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'An interesting development has occurred in South Africa in that customers now want
brand equity as well as affordability.' 'Central to the success of any organisation are that the staff who make it up interact with its customers, execute plans
and give the company life.' 'Contracts are won on price, but they are retained on quality.' 'When in doubt, go with the customer.' Understanding your customers is not important. It's vital! WHEN foreign traders attempt to blast their way into the domestic market by slashing prices and providing world-class customer service, what do South African companies do?
Among the most talkative are car manufacturers. After treating customers as necessary evils for decades, they're running scared. South Africa's re-entry into world orbit and the withdrawal of protective barriers have brought the threat of international competition to their doorstep. So how do they propose righting the wrongs that they've foisted on the long-suffering South African public for so long? Let's start with ... The company produces cars in seven different body shapes. Mike Ewing thinks that's six too many. By specialising in one body shape, the car would cost less to manufacture or assemble. Another plus: Samcor would become market leader in that category of vehicle and be in a far better position to fight off competition. Now, let's move from the general to the specific and home in on the Mazda range. Samcor management has been gearing for international competition for the last three to four years. Because it won't be viable to compete with Hyundai, the major threat, on basis of price, it has decided to defend its position by concentrating on distribution channels, costs, productivity and the introduction of new products. The basis of the strategy is a new mission developed in
1992. It reads: "By 1997 we will be world competitive in
everything we do". By placing the main emphasis on dealer networks, cost reductions, new technology and 'complete customer satisfaction', Samcor will strive for 'the lifetime customer concept', which calls for added value and 'complete customer peace of mind'. Samcor hopes to achieve these lofty ideals by:
The company believes that radically improving after-sales service is the only viable short-term option in combating foreign low-price strategies. Samcor is known for providing less than superb customer service. So, to rectify problems, the company is closely examining performance in towns and cities where there are two or more dealers. Those that don't meet new service performance criteria will be given a limited time to do so. Or else. Brand equity is the answer, asserts ... Nissan doesn't want to cut prices because it links pricing strategies to the concept of brand equity. As a result, Nissan differentiates itself through brand building. It also creates brand equity through public relations, media relations and, most importantly, through advertising. In theory, the more added value a customer associates with a vehicle, the higher the premium he is prepared to pay for that particular brand. In practice, customers now want brand equity and affordability. 'Affordability,' says John Jessup 'has become critical to the success of a brand. Neither Nissan nor Toyota ever use big discount plans in
their promotional campaigns. Instead, they insist on good
financing plans and, in this way, try to create added value
for the consumer. Consequently, Nissan management has decided to adopt marketing strategies that embrace the customer. This led to the implementation of relationship marketing - a concept that has as its premise the uniqueness of each customer, even in a mass marketing strategy. 'People want to relate to a brand,' says Jessup, 'particularly for such products as motor vehicles.' At Nissan, efforts to implement the philosophy include a Uno club magazine and a Nissan credit card for the purchase of petrol and groceries. Every time Nissan customers use their card to make purchases, they'll be credited with bonus points they can redeem for cash when they next buy a Nissan. 'Superior customer satisfaction,' says Jessup, 'is the only way Nissan believes it can gain the number one position.' Nissan already has a large, established customer base, which gives the company an estimated 18 to 19% share of the market. The main focus is on fleet or corporate customers who account for 80 to 85% of Nissan's total business. So what does Nissan plan to do to protect this base from offshore marauders?
Speaking for Uno, David Pfaff, says that although competitors may gain market share by cutting prices, it will not be 'a sustainable competitive advantage'. Because of its inherent nature, a car suffers from considerable wear and tear with usage. Car maintenance is, therefore, a key aspect of car ownership. 'Price cutting will only have detrimental effects,
especially in a climate where employees demand exorbitant
salaries.' Instead, Uno will sell the intangible, value-added aspects of cars - image, user-friendliness and after-sales service. Promotions will sharply focus on 'unique services offered to all Uno owners'. These include:
And enhanced after-sales service from ... In Delta's case, the company's Motorpart enhanced after- sales service includes the guaranteed delivery of any part within 24 hours nationwide. The company also offers its customers Delta Plus. Its major components embrace:
At the same time, Delta continues to develop its customer satisfaction index (CSI) programme. Every year it rates dealers in terms of customer satisfaction with product, sales and service. The significance of the programme is to shift emphasis from the number of sales to the satisfaction of the customer. The CSI index has now become the most important rating whereas, in the past, dealers were evaluated solely on market penetration. The programme supposedly ensures that customers are well looked after to enhance customer loyalty, which increases the number of repeat sales while reducing the number of one-time sales. Not only the motor industry faces threats. They also pose problems for sectors of the building and construction industry. So here's an answer to price-cutting by ... Differentiate markets, services and other facilities according to customer requirements. That's the only way Blue Circle believes it can counteract price-cutting. The company now realises that it can serve both large contractors and small developers. But to meet the needs of small developers it must become more customer-friendly. To this end, Blue Circle has already become more customer-orientated at quarry sites, where waiting times for small developers have been slashed by 50%. The company achieved this by waiving the need for small customers to go through the same time-consuming material weighing time as large contractors. Blue Circle will also go out of its way to meet customer requirements in other areas. For example, it plans to make a large investment to increase the capacity of its shrink-wrap facilities to meet the growing demand for shrink-wrapped cement. 'It is this type of commitment to serving customers in an industry where customer service is perceived to be less critical than in other industries that will enable Blue Circle to neutralise the threat of price-cutting,' avers Derrick Theck. Even financial institutions aren't exempt. Many of them find themselves in the direct line of foreign competitive fire. Brighter smiles, firmer handshakes and vague promises won't be enough to deflect foreign competition. So make products price-competitive says ... To keep and enlarge its existing customer base in the face of foreign competition ABSA will have to provide superior products and service, says J J Runewitsch. The bank will have to make clients feel that its products are price-competitive. And more, the products must meet their needs. But therein lies a danger. The bank will have to be careful not to compete to the extent that it loses money, warns Runewitsch. To find out what clients want, the bank has been interviewing the clients. This led to the introduction of an innovative, computer-based system that assists clients in opening important letters of credit. External and strategic focus is the answer according to ... This basically entails employing a more customer- orientated approach and focusing on cost-reduction imperatives. Standard recognises the pressing need for greater emphasis on customer service because it will have to defend its market territory from both local and foreign banks, which have developed cultures of good customer service. The bank expects foreign competitors to ignore retail banking in favour of asset and liability gains - corporate business and relationship building as well as integrated stockbroking, underwriting, trading, corporate and fund management services. Although Standard reckons that it has sufficiently robust pricing structures to meet the challenge, it acknowledges the need to leverage other marketing mix variables such as service and distribution to defend its position in these markets. Rob Miller, the bank's national manager of foreign trade services, doesn't agree. He says that domestic banks have little or no defence against the threat posed by price-cutting in corporate areas because South African banks rely on overseas banks to provide many financing instruments. But Miller does see a glimmer of hope. Local banks may be in a position to discourage forages by re-routing other traditional foreign exchange products, such as documentary credits, to foreign banks that are not represented in South Africa. Usually this type of product is a very lucrative source of income for overseas banks. He also suggests that Standard Bank may be able to entice the corporate and upper commercial markets by providing an all-embracing package of the products at a reduced price. Go for the 'middle market' advises ... Foreign raiders will gun for the least profitable sector of the market - the price and rate-driven corporate market, asserts Nedbank's Jack de Blanche. Nedbank appears to be willing to lose market share in this sector and concentrate on maintaining and developing its position in the 'middle market', in essence the commercial sector. Although profitable, foreign banking interests will probably find managing the plethora of clients in this sector too complicated. An added incentive for developing this sector of the market is the encouragement given by the Reconstruction and Development Programme to small and medium-size business development. On the customer service front, Nedbank is developing a closer relationship with its clients by 'taking banking to the people'. A concrete manifestation of the concept was the recent installation of an in-store bank in the Buxton Spar in Westville, Johannesburg. Nedbank swiped the idea from American banks which opened in-store branches during normal shopping hours to make banking facilities more accessible for clients at points of purchase. Another acclaimed Nedbank client service first is on-line TV links between clients in remote regions and a central banking area. The system allows clients access to a comprehensive range of banking facilities. Although it eliminates the need for staff in remote areas, the TV concept allows clients and bank officials to maintain personal, visual and audio contact. A price-related response from ... ABI launched the Buddy Bottle in a price-related response by Coke to the growing numbers of competitors, including store-brand colas. Buddy is a 250 ml non-returnable bottle sold exclusively to schools. The price: only 99 cents each. The rationale behind the introduction of the Buddy Bottle is simple.
The company also plans to reduce production costs by blowing its own two-litre and 1,5-litre plastic bottles. The savings realised by cutting out the current bottle suppliers, Metal Box and Crown Cork, may be passed on to consumers in the form of price reductions. ABI is also vigorously upgrading its image, which projected a picture of a monopolistic and uncaring business. To this end, the company has embarked on an intensive training course aimed at improving customer relations and service. ABI isn't new to social responsibility projects. For example, it financed the Africa Cultural Trust Multi-Media Centre, a project designed to help underprivileged school children develop their skills. The company never publicised its involvement in community upliftment projects because management believed that the support it gave to such projects was for ethical and not marketing reasons. But time has changed ethical standards. Arch rival Pepsi will seek to create the impression that it isn't returning solely to make profits but to help improve living standards among the country's underprivileged, alleges ABI. To counteract Pepsi propaganda and reverse its non-caring image, ABI now intends to publicise its involvement in community support and upliftment projects. How do you combat a reputation for poor service in the eat out and 'ready-to-go' sector of the food market? You standardise, asserts ... To reverse its 'not very good service' image, Pizza Hut now insists that all affiliated outlets display product specification charts in back-of-the-house areas. These show the required weights of toppings on the different types of pizzas offered, to ensure standardisation throughout the group. The group takes the concept of a uniform corporate look and feeling a step further by insisting that all employees wear standard T-shirts, sweaters, jackets, shirts, ties and caps. While this may project an effective corporate image that may instil confidence in consumers, what does Pizza Hut do that actually enhances the quality of its customer service? It employs an independent agent, Super Service, to test and report back on standards of quality and service. Super Service sends a mystery shopper to various Pizza Hut restaurants without the knowledge of the management or staff. The mystery shopper critiques and evaluates the stores on the standard of waiter service and the quality of food served.' Top marks go to waiters who:
High scores go to restaurants that serve well-cooked pizzas abundantly filled with tasty cheese and served with the required toppings. Mystery callers also evaluate delivery efficiency and how cashiers answer the phone. The minimum pass mark: 80%. Offer premium products, advocates... Nando's offers a premium product and people don't mind paying a little more for it. 'As long as customers get the quality they expect from us,' says Joseph Joffe, 'they won't bitch about price. When we put up our prices by 10%, we didn't receive a single complaint.' As a matter of policy, Nando's won't discount its products. Instead, it will rather offer customers added value, such as free Cokes with specific meals. The 'taste of Portugal' chain of outlets believes that drastic price-cutting lowers the consumer's perception of the product's quality. Customer satisfaction is the name of the game, according to ... Faced with the threat of increasing competition from sophisticated offshore operations eager to enter the South African market, industrial catering group Fedics has developed a strategic plan that centres on customer satisfaction. Group management, in fact, identifies customer satisfaction as the main source of long-term competitive advantage and profitability. Managing director David Wigley explains how Fedics plans to achieve its long-term objective. 'To be first-choice caterer demands an ability to provide, consistently, tasty and appealing food, the best value for money and the highest service standards; in other words, to make quality the common thread of all activities.' Link pricing to inflation, proposes ... Foreign firms will have a hard time competing with Simba in the local snack market on the basis of price. The company has developed a defensive pricing structure whereby management takes pricing decisions either ahead of or with inflation. And management holds these prices constant for two years. Simba last increased prices in September 1993. The next price increase is scheduled for September 1995, but won't necessarily be implemented. No offshore company will be able to enter the South African market at 1993 prices and hold them constant for two years, asserts marketing director Johan de Jager. High start-up costs will deflect foreign interests, says ... Snack manufacturer Willards, recently taken over by National Brands, agrees that foreign raiders will run into heavy weather if they attempt to enter the South African market by price-cutting. Product manager Hilton Loring reckons most will be rebuffed by the need to make heavy investments in high-tech packaging plants, which account for up to 70% of the cost of finished products. He raises another point: price-cutting won't survive through the short to medium-term because shareholders will want paybacks within two to three years. Correct marketing techniques are essential, according to ... Nestlé has launched a vigorous defence strategy to protect its popular Bar-One and Smarties confectionery lines against Mars and M&Ms, manufactured by the American Mars Company. Mars Bars and M&Ms, marketed in South Africa by Royal- Beechnut, used a niche marketing technique to enter the local market. Since they were premium-priced and could be found only in upmarket areas, their threat to Nestlé's popular Bar- One and Smarties product lines was negligible. After they secured a toe-hold in the market, Royal- Beechnut began distributing them on a mass-marketing basis to broaden its share. But consumers continued to perceive them as expensive. Nestlé reinforced this perception by giving huge discounts to retailers and through temporary price promotions.' In some stores, Bar-One undercuts Mars Bars by 60 cents a unit. Flatten the structure to improve customer services, advocates ... A leading player in South Africa's fashion retail market, Sales House admits to worrying about competing with offshore companies, particularly American-based chains known for their excellent customer service. To overcome the problems posed by 'notoriously bad' customer service, the company has launched a massive education campaign that cuts across departmental lines, according to marketing chief Penny Lloyd. The customer service education programme involves personnel from sales and merchandise management who are responsible for ensuring availability of the right product in the right place in the right quantities at the right time. It also involves those who deal with customer queries and complaints. Although the retail chain acknowledges that foreign price- cutting may be 'a real problem', management is unfazed by the possibility. Invaders won't be able to sustain price-cutting policies for ever, it argues. The company is also confident that its intimate knowledge of local conditions with regard to distribution, labour, manufacturing, availability of materials and working conditions will reduce the effects of price- cutting 'get in' strategies. Adopt American techniques, suggests ... To overcome problems related to customer service, Edgars has adopted and adapted many proven American techniques. For example Edgars used Nordstrom, the American retail chain known for superb customer service, as a role model for its footwear and 'intimate wear' departments, in which personal service is imperative. Nordstrom employs only university students and graduates as sales assistants because they're more competent to handle customer queries and complaints. By following the same strategy in certain departments, Edgars plans to give greater customer satisfaction, which should lead to a higher perceived level of service. How will Edgars deal with a price-led foreign attack? Graham Garden says the fashion chain would have two options:
If Edgars chooses the second option, it has the financial muscle of The South African Breweries to sustain it during a price war. If it doesn't want to bruise its bottom line and see profits plummet, the chain will somehow have to 'maintain its return on inventory investment'. In other words, it will have to increase sales to counteract the effects of sliding margins. According to Garden, the chain can increase the turnover rate of merchandise by deploying higher levels of technology. A first move in this direction was the installation at the end of 1994 of a sophisticated electronic system that links sales agents, factories and warehouses. The so-called Electronic Data Interchange (EDI) system significantly reduces lead times to have merchandise on the floor quicker. Move upmarket, says ... Roz Designs intends avoiding confrontation with Pacific Rim price-cutters by targeting more upmarket segments and adjusting prices and products accordingly. Since profit margins on casual wear for the mass market are 'very small', Roz Designs hopes to see margins increase by going upmarket. Don't take any chances, advises ... The company believes that price will play a minor role in foreign 'get in' strategies. A worldwide survey of potential competitors shows that invaders will seek out perceived product quality and service differences. Instead of cutting prices, invaders will rather look towards a perceived difference in quality and service to achieve market share. But Chubb isn't taking any chances. It has developed a contingency strategy to cope with unexpected price-cutting by competitors. It uses the following three-pronged matrix:
Use enhanced customer service, asserts ... Although American Express Travel Service (AMEX) has little direct control of pricing, which is determined by hotels, airlines and car rental companies, it uses 'enhanced customer service' as a potent weapon to fight off competitors. Currently under consideration: implementation of the internationally recognised ISO 9001 level of customer service.
Be ready for the invasion, says ... Foreign car rental companies offer their clients far better service than do local operators, says Richard McGhee, of Budget Rent-A-Car. The service they'll give South African customers could very well out-perform that provided by local car rental companies. 'They always treat customers like kings. And customer convenience is a built-in service standard. 'Imagine renting a car for a day, having it delivered to your residential address in the morning and picked up at night at no extra charge.' Service of this calibre is sure to appeal to customers. But it doesn't give McGhee sleepless nights. 'We'll be ready for them,' he asserts, citing Budget's improved service that includes:
Don't compete with price-cutters; jack up cabin passenger service,
advises ... South African Airways (SAA) faces a unique set of pricing and customer service problems. Let's start with pricing. Most major competitors charge the same for flights on the same routes. For example, you pay R12 070 [at the time of writing] to fly business class return from Johannesburg to New York via Brussels regardless of the airline you select. And you pay R4 070 to fly to New York via London whether you travel with SAA or British Airways. So the airline competes on the basis of customer service. But the tilt of the playing field is biased against SAA when competing against Air Portugal, Air France and Greek and Italian airlines. Air Portugal received a $1 000-million cash injection in the form of a government subsidy. Every time SAA tried to compete, Air Portugal dropped its prices. So SAA stopped competing with Air Portugal. Greek and Italian airlines also get government handouts. So does Air France, which received a $4-billion subsidy and still flies in and out of South Africa at a loss. So SAA stopped competing with Air France. On the customer service front, SAA employs the philosophy of 'continual constructive dissatisfaction'. It calls for small, continuous improvements like those advocated in Japanese management programmes. Its principles are embodied in SAA's Passport To Success programme, based on the indigenous concept of Ubuntu Ngumuntu Ngabantu. Loosely translated, this means passing good service down the line from one employee to the next until it finally reaches the customer. SAA has also revised its cabin crew recruitment programme to combat passenger perceptions of excellent service offered by foreign airlines. The airline now employs only people with natural aptitudes for customer service in customer contact positions. As a result, SAA's First Class service is rated among the world's top 10 although SAA is only the world's 40th largest airline. In addition, South Africa's national airline runs regular passenger satisfaction surveys to monitor the quality of service delivered in relation to service expectations. However, the main focus is on the manner in which staff interact with customers. In this regard, SAA's service strategy is very similar to the 'moment of truth' strategy employed by Jan Carlzon, of Scandinavian Airlines. He believes that success depends on the average 15-second contact between frontline staff and customers. Understand your customers, says ... This philosophy, adopted by the Southern Sun Group, has led to several innovations:
Although Southern Sun is prepared to take on price-cutting competitors, management doesn't believe foreign hotel chains can hold low prices for an extended period. Why not? Because site owners and developers wouldn't countenance poor returns for very long. For example, the ISCOR Pension Fund owns the new Hyatt Hotel under construction in Rosebank, Johannesburg. And ISCOR would soon start to raise a fuss if the Hyatt tried to undercut prices for too long. Avoid head-on price clashes is the advice from ... The manufacturer of health-care, beauty and cleaning products has no immediate plans to change its price structures and would prefer to avoid a head-on price war with Proctor & Gamble (P&G). While P&G, with its huge financial resources, may be prepared to operate in South Africa at a loss for up to five years to get market share, it's known to dislike wild price swings because they eventually erode customer loyalty. Because P&G prefers maintaining prices for long periods, SmithKline Beecham will have time to adjust the prices of its directly competitive products on an individual basis, 'reaping money from cash cows to support the process'. Fight fire with fire, says ... Will price-cutting by overseas competitors play havoc with local pricing structures in the chemical industry? Sentrachem's Norman Kennelly, answers with an indefinite 'maybe'. But even if they enter by slashing, they won't be able to maintain low prices indefinitely, he says. Because Sentrachem's infrastructure has been in place for years, competitors starting from scratch in the local market will find price under-cutting an exceptionally costly exercise. If it has to, Kennelly says Sentrachem 'will fight fire with fire'. He raises another point. In the chemical industry, competitors don't appear overnight. It takes months, sometimes years, to set up plants. This gives the South African public and entrenched chemical operations time to react to fluctuations in pricing. Taking these factors into account, it seems highly unlikely that price under-cutting is a viable option. Use multi-layer marketing, suggests ... SASOL Phenolics gives customer service high priority. The organisation has established a special relationship with its customers through 'multi-layer marketing'. To ensure loyalty, it entices customers into long-term (normally 10 to 15-year) contracts by offering them financial assistance with their capital equipment needs. And if competitors offer customers specific products at lower prices, they're invited to contact SASOL about the price differential. In most cases, customers don't find it worth switching to a new supplier because service levels, to which they have become accustomed, are different. The organisation usually shies away from price-cutting. It contends that although such tactics are common with sales people, customers tend to play one off against another to create a deepening downward spiral. But while SASOL frowns on price-cutting as a long-term strategy, it will use price as a short-term tactic to squeeze new competitors out of the market. Most of the participating companies harped on price. The majority also referred to customer service - almost as an afterthought. Just what they planned to do to raise levels of service quality was usually cloaked in woolly verbiage. So what should you do to ... Here's a 25-point action plan you can implement immediately:
If you want to find out quickly how you rate ... For example, a progressive, customer-focused bank in the United States gives $5 to every customer who waits for longer than five minutes in the queue. And a restaurant in Austria doesn't charge you for your meal if you wait longer than five minutes to be served. If these self-imposed penalties were implemented in South Africa, many of
the banks and restaurants I visit would quickly be running at a loss at
present levels of customer service. If you get your price right and jack up the quality of your service to give customers fewer grounds for complaint, you're on your way. But you're by no means home and dry. You still have the unenviable task of casting a jaundiced eye over your management, marketing and distribution structures ...
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