An investigation into the use of Information Technology in...

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An investigation into the use of Information Technology in understanding,

attracting and retaining loyal customers with specific reference to the South African

retail sector

A Research Report

Presented to

The Graduate School of Business

University of Cape Town

In partial fulfilment

of the requirements for the

Masters of Business Administration Degree

by

Ivo Milanesi

and

Marylee Townshend

November 2000

Supervisor: Professor Paul Sulcas

The 2 year confidentiality embargoon this Research Report has expired

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ACKNOWLEDGEMENTS

This report has a confidentiality restraint until the year 2003. Thereafter, the University

of Cape Town, Graduate School of Business, may use it freely.

We wish to thank Professor Paul Sulcas for his enthusiastic assistance throughout the

research process. His input and insight proved invaluable.

We certify that his report is our own work and all references used are accurately reported.

Signed: Signed:

IVO MILANESI MARYLEE TOWNSHEND

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AN INVESTIGATION INTO THE USE OF INFORMATION TECHNOLOGY IN UNDERSTANDING, ATTRACTING AND RETAINING LOYAL CUSTOMERS WITH SPECIFIC REFERENCE TO THE SOUTH AFRICAN RETAIL SECTOR

ABSTRACT

The economic benefits of customer information and relationship management often

explain the differences in profitability amongst competitors. The challenge for

organisations is to focus on the ‘right’ customer – those customers with whom they are

able to form a long-term profitable relationship.

With rapidly changing technology, the goalposts for organisations to meet this challenge

are continuously shifting. The Internet is having a profound effect on distribution

channels and is exposing customers to a wider range of products at competitive prices.

Combined with the increasing benefits of using information technology this study will

analyse how organisations use information technology in attempting to understand,

attract and retain the most valuable customers, specifically within the South African retail

sector.

The key findings of this report are that customer information is being collected at great

expense, however this data is not being fully utilised. The key reasons for this are that

insufficient attention is being given to the development of a knowledge level within

company structures and the capital expenditure required to achieve this.

Key Words: Information Technology, Information Management, Knowledge Level

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GLOSSARY OF TERMS

Automated Analytic Tools Software, with the capability of manipulating and analysing large volumes of data from multiple perspectives.

CommunitiesA group of online users who visit and use a given web site based on a predetermined affiliation.

Data Mart A repository of data gathered from operational data and other sources that is designed to serve a particular community of knowledge workers. The emphasis of a data mart is on meeting the specific demands of a particular group of knowledge users in terms of analysis, content, presentation and ease of use.

Data Mining This is the analysis of data for relationships that have not previously been discovered.

Data Warehouse A central repository for all or significant parts of data that an enterprise’s various business systems collect. This term is used interchangeably with the term “information warehouse”.

Call Centre A central place where customer and other telephone calls are handled by an organisation, usually with some amount of computer automation.

CD-ROMRead only optical disk storage used for imaging, reference, and database applications with massive amounts of unchanging data and for multimedia.

Enterprise Marketing Automation (EMA) This is software that enables marketing departments to generate leads, run marketing campaigns and determine the campaign’s effectiveness.

Enterprise Resource Planning systems (ERP) A business management system that integrates all facets of the business, including planning, manufacturing, sales and finance so that they can become more closely coordinated by sharing information.

Network A series of points or nodes interconnected by communication paths. Two or more computers linked to share data or resources such as a printer.

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Point of Sale (POS) This refers to the online linking of sales transactions with planning, ordering, pricing, and inventory management and other business transactions. As a transaction occurs information flows to alter the relevant planning and operational areas of the business.

Short Message Service This is a service for sending messages of up to 160 characters to mobile phones that use the Global System for Mobile Communication.

Smart Cards About the size of a credit card, a smart card is a plastic card with an embedded microchip that can be loaded with data, used for telephone calling, electronic cash payments, and other applications, and then periodically “recharged” for additional use.

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TABLE OF CONTENTS

1. INTRODUCTION .................................................................................... 1

1.1 Background to the Research ............................................................................... 1 1.2 The Hypothesis ................................................................................................... 2 1.3 Purpose of the Report.......................................................................................... 2 1.4 Layout of the Report ........................................................................................... 3 1.5 Constraints and Limitations ................................................................................ 4

2. LITERATURE REVIEW ........................................................................ 6

2.1 Definition of CRM.............................................................................................. 6 2.2 CRM and the Link to Profitability ...................................................................... 7 2.3 The Holistic Approach to CRM.......................................................................... 7 2.4 Information Technology and CRM..................................................................... 8 2.5 CRM as a Strategy .............................................................................................. 8 2.6 The Importance of Loyal Customers .................................................................. 9 2.7 Customer Loyalty Programmes ........................................................................ 10 2.8 Loyalty Programmes and Customer Expectations............................................ 11 2.9 Customer-Centric Versus Product-Centric Organisations ................................ 11 2.10 Importance of Connecting to the Customer ...................................................... 12 2.11 Are Customer Relationships Sustainable? ........................................................ 13 2.12 One-to-one Marketing and the Internet............................................................. 14 2.13 The Influence of Technology on Customer Service ......................................... 15 2.14 The Importance of Continuous Innovation ....................................................... 16 2.15 Increasing Acquisition Costs on the Internet .................................................... 17 2.16 Online Trust and Customer Loyalty ................................................................. 17 2.17 Collecting Customer Data................................................................................. 18 2.19 CASE: The Zellers Club Z Experience............................................................. 18 2.20 CASE: The Irvin & Johnson Limited Preferred Customers Club..................... 20

3. RESEARCH METHODOLOGY......................................................... 22

3.1 The Choice of Research Method....................................................................... 23 3.2 The Sample ....................................................................................................... 23 3.3 The Format of the Questionnaire ...................................................................... 25 3.4 Testing the Questionnaire ................................................................................. 26 3.4 The Choice of Interviewees .............................................................................. 27 3.5 The Interview Process....................................................................................... 27

4. FINDINGS AND DISCUSSION............................................................ 29

4.1 Company Overviews......................................................................................... 29 4.2 Current Information Technology Usage: Tabular Summary ............................ 34 4.3 Discussion on Current Information Technology Usage.................................... 35

4.3.1 Point of Sale Systems................................................................................ 35 4.3.2 Data Storage.............................................................................................. 35 4.3.3 Data Mining Software............................................................................... 36 4.3.4 Software Design........................................................................................ 38

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4.3.5 Call Centres............................................................................................... 38 4.3.6 Internet ...................................................................................................... 39

4.4 Summary of Customer Information Utilisation ................................................ 39 4.4.1 Data utilisation .............................................................................................. 39 4.4.2 Level of information usage ........................................................................... 40 4.4.3 Information utilisation benefits..................................................................... 40 4.4.4 Information utilisation .................................................................................. 41 4.4.5 General findings............................................................................................ 41 4.4.6 Results of information utilisation.................................................................. 42 4.5 Operational Details ........................................................................................... 43 4.6 Loyalty Measures.............................................................................................. 47

5. CONCLUSION ....................................................................................... 50

5.1 Hypothesis......................................................................................................... 50 5.2 Conclusions....................................................................................................... 50 5.3 Future Information Technology Plans .............................................................. 51 5.4 Future Research ................................................................................................ 53

6. REFERENCES........................................................................................ 54

APPENDIX 1: LIST OF INTERVIEWEES .............................................. 1

APPENDIX 2: LETTER OF INTRODUCTION ...................................... 4

APPENDIX 3: QUESTIONNAIRE ............................................................ 5

APPENDIX 4: WEB SITE DEVELOPMENT STAGES.......................... 7

APPENDIX 5: ADDITIONAL RESEARCH............................................. 8

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Research Report Page 1 of 57 MBA 2000

1. INTRODUCTION

1.1 Background to the Research

The retail sector in South Africa is under pressure due to declining margins, increasing

competition, the convergence of product offerings and the current unfavourable economic

conditions. Compounding this pressure is the uncertain impact of e-commerce, which is

leaving many retailers floundering and adopting a ‘wait and see’ attitude towards e-

commerce developments.

Customer satisfaction and loyalty are at an all time low, however customer expectations

are at an all time high. Customers expect companies to know who they are and what they

need. Through technology, customer management has become a science as quantitative

analyses can be conducted to better understand, acquire and retain customers.

Companies require accurate information in order to build successful customer

relationships, therefore customer information management is a critical success factor for

customer relationship management. Information should be seen as a company asset as it

can be used to strengthen and develop customer relationships. Technological

improvements have made customer information more readily available, accessible and

accurate. This asset should be maintained and controlled at the highest level of the firm

so as ensure the integrity, accuracy and the correct use of the information.

Through the analysis of the customer information, companies are able to develop insights

and gain a better understanding of their customers, which in turn assists companies in

strategy development. They are able to refine their market segmentation and through

mass customisation, target and tailor their service offerings. Technology has also become

a conduit for feedback, which is then incorporated into strategic decisions. This feedback

process allows companies to act and implement real time business changes and

simultaneously become a ‘learning organisation’. However, it is insufficient to focus on

technology alone, as this is only an enabling tool and not the strategy itself.

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The sustainable competitive advantages created by strong customer relationships are

based on a customer-centric corporate philosophy and structure and a sound customer

information management strategy, which includes technology, information analyses and

controls. When successful, this translates to the bottom line in terms of reduced costs,

improved profits and continued growth.

1.2 The Hypothesis

The hypothesis of this report is:

That South African organisations, with specific reference to the retail sector, are

using information technology to understand, acquire and retain customers

1.3 Purpose of the Report

The purpose of this report is to investigate the current levels of information technology

system sophistication and information utilisation within the South African retail sector.

The researchers believe that there are a number of South African retailers whose IT

systems remain legacy based with every line of business having its own customer

database. Information in these dissimilar databases is siloed and not integrated across

databases causing poor data quality and a lack of understanding of who the company’s

customers are.

The second area to be researched is the current level of information usage and at what

level of decision making within the company is information being used. This would

reflect management’s attitude to the value of information and how it can be translated

into insights to inform business decisions.

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1.4 Layout of the Report

Section 1: Introduction

The formulation of the hypothesis and the background to the report is discussed in this

section, as well as the limitations and constraints to the research.

Section 2: Literature Review

Current academic journals and various newspaper articles are presented in this section as

they contain up-to-date material relevant to the research topic. Various academic

literature as well as information obtained from the Internet is also discussed. This section

gives further insights into the research problem and lays a foundation for the report.

Section 3: Research Methodology

Three research methodologies are discussed and the reasons for choosing one particular

method to gather data for the report are outlined. The rationale behind the development of

the questionnaire, the choice of organisations chosen and the interview process is detailed

in this section.

Section 4: Findings and Discussion

A general overview of each organisation is given, together with a summary of the use of

technology in the retail sector in a tabular format. The section concludes with the

findings and a discussion on the data gathered.

Section 5: Conclusion

The findings discussed in the previous section are concluded together with a discussion

on the hypothesis. Future areas of research resulting from this report are discussed in this

section, as well as the future plans of the organisations interviewed.

Section 6: References

A list of all literature used in the report are detailed together with all the Internet sites

referred to in gathering data for this report.

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Appendices

A detailed list of all interviews conducted as well as a copy of the letter of introduction is

included in this section. A copy of the questionnaire used for the interviews is also

included and finally, brief descriptions of web sites development stages are outlined.

1.5 Constraints and Limitations

The researchers have specifically limited this study to the retail sector and due to time

constraints, have attempted to focus on organisations that have their Head Offices located

in the Western Cape.

However, the researchers interviewed the Managing Director of a leading South African

hotel chain who are known to have a successful customer loyalty programme currently in

place. This research was carried out to enlighten the researchers on the use of technology

in at least one other sector and to be able to draw comparisons on the use of technology

used across sectors.

This report specifically excludes research on Customer Relationship Management

(CRM), although this issue is addressed in this literary review section. A definition of

CRM is outlined and current trends are identified. The link between CRM and technology

is highlighted in the literary review and the importance of CRM is discussed. The focus

of this report is however, on the technology in place that supports a customer-centric

business philosophy. A part of CRM is the service culture within organisations as well as

the organisational changes required to be customer-centric. These aspects were not

included in the scope of this report.

Whilst the focus is on technology, the operational aspects of information technology and

the network architectures currently used by organisations are specifically excluded from

this report.

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The findings addressed in this report are limited to a section of the South African retail

sector and they should not be used to address similar issues in other sectors, nationally or

internationally.

The researchers have excluded a study of the business-to-business (B2B) e-commerce

models as the focus of this report is on attracting and retaining customers and the analysis

of the supply chain was excluded, but they have included a business-to-customer (B2C)

study.

Finally, as the information gathered during the interviews is regarded as confidential, the

organisations concerned have requested that the report not be made public for a period of

two years. It is generally accepted that after two years, the pace of technological change

will have eroded any current competitive advantage that these organisations may

currently have.

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2. LITERATURE REVIEW

The literature review was conducted to shed light on the research topic and to highlight

areas that may require further research. This review included articles from various

academic journals, academic literature, magazines, the Internet and special reports from

South African newspapers. It provided a foundation for this research report and assisted

in formulating the questionnaire in Appendix 3.

The review highlighted that many organisations have implemented CRM but the success

of these initiatives is questionable. Moreover, many companies do not distinguish

between CRM and customer loyalty programs and the review suggests that many

companies do not understand the difference between them. Importantly for this report, the

review also highlighted that organisations make the mistake of assuming that CRM is all

about technology and that it is technology alone that will attract and retain customers.

2.1 Definition of CRM

The definition of CRM used by Ernst & Young (1999) in their special research report is

“ANY strategy for managing customers and customer relationships”. They state that

historically skilled salespeople managed this relationship, but that in today’s

technological environment, managing this relationship has potentially developed into a

science.

Although there is considerable interest in managing customer relationships, there is also a

great deal of confusion and uncertainty about how best to achieve this. Ernst & Young

reported that 63% of the organisations surveyed were not aware of how their CRM

initiatives affected profitability.

In a Business Day Customer Relationship Management Survey (August 2000), Anderson

Consulting defined CRM as “a holistic and methodical approach to identifying,

attracting and retaining a company’s most valuable clients through a set of integrated

capabilities”.

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2.2 CRM and the Link to Profitability

The Anderson Consulting report, conducted in the USA, indicated that there is a strong

link between a company’s relationship with its customers and its financial performance.

The report indicated that organisations that have the highest profitability are those that

have invested in CRM capabilities.

Five of the twenty-one CRM capabilities identified as having the greatest effect on

profitability are listed below

!" Customer service

!" Motivating and rewarding people

!" Turning customer information into insight

!" Attracting and retaining customers

!" Building and selling service skills

Through their research, Anderson Consulting found that by making a 10% improvement

in the twenty-one identified capabilities, a business with an annual turnover of $ 1 billion

could boost pre-tax profits by between $40 million and $ 50 million per year.

2.3 The Holistic Approach to CRM

The above-mentioned research concluded that people are critical to the success of CRM

and account for nearly a third of the total impact across the twenty-one capabilities.

Importantly, the research found that technology influenced 40% of the CRM impact, but

it also noted that people drive the technology.

Organisations therefore need to focus on both the people and the technological aspects of

CRM, which is in line with the Anderson Consulting definition of CRM mentioned

previously. This approach towards CRM is supported by Dr Jan Hofmeyer of Research

Surveys (Pty) Ltd (Sunday Times August 2000), the developer of the “Conversion

Model”, who states, “CRM cannot be done in isolation, but involves a fundamental

reorientation of the business process”

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2.4 Information Technology and CRM

Developing the idea that CRM should be considered from a holistic point of view, many

companies make the mistake of assuming that by investing in expensive technology, they

will automatically be successful in CRM. Conrad Steyn of Deloitte Consulting states

“CRM initiatives that are IT driven have little impact” (Sunday Times August 2000).

CRM uses technology as an enabler, to gain information about individual customers. The

information is then used to understand customers and to increase the profitability for each

individual customer. This translates into developing and nurturing a loyal customer base.

Steyn further explains that it is not technology that enables CRM, but that technology

makes it possible to analyse the customer data and then to use data effectively. Thus

technology is deployed to retain loyal customers.

There are many definitions of CRM and many organisations will adapt the definition to

suit their requirements. There is however, general agreement on what CRM is not: it is

not about technology and software. This statement supports the opinion of Steyn and is

the view of Liz Shahnam, CRM analyst with META Group. Her opinion is that

“technology is allowing us to do what we could do at the turn of the century with the

neighbourhood grocer. He had few enough customers and enough brainpower to keep

track of everyone’s preferences.”

2.5 CRM as a Strategy

Having stated what CRM is not, it is still important to consider technology as part of the

definition of CRM, but it is necessary to understand that it supports CRM and enables

CRM to be a success. Once CRM is properly understood, it becomes a philosophy within

an organisation, and can facilitate the development of a customer-focused culture while

allowing the organisation to develop an intimate relationship with customers.

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When CRM is viewed in this light, it becomes part of the strategy as opposed to a process

within an organisation. As with technology, the process supports the strategy and assists

in delivering a successful relationship with customers. This is depicted in figure 1.

Rian de Jager of Aqua Online Holdings states, “Every level of the organisation must be

addressed or the strategy will fail” which supports the view of CRM as a strategy of an

organisation. It is important that management formulate CRM as a strategy at all levels

within an organisation including the people, processes, the organisation structure, culture

and the technical infrastructure.

There is consensus that CRM is a customer-centric business strategy, which requires a

solid technical infrastructure to support the strategy. For some companies, implementing

CRM requires a change in business approach followed by a change in technology to

support the new philosophy.

2.6 The Importance of Loyal Customers

F. F. Reichheld compiled a series of articles (The Quest For Loyalty, 1996) in which the

importance of customer loyalty and the advantages of customer retention for an

organisation are highlighted. In one of the articles written by Reichheld, he states

“customer loyalty is the loyalty that every organisation wants but few understand how to

Information Technology

People and Processes

Strategy

Figure 1: CRM IS MORE THAN SOFTWARE

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earn it”. Furthermore, he also states that customer loyalty is the key to growth and profit

for an organisation. Research has shown that it costs up to seven times more to find new

customers than to retain customers. This finding suggests that retaining loyal customers is

beneficial for profitability.

This point of view re-emphasises the findings of the research conducted by Anderson

Consulting mentioned in paragraph 3.2 above, that customer loyalty and the profitability

of organisations are closely linked.

2.7 Customer Loyalty Programmes

In an article by O’Brien and Jones (The Quest for Loyalty, 1996), the authors question

the ability of organisations to understand the benefits of customer loyalty programs.

They agree that organisations must align loyalty programs with their core competencies.

It is essential that management pursue this alignment of the goals of the organisation with

their efforts to attract loyal customers.

Undoubtedly, there is a direct link between customer loyalty and profitability. However,

the extent to which customer loyalty programmes contribute to profitability is not known

with certainty. In research by Bolton, Kannan and Bramlet (Journal of the Academy of

Marketing Science 2000), they evaluate the effect of customer loyalty programs on

customer behaviour and repeat purchase intentions. They also question whether the

higher revenues offset an organisation’s costs of operating these programmes.

The conclusion of their research was that customer reward programmes encourage more

profitable managerial practices and that perhaps organisations are not able to determine

the extra profitability as a result of using reward programmes. They suggest that it is

more profitable to target and segment customers on the basis of previous buying patterns

rather then on normally stable demographics. They conclude that information technology

is an important enabler in today’s environment allowing organisations to target the more

profitable segments of their customer base.

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2.8 Loyalty Programmes and Customer Expectations

Questions have been raised as to whether customer loyalty programmes encourage

loyalty towards brands or towards the loyalty programme itself. It is no longer sufficient

to offer a reward, as customers are becoming more demanding, requiring better service

benefits and better prices. This view supports an holistic approach to CRM and suggests

that technology alone cannot create loyalty.

This argument is supported by Pine, Peppers and Rogers (The Quest for Loyalty, 1996)

where they state that customers want exactly what they want, where and when they want

it. The authors believe that technology gives the organisation the ability to meet the

needs of the customers, but that organisations end up bombarding customers with too

much information. They believe that technology should be used to tailor products and

services for individual customers, in other words for mass customisation. They highlight

that the relationship between the organisation and its customers should be a collaborative

one.

2.9 Customer-Centric Versus Product-Centric Organisations

To build these relationships, organisations need to establish the drivers of these

relationships and how they are going to build and nurture these drivers. The review has

highlighted the importance of having a customer focus and how technology can be used

to build a customer-centric organisation.

George S. Day (1999) outlines the benefits of becoming a market driven organisation in

his book “The Market Driven Organisation”. He argues that there are three key elements

- culture, capabilities and configuration, which need to be aligned with the market in

order to achieve successful market driven organisations. He emphasises that technology

has created new ways for organisations to collect and disseminate information, which

helps in building a relationship with customers. Technology also assists an organisation

to be continuously responsive to the changing environment and the changing needs of the

customer.

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After highlighting the benefits of a market driven organisation, Day then questions why

so many organisations fail to become market driven and how organisations can become

market driven. To assist organisations, Day states that information technology can be

used to change the organisational structures, which may lead to easier access and better

dissemination of information. He highlights the trade off between reach and richness of

information.

This focus on a customer-centric organisation is further discussed by David Siegel (1999)

in “Futurise your Enterprise”, on how to transform an enterprise from being

management-led to customer-led. He states that a customer-led company focuses on

groups of people, rather than types of products or services. He discusses and illustrates,

with the use of fictional case studies, how business strategy must change in order to fulfil

the needs of the new customer focused enterprise. This involves the development of an

e-strategy based on his definition of different e-customers. When a company allows its

customers in on its strategy development, strategy becomes increasingly fluid, moving

towards a “pilotless corporate environment” with real time changes being expected by the

customer.

2.10 Importance of Connecting to the Customer

To assist organisations to move towards a customer-centric focus, Wayland and Cole

(1997), in “Customer Connections”, develop a strategic framework to leverage

information on customers in an attempt to maximise the value of this information. This is

achieved by placing customer relationships at the centre of an organisation. They argue

that demand-side strategy should not be customer-led but customer-based. They stress

the importance of the customer relationship as opposed to the actual customer being of

value. Their focus is on the management of the customer relationships.

Of importance, is their analysis of customer–connecting technology and how it has been

used, illustrated in various case studies, to build customer loyalty. Technology has been

used to reduce the costs of acquiring customers, extend the value delivery, strengthen

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relationships and create completely new products and services. Patricia Seybold, an

industry analyst, has described systems used at the front end of information technology as

“customer care systems” which have the power to transform customer relationships.

Wayland and Cole look at three aspects that drive the need for technological connection

between buyers and sellers namely, conversation, collaboration and commerce.

2.11 Are Customer Relationships Sustainable?

While organisations have realised the importance of a customer-centric outlook and they

understand that customer relationships and loyal customer contribute towards their

profitability, the sustainability of these relationships is questioned.

Peppers, Rogers and Dorf (1999) in their book “The One to One Fieldbook”, state that

managers worldwide are concerned about the declining levels of customer loyalty. They

present two reasons for this decline, namely:

!" Competitive pricing

!" The new way of doing business using the Internet

As competitors offer lower prices, organisations follow this strategy by reducing prices

even further. In the long run, this price war is not sustainable and the service offered as

well as the range of products offered, will diminish. Organisations lose their customer-

centric focus as they enter survival mode and they forget about the relationships they

have built up with customers.

The second reason for the declining loyalty is due to the new way of doing business,

particularly using the Internet. Using the Internet, it is becoming increasingly difficult to

differentiate products. The use of new technologies and the use of the Internet should not

be seen purely in a negative light, but rather for the challenges that they present and how

organisation can meet these challenges.

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2.12 One-to-one Marketing and the Internet

In line with the philosophy that organisations must move towards a more customer-

centric approach, Peppers, Rogers and Dorf propose that competitive success hinges on

the use of customer information and the interaction with the customer in creating a long-

term profitable relationship. This they term one-to-one marketing.

The authors contend that managers ranging from the Chief Executive Officer (CEO),

Chief Information Officer (CIO) and Sales Managers are wrestling with the issues arising

from the Internet. Companies are concerned about how to better manage and use the

information available in their databases. Webmasters are trying to understand the

benefits of customer feedback and how to achieve optimal interactivity with the

customers through the use of the web site.

In his book “Customer Service in the Internet”, Sterne states that the Internet is a tool for

organisations to use to ensure that their customers are able to contact them. As all

organisations have access to the Internet, it is a tool to be used and all companies will use

the Internet in different ways. He states that organisations need to have connectivity with

customers if only for the reason that customers expect it. According to the author, the

Internet has raised the customer service bar and their expectations.

It is interesting to note that Sterne assumes that companies have addressed issues such as

the importance, value and potential of the Internet. Based on this assumption, he poses

the following questions:

!" How can organisations provide an interactive experience that increases customer

satisfaction?

!" How can companies increase the barriers to competition and bond with customers

to ensure loyalty and repeat purchases?

He advocates that companies can use the Internet to answer these questions and then

provides models and frameworks to assist in finding solutions to these questions. The

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Internet can be successfully used to build relationships, increase loyalty and assist

organisation to remain competitive.

2.13 The Influence of Technology on Customer Service

Information technology is not confined solely to the Internet. There are many other

technological innovations that impact on customer service and loyalty.

Parasuraman and Grewal (2000) consider these innovations in their article “The Impact

of Technology on the Quality-Value-Loyalty Chain” in which they draw on their

previous studies to support a general notion that service quality enhances perceived

value, which contributes to customer loyalty. They suggest that service quality is

essential for achieving a sustainable competitive advantage, as it is difficult for

competitors to imitate.

Parasuraman (1996) developed the pyramid model that is illustrated below. This is an

extension of the triangular model developed by Kotler in 1994 and adds the dimension of

technology to the model. By doing so, the authors emphasise the need for effectively

managing three linkages, namely company-technology, employees-technology and lastly,

technology-customer. Importantly, the authors stress the need for further research into

understanding how technology might influence the quality-value-loyalty chain and

particularly that further research is required on technology-based service encounters.

Technology

CustomersEmployees

Company

Figure 2: THE PYRAMID MODEL

(Parasuraman 1996)

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2.14 The Importance of Continuous Innovation

In a rapidly changing technological environment, not only is it important that companies

use technology, as mentioned above, to build relationships and sustainable competitive

advantages, but also it is important that they keep abreast of the latest technological

developments. This is achieved through continuous innovation and a philosophy within

the company to adapt to new technologies.

This is highlighted by an American company, Capital One Financial Corporation (Fast

Company, May 1999), a leading innovator in maximising the use of the information.

They have collated their customer purchase preferences and buying habits, allowing them

to tailor their service offerings to meet individual requirements efficiently. According to

Rich Fairbank, their chairman and CEO, they have “created an innovation machine”

which is going to revolutionise the way companies do business and how they market their

products.

In an interview with Fast Company (May 1999) Fairbank states that “credit cards aren’t

banking, they are information”, which epitomises the revolution that is taking place in

business. Capital One believes their secret to success has been through a commitment to

continuous innovation and the effective utilisation of the information they collate, by

customer, to develop mass customised service offerings. Through technology they have

the ability to test new products, systems and services, as well as to learn simultaneously

from the results that are recorded and collated on customer purchase patterns.

Technology has assisted them in lowering their costs, as well as offering a better service

to their customer through a calling system with a prediction success rate of 70%.

Fairbank states, “50% of what we’re marketing now did not exist at this company six

months ago and 95% of what we’re marketing today didn’t exist two years ago”. This

emphasised the impact that technological innovation has had on their business and how it

has accelerated the rate at which companies innovate.

Companies that are using technology to build customer relationships ought to be

knowledgeable about the latest technological developments and how their competitors

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may be using this technology to gain a competitive advantage. Only through an

understanding of available technology will organisations be able to compare their current

technology against their competitors and then attempt to gain a competitive operational

understanding.

2.15 Increasing Acquisition Costs on the Internet

E-Loyalty, as discussed by Reichheld and Schefter in the Harvard Business Review

(Jul/Aug 2000), is both an economic and a competitive necessity. With the acquisition

costs in e-commerce being higher than that of traditional retail channels, it is imperative

that customer “stickiness” be encouraged in order to achieve long-term profits. An

example quoted states that an increase in customer retention by 5% improves profits by

between 25% and 95%. The article also states that 50% of new customers in some

sectors defect before their third year with an e-commerce site.

2.16 Online Trust and Customer Loyalty

As with traditional retail, trust was highlighted as the most important attribute for an

online web site. The benefit of gaining a customer’s trust helps both the buyer and the

seller. When the customer develops online trust, so they will be more willing to share

personal information with the supplier, who in turn can tailor products and services to

match individual requirements. Technology enables organisations to collect a database of

customer information that is then used to segment the profitable customers.

Reichheld and Schefter (Jul/Aug 2000) also found that customers had a preference for

loyalty and that referrals were highly influential when searching for good sites. Despite

the ability to monitor customer’s purchase preferences more easily, they found that only

20% of companies track customer retention and that the average web site achieves less

then 30% of its full sales potential per customer. By studying repurchase patterns at

various web sites, they found that the determinants of customer loyalty remain consistent

with traditional requirements and that in order to win loyalty over the web, it is necessary

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to present a consistently superior customer experience. Technology therefore, is the

enabler of superior delivery and not the strategy in itself.

2.17 Collecting Customer Data

Mary Modahl (2000) in her book, “Now or Never”, details three key factors that will

determine online success: a thorough understanding of Internet users, a readiness to

exploit new business models and the ability to defy traditional business practices.

Modahl draws on Forrester’s research into the Internet user and suggests that an

alternative way to segment the market is by using “technographics”, as it cuts across

other demographics.

She states that very few companies are using the personal information that they have been

collecting about their customers and a limited number are making use of collective data.

She infers that although collecting information on the Internet is relatively easy, it is due

to a lack of software programs to process this information and form useful conclusions

that is hindering the usage of data. There is also a concern on the side of

manufacturers/service providers of a consumer backlash over privacy issues that may be

hindering the use of personal information.

She suggests the use of personal information to create a personalised two-way shopping

experience and collective data for the improvement of operational efficiencies. The

power of consumer data that is now becoming available since the advent of technology is

beginning to transform consumer marketing and business strategy. This is despite the

short-term extreme cost of moving online. It is imperative that companies join in the

“clicks” business before they get left behind.

2.19 CASE: The Zellers Club Z Experience

There are few cases illustrating successful customer loyalty programmes, but Zellers

Stores in Canada is an example where information technology has been successfully used

to contribute towards the competitive advantage of this organisation. Although the

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programme was launched in August 1986, it was a leading programme in its use of

technology. Following its success in the subsequent years, several large US and Canadian

retailers implemented similar customer loyalty programmes.

Zellers Stores is a large retail company operating in Canada, offering a range of clothing,

hardware and appliances. To motivate their customers to repeat purchases in their stores,

they introduced a customer loyalty programme, Club Z. The primary objective of the

programme was to create and retain loyal customers. Customers were awarded points for

their purchases. These points were accumulated and then used for further purchases

within the store.

The programme is a success as illustrated by the three million customers who joined

within months of the programme starting, followed by a significant increase in market

share following the implementation of the programme.

It is the uniqueness of the structure of the programme that makes this case interesting.

Zellers Stores successfully managed to use information systems to make the programme

easy to use for its customers and easy for Zellers to operate and manage. As customers

purchased, the information systems automatically calculated the number of reward points

associated with the purchase and then accumulated the points for the customer. As the

system was paperless, customers did not have the inconvenience of having to redeem

paper coupons and could check up on the number of accumulated points in the stores.

Through this programme, Zellers accumulated vast amounts of information about their

customers buying habits and then used this information to target direct mail programmes.

Although the programme was a success, in the initial collection of data, Zellers did not

request any customer information other than names and addresses. Also, Zellers did not

allocate sufficient resources to the systems tracking and controlling inventory.

Subsequently, these systems have been updated and the customer information database

contains more information about each individual customer.

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2.20 CASE: The Irvin & Johnson Limited Preferred Customers Club

The Irvin & Johnson Ltd (I&J) company is an example of a South African company that

has successfully implemented a customer loyalty programme. In their book “Send ‘Em a

White Sock”, the authors Rapp and Collins (1998), examined I&J and presents a case

study on their customer loyalty programme, the I&J Preferred Customers Club.

They contend that this loyalty programme is unique in that it was designed by the I&J

customers. Furthermore, the author’s state that the programme is noteworthy in that

whatever it does, it does extremely well. An example of this is the use of scanners used to

scan the product codes and build their customer database.

By methodically building a sophisticated customer database and then moving their

marketing activities to a higher degree of relationship marketing, I&J ensured that their

programme was a success. The starting point of their programme was to build the

customer database through a programme called the I&J Preferred Customer Family. By

using creative questionnaires attached to their products, they were able to obtain

customer information and build their database.

Using this database, together with sophisticated communication software, I&J

personalised mail to their club members and then began their customer loyalty

programme. The reward structure of this programme was based on discount coupons that

were presented when purchasing I&J products. To obtain these coupons, members

collected sixteen bar codes off their I&J products and pasted these onto a specific

collection sheet and posted the sheet to I&J.

Using bar code scanners, I&J were easily able to scan in the details per member and

immediately captured the purchasing habits of their customers. This information was

customer, product and store specific.

Technologies enabled I&J to successfully and easily capture vast amounts of information

about each of their customers that was then used to build competitive advantages. The

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authors believe that I&J are “leading the way with a customer club and information

programme built on an interactive relational database”.

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3. RESEARCH METHODOLOGY

Three methods of research designs (Research Methodology, MBA 2000) were identified:

!" Exploratory research

!" Descriptive research

!" Casual research

The first method is the most flexible approach of the three and concentrates on gathering

information on the research problem though exploration. Data is gathered from literature

sources and from persons who are generally knowledgeable on the research topic. Using

semi-structured interviewing techniques to collect information, the researchers are able to

draw conclusions and gather further insights into the research topic.

Generally, exploratory research provides qualitative data (Zikmund, 1997), rather then

quantitative data and provides a further understanding of the research topic. Zikmund

also states that this type of research is a preliminary research step that could also lead to

subsequent conclusive studies. He emphasises two limitations of exploratory research.

Firstly, that the findings are based on judgements and secondly, that this technique

generally does not provide precise quantitative measurements. Zikmund cautions against

using the findings of this method of research as final.

Descriptive research assumes that the researchers have a fair knowledge of the topic. It is

a rigid method of research and is dependent on a strict hypothesis. It is used when two

variables vary at the same time, when characteristics of groups are to be investigated or

thirdly, when the frequency of occurrence needs to be determined.

The last method is centred on a cause and effect relationship and when the researcher is

able to control at least one independent variable.

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3.1 The Choice of Research Method

The researchers chose the exploratory method of research. Due to the nature of this report

the data sought was of a qualitative nature rather than of a quantitative nature. As stated

above, exploratory research is more suited to gathering qualitative data.

The interviewee’s were deliberately chosen because of their knowledge on the subject

within the scope of this report. In designing the questionnaire, the researchers encouraged

informal discussion to take place within the framework of the questionnaire. This allows

for a more through investigation of the topic to take place. It also allows the

interviewee’s to display their knowledge on the subject with fewer constraints imposed

by the questionnaire.

Exploratory research allows the interviewers to explore topics that may arise during the

interview and thus they are able to gain a better understanding of the subject matter. It

also enables them to probe new areas that they had possibly not considered before hand.

By design, the questionnaire is orientated towards a discussion type of interview rather

then definitive answers as required by closed ended questionnaires. The exploratory

research method is more suited to open-ended discussion type questions.

3.2 The Sample

The target population of the research report was the South African retail sector. In order

to narrow the scope of the research report, a sector of business was chosen so that

comparisons and conclusions may be drawn in the findings. It was therefore necessary to

confine the scope to a sector where the nature of conducting business was similar.

The retail sector was selected, as it is a highly competitive, dynamic sector with margins

that are increasingly under pressure. It is a sector that has realised the benefits of

becoming customer-centric as a means of establishing a sustainable competitive

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advantage in the face of increasing and more sophisticated competition. The majority of

the large retail companies are situated in the Western Cape which, given the nature of the

interview based research methodology being conducted, would simplify the process.

The retail sector can be broken down into companies that trade in convenience goods,

durable goods, semi-durable goods and/or services. Convenience goods are essential

products purchased on a frequent basis, for example Fast Moving Consumer Goods

(FMCG). Durable goods are items that have a long lifespan and are purchased less

frequently for example, “white” goods. Semi-durable goods would be classed as goods

with a limited life span of possibly a year, for example clothing due to its fashion and

seasonal nature. Services would be classified as deeds or acts conducted by one party for

another party. For the purposes of this report, a range of companies covering all four of

the above classifications was selected to draw comparisons between competitors retailing

similar products. The service industry has been included, as the sample company chosen,

have instituted a successful customer loyalty programme from which best business

practices were identified to transfer to the retail environment.

The sample consists of companies ranging in size from listed companies on the

Johannesburg Stock Exchange, to privately held smaller companies. This was done for

the reason that the capital available to the differing company sizes would impact on the

degree of technological support and usage as well as the implementation of customer

focused initiatives.

The retail sector was classified into the following trading categories:

!" Traditional retailers

!" Service industry retailing

!" Direct market trading

!" Retailers with customer loyalty programmes

!" Online retailing, or “e-tailing”

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A sample of companies was selected from all of the above categories, however there was

a heavy weighting in the traditional retail sector, as the majority of business is conducted

through this means. The researchers felt it necessary to include samples of other means of

trading to gain an overall understanding of the sector dynamics.

3.3 The Format of the Questionnaire

When formulating the questionnaire, the researchers included an information systems

diagram of a typical organisation (Laudon & Laudon, 2000) in order to obtain a holistic

view of the organisation. The different types of systems required within the various

functional areas, as well as at the different management levels within the firm, are

considered in the diagram. The inclusion of a “knowledge level” within a company was

also believed to be of significance to the research report, as when dealing with data it is

critical to transform the data into actionable information and insights. The purpose of this

level in the firm is to “discover, organise, and integrate new knowledge into the

business” (Laudon & Laudon, 2000) or, as some may put it, to “dice and slice” the data.

This level in the firm has been found to be one of the fastest growing areas within

companies today and is therefore of particular interest and relevance to the research

report.

The researchers met with their supervisor on numerous occasions to discuss the

questionnaire and came up with several drafts that were revised until perfected. The

format of the questionnaire was divided into sections under the following headings:

!" Background

!" Technical Details

!" Operational Details

!" Loyalty Measures

!" Future

This format was established to assist in determining the current and future trends as well

as an aid in finding ‘gaps’ in the data.

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The background described the customer loyalty programme and placed it in the context

of the overall business and its link to the corporate strategy.

The technical details section covered the technological infrastructure for example, the

data storage facilities, the network, automated analytical tools, data mining tools, to name

but a few. The type of data being collected was discussed to assess the level of analysis

that would be possible from the data. The driving force behind the technology within the

company, the responsibilities carried and by whom as well as the costs of technology

used for customer related purposes and the manpower involved, were addressed.

In the operations section the information utilisation was discussed in relation to the

hierarchical levels within a company and who was using the data and for what purposes

for example, strategic or tactical purposes. Whether the goals of the customer programme

had been achieved or not and what the reasons behind this, was also considered.

It was of particular interest to the researchers as to whether companies were tracking

customer acquisition and retention progress and costings in any way and therefore the

section on loyalty measures was included. The researchers wanted to determine to what

extent companies were able to establish definitive numbers for the cost of acquisition and

retention separately and whether there was a sense of a customer lifetime value and how

this impacted on their approach to customer management.

The inclusion of the fifth section on the future was to establish what companies see as a

way forward in terms of technological impact on their customer’s expectations and their

relationships with their customers.

3.4 Testing the Questionnaire

A preliminary copy of the questionnaire was included in the research proposal, which

was reviewed by the research supervisor. The questionnaire was reviewed three more

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times before it was finalised. Before the questionnaire was sent to the interviewees, it was

pre-approved by the research supervisor.

As the questionnaire was based on exploratory research and would be completed through

an interview process, there was no need to test it for statistical accuracy. A test for the

logical flow of the questionnaire was conducted as well as for any repetitive questions.

3.4 The Choice of Interviewees

In an attempt to add credibility to the research, the researchers specifically targeted top

managers within each organisation. In so doing, the information gathered is considered to

be more accurate, more reliable and up to date. The expectation is also that top

management are involved in developing the strategic direction of the organisation and are

thus is a position to discuss the future strategies of the organisations within the context of

this research report. As top management are normally the decision makers, they are

aware of the reasons behind the use of certain technologies in the organisation and are

therefore best equipped to discuss the areas posed in the questionnaire.

While the scope of this research is the information technology usage within

organisations, the researchers specifically avoided interviewing technical staff, as the

report excludes the operational aspect of technology, and it was felt that they may lack

the strategic perspective required for this research report.

3.5 The Interview Process

After identifying and drawing up a list of possible interviewees, the process to be

followed for the interviews was:

!" An introductory telephone call

!" A covering letter together with questionnaire was transmitted to the interviewees

!" The interviews were conducted

!" A letter of thanks was sent to the interviewees

!" A summary of the findings was sent to the interviewees

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The purpose of the introductory telephone call was to introduce the researchers and their

topic of research to the interviewees. In this way, it was immediately clear whether or not

the prospective interviewee was the correct contact person and whether or not they were

prepared to be interviewed. Often, the first telephone call led to subsequent calls before

contact with the correct person was established.

An appointment was then diarised at the convenience of the interviewee. A covering

letter (Appendix 2) was then transmitted by facsimile/e-mail to the interviewee together

with a copy of the questionnaire. The letter confirmed the details of the telephonic

conversation and outlined the research topic. By giving the interviewees a copy of the

questionnaire before the interview, they were given the opportunity to reflect on the

questions and prepare for the interview. In this way, the researchers hoped to gain

maximum benefit from the interview, given the limited time available. Each interview

lasted approximately one to one and half hours.

Prior to the interview, the researchers ensured they were abreast of the latest

developments of each company and their related industries. This was done by an

examination of the annual reports, web sites and related newspaper articles.

After the interviews were completed, a letter of thanks was sent to each interviewee,

thanking them for their time and willingness to share information with the researchers.

Finally, a summary of the research report findings was sent to each interviewee.

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4. FINDINGS AND DISCUSSION

4.1 Company Overviews

Interviews were conducted with senior staff from the following companies:

!" Inthebag.co.za

!" Pick ‘n Pay

!" Ackermans

!" Foschini Limited

!" Truworths Limited

!" HomeChoice Holdings Limited

!" Exclusive Books

!" Protea Hotels

The following section provides an overview of each of these companies followed by a

discussion of the findings. Additional interviews were also held but were not included, as

they were outside the scope of the study. The data gathered from these interviews gave

additional insight into the study. Overviews and their relevance of the data to the study

are detailed in appendix 5.

Inthebag.co.za

Inthebag.co.za was launched on 4 October 2000, an online retail shopping site linked to

Woolworths. They already have 5 500 registered customers which exceeded their

expectations, 65% of whom are females. Their estimated potential customer base in

Johannesburg and Cape Town is 350 000 customers.

Inthebag.co.za delivers fresh produce, prepared meals and groceries, promise next day

deliveries from a warehouse distribution centre.

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The company philosophy is one of balance and mutual interdependence between the use

of technology and the business itself. This was graphically illustrated, in the form of a

ying and yang symbol, in one of the “visioning” murals that appears in the entrance area

of their offices.

Pick ‘n Pay

“We serve. With our hearts we create a great place to be. With our minds we create an

excellent place to shop” is an extract from the company’s mission statement, which

summarises the customer-centric corporate philosophy. One of the values that drives this

vision is: “We are passionate about our customers and will fight for their rights”. Pick ‘n

Pay have spent an enormous amount of effort and resources in developing a spirit of co-

operation and commitment to customer service within the group.

Pick ‘n Pay is a large-scale retail chain that focuses on the food, clothing and general

merchandise sectors of the market. There are two divisions within the company namely,

the Retail Division and the Group Enterprises Division. The Retail Division consists of

the Hyper and Supermarkets, the Family Franchise Stores, the butcheries, auto centres

and financial services. The Group Enterprise Division manages Score, Boardmans, the

RiteValu franchises, TM Supermarkets in Zimbabwe and the Property division.

They currently average 145 million customer visits per year, purchasing 1.5 billion

products. The average number of products sold annually per customer is eleven. This data

is collected from Pick ‘n Pay corporate, and does not include sales from their family

stores.

Despite current difficulties in retail trading, the group turnover grew by 10.3% to R13.8

billion in 2000, representing a 39% share of the mass food retail market.

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Ackermans

Ackermans was established in 1916 and is one of South Africa’s oldest clothing,

footwear and household textiles retailers. They are part of the Pepkor Group, a South

African based investment holding company listed on the Johannesburg Stock Exchange.

They have 228 stores within Africa with an annual turnover of R 869 million in 2000.

The number of employees is currently 2 021. During the 2000 financial year, Ackermans

delivered a solid performance in doubling its operating profit off an already high base.

With its dynamic new positioning and strong customer support they are establishing

themselves as leader in the middle-income market, targeting LSM 4 to 6 with 80% of

their market being female.

Foschini Limited

The Foschini group has approximately 1 300 national stores. It comprises of nine

operational divisions namely, Foschini, Markhams, Exact!, Donna Claire, the Jewellery

Division which consists of American Swiss and Sterns, Sports Scene which includes

Total Sports, RJL, TGF Apparel Supply Company and Retail Credit Solutions. Foschini’s

contribution to the Foschini Group is approximately 50% of turnover. In 2000, group

turnover increased by 5.3% to R 2.6 billion.

A total of 70% to 80% of the groups business is conducted on a credit basis, however the

customer trend towards cash is impacting on their business. For this reason, Foschini will

be launching a loyalty card for their cash customers in the near future in order to monitor

their preferences.

Truworths Limited

Truworths is one of South Africa’s leading fashion retailers with 240 national stores.

Recently reported headline earnings are R148 million, up 20% on 1999. The company

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has developed a number of specialised retail formats focusing on their target market,

namely lifestyle measure (LSM) 7 and 8.

One of the stated objectives of information technology gleaned from the Truworths

International 2000 Annual Report is to improve customer relationships. During the 1999

financial year, Truworths re-examined their business philosophy. As a result, their

purpose was amended to recognise e-commerce and to focus even more on the

requirements of their customers.

HomeChoice Holdings Limited

HomeChoice is a direct mail order catalogue company that has been in existence for 15

years. They carry an extensive range of homeware and appliances successfully targeted to

the mass market, predominantly urban females. They use direct mail order catalogues and

direct selling. The majority of the business is conducted on a credit basis with a small

cash contribution to turnover.

The holding company, HomeChoice Holdings Limited, was listed on the Johannesburg

Stock Exchange in 1996 and had a turnover of R 516 million during the 1999 financial

year. Its market share of the catalogue sales industry is approximately 58%. This large

market share was gained by its exclusive positioning as a recognised brand, by supplying

convenient shopping, by issuing credit facilities to customers and by specialised customer

service.

HomeChoice has a strategic advantage in its customer relationship management

capabilities. It is a database driven company that has developed the expertise, logistics

and systems necessary for effective one-to-one customer relationships.

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Exclusive Books

Exclusive Books is a South African book retailer that has been operating for over fifty

years with more than twenty stores throughout South Africa. Besides their nationwide

stores, they have an online web site with a dot com extension which has been in operation

since April 2000. They have reported steadily increasing online sales since the inception

of the site. They have a customer loyalty programme, Fanatics, which can be used for

both in store and online purchases.

Their loyalty programme was launched in August 1998 at an initial cost of R 1 million. It

is a points based programme that rewards loyal users with a 5% discount. The aim of the

programme is to increase market penetration as well as create greater brand awareness.

Currently the programme absorbs 65% of their marketing budget.

Protea Hotels

Protea Hospitality Corporation is the holding company of Protea Hotels, which was

launched in July 1984 and is one of the four divisions within the corporation. They

currently manage and market a diverse group of 125 hotels throughout Africa. Protea

Hotels has two sources of revenue, namely fees charged for management services, which

contributes approximately 35% to revenue, and from group owned hotels. Group turnover

has grown by 20% during the 2000 financial year and is expected to reach R1 billion by

2001. Protea Hotels have an international partner in the Commonwealth Development

Corporation who currently own 40% of the company.

The unique corporate culture of working hard whilst still having fun, has been passed on

throughout the chain and is the bye line of their marketing material. Their emphasis on

service excellence is guided by a guest service vision of “acquiring and maintaining

guests by anticipating, meeting and exceeding their expectations”. Interestingly, 80% of

their revenue is derived from the domestic market, specifically targeting individuals and

group business travel.

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4.2 Current Information Technology Usage: Tabular Summary

Itb P’nP A’man Foschini T’worths H’Choice Excl

Books

Protea

Hotels

A. Point of Sale

Scanning

X X X X X

B. Data Storage

1 Data Mart X

2 Warehouse X X X X X X

3 CD-ROM X

C. Data Mining

Software

1 Manual X X

2 Automated X X X X X X

D. Software

Design

1 In-house X X X X

2 Outsourced X X X X

E. Call Centre

1 In-house X X X X

2 Outsourced X

F. Internet Use

1 Online Sales X X X

2 E-mail X X X X X

3 SMS X

4 Online

Applications and

Registrations

X X X

5 Online

Statements

X X

6a) Stage I

Web Site

X X X X

6b) Stage II

Web Site

6c) Stage III

Web Site

X X X

Table 1: SUMMARY OF CURRENT TECHNOLOGY USED

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See Appendix 4 for a description of the stages of web site development.

Key to abbreviations used in the Table 1

Itb - Inthebag.co.za

P’nP - Pick ‘n Pay

A’man - Ackermans

Foschini - Foschini Limited

T’worths - Truworths Limited

H’Choice - HomeChoice Holdings Ltd

Excl Books - Exclusive Books

Protea Hotel - Protea Hotels

4.3 Discussion on Current Information Technology Usage

This section of the report discusses some of the findings of the research and clarifies the

information contained in Table 1. A detailed analysis of the findings is discussed and

comparisons are drawn between the organisations covered during the research.

4.3.1 Point of Sale Systems

Point of sale systems are commonly used together with bar scanners. Pick ‘n Pay have

been using these systems since 1984 and scan all products purchased. Using scanners,

they are easily able to collect large amounts of information.

4.3.2 Data Storage

From an analysis of the data gathered it is evident that all the companies capture

customer details as well as product data. However, the degree and the sophistication of

the details captured vary, from Pick ‘n Pay not collecting any customer specific

information, to HomeChoice who are aware of each individual customer’s preferences

and purchase history prior to the purchase being completed.

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However, Pick ‘n Pay make a clear distinction between customer loyalty and customer

recognition. Although they do not know the names of their customers, they collect the

following information on each customer paying by credit card:

!" The location of the Pick ‘n Pay store

!" The check out till

!" The time of day

!" The frequency of shopping i.e. daily, weekly or monthly

!" The average size of the shopping basket

!" All products purchased

From this trended data, Pick ‘n Pay are able to deduce household and lifestyle

information and shopping preferences of their customer base and tailor their product and

service offerings according to their customer preferences.

Importantly, all the data collected by Pick ‘n Pay is stored in a data warehouse. Of the

sample interviewed, only HomeChoice use data marts as a storage system with one other

company using a CD-ROM storage system. Data warehousing is the most popular choice

of data storage for the chosen sample. It was observed that using a CD-ROM for data

storage was cumbersome and hindered the capacity to capture and collate data and that

company is currently looking to move to a larger system.

The maximum number of years of data history stored is six years, with every company

having a different cut off period for purging historical information, but they all keep at

least 12 months of data for comparative purposes.

4.3.3 Data Mining Software

Generally, there were two types of data mining techniques, namely ad hoc queries and

standard queries.

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Those companies that managed ad hoc queries required a support team of IT employees

who on receiving the query, had to code the query for the relevant department. The

coding of these ad hoc queries took place as the need arose. There are a number of

disadvantages to this system. Ad hoc queries require specialised coding skills and the

generation of reports takes longer than automated queries. The user of the information is

removed from the data mining process, which is inconvenient, as it does not allow for

any spontaneous data analysis, as well as being more time consuming when accessing the

information. It is well known that when data usage is remote, utilisation levels drop and

the value of the data is not fully extracted, as users are not totally familiar with what and

how the data can be used. The code writer is also removed from the application of the

information being extracted and is therefore unaware of its full value. He is thusles likely

to be proactive with regards to data extraction.

There was a clear indication that companies have an understanding of the benefits of

having the data mining software automated for example, greater utilisation, ease of use

and speed of response. However, standard queries have a relatively quick response rate

and companies appear to be comfortable with this old system and view automated

extraction as a “nice to have” tool. The biggest drawback of installing automated

analytical tools is the cost of the tools themselves. There is also the concern of the loss of

control of data usage if it becomes more readily available to a wider range of users.

Extensive training and control systems would need to be instituted to ensure that data

integrity is not eroded.

There was no indication that those systems designed in-house were any better or worse

then those designed by outside parties. However, it was noted that outsourced software

design is expensive and this was one of the driving forces behind companies designing

their own software. Many of the respondents indicated that one of the benefits of

designing software in-house, is the ability to tailor the software to their current business

requirements and not having to redesign the operational activities which is often the case

with shrink-wrapped ERP systems such as SAP. As the requirements of the information

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grow and change, companies would like to have the flexibility to change their software

themselves and not rely on outside parties.

4.3.4 Software Design

Although all the respondents indicated that IT departments were included in the company

structure, two respondents did not have in-house capabilities to design software. Due to

the different perspectives on the importance of collecting customer data, those companies

that designed software in-house generally placed more importance on the need to control

this process and recognised the dynamic nature of information technology.

No correlation could be established between the design of the software and whether the

software analysis was manual or automated.

4.3.5 Call Centres

Most retailers have a call centre with the number of staff manning these centres ranging

from twenty to as many as two hundred and fifty employees. The call centre operators are

able to display the callers’ information on computer screens by using an identification

field. The operator is then able to verify the basic demographic information of the caller

and can update this information immediately.

Some of the details that are available for display include:

!" Purchase history

!" Payment history

!" Previous contact with the call centre

HomeChoice have an advanced call centre due to the nature of their business model.

Their call centre has two hundred and fifty workstations and averages four million calls

per year. It is manned by thirty two full time service representatives and operates six days

a week. Their system aids both the customer and the operator as it speeds up the query

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process and enables the operator to make product recommendations based on the

customer’s purchase history. It also allows the operator to provide instant solutions for

example, they will be aware of current stock holdings via the technology systems, and

can make alternative suggestions to the customer if the product is out of stock, thereby

not losing a sales opportunity.

4.3.6 Internet

Of all the companies included in the sample, Inthebag.co.za is the only pure play Internet

company and, as stated in the company overview, have only been in operation for nine

weeks.

Of the seven companies interviewed, Inthebag.co.za, Truworths and Exclusive Books are

currently set up for online purchases, with the balance having basic web sites. There is a

trend towards using e-mail and SMS to communicate with customers. HomeChoice and

Pick ‘n Pay do not use either of these methods as the majority of their customer bases do

not have access to computers. Protea Hotels communicate with eleven thousand of their

customers using e-mail, whilst Truworths have sixty thousand e-mail customer addresses

and three hundred and fifty thousand customer cellular telephone numbers, which can be

used to communicate with customers. To utilise the power of SMS and e-mail, Foschini

have installed a broadcaster programme to disseminate information to customers.

4.4 Summary of Customer Information Utilisation

4.4.1 Data utilisation

Of late, there has been a renewed interest in the value that customer specific information

can add to a company’s competitive advantage. This enthusiasm has been triggered by

the latest technological developments that make customer information more accurate,

accessible and understandable. With the exception of one company, all the companies

sampled demonstrated this interest.

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4.4.2 Level of information usage

Customer information is being used for different purposes at all management levels

within companies. At a senior management level, information is being used for

strategising and for daily summary reports, while at an operational level it is for daily

tactical and operational purposes.

In the majority of companies interviewed, customer specific information is being used for

marketing activities by the marketing departments. However, within companies that have

a strong customer-centric culture, customer awareness has become internalised and

determines all interfaces with the customer. Customer information has moved beyond

being a set of remote numbers to become a dynamic base for the business itself.

4.4.3 Information utilisation benefits

Together with the increased levels of information utilisation, the degree of understanding

and customer insights has increased which has in turn, transformed company strategic

thinking to become more customer orientated.

Technology, particularly the Internet, has enabled companies to listen to customer

demands more closely. This feedback, as well as customer profile information, has been

used to inform the promotional and product mix, pricing strategies and cross-market

opportunities for the companies.

The Internet has also enabled the companies to communicate more efficiently and

effectively with the customer, which has assisted personal relationship building with

individual customers. This was clearly indicated by the increased use companies are

making of SMS and e-mails.

Technology has also enabled companies to increase the level of service personalisation

and product offerings for example, sending customers birthday and/or anniversary

greetings.

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The expenditure on and profitability of customer relationship initiatives is generally

being monitored in various crude and unsophisticated forms. However, technology has

increased the ability to track the costs and performance levels of these initiatives, but this

is still under utilised.

There is a growing awareness of a customer’s lifetime value in order to gain “more bang

for your buck”. The Pareto effect is being applied to the customer base and money is

being spent where it will receive a greater return.

4.4.4 Information utilisation

Companies are developing customer profiles by combining the different forms of

information being collected for example, demographics, psychographics, purchase

patterns and credit details. This has assisted the refinement of customer segmentation and

the development of mass customisation.

From customer purchase patterns, companies are tracking real time consumer preferences

and altering their product and merchandise mix according to which products are moving

through the store. Pricing points are changed and thresholds tested in order to monitor

product movement during these changes. Promotional activities are altered according to

customer preferences, indicating a shift towards “permission marketing”. The majority of

companies interviewed are exploiting cross-marketing opportunities.

As the volume of information being collected becomes more extensive and specific,

companies have the ability to run sample and control tests with various customers. This is

being done in the marketing department for example, with promotional communication

material to establish the most efficient and effective promotional mix.

4.4.5 General findings

Companies are aware that technology is an enabling tool and not a strategy in itself. They

realise that it would be insufficient to install the latest technology and expect outstanding

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performance improvements. The age-old adage that a successful business still requires

professional personnel remains valid.

The retail industry is acutely aware of the need for an e-commerce strategy. Although the

final contribution of a B2C initiative may be small, companies realised that it is

imperative that they have a presence in this arena, if not only because their competitors

may have a cyber presence. Even of only a small portion of the customer base makes use

of this facility, it does meet the service requirements of that portion of the customer base.

It was found through the interview process that retail companies are returning between

1% and 2 % of total turnover in the form of a loyalty reward, to the customers who join

their loyalty programme.

4.4.6 Results of information utilisation

Customer acquisition and retention has become more scientific due to the latest

technological developments. The advanced insights that information technology is

providing is leading to powerful strategic utilisation that in turn, is creating a competitive

advantage for companies.

As companies become more information driven, it is facilitating their transformation into

a “learning organisation” which requires a fluid, more flexible management style and

structure. Decisions are being made at a much faster pace, which is causing a movement

of data back to its original source for greater utilisation. Within customer-focused

organisations, information is being shifted to the front-end user, which is leading to

greater empowerment of employees. A negative result of this is an increased demand for

capital expenditure, training and control mechanisms, such as policies and procedures, in

order to maintain information integrity.

The necessity to manage customer information has lead to the awareness of, and in a few

cases, the development of a new “knowledge level” or “customer informational

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management unit” within the companies interviewed. This unit is responsible for the

maintenance of data integrity, policies, procedures, training and analysis of information

within these companies.

The installation of automated data mining software, an increase in computer processing

power and appropriate data storage facilities has lead to an increase in management

information reporting turn around speeds. This has improved response rates to the

customer as well as to management, whereby decision making and actions have become

more instantaneous. Companies are now required to be more flexible and adapt through

continuous innovation and reinvent themselves to best suite the dynamics within their

market.

4.5 Operational Details

Inthebag.co.za management believe that there are two critical success factors necessary to

establish a successful web site. Firstly, to present an unforgettable online shopping

experience and secondly, to have efficient back up, support and delivery systems in place.

Furthermore, they acknowledge that it is essential to be customer-centric and establish

reasons for repeated online shopping. Inthebag.co.za believe their site is more that just a

well designed web site, but is a positive end-to-end shopping experience.

In order to achieve this, Inthebag.co.za have used the customer feedback received from

their call centre, emails and their delivery service. Within the short life span of their web

site, they have already changed their product offering, based on customer feedback, by

adding another 200 products to their shopping list. If customers are given the opportunity

for feedback, Inthebag.co.za take the necessary action in order to satisfy the customer by

showing them that their input is valued and that their concerns are being addressed. As

web sites provide the opportunity for dialogue between the customer and a business, they

are well positioned to build strong relationships with their customers.

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Inthebag.co.za segment their customers based on the information gathered via the web

site and customer purchase patterns. Based on the expected profile of their customers,

they then analyse whether the customer is over/under spending relative to their calculated

potential.

Inthebag.co.za collect socio-demographic, demographic and behavioural data that they

combine to assess their “share of wallet” achieved in terms of income spent. They also

look for opportunities to cross-market products to customers. They base their marketing

campaigns on the demographic data collected.

It is difficult to make direct comparisons between the operations of Inthebag.co.za to the

remaining sample interviewed, as they are the only pure Internet company in the sample.

The management of Pick ‘n Pay admit that they do not use their data to its full potential.

It is only in the last 18 months that there has been an increase in awareness by

management of how valuable their data is. It is for these reasons that Pick ‘n Pay appear

to be shifting towards greater utilisation of the data and the development of a “knowledge

level” within the organisation. They expect this knowledge level to consist of analysts

who would select and analyse the data for patterns and trends. Currently all data is

analysed manually with no automated analytical tools.

However, the type of information that Pick ‘n Pay have been analysing on an ad hoc basis

is consumer purchase patterns, basket sizes per customer and the content of the basket.

This information is used to look for cross merchandising opportunities. Merchandisers,

regional buyers and general management currently use this information. Their category

management department analyse the data for the purposes of shelf layouts, profitability

and product movement.

As mentioned in the company overview, the Ackermans customer loyalty programme is

outsourced to Achievement Awards, who track the results and usage of the programme.

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As the Ackermans programme is relatively new, they have concentrated on the collection

of information and are currently strategising on the next phase of development.

With the demographic information being gathered from the call centre, together with the

customer purchase history, Ackermans will be able to match purchases made by the

customers with their demographic details thereby building customer profiles. Ackermans

will be able to look at trended information and make informed strategic and buying

decisions.

Ackermans’ customers are contacted on a frequent basis with newsletter, account

statements, special offers and receive an Ackermans customer loyalty magazine. These

are dispatched via the traditional mail services, as most of their customers do not have

access to electronic mail.

At Foschini, divisional daily reports are produced for management purposes and

comprise of ad hoc and standard reports. Customer information is also disseminated to

the individual stores, the marketing department and the buyers for management,

monitoring and analysis purposes.

The marketing department uses customer information for segmentation and targeting

purposes. As eighty percent of their sales are credit based, they have extensive

demographic, purchase and payment history information to analyse and are able to utilise

for targeting and tailoring their product and promotional mix. Profit levels are established

per customer and whether items were purchased at full or discounted prices. This

information is used to inform pricing strategies.

Foschini are offering three new communication functions to their customers namely,

SMS, account statement access online and receiving their marketing material via email as

opposed to the traditional mail service. This consultation with the customer is indicative

of “permissive marketing” where they are given a choice as to how they wish to be

contacted.

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By using analytical tools Truworths are able to create customer profiles and segment their

customers. They have segmented their customers into sixteen different groups based on

demographics, purchase patterns and credit reliability. Truworths do not collect lifestyle

data but make lifestyle assumptions based on the purchase history of their customers.

HomeChoice view their credit customer base as a key strategic asset with significant

marketing potential. They have used technology to refine their product offering as well as

to improve their service levels to the customer. HomeChoice have an extensive customer

database. The data is obtained from credit bureaus, from their customer’s purchase

history and through their marketing efforts to individual customers. Customer

demographics and purchasing patterns are collected, as well as the number of contact

calls made and payment transaction history of each customer.

The customer database is used to segment their market and selected potential customers

are contacted monthly with catalogues, special offers and competitions. Customers are

also contacted on their anniversaries and birthdays. Through its innovative use of its

database, the company can choose which product categories to push and their marketing

spend is allocated accordingly.

They also use the data to select the most frequent, creditworthy customers and solo

mailings or telemarketing is conducted for high-ticket items, such as appliances. Each

marketing campaign has a separate budget so that the profitability of the campaign can be

monitored. Tests are conducted to establish price point thresholds and their impact on

profitability. Response rates to each customer mailing are a critical form of feedback to

their nine analysts, who are responsible for the monitoring of these campaigns.

The credit vetting policy is conducted manually as customer data is crosschecked with

other sources of information. Estimates regarding the probability of risk are determined

manually by running a credit check and by gathering further information on the client

telephonically.

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Protea Hotels have gathered large amounts of customer data, but they are not realising the

full potential of this data. The data is collected through their Prokard customer loyalty

programme and they believe this programme has driven measurable business into Protea

Hotels. It has enabled Protea Hotels to gather customer data on which guest segmentation

is conducted.

They have an Executive Information System that provides reports to the management

team. Their marketing plans are driven by technology, as Allan Duke, the group-

marketing director says, “no day is the same, because marketing is now greatly

influenced by IT” (Financial Mail Survey, September 2000). The focus of the business is

on yield management, as an opportunity for a guest to occupy a room is lost forever if left

unoccupied.

Lastly, as with Ackermans, Exclusive Books customer loyalty tracking, is outsourced to

Customer Development Corporation. They monitor customer purchases by store and

payment details and generate a quarterly feedback report. Currently there is no utilisation

or manipulation of customer information. They have achieved their budget targets, but

not their planned segmentation requirements.

4.6 Loyalty Measures

Inthebag.co.za monitor the click streams to and from the web site to establish web trends

and web site usage. Conversion ratios, churn and dormancy statistics, as well as customer

satisfaction are all measured and discussed at daily meetings. Inthebag.co.za calculate the

net present value of each customer, which they state, would achieve a similar calculation

to customer lifetime value. All costs of acquiring new customers, retaining customers and

the effectiveness of advertising campaigns are measured and monitored by

Inthebag.co.za.

As Ackermans have outsourced the management of their loyalty programme to

Achievement Awards, there are tight cost control mechanisms in place. Achievement

Awards invoice Ackermans for a fixed management fee, call centre costs, cost of points

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issues, redemptions/rewards ordered, database maintenance and development expenses,

which are then measured against the budget allocated to the programme.

Ackermans currently calculate the level of retained customers by using a “change of

behaviour report” which measures the number of times a customer shops at Ackermans

and the associated rand value of the transactions. A “base measure” is created over a

discrete period, and then used as a benchmark for ongoing behaviour tracking and

comparative analysis. These measures will become more meaningful once sufficient data

has been collected.

Ackermans also calculate the acquisition cost of their customers onto the programme.

This measure was introduced during the design of the programme and includes the launch

kit cost, point of sale material costs, staff training, promotional activity, call centre costs

and database set up costs. The total of these costs were then spread over the estimated

number of customers expected to join the programme over a specified time period. As the

programme matures, the cost of acquisition is expected to decrease as costs are spread

over a wider base.

Foschini measure the customer lifetime value of their credit customers, as well as

calculating and monitoring the cost of acquiring and retaining customers. The credit

division are responsible for these measurements, as they bear the costs and manage the

risks of new customers.

To allow for greater management control and accountability, Truworths track and

monitor customer loyalty initiatives separately from other expenses. Truworths monitor

costs and performance on their retention and acquisition initiatives separately but

currently, do not calculate a customer lifetime value per customer. The acquisition rates

are tracked and reported monthly.

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As all potential customers are required to have a number of credit checks conducted

before they can purchase on credit, HomeChoice is able to distinguish between retained

and new customers and the associated costs of the two.

Historically, HomeChoice has had an aggressive marketing campaign, which has driven

sales to new customers. Currently new sales constitute 58% of HomeChoice’s total

business. However, this campaign has lead to a high delinquency rate amongst new

customers. HomeChoice have therefore made a conscious decision to switch their focus

to increasing the purchases of existing customers, as opposed to sourcing new customers.

The customer lifetime value analysis is not used as a basis for new customers as

HomeChoice believes that they should be able to break even on the first purchase made

by a customer due to the high contribution of new customers to their business.

Protea Hotels have a separate monthly marketing plan, by hotel for the acquisition and

retention of customers. Acquisition of new customers forms part of their annual strategy,

while the customer maintenance strategy is prepared by individual hotel, per category.

This is then checked and measured against the benchmark at the end of each month.

Protea Hotels do not calculate the customer lifetime value, as they believe that each

customer is valuable and important, and that this calculation will not add value to their

overall customer orientated philosophy.

Despite the high marketing budget allocation to the loyalty programme, Exclusive Books

do not measure any of the costs associated with new customer acquisition, customer

retention or the customer lifetime value.

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5. CONCLUSION

5.1 Hypothesis

The hypothesis of this report is, that South African companies within the retail sector are

using information technology to understand, acquire and retain their customers.

Based on the findings presented in section 4 of this report the hypothesis is accepted.

5.2 Conclusions

The study found that the companies within the scope of this report are collecting,

collating and analysing customer information. Future plans of the companies interviewed

include collecting more information to improve their customer relations. Furthermore, it

was revealed that the strategies of these companies are in fact driven by the information

gleaned from the customer data. This information is also used for daily tactical decision-

making.

The results of the study found that businesses are aware of the need for integrating their

business processes with their technological infrastructures to create a seamless

environment in an attempt to be more customer-centric and have a successful customer

driven relationship strategy. Importantly, companies are moving away from the

traditional silo information structures to create a more fluid and horizontal information

structure.

The study established that as technology has reached an acceptable price/performance

level, more companies are using sophisticated technology to acquire, manage and store

large volumes of data that facilitates and improves customer relationship management.

Through seamless technology capabilities and the Internet, information dissemination and

accessibility is taking place at all levels within companies as well as to the comsuner.

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Finally, the majority of companies interviewed remain oblivious of the growing necessity

and complexity of knowledge management. Information management is therefore, a

critical success factor for customer relationship management.

5.3 Future Information Technology Plans

The final section of the questionnaire deals with future developments and specifically

how companies plan to use information technology to further enhance their competitive

positions.

There is a growing realisation of the strategic importance of information technology and

the trend is to appoint a director to the board to specifically deal with the management of

information. For example, HomeChoice have recently appointed a Chief Information

Officer as a director designate to the board. Prior to this position, the CEO was the

driving force behind the technological developments in the company.

The Foschini Group has their own information technology company, Foschinidata (Pty)

Ltd. The future plan is for this company to be run as a profit centre as opposed to the

current cost centre structure.

In terms of data storage, both HomeChoice and Truworths will be changing from data

marts and CD-ROM respectively, to a data warehousing system. Truworths are also

considering an enterprise marketing automation system, which will be designed in-house.

This will be an advanced campaign management tool.

HomeChoice plan to upgrade their call centre to manage the expected increase in the

number of incoming calls. The new facility will have four hundred and fifty workstations

and will be geared to manage nine million calls per year, with the flexibility to expand in

the future. This upgrade will be designed to accommodate telephonic orders to ease the

current order handling system. It will also create the opportunity for call centre operators

to cross-market products, as the order will be verified immediately by linking to the stock

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levels. The rollout date is planned for August 2001. Exclusive books also have plans to

develop a call centre to complement their Internet web site.

Protea Hotels will be considering smart card technology to enable customer details to be

obtained at the entrance to the hotel door. As their focus is on customer service, they

believe that smart card technology will reduce the check-in time for their customers, and

improve customer service. They are also considering the use of a charge/credit card.

Pick ‘n Pay announced that they will be moving into the e-commerce arena with the first

step focusing on B2C transactions and secondly B2B exchanges. Their concern is

whether to join one of the existing procurement hubs, for example Commerce One and

restructure their current infrastructure or develop these functions in-house.

The budget for their online venture is approximately R 30million, which is similar to the

set up costs of Inthebag.co.za. MWeb have been commissioned to design the web site and

to provide secure online transactions. Unlike Inthebag.co.za, order fulfilment will be

conducted from their stores as opposed to distribution centres and will have national

coverage.

Inthebag.co.za already have a sophisticated web site and online presence. Their future

plans include an alternate option to the current graphics based site namely, a text only

version of their web site. The aim is to increase the speed that the site takes to load onto

PC’s. Inthebag.co.za also plan to further personalise their site to increase the online

customer experience. One of the methods to achieve this will be to develop online

communities by offering for example, chat room facilities. Plans are also underway to

take advantage of m-commerce technology. Inthebag.co.za already have a strategic

alliance with Woolworths and they plan to develop further strategic alliances both

nationally, with CNA, and internationally, with Harrods and Gap.

Exclusive Books believe that the Internet and retailing are well suited to selling books

online and their immediate plans are to ensure that their web site functions as smoothly as

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possible. Using the Internet, they are developing systems that will report store sales in

real time. This will allow them to immediately access their stock levels and prevent out of

stock situations. They will also be using their customer data for market segmentation

purposes by integrating their management information and POS systems. Once this has

been achieved, they plan to increase their frequency of customer contact.

There is certainly no dispute about the importance of information technology and that the

companies included in the research are aware of its importance. In the annual reports of

the listed companies there was a section dedicated to information technology, signifying

a growing awareness and importance. The exploitation of e-commerce opportunities was

also discussed in the reports, and their future plans include e-business initiatives and the

use of the Internet to increase communications with customers.

5.4 Future Research

Possible areas of further research resulting from this report include:

!" An expansion of this study to include all companies in the South African retail

sector.

!" A study on the progress of companies that have implemented customer

relationship management strategies.

!" A study of the initiatives required to develop information managers and

management within companies.

!" A consideration of the impact of the knowledge level on the new corporate

structure.

!" A study to establish whether companies who have a customer-centric philosophy

practise a similar philosophy internally.

!" Conduct research on the long-term benefits of loyalty programmes and establish

whether they build brand loyalty or loyalty to the programme.

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6. REFERENCES

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HomeChoice Holdings Limited, Annual Report 1999

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Reichheld, F.F. & Teal, T. “The Loyalty Effect: The Hidden Force Behind Growth,

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Sterne, J. “Customer Service on the Internet”, John Wiley & Sons Inc. 2000

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http://www.adsections.businessweek.com

http://www.advisor.com

http://www.businessweek.com

http://www.crmguru.com

http://www.adsections.businessweek.com/

http://www.advisor.com/

http://www.businessweek.com/

http://www.crmguru.com/

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http://www.ebsco.com

http://www.eloyaltyco.com

http://www.emerald-library.com

http://www.hbsp.com

http://www.pepkor.co.za

http://www.searchcrm.com

http://www.whatis.com

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http://www.hbsp.com/

http://www.whatis.com/

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Research Report – Appendices Page 1 MBA 2000

APPENDIX 1: LIST OF INTERVIEWEES

Company and Contact Person Address Date of Interview

Protea Hotels

Arthur Gillis

Managing Director

+27 (21) 419 5320

www.proteahotels.co.za

P O Box 6482

Roggebaai

8012

Wednesday 1 November

Affinity Logic

Richard Van Rensburg

Managing Director

+27 (21) 761 5324

Alphen Farm Estate

Alphen Drive

Constantia

7806

Thursday 2 November

American Swiss

Karen Knipscheer

Marketing Analyst

+27 83 463 6282

www.americanswiss.co.za

342 Voortrekker Road

Parow East

7500

Thursday 2 November

HomeChoice Holdings Ltd

Chris Gleimius

Credit Analyst Manager

+27 (21) 680 1024

www.homechoice.co.za

200 Main Road

Claremont

Cape Town

Tuesday 7 November

Research Surveys (Pty) Ltd

Colleen Sutherland

Strategic Consultant

+27 (21) 421 5611

www.researchsurveys.co.za

99 Kloof Street

Gardens

Cape Town

Tuesday 14 November

http://www.proteahotels.co.za/

http://www.homechoice.co.za/

http://www.researchsurveys.co.za/

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Inthebag.co.za

Jessica Knight

Managing Director

+27 (21) 794 0655

www.inthebag.co.za

Alphen Farm Estate

Alphen Drive

Constantia

7806


Pick ‘n Pay

Elred Lawrence

IT Manager

+27 (21) 658 1609

www.picknpay.co.za

P O Box 23087

Claremont

Cape Town

7735


Achievement Awards (Pty) Ltd

Richard Cramer

Marketing Director

+27 (21) 700 2300

www.awards.co.za

83 De Waal Road

Diepriver

7800

Thursday 16 November

Emerald Technology (Pty) Ltd

Sean Brand

Director

+27 (21) 946 3926

www.em-tech.co.za

6 Alpha Park

Du Toit Street

Bellville

7350


Foschinidata (Pty) Ltd

Duncan Milne

Senior Systems Manager

+27 (21) 938 1376

www.foschini.co.za

342 Voortrekker Road

Parow East

7500


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Proximity

Fred Kuys

Managing Director

+27 (21) 423 2322

www.proximityworld.com

210 Long Street

Cape Town

8001

Friday 17 November

Truworths Limited

Wesley Figaji

Credit Marketing Manager

+27 (21) 460 7856

www.truworths.co.za

1 Mostert Street

Cape Town

8001

Tuesday 22 November

Pick ‘n Pay

Ronnie Herzfeld

Director – Information Systems

+27 (21) 658 1648

www.picknpay.co.za

P O Box 23087

Claremont

Cape Town

7735


Prima LS Direct

Louise Sinclair

Managing Director

+27 (21) 531 7071

www.primalsdirect.co.za

Suite 11

Lonsdale Building

Lonsdale Way

Pinelands


Exclusive Books

Jaco Nel Customer Loyalty Programme Manager+27 (11) 803 3773 www.exclusivebooks.co.za

P O Box 1779

Randburg

2125

Monday 27 November

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APPENDIX 2: LETTER OF INTRODUCTION

THE MANAGING DIRECTOR PROTEA HOTELS

ATTENTION: ARTHUR GILLIS

Dear Sir

Ref: INTERVIEW FOR UCT MBA RESEARCH REPORT

Further to our telephonic conversation, we have attached a copy of the questionnaire as discussed with you.

As mentioned, we are students on the MBA 2000 programme at the University of Cape Town, Graduate School of Business. We are conducting research for our final research report entitled “An investigation into the use of Information Technology in attracting and retaining loyal customers with specific reference to the South African retail sector”

As our primary source of data we will be interviewing various managers, not specifically limited to the retail sector, whom we have identified. We hope to gain valuable information from the interviews that we can use to draw conclusions for our research report.

When the report has been finalised, we will be submitting a summary of our findings to you for your records.

We also confirm that we will be meeting with you at your offices, at the above stated address, on Tuesday 24 October 2000 at 10h00 to conduct the interview. We envisage completing the interview process in approximately 45 minutes.

Should you have any queries, you may contact us at the telephone numbers listed below. You may also contact our research supervisor, Professor Paul Sulcas, on +27 21 406 1437 for any further information you may require.

We thank you for your time and consideration and look forward to meeting you.

Yours sincerely

______________ _____________________

IVO MILANESI MARYLEE TOWNSHEND

082 412 9879 083 381 2748

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APPENDIX 3: QUESTIONNAIRE

SECTION A: BACKGROUND

1) Describe your customer loyalty programme covering the following areas:

a) Programme history

b) Number of years the programme has been in existence

c) The reward structure of the programme

2) What is the link between your customer loyalty programme and your corporate

strategy?

SECTION B: TECHNICAL DETAILS

3) Describe the technological infrastructure and software in place, which support your

customer loyalty programme.

4) Provide details of the customer information that is being collected.

5) Who is the driving force behind the technological development to support customer

loyalty?

6) Where does the responsibility lie for the technological support?

7) Do you separate the technological investment in customer loyalty programmes from

the overall company information technology investment?

8) Do you keep track of the monthly expenses of running the customer loyalty

programmes?

SECTION C: OPERATIONAL DETAILS

9) Do you track customer loyalty?

- If so, who is in charge of tracking customer loyalty?

- If so, how do you track customer loyalty?

10) How is this information being utilised?

11) Who, in the various levels within your organisation, is using this information (see

attached diagram)?

12) What is the role of information technology to the operations of your loyalty

programme?

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13) Have you achieved your planned results for customer loyalty?

SECTION D: LOYALTY MEASURES

14) Do you calculate the level of retained customers?

- If so, how do you calculate these levels?

15) Do you calculate the cost of retaining customers?

- If so, how do you calculate this cost?

16) Do you calculate the acquisition cost of a customer?

- If so, how do you calculate this cost?

17) Do you calculate the lifetime value of your customers?

- If so, how do you calculate this value?

SECTION E: FUTURE

18) Do you have any future activities planned to improve/change your customer loyalty

programme?

- If so, please provide details.

OperationalLevel

Knowledge and Data Workers

OperationalManagers

StrategicLevel

SeniorManagers

MiddleManagers

Management Level

KnowledgeLevel

Sales and Manufacturing Finance Accounting Human Marketing Resources

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APPENDIX 4: WEB SITE DEVELOPMENT STAGES

According to Hanson (Principles of Internet Marketing, 2000), there are three web site

development stages:

!" Stage I: Publishing Sites

!" Stage II: Database Retrieval

!" Stage III: Personalisation Interaction

The first stage web site publishes the same information to everyone. It is similar to an

online newspaper or magazine. It offers related links to other sites and are generally easy

to use and to design. They contain useful information and are often the first contact with

a user in the cyber world.

A second stage web site contains the same information as a first stage site with the added

feature of the ability to retrieve information from a database. The interactivity with the

user is through a series of “ask-respond” questions.

The most sophisticated web sites are stage III sites. Web pages are specifically created

for each individual customer with the site able to anticipate customer choices and perhaps

offer alternatives. Users must be prepared to reveal some basic information. These sites

are the most difficult to design and develop.

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APPENDIX 5: ADDITIONAL RESEARCH

Achievement Awards

Achievement Awards was founded in 1991 and its 1999 turnover was R 50 million. They

are a full service incentive merchandise and travels awards company. Their services

include a marketing consultancy, a creative agency as well as a call centre.

Their targeted return on investment from incentive award programmes is 10:1. They are

also the first South African company to go online with an electronic awards catalogue.

Achievement Awards performance improvement programmes focus on three primary

areas, namely work force programmes aimed at increasing staff productivity. This

accounts for about 40% of their turnover. The second focus is on channel programmes

aimed at improving sales performance, and this accounts of another 40% of their

turnover. Finally, customer loyalty programmes account for the remaining 20% of

turnover. They aim to increase the percentage of their turnover based on customer loyalty

programmes in the future.

Proximity

Proximity South Africa is part of the BBDO group internationally. They have extensive

expertise in data analysis, new technology and media solutions and are therefore placed

to build brands for the new generation. They specialise in merging direct marketing and

interactive principles to create and nurture brand relationships. Their stated mission is to

bring brands closer to customers through effective and creative communication.

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Research Surveys

Research Surveys was founded in 1979 and is part of the Adcorp Group listed on the

Johannesburg Stock Exchange. It is the largest research survey company in South Africa

and they have 55 research consultants.

They conduct quantitative and qualitative research and specialise on the research process

as well as. Their research process includes the design of the study through to conclusions

and recommendations. The majority of the research carried out is ad hoc. Their aim is to

give clients insights into their product and or category. They have a wide range of

product offering and are infamous for their conversion model.

Prime LS Direct

Prime LS Direct are a full services relationship marketing company. The services they

offer include, but are not limited to, CRM and direct marketing strategy, customer clubs

and loyalty programmes, CRM database building and maintenance as well as customer

satisfaction surveys.

As a result of the literature review conducted, the researchers established that Prime LS

Direct designed and managed the I&J customer loyalty programme. Although I&J are

manufacturers supplying food retailers with fish products and freshly prepared products,

they have a successful customer loyalty programme in place. The researchers interviewed

Prime LS Direct to establish future programme trends and to establish the current status

of the I&J customer loyalty programme.

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