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Aug 1, 2010

Critically access the proposition that customer service is an expensive cost for many retailers. Use examples to support your line of argument.


1. Critically access the proposition that customer service is an expensive cost for many retailers. Use examples to support your line of argument.
 

 
Retail is anything but a static art form. Successful retailers create loyal following of customers by developing and maintaining certain hallmarks – form an unusual store formats, to a unique set of specials services, to a clearly defined shopping atmosphere-that a thought to find elsewhere. Infact, change continues to accelerate the transformation of retail industry at an unprecedented pace. Technology keeps improving, and along with it the ability to share and disseminate information is exploding. (Dawson, J. and Lee J.H, 2007. International Retailing. USA: NY). While keeping pace with ever growing consumer demands seems taunting; retailers have an important tool at their disposal to help them to meet these demands- Customer Service.
 
Customer service is about treating the customer the same way you would be like to be treated if you are standing at the other side of the counter; professionally, with dignity and curtsey.
 
Customer Service refers to a rightful blend of activities involving areas of retail business, which combined to deliver and invoice the stores products or services in a fashion that is perceived as satisfactory by the customer and which advances the stores objectives. (Marquard W.H., 2007, what it really takes to profit in a Wal Mart World. USA: NY). Customer Service, therefore, can be seen as a process which provides time and place utilities for the customer and which involves ore transaction, transaction, and post transaction consideration in relation to the exchange process with the customer. Customers are the most important people in our (Retail) business; we should give them the best possible attention and service because, indirectly, they pay our wages. Customer service at its most literal means ensuring that customers receive truly excellent services from the moment they set foot in the business to the moment their purchases are home and in use. (Levy, B.A and Weitz, B., 2001, Retail management (4th edition), McGraw-Hill/Irwin)
 
Formula for Winning
 
The key to competing successfully against a dominant industry competitor is –Don’t compete against them. Instead, the key to profiting as a competitor in a Wall Mart World is to make three explicit choices relative to the dominant industry players;
  • How to differentiate?
  • What to emulate?
  • Where to dominate?
Service
 
Offer expert advice and training, make timely deliveries, customized products, extend credit, extend hours, or get to know customer’s name. Creating customer delight is the only formula for wining in retail business. (Marquard W.H., 2007, what it really takes to profit in a Wal Mart World. USA: NY)
 
Dancing Deer Baking Company
 
Trish Karter runs the Dancing Deer Baking Company in the inner city Roxbury section of Boston. Dancing Deer Baking Company isn’t an ordinary baking company. Karter’s business strategy directly informs her employment strategy. She starts by rewarding employed in a novel way. Karter has establishes clear values for Dancing Deer, treating her employees as she thinks everyone would want to be treated. She impassions her employees by matching the company’s values to theirs; the need for respect, the desire to use their minds as well as their hands for customer delight, and the desire to serve others compassionate and to be served in the same way. Karter rates her employees in terms of customer service feedbacks data arranged from external sources. The reward and the recognition program of employees are directly linked to her perception of the standard of customer service attained by her store. Sale turnover, product variety, cost volume leadership and supply chain management take the back seat when Karter thinks of Dancing Deer Baking Company. Through such unique choices, dovetailing with the company’s business strategy, Karter stets Dancing Deer apart in the competitive packaged food business. (M cGoldrick, P.J.and Ho, S, S.L., 1992.International positioning: Japanese Department stores in Hong Kong, European Journal of Marketing, and 26(8): 61-73)
 
Cost of Customer Service
 
Retail business thrives on the concept of achieving year on year higher sales revenue, negotiating better rate contract with suppliers, offering a wider array of product range, better management of the supply chain logistics leading to higher profits thereby resulting in increase returns on equity. The above concept may seem simple however is hard to implement. Customers are smarter than we think. To improve the return on equity a retail business tries to minimize input cost for all the above-mentioned parameters. A research study has found that customers cling to particular stores on their perception and undersigning of the customer service offered by the store.
 
 Customer Service includes the luxurious ambience, helpful and courteous sales staff, convenient and effective service, prompts after sales service and a collaborative environment. Customer Service operations cost dearly to a retail store. Since the same product and services can be offered at a lower rates without customer service. Customer service cost increases the cost of a product/ service by an approximately 19% and therefore, competitiveness on low price basis is lost. (Dawson, J. and Lee J.H, 2007. International Retailing. USA: NY) The Customer Service cost per unit is inversely related to the volume sold by the retailer, however, is directly related to the number of repeat customers visiting a store.
 
Introduction of efficient Customer Service is a daunting task for any retailer. The culture of the organization has to imbibe in itself the very essence of customer service. This can follow only after a detailed plan on improving customer experience is recognized by the retail store. The break-even analysis on introduction of customer service operations to retail store must be carefully planned and analyzed before implementing the same.
 
 
The real benefit of customer service in terms of revenue growth an increase in profitability generally occurs over a longer period of time.( Fleming,P.,2008,How to achieve maximum retail sales(4th edition),UK:Gloucestershire). On the contrary the input cost classified as the operational expense occurs in relatively shorter time periods and hence, retailers generally avoid the propositions customer service introduction. Further, it is hard to establish a direct link with the introduction of customer service and higher revenue /profits. Retailer with long –term value development plans are the only ones who strategies their customer service models. (Covey, S.R., and 1989.The seven habits of highly effective people, New York: Fireside). Many retailers argue that customer service cost is evitable and is not the part of core reason for a business to succeed. Following are the key processes involved in customer service management:
  1. Tracking changing customer preferences.
  2. Establishing customer relationships
  3. Convenience retailing and retailer initiative.
  4. Differentiating you from the other good.
  5. Finding and training the right people.
  6. Managing the franchisee including location, parking, power and other resources.
The above process makes up the entire cost required in delivering customer delight. This cost is definitely a complex function of the variables of a particular environment. The nature of the competition, cultural, behavioral, educational, social parameters are important factors in both developing and optimum customer service plan and the cost required to do so. (Bajaj, C., Tuli, R., Srivasatava, N.V., 2008.Retail management (10th edition), India: New Delhi)
 
 
Customer Service: Managing Gaps between Expectations and Performance
 
When customer’s expectations are greater than their perceptions of the delivered product or service, customers are dissatisfied and feel that the quality of the retailer’s services is poor. Thus, retailers need to reduce the service gap (the difference between customer’s expectations and perceptions of customer service) to improve customer’s satisfaction with their service. There are four important dimensions that customers employ to judge the effectiveness of customer service provided by retailers, which are:
  1. Knowledge- The difference between consumer expectations and the retailer’s perception of customer expectations.
  2. Standard: The difference between the retailer’s perceptions of customer’s expectations and the customer service standards it sets.
  3. Delivery (Actual performance): The difference between the retailer’s service standards and the actual service provided to customers.
  4. Communication: The difference between the actual service provided to customers and the service communicated in the retailer’s promotion programme.
These four dimensions determine the quality of customer service extended by the retailers or marketers. The retailer’s objective is to enhance the performance on account of the aforesaid dimensions by reducing differences in each of the four companies of customer service satisfaction.
 
Loyalty Programmes
 
  • Loyal customers are cheaper to serve, therefore more profitable
  • They are willing to pay more for given bundle of goods
  • They act as effective marketers for the store’s offerings
 
Loyal Customers are Cheaper to serve
 
Customers, which almost invariably do business in high volumes, know their value to the company and often exploit it to get premium service and price discounts. On the other hand, retailers may not be required to invest to attract, maintain, and communicate with loyal customers as they are already predisposed to search for information on new arrivals, services, and developments of the store in comparison to customers who are not loyal.
 
Loyal Customers are willing to pay more for a given bundle of offerings
 
Many proponents of loyalty programmes argue that customers who stock to one business entity do so because the cost of switching to another supplier is too high, which not only comprises economic but also psychological stress. (Bajaj, C., Tuli, R., Srivasatava, N.V., 2008.Retail management (10th edition), India: New Delhi) They will, therefore, be willing to pay higher prices up to a point to avoid making the switch or try some other store. Contrary to this, customers expect, and get, some tangible benefits for their loyalty.
 
They act as effective marketers for the store’s offerings
 
The frequent customers are also the strongest advocates for patronization of a particular retail store. The word –of-mouth marketing is very effective, and many stores justify their investment sin loyalty programmes by seeking profits not so much from the loyal customers as from the new customers the loyal one brings in.
 
Conclusion
 
Customer Service is an integral to success of retail store:
  1. Customers expect some recognition from retail staff –regardless of who they are. A simple smile and hello may help to encourage customers to express their interests or needs even if you are just passing by. This may be a cue for you to find the right person to help is that is not you.
  2. Customers must come first –all the time. This sometimes means putting ourselves out for them when it is almost inconvenient, or when we fee; least up to it.
  3. The combination of ‘willingness’ and ‘time to reflect’ will sometimes encourage customers to choose from the options you have, rather than the ‘impossible’ choice that they were seeking.
  4. It should not matter who makes the sale providing that a sale is made.
  5. Customers often measure their satisfaction by considering the number of things, which go wrong in their dealings with your business. Total customers care means that everything should be right –first time.
  6. Be polite at all times-try to maintain a professional image throughout.
  7. Successful care techniques must extend to telephone contact with customers. Standards should be agreed with all phone users and then monitored and assessed.
  8. Successful sales people keep in touch with customers-at all times.
  9. Don’t make promises that you cannot keep. Always consult the delivery service to negotiate a ‘special delivery’ before telling the customer.
  10. Try to ensure that your delivery service is helped to complete the sale by delivering the customer’s purchases –first time and in full
  11. Visitors to customers’ homes must always remember that they are guests of the customer and ambassadors of their firms, and behave accordingly.
  12. Selling is often a process of encouraging the customer to buy dreams-the ‘remodeled dining-room’, ‘the luxury bathroom’, and the ‘working kitchen’. The installation process must ensure that the customer’s drams come true.
  13. Customers may prefer to choose the location for the completion of credit paperwork. Sometimes the offer of a drink may help them to relax.
  14. The complaining customer gives us a chance to put the problem right and, if we use our customer care skills properly, we should be able to cement the customer for life.
  15. No one wishes to have to deal with complaints and unhappy people and the records of complaints should be analyzed carefully to see what correct6ive action can be taken to avoid the problem recurring.
 
Continued Success
 
Staying focus with customer needs and exceeding the expectations is one way to maintain the success in retail. Cost being a major deterrent can attract negative force for customer service. However, the rewards are much sweeter and elongated in time. Customer Service should be backed by a lot of customer research. Customers love to give their opinion. All those opinions and feedbacks should be further evaluated and the best possible customer service practices should be evolved and implemented in retail segment. (Fleming, P., 2008, How to achieve maximum retail sales (4th edition), UK: Gloucestershire)
  

2. Some commentators argue that it is essential for retailers to understand local customs and buying practices before contemplating entry into new, international markets. Examine the extent to which you would agree with contention. Use examples to use your point of view...
 

 
Tie up of J.C Penney and DeoDeo in Japanese market
 
On 19th June 1996, Daiichi (now DeoDeo Corporation) announced a tie up with a major US department store, J.C Penney. The company opened a flagship store, “J.C. Penney Home Collections Head Office.” Inside the main Daiichi store in Hiroshima on 30 June. The product were sold by Daiichi at equivalent of US prices, averaging 30-40% lower than Japanese products. The company aimed at 600 millions yen sales in the first year.
 
Daiichi continued to diversified away from household electric appliances, for example with a link with large US stationery and office super store, office depot .In April 1997 DeoDeo announced that it was working with J. C Penney to create a mail order business in Japan. However, the sales of “J.C. Penney Home Collections Head Office” did not reach their target once in ten months. When DeoDeo searched the cause of lack of sales, it emerged that there were products that did not suit the Japanese lifestyle. For instance, window sizes and ceiling heights differed between Japan and the US homes. So curtain sizes were unsuitable, and also curtain hooks differ. There were also problems with bathroom accessories. Although American likes soft pillows, Japanese people prefer slightly the hard pillows. Moreover, sizes of bed lined differed the US and Japan. For this reason, from May 1997, DeoDeo began to change each product to Japanese specifications. As a result of the company renewing about 40 % of the product assortment, sales grew to exceed target in July 1997 and beyond. However, profits were limited because the purchase and adaptation cost increased. Also, substantial time and effort were needed for changing all the products to Japanese specifications. (McGoldrick, P.J.and Ho, S, S.L., 1992.International positioning: Japanese Department stores in Hong Kong, European Journal of Marketing, 26(8):61-73)
 
DeoDeo announced in April 1999 that it would cancel the tie up with J. C Penney around June. The purpose was to concentrate management resources on sales of their core businesses, household electric appliances, where competition was intensifying. President Kubo Masakata stated, “We cannot satisfy customer and make a profit with only the products of J. C Penney. It will take a long time to make a profit .We will change the space occupied by the J.C Penney’s products to domestic manufacturer’s products and will break-even within this year”.
 
Foreign affiliated retail companies face three hurdles in a host company. (Treadgold, A. Davis R.L., 1988.The internationalization of retailing, Harlow: Longman)
 
One is the realization of customer satisfaction in a host country. It is not easy to grasp that consumer needs in a host country are quiet different from a home country’s consumer need in terms of economic, social and cultural environment. J.C Penney failed in adjusting their products to the physical size of Japanese people.
 
The second hurdle is a problem of whether the management resources and business processes that had become strengths of the retail company in their home country are also applicable in a host country in compiling the right mix of products to satisfy customer needs in a host country. J.C Penney tries to fit product size to Japanese specifications; however, it became clear that this would involve enormous costs. (Dawson, J. and Lee J.H, 2007. International Retailing. USA: NY)
 
The third hurdle is the problem of whether responding to customer needs, creating a suitable retail mix and business process in a host country have competitive power in terms of third existing resources and the existing business process.
 
Toys “R” Us is an example of a foreign affiliated Retail Company that was successful in the Japanese market and has somehow managed to clear these three hurdles.
 
It is a necessary condition of success for foreign affiliated retail companies to create new and “or” differentiated customer value in host country effectively and efficiently. But it is not a sufficient condition. Sometimes they need to adapt and change their original business model for the host country to create such value.
 
To globalize a retail company is to attain chain store operations not only at home but also in overseas markets. Irrespective of the retail formats its action represents a search for “economies of scale” based on the principle of chain store operations. The difference comes from the “standardization-adaptation problem,” that occurs when retailers move their chain store operations into overseas markets particularly when expansion possibilities are limited in the domestic markets.
 
Local Adaptation Process of Toys “R” Us
 
Yahagi (2001), in an analysis of the internationalization process of Japanese retailing, has pointed out two reasons to explain the difficulties facing foreign retailers in Japan. One is a group of institutional conditions, for example the liberalization of capital transactions and large-scale retail store law that have had a decisive influence on foreign retailers at the time of entry. (Dawson, J. and Lee J.H, 2007. International Retailing. USA: NY) the second is the market difficulty on entry, for example the entry mode and “a difference between the flexibility of a standardization strategy and innovation, and the management structure.”Toys “R” Us opted for entry to the toy market in Japan by using an innovative retail format drawing on their experience of development in other countries. The most important thing for foreign retailers in entering a local market is to fully understand the different environment and to develop a suitable strategy. (Marquard W.H., 2007, what it really takes to profit in a Wal Mart World. USA: NY). If the environment of the foreign market seemed likely to accept a standardization strategy then it was thoroughly pursued, even if there was room for some flexible adjustment to accommodate specific issues of consumer behavior. Toy “R”Us had to find a compromise that keeps the principle of direct trade but accepts the Japanese style transaction.
 
The change in procurement and price competitiveness enables Toys “R” Us to open an average of ten or more store each year. Toys “R” Us became the largest retail company in the toy sector in 1996,after only 5 years of first opening .It can be concluded that Toys “R” Us succeeded in the international transfer of the retailing format of category killer to Japan.
 
Implications from the above reading
 
Toys “R” Us made a big impact on the Japanese toy market at the time of entry, demonstrating the innovative nature of a standardization strategy. However, the strategic advantage of Toys “R” Us positioned as the standard of a large toy speciality store in Japan neither could nor persist more than ten years. Toys “R” Us did not attain the completion of Japanese type of model by the universal standardization strategy, so it was completed to reexamine an adaptive strategy as competition became stronger. Adaptation is one of the key words that characterize the internationalization of a retailing company.
 
The Benefits of Market Segmentation prior to entering a new market
 
Retailers segment the market to identify specific groups of customers in their trade area on whom their selling efforts can be concentrated. Such focused selling efforts are aimed at making the retailer the preferred destination for such identified segments for the products or services it deals in and to develop a dominant position in the target segments.
  • Development of marketing mix: Segmentation helps a retailer in identifying the target population and developing a customized marketing programme in terms of product/service offering, pricing strategy, and promotional programme.
  • Store Location decision: Segmentation helps a retail chain in deciding locations for its new stores. The retail outlets can be located where there is a concentration of the target population.
  • Understand customer behavior: Segmentation helps a retailer to gain insight into why the target group acts the ways it does .The buying behavior of the target segment can be understood once the market is segmented. This can help in the development of an effective marketing strategy.
  • Merchandising decisions: Segmentation helps a retailer in merchandising decisions. Merchandising is essentially the skill that decides which items will go on the shelves. An understanding of preferences of target segments is essential for a successful merchandising programme.
  • Promotional campaigns: Segmentation helps the retailer in developing moiré effective and accurate promotional campaigns.
  • Positioning: Segmentation helps a retailer in positioning itself in the market. Thus, Shopper’s Stop and Cross Roads have targeted the upper income class wile Westside has targeted the larger base of middle and upper middle-class consumers.
 
Criteria for Effective Market Segmentation
 
Effective market segmentation can provide a base for developing a sound marketing stray. But market segmentation is a challenging task. If a retailer and segments its market on variables that influence purchase decision for its products and services, segmentation can become a sound platform for developing an effective marketing stray. Otherwise, segmentation may prove it be futile exercise. (Fleming, P., 2008, How to achieve maximum retail sales (4th edition), UK: Gloucestershire)
 For market segmentation to be effective, the identified segments must satisfy the following criteria:
  • Homogenous within: The segments into which the market is divided should be homogenous within. The customers in a segment should be homogenous within. The customers in a segment should have similar needs and wants and follow similar buying behavior as much as possible so that their needs can be addressed through a uniform marketing programme.
  • Heterogeneous between: The customers in different segments should be as different a possible with respect to their needs and buying behavior. This will help a retailer to focus its efforts on its identified target segments.
  • Substantial: the market segment or segments that a retailer plans to target must be large enough and have enough discretionary income to help the retailer to be profitable. Stores like Bombay Stores and Lifestyle, which target higher income groups, should ensure that there is a significantly large population of such high-income groups in their trade area before locating a store.
  • Actionable: The segmenting dimensions should be useful for identifying customers and deciding on marketing mix variables. Barista targets youngsters, who seek to enjoy a coffee in fashionable outlet; it should be accessible to its target customers.
  • Measurable: The size, purchasing power, and the characteristics of the market segment must be measurable. The retailer needs to determine the size of the target segment and estimate its purchasing power to develop an effective marketing programme.
 
Winning Community Members in the new Economy
 
When we fail to make smart choices to belong to the community align our corporate and community strategies, and engage actively in policymaking in our various communities, we run a risk- abdicating the opportunity to mange our future and instead letting our business and social environment manage us. (Fleming, P., 2008, How to achieve maximum retail sales (4th edition), UK: Gloucestershire). As community members, we don’t have to follow the trends: We need to get ahead of them.
            For many business leaders, approaching community and social strategy is like going to school all over again. Foe one thing, the issues are very broad. They draw leaders onto foreign turf from the start. How many of us have training in global environmental change, social justice, and human rights? Fr another, social strategy frequently forces us as leaders into unfamiliar roles-as corporate emissaries, diplomats and advocates. Even so., many have faced the, risk and risen to the challenge. At Procter & Gamble, leaders refer to their work as “corporate social opportunity.”
 
Today we face corporate accountability of a new kind. As successful leaders, we cannot bypass our non-financial responsibilities. In fact, we cannot achieve our financial goals without achieving our community ones at the same time. (Bajaj,C.,Tuli,R., Srivasatava, N.V., 2008.Retail management(10th edition),India: New Delhi).We are members of diverse communities –communities of citizens at local, national, and global levels; communities of special interests from human rights to animal rights; and communities representing the environment. The challenge of working within these communities can seem over-whelming-and yet it is the challenge of our era.
  
Further Reading
 
1.      Amirani,S. and Gates,R. 1993,An attribute –Anchored conjoint approach to measuring store image, International Journal of retailing and distribution management, 21(5):30-39
2.      Birtwistle,G.,Clarke,I. and Freathy,P. 1999.Store image in the UL fashion sector: Consumer versus retailer perceptions ,The international review of retail ,Distribution and consumer research,9(1):1-16
3.      Covey,S.R.,1989.The seven habits of highly effective people, New York: Fireside
4.      Davies, R. (ed.), 2002.Full proceedings of the Asian Pacific Retail Conference 2002, Templeton College, University of Oxford.
5.      Dawson, J. and Lee J.H, 2007. International Retailing. USA:NY
6.      Dawson, J.A., Mukoyama, M, Choi, S.C and Larke, R. (eds.), 2003. The internationalization of retailing in Asia, London: Routledge Curzon
7.      Griffith, L., 2005. “Wal-mart saturation doesn’t dampen spirits in OK,”Shelby report of the south-west,Gainesville,GA:Shelby
8.      Halkias, M., 2006, “Wal-Mart and Kroger Bag Larger shares of the market,” Dallas Morning News.
9.      Joyce,M.L.and Lambert,D.R.,1996,Memories of the way stores were and retail store image, International Journal of retail & distribution management,24(1):24-33
10. Levi Strauss & Co.,2002.Annual Report, The company was absent from the other 50 percent,p.10
11. Levy,B.A and Weitz,B.,2001,Retail management(4th edition),McGraw-Hill/Irwin
12. Liddell,B.H.,1991.One military historian studied the 280 major military…(2nd edition),New York: Meridian
13. Marcus,B.H.,1972,Image variation and the multi-unit retail establishment, Journal of retailing, 48(2):29-43
14. Marquard W.H., 2007, what it really takes to profit in a Wal Mart World. USA:NY
15. McGoldrick,P.J.and Ho,S,S.L.,1992.International positioning: Japanese Department stores in Hong Kong ,European Journal of Marketing,26(8):61-73
16. Mukoyama,M.,1996.Toward the landing of pure global (Pyua Gurobaru he no Chakuchi),Tokyo:Chikura-Shobo
17. Oppewal, H.and Timmermans, H., 1997.Retailer self-perceived store image and competitive position. The international review of retail, Distribution and consumer research,7(1):40-59
18. Pellegrini,L.,1994.Alternatives for growth and internationalization in retailing, The international review of retail ,Distribution and consumer research,4(2):121-148
19. Porter, M., 1985.Competitive advantage: creating and sustaining superior performance, New York: Free Press, p.9.
20. Salmon,W.J.and Tordjman,A.,1989,The internationalization of retailing, International Journal of Retailing,4 (2):3-16
21. Treadgold,A.,1995.European retailing: convergence, differences and perspectives, in McGoldrick,P.J and Davies,G.(eds),International retailing :trends and strategies,London:Pitman Publsihing:17-50
22. Treadgold ,A. Davis R.L.,1988.The internationalization of retailing,Harlow:Longman
23. Yahagi, T. (ed.), 2003.Retailing innovation in China and Asia (Chugoku-Ajia no Kourigyo Kakushin), Tokyo: Nikkei.