Carlos Escario and John Hextall >> Supply Chain Solutions that Deliver Client Retention South Africa, September 2001.

Carlos Escarioand

John Hextall

>>Supply Chain Solutions that Deliver

Client Retention

South Africa, September 2001

Learning Points

• Why is customer retention important

• Establish your top 20 customers

• Assign account responsibility

• Follow the customer retention process

• Measure the results

Customers for Life

“On average, the CEOs of most U.S. corporations lose half their customers every five years ……

• long term customers buy more,• take less of a company’s time, • are less sensitive to price, & • bring in new customers.

Best of all, they have no acquisition or start-up cost.”

-Frederick F. Reichheld: “Learning from Customer Defections” Harvard Business Review 1996

Customer Defections

“….Good long-standing customers are worth so much that in some industries, reducing customer defections by as little as five points – from, say, 15 per cent to 10 per cent per year – can double profits”

- Frederick F. Reichheld: “Learning from Customer Defections” Harvard Business Review 1996

“Most businesses lose about 25 percent of their customers annually”

- Pepper & Rogers: The One to One Future

TargetProspect

Customer

Client

Supporter

Advocate

Partner

Inti

mac

y

Retention

GE Philosophy –

GE say companies spend toomuch time catching rather than keeping (retention) Customers.

Ladder of Customer Loyalty

Who are your Top Customers ?

List your Top 20 Customers

Who is Accountable for them ?

When was the last visit made ?

Do we know and meet the customer’s expectations?

Is there a Strategy to develop over the next 5 years?

Ask yourself :

Client Lifetime Value

Client Lifetime Value vs. Cost of Retention

Effect on Profitability

Cost of Gaining New Customer = 5x Cost of Retention

Why Customers are More Profitable over Time

Base profit

Profit from increased purchases and higher balances

Profit from reduced operating cost

Profit from referrals

Profit from price premium,

Customer acquisition cost

Year

21 3 4 5 6 70

Com

pan

y P

rofit

Source: Harvard Business Review, “Zero Defections: Quality Comes to Services” (September – October 1990)

3 R’s : Retention, Related Sales and Referrals

Dow Corning Lifetime Value

Base profit (Oceanfreight)

Profit from increased purchases (growth in business) plus global airfreight

Profit from leveraging Dow Corning’s ocean and air volumes to improve UTIW global yields

Profit from referrals – Dow Corning joint presentations, Owens Corning, Hpi

Profit from Supply Chain Initiatives

Customer acquisition cost

1996

Year

21 3 4 5 6 70

UT

I N

et R

eve

nue

Source: UTi Global Account Management

• In 1996, Dow Corning appointed UTi for deep sea exports from Europe to replace 30 suppliers

1997 1998 1999 2000 2001 2002 2003

Raw Materials Sourcing

Latin America Warehouse

A Growing Global Partnership

• Today, UTi is the single global provider of supply chain services to Dow Corning

Airfreight Forwarding

Customs Brokerage

4PL Project

Ocean Freight Forwarding

Nov. ’97 Jan. ’98 Jan. ’99 Jan. ’00 Jan. ’01

Revenue

Growth

• In 1997, Dow Corning managed over 300 suppliers globally

JUDO VS. SUMOJUDO VS. SUMO

How to compete and win against the giants

Tactics against competitors

•Product development

•Business processes based on time

•Innovation

•Low cost supplier

•Process focus

•Products, without surprises and problems

•Customized solutions for each customer.

•Long term customer relationships

•Losing a customer is the worst thing

•Develop customer knowledge & document

procesess that exceed expectations

•Deploy (implement) solutions.

•Empower front line staff that serves the customer

INTIMACY WITH THE CUSTOMER

1. FORMULA

2. TENSION

3. SOLUTION

Source: Treacy Wiersema

“Value disciplines”

Strategy Positioning

PRODUCT LEADER

OPERATIONAL EXCELLENCE

QUALITY WASTE

Are we losing customers as aresult of poor service ?

Do you know yourcustomer retention rate in your country ?

SUBJECTIVESUBJECTIVEWe believe the customers feel that we areWe believe the customers feel that we are

SOMETHING SPECIALSOMETHING SPECIAL.

EMOTIONAL CONNECTIONEMOTIONAL CONNECTION

OBJECTIVEOBJECTIVEAdd value to extend CUSTOMER LOYALTY Add value to extend CUSTOMER LOYALTY

Thereby extending customer life time valueThereby extending customer life time value

QUANTIFIED VALUEQUANTIFIED VALUE

CUSTOMER LOYALTY

Customer Retention = Customer Loyalty

Two Dimensions

CUSTOMER’s LOYALTY =Increase the “Life Time”Value by extending the

Scope of services.

VISION 2001:“ CUSTOMERS FOR LIFE “

CUSTOMER CUSTOMER AVERAGE TIME LIFEAVERAGE TIME LIFE

==1

DESERTION RATEDESERTION RATE

DESERTION RATE AVERAGE CUSTOMER LIFE15% 6 YEARS25% 4 YEARS10% 10 YEARS3% 33 YEARS 0%

5%10%15%20%25%30%

1 YEARS 6 YEARS 10YEARS

33YEARS

Serie1

25% 0%15% 5% 3%

5%20% Target Rate

AverageRate Zero

Rate

NaturalLossRate

THE CHALLENGE

Desertion Rate 5% Profit 30-50%

Source: HBR-”Zero Defections”

DESERTION RATE

DESERTION RATE:SLI CUSTOMER PORTFOLIO ANALYSIS

Over 2 YEARS

(1) Occasional: Only one shipment.(2) Deserter: 50% shipments reduction

CUSTOMERS MADRID IRÚN BARCELONA TOTAL

Lost 130 32 105 267

New 171 20 206 397

Maintained 279 101 237 617

Deserter (2) 111 45 84 240

Occasional lost (1) 236 46 233 515

Occasional new 245 41 247 533

LOYALTY: “LENGTHENING” THEAVERAGE CUSTOMER LIFE

Is it worthy a loyalty program?

DESERTION RATE

1-(Customer t +1)/Customer t

SLI 96/97 24%

AVERAGECUSTOMER LIFE1/Desertion rate

4 Y EARS

SLI’S FUTURE DIMENSIONNew customers x Average

customer life

1.588

What will happen when we reduce the desertion rate?

20% 5 years 1.985

15% 6,5 years 2.580

10% 10 years 3.970

A NEW PARADIGM SHIFTA NEW PARADIGM SHIFTThe The “ Customer Life Time Value ““ Customer Life Time Value “

If our average customer life time If our average customer life time is 4 years and your income from is 4 years and your income from the customer is 12.000 USD / the customer is 12.000 USD / Monthly….Monthly….

How much energy will we invest to avoid a loss How much energy will we invest to avoid a loss of 480.000 USD in customer life time value ?of 480.000 USD in customer life time value ?

Rather than valuing a Rather than valuing a customer on “monthly customer on “monthly income,” we now count income,” we now count each customer’s average each customer’s average “life time” income.“life time” income.

Suddenly...there are now Suddenly...there are now very few small customers !very few small customers !

A New Way of Calculating Customer Value

Expanding Sales (Sell more services).Expanding Sales (Sell more services).

Cross SellCross Sell

Make the customer reference-ableMake the customer reference-able

Price to the market.Price to the market.

Less Cost of Acquisition ( In 100 USD/Call ).Less Cost of Acquisition ( In 100 USD/Call ).

Less cost to serve.Less cost to serve.

NOTHING HAPPENS AUTOMATICALLY NOTHING HAPPENS AUTOMATICALLY WHITOUT A FOCUS AND A STRATEGY WHITOUT A FOCUS AND A STRATEGY

TO SUPPORT IT.TO SUPPORT IT.

Customer Loyalty Allows Expansion of the Business With

Existing Accounts

Potential Revenue Enhancement from Correcting Service Problems, British Airways

Source: Norman Klein & W. Earl Sasser, Jr.; British Airways: Using Information Systems to Better Service the Customer, Boston Harvard Business School, 1994.

SEATING ALLOCATION / OVERBOOKINGSeat Allocation 11.5% 37.5% £8,187,750Downgrading / Denied boarding 4.4 22.4 £1,868,755

OPERATIONAL DISRUPTIONSDelays 7.0 23.9 £3,172,105Cancellations Consolidation 4.2 24.4 £1,943,080Disruption services 3.7 23.7 £1,662,653

BAGGAGEBaggage Mishandled 4.0 29.8 £2,260,101

CATERINGFood Quality 3.4 33.0 £2,127,377Food Policy / Menu Composition 2.7 28.9 £1,479,494

CABIN ENVIRONMENTSmoking 3.1 31.0 £1,82,112

SALES EXPERIENCETicketing / Booking 3.7 24.4 £1,711,761

TOTAL / AVERAGE 48.0% 29.0% £26,224,187

The way our customers % of Complainants % of Thesesee it and what that means Experiencing who will Not Revenue Lostfinancially the Problem Repurchase

The Complaint Escalation Pyramid

Frontline Service Providers

MiddleManagement

VicePresident

The Complaint Process Stated in Percentages

The Pyramid Described in Numbers

100% of dissatisfied customers x

40% Complain

25% of these customers are still dissatisfied x

One in five complain

One in two of these still dissatisfied complain x

25% of complainants still dissatisfied x

500 customers who are dissatisfied

200 who complain to frontline =

50 customers who remain dissatisfied after frontline effort =

10 who complain to middle management =

1 Complaint =

2 Customers dissatisfied at middle management level =

Source:Based on data presented in U.S. Office of Consumer Affairs, Consumer Complaint Handling in America: An Update Study, Part II (Washington, D.C. Technical Assistance Research Programs Institute, April 1986)

Sales Process

Related Sales

TimeProposalRFP SOP

Pre-Sales

Pre-Sales

Implement

TechnicalTechnical

Technical

Technical

Pre-Sales

Customer Relationship Manager

Senior Exec

Operator

Manager

Operate

Managing the Relationship

Service at 3 Levels

‒ Operational

‒ Tactical

‒ Strategic

Customer Service Teams

‒ Operator

‒ Manager

‒ Senior Executive

Customer Retention Process

CustomerRetentionProcess



Inputs


Plan ClientVisits

Aspire to“C” Suite

Agree onKPIs


Inputs


Plan ClientVisits


Agree onKPIs


Inputs Outputs


Plan ClientVisits


Agree onKPIs

ProduceSOPs Jointly

DeliverQuantified

Value


Inputs Outputs

Deliver What Was Promised


Plan ClientVisits


Agree onKPIs

ProduceSOPs Jointly

DeliverQuantified

Value


Inputs Outputs

Deliver What Was Promised

Client Event Record & Plan Assign Responsibility Train & Motivate people Measure, Measure, Measure

AccountManagement


Plan ClientVisits


Agree onKPIs

ProduceSOPs Jointly

DeliverQuantified

Value


Inputs Outputs

Deliver What Was Promised Use Tools to

monitor activity

Share information with the customer

Work on improving performance with customer input measure againstKPI’s

PerformanceManagement

AccountManagement

Client Event Record & Plan Assign Responsibility Train & Motivate people Measure, Measure, Measure

Tools

Process Maps

Client Event Records

SOP’s

Implementation Management

Value Added Initiatives

UTi internet \ intranet Learning

Customer Success Factors

Focus on Retention by following the process

Upgrading capacity to perform retention

Utilize the tools we have

Link performance initiatives and investment to what the customer needs

Involve the whole company, its suppliers & customers

Institutionalise a learning environment

Cape Town Quarterly Reporting

Client Buying

CommFEC’s eMpower Refunds Anti-

dumpingDCC FOB

to EXW

PO Tracking

Elec Bond / Rebate Register

Custom Elec

Landed Costing

Adidas

Pep

Shoprite

Ackermans

Mastersports

Charmfit

Homechoice

Truworths

Arvin/Gabriel

Ideal Fast

Freudenberg

ADDED VALUE INITIATIVES ON THE GO

Solution IdentifiedNo Action or Progress Implementing Solution CompleteUnder Investigation

Service Quality and New Issues

“C” Level

‒ Check List Questions“Supply Chain 101”“eBusiness 101”Industry “Hot Buttons” “Strategy 101”

‒ UTi Differentiators

Progress Points

‒ Agree points to Address

‒ Track (Client Event Records)

‒ Sign-off

Summary – Customer Retention

Importance of Partnering with Lifetime customers

Train and Motivate our People to support this initiative

Lead by example and meet regularly with your customers

Significant Correlations

Our time allocation rule at UTi:

1/3 Clients

1/3 Our people

1/3 Discretionary

Client Loyalty and Company Profitability

Employee Loyalty and Client Loyalty

Employee Satisfaction and Client Satisfaction

Source: “The Service Profit Chain”, James Heskett, W. Earl Sasser, Jr.; Leonard A. Schlesinger.

ClientsPeople

Discretionary

XIIXII

IIIIIIIXIX

VIVI

Summary

Client Visits

Client Visits

PeoplePeople

People Motivate

MotivateMotivate

REGATASREGATAS

RAFTINGRAFTING

Carlos Escarioand

John Hextall

>>Supply Chain Solutions that Deliver

Client Retention

South Africa, September 2001

THANK YOU

Carlos Escario and John Hextall >> Supply Chain Solutions that Deliver Client Retention South Africa, September 2001.

Documents

retention customers

new customers

results customers

customers expectations

customer retention process

customer retention important

life customers loyalty

customer average time