Customer Asset Management at DHL in Asia - Case Study Example

DHL in Asia Asset Management At DHL in Asia A case study Mr/Ms.xxxxxxxxxxxxxxxx MBA, Section xxxxxx xxxxxxx December 20, 2008 Customer Asset Management At DHL In Asia Executive Summary DHL is a global company in the field of logistics. In order to manage its diverse businesses spread across the globe, it segmented its market in three layers. In the first, the customers were segmented on the criteria of size and sophistication. In the second, they were segmented further on the criteria of the kind of service sought. The third layer was necessary to obtain market information and track the customers. In the third layer, the customers were further segmented as; lost customers, decreased relationship customers, sustained relationship customers, increased relationship customers, new customers and regained customers. The loyalty management system monitored the status of each of these sub-segments yielding information, which would trigger proactive corrective action for increasing customer loyalty. The salesmen were duly informed to prevent customer defection. Market segmentation enabled the company to formulate its strategy according to the attractiveness of the segment and its relevance to the company’s strengths. For a company to sustain competitive advantage, it should have unique value proposition, which is hard for the competitor to replicate. The cost leadership strategies accompanied by economies of scale and high entry barriers are also sustainable. But in DHL’s case, there is a need to differentiate its services. In the Customer pyramid, the segment at the base of the pyramid did not yield as much margin as the segment at the top of the pyramid. Trading up has its unique challenges. These challenges need a strategy synergising the strengths of the functional areas. Trading up will have its implications on the various functional areas of the company such as Human Resource Development, Marketing, Operations, Finance and Information Technology. Above all, synergising the activities of the functional areas and motivating the employees would need leadership at the top. Introduction DHL, the global express and Logistics Company serves a wide spectrum of customers. They range from individual customer, who ships a document or two a year to global giants with high volume sophisticated supply chains. In order to streamline its service, the company embarked on customer segmentation cum loyalty management system. The segmentation comprised three layers. In the first, the customers were segmented on the criteria of size and sophistication. In the second layer, they were segmented further on the criteria of the kind service sought. The third layer was necessary to obtain market information to track the customers. This information would trigger proactive corrective action for increasing customer loyalty. The salesmen would be duly informed to take timely action to prevent customer defection. The Key Problems and Issues: The major issue was that though the direct customer segment, the bottom of the customer pyramid constituted 75% of the customer base; it contributed to only 15% of revenues and 8% of profits. Similarly the top of the customer pyramid constituted only 20% of the revenue and contributed to 5% of the profit. Further, in terms of customer churn, 20% of the customers decreased their relationship with the company. While 10% of the customers were lost, 3% were regained. Even the revenues were considerably eroded due to the customer churn. The customers at the top of the pyramid required deployment of cutting edge technology and best practice infrastructure. In sharp contrast, the customers at the base of the pyramid required basic products. While the former had high switching costs and high loyalty, the latter had low switching costs and low loyalty. The company recognized that for the profits to increase, the customers should move up the pyramid. This would need up-trading which would result in increased switching costs, enhanced customer loyalty and greater profitability. Main Challenges Main challenge for DHL is to impart traction for the migration of bulk of direct customers from the bottom of the pyramid to the next higher level. Similarly, the relationship customers should graduate to Strategic customer strata. Staying close to the customer and understanding his needs communicating him succinctly to make him seek those needs would be over arching for DHL. Individual communication instead of general communication is a step forward in this right direction. Recommendations Today, the businesses are getting increasingly aware that strategies related to product, promotion and pricing do not impart sustainable competitive advantage. These strategies are indeed increasingly replicated by the competitors. In this context, ancillary strategies such as logistics are engaging the attention of the organisations (Mentzer & Williams, 2001). For this reason, logistics has been suggested as the strategic "battleground ... displacing manufacturing, marketing, and quality as the focus of top management" (Woods, 1991). When organizations treat logistics as a potential base for differentiation, the service providers should respond by adding value to their offerings.. It is therefore necessary that DHL should identify the special needs of the direct customers, before they know and make them aware of those needs. It should then formulate special programs to address them. In an empirical study of marketing strategies and company performance of logistics service providers, it was found that product-market and resource based strategies were the major determinants of performance. The winners laid emphasis on service differentiation, market segmentation and internal functional coordination (Panayides, 2004, pp. 1 – 15). The crux of service differentiation lies in enabling up-trading by the customer. When the customer moves to the higher rung his switching costs increase, making him less likely to defect. The profitability of the logistics service provider, just like that for any service provider depends on the customer addition and retention. It is estimated that a 5% increase in customer loyalty translates into profit enhancement of 25% to 85% (Reichheld & Sasser, 1990). The customer delight and loyalty depends on the spread and quality of service provided by the company. The employee morale plays a crucial role in enhancing the quality of service. The employees are motivated by high quality service support given and employment policies in vogue in the company (Heskett et al.1994). The employees should receive motivation from the organisation both in terms of motivators and hygiene factors as suggested by Hertzberg. The departmental roles to enable DHL to implement differentiated strategy are: a. Human Resource Department should attract the premium skills required to provide differentiated services to the customers. This resource is in short supply. Periodic training and development should be provided to them to stay with the company and offer such exemplary services to the customer b. Marketing should identify latent needs of the customer and communicate to him and persuade him to move up the pyramid. c. Operations should follow the state of the art technology to provide differentiated and unique service at lower costs. d. Finance should orchestrate a cost control exercise so that the ratio of value addition to cost of providing it should be higher than the industry benchmark. e. The information technology department should ensure the deployment of technologies to provide differentiated service. An effective Customer Relations Management System should be in place to track the customer needs and satisfaction levels. Needless to say, the efforts of the individual departments would be frittered away, if the leadership is lacking at the top echelons of management. The effective CEOs will never lose the focus on customers and employees and lead from the front. To ensure that the company succeeds in its endeavour, it needs to put in place a proper information system to quantify the actual progress made towards the goals. This MIS should incorporate both performance drivers and outcomes as a part of the balanced scorecard. The loyalty management system, which is designed to capture information such as; lost customers, decreased relationship customers, sustained relationship customers, Increased relationship customers, new customers and regained customers gives performance drivers, which will influence the outcome of the company’s strategy. Conclusion Market segmentation will enable the company to formulate its strategy according to the attractiveness of the segment and its relevance to the company’s strengths. For a company to sustain competitive advantage, it should have unique value proposition, which is hard for the competitor to replicate. The overall cost leadership strategies accompanied by economies of scale and high entry barriers are also sustainable. But in DHL’s case, there is a need to differentiate its services. In the Customer pyramid, the segment at the base of the pyramid does not yield as much margin as the segment at the top of the pyramid. Trading up has its unique challenges. These challenges need to be addressed through orchestration of a strategy synergising the strengths of the functional areas. References Heskett, James L, Jones, O.Thomas, Loveman, Gary W, Sasser, Earl W.Jr.,and Schlesinger, Leonard A(1994). Putting the Service-Profit Chain to Work, Harvard Business Review, Jul-Aug 2008, Mentzer,. John.T and Williams, Lisa R (2001).The Role of Logistics Leverage in Marketing Strategy http://bus.utk.edu/dsi/readings/RoleLogisticsLeverage.pdf Panayides, Photis M, Logistics service providers: An empirical study of marketing strategies and company performance, International Journal of Logistics Research and Application, Volume 7, Issue 1, Mar 2004, 1-15 Woods, Lamont (1991). The Myths and Realities of Customer Service, Electronic Business, 17, 156-158. Read More