (2000) supports this view by using data warehousing to ensure that staff will know the customer they are dealing with, but does not go into how to develop emotional loyalty other than through service efficiency or reflect on customising solutions to individual customer requirements. While these are key tools for a web site they do not account for all customers physical relationship requirements, as customers are not merely virtual. It is unlikely that a virtual relationship can be seen to be loyal as the customer will not continue the relationship in times of difficulty experienced by the website.

Draft dissertation- John Durr 2286/1999

Cram (2001) differentiates between loyalty and inertia and states that many organisations confuse these, he also states that loyalty is an emotional bonding, while loyalty schemes in themselves may act as repeat purchase incentives but do not in themselves engender loyalty. Cram (2001) provides an interesting view of loyalty and holds that loyalty must take into account the basic psychological factors that drive loyalty and not just address expectations that are currently addressed in CRM readings. He offers criteria and argues that only by addressing all of these can you begin to achieve customer loyalty in Fig 2.5:

Cram

What is loyalty?

(Fig 2.5)

also

(Authors table- from Cram.T,. Customers that Count, FT.Prentice Hall, 2001)

Relationship dimensions Depth Warmth Balance basis

Customer Customers expectations characteristics Knowledge Application Interactive Long-term Mutually beneficial

Reliability Trust Recognition Accessibility Post purchase - defining moments Education Preference individuality

identifies reliability as one of his foundations commenting that the organisation’s reliability and consistency are pivotal in achieving customer loyalty. This view on reliability is supported (albeit distantly) by Cognitive Dissonance and motivation Theory (Rathus 1981), which state that people dislike inconsistency (Appendix 7). Knox (1998) argues that it is now accepted wisdom that customer relationships deliver superior profits and that the ability to achieve this is ‘directed by the Principles of Loyalty Management’. Knox offers the example of the Tesco Clubcard, which lifted existing customer spend by over 13%, which led to a corresponding reduction in average spend at Sainsbury’s and their consequential profit reduction for the 1 st time in 20 years. Knox (1998) introduces us to his ‘Diamond of

Customer involvement Loyal’s

Loyalty’ categorising customers by level of involvement and purchasing portfolio across

Habitual’ ss

suppliers. Generally both Loyal’s and Habitual’s are share/narrow portfolio customers and are the

Customer purchasing portfolio

Variety seekers

high

Switchers

most

Share of customer

Draft dissertation- John Durr 2286/1999

(Fig 2.6)

Diamond of Loyalty: Customer purchasing styles (Knox (1998)

profitable. In other words, they purchase a single line item and the organisation has a 100% share of their business. Those with a high buyer involvement tend toward Loyal’s, while those with a low buyer involvement (such as stationery) are habitual purchasers. Loyal’s would then demonstrate: •

A narrow purchasing portfolio

•

High level of customer involvement

•

A high share of their business

On choosing poor customers Knox characterises Switchers as he cites Reichfeld (1996) in his book The Loyalty Effect: If your business decided to scour the marketplace for the worst possible customers with the lowest coefficients of loyalty, you could hardly do better than to choose price discounts or mass distribution of coupons. Customers who glide into your arms for a minimal price discount are the same customers who dance away with someone else at the slightest enticement.’ Knox (1998) cites three guiding principles to loyalty management that will strongly influence the customer development process: 1. Most customers buy on a portfolio basis, this relies on an integrated brand offering across product groups and a simplified offering as the challenge is to secure more share of spend. As an example Knox notes that European airline travellers, on average are members of three different airline schemes. This means that membership alone will not secure the customer’s patronage. All customers are not created equal- as depicted by Bain and Company in Fig 2.7 showing that profits increase as a result of several cost savings resulting from customer retention. Bain also confirms that 85% of the organisations profits come from 10-20% of its customers: Why Loyal Customers are more Profitable (Bain & Co) 30 Annual custom er profit

25 Acquisition costs

Base Profit

Revenue grow th

Cost savings

Referrals

0 -5

Price Prem ium

-10 Year

(Fig 2.7)

(Source: Knox (1998))

Draft dissertation- John Durr 2286/1999

3. Loyalty is retention with attitude- “In this final principle, which is key for unlocking customer development and provides the mission for process management; Customer development must capitalise on customer involvement where present (they are not always as involved as we think they are), and exploit customer indifference when it is profitable to do so.” This implies segmenting markets based upon preferences in purchasing behaviour as well as the psychological evaluations. Knox (1998) concludes by offering the following pointers to managing customer development: •

Product proliferation does not usually generate customer value; it can confuse through meaningless choice.

•

Product proliferation shortens product lifecycles.

•

The cost of these activities in terms of development, packaging and marketing is paid for by customers, particularly Loyal’s.

•

Promotional activity rewards switchers and teaches customers to buy deals, not products

•

Support your high share customers.

•

Let go of low share customers.

2.3.2 CONCEPTS IN LM Pine, Peppers and Rogers (1995) have examined concepts of loyalty marketing and include topics such as dialogue, commitment and trust. These influence our view of LM, as a distinction needs to be made when designing a loyalty programme that considers the following: A two-fold categorisation of the definitions of LM (Pritchard et al, 1992) can be applied: 1. Behavioural LM- equates customer loyalty with repeat patronage, its most readily available outcome. The problem with this is that there are many reasons for repeat patronage including lack of choice, habit, low income and convenience. Advocates of this approach argue that internal processes are spurious, that behaviour is the true statement of brand loyalty (Tucker 1964). 2. Attitudinal LM- concludes that loyalty is a function of attitude manifested as behaviour. (Hart et al 1999). They argue that attitudes are supported by adjacent constructs such as commitment and involvement. Some progress has been made toward categorising different loyalty types. Dick and Basu ((1996) identify three types: 1. Spurious- manifested by repeat patronage but with low preference (relative attitude) 2. Latent- which may not produce high repeat purchases, but where preference is high, and, 3. Sustainable- which combines high preference and repeat patronage.

Draft dissertation- John Durr 2286/1999

Griffin et al (2001) and Christopher et al (1993), offer a different approach to concepts by providing a Customer

Lifecycle in Table 2.3: (Table 2.3)

Griffin et al (2001)

Christopher et al (1993)

Customer Lifecycle

Loyalty Ladder

Stage

Description

Stage

1. Suspect

Anyone who might buy your product/service

2. Prospect

Someone who has the need and ability to buy your product/service

1. Prospects

3. First Time Customer

Someone who has bought from you once

2. Customers

4. Repeat Customer

Someone who has bought from you two or more times

3. Clients

5. Client

Someone who buys everything you have to sell that she can possibly use

4. Supporters

6. Advocate

Someone who buys everything you have to sell that she can possibly use and encourages others to buy from you.

5. Advocates

(Source: John Durr- Authors Table)

This lifecycle and loyalty ladder provides a link between relationship and loyalty marketing as they introduce the notion of increasing consumer commitment to the firm and its offers. Within marketing, increasing attention has been given to the various meanings and antecedents of loyalty, suggesting that it goes beyond repeat patronage to embrace issues such as ‘building long-term relationship with the customer in order to increase profitability’ (Jacobs, 1996) and a whole raft of qualities and attitudes, many of them uncontrollable (Fields, 1996).

Draft dissertation- John Durr 2286/1999

2.3.3 PROCESSESS OF LM A widely accepted definition of LM is offered by Gronroos(1994): …to establish, maintain and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties are met. This is achieved by mutual exchange and keeping of promises. Such relationships are usually but not necessarily long term’. (p9) Research on LM differentiates between engaging and evaluating the various schemes. With regard to engagement, literature suggests that LM schemes are set up to build lasting relationships with customer by rewarding patronage, to gain higher profits through extended product usage and cross-selling, to gather customer information, to decommodified brands and to defend market position or pre-empt competitor activity (Uncles 1994, 1997). A report written by marketing consultancy firm Abram Hawkes (1995), suggests that even though database marketing drives the majority of schemes, many firms have no means of even identifying the participants. Peppers et al (1999) identified four key factors in a methodology called IDIC (Table 2.4) – Identify, Differentiate, Interact and Customise. This methodology they claim has been proven among its Fortune 500 web-based customers to create more profitable one-to-one customer relationships: •

Identify - Web users are willing to provide or share personal information when they see a clear benefit to doing so.

•

Differentiate – By using several variables with customer needs being the most important. Typically drop-down menu options are used as well as ranking customers by value and/or costs. Most valued customers are also identified through this analysis.

•

Interacting – Via optional newsletters, chat rooms, ask the expert feature.

•

Customising – Rated their most important step, it includes automated and manual matching of data and customizing to the extent that the customer indicates their needs. It includes reminder services, page content preferences and a rule-based matching search engine that matches their “business challenge” queries. Peppers & Rogers

(Table 2.4)

IDIC (Identify, Differentiate, Interact, Customise) STEPS TO CONSIDER

ACTIVITY

1. IDENTIFY •

Collect and add customer names onto the customer database

•

Use an outside service for scanning & data entry, swap names with non-competitors in your field

•

Collect additional information about your customers

•

Use drip-irrigation; ask 1 or 2 questions each time your are in contact

Draft dissertation- John Durr 2286/1999

•

Verify/update customer data and delete outdated information

•

Identify your organisations top customers

•

Determine which customers cost the organisation money

•

Use simple rules to isolate the bottom 20% and send them less mail

•

Select several companies that you want to do business with next year

•

Add to your database & record at least 3 contact names per company

•

Find higher value customers who have complained about your product/service more than once last year

•

Baby-sit their orders, put a product/QA person in touch with them to check your progress

•

Look for last years large customers who have ordered half as much or less this year

•

Visit them now, before your competition does

•

Find customers who buy only one or two products from you but a lot from other businesses

•

Make them an offer they can’t refuse to try several new items from you

•

Rank customers into A, B and C categories roughly based on their value to your company

•

Decrease marketing spend for the C’s & use this to fund the increased activities for the A’s & B’s.

•

If focussing on channels members, call the top three people at your top 5% of customers

•

Don’t sell, just talk and make sure they are happy

•

Call your own company and ask questions and see how hard it is to get answers

•

Test 8-10 different scenarios as a mystery shopper. Record the calls and critique them

•

Compare the competitors customer service

•

Repeat the above activity

•

Use incoming calls as selling opportunities

•

Offer specials, closeouts and trial offers

•

Evaluate your voice response unit if you have one

•

Make the recordings sound friendlier, move the customers through the systems faster

•

Follow the interaction paper trail through your organisation

•

Eliminate steps; reduce cycle times, speed up response times

•

Initiate dialogue with valuable customers

•

Print personalised messages on invoices

•

Have Reps personally sign letters rather than massmailing

•

Have the right people in your organisation call their executives

•

Call every valuable lost customer and give them a reason to return

•

Gather email addresses

•

Offer alternative means of communication

•

Use fax back systems

•

Scan customer information into the database

•

Improve the ratio of complaints handled on the 1st call

Spring clean customers files

2. DIFFERENTIATE Use last years sales or other simple data

3. INTERACT

•

Use technology to make doing business with your customer easier

Improve complaint handling

•

4. CUSTOMISE

Draft dissertation- John Durr 2286/1999

• •

Customise paperwork to save your customer time and you money

•

Personalise your direct mail

•

Use regional & subject specific catalogues

•

Use customer information to individualise offerings

•

Keep mailings simple

•

Fill out forms for your customers

•

Use laser equipment to save time/money & make you look smarter

•

Ask customers how, and how often they want to hear from you

•

Use fax, e-mail, post or personal visits, as the customer specifies

•

Find out what your customers want

•

Invite customers to focus groups or discussion meetings

•

Ask your top 10 customers what you can do differently to improve your product or service

•

Respond to customer suggestions

•

Follow-up and repeat the process

Involve top management in customer relations.

•

Give them lists of Questions based on the history of individual customers

•

(Source Peppers & Rogers (2001) www.1to1.com)

Draft dissertation- John Durr 2286/1999

2.3.4 TECHNOLOGIES IN LM RM technologies include IT, databases and communication, where Copulsky and Wolf (1990) position RM as a communication tool used to build loyalty with customers, whilst Petrison and Wang (1993) link RM with the IT processes needed for customer knowledge and more focussed targeting. All loyalty schemes offer some kind of reward to the customer. Beyond this common feature though, they differ greatly in terms of context, technology and sector. Hart et al (1999) identify the following technologies: •

Magnetic strip cards

•

Micro-chip cards for information storage

•

Cards that double as credit cards

•

Low technology, proof of membership cards.

Hart et al (1999) do not seem to cover, nor have I seen any literature specific to B2B membership programmes that operate off database marketing principles, where a card is not always required. They also do not cover on-line programmes that operate off a username and password, although Peppers and Rogers do. Zott et al (2000) reflect on the strategies for value creation being efficiency and the ability to draw customers to your website (Stickiness). They offer the following results from their research as best practices: Enhance transaction efficiency to create value by; •

Strengthening the supply chain by reducing supplier costs and vertical integration

•

Provide a large array of products and services

•

Make the transaction convenient for the customer

•

Allow the customer to save time

•

Reduce the asymmetry of information among parties (share information)

•

Create stickiness to facilitate repeat transactions

•

Reward customers for their loyalty (56% of customers will purchase more if they were awarded loyalty points)

•

Personalise the product or customise the service

•

Build virtual communities

•

Establish the reputation for trust in the transaction

We can see that their view differs from Knox, who cites that product proliferation does not add value, while they propagate a large array of products and services. Draft dissertation- John Durr 2286/1999

2.4 Measuring Loyalty Marketing (LM) and Relationship Marketing (RM) Payne et al (1999) reflects that little attention has been given to measuring relationship marketing. For example: few companies apply the Heskett service profit chain (Heskett et al 1994) and measure systems to it within their organisation. Measurement is vitally important as the impact of customer retention has vastly different results across different industries as well as the fact that unprofitable customers need to be identified (Payne et al 1999). Payne cites Caroll (1991/1992), emphasising the need to understand Customer Life-Time Value within different segments to enable organisations to focus on long-term profitability. Payne’s research concluded that very few organisations measure the economic value of their retention strategies, leading to the following problems: •

Resources may be invested unwisely in unprofitable activities or segments

•

Clear, credible goals cannot be set, which decreases the likelihood that a common course of action will be followed in the organisation “what gets measured gets done”

•

If measures are not in place, managers may make their own interpretation of strategic goals.

Griffin (2001) measures lifetime customer value (LTV) in order to establish a reason for customer retention, cautioning us to continually evaluate the Big Three (illustrated earlier). They establish LTV’s per customer over varying periods to prioritise customers according to LTV potential. De Vliet (1997) reports the practices of leading companies (including 3M, BT, British Airways and Rank Xerox) having moved beyond customer satisfaction to investigate more precise determinants of loyalty, including factors important to the customer’s experience of the firms and specific investigations of complaints. This suggests that while customer satisfaction is a necessary condition for customer loyalty, it is not the only one. Peppers and Rogers (2001) define customer valuation as “The value of a customer to an enterprise, composed of two elements. Actual value is the customers current lifetime value, and strategic value is the customers potential value, if the customer could be grown to his/her full potential.” 2.4.1 MEASURING LIFETIME VALUE (LTV) Payne et al (1999) use the following key variables to measure Segmental and customer profit potential: •

Number of customers in segment: To determine segment size

•

Number of acquisitions: Being new customers Draft dissertation- John Durr 2286/1999

•

Acquisition costs: Total selling costs to acquire new customers

•

Defection rate (%): Balance is retention rate

•

Profit per customer: Down to individual customer levels

They conclude their study by stating the importance of measuring segments and designing service strategies for each profitable segment. (Service being their dimension supporting Customer retention) Having established the importance of LM and RM measurement, the question arises: How does an organisation measure customer value?

Draft dissertation- John Durr 2286/1999

Griffin (2001) and Kotler (1980) offer a measure for Lifetime Values illustrated in Table 2.5: (Table 2.5)

Customer Lifetime Value Calculations (Authors table)

Griffin & Lowenstein, 2001. (Customer Winback, Josey Bass) Year 1

Year 2

Year 3

Revenue Orders per year

x Average order value

$576

$625

$650

= Total revenue

$1,728

$3,125

$4,550

Costs Direct cost

$2,031 (65%)

$3,185 (70%)

$312

$455

$2,073

$2,343

$3,640

Gross Profit

$(345)

$782

$910

Cumulative Lifetime Value

$437*

$1,347*

+ Acquisition cost

$1,209 (70%) $864 (50%)

+ Retention Cost = Total Costs

Kotler (1980) Cost of attracting new customer 1’200 (separate calculation) Annual customer revenue 5’000 Average number of loyal years x2

Company profit margin x .10 = Customer lifetime Value $1’000

Profit

(* These figures do not represent NPV)

Griffin’s lifetime analysis above shows that not all customers are equal in future profit potential and they also recommend that you then move beyond past history and consider customers future needs, as some have greater opportunities than others for your marketing spend. Kotler (1980) states that because the cost of acquisition is higher than lifetime value in this example, the company is spending more than the customer is worth. We can reason from this, that it would not be beneficial to lose customers, as costs would be incurred to a greater degree up front for new customers. Kotler’s analysis can be regarded as very simple without taking into account the accuracy of cost allocations to customers. Griffin et al (2001) have several measures for customer loyalty and identify six customer groups that form part of their ‘Big Three’ focus area. They provide loyalty measurements for these groups, demonstrated in Figure 2.8:

Draft dissertation- John Durr 2286/1999

Nine data Analysis

(Figure 2.8)

(Griffin & Lowenstein, 2001, Customer Winback. Jossey Bass)

Big Three

Acquisition

Customer Analysis groups

What you will learn

Prospects

Quality of new customers according to spending patterns

decile

New Customers Retained Customers

Retention

Win-back

New customer analysis

The

Revenue decile, Product pentration, Recency of purchase, Best customer Retention

Rank of customers in decile’s Time/purchase Number of customers across 3 decile’s Number of customers retained

At-risk Customers

Churn

Revenue decile movement

Lost Customers

Defection

Defctors by decile

Regained Customers

Win-back

Nmber of lost customers regained

analysis is their key measure which provides a birds eye view of customer sales performance, revenue and order information in increments of 10% to identify key break points across a base of customers. They go on to explain each measure in detail. Each of these analyses will translate into insights into current customer activity. We can conclude that LTV analysis is the current preferred method of measuring customer profitability and value to Organisations.

Draft dissertation- John Durr 2286/1999

2.5 What is EVA? Stewart (1991), offers the following explanation: “There is no profit unless you earn the cost of capital.” Peter Drucker. EVA is a useful measurement system for driving incentive programmes within organisations because it effectively measures profit after the cost of all capital employed. It therefore ensures that opportunity costs are maximised and assets are not purchased without due consideration of how they will be utilised. It ensures that capital costs are only incurred where they will generate income that offsets their effect in the EVA statement. Eva is the one measure that properly accounts for the trade-offs between the income statement and balance sheet in creating value. EVA is also the spread between a company’s return on and cost of capital, times invested capital: EVA = (Rate of Return - Cost of Capital) x Capital For example, a $1000 investment in a hot-dog stand produces a 5% return, where investments of similar risk elsewhere can earn 15%. The EVA from this case would be: EVA = (5% - 15%) x $1000 = -$100 Another way to think of EVA comes from multiplying through by capital: EVA measures profit less the cost of all capital employed

EVA = Operating Profit - A Capital Charge Where, Capital Charge = Cost of Capital x Capital For example, although the accounting profit in this example is $50, there was an opportunity to earn $150: EVA = $50 - $150 = -$100

EVA simultaneously captures both profit and capital efficiency

Under EVA, a business is effectively charged by investors for the use of capital through a “line of credit” that bears interest at a rate equal to the cost of capital shareowner accountability can thus be effectively decentralized into the operating units. EVA simultaneously focuses on both the profit and loss statement and the balance sheet and can be tailored to remedy accounting anomalies that fail to reflect economic value. Finally, EVA sets a required rate of return – the cost of capital – as a hurdle rate below which performance is unacceptable. Although in any given business there are countless individual operating actions that can create value, eventually they must all fall into one of four categories measured by an increase in EVA.

Draft dissertation- John Durr 2286/1999

Specifically, EVA can be increased through the following four means: 1. Fix. Improve the returns on existing capital through higher prices or margins, more volume, or lower costs. 2.Harvest. Through rationalizing, liquidating, or curtailing investments in operations that cannot generate returns greater than the cost of capital. This might be through divestitures or through withdrawing from unprofitable markets. 3. Growth. Profitable growth through investing capital where increased profits will cover the cost of additional capital. Investments in working capital and production capacity may be required to facilitate increased sales, new products markets.

The cost of capital- Optimum

reducing the cost of capital but maintaining the financial flexibility necessary to support the business through the prudent use of

rate of return or interest

(source, Henley Part 3 Wkb4, Setting Course, p147 1999 MBA)

4. Optimise Cost of Capital.

Cost of equity Type text

optimal level?M

Through

weighted ave cost of capital cost of debt

debt, risk management, and other products (Fig 2.8).

or new

% debt/equity

strategy financial

(Fig 2.8)

Therefore: EVA is not just a performance measure – it is an integrated performance measurement, management and reward system. Stern Stewart apply numerous examples of EVA applications to customers, which seem to substantiate these claims and then emphasise that it is not only a measurement system, but to ensure success, people must be paid and measured according to these principles.

2.5.1 MEASURING ECONOMIC VALUE ADDED Since “Customers EVA” would be the factors that generate economic value to Autotech. Delloitte & Touche developed an EVA model to remunerate Autotech sales staff (App 4), which takes into account the various value drivers for that sales person, built on the turnover and costs of all of his/her customers. It then applies the EVA formulae using these identified costs and the customer turnover. The calculation is as follows: Sales Person EVA = (Customer Turnover – Cost Of Sales – Servicing costs – Cost of Capital) Draft dissertation- John Durr 2286/1999

Capital Employed (debtors & consignment stock)

Only costs that are directly measurable off the system are used for the calculation. Since this is applied to a salesperson by summing up his/her customers, users can also drill down to an individual customer’s EVA activity.

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2.5.2 THE VIABLE EVA CENTRE Hodak (2000) touches on the important dimension of holding individuals accountable via EVA systems, by introducing a concept he calls the “viable EVA centre.” Such a centre ensures that you are only holding individuals accountable for cost centre they control. He refers to the accountability structure in an organisation. An example Hodak offers is when an head-office accountant hires additional staff to improve collections and allocates these costs to regions, which may affect the cost structure of regional managers and their EVA performance. In the same way Hodak continues by providing an example of how cheap, no-margin foods can bring highly profitable customers to gambling. You should therefore not be making the person in charge of those low margin food parts of the business suffer in their EVA, since they would naturally generate poor EVA returns in support of luring higher margin gambling customers. How business costs are spread to operating divisions affects the divisions EVA performances, is the message he delivers. Hodak offers three remedies to this problem: 1. Intra-company charges- although complex and a function of negotiation this would set in place a system of transfer pricing and/or cost allocations. An example would be the paying of referral fees to food services by the gambling entity described earlier. 2. Re-organisation- To eliminate the problem of cross-division costs and revenues, such as giving decisions over production including assets and costs to product line managers and crediting them with combined revenues across regions. 3. Aggregate results- when these do not work we can move to a higher level in the organisation to create the EVA centre. Hodak concludes by saying that ‘The Ultimate EVA centre: “would be an individual…in which all the associated costs and revenues generated by that individuals efforts are recorded” In order to measure customer profitability Mills et al argue that you need to attribute both fixed and variable costs to the customer in order to measure net profit against your trading entity (App 3). Although this does not account for cost of capital calculations it does offer a solution to allocating the costs that a customer will incur for the organisation, such as delivery costs and warranty claims.

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2.6 Summary of Literature review 2.6.1 INTRODUCTION Although the study of relationship marketing principles in support of retention marketing efforts is fairly new, some concepts are beginning to emerge as the dominant solutions in this field. We will see that the process begins with an organisation that wishes to retain its customers. Therefore, we can say that it begins with Retention Marketing. The key tool for Retention Marketing is described as Relationship Marketing (or Customer Relationship Marketing), which again consists of Loyalty Marketing. We will see that Loyalty Marketing attempts to move RM to a deeper more fundamental connection with the customer that endures both time and problems. 2.6.2 RETENTION MARKETING Retention Marketing began in the early 1990’s when Reichald and Sasser (1990), showed that a small increase in retention could improve profits dramatically (Fig 2.2 and 2.7), while Payne et al (1999) and Kotler (1980) argued that it costs five times more to get a new customer than it does to keep one. Kotler also identified steps to customer retention and levels of retention marketing. Griffin et al (2001) introduces customer churn as a dimension citing that the average firm loses between 20-40% of its customers and tabulates defection rates by industry (Table 2.1). Heskett begins to integrate the concepts of employees, customer retention and loyalty to sales and profits in his service/profit chain, while Griffin states that your first defence is acquisition and retention programmes and goes on to propose the “Big Three” model to maximise loyalty and profits: •

Acquisition management - Encompasses all the efforts directed at attracting high-value prospects and turning them into 1st-time buyers

•

Win-back management – All the efforts associated with recovering and rebuilding the relationship with the lost customer.

Both Kotler (1980) and Porter (19980, introduce the notion of lifecycles emphasising the importance of retaining customers in the later stages. 2.6.3 RELATIONSHIP MARKETING (RM) Draft dissertation- John Durr 2286/1999

Relationship Marketing (RM) has been defined as follows: •

Gummeson (1987, p.10)- “relationship management: creating, developing, and maintaining a network in which a firm thrives, that has a long-term orientation and depends primarily on person-to-person communication”.

•

Peppers and Rogers Glossary (2001)- “…to establish relationships with customers on an individual basis, and then use the information you gather to treat customers differently. The exchange between a customer and a company becomes mutually beneficial, as customers give information in return for personalised service that meets their individual needs.”

•

Peppard (2000) cites the central premise of CRM as being; “to maximise the lifetime value of a customer to the organisation”.

We can see that Gummeson takes a person-to-person attitude, while Peppers and Rogers a more electronic one and Peppard seeks value. However, all share common ideas: •

It is a long-term relationship

•

It should be mutually beneficial

•

Communication is vital.

Peppard (2000) lists the benefits of superior customer relationships as follows: •

An increase in customer retention

•

Relationships build more easily with two-way communication, with a potential to learn from customers

•

Relationship behaviour anticipates customer demands

•

Retained customers are more profitable than attracting new customers and have greater opportunity for cross selling.

Not all share in the excitement associated with this new RM approach. Channel marketing has limited usefulness of RM according to Frazier and Antia (1995).

2.6.4 DEFINING LOYALTY Four broad categories have been ascribed to when identifying LM: 2.6.4.1 Those concerned with the scope of LM Including the extent to which the supply chain and all the stakeholders are included. Mattson 1997 defines two types of LM: •

Limited, or latent in that it has the potential to exist

•

Extended, which includes all stakeholders in the value and supply chain.

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Fuan, L. and Nicholls, J.A.F., (2000) begin to differentiate between relational and transactional exchanges, while Brodie et al (1997) (Table 2.1.1) offer a more defined differentiation between: •

Transactional marketing, and,

•

Relational marketing comprising o

Database marketing

Interaction marketing

Network marketing

Where transactional is the most simple and Network the most interdependent and complex. Cram (2001) introduces us to psychological dimensions (Fig 2.5) that he believes are needed to achieve true loyalty, which include: Relationship dimensions, Customer Characteristics and Customer Expectations. Cram emphasises reliability and consistency as pivotal in achieving customer loyalty. Knox (1998) puts forward his “Diamond of loyalty” (Fig 2.6) categorising customers by level of involvement and purchasing portfolio across suppliers. He argues that ‘Loyal’s and Habitual’s’ are the most profitable, while the ‘Switcher’s’ are the worst possible customers. Knox also introduces us to “Retention with Attitude” where he exploits customer indifference and capitalises on customer involvement, when profitable. 2.6.4.2 Those dealing with concepts of LM Including topics such as commitment, dialogue, and trust. Pritchard et al (1992) apply a two–fold category as Behavioural and Attitudinal with the former equating with repeat patronage and the latter including attitude manifested as behaviour. Griffin et al (2001) and Christopher (1993) introduce a customer lifecycle (Table 2.3), which provides a link between RM and loyalty as they introduce the notion of increasing customer commitment to the firm. 2.6.4.3 Those that attempt to describe the processes of LM. A widely accepted definition is that offered by Gronroos(1994): …to establish, maintain and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties are met. This is achieved by mutual exchange and keeping of promises.

Such relationships are usually but not necessarily long term’. (p9)

Peppers et al (1999) identified four key factors in a methodology called IDIC – Identify, Differentiate, Interact and Customise (Table 2.4). This methodology they claim has been proven among its Fortune 500 customers to create more profitable one-to-one customer relationships. 2.6.4.4 Those dealing with LM technologies

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These include databases and communication where Copulsky and Wolf (1990) position RM as a communication tool used to build loyalty with customers, whilst Petrison and Wang (1993) link RM with the IT processes needed for customer knowledge and more focussed targeting.

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2.6.5 MEASURING LM Payne et al (1999); Caroll (1991); Griffin (2001) and Kotler (180) introduce both segmentation principles and Customer Lifetime Value (LTV), to establish if customers are profitable. They include the following variables to measure customer profit potential: •

No of Customers in segment and orders per year

•

Number of acquisitions

•

Acquisition costs

•

Defection rate %

•

Company profit rate profit per customer

Griffin (2001) proposes his Nine Data Analysis (Fig 2.8), which translates into insights into your customer activity across the Big Three. After careful consideration, LTV emerges as the preferred method of establishing which customer you should hold onto in your retention programme and which ones you should let go. 2.6.6 WHAT IS EVA? Stern Stewart & Co explains how EVA measures the value that is added to the organisation after you have taken the cost of capital into consideration. They provide the formulae: EVA = (Rate of Return – Cost of capital) x Capital They emphasise that EVA is not merely a calculation, but a performance systems that people must get measured and rewarded by, to ensure success for the organisation. Hodak (2000), introduces us to “The Viable EVA Centre” and explains that the apportionment of costs can be unfair and create problems. He offers three solutions and states that the perfect EVA Centre would be an individual in which all associated costs and revenues are recorded and are fully under the individuals control.

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Section

3 3. Methodologies and Field Work Organisation 3.1 Choice of respondents The author chose respondents for the survey from customers (B2B dealers not end-users) that support the total lead-acid battery industry, across all segments. Since the market is very mature and our group has at some time or another had dealings with most dealers in the industry it was relatively easy to obtain a list of potential respondents from our database. This list was supplemented by reviewing the advertisements placed by competitors listing their dealers nationally. A list of about 3500 potential dealers was arranged alphabetically and every 10th dealer was selected for the questionnaires to ensure a random sample. With the list of 350 potential respondents (every 10 th of the 3500 above) the author went about the task of finding contact details for them. Eventually 265 names with telephone numbers and fax numbers were recorded for distribution of the questionnaire, which was titled as a ‘Survey.’ For the inductive interviews we introduced geographical limitations as this phase of the project was conducted after the author left the company, and was based in Cape Town. The same process resulted in a list of 20 customers to be interviewed in Cape Town for the inductive survey. While this sample was small it was decided that the results were reliable and the consistency of their answers indicated they were representative of the larger buying community.

3.2 Confidentiality and feedback The author emphasised in both the questionnaire and interviews that the purpose was to fulfil the author’s MBA study obligations and the respondents were assured that their names would not be revealed to anyone. The author further offered to show them the completed work and/or the results if requested. Both the questionnaire and the letter to Draft dissertation- John Durr 2286/1999

potential interviewees included the following quotation; “My research is purely for the purpose of completing my studies and the respondents details are not recorded in any way except on the form so that I can contact them. The forms are not coded in any way and once results are analysed it will be impossible to determine who submitted any given opinions.. Should you require a copy of the results or the completed dissertation this will be supplied to you free of charge to thank you for your valued input, without which this project would be impossible.” Surprisingly only a few (3) respondents of the questionnaire wanted to see the dissertation, while for the most part they were happy to see the results of the findings for interest sake.

3.3 Customer Questionnaire/Survey In line with current thinking on new product development, a reward programme cannot be implemented without consulting customers in the design phase. A survey was designed and sent out by the author to the customers to get feedback and can be found in Appendix 1.

3.3.1 PURPOSE The purpose of the questionnaire was to provide a statistical basis for my research that would be recognised as sufficient proof for or against the introduction of CLeva into the organisation. In addition the survey attempted to assess some key value drivers and the customers feelings on them. Most of these affected the service dimension of Autotech’s offering to the customer. 3.3.2 ASSUMPTIONS AND CONTENT The questionnaire was designed to elicit responses on three key areas that would impact on the implementation of the CLeva: 1. The propensity of customers willingness deal with Autotech on-line within our B2B facility 2. Current exposure and attitudes to loyalty programmes 3. Importance of various service dimensions that were also cost and/or value drivers for the organisation. On average it took respondents about 20-30 minutes to complete the survey. 3.3.3. DATA COLLECTION This was a challenging and time-consuming part of the fieldwork. Although all the respondents sent the survey agreed to it, initially only a 5% response was generated and respondents had to be contacted up to four times to generate a response large enough to consider a relevant sample. Eventually a total of 104 responses from the 265 sent out were collected, representing a response rate of 39.24%, which was considered to be good. Segment respondents were as follows: •

Motor spares shops x 35

•

Tyre & exhaust fitment shops x 33 Draft dissertation- John Durr 2286/1999

•

Farmers Co-operative shops x 11

•

Auto Electricians x 15

•

Battery Specialists x 10

3.3.4 DATA INTERPRETATION Excel spreadsheets (App 8) were used to capture the data numbering each question as well as each potential answer to the questions. A coding system was established to tabulate the findings for analysis. Respondents were each assigned a row, while each potential answer was assigned a column. Each column was numbered and coded the same as the survey, to allow for interpretation of the data back to demographics. The survey started with some simple demographic information, which would be used to track opinions by segment and type of business. Customer segments were continually tracked by response for each question and not just from the sample as a whole. Following this, a 5-point scale was widely used, ranging from a negative to a positive response with neutral in the middle, to prevent extreme answers from affecting the mean. The data was qualitative in nature and respondents were asked to mark one of the options as illustrated below: B1.1. Do you consider the Internet/WEB as a suitable channel for electronic business? Please tick the score that you feel most appropriate. 1. Not at all 2. Slightly 3. Neutral 4. Yes, a little 5. Very Much B1.2 If other, please comment ………………………………………………………………………………………

Each point in the 5-point scale was assigned a separate column so that the number of responses per point could be analysed to establish the mean and the deviation, as reflected in the results recorded. These results were used to determine the average attitude as well as the standard deviation, which indicated the width of disagreement amongst customers on any given question. Table 3.1 describes the descriptive terminology used for the results of both the mean and the standard deviation: (Table 3.1) Terminology for research results

Mean

Description

Standard Deviation

Description

High level of agreement

<0.7

Very small variance

3.4 - 4

General agreement

0.7 < S < 0.9

Small variance

2.6 < M > 3.4

Divided feeling

0.9 < S < 1.1

Some disagreement

2 – 2.6

General disagreement

1.1 < S < 1.3

Big variance

Strong disagreement

>1.3

Very big variance

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The results then need to consider both the mean as well as the standard deviation as a response of a 1 and a 5 for any given question would result in a mean of 3 indicating a neutral feeling. But, this would be incorrect, as it would not reflect the extreme feelings that can be reflected by looking at the standard deviation. Interestingly, four respondents added another column and titled it 6 to some questions, to indicate that they felt 5 points was not strong enough for their views on that point. In these cases the author changed these back to a 5 in order to ensure it did not distort the standard deviation or the mean.

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3.3.5 TREATMENT OF COMMENTS Many respondents chose to air their opinions on a variety of matters not relevant to the study. While some of these comments were not valid they were forwarded into Autotech’s complaint/suggestion system for further investigation and allocated to the relevant personnel. Those comments that were relevant were treated in the same way as the comments derived from the inductive customer interviews dealt with below. The survey showed some high standard deviations in some questions, prompting further questions posed in the corridors to the account executives, to establish the reasons for this. It became apparent that some questions, in particular those surrounding e-commerce benefits, were not fully understood by the respondents and it was necessary to clarify these points. This resulted in additional research, in the form of inductive face-to-face customer interviews with selected dealers.

3.4 Inductive customer interviews 3.4.1 PURPOSE The purpose of this approach was to gain a better understanding of what the customers actually thought about CLeva as it was felt that the questionnaire did not illicit some of the underlying thoughts and feelings of the respondents. In particular it was used to address areas of uncertainty in the survey that resulted in some questions not being answered correctly. The full-analysed results of these inductive interviews are found in Appendix 9, a transcript in Appendix 11, followed by the content analysis represented by a mind map in Appendix 12. Only the relevant results are integrated into the field research results in section 4. 3.4.2 ASSUMPTIONS AND CONTENT Since this is a new field of study in the battery industry an inductive approach with Depth interviews as the principle technique was used. This allowed respondents opinions and insights on the conception, evolution and implementation of the scheme to be aired freely. The interviews were semi-structured along the lines of the survey. The interviews were designed to elicit responses on the concept of loyalty marketing. Since this was an informal interview designed to encourage the opinions of the respondent, it contained openended questions tracking those in the survey, starting with simpler less threatening questions to get the conversation going. Questions then got progressively deeper and the interviews lasted an average of two hours each. As noted the small sample was assumed to be representative but could be expanded if needed to further test their responses. Draft dissertation- John Durr 2286/1999

3.4.3 DATA INTERPRETATION Extensive notes were taken of the respondent’s opinions with each interview allocated a separate question sheet.

The

mind mapping (spray diagram) technique was used to filter answers given by respondents to identify key themes. These key themes are illustrated in the mind map in App 10. The number of answers for each question variable was recorded on the mind map in order to generate percentages. This said, it must be remembered that the sample was small and each respondent could cause large percentage variances. For the most part deductive reasoning had to be used to establish what a variety of random comments might have to do with the research topic. The author took the results and identified key themes to establish how these would impact the focus areas of the dissertation. This was a difficult process as it called for judgement that may have been obscured by a willingness to present certain findings in favour of CLeva. 3.4.4 TREATMENT OF COMMENTS As answers were in discussion format, there is a possibility of some misinterpretation. Nevertheless, this was an important part of the research as it yielded more insight into the propensity of customer’s inclination toward loyalty programmes.

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3.5 Stern Stewart Interview Although this was planned as an inductive interview, it developed into several creative and very helpful discussions, to clarify the ability of EVA with regard to measuring customer values. The author found that what seemed a very complex concept was actually logical after several calculations with Mr. De La Harpe.

3.6 Management reports Autotech management reports were used to validate some of the literature review findings, such as the churn rate of customers and to establish lifetime values for customers as a means of illustrating some of these concepts to the management team. The purpose was to show the need for this investigation by illustrating that we did in fact experience some of the concerns raised in the literature review. All these reports were extracted from our mainframe (AS400) and some had to be designed with the IT department, in order to get the relevant information. An example of this can be seen in App 5, which reflects the value drivers used in the EVA remuneration calculations for the account executives.

3.7 Literature Review In order to make an in depth study of loyalty marketing, the author joined a business school library and sourced many relevant publications. The Henley Tutor and Moderator recommended some of these journals, while further EVA literature was pulled from the Internet and the Johannesburg office of Stern Stewart & Co and Delloitte & Touche.

1.2.4 Integrating the Literature and the Fieldwork This proved the most challenging, as one tends to go into this in an iterative process, continually updating ideas as new concepts in the literature review emerge. There were key areas in the literature review such as the issue of real loyalty that were difficult to integrate beyond a repeat patronage level, with the research. In these cases the inductive interviews assisted greatly in determining if loyalty was a factor in customers minds. The results of the research in section 4, uses only extracts from the fieldwork (both the survey and the inductive interviews) and the literature review, that was relevant to the dissertation aims. The complete fieldwork results and transcripts are to be found in Appendix 1,8 and 9.

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3.7 Suitability of the Methods Chosen 3.7.1 CUSTOMER QUESTIONNAIRE While this was a suitable method, more care could have been taken in designing the questions in such a way that the largely computer illiterate base of respondents could more easily understand the questions. Nevertheless, as a principle research tool, this was a sound method that would improve its accuracy as the sample grew. It may have been better to design the survey after having read the literature review. The use of software would have helped to analyse the various relationships in a better way, unfortunately the author did not have access to any software. 3.7.2 INDUCTIVE INTERVIEWS Although dependant on the interviewers objectivity, this method elicited truthful opinions about loyalty as defined in the literature review. In some cases respondents felt more comfortable relating competitor offers such as the competition in face-to-face interviews. It enabled the author to establish the respondent’s propensity to purchase on factors other than price and availability, which are considered the key drivers in the battery industry. This was important, as this dissertation focus was, in essence, a study in buying behaviour. 3.7.3 MANAGEMENT REPORTS While these reports are informative from an organisational point of view, they offer a skewed form of data based on historical purchases of Autotech’s customers only. They do however; offer a basis on which a management team can view the effects of EVA and Lifetime Customer Values, within any organisation.

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4. Results of the Research

Section

4 4.1 Introduction This section integrates the conclusions of the survey, inductive interviews, and the literature review. The full report and analysis of the survey and the inductive interviews with content analysis can be found in Appendix 1, 9, 10 and 11. Demographics and extracts from the survey are included in this section for discussion of the main issues, which were highlighted (in the same sequence as the survey for ease of reference) as follows: 1. Demographics 2. What is the propensity to transact in an electronic environment in the lead acid battery industry in South Africa? 3. Do loyalty programmes support retention marketing efforts in the lead acid battery industry in South Africa? 4. Will EVA principles form a sound basis for the measurement of any reward allocations in these loyalty programmes? Finally problems and advantages for the implementation of a reward programmes based on loyalty and EVA will be considered.

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4.2 Demographics 4.2.1 OWNERSHIP OF THE OUTLETS

A6.Chain or Private business

Chain

Private

Discussion of answers: The question f4om the table above attempted to establish if buying behaviour would differ based on the fact that the buyer within the outlet surveyed, was or was not an owner of some sort. Although initially thought to be a strong factor it only really came through on the allocation of rewards. Respondents differed on what rewards they would prefer as indicated in questions C4.3, C4.4 and C5 (App1). Reviewing these questions in conjunction with the inductive customer interviews, it seems possible that

Chain or Private ownership

owner operated businesses prefer rewards in the form Chain 38%

of product, while others prefer gifts or other rewards that would reward them personally rather than the organisation. Unfortunately the survey demographics did not ask

Private 62%

for the respondent’s position in his/her organisation and as such, it is difficult to determine whose interest the respondents had at heart in terms of rewards redemption. This would need to be checked with the various head-offices of dealers, before employees are offered any rewards.

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4.2.2 SEGMENTAL DIFFERENCES

A7.Type of operation

Spares

Fitment

Co-op

Battery specialist

Other

Discussion of answers: These segments were categorised according to the known segments in the marketplace (App 2). This shows that market segment sales performances are weighted in favour of battery specialists who sell the most batteries in the country (38.5%). The low amount of

Segmental respondents

respondents for this segment is a concern, in that this

Auto Elec 14%

sample may not be large enough to measure this allimportant segment. Knox (1998); Reichald and Sasser (1990); and Griffin et al (2001) all demonstrate profits and customer

Spares 33%

Battery specialist 10% Co-op 11%

defection rates differ by industry. Consequently if you trade with different industries as customers you need to introduce segmentation to track these

fitment 32%

differences by using the suitable Transactional and Relational marketing techniques introduced by Brodie et al (1997). Knox’s (1998) “retention with attitude” theory holds that we must capitalise on customer involvement where present and exploit indifferences where possible. Knox states that market segment should be based on buying behaviour and psychological evaluations as part of his “Diamond of Loyalty” concept offered as a tool to segment customers. Customers are segmented according to their stage in the “Customer Lifecycle” according to Griffin et al (2001) and Christopher et al (1993) although they do not offer advice on each stage, while Payne et al (1999) place emphasis on the importance of segmentation and the need to design service strategies per segment. Lastly, Peppers and Rogers differentiate their customers within their IDIC principle. The identification of segments later resulted in some trends that substantiated the use of segmentation. Battery Specialists are the lasting pockets of demand, offering the most positive responses generally as they are more

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directly impacted than any other segment by the mature nature of our industry and their high level of purchasing reflected in the next question (A8A.)

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4.2.3 BUYER INVOLVEMENT A8.A Batteries as a % of your purchases

0-5%

6-10%

1125%

2650%

51-100%

Discussion of answers: Battery as % of your purchases

100%

1 3 5

80% 60%

0 2

1 2 2 7

0 2 3

9 7 12 24

40% 21

20%

Sp ec ia lis t Au to El ec t

at te

C oop

Fi tm en t

s Sp ar e

Sa m pl e

1 0

51 to 100% 26 to 50 11 to 25 6 to 10 0 to 5%

It is clear that for most respondents (52), batteries represent less than 5% of their purchases, while another 24 purchase less than 10%. Consequently, we can say that for the most part batteries represent a small portion of a customer’s purchases. The most notable difference are the Battery Specialists, where batteries represent an average of 70% of their purchases. In almost all other cases batteries are a small proportion of customer purchases, indicating a possible low purchase involvement or importance. However, it is also true that batteries are commonly used as loss leaders, especially by the spares segment, increasing their importance to the buyers. Again we note Knox (1998) who feels that purchasing behaviour is an important dimension and notes that we may be able to maximise segments such as the Battery Specialists, while exploiting those segments that have low buyer involvement, in search of increased profits. This also affirms the segmentation theory in the preceding section.

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4.3 Is the South African Lead-acid Battery industry ready to transact in an electronic environment? This section is dealt with briefly as it does not strongly influence the outcome of this dissertation. It was originally included in anticipation of an on-line reward programme, which would allow for far higher levels of customisation and cost effective distribution of all communications. Early investigations showed this would be unlikely as a result of poor usage of on-line facilities in South Africa and in this industry. A review of our database showed that only 6% of our extensive customer base had e-mail addresses. Survey results While most respondents rated the Internet as a suitable channel in question B1.1, it became apparent in B3.1 that very few (6.25%) actually use the Internet, despite the fact that 50% have free access at work to the web. Possible reasons for this include long download times as a result of poor bandwidth in the country, lack of trust/confidentiality in paying on-line and the low levels of computer literacy in South Africa. B4.2 illustrated that the preferred method of interacting is through representatives and the call-centre, although on-line shows some potential. Inductive interview results Respondents felt that there were significant cost barriers to implementation as a result of IT costs. Only the chain operated (30%) respondents were positive and happy to link electronically. Most felt the advantages such as stock management were only to the supplier’s advantages. Peppers and Rogers (2001) offer the definition for loyalty as- “…to establish relationships with customers on an individual basis, and then use the information you gather to treat customers differently. The exchange between a customer and a company becomes mutually beneficial, as customers give information in return for personalised service that meets their individual needs.” This poses a problem for Autotech, as it is clear that to achieve this level of individualisation, technology needs to be utilised more intensely and effectively. While there will always be early adopters we will need to recognise that any on-line programme will have to be backed up by conventional means such as print, fax and telephone interactions, increasing the costs of the programme. B2.

Rate the potential business benefits offered by e-Commerce, by linking your organisation to ours electronically. Please circle the scores that you feel most appropriate according to the following: 1. Not at all

B2.1 B2.2 B2.3 B2.4 B2.5

2. Slightly

Reduced costs/Improved margins Order processing efficiency Increased sales/revenues Value chain integration Improved customer service

3. Neutral 1 1 1 1 1

2 2 2 2 2

4. Yes, a little 3 3 3 3 3

4 4 4 4 4

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5. Very Much

5 5 5 5 5 59

B2.6 B2.7

Increased customer loyalty 1 Enhanced customer communication1

2 2

3 3

4 4

5 5

B2.8

If other, please comment ………………………………………………………………………………………………………… …………………………………………………………………………………………………………

Discussion of survey answers: Deviation: E-commerce benefits

Mean: E-commerce benefits

B2.1

6 5 4

B2.7

1.5

B2.7

B2.2

3 2

0.5

1 0

B2.6

B2.3

Spares Fitment B2.5

B2.4

B2.5

B2.4

Co-op Battery Specialist Auto Elec

Although respondents returned general to High levels of agreement, it became apparent after talking to Account Executives in the corridors, that the reason for this was a lack of understanding of the concepts of e-commerce and its potential benefits. This was then investigated further in the inductive interviews

Discussion of Inductive Interviews This question linked to the previous one, brought home the fact that there was little understanding of these benefits as much of the discussion was around explaining the concepts to some degree. Only two respondents understood the implications of linking our organisations and sharing information without explanations. •

No benefits (40%): Respondents felt they did not need all this technology to sell batteries, as it was mainly cash over the counter business. Many answers echoed the previous question.

•

Some benefits (20%): Once the concepts were explained 4 respondents (20%) felt that there would be reduced costs as they Draft dissertation- John Durr 2286/1999

would not have to count stock or order, since these functions could be automated. They also could see benefits in automated stock levels. None felt benefits would include loyalty, which they saw the result of better service levels. On communication, 4 respondents said that only better reps calling cycles and access to management could improve this. Since there was little understanding of this concept, it is was reasonable to assume that there would be little likelihood of launching the loyalty programme in an electronic manner, as this would involve extensive training, support and change barriers

Draft dissertation- John Durr 2286/1999

4.4 Do loyalty programmes support retention marketing efforts in the lead acid battery industry in South Africa? This section seeks to determine whether the introduction of a loyalty programme will influence the behaviour or increase repeat purchases of customers. The customer’s current exposure and feelings towards loyalty programmes are evaluated and the importance of specific service levels are examined.

4.4.1 CURRENT REWARD SYSTEMS- MEMBERSHIP C1

C1.6

Do you personally currently participate in any of the following reward programmes (indicate more than 1 if relevant) Voyager B5.1 Air Rewards B5.2 Leisure Link B5.3 Accelerator/ B5.4 U Win I Win B5.5 If other, please specify …………………………………………………………………………………………………………

Discussion of survey answers: 49 of the sample participate in a reward programme, representing a 47.11% of the respondents. This can be regarded as high. The majority of these were involved in the South African Airways ‘Voyager’ programme. Leisure Link is a programme that links a major bank and several consumer industries in a point’s scheme. Accelerator is an automotive industry programme that offers discounts to members. The author could not find any segmental trends and it seemed

Sample Auto Elect

33 6

Co-op

0 1 0 0

4 9

Fitment

Battery Specialist

Spares

8 20%

0 40%

60%

Air rewards Leisure l Accelerator

0 1 0

Voyager

U Win I Win

2 0 6

80% 100%

that respondents responded to the strong marketing campaigns of these three programmes, since they offered no cost and potential benefits. Nevertheless the fact that so many were part of a reward programme meant that they could see potential benefits and this would be an important factor to any organisation wanting to launch a programme, since it indicates a possibility that customers will join a loyalty programme.

Draft dissertation- John Durr 2286/1999

Merely belonging to a programme is not sufficient according to Cram (2001), who differentiates between loyalty and inertia, citing European Airline travellers who on average are members of three different airline schemes. This means that membership alone will not secure you’re the customer’s patronage. We can however, deduce that there may be a 1st mover advantage to the battery industry; since there are currently no reward programmes in the market. Becoming a member then would be the 1st step such as shown by Griffin’s Big three and the Customer Lifecycle concepts explained earlier. Discussion of inductive interview results 7 (35%) of the sample participate in a non-industry reward programme, not within their industry, while 55% were part of a programme by our competitor in the industry. (This competitor programme was in the form of a competition based on unit volume targets, with several prizes and a grand prize of a week vacation.)

Draft dissertation- John Durr 2286/1999

4.4.2 CURRENT REWARD SYSTEMS - BENEFITS C2

If you do participate, do you feel you benefit from these reward programmes? 1. Not at all

2. Slightly

3. Neutral

4. Yes, a little

5. Very Much

Discussion of answers: There was a divided feeling toward the benefits of reward programmes, with a very small variance. Only the spares segment showed a higher variance.

Sa m pl

El e

t is al

Au t

Sp e

C o-

Deviation

cannot be regarded as a benefit in terms of

Mean

the purpose of this dissertation, in that it

tm en

this was disregarded as it did not fit in with

pricing arrangements from suppliers and so

spares segment enjoyed some preferential

customer interviews, indicated that the

3.27 3.09 3.13 3.13 3.5 3.09 2.8 3 2.5 2 1.01 1.5 0.52 0.54 0.63 0.74 0.76 1 0.5 0 Sp a

Further investigation in the inductive

a reward programme but as a discount. Without exception respondents showed general disagreement with small to very small variances, indicating that they do not receive any rewards from their current suppliers, or that this is their perception in C3. These results may indicate a barrier to a new scheme, as respondents may feel that there is yet another programme asking for all sorts of personal information, with little in tangible benefits following.

Draft dissertation- John Durr 2286/1999

Discussion of Inductive interview results Those on the competitor purchase incentive program listed the following perceived benefits: First National Battery Programme (55%): •

You get something back

•

The spouse also benefits (she normally works in the shop as well)

•

You see how everyone else is doing

•

The more you sell the more your chances are

•

You spend time with the other successful retailers at conferences

As a result of price parity across brands, dealers do support the FNB brand if they can get something out the competition. Further discussion indicated that the dealers enjoyed some preferential pricing arrangements from suppliers, in particular Autotech’s competitor. This may have been true or it may have been a subtle attempt to secure better prices form our organisation, as respondents were aware of the fact that that the author held a senior position in the organisation. Discounts were disregarded, as it did not fit in with the purpose of this dissertation, in that it cannot be regarded but as a discount.

Draft dissertation- John Durr 2286/1999

Rate your requirements for a reward programme, where applicable. 1. Not at all

2. Low

3. Neutral

4. High 1 1 1 1 1 1 1

2 2 2 2 2 2 2

5. Very High

C4.1 C4.2 C4.3 C4.4 C4.5 C4.6 C4.7

Linked to your purchase activity Access to reward statements via web Choice of gifts/rewards by you Rewards to be redeemed as additional products Rewards distributed monthly Rewards distributed on request Bonus points for increased loyalty

3 3 3 3 3 3 3

4 4 4 4 4 4 4

5 5 5 5 5 5 5

C4.8

If other, please specify …………………………………………………………………………………………………………

Discussion of answers: Standard deviations were very low throughout and therefore not illustrated. Total Sample, Average Scores Reward programme requirements C4.1 Question Ave Deviation Comments 5 Linked to your purchase 4.00 0.68 High level of agreement with a very small 4 activity variance C4.7 C4.2 C4.2 Access to reward 3.13 0.78 3 A divided feeling with a small variance statements via web 2 Spares C4.3 Choice of gifts/rewards 4.39 0.49 High level of agreement with a very small 1 Fitment by you variance C4.4 Rewards to be 3.71 0.83 0 General agreement with a small Co-op variance Battery Specialist redeemed as additional 4.6 C4.3 Auto Elec products Sample C4.5 Rewards distributed 3.79 0.55 General agreement with a very small variance monthly C4.6 Rewards distributed on 3.84 0.96 General agreement with a small variance request C4.7 Bonus points for 4.23 4.50.83 High4.4 level of agreement with a small variance increased loyalty C4.8 If other, please specify No comments were made. Discussion: A General to High level of agreement with very small variances indicates a strong interest in the tangible results of a reward programme. No C4.1

C4.1 - All respondents agreed that rewards should be linked to purchase activity. C4.2 - Co-ops again showing an interest in on-line facilities, although generally this point rated lower than the rest in the question. C4.3 – Auto Electricians created a small variance with their unanimous agreement that they should have a choice of gifts. Most respondents indicated here that they would like to choose the rewards/gifts in question. This may mean that they will not necessarily choose additional product, as they may be managers and not owners of their outlet. C4.4/5/6 – Only Battery Specialists felt strongly that they would prefer products as rewards, although they Draft dissertation- John Durr 2286/1999

also indicated in C4.3 that they would like a choice. These questions showed higher variances, indicating different attitudes of segments again. C4.7 – Perhaps an obvious response in retrospect.

Draft dissertation- John Durr 2286/1999

What sort of rewards do you prefer (you can tick more than one block) C5.1. Batteries

C5.6

C5.2. Gifts

C5.3. Charity Contributions

C5.4 Travel Vouchers

C5.5 Other

If other, please specify …………………………………………………………………………………………………………

Discussion of answers: This question proved interesting in that it reflected a higher interest in batteries than gifts that conflicts with previous answers. Segmental differences played a role here.

100%

In particular the spares and fitment

1 2 0 14

1 2 0 16

1 0 3

50%

segments which are mainly chain

operations, showed a higher interest in

gifts, indicating that respondents sought personal gain, while Battery

1 0 1

0 1 0 4

4 5 0 32

Spare Fitme Batter Auto Sampl Co-op s nt y Elect e

specialists and Auto Electrical outlets,

Other

normally privately owned, opted for

Travel

benefiting the business with product redemptions.

Charity

Gifts

Batteries

Discussion of Inductive Interview results A strong preference for linking to purchase activity and products as rewards was expressed. The author feels this may change after implementation of the programme and there may be a shift to redeeming prizes rather than products in some cases.

•

Link purchase activity to rewards (100%):

•

Gifts or product choice as rewards (100%):

•

Extra rewards for loyalty (70%):

•

Batteries as rewards (95%)

•

Gifts as rewards (55%) Would you like your staff members to benefit from the rewards programme? 1. Not at all

2. Slightly

3. Neutral

4. Yes, a little

5. Very Much

Discussion of answers:

Draft dissertation- John Durr 2286/1999

This question was posed to try and establish if those respondents that belonged to chain operations would have problems with their staff drawing rewards from suppliers. Surprisingly the spares and fitment segments identified in the previous question confirmed that respondents could 3.6

4.4

0.97

4.09

0.91

0.96 Mean

at te

head-office.

Sa m pl e

Deviation

Sp ec ia lis t Au to El ec

between the respondents desires and the chain

1.04

0.87

oop

each chain to ensure that there is no conflict

1.01

3.91

investigated further at the head office level of

4.15

Fi tm en t

benefit and as such would need to be

4.09

respondents being the ones who would actually

5 4 3 2 1 0

Sp ar e

benefit. This could perhaps be the result of the

In summary, respondents noted that they did not feel they benefited from current reward schemes in C2, nor did any of their current supplies reward them (C3). They had different requirements from reward programmes (C4) and also expected to be able to choose their rewards (C5). Mutual benefits are an integral part of any RM and LM efforts and it is vital that customers also feel the benefits. Fuan, L. and Nicholls, J.A.F., (2000) and Cram (2001) both emphasise mutuality of interest and mutual benefits, while Peppers and Rogers (1999) IDIC principle goes to the full extent of customising their offering to individual requirements. The interest in question C4 on what rewards they prefer, is supported by the literature that indicates that one needs to customise one’s offering to individual preferences, as suggested by Peppers et al IDIC principle, Peppard’s ICARE and by Cram who highlights the importance of customer expectations through recognition and preferences being noted. 4.4.3 SERVICE LEVEL DIMENSION This question was introduced to measure the importance of the service dimension of Autotech’s offering to the customers in order to test Kotler’s theory that mature markets move to cost and service dimensions and to see if there is any opportunity for added value based on factors other than price. The following two questions were posed only in the inductive interviews subsequent to the surveys. These are then followed by the survey questions integrated with the interviews again.

Draft dissertation- John Durr 2286/1999

D0 Would you prefer extra rewards for keeping a favourable trading account with us? 1. Not at all

2. Slightly

3. Neutral

4. Yes, a little

5. Very Much

Discussion of answers: This question was originally designed to test if the dealers would accept a reward system based on individual dealer behaviour. This would contrast from the traditional reward systems such as that offered by the airlines, where rewards were a fixed amount of air miles per flight irrespective of the price paid for a ticket. The second, hidden objective, was that the supplier could then set a base level for rewards for purchase activity, assuming high cost structures and then reward bonus points for improved cost efficiencies at individual dealer level. •

Yes (90%): Perhaps predictably respondents answered yes. Most understood this question initially to refer to our debtor’s book.

•

Claims and rotations (80%): 17 respondents said they would not want to lose points for claims and stock rotations as both of these were the supplier’s responsibility.

The author anticipates that this could be a problem as many claims and rotations are currently the result of the dealers abusing our systems and trying to replace consumer claims even if the product ids not faulty. The reason for this is the emotional attachment to the purchase by the consumer since it is a grudge purchase means he/she does not want to hear it is there car and not the battery at fault. Rotations on the other hand are the result of excess stock being held “just in case” someone requires that specific item.

Draft dissertation- John Durr 2286/1999

D0.1 should a company seek your loyalty in ways other than discounts or rewards linked to your purchase behaviour? (Include needs, wants &desires)

For this question 85% of respondents referred to the service levels and preferential pricing structures. Price came up repeatedly even though the question attempted to exclude it. This question was answered with three key areas: •

Price (85%): o

•

17 Respondents said they wanted preferential pricing in exchange for loyalty

Support (40%): o

Access to management (6). This seemed to be a recurring theme and the need to increased visibility seems apparent. Respondents also feel they often have claims and problems that require a manager of the supplier to pacify the customer.

Information provision (4). Respondents wanted access to technical product information as well as world industry trends.

Factory tours (2). Respondents felt this was a good tool for relationship building with the key accounts.

Processes and procedures: o

3 Respondents noted that they required preferential treatment on both claims and special deliveries.

None indicated that they wanted better personal relationships with our company with regards to having fun or being friendly.

Draft dissertation- John Durr 2286/1999

D1.

Rate the following aspects according to level of importance to you?

D1.1 D1.2 D1.3 D1.4 D1.5 D1.6 D1.7 D1.8 D1.9 D1.10 D1.11 D1.12

1. Not at all 2. Low Order accuracy Knowledge of suppliers stocks Brands Delivery on-time Copy invoices Reps calling on you Special deliveries Stock availability Consignment stocks Claims turnaround time Rotations turnaround time Access to management

3. Neutral 1 1 1 1 1 1 1 1 1 1 1 1

2 2 2 2 2 2 2 2 2 2 2 2

4. High 3 3 3 3 3 3 3 3 3 3 3 3

5. Very High 4 4 4 4 4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5 5 5 5 5

Discussion of Answers:

Questions D1.1 to D1.12 were posed to try and establish the respondents feelings toward service levels in general, as well as to test Kotler’s theory that mature markets move to cost and service

Service levels Importance D1.12

dimensions. D1.11

It also aimed to establish relationship importance of representatives and access

No D1.1

Question Order accuracy

D1.2 D1.3 D1.4

Knowledge of suppliers stocks Brands Delivery on-time

D1.5 D1.6 D1.7 D1.8

Copy invoices Reps calling on you Special deliveries Stock availability

D1.9 D1.10 D1.11

Consignment stocks Claims turnaround time Rotations turnaround time

4 3

D1.2

D1.3

requirements by examining the to management in D1.6 and D1.12.

D1.1 5

D1.10

D1.4

D1.9 Average Scores D1.5 Total Sample, Ave Deviation Comments 4.90 0.33 High level of agreement, with a very small D1.8 D1.6 variance 4.80 0.45 SparesHigh level of agreement,Fitment with a very small D1.7 variance Co-op Battery Specialist 4.28 0.78 Auto Elec High level of agreement,Sample with a small variance 4.92 0.30 High level of agreement, with a very small variance 3.82 0.83 General agreement with a small variance 4.42 0.90 High level of agreement, with a small variance 4.45 0.81 High level of agreement, with a small variance 4.91 0.32 High level of agreement, with a very small variance 3.88 1.13 General agreement with a big variance 4.62 0.74 High level of agreement, with a small variance 4.44 0.87 High level of agreement, with a small variance

Draft dissertation- John Durr 2286/1999

D1.12

Access to management

4.64

0.56

High level of agreement, with a very small variance

Discussion: We can see from the Radar chart and the high level of agreement throughout, that all service dimensions are regarded as very importance to the dealers. The only real surprise was the lower interest in consignment stocks, which the industry always regarded as a major selling feature. This may be a case of it being the norm and therefore its true importance may only be measured if you take it away. Copy invoices also returned a low score, possibly as these are normally only requested as a delay tactic when suppliers are collecting monies due. Segmental differences were negligible, with special deliveries (D1.7) required less by battery specialists and Co-ops, who normally enjoy high consignment stocks. The high scores for D11.6 and D11.12 reflect a need for relationships to resolve any customer problems. Discussion of Inductive Interview answers While all these areas were considered important and rated a 5, some touched stronger buttons that others. In particular the following two areas prompted strong feelings: •

•

Availability (60%): 12 respondents felt that Autotech continually had stock-outs in the industry and that this was the single biggest determinant of dealer dissatisfaction. (This concurred with results from a customer service index we had carried out 6 months prior) Special deliveries (50%): Linked to this was the feeling that there were times when the dealers needed an unusual item or they had had a run and were out of stock of particular items. In these cases they felt suppliers were not accommodating enough on special deliveries.

Draft dissertation- John Durr 2286/1999

Please rate the following dimensions in importance to you: 1. Not at all

2. Slightly 1 1 1 1 1 1 1 1 1 1 1 1 1

2 2 2 2 2 2 2 2 2 2 2 2 2

3. Neutral 3 3 3 3 3 3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4 4 4 4 4 4

4. Yes, a little

5. Very Much

D2.1 D2.2 D2.3 D2.4 D2.5 D2.6 D2.7 D2.8 D2.9 D2.10 D2.11 D2.12 D2.13

Trustworthy Reliable Honest Positive Sincere Understanding Determined Friendly Clever Outgoing Serious Fun Responsible

5 5 5 5 5 5 5 5 5 5 5 5 5

B2.14

Discussion of Answers: Questions D2.1 to D2.14 were posed to establish what sort of personality traits the customers felt the company and its staff should have. Total Sample, Average Scores Ave Deviation Comments 4.77 0.45 High level of agreement, with a very small variance D2.2 Reliable 4.80 0.43 High level of agreement, with a very small variance D2.3 Honest 4.78 0.50 High level of agreement, with a small variance D2.4 Positive 3.17 0.61 Divided feeling, with a very small variance D2.5 Sincere 3.21 0.66 Divided feeling, with a very small variance D2.6 Understanding 3.17 0.61 Divided feeling, with a very small variance D2.7 Determined 3.19 0.62 Divided feeling, with a very small variance D2.8 Friendly 4.35 0.48 High level of agreement, with a very small variance D2.9 Clever 3.10 0.63 Divided feeling, with a very small variance D2.10 Outgoing 3.11 0.67 Divided feeling, with a very small variance D2.11 Serious 3.09 0.67 Divided feeling, with a very small variance D2.12 Fun 3.10 0.68 Divided feeling, with a very small variance D2.13 Responsible 4.64 0.56 High level of agreement, with a very small variance Discussion: The high scores for D2.1, D2.2, D2.3 and D2.13 being Trust, Reliability, Honesty and Responsibility all seem to correlate with a professional attitude No D2.1

Question Trustworthy

The rest of the answers returned Divided Feelings with Very Small Variances and scores in the low 3’s. Draft dissertation- John Durr 2286/1999

Combined with the high service level expectations in D1, respondents have shown clearly that they expect high service levels and professional treatment and are not too concerned by the ‘Fun’ part of the relationships. Clearly customers are focused on far more than just the product and price from the results of all the answers in D1. This supports Kotler’s view of mature markets shifting to cost and service in mature markets; and allows for the possibility that service can be improved through the offering of a loyalty reward programme as an addition to the service offering. The high scores infer the need for good relationships through representatives calling (4.42 mean) and for access to management (4.64), as indicated in D1.6 and D1.12. Relationships are seen as possibly the most important key to loyalty concepts as noted by Brodie et al (1997), who tabulated the differences between relational and transactional perspectives. Relationships are also consistently mentioned by almost every author as a key objective to securing loyalty and repeat patronage as part of a retention-marketing programme. The dimensions of trust, reliability and recognition in D2.1, D2.2 and D2.3 are echoed by Cram (2001) as part of his description of Customer’s expectations (Fig 2.5). In summary we see that indeed; customers expect added value in the form of services, choice and relationships.

Draft dissertation- John Durr 2286/1999

4.5 Is EVA a sound basis for the measurement of any reward allocations? This question seeks to answer the problem statement “Will EVA principles form a sound basis for the measurement of any reward allocations in these loyalty programmes?” This section was difficult to analyse since it was necessary to determine if Autotech could reward/penalise customers based on the value or costs they brought to the organisation. 4.5.1 REWARDING COST AND VALUE DRIVERS C2 asked respondents if they felt they benefited from current reward programmes, which resulted in a ‘Divided Feeling’, while C3 asked if they currently enjoyed rewards from suppliers and the answer was ‘General Disagreement’. C4.1 asked if respondents would like rewards linked to their purchase activity and received a ‘High Level of Agreement’, while in C7 a ‘High Level of Agreement’ was reached on additional rewards for a favourable trading account. The author highlighted the value and cost drivers previously identified for the industry and included these in D1, as part of the service dimension. Each of the questions in this section represents key financial impact on any organisation in our industry. On every one of these dimensions a ‘High Level of Agreement’ was reached with ‘Small’ to ‘Very Small Variances’. From the research above there was a ‘High Level of Agreement’ that rewards should be linked to the actual purchasing behaviour of customers. Although penalties for poor behaviour were not discussed, we can propose a system where customers that add value benefit more than those who do not add value in a transparent and open manner, by allocating ‘bonus’ points for customers that incur less costs for the organisation. This allows us to confirm the first part of the EVA calculations being the income less the costs incurred, is feasible. However, we need to remember Hodak’s contention that the viable EVA centre needs to have accountability in the structure may present a problem, as customers may not be willing to be penalised for costs that are averaged between customers. 4.5.2 THE COST OF CAPITAL It is apparent that most of the above costs and income will stem from the income statement of the organisation, while capital costs of financing delivery fleets; assets for production and capital employed are far more difficult to define. The literature review revealed several methods of measuring customer profitability and lifetime values over varying periods. None however dealt with how one should allocate costs and/or the cost of capital employed. An example of the problem with this is illustrated by D1.7; for special deliveries, which scored an average of 4.45. This is a major cost driver Draft dissertation- John Durr 2286/1999

in the battery industry and we can see that customers require the service. In truth the calculation of correct stockholding, combined with regular and reliable deliveries almost totally obviates the need for special deliveries and so we can deduce that this expense is the result of poor stock and delivery management. Stern Stewart & Co literature indicates that EVA should be used not only to calculate true added value, but also to determine reward allocations. We can see then that if the customer was rewarded additional rewards for managing stocks correctly, they may well pay this area of their business extra attention. We can extend this argument to include all cost drivers, which would be subtracted from the gross profit generated by that customer. C7 showed that customers would like extra rewards for a favourable trading account with a supplier. Since debtors are part of working capital, this could be used in the EVA calculation as part of the capital requirements. Stern Stewart & Co recognise that EVA can be improved through a harvest strategy and we can see that there are segmental differences in customers as well as future consolidation of the industry and emerging lasting pockets of demand. This infers the potential to reduce capacity to suit these pockets of demand or to eliminate production of lines that will not longer be profitable. To do this we would need to calculate EVA per segment and per product line. Since EVA is really the rate of return less the capital costs we can see that it provides a sound basis for evaluating rewards based on the value and costs that individual customers bring to the organisation.

4.6 Implementation Concerns While it seems that a reward programme will be easily accepted, as customers will be receiving some added value, it does carry with it some significant concerns and risks for Autotech, these are: 1. The potential exists that organisations will offer rewards for purchasing behaviour that exceed the savings generated by this behaviour. 2. Allocation of costs will be extremely difficult as we evidenced when the Autotech account executives EVA model was designed. 3. Unless a proper project management approach is used, success will at best be the product of luck. The complexity and diversity of stakeholders in the process as well as the skills required dictate an integrated approach. 4. Resistance to change is ever present and one can expect that this would continue to be the case. Draft dissertation- John Durr 2286/1999

4.7 Advantages of the Programme for Autotech Most advantages are clear from the literature review already, but were tested on our organisation in order to relate real world examples within the organisation. •

Firstly, the most significant factor in the battery industry is the fact that the technology used is 250 years old and has entered its decline phase. This means that there are obvious advantages in customer retention.

•

Customer churn is calculated from our management reports by simply listing customers over the last two years and comparing which ones no longer purchased from Autotech. The result was the customer defection rate averaged at 28%, which corresponds with the findings of Griffin et al (Table 2.1), which reported rates of 20-40%. This has obvious implications for the costs of acquiring new customers.

•

Perhaps the biggest advantage would be that we could expect at least some of the larger customers and the account executives looking after them to manage some of the cost drivers better, such as deliveries, stock and debtors. This would mean improved working capital, reduced costs and efficiencies as activities are done correctly the first time.

•

Lastly, a reward programme will allow Autotech to generate a far deeper relationship with customers, based on increased knowledge of their buying habits.

Draft dissertation- John Durr 2286/1999

Section

5 5. Conclusions and Recommendations 5.1 Recommendations We have seen that profits improve as a result of several cost savings due to customer retention. In addition opportunities for cross selling maximise the share of the customers wallet. For the lead-acid battery industry then, which is inelastic and in early decline with little or no prospect of growth, there is little option but to pursue customer retention strategies. This means the relationship management programme needs to be designed, which in turn relies on LM principles to be truly effective. The recommendations that follow are made with Autotech in mind, but could be applied to any organisation in the automotive industry in South Africa. These recommendations track the IDIC principle by Peppers et al (2000), but offer ‘off-line’ solutions under these headings. 5.1.1 IDENTIFY: This area deals with the identification of who one’s customers are and what they are worth. Knowing one’s customers is the most fundamental step one can take in building relationships as part of your relationship programme, as only then can one satisfy their requirements. This calls for organisations to establish a database of their customers, and the population of this database with relevant information gained from customers. It also calls for the continual updating and cleaning of this information database. This area is best managed within a CRM department, which should include a call centre and a CRM manager. 5.1.2 DIFFERENTIATE:

Draft dissertation- John Durr 2286/1999

Supported by the various arguments for segmentation and understanding that different customers have different requirements, one can no longer offer only one solution to customers. Customers have to given what they want and how they want it. Differentiating also needs to take customer profitability into account. The organisation needs to fully develop an EVA system of measuring the customer’s value to the business. This can take the form of LTV analysis initially with the cost of capital calculations integrated. It must then get progressively more accurate as one is able to allocate costs more effectively to Hodak’s EVA Centre of one individual. Loyal customers and more importantly the potential loyal customers need to be identified and classified according to Knox’s Diamond of Loyalty via their level of Transactional or Relational involvement with the organisation or their position in the Customer Lifecycle. The combination of knowledge of one’s customers and the correct measurement of each customers value to you will allow you to take these Identified and Differentiated customers forward to the next step that allows one to begin Interacting. 5.1.3 INTERACT: One needs to ensure that communications are relevant to each particular customer, their value to the organisation and the way in which they wish to interact with the organisation.

Call centre’s needs to handle multiple methods of

communication including: •

E-Mail

•

Telephone and fax

•

Post

•

Messages from the sales staff

These then must all be integrated, so that all communications with the customer are recorded and are used to interact successfully in future. It is in this ‘Interaction’ stage that one manages the relational engagement and has the ability to move customers from Transactional to a Network Marketing perspective (Brodie et al) depends largely on our ability to interact with the customers. Here to we understand that RM extends beyond repeat patronage to actually changing relationships and ensuring we engender loyalty in the process.

Draft dissertation- John Durr 2286/1999

Once one is interacting one needs to continually review your differentiated segments and interact with them in ways relative to their position in the ‘Diamond of Loyalty’. Only this way can you plan to migrate customers within the ‘Diamond’ toward the category of ‘Loyal’s’. After this Interacting and asking customers what they want, we need to fulfil our promises by customising our solutions. 5.1.4 CUSTOMISE: Some customers want weekly deliveries, others want daily. Some require consignment stocks, while others do not. Some require extensive servicing by representatives and others require none. Some need product information, while others know more than the organisation. These and many other factors require that each customer is offered what they want. Ideally customers should only be charged for services they require. What the organisation must not do is treat all customers in the same way. Customers are from many different industries with different reasons for marketing Autotech products. Autotech will need to customise its offering from the way it interacts to the way customer are rewarded. From the goods offered to the very nature of the relationships with customers. Only once tangible rewards are in place for the customer and there are mutual benefits can Autotech expect the nature of the relationship to change. Only then can Autotech expect Loyal Customers.

5.2 Personal Development Perhaps the balancing of work, family, friends and study comes easier to some than others, but I found that this combined with the fact that I spent weekdays in one city, and weekends at home was by far the most difficult part of the programme. At many times I felt exasperated and wanted to take a year break. Now that I have completed the programme, I find that determination pays off eventually. In terms of skills I have found that I need to again develop more pragmatic skills as the MBA has made me a little to theoretical, with colleagues often saying that I am too pedantic and too much of a perfectionist.

Draft dissertation- John Durr 2286/1999

In terms of learning, I now for the first time feel that I have a grasp of how business and organisations work, rather than specialist skills. I feel I am now on the way to being able to manage the complexity and interrelatedness of business. At the same I recognise now that allowing others to grow without instructing them and surrounding yourself with the best people, rather than relying only on yourself are keys to success.

5.3 Limitations of the Findings While loyalty programmes are already in place in many organisations throughout the globe, it seems that none yet use EVA principles as a basis of determining customer value. While the principles are sound, Hodak’s notes on the apportionment of costs remain a problem. If organisations are not able to apportion costs through systems such as ABC accounting, in a fair and consistent manner, they will meet with opposition when measuring performances based on the results. In addition to this, the findings have not delved into the “How?” of loyalty marketing, only the need for it. This dissertation then, is not a guide for the implementation of loyalty marketing or relationship marketing.

Draft dissertation- John Durr 2286/1999

5.4 Future research Leading on from the previous paragraph, we can see that further research can be done on how to implement a programme within our industry that can also be applied to the wider automotive industry. There is a need to develop a model that captures the value and cost drivers and then integrates it by way of software with EVA principles into a software solution for organisations. Although Peppers et al (2001) have identified many processes within their IDIC principle; these are only really valid in the on-line world they operate within. Sheth and Parvatiyar (1995) contend the processes in need of further explanation are: •

Managing relational engagement

•

Evaluating the performance of relational engagement

•

Terminating the relationship

•

Enhancing the relationship

We have seen that the second point has been addressed by using EVA principles to evaluate performances, but the rest still offer opportunity for further research.

Word count Section 1. Introduction 2. Literature review 3. Fieldwork 4. Results of the Research 5. Conclusions Totals

Wordcount Tables

Total

N/A

3115

6799

1106

7905

2274

2334

4544

1368

5912

1222

14839

2594

20488

Draft dissertation- John Durr 2286/1999

Section

6 Close 6.1 Bibliographies Journals sourced Berry, Leonard, L. (1983) 'Relationship Marketing: in Emerging perspectives on Service Marketing.' eds. Leonard L. Berry, G.Lynn Shostak, and George Upah. Chicago, IL: American Marketing Association, pp.25-28 Bloemer, J. and de Ruyter, K. (1999) ‘Customer Loyalty in High and Low Involvement Service Settings’ Journal of Marketing Management Volume 15 (4). Pp315-330 Brodie, Roderick, J., Coviello, Nicole, E., Brookes, Richard, W., and Little, Victoria., (1997) 'Towards a Paradigm Shift in Marketing? An Examination of Current Marketing Practices' Journal of Marketing 13 (5) pp.383-406 Copulsky, J.L and Wolf, M.J (1990) 'Relationship Marketing: Positioning for the Future’ Journal of Business Strategy, vol 11 (4) July-Aug, pp16-20 Gronroos, C. (1994) 'From Marketing Mix to Relationship Marketing: Towards a Paradigm Shift in Marketing' Management Decision vol 32 (2) pp4-20 Gummeson, Evert. (1987) 'The New Marketing - Developing Long-term Interactive Relationships' Long Range Planning, 20 (4), pp.10-20 Hart, S. & Smith, A. & Sparks, L. Tzokas, N. (1999) ‘Are Loyalty Schemes a Manifestation of Relationship Marketing?’ Journal of Marketing Management Volume 15 (6.). pp541-562 Harvard Business Review 1996. ‘Business Classics: Fifteen Key Concepts for Managerial Success’. HBS Harvard Business Review. September-October (2000). Tool Kit ‘Having Trouble with your Strategy? Then Map It.’ Draft dissertation- John Durr 2286/1999

Volume 78, no5. HBS Reicheld, F.F. and Sasser, Jr. (2000) ‘Loyalty on the Web’ Henley Manager Update, Volume 12 (1). Pp16-17 Hodak, M (2000) 'The Viable EVA Centre’ Journal of Applied Corporate Finance. Vol 3 (3) pp71-79 Johnston, W.J. and Lewin, J.E. (1996) Organisational Buying Behaviour: toward an integrated framework. Journal of Business Research 35, pp1-15. Knox, S. (1998) ‘Loyalty –Based Segmentation and the Customer Development Process’ European Management Journal Volume 16 (6.) December. Pp729-737 Mattson, L.G. (1997) 'Relationship Marketing' - and The Markets as Networks App.roach - A Comparative Analysis of Two Evolving Streams of Research' Journal of marketing Management 13 (5) pp.447-462 Morgan, Robert, D. and Hunt, Shelby, D. (1994) 'Relationship Marketing in the Era of Network Competition' Marketing Management, 3, (1), pp.19-28) Payne, A., and Frow, P. (1999) 'Developing a Segmented Service Strategy: Improving Measurement in Relationship Marketing’ Journal of Marketing Management 15 (8). Pp.797-818 Peppard, J.. (2000) ‘Customer relationship Management (CRM) in Financial Services’. European Management Journal Volume 18 (3.) June. Pp312-327 Peppers, D., Rogers, M., and Dorf, B. (1999) ‘Is your Company ready for One-to-One Marketing? Harvard Business Review January-February 1999. Pp151-160 Pine, J.P., Peppers, D and Rogers, M. (1995) 'Do You Want To Keep Your Customers Forever?' Harvard Business Review' March-April pp 103-114 Pritchard, M.P., Howard, D.R. and Havitz, M.E (1992) 'Loyalty Measurements: A Critical Examination and Theoretical Extension' Leisure Sciences 14 (2) pp 155-164 Sheth, J and Pavatiyar (1995) 'Relationship Marketing in Consumer Marketing: Antecedents and Consequences' Journal of the Academy of Marketing Science 23 (4) pp 255-271 Thompson, K., Mitchell, H., and Knox, S. (1998) ‘Organisational Buying Behaviour in Changing Times’ European Management Journal Volume 16 (6.) December. Pp698- 705 Zott, C., Amit, R., and Donlevy, J. (2000) ‘Strategies for Value Creation in E-Commerce’. European Management Journal Volume 18 (5.) June. Pp463-475 Other sources

Draft dissertation- John Durr 2286/1999

Bryans, P. & Cronin, T. (1983). ‘Organisation Theory’ Mitchell Beazley Goldratt. E. (1990) 'The Theory of Constraints' and how it should be implemented US/UK North River Press Griffin, J & Lowenstein, M. (2001). Customer Winback ‘How to recapture Lost Customers – and Keep them Loyal’ Jossey Bass Handy, C. (1994). ‘The Empty raincoat making sense of the Future’ Arrow Books Henley MBA. (1999). Part 3 ‘Setting Course Workbook’ p42. Henley MBA. (1999). Part 2 ‘Managing Marketing Workbooks’ Henley MBA. (1999). Part 2 ‘Managing Finance Workbooks’ Kaplan, R. & Norton, D. (1996) ‘The Balanced Scorecard’ HBS Press. Kotler, P. (1980). Marketing Management, ’Analysis, Planning, Implementation, and Control.’ 9th edition, Prentice Hall. Mills, & Robertson,. ‘Fundamentals of Managerial Accounting and Finance’ Porter, M. (1980). ‘Competitive Strategy.’ Free Press. Puleo, M. (2001) 'CRM and Change Management' www.1t01.com Live Chat Room Transcript, 07 June Rathus, S. (1990). 4th edition,. ‘Psychology’ Holt Rinehart Winston. Senge. Peter. M. (1993) 'The Fifth Discipline: The art and practice of the learning organisation' Doubleday Stern Stewart & Co, (1998) Autumn, EVAngelist Volume 2 Issue 4, ‘EVA and the Balanced Scorecard’, Stern Stewart & Co, (April 1999). Evaluation, ‘ABC, The Balanced Scorecard and EVA’, www.sternstewart.com/ Stern Stewart & Co, (November 2000). Evaluation, ‘Best of Times, Worst of Times’, www.sternstewart.com/ Gibson. Rowan (1998) 'Rethinking the future' Nicholas Brealy Publishing Stadler Cathy. (1999) 'Do you delight your customer?' Call IQ Centre Vol2 no 4. Intellegence Publishing SA Stadler Cathy. (1999) 'Old thoughts with new technologies' Call IQ Centre Vol2 no 2. Intellegence Publishing SA

Draft dissertation- John Durr 2286/1999

Witepski. Lisa. (2001) 'Fanatics and fables: The Exclusive Books Story' The Future Vol2 no4. Future Publishing Harris. Lance. (2001) 'Finding the magic formuale for B2C in SA' The Future Vol2 no3. Future Publishing

Draft dissertation- John Durr 2286/1999

6.2 Appendices 1. Customer Survey Questionnaire 2. South African Automotive Battery, Market trade Split 3. Customer Profitability Model (Mills et al example) 4. EVA Performance Statement for Account Executives 5. EVA Flat File Report 6. What is the Balanced Scorecard? 7. Motivation and Reward, Psychological Theories 8. Data Population, extract from Excel worksheet with the results of the customer survey/questionnaire conducted. 9. Customer Inductive Interview, Questions Posed 10. Transcripts of the inductive customer interviews. 11. Content analysis of the inductive customer interviews (mind map)

Draft dissertation- John Durr 2286/1999

Appendix 1 Customer Survey Questionnaire

(Customer Inductive interviews are also given in more detail later)

Draft dissertation- John Durr 2286/1999

Appendix 1

Powertech Industries (Pty) Ltd.Co. Reg.No. 64/07250/07 1 Vanacht Street, Isando Ext. 3, Kempton Park 1619, South Africa. Postal Address: P.O. Box 8794, Edenglen, 1613. Telephone: (011) 974 1256/7/8/9/50, Telefax: (011) 974 - 9025, Toll Free: 0800 110052

Dear

“Insert Customer name”

Re: Rewards Programme Survey… As part of our ongoing quest to keep our customers we are investigating the feasibility of a rewards programme for our select customers. This document forms part of the 1st phase testing of the concept and we would appreciate your personal input in this regard, in order to ensure that any programme we implement meets your business requirements. Please take 20 minutes of your valuable time to complete the survey & return it to your Business representative. The completed questionnaire can also be returned on fax no. (011) 974 9025 by Wednesday, the 10th of October 2001. Should you have any queries, please do not hesitate to contact John Durr or Harold Taule on Tel no. (011) 974 1256. The Results of this survey together with a gift will be sent to you to thank you for your input, as well as the final decisions with regard to the programme. Regards

John Durr Marketing Manager Confidentiality: “My research is purely for the purpose of completing my studies and the respondents details are not recorded in any way except on the form so that I can contact them. The forms are not coded in any way and once results are analysed it will be impossible to determine who submitted any given opinions. Should you require a copy of the results or the completed dissertation this will be supplied to you free of charge to thank you for your valued input, without which this project would be impossible.” John Durr Directors: Willard Batteries Division: N. Claussen, (Chief Executive), W.S. McCaroll (Brit.), E.A. Sharp, R.E. Venter Powertech Industries (Pty) Ltd.: N. Claussen, J.C. Myers, W.S. McCaroll (Brit.), E.A. Sharp, R.E. Venter Powertech House, Hampton Park, 20 Georgian Crescent, Bryanston East

Draft dissertation- John Durr 2286/1999

A. Demographics: Questions A1 to A9 were posed to establish demographics and to be able to sort respondent’s answers by segments and other demographics, to see if any trends emerge. A1.Name

A2.Company A3.Tel A4.Fax A5.E-Mail A6.Chain or Private business

Chain

Private

Discussion of answers: This question attempted to establish if buying behaviour would differ based on the fact that the buyer within the outlet surveyed, was or was not an owner of some sort. Although I initially though this would be a strong factor it only really came through on the allocation of rewards. Here respondents differed on what rewards they would prefer as indicated in questions C4.3, C4.4 and C5. Reviewing these questions in conjunction with the inductive customer interviews, it seems Chain or Private ownership possible that owner operated businesses prefer rewards in the form of product, while others Chain prefer gifts or other rewards that would reward 38% them personally rather than the organisation. Unfortunately my survey demographics did not ask for the respondent’s position in his/her Private organisation and as such, it is difficult to 62% determine whose interest the respondents had at heart in terms of rewards redemption. This would need to be checked with the various head-offices of our dealers, before we offer their staff any rewards. A7.Type of operation

Spares

Fitment

Co-op

Battery specialist

Other

Discussion of answers:

Draft dissertation- John Durr 2286/1999

These segments were categorised according to the known segments in the marketplace (App 2). This shows that market segmental sales performances are weighted in favour of Battery Specialists who sell most batteries in the country (38.5%). The low amount of respondents for this segment is Segmental respondents concerning, in that this sample may not be large enough to measure this all-important segment. Auto Elec 14%

The identification of segments later resulted in some trends that substantiated the use of segmentation. It also affirmed the literature review that indicated that segmentation was required when Knox (1998) put forward his “retention with attitude” theory that holds that we must capitalise on customer involvement where present and exploit indifferences where possible. Knox states we should segment markets based on buying behaviour and psychological evaluations.

Spares 33%

Battery specialist 10% Co-op 11% fitment 32%

Battery Specialists are the lasting pockets of demand, offering the most positive responses generally as they are more directly impacted than any other segment by the mature nature of our industry and their high level of purchasing reflected in A8A later. Segmental responses are given for most of the questions that follow. A8.Size of your outlet

0-5 employees

6-10

11-25

26+

Discussion of answers: Size of outlet did not seem to impact on any of the results. 54% of the respondents had outlets with 11-25 employees, which in our terms is a medium size enterprise, normally with 2/3 managers in it. This would normally include all levels from operating core to owner/manager. A8.A Batteries as a % of your purchases

0-5%

610%

1125%

2650%

51100%

Draft dissertation- John Durr 2286/1999

Size of Outlet 26 + 13%

11 to 25 54%

0-5 14% 6 to 10 19%

Discussion of answers: Battery as % of your purchases

100%

1 3

80%

60%

0 2

1 2 2 7

0 2 3

9 7 12 24

40% 21

20%

Sp ec ia lis t Au to El ec t

B at t

er y

C oop

Fi tm en t

Sp ar es

Sa m pl e

1 0

51 to 100% 26 to 50 11 to 25 6 to 10 0 to 5%

It is clear that for most respondents (52), batteries represent less than 5% of their purchases, while another 24 purchase less than 10%. Consequently we can say that for the most part batteries represent a small portion of customer’s purchases. The most notable difference here is the Battery Specialists, where batteries are the largest purchase they make. In almost all other cases batteries are a small proportion of customer purchases, indicating a possible low purchase involvement or importance. However, it is also true that batteries are commonly used as loss-leader products, especially by the spares segment, which would increase their importance to the buyers. The sample per segment may be a little small but I believe that a larger sample would produce the same results by segment. Again we note Knox (1998) who feels that purchasing behaviour is an important dimension that substantiates segmentation in A7.

Draft dissertation- John Durr 2286/1999

A9 Batteries per month

0-5 batteries

6-10

11-25

26-50

51-100

101+

Discussion of answers:

200 150 100 50

190 136 35

147

121 32

126

144 103

Sample

Draft dissertation- John Durr 2286/1999

Sample

Auto Elec

Battery Specialist

Co-op

0 Fitment

My assumption is that those dealers that actually are in the battery game have responded to the survey, while those that sell very little did not. I did not check this assumption and I have ignored this data for the purposes of this dissertation.

Units sold/month

Spares

Although the average units per segment are high, I have ignored this data, as I know that the average is far too high for the industry.

Ave units

Please complete the following questions: B. E-Commerce propensity Questions B1.1 to B4.1 are posed to try and establish the propensity of respondents to trade on-line with our organisation, as an electronic loyalty programme is more cost effective and controllable. B1.1. Do you consider the Internet/WEB as a suitable channel for electronic business? Please tick the score that you feel most appropriate. 1. Not at all

3. Neutral

4. Yes, a little

5. Very Much

Discussion of answers:

Web suitability 4.45

3.9

3.9 3

0.77

0.8

0.74

1.13

1.15

Ave Mean Std Deviation

Total sample

1.45

Auto Electric

Deviation 1.45 0.77 0.8 0.74 1.13 1.15

4.09

Battery Specialist

Ave 3.94 4.09 4.45 3.9 3 3.9

3.94

Fitment

Segment Spares Fitment Co-op Battery Specialist Auto Electrical Total Sample

5 4 3 2 1 0

Spares

This question was posed to establish what the respondent’s feelings were toward web transactions.

Co-op

B1.2

2. Slightly

Comments General Agreement with a Very Big Variance High level of agreement with a Small Variance High level of agreement with a Small Variance General Agreement with a Small Variance Divided feeling with a Big Variance General agreement with a Big variance Discussion This question prompted General agreement with Big Variances. Auto Electric returned the lowest average of only 3, while Spares had an unusually high deviation of 1.45. However, positive responses could be the result of popular perception, as it became evident in question B3.1, that in fact very few actually do use the Web for transactions, even though it is now relatively easy to do so and a high percentage (50%) are able to connect freely (B4.1). Co-ops returned a more positive response, which makes sense as this industry has moved to establishing E-commerce capability in South Africa. It was strange however, that this did not reflect in question B3.1, which may be the result of: • It is the farmers (end-users) and not the Co-ops that are transacting on-line • My sample did not include enough respondents • It is still too early in its lifecycle with sites only now being enabled by larger Co-ops.

Draft dissertation- John Durr 2286/1999

B2.

2. Slightly

3. Neutral 2 2 2 2 2 2 2

4. Yes, a little 3 3 3 3 3 3 3

4 4 4 4 4 4 4

5. Very Much

B2.1 B2.2 B2.3 B2.4 B2.5 B2.6 B2.7

Reduced costs/Improved margins 1 Order processing efficiency 1 Increased sales/revenues 1 Value chain integration 1 Improved customer service 1 Increased customer loyalty 1 Enhanced customer communication1

5 5 5 5 5 5 5

B2.8

Discussion of answers: Deviation: E-commerce benefits

Mean: E-commerce benefits

B2.1

6 5 4

B2.7

1.5

B2.7

B2.2

3 2

0.5

1 0

B2.6

B2.3

Spares Fitment B2.5

B2.4

B2.5

B2.4

Co-op Battery Specialist Auto Elec

Question

B2.1

Reduced costs/Improved margins Order processing

B 2.2

Total Sample, Average Scores Ave Deviatio Comments n 3.93 1.02 There is General Agreement with some disagreement. 3.98

0.97

There is General Agreement with some

Draft dissertation- John Durr 2286/1999

B2.3 B2.4 B2.5 B2.6 B2.7 B2.8

efficiency Increased sales/revenues Value chain integration Improved customer service Increased customer loyalty Enhanced customer communication

2.98

1.26

4.18

1.10

disagreement. There is a divided feeling with a big Variance High level of agreement with a Big variance

3.55

1.52

General agreement with a very big variance

2.92

1.33

A divided feeling with a very big variance

3.35

1.57

A divided feeling with a very big variance

If other, please comment

Although most respondents did not use this question, those who did opted to use it as a opportunity to express their concerns about aspects of our current operations such as poor delivery times and Reps that were not calling on them. The responsible managers logged all these into our complaint system for action. Several also commented that they “had no PC’s” or “No internet connection”. These were disregarded as this had been covered by questions B3.1 and B4.1. Discussion: B2.3 and B2.6 both returned low scores, indicating that respondents felt that E-commerce would not necessarily benefit the organisation in terms of their buying behaviour. B2.4. - Inductive customer interviews and comments from our Account Executives in the corridors, revealed a very poor understanding of the term value chain integration and it was disregarded subsequently in all interpretations. Surprisingly it scored High level of agreement with a Big variance. Segmental differences began to emerge here especially in B2.1, B2.5 and B2.7, with the Battery Specialists consistently scoring the highest. This may be partially due to the fact that they sell mainly batteries and they then have more interest invested, as well as the fact that they will be the enduring pockets of demand and consequently see more benefits in communication, service and margins. Auto Electrical scored the lowest consistently, which may be the result of a segment that has largely been neglected as a distribution channel by the manufacturers historically. B2.2, B2.6 and B2.7 returned Very Big variances, illustrating mixed feelings to the benefits this programme could bring. This would mean a strong communication campaign would be needed to ensure understanding. In general the benefits of E-Commerce are not apparent, which may be as a result of the fact that this industry is not very Computer literate, still operating by and large, within a smokestack economy with products still relying on economies of scale for profits.

Draft dissertation- John Durr 2286/1999

B3.1

Do you currently purchase anything on-line, either personally or business?

B3.2

Yes No If Yes, Please describe the items you currently purchase on-line. ………………………………………………………………………………………………………… …………………………………………………………………………………………………………

Discussion of answers: Only 6.25% of respondents purchase on-line, even though the next question revealed that 50% had free access to the Internet. Possible reasons for this include long download times as a result of poor bandwidth in the country, On-line purchases lack of trust/confidentiality in paying on-line and the 83 low levels of computer 90 80 literacy in South Africa. 70 Yes No

30 5

Sample

Auto Elec

Co-op

Fitment

Spares

This question is important as it indicates that offering any e-commerce, loyalty programme, or interaction on-line with our buying community will need to address a significant mindset.

Battery Specialist

60 50 40 30 20 10 0

Since our Organisation supplies multiple channels who have low buyer involvement, this may be a task too large for our organisation and we would have to seek alliances with other suppliers or stakeholders to the automotive parts industry. No-one answered B3.2 Are you able to freely connect to the web at your place of work currently? Yes No Within 3 months

Discussion of answers: A surprisingly high amount of respondents (50%) can connect freely to the Web. This may be the result of the fact that many are part of a larger chain, which would normally have a LAN/WAN that is connected to the Web.

Easy Connectivity

6 0

5 0

2 0

B4.1 B4.2

2. Call Centre

Order placing Stock Availability check

3. On-line 1 1

1 0

22 8

6 3

5. Visit 3 3

4 4

Draft dissertation- John Durr 2286/1999

6. Through bank

Sample

Auto Elec

Spares

4. Fax 2 2

22 10

Battery Specialist

3 0

Co-op

4 0

B4.2 Given the opportunity to choose, please tell us how you prefer to interact with us on each of the following; 1. Sales Rep

7 0

Fitment

B4.1

No Yes 3 months

7. Post

5 5 100

B4.3 B4.4 B4.5 B4.6

Credit limit check Statement of account Battery information Making Payments

1 1 1 1

2 2 2 2

3 3 3 3

4 4 4 4

5 5 5 5

B4.7

Discussion of answers:

interaction choice Making payments

8 2 12 1 5

10 33

Battery info Account statements

Credit limit check

8 6

Order placing

11 5 8

52 26

Stock check

8 32

40%

60%

14 12 31

53 20%

Sales Reps Call Centre On-line Fax Visit Through bank Post

12 2 80%

100%

Given the choice it is clear that the call centre and Reps are the preferred method of interaction. This was also brought up several times in the Inductive Customer Interviews, but may be partly the result of the fact that these are the known, trusted and current methods of interaction. Although small the responses for on-line trading are encouraging but will need to be accompanied by more traditional means, since B3.1 shows that this facility is available but not utilised. An opportunity exists to link payments by bank benefiting debtors, but this does not affect this dissertation although it does show a willingness to interact electronically.

Draft dissertation- John Durr 2286/1999

101

Reward programme evaluation:

Questions B5 to B10.1 were posed to try and establish the respondent’s feelings toward reward programmes in general. C1

C1.6

Discussion of answers: 49 of the sample participate in a reward programme, representing a 47.11% of the respondents. This can be regarded as a high. The majority of these were involved in the Voyager programme, (which is our national Airline, SAA). Leisure Link is a Sample 1 4 11 1 33 programme that links a major bank and several Auto Elect 01 2 0 Voyager 6 consumer industries in a Air rewards 6 0 1 0 Battery Specialist point’s scheme. Accelerator Leisure l is an automotive industry Accelerator Co-op 0 1 0 1 4 programme that offers U Win I Win discounts to members. 9 01 2 0 Fitment Spares 8 11 6 0 I could no find any segmental trends and it 0% 20% 40% 60% 80% 100 seemed that respondents % responded to the strong marketing campaigns of these three programmes, since there was no cost with potential benefits.

Nevertheless the fact that so many were part of a reward programme meant that they could see potential benefits and this would be an important factor to any organisation wanting to launch a programme. It would also be necessary to study these programmes to see how successful they are and what can be learned from them.

Draft dissertation- John Durr 2286/1999

102

If you do participate, do you feel you benefit from these reward programmes? 1. Not at all

2. Slightly

3. Neutral

4. Yes, a little

5. Very Much

Discussion of answers: There was a divided feeling toward the benefits of reward programmes, with a very small variance. Only the spares segment showed a higher variance.

Sa m pl

Au t

Sp e

El e

C te

Ba t

Does any of your current suppliers reward you in any way for your continued support 1. Not at all

C3.1

These results may indicate a barrier to a new scheme, as respondents may feel that there is yet another programme asking for all sorts of personal information, with little in tangible benefits following. C3

tm en

Sp a

Further investigation in the inductive customer interviews, indicated that the spares segment enjoyed some preferential pricing arrangements 3.27 3.09 3.13 3.13 from suppliers and so this was 3.5 3.09 2.8 3 disregarded as it did not fit in with the 2.5 2 purpose of this dissertation, in that it 1.01 1.5 0.52 0.54 0.63 0.74 0.76 1 cannot be regarded as a benefit in terms 0.5 Mean of a reward programme but as a 0 Deviation discount.

2. Slightly

3. Neutral

4. Yes, a little

5. Very Much

If so, please comment on what rewards they offer? ………………………………………………………………………………………………………… …………………………………………………………………………………………………………

Discussion of answers: Without exception respondents showed general disagreement with small to very small variances, indicating that they do not receive any rewards, or that this is their perception. None entered any comments in C3.1

Deviation

Sa m pl

o Au t

4. High

El e

t is al

Sp e

Co -

3. Neutral

2. Low

Mean

5. Very High

B at

1. Not at all

C4 Rate your requirements for a reward programme, where applicable.

3 2.63 2.33 2.4 2.43 2.18 2.4 2.5 2 1.5 0.77 0.78 0.69 1 0.4 0.52 0.51 0.5 0 Sp a

Again only spares scored marginally higher on the deviation, indicating again that selected spares outlets were given some sort of rewards.

Draft dissertation- John Durr 2286/1999

103

C4.1 C4.2 C4.3 C4.4 C4.5 C4.6 C4.7

1 1 1 1 1 1 1

2 2 2 2 2 2 2

3 3 3 3 3 3 3

4 4 4 4 4 4 4

5 5 5 5 5 5 5

C4.8

If other, please specify …………………………………………………………………………………………………………

Discussion of answers: Standard deviations were very low throughout and therefore not illustrated. Total Sample, Average Scores No Question Deviation Reward Comments C4.1Ave programme requirements 5 C4.1 Linked to your 4.00 0.68 High level of agreement with a very small purchase activity 4.5 variance C4.2 Access to reward 4 3.13 0.78 A divided feeling with a small variance 3.5 statements via web C4.7 C4.2 3 C4.3 Choice of 4.39 0.49 High level of agreement with a very small 2.5 gifts/rewards by you2 variance C4.4 Rewards to be 3.71 0.83 General agreement with a small variance 1.5 Spares redeemed as 1 Fitment additional products0.5 Co-op C4.5 Rewards distributed 0 3.79 0.55 General agreement with a very small Battery Specialist monthly variance Auto Elec 4.6 C4.3 agreement with a small variance C4.6 Rewards distributed 3.84 0.96 General Sample on request C4.7 Bonus points for 4.23 0.83 High level of agreement with a small increased loyalty variance C4.8 If other, please No comments were made. specify Discussion: 4.5 4.4 A General to High level of agreement with very small variances indicates a strong interest in the tangible results of a reward programme. C4.1 - All respondents agreed that rewards should be linked to purchase activity. C4.2 - Co-ops again showing an interest in on-line facilities, although generally this point rated lower than the rest in the question. C4.3 – Auto Electricians created a small variance with their unanimous agreement that they should have a choice of gifts. Most respondents indicated here that they would like to choose the rewards/gifts in question. This may mean that they will not necessarily choose additional product, as they may be managers and not owners of their outlet. C4.4/5/6 – Only Battery Specialists felt strongly that they would prefer products as rewards, although they also indicated in C4.3 that they would like a choice. These questions showed higher variances, indicating different attitudes of segments again. C4.7 – Perhaps an obvious response in retrospect. Draft dissertation- John Durr 2286/1999

104

Draft dissertation- John Durr 2286/1999

105

What sort of rewards do you prefer (you can tick more than one block) C5.1. Batteries

C5.6

C5.2. Gifts

C5.3. Charity Contributions

C5.4 Travel Vouchers

C5.5 Other

If other, please specify …………………………………………………………………………………………………………

Discussion of answers: This question proved interesting in that it reflects a higher interest in batteries than gifts that conflicts with the previous questions answers. I looked closer and found segmental differences played a role here. In particular the Spares and fitment segments which are mainly chain operations, showed a higher interest in gifts, indicating that respondents sought personal gain, while Battery specialists and Auto Electrical outlets, normally privately owned, opted for benefiting the business with product redemptions.

100%

1 2 0 14

1 2 0

1 0 3

50% 18 0%

1 0 1

0 1 0 4

4 5 0 32

Spare Fitme Batter Auto Sampl Co-op s nt y Elect e

Other

Travel

Charity

Gifts

Batteries

C6 Would you like your staff members to benefit from the rewards programme? 1. Not at all

2. Slightly

3. Neutral

4. Yes, a little

5. Very Much

Discussion of answers: This question was posed to try and establish if those respondents that belonged to chain operations would have problems with their staff drawing rewards from suppliers.

4. Yes, a little

Deviation

Sa m pl e

Sp ec ia lis t Au to El ec

oop C

3. Neutral

at te

2. Slightly

Mean

5. Very Much

1. Not at all

Sp ar e

C7 Would you prefer extra rewards for keeping a favourable trading account with us?

s Fi tm en t

Surprisingly the spares and fitment segments identified in the previous question confirmed that respondents could benefit. This could perhaps be the result of 5 4.09 4.4 4.15 4.09 3.91 the respondents being the ones who would 3.6 4 actually benefit and as such would need to be 3 investigated further at the head office level of 2 1.04 1.01 0.97 0.96 0.91 0.87 each chain to ensure that there is no conflict 1 between the respondents desires and the Chain 0 head-office.

Discussion of answers: Draft dissertation- John Durr 2286/1999

106

The purpose of this question was to establish if we could include this as a measurement in any model we introduced as debtors management is a key value driver. In retrospect the answers were predictable with a high level of agreement and a very small variance. 5

4.76

4.73

4.5

4.6

4.71

4 3 0.47

0.53

0.51

0.48 Sample

0.44

Auto Elec

0.5

Co-op

Fitment

Mean Deviation

Draft dissertation- John Durr 2286/1999

Battery Specialist

Spares

107

Service Level Dimension:

D1.

Rate the following aspects according to level of importance to you?

1. Not at all 2. Low D1.1 Order accuracy D1.2 Knowledge of suppliers stocks D1.3 Brands D1.4 Delivery on-time D1.5 Copy invoices D1.6 Reps calling on you D1.7 Special deliveries D1.8 Stock availability D1.9 Consignment stocks D1.10 Claims turnaround time D1.11 Rotations turnaround time D1.12 Access to management

3. Neutral 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2

4. High 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4

5. Very High 5 5 5 5 5 5 5 5 5 5 5 5

Discussion of Answers: Questions D1.1 to D1.12 were posed to try and establish the respondents feelings toward service levels in general, as well as to test Service levels Importance D1.1 Kotler’s theory that mature markets 5 move to cost and service dimensions. D1.12

It also aimed to establish relationship requirements by asking the importance of Reps and access to management in D1.6 and D1.12.

D1.11

D1.2 D1.3 D1.4 D1.5 D1.6 D1.7 D1.8

D1.2

D1.3

2 1

D1.10

No D1.1

D1.4

Total Sample, Average Scores Question Ave Deviation Comments Order accuracy 4.90 0.33 High level of agreement, with a very small D1.9 D1.5 variance Knowledge of suppliers 4.80 0.45 High level of agreement, with a very small stocks variance D1.8 D1.6 Brands 4.28 0.78 High level of agreement, with a small variance D1.7 Spares Fitment Co-op Specialist Delivery on-time 4.92 0.30 High level of agreement,Battery with a very small Auto Elec Sample variance Copy invoices 3.82 0.83 General agreement with a small variance Reps calling on you 4.42 0.90 High level of agreement, with a small variance Special deliveries 4.45 0.81 High level of agreement, with a small variance Stock availability 4.91 0.32 High level of agreement, with a very small variance Draft dissertation- John Durr 2286/1999

108

D1.9 D1.10

Consignment stocks Claims turnaround time

3.88 4.62

D1.11

Rotations turnaround time Access to management

4.44

D1.12

4.64

1.13 0.74

General agreement with a big variance High level of agreement, with a small variance 0.87 High level of agreement, with a small variance 0.56 High level of agreement, with a very small variance Discussion:

We can see from the Radar chart and the high level of agreement throughout, that all service dimensions are regarded as very importance to the dealers. The only real surprise was the lower interest in consignment stocks, which our industry always regarded as a major selling feature. This may be a case of it being the norm and therefore its true importance may only be measured if you take it away. Copy invoices also returned a low score, possibly as these are normally only requested as a delay tactic when suppliers are collecting monies due. Segmental differences were negligible, with special deliveries (D1.7) required less by battery Specialists and Co-ops, who normally enjoy high consignment stocks. The high scores for D11.6 and D11.12 reflect a need for relationships to resolve any customer problems. D2

Please rate the following dimensions in importance to you: 1. Not at all

2. Slightly 1 1 1 1 1 1 1 1 1 1 1 1 1

2 2 2 2 2 2 2 2 2 2 2 2 2

3. Neutral 3 3 3 3 3 3 3 3 3 3 3 3 3

4 4 4 4 4 4 4 4 4 4 4 4 4

4. Yes, a little

5. Very Much

D2.1 D2.2 D2.3 D2.4 D2.5 D2.6 D2.7 D2.8 D2.9 D2.10 D2.11 D2.12 D2.13

Trustworthy Reliable Honest Positive Sincere Understanding Determined Friendly Clever Outgoing Serious Fun Responsible

5 5 5 5 5 5 5 5 5 5 5 5 5

B2.14

109

No D2.1

Question Trustworthy

Ave 4.77

Deviation 0.45

D2.2

Reliable

4.80

0.43

D2.3 D2.4 D2.5 D2.6 D2.7 D2.8

Honest Positive Sincere Understanding Determined Friendly

4.78 3.17 3.21 3.17 3.19 4.35

0.50 0.61 0.66 0.61 0.62 0.48

D2.9 D2.10 D2.11 D2.12 D2.13

Clever Outgoing Serious Fun Responsible

3.10 3.11 3.09 3.10 4.64

0.63 0.67 0.67 0.68 0.56

Comments High level of agreement, with a very small variance High level of agreement, with a very small variance High level of agreement, with a small variance Divided feeling, with a very small variance Divided feeling, with a very small variance Divided feeling, with a very small variance Divided feeling, with a very small variance High level of agreement, with a very small variance Divided feeling, with a very small variance Divided feeling, with a very small variance Divided feeling, with a very small variance Divided feeling, with a very small variance High level of agreement, with a very small variance

Discussion: The high scores for D2.1, D2.2, D2.3 and D2.13 being Trust, Reliability, Honesty and Responsibility all seem to correlate with a professional attitude The rest of the answers returned Divided Feelings with Very Small Variances and scores in the low 3’s. Combined with the high service level expectations in D1, Respondents have shown clearly that they expect high service levels and professional treatment and are not too concerned by the “Fun” part of the relationships.

Draft dissertation- John Durr 2286/1999

110

Additional comments if any. ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… ………………………………………………………………………………………………………… …………………………………………………………………………………………………………

Discussion of Answers: This section allowed respondents space to view any issues they wished to bring to our attention. Several comments were made that reflected on other areas of the business, in particular some complaints were made about service levels and several suggested that we “just give us better prices”.

Thank You Very Much for your Cooperation! Kindly return this survey to your Representative or fax/e-mail/post it to; Harold Taule / Riana van Coller P.O. Box 8794, Edenglen, 1613, Telephone: (011) 974 - 1256, Telefax: (011) 974 - 9025 E-mail: jdurr@willard.co.za or htaule@willard.co.za

Draft dissertation- John Durr 2286/1999

111

Appendix 2 Market trade split by Segment in South Africa

Unit sales/Annum TRADE SPLIT Segments

Willard Sabat FNB

Total Market

Feb 2000

Estimated

Battery specialists

117,501

63,178

500,000

833,800

Spares Shops

148,890

210,360

160,000

535,000

Fitment centers (Tyre

112,265

50,000

10,000

197,200

chains) P&A

14,899

15,076

15,000

138,400

Auto Elec

55,759

178,436

20,000

287,600

Co-Ops

64,686

6,820

80,000

130,600

12,372

12,000

40,800

514,000

536242

797,000

2,163,400

Hypermarkets

Grand Totals

Draft dissertation- John Durr 2286/1999

112

CUSTOMER PROFITABILITY MODEL

YTD APRIL 2000

AUTOMOTIVE MARKETING & SALES LOCAL

PINETOWN REPLACEMENT

C/CENTRE

13511

9987

UNITS SOLD LINE

BUDGET or ACTUAL

270 %

Per unit

Super Auto

SALES : WILLARD PRODUCT

1000

1911000

100.37%

191.35

SALES : TRADED PRODUCT

1005

0.00%

0.00

0.00%

SALES : SERVICE & REPAIRS

1007

0.00%

0.00

0.00%

0.00

GROSS SALES (TOTAL)

1009

1,911,000

100.37%

191.35

48813 105.26%

180.79

LESS : REBATE

1010

0.00%

0.00

2441

5.26%

DISCOUNT : PROMOTIONS

1050

7000

0.37%

0.70

0.00%

0.00

1,904,000

100.00%

190.65

46372 100.00%

171.75

NET SALES VALUE

48813 105.26%

Per unit 180.79 0.00

9.04

MARKETING & SALES COSTS (Variable) INCENTIVES

1100

33000

1.73%

3.30

0.00%

0.00

FEES

1150

0.00%

0.00

0.00%

0.00

FINANCING

1200

67000

3.52%

6.71

1811

3.91%

6.71

CLAIMS

1250

82000

4.31%

8.21

2217

4.78%

8.21

0.00% TOTAL M & S COSTS

182000

9.56%

18.22

4028

8.69%

14.92

LOGISTICS & ADMIN (Variable) CUSTOMER SERVICE

1300

149000

7.83%

14.92

4028

8.69%

WAREHOUSING

1350

27000

1.42%

2.70

730

1.57%

2.70

176000

9.24%

17.62

4758

10.26%

17.62

29048

LOGISTICS & ADMIN COST OF SALES

1400

1124000

59.03%

112.55

62.64%

107.59

TRADED PRODUCTS

1450

0.00%

0.00

0.00%

0.00

SERVICES

1460

0.00%

0.00

0.00%

0.00

1482000

77.84%

148.39

37834

81.59%

140.13

422000

22.16%

42.25

8538

18.41%

31.62

TOTAL COSTS CONTRIBUTION - M & L FIXED SALES & MARK COSTS EMPLOYEE COSTS

1500

122000

6.41%

12.22

3298

7.11%

12.22

VEHICLE COSTS

1550

54000

2.84%

5.41

1460

3.15%

5.41

TRAVEL/ACCOMODATION

1600

0.00%

0.00

0.00%

0.00

ADVERTISING/PROMOTION

1650

0.00%

0.00

0.00%

0.00

ENTERTAINMENT

1700

0.00%

0.00

0.00%

0.00

COMMUNICATIONS

1750

1000

0.05%

0.10

0.06%

0.10

OTHER

1755

3000

0.16%

0.30

0.17%

0.30

180000

9.45%

18.02

4866.3262240913

10.49%

18.02

242000

12.71%

24.23

6970

15.03%

25.81

PROFIT AFTER MARKETING & SALES (PAMS) LOGISTICS & ADMIN COSTS (FIXED) EMPLOYEE COSTS

1800

69000

3.62%

6.91

1865

4.02%

6.91

VEHICLE COSTS

1850

5000

0.26%

0.50

135

0.29%

0.50

TRAVEL/ACCOMODATION

1900

0.00%

0.00

0.00%

0.00

PROPERTY & ASSETS

1950

32000

1.68%

3.20

865

1.87%

3.20

COMMUNICATIONS

2000

16000

0.84%

1.60

433

0.93%

1.60

ENGINEERING

2050

2000

0.11%

0.20

0.12%

0.20

BRANCH ADMIN COSTS

2100

19000

1.00%

1.90

514

1.11%

1.90

PROCUREMENT

2200

0.00%

0.00

0.00%

0.00

143000

7.51%

14.32

3866

8.34%

14.32

99000

5.20%

9.91

3104

6.69%

11.50

MARGIN OTHER INCOME

2250

0.00%

0.00

0.00%

0.00

LESS INTEREST

2300

31000

1.63%

3.10

838

1.81%

3.10

68000

3.57%

6.81

2266

4.89%

8.39

PROFIT BEFORE MANAGEMENT FEES LESS MANAGEMENT FEES - Willard

2450

0.00%

0.00

0.00%

0.00

POWERTECH MANAGEMENT FEES

2500

14000

0.74%

1.40

378

0.82%

1.40

54000

2.84%

5.41

1887

4.07%

6.99

1000

2.16%

3.70

2888

6.23%

10.69

TRADING PROFIT/(LOSS) LEAD RECOVERY

2550

37000

1.94%

3.70

OVERHEAD / SERVICES

2600

0.00%

0.00

91000

4.78%

9.11

NETT PROFIT

0.00

Appendix 2 Draft dissertation- John Durr 2286/1999

113

Appendix 4 EVA incentive scheme for Account executives (this page) EVA key performance areas measured App 5 (next page)

POWERTECH BATTERIES - ACCOUNT EXECS - PERMANENT Bonus Pool

WHL

VAN HEERDEN

Weight

On Target Bonus

Target

Actual

R 4,840

ECONOMIC VALUE (EV)

85%

R 4,114

R 5,847

LEAD RECOVERY

15%

R 726

R 915

Pool Drivers

Nominal Bonus

R 6,762

BRANCH PROFIT MARGIN

40%

80.00%

CLAIMS

40%

115.00%

ROTATION

20%

115.00%

Actual Bonus

R 6,830

Guaranteed

R 7,260

Total

Pool Modifiers

R 14,090

Performance Ratio

15.4

Draft dissertation- John Durr 2286/1999

114

REP NO 1 4 6 8 9 11 12 14 21 24 25 26 41 44 45 46 49 51 51 58 61 61 66 67 69 71 71 73 75 78 79 81 82 84 85 91 92 95 96 98 99 111 113 114 115 117 118 119 111 113 114 115 116 122 123 141 146 147 149 151 151

SALES SALES DEBTORS 811 CLAIM ROTAT CON REP NAME UNITS AMOUNT FIN.COST CONSIGN. AMT UNITS UNITS UNITS UNITS ROGER HARDEN (AUTO) 1721 351399.72 191477.5 38177.5 768939.71 -1322 148 62 384 DENNIS POWELL (AUTO) 987 186774.6 118363.45 7464.9 318168.97 -669 1 1 69 TREVOR DUNKLEY (AUTO) 1 792 416.9 1 2276.58 1 1 1 1 CHRIS BOTHA (AUTO) (EL) 829 161612.77 89173.55 118498.25 362865.13 -813 98 18 1124 JIM HENKES (AUTO) 1742 325514.5 181714.75 61488.3 751172.62 -1151 45 73 611 MICHAEL BLACK (AUTO) 938 188291.19 113124.15 73551.75 382847.92 -579 46 34 616 MICHAEL DUNKLEY (AUTO) 1313 267726.5 147698.44 53123.35 739111.73 -963 81 56 745 JOHN RAFFAN (KMP IND) 1341 261126.3 147318.25 8517.15 464211.92 -1115 24 1 79 TREVOR DUNKLEY 1211 245891.56 138129.79 85299.95 725365.44 -1172 44 34 781 DANIE BASSON (AUTO) 344 73713.14 41977.35 68528.61 197542.51 -173 6 45 597 DEREK FOURIE (AUTO) 1 241 164.8 1 1 1 1 1 1 MARK LOWDEN (AUTO) 1932 426221.91 234254.22 311113.91 1138336.16 -1511 167 71 2471 TERRY UPCHURCH (AUTO) 1478 316169 174116.51 258938.62 739894.45 -868 51 16 2296 OCKERT HAASBROEK (AUTO) 12 2272 1149.8 11819.15 614.46 1 1 1 94 HENNIE BOTHA (AUTO) 744 155132.55 92143.6 1 247911.4 -16 36 1 1 A.J. ENGELBRECHT (AUTO) 882 191661.7 113272.25 13495.8 431441.27 -691 124 77 131 JABU MANANA (GOV) 16 7262.15 3492.15 1 21381.89 -16 1 1 1 JOHHNY ACKERMAN (A/EXP) 1684 286584 239811.15 1 1318693.1 1 1 1 1 PIET VAN DER WESTHUIZEN 2296 453214.75 252417.82 14569.3 975314.8 -2116 135 21 149 STEFAN ENGELBRECHT (AUTO) 2664 561116.3 319216.87 117564.97 1353815.12 -2151 132 23 951 DANIEL PRINSLOO (AUTO) 1698 381486.58 216787.96 31398.25 619986.62 -1126 58 56 231 THYS DE VILLIERS (AUTO) 1891 425129.16 241919.9 6166.15 477989.35 -1124 89 57 62 W. VAN HEERDEN (AUTO) 2139 452698.7 251644 51123.35 713856.3 -1271 133 33 385 IND BATT - ISANDO 618 324318.95 236665.38 35376 12197.55 1 1 1 132 LODEWYK BRINK (AUTO) 1677 363192 197813.3 65143 642851.57 -1131 61 163 584 P. MORAKILE (AUTO) 884 174826.4 116752.62 8487.7 454555.87 -216 27 9 74 LUDOLF STRAMPE(AUTO) 1143 262437.25 143467.5 81169.15 369257.92 -913 51 76 626 COLIN WRIGHT (IND) 384 229751.33 133624.8 69115.61 157576.33 1 1 1 228 KOBUS VAN HUYSTEEN (AUTO) 911 218651.39 112191.95 23125.6 269373.14 -591 58 44 214 OUBAAS ZEELIE (AUTO) 1492 349878.55 189976.95 35844 411481.21 -1619 131 126 315 HENNIE BOTHA (AUTO) 763 185581 99996.85 77895.25 397469.18 -513 58 16 636 EXIT CUSTS (NAT) 413 114763.2 53196.15 -12.4 295376.41 -297 7 11 4 SUSPENDED REP (NAT) 1 211 86.55 71713.29 -16857.49 -1111 1 1 686 U. KOTJIPATI (AUTO) 192 46164 21154.15 1 59144.15 1 14 1 1 D. VERWEY (AUTO) 1355 324724.75 164479.2 42211.8 738673.16 1 124 41 329 IAN MCADAM (AREA 2) 2695 656448.79 395582.85 32119.9 1483519.49 -3 1 1 1211 G. HULME (AREA 1) 997 661821.35 368124.6 1 1131551.2 1 1 1 1 D. GROVE (IND) 71 49171 27711 1 8131.95 1 1 1 1 KENNETH BARRETT (IND) 148 76165.18 41561.1 1 417539.99 1 1 1 1 WILSON NHLABATHI (IND) 5187 483611.89 528659.53 1 1589316.27 1 1 1 1 IN HOUSE ALL BRANCHES 26297 7253184.28 6111473.63 5162113.54 48254141.94 -1893 433 31 513981 HYRON COPPER (IND) 584 399419.25 219924.48 46661.51 92969.15 1 1 1 225 PATRICK NHLAPO (IND) 218 191674.4 111956.42 1 258289.68 1 1 1 1 NO REP (IND) 281 189389.71 129926.19 59944.36 178411.17 1 1 1 47 DAVID VAN DER BERG 1149 277146.14 159635.26 1 267779.28 1 1 1 1 EUGENE MARAIS 276 173215.2 99197.8 1 8966.2 1 1 1 1 CARL BURMEISTER (IND) 527 134828.13 86549.74 1 331867.32 1 1 1 1 E. LUDICK (IND) 1328 686773.13 358864.29 1 584227.1 1 1 1 1 WILLIE BRIEL (IND) 1169 328698.85 212664.4 1 732913.92 1 1 1 1 CHARLES RAUTENBACH (RUS) 2346 557741.42 314273.25 1 1 1 1 1 1 KARL LUTHER (IND) 32 36113.44 23328 1 278281 1 1 1 1 FANIE VAN VUUREN (IND) 51 74451.12 41947.2 1 184431.28 1 1 1 1 FRANS DU PREEZ (IND) 461 311216.89 191531.24 1 634592.43 1 1 1 1 REAGON BOYCE (IND) 1611 916544.56 528291.28 1 119521.57 1 1 1 1 MARLON JACOBS-M/HAND IND 39 27214 12223.7 1 1 1 1 1 1 ALEC COLLINS (IND) 313 194131.66 111843.9 8345.74 67788.95 1 1 1 74 BILL OOSTHUIZEN (IND) 181 94139.2 61134.5 56346.69 351798.27 1 1 1 216 JOHN PAGE (IND) 125 49967.5 31132.93 1 144131.26 1 1 1 1 PETER WALBAUM (IND) 181 154122.23 91119.25 1 349137.52 1 1 1 1 KEVIN PRETORIUS (IND) 73 36982.34 21663.74 1 163867.19 1 1 1 1 RAJESH MANILALL (IND) 12 5296.6 2876.6 1 1 1 1 1 1

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115

Appendix 6 What is the Balanced Scorecard? “What you Measure is what you get” is how Kaplan et al begin their article in HBR Business Classics on ‘The Balanced Scorecard’. Stern Stewart (998) argue that the Balanced Scorecard recognises the need to identify and track a number of financial and non-financial measures to provide a broader view of the business. For this purpose, an organisation is not limited to accounting data. A company may select indicators of process efficiency, safety, customer satisfaction or employee morale. It can capture information about current performance and emphasise leading indicators of future success. The objective is to produce a set of measures matched to the business so that performance can be monitored and evaluated. The Balanced Scorecard created by Robert Kaplan an David Norton (1996) aims to translate vision and strategy into objectives. The balanced scorecard is meant to help managers keep their finger on the pulse of the business. Each organisation will emphasise different measures depending on their strategy. Management is, in effect, translating their strategy into objectives that can be measured. The Balanced Scorecard links strategy to measures. The scorecard is a collection of data that helps a manager understand performance. The measures help managers balance their focus between current and future performance. Leading variables are future performance indicators, and lagging variables are historic results. Financial measurements are typically lagging variables, telling managers how well they have done. On the other hand, an example of a leading indicator is training costs, which influences Vision

customer satisfaction an repeat business. Some variables exhibit both lagging and leading characteristics, such as on-time deliveries (a lagging

Strategy

measure of operational performance and a leading indicator of customer satisfaction).

Objectives

The balanced scorecard usually has four broad categories, such as Critical Success Factors Individual Measures

financial performance, customers, internal processes and learning and growth. Typically, each category will have two to five measures. If the business strategy is to increase market share and reduce operating costs, the measures may include market share

and cost per unit. Another business may choose financial indicators that focus on price and margin, willingly foregoing market share for a higher-priced niche product. These measures should be set after the strategy is in Draft dissertation- John Durr 2286/1999

116

place. A list of objectives, targets, measurements and initiatives comes with each variable. The saying “we manage what we measure” holds true. One reason the balanced scorecard works is because it raises awareness. The Balanced Scorecard converts strategy into action. The balanced scorecard, if properly implemented, is an excellent management framework that can help managers to track the many factors that influence performance. But it lacks a single focus for accountability. Management needs one overriding goal to summarise the interaction between the variables and, ultimately, determine success. Shareholders entrust management to

Balanced scorecard

implement strategy but their primary

(source, Henley Part 3 Wkb4, Setting Course, p42 1999 MBA)

concern is earning an adequate return on their investment. EVA, as discussed tells

Goals

Measures

Financial

scorecard measures “right” and as Kaplan

how do we look to shareholders?

says “Creating EVA is the ideal outcome

Measures

Goals

Customer

how do customer see us?

us whether managers have balanced the

Measures

Internal Goals

Measures

Innovation

how can we continue to improve & create value?

what must we excell at?

of a successful strategy, and that’s what we are trying to do ”. We can see that both the Balanced Scorecard and EVA have a common platform in that they both measure the organisation and/or the individual on

performance relative to the organisations key value drivers. It is feasible then that the identification of value drivers through a balanced scorecard methodology can be used to establish the correct value drivers to be incorporated into an EVA scheme. In HBR (September-October 2000) Kaplan & Norton further explore the use of the balanced scorecard within a framework of Strategy maps. They detail some of the measures available when mapping your strategy and include the “recognition of customer loyalty” as a key measurement criterion, under Customer Perspectives. They do not however go into any detail on how to achieve customer loyalty except by way of explaining that the customer must be “delighted”. The map does however provide a more holistic overview to ensuring that you identify all the key value drivers for your organization.

Draft dissertation- John Durr 2286/1999

117

Appendix 7 Motivation and reward theories In order to better understand how to measure key drivers for customers, we need to explore motivation theory shortly, so that we ensure we are rewarding value drivers to the organisation, as well as rewarding factors that will actually motivate the customers to purchase more from us and consequently increase their “loyalty”. Herzberg (1966) highlights many factors that affect job attitudes besides pay. Since customers are also employees in their own right we can apply this learning to them in search of identifying the correct measures for our loyalty reward strategy. The theory clearly indicates that there are several ways to motivate staff and that pay in fact is merely a “Hygiene” factor.

Hertzberg’s two factor theory (Henley Human Resources Workbook, 1999 and Bryans & Cronin, Organisation Organisation Theory,Mitchell Beazley, 1983)

Determines job satisfaction Motivators Achievement Recognition Work itself Responsibility Advancement

Determines job dissatisfaction Hygiene factors Company policy& admin Supervision Salary Interpersonal relations Working conditions

•Higher order needs •Intrinsic factors

•Lower order needs •Extrinsic factors

Presence = Job satisfaction Absence does not = Job dissatisfaction Absence does = Lack of job satisfaction

Presence = Job satisfaction Absence does not = No job satisfaction Absence does = Job dissatisfaction

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Bryans et al (1983) use Vroom’s expectancy theory to show how motivation is dependant on several factors, which include rewards/recognition to influence motivation positively or negatively. These factors are: •

Effort

•

Ability

Vroom’s Expectancy theory

(Source: Authors model adapted from; Organisation Theory, Bryans & Cronin, Mitchell Beazley, 1983)

•

Performance Ability

•

Rewards and recognition Performance

Effort

They can be process flowed as

follows: Motivation

Satisfactory

Rewards/ Recognition ? Unsatisfactory

Demotivation

Cognitive dissonance Theory (Rathus 1981) Rathus states that people dislike inconsistency and that we do not like to think our attitudes are inconsistent nor do we like to think that our attitudes are inconsistent with our behaviour. Rathus continues by stating that research indicates that people may indeed change attitudes when attitude discrepant behaviour is rewarded. This has important implications for us and we can surmise the possibility that we can influence a persons behaviour and, consequently possibly a customers behaviour by effectively rewarding them.

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Appendix 8 Extract from Excel spreadsheet to capture survey results

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Appendix 9

Customer Inductive Customer Interview/Questionnaire with summary of answers. Powertech Industries (Pty) Ltd.Co. Reg.No. 64/07250/07 1 Vanacht Street, Isando Ext. 3, Kempton Park 1619, South Africa. Postal Address: P.O. Box 8794, Edenglen, 1613. Telephone: (011) 974 –

November 2001

Inductive customer Survey/Interviews… In support of the survey questionnaire that was conducted this inductive interview aims to further our understanding of the customers view on both loyalty programmes and EVA principles.

Question numbering and sequence is

identical to that used in the survey questionnaires to ease integrating the data later. Only certain questions posed in the survey were posed here again and two new questions were introduced (D0 and D0.1.) Questions are posed to the respondents in an open-ended manner to encourage discussion on the various topics and are in blue below for ease of reference. The sample was 20 interviews.

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1. Introductory discussion to set the scene In order to set the scene the author explained the purpose of the interview to the respondent, highlighting the following: •

Use of results for MBA studies

•

Use of results as an initial investigation into loyalty programme feasibility

•

Assessment of the customer needs to see if these could be filled and how sensitive they would be to price impacts.

After this introduction the interview moves to generic questions that are more within the knowledge and experience of the respondents, in order to get the respondent talking. Questions included: •

How long have you been in this industry?

•

How is business at the moment?

•

Who is the competition and is that changing?

Following is a summary of the results of the inductive interviews after content analysis!

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2. E-Commerce propensity Questions B1.1 to B4.1 are posed to try and establish the propensity of respondents to trade on-line with our organisation. B1.1.

Do you consider the Internet/WEB as a suitable channel for electronic business? (Ask for a rating from 1-5 if necessary)

Respondents Discussion of answers: •

Yes but not for our industry (70%): 14 of 20 respondents said yes but not for their particular business. They felt that batteries were a grudge purchase and often posed the question of how Autotech would get the battery delivered electronically when the motorist was stuck in the middle of nowhere? These respondents also felt batteries were a situational purchase and that point of availability and price were the only two factors relevant to the consumer. 6 respondents also noted that South Africa was far behind in connectivity, which would mean that most could not connect to the web in the 1st place (they referred to battery dealers in this case). 2 respondents noted that purchasing batteries was not like purchasing books on-line. The latter being a desirable purchase that also addressed availability problems.

•

No (60%): 12 Respondents felt they were not prepared to pay for expensive computer equipment just to link up with us electronically. They felt it was the supplier’s responsibility to manage their stocks for them and they therefore had no need for IT integration. Respondents did indicate that Autotech could manage stock through the web, as long as they incurred no costs in the process. (It was however evident that there was fear of technology as well as the fact that cash transactions were not visible to the receiver. These opinions are of course unsubstantiated and were stated in confidence by only 1 respondent.)

•

Yes (30%): 6 Respondents (30%) were happy to link with Autotech electronically and to set up systems for automatic ordering. All these respondents were part of large chain operations that already had computers installed at their operation.

In summary respondents felt there were some opportunities for B2B but not for B2C trading in an electronic manner. Significant barriers seem to exist for technology implementation and it is unlikely that we would get a critical mass of dealers to interact with us electronically within 6 months.

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B2.

2. Slightly

3. Neutral 2 2 2 2 2 2 2

4. Yes, a little 3 3 3 3 3 3 3

4 4 4 4 4 4 4

5. Very Much

B2.1 B2.2 B2.3 B2.4 B2.5 B2.6 B2.7

5 5 5 5 5 5 5

B2.8

Respondents Discussion of answers: This question linked to the previous one, brought home the fact that there was little understanding of these benefits as much of the discussion was around explaining the concepts to some degree. Only two respondents understood the implications of linking our organisations and sharing information without explanations. •

No benefits (40%): Respondents felt they did not need all this technology to sell batteries, as it was mainly cash over the counter business. Many answers echoed the previous question.

•

Some benefits (20%): Once the concepts were explained 4 respondents (20%) felt that there would be reduced costs as they would not have to count stock or order, since these functions could be automated. They also could see benefits in automated stock levels. None felt benefits would include loyalty, which they saw the result of better service levels. On communication, 4 respondents said that only better reps calling cycles and access to management could improve this.

Since there was little understanding of this concept, it is was reasonable to assume that there would be little likelihood of launching the loyalty programme in an electronic manner, as this would involve extensive training, support and change barriers and did not fall within the scope of this dissertation. This could present a problem, as true loyalty will be very difficult to engender without the advantages of electronic/on-line 1-to-1 capabilities.

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3. Reward programme evaluation: Questions B5 to B10.1 were posed to try and establish the respondent’s feelings toward reward programmes in general. C1 & C2 Which reward programmes do you participate in, and how do you benefit from these? Discussion of answers: 7 (35%) of the sample participate in a non-industry reward programme, not within their industry, while 55% were part of a programme by our competitor in the industry. (This competitor programme was in the form of a competition based on unit volume targets, with several prizes and a grand prize of a week vacation.) Those on an independent consumer program quoted the following perceived benefits/negatives: Voyager airline program (30%): • You get something for nothing • It takes so many points to get a free ticket, that it’s not worthwhile. • I would not fly SAA if I could get a cheaper ticket elsewhere even if I was losing the points. Clicks (general retailer) (5% (1 respondent)): • I don’t know how much I have received back from Clicks (A retail home products chain in South Africa. They offer a purchase voucher for every R1 of 0.1%), but its nice to be able to get something free every now and again. Those on the competitor purchase incentive program listed the following perceived benefits: First National Battery Programme (55%): • You get something back • The spouse also benefits (she normally works in the shop as well) • You see how everyone else is doing • The more you sell the more your chances are • You spend time with the other successful retailers at conferences • As a result of price parity across brands, dealers do support the FNB brand if they can get something out the competition. Further discussion indicated that the dealers enjoyed some preferential pricing arrangements from suppliers, in particular Autotech’s competitor. This may have been true or it may have been a subtle attempt to secure better prices form our organisation, as respondents were aware of the fact that that the author held a senior position in the organisation. Discounts were disregarded, as it did not fit in with the purpose of this dissertation, in that it cannot be regarded as a benefit in terms of a reward programme but as a discount.

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Rate your requirements for a reward programme, where applicable. 1. Not at all

C4.1 C4.3 C4.4 C4.7

2. Low

3. Neutral

Linked to your purchase activity Choice of gifts/rewards by you Rewards to be redeemed as additional products Bonus points for increased loyalty

4. High 1 1 1 1

2 2 2 2

5. Very High 3 3 3 3

4 4 4 4

5 5 5 5

Discussion of answers: A strong preference for linking to purchase activity and products as rewards was expressed. The author feels this may change after implementation of the programme and there may be a shift to redeeming prizes rather than products in some cases. •

Link purchase activity to rewards (100%): Respondent’s felt that the rewards should be linked to their purchase activity and all wanted bonus points for increased loyalty.

•

Gifts or product choice as rewards (100%): All respondents indicated they would like the choice. They also mentioned that they should be the decision-maker in this regard and not their staff members.

•

Extra rewards for loyalty (70%): 14 Respondents understood loyalty to be the period of time that they had been purchasing from the supplier. They felt that additional rewards should be commensurate with this.

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What sort of rewards do you prefer (you can tick more than one block) B81. Batteries

C5.6

B8.2. Gifts

B8.3. Charity Contributions

B8.4. Travel Vouchers

B8.5. Other

If other, please specify

Discussion of answers: Two categories of gifts were chosen; gifts and batteries. There is overlap on the percentages, as respondents also wanted the choice, resulting in a total percentage higher than 100%. The author expects these choices may change after implementation of a points based scheme and marketing campaigns aimed at community involvement and experiential activities. •

Batteries as rewards (95%): Only 1 respondent did not want batteries as rewards. The primary reason cited by the others was that they could make money out of the batteries that were redeemed as rewards.

•

Gifts as rewards (55%): 6 respondents wanted branded merchandise from the supplier as giveaways to their consumers. Of these 4 wanted branding to be the suppliers and 2 requested their dealer brands. 5 respondents wanted to be able to redeem gifts for private use such as electronic goods.

Would you like your staff members to benefit from the rewards programme? 1. Not at all

2. Slightly

3. Neutral

4. Yes, a little

5. Very Much

Discussion of answers: •

Yes (60%): Although 12 respondents did not mind if staff benefited, this was to be in addition to their business benefiting. They felt staff could benefit more from a direct incentive such as a commission per battery sold.

•

No (40%): 8 respondents felt that this would encourage their staff to sell brands for the wrong reasons. This they felt would compromise their position as impartial to the consumer as they are selling more than one brand and the consumer relies on them for advice.

The author’s impression of this was that it was possible that dealers wanted their staff to sell the batteries with the higher dealer margin and did not want this compromised by sales peoples personal interests. D0

Would you prefer extra rewards for keeping a favourable trading account with us? 1. Not at all

2. Slightly

3. Neutral

4. Yes, a little

5. Very Much

Discussion of answers:

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This question was originally designed to test if the dealers would accept a reward system based on individual dealer behaviour. This would contrast from the traditional reward systems such as that offered by the airlines, where rewards were a fixed amount of air miles per flight irrespective of the price paid for a ticket. The second, hidden objective, was that the supplier could then set a base level for rewards for purchase activity, assuming high cost structures and then reward bonus points for improved cost efficiencies at individual dealer level. •

Yes (90%): Perhaps predictably respondents answered yes. Most understood this question initially to refer to our debtor’s book.

•

Claims and rotations (80%): 17 respondents said they would not want to lose points for claims and stock rotations as both of these were the supplier’s responsibility.

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D0.1 How should a company seek your loyalty in ways other than discounts or rewards linked to your purchase behaviour? (Include needs, wants &desires)

Price (85%): o

•

17 Respondents said they wanted preferential pricing in exchange for loyalty

Support (40%): o

Information provision (4). Respondents wanted access to technical product information as well as world industry trends.

Factory tours (2). Respondents felt this was a good tool for relationship building with the key accounts.

Processes and procedures: o

3 Respondents noted that they required preferential treatment on both claims and special deliveries.

None indicated that they wanted better personal relationships with our company with regards to having fun or being friendly.

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4 Service level dimension: Questions B11.1 to B11.12 were posed to try and establish the respondents feelings toward service levels in general, as well as to identify the extent to which planning and communication would be needed if we intended to measure and reward these key cost drivers to our organisation. D1

Rate the following aspects according to level of importance to you?

D1.1 D1.2 D1.3 D1.4 D1.5 D1.6 D1.7 D1.8 D1.9 D1.10 D1.11 D1.12

3. Neutral 1 1 1 1 1 1 1 1 1 1 1 1

2 2 2 2 2 2 2 2 2 2 2 2

4. High 3 3 3 3 3 3 3 3 3 3 3 3

5. Very High 4 4 4 4 4 4 4 4 4 4 4 4

5 5 5 5 5 5 5 5 5 5 5 5

Discussion of Answers: While all these areas were considered important and rated a 5, some touched stronger buttons that others. In particular the following two areas prompted strong feelings: •

•

Special deliveries (50%): Linked to this was the feeling that there were times when the dealers needed an unusual item or they had had a run and were out of stock of particular items. In these cases they felt suppliers were not accommodating enough on special deliveries.

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Appendix 10 Transcript of inductive interview

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Appendix 11 Content analysis (Mind map) of customer inductive interviews

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Changes made to draft 2: as per Tutor comments Dear Paul, I have made the changes you have suggested and hope you find an improved work herewith. Please bear in mind that I have made these changes based on a list of comments that you made that was faxed to me, as Henley Johannesburg was unable to return the draft hard copy to me in time for me to review comments made by you in the actual draft. I hope therefore, that I have not omitted changes that are important in the process. Unfortunately I had run out of time and try as I might, the fact that I was in Cape town & had to get the work to JNB by the 15th, meant that I was unable to address your point on NOMINAL/INTERVAL measurement techniques and the reasoning for this on page 50 of the draft, even after burning the midnight oils. The only other point I did not address was the point relating to the reasons for choosing every 10th dealer off the database of 3500. In truth there was no reason, except that I believed that 350 would be a good number. Sorry. I am sure you will find the remainder of the points you raised are addressed, hopefully to your standard. In particular you will note that the inductive interviews now hold far more weight in the research results of section4. Kind regards, John Anton Durr (Ps I hope I am now finished with this, as I never want to see it again)

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