Thursday, September 17, 2009

Shopping Basket based business planning...

My last post was on the creation of a "Customer Relationship Manager" position as a first step towards customer centricity. I had intended to continue on this topic. But last week the local Spencer Retail outlet shutdown in our residential locality. I was thinking over why it did not work out for the retail chain to continue with the store. So I have pushed the CRM position story to the next post.

We had moved into this locality about 7 years back. At that time, in the place where the current Spencer Retail was located, a local entrepreneur had started a supermarket format called Sunrise Supermarket. Since this was the only super market around and also it was closer to our residence, we started frequenting it for all our household purchase. In fact soon it was a Sunday ritual to drop into Sunrise on our way back from church and gorge on some puff cakes.

All our shopping trips started and ended with one trip to Sunrise. Slowly we adjusted our weekend activities to be able to visit Sunrise when the crowd was at its lowest .. which was saturday afternoons.

A couple of years back, Sunrise wound up and gave its space to Spencer Retail. A D*Mart outlet opened up about a mile further down. While Spencer tooks its own time to start operations, D*Mart was quick to setup and beat Spencer to its opening. My wife and myself started frequenting D*Mart. However, we always tended to stop at Spencers on our way back from D*Mart. D*Mart did not stock non-veg items and we always needed to pick up chicken and bacon from Spencer.

Soon wife decided to drop D*Mart and visit only Spencer. There were two primary reasons for this -- (1) She did not like the quality at D*Mart, and (2) We were spending too much time at the check out counter at D*Mart. I probably know the reason for the second one... D*Mart was cheaper than Spencer and so attracted maximum crowds in a two store locality.

But everytime we came back from Spencer we were getting more and more frustrated. The number of items on our shopping list that were not available in Spencer was increasing every week. So after our trip to Spencer, my wife still insisted on visiting the local market for stuff that we could not get at the Spencer outlet.

In fact, I remember about an year back, my wife was so frustrated that she actually called for the store manager and complained about items that were no longer available. She told this person that at this rate they will soon have to shut down. That was it.. my wife predicted the downturn of Spencer Retail outlet. Unfortunately, the store manager did not take her seriously. Today, Spencer Retail has shut down the store. My wife did not use any analytics, any forecasting, nor any predictive tool... just her experience on a weekly basis to predict the store is going downhill.

Too often I have found inventory managers trying to order stocks basis individual movement of SKUs. So items that are moving slowly get eventually moved out of the merchandise portfolio for a store. No consideration is given to the fact that this item may actually complete the shopping basket of the customer. In the endeavour to focus on the fast moving SKUs, the slow moving ones are edged off the area of attention. This often leads to an incomplete shopping basket for the customer and forces her to visit other outlets to procure the missing items. When the number of missing items increases, the customer finds it convenient to avoid the store altogether and move to her regular kirana store or to another store outlet.

The need for inventory managers is to study the shopping basket to see if the slow moving item is part of a typical set of baskets. If so, then it would make sense to forecast the number of shopping baskets and then derive the number of SKUs to order basis the items in each shopping baskets.

This is not a very complex analysis. The purchase baskets are available from the POS units. Every purchase receipt is one basket. The first step is to group the purchase transactions into clusters of similarity. This can be done using either an cluster algorithm or an association algorithm. These two algorithm are significantly different and have their own objective. Once we know the number and contents of typical baskets, the next step is to forecast the number of baskets that will need to be filled. Basically, we are predicting the number of visitors to the store for each purchase baskets. When this is done, we can sum up the individual SKUs to come at the number of SKUs to stock so that all the purchase baskets are filled.

If only Spencers had done this analysis, my wife (and many others) would have continued to shop at the store and it would still be running today.

If you are in retail and want to know how this analysis can be done... get in touch with me at michaeldsilva@gmail.com

And before I windup, a reminder on the survey on the right side of the screen.

If you have come this far, do vote your view at the end of this post.

Thursday, September 10, 2009

CRM needs a Customer Relationship Manager

The Jet Airways pilots "strike" is in its third day. I am currently at the airport for my flight back home. And I am happy I did not opt for Jet Airways flight this trip. I am in all support with Mr. Goyal. The airlines exists for taking people from one place to another, always closer to their destination. By calling for a mass sick leave, the pilots have violated the basic reason for an airlines existence. I hope the government stays out this time and let Mr. Goyal run his business. It it means shutting down the airlines, so be it. This action of the pilots have hurt Jet badly and its going to take a looong time for it to get back on the market share. (And the Jet Airways counters is diplaying a panel that reads "Jet takes you places after you have flown with us".. pooh atleast they should have covered the panel till people could actually fly with them). By the way, all flights are on time ... now what are the chances of that happening on an ordinary day.

For those who have not noticed, I have a poll running on your right side of the screen. For those who have notices, I have received queries on what the query mean.

A lot of companies talk of customer relationship management and customer centricity. However, the organization structure and business process remains untouched. At most a lovely (costly) CRM application is purchased and implemented. The implementation team is asked to map the CRM application to the business process. The implementation is done, some customizations are deployed, t-shirts get distributed, go live parties are celebrated and users are forced to use the new application.

Lets break down CRM... The first word says there has to be a customer. Well, if the company still runs then obviously it has customers. So that is addressed. It was a easy one.

The next word is Relationship. Here is where a clear cut definition of what is the relationship with a customer does not exist. There are often a lot of marketing statements and marketing vision/mission statements. Somethings on lines of providing comfort to users, providing transport to users, elimination worries of customers and so on. But what exactly is the relationship. Is the customer just an acquaintance, a person known, a friend, a good friend, a best friend, a fiance, a spouse (or an ex). Most companies don't know what relationship they want to build with their customers. They have excellent order and billing systems. Customer records get created, a customer id is allocated, sales order generated and payment booked against it. Beyond this there is no definition of how a relationship with the customer should be envisioned.

Discussion on the third and last word - Management - does not make sense. Most, infact all companies, I have interacted at has failed at the second step. They do not know what relationship they enjoy with their customer. For most a customer is a consumer of their products and a consumer of their CRM processes. So they focus mainly on improving the consumption of products and the consumption of their CRM processes.

Banks have started defining GOLD or PLATINUM segments. The high net value individuals. They have clear cut definiton of the relationship with this segment. There was lovely advertisement depicting a financial advisor on her morning jog and constantly thinking of what her clients need would be. One advisor with a american bank in India once stated to me that he is expected to be part of the customer's life in any way possible... even if it means turning up at his customer's place at 6 in the morning to walk his dog. But beyond this high value segment, there has been no attempt to define relationship with the other customers.

The reason is very simple. This is because there is no "Customer Relationship" manager. A profile whose job will be to define the relationship with each segment of customer. In the case mentioned above, the bank allocates the high value customer to a dedicated group and bars all the other departments to contact this set of customer. This dedicated group is responsible for the ownership of the customer relationship. However, in these cases also, the relationship is crudely defined as "turning up ... to walk the dog" attitude to customer service. The other customers are not owned by anyone in particular. Whenever a customer buys a product, the respective product group thinks they own the customer. Thus over time there are multiple group who each think they individually own the customer and devise their own strategy to deal with the customer. A classic case, I saw at a telco, where the landline department debarred the outgoing of a customer whereas the sales person from the mobile department was in the waiting area of the same customer with a "preferred" deal for the mobile service.

Companies on the route to CRM should first appoint a Customer Relationship Manager. This profile will be responsible for defining how a customer enters the companies records, what processes touch the customer, how the relationship should be built and also how and when should a customer be eased out. All other groups - service or product - will align themselves to the definition established by the Customer Relationship Manager. A lot of culture change is needed for this attitude to set in. Especially in cases where a product sale dominates the revenue of a company as in such cases this product group tends to muscle its way to access the customer and keep others away.

So.. go ahead and set up a "Customer Relationship Manager" profile.

Now the poll question should be clear, so what is your answer?

Thursday, September 03, 2009

Loyal customers are dying....

Last week I happen to walk by past an old book store. I had some nostalgic memories of travelling all the way to town to visit this store to purchase cassettes and books (yup, it was that old memory). It was during my college days. During the interim, a lot of things changed... I started my globetrotting and the modern retailing format and mega malls percolated into the Indian market place.

Re-establishing my base back in the city after about 5 years, I had been moulded into the browse and kill-time-with-coffee culture. I had always been a book lover and preferred having music playing in the background and going about my reading than plonking myself in front of the TV. I loved browsing in the new book store format, pick up a couple of books, settle myself in the in-house cafe and while away couple of hours with a single coffee. Hence, I always avoided this book store in the recent past.

But last week, as I walked past, my colleague insisted we enter just for the heck of it. I did pick up a couple of CDs. At the checkout, my friend wanted to reserve a CD while he did some background check on the score. The person manning the counter (who apparently happens to be one of the owners) was very rude and hardly ever smiled. It sounded very odd in this "customer friendly" era.

I remembered reading a press article highlighting how such "nostalgic" outlets catered to die-hard book lovers (or music lovers) and preferred them as customers. Thus, me and my colleague were not fitting the discriptiion of a "customer" to this book store. I feel sorry for this attitude. These "nostalgic" outlets seem to be living in a cocoon of their own make. They dont realise that their die-hard customers are getting old and dying. The new customers, myself and those of my ilk, have different preferences and attitudes for purchase. We want customized service for mass products. We want to be left alone while browsing. We want to scan the books before purchasing (and dont mind spending even around 30% of the book cost on coffee that cost a few rupees while we do it).

These "nostalgic" outlets are an endangered species. And will soon die out along with their die-hard customers. They need to soon adapt themselves to the new generation. True, they may lose their existing customers ... but this base is anyways shrinking.

Yesterday while travelling in train towards office, I was intrigued by a person in his mid-40s who was constantly making phone calls. From his discussion, I could gather that he was following up with different person within the same customer company on his payments. It turned out that he was the account manager for an agency providing security services. This customer had not paid him for over 7 months for the services of security guards which were still being provided. The dues totaled over 1.6 million rupees.

Since the guy looked very stressed, I did not initiate any communication with him. But I wonder why did this agency still provide services to an apparently bad customer. This customer was not paying them for over 7 months and still the services were being provided. The dues had climbed to 1.6 million rupees and still mounting. The agency should have stopped providing services to this customer long back.

It is true that a customer - vendor relationship is a partnership. But this should be a symbiotic partnership where both parties benefit. Partnership where one party suffers is an Antibiosis. Or in common parlance - parasitic. And nature always tries to get rid of parasites. So also, this security agency should have terminated its services long back instead of waiting for the receivables to mount to such high figure. And bad as it is, the agency was still providing services in good faith.

The world of finance has beautiful advice on this:
"One should take ones profit slowly and cut ones losses faster".
 
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