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Customer Relationship Management: China holds much potential for CRM programmes
The UK’s mega retailer Tesco has been studied the world over for its customer relationship management (CRM) practices by industry pundits and other retailers, who would like to replicate its online and offline success to become the world’s largest online grocer.
The 80-year-old Tesco has achieved this singular honour by adapting itself to changing conditions, including focusing on online shopping with the advent of the Internet, and redefining its loyalty programme to differentiate itself from its competitors.
However, when it comes to China, Tesco is yet to make its presence felt. Even foreign retailers such as Wal-Mart and Carrefour are too busy expanding the reach of their brick-and-mortar stores to attempt to reach shoppers through click-and-mortar sales. This is despite the fact that, in China, Internet penetration is one of the fastest in the world. The country has about 150 million users, next only to the US’ 400 million.
Following the total opening up of China’s retail sector in December 2004, most CRM players see the country as one of the most exciting markets to be in, with existing foreign retailers planning their expansion and new ones vying with each other to set up shop there.
Guo Liang, a professor at the Chinese Academy of Social Sciences (CASS) and a well-known authority on China’s Internet, explains: “Internet is growing very fast in China, especially in small cities. So, we may expect Internet continue to grow fast and possibly expand to some rural areas. But even if the Internet continues to grow fast, 15% of the population is still not that large a number. I guess at the end of 2005, the Internet users could reach 150 million — [but] it’s still less than 15%. Considering so many Internet users in small cities are only playing games in cybercafes, they are really but game players.”
Liang’s annual survey of Internet use in China threw up the interesting fact that the medium was extending its reach to small towns, or the Tier II cities. However, the group of people it covered was not the mature adult, but teenagers and youths in their 20s, who used the Internet to chat and play games. “Our finding was that hardly 20% of the users used the Internet for e-mail,” Liang says.
The reason why many Chinese shoppers are not drawn to Internet sales is that they are, by choice, touch-and-feel shoppers who like to see what they buy whenever possible.
Adds China Concept Consulting’s marketing director, Christian Stillmark: “Chinese consumers often prefer to buy familiar local brands [and] can be mistrustful of foreign products, especially if they cost more, as it does not follow that just because a product is successful overseas it will be successful in China.”
Such peculiarities apart, another significant reason why the Internet boom is yet to translate into Internet sales for retailers in China is the payments system, which is still not secure. China is one of the largest consumer of smart cards, with about 740 million users — but this growth has not been in plastic money but in SIM cards for mobile phones, which have taken off on account of poor connectivity and infrastructure offered by the land line telephones. The insecure payments systems place a massive burden on the creditors, who are continuously forced to deal with defaults and provisioning for non-performing assets (NPAs). Understandably, bankers and retailers are wary of using the Internet as a medium for clinching sales or accepting payments.
Retailers like Wal-Mart are thus considering the introduction of a free card called Discover, apart from the existing Wal-Mart cards, which can be used for purchases on the retailer’s website as well as a regular credit card. The new card, which will be issued in collaboration with GE Consumer Finance and Discover Financial Services, will be available to consumers at the end of next month.
Jane Thompson, president, Wal-Mart Financial Services, explains that the advantage of this card is that “it has no annual fee, can be used both inside and outside of Wal-Mart stores and offers our customers up to 1% back from GE on all purchases. The customer benefits are a direct result of our commitment to be the low-cost leader.”
The card will offer customers the opportunity to avail themselves of multiple-credit products, help them participate in various reward schemes offered by the retailer and the card provider, and attempt to enhance value for the user while strengthening customer retention for the retailer.
Add to this another dimension, that of China lifting most of its restrictions on foreign retailers in December 2004, including geographical restrictions and controls on stakeholding. Hence, the race is currently on volumes, numbers and extending reach in the shortest time possible, rather than concentrating on creating consumer value through enterprise management systems such as CRM and ERP (enterprise resource planning).
A rare exception is Beijing Gome Electrics, one of China’s top five home-grown retail chains, which has effectively harnessed Sybase enterprise software and experienced rapid expansion in management, operations, business processes, logistics and after-sales to consolidate, capitalise and grow in the home-appliances market.
For the others, it is more of a numbers game rather than systems improvement, which is necessary both for improving process and making Internet sales possible.
Thus, soon after total opening up of China to foreign retailers, Beijing-backed CITIC Pacific Co announced that it had teamed up with Wal-Mart to open hundreds of stores in Eastern China and the less-saturated Central China over the next five years.
Similarly, although Wal-Mart entered China in 1996, and currently operates 39 units in 19 cities and runs a website in English and Chinese, it has no provision for online purchases.
Another example is China Resources Enterprise Ltd, which operates over 1,700 supermarkets and hypermarkets, including China Resources Vanguard stores. It is gearing up for competition by trimming numbers, poaching on the foreign competitors to improve and imbue foreign management and marketing expertise, introducing and adapting loyalty reward systems for frequent customers, and introducing private labels as part of its expansion plans — its focus still store-centric. Thus, the company plans to open four lifestyle stores this year, and up to 20 within three years.
Although China abounds with CRM manufacturers, both international and domestic, retailers themselves are concentrating more on mapping the Middle Kingdom with their outlets than on systems improvements for customer satisfaction and Internet deliveries. This is understandable, considering that customised enterprise management tools cost a packet and many of the retailers have to decide whether they will build on existing legacy systems or go for a once-and-for-all systems replacement.
Further, many domestic retailers are actually the supply departments of the Chinese government which have converted themselves into chain stores. These chains, though many times larger than their foreign counterparts, are strapped for funds, and are considering a public offer to fund their growth and expansion. Under the circumstances, spending extensively on customised CRM packages is an expense they can ill afford and would spread their resources thin.
The CRM growth has taken place not as much in the chain store, supermart and hypermart segments, as in retail banking, telecommunications and outsourcing. Still experts warn that enterprise management tools are not without value. “There are many things for a retailer to consider when coming to China. CRM should be a key part in any retail strategy in China, as the better a company is at talking to its customers, understanding their needs and meeting them, the more likely they are to be successful,” says China Concept Consulting’s Stillmark.
Now that the retail sector in China has opened up, there is a race among foreign retailers to open stores across the country, he says, and the results will “most likely” be mixed. “Those most likely to be successful will be the ones who have taken the time to understand their customers through consumer surveys and other forms of customer interaction, and who can innovate their products to suit the tastes of the local market. Showing that your corporate philosophy incorporates a degree of social responsibility may also help,” he adds.
The existing foreign retailers understand this. Many like Wal-Mart and Metro AG have announced various funding and social support programmes to enhance their local acceptance.