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CASE STUDY The Rigours of Relationship Marketing ''It should have worked like clockwork. Unfortunately, like a capricious toy, my pet strategy unwound itself. We still believe that relationship marketing is the best springboard for our growth since it strengthens our bonds with the customer. Our gameplan was based on four simple premises. One, the cost of retaining an old buyer was lower than getting a new one. Two, loyalty programmes created greater customer satisfaction. Three, they would ultimately start funding themselves. And four, relationship-building would enhance the brand equity of a toy company like ours. That selling toys was a novel concept never bothered us. Competition was intense since toys were mostly manufactured in the unorganised sector. Also, the market could hardly be called sophisticated since toys were hardly seen as aids to growth. Naturally, the quality of the products was poor. With our experience in diverse markets, we were set to change all that. But we failed to realise that it would take time to change habits, especially in a market like ours. Of course, some of my managers disagree with me...'' Aveek Mahapatra, CEO, Ace Toys, was determined to do everything to reach his key customers; even hire a new marketing chief. Air India's Uttara Parikh and HTA Direct's Rakhshin Patel analyse what went wrong with Mahapatra's value-building exercise. A BT Case Study. Executive Committee Meeting, Ace Toys Aveek Mahapatra: 'Morning, gentlemen. Let us welcome Sridhar Venkitesan, who joined us two days ago as our Vice-President (Marketing). He has an excellent track-record in both consumer and industrial marketing. If I may share something with you, one of the factors that clinched the Selection Committee's decision in Sridhar's favour was the work he did at Roadmaster Tyres. Chennai-based, this company was a small player in the tyre market until the early 1990s. However, by 1995, it had become the second-largest tyre company in the country, with a marketshare of 14 per cent. What triggered off its growth was the relationship marketing scheme that Sridhar introduced for Roadmaster Tyres' dealers. Incidentally, we at Ace Toys have had problems with our efforts at relationship marketing. I am sure, Sridhar, that your expertise will immensely benefit our company, which makes the Blondie range of dolls, our flagship product, which contributed nearly 60 per cent to our turnover in 1997-98. Sridhar Venkitesan: Thanks, Aveek. One correction, though. The scheme at Roadmaster Tyres which you referred to was targeted at end-users-not dealers. In fact, in a largely dealer-driven tyre market, Roadmaster Tyres took a contrarian route. It by-passed the dealer to directly get at the customer. Anyway, I have been following Ace Toys' progress for years. But I would appreciate a brief on your marketing problems. Ravi Agrawal: Well, let me say that the toy business is not child's play; it is highly competitive. Our challenge comes from the very structure of the market, 80 per cent of which is controlled by the unorganised sector. But Ace Toys has always seen that as an opportunity for brand-building; an attitude that has helped us become the market leader, with a 9 per cent share of the market. Of course, the other challenge to our profitability-even survival-comes from video games, amusement parks, TV, and PCs, which also make demands on a child's time. Of the Rs 350-crore toy market-which can be segmented into soft toys, stuffed toys, activity toys, action toys, infant toys, and dolls-the organised sector accounts for Rs 60 crore, the unorganised sector, Rs 240 crore, and imports, Rs 50 crore. In collaboration with the Paris-based La Belle, Ace Toys has set quality and safety standards for the industry since 1987, when we commenced operations. We manufacture and market about 80 types of toys. While the market is growing at 12 per cent per annum, Ace Toys' growth rate was about 15 per cent until 1995-96. Our rate of growth has come down to 12 per cent in the last two years partly because our efforts at relationship marketing haven't met with much success... Venkitesan: I must confess to being impressed by Ace Toys' mission statement: To Provide Children With An Opportunity To Celebrate The Experience Of Growing Up, And To Make Products That Stimulate A Child's Sense Of Curiosity And Imagination. I think your products live up to that... Manu Patel: Yes. But with the toy market expanding, defining the target audience and then, understanding its needs are, obviously, matters of prime importance.We started the Blondie Friends Club in 1993 to build relationships with our customers. But it did not click. So, we discontinued it three years later... Aslam Shariff: It would be worthwhile restarting the Club. By the way, what innovations did you introduce at Roadmaster Tyres? Venkitesan: Relationship marketing is not a common practice in a commodity business like tyres, where the focus is on volumes rather than margins. Volumes can only come from mass marketing, which does not lend itself to relationship marketing. The immediate provocation for trying out some trail-blazing ideas in marketing at Roadmaster Tyres was a demand recession. It was, therefore, compelled to launch a number of promotion schemes to move tonnage. The exercise was confined to truck tyres, which accounted for more than 70 per cent of our sales. In the first phase, we offered a numerical pager, and a lottery ticket for a prize of Rs 50 lakh on the purchase of every 2 tyres. That helped in inducing trial-purchase in a business where buyers are brand-loyal, and are reluctant to try out a new product unless there is a strong incentive to do so. Every buyer was made to fill up a form providing the details of his buying pattern, the frequency of purchases et al. This provided us with a database of truck-owners. We found that there were 2.20 lakh transporters, who owned roughly 15 lakh trucks in the country. On the face of it, it appeared as though each owner had 7 trucks. But that was hardly the case. Thirty per cent of the owners controlled 80 per cent of the trucks, with the top 4 owning 41 per cent. Roadmaster Tyres set its sights on this 30 per cent by putting the old Pareto Principle of 80:20 to use. Having identified our customers, we decided to forge relationships with a few customers instead of targeting the mass market... In the second phase, we launched a programme, Super Value Club, in June, 1996, which was targeted at the chosen few. This scheme was meant to run for 4 years until June, 2000. Any registered truck-owner could join the Club by paying Rs 500. He got 50 points each time he bought a Roadmaster tyre. And once he collected 4,500 points, the gifts start pouring in. The cost of the scheme-our equivalent of the Frequent Flyer Programme in an airline-worked out to Rs 200 per tyre. In fact, in a market dominated by dealers, we changed the rules of the game by directly reaching out to the customer. But we did not want to alienate the dealers either. To ensure this, we gave the dealer 10 points for each tyre he sold. On scoring 1,000 points, he too became entitled to several gifts. Once the system was in place, we increased the price of the tyre by Rs 400. And Roadmaster Tyres was able to increase its marketshare from 12 per cent to 20 per cent in 2 years time. We were successful in retaining customers despite the price-hike. Patel: Empirical data suggests that it is 5 times more expensive to get a new customer than to retain an old one. A satisfied customer is a walking advertisement. That was the reason why we thought of the Blondie Friends Club... Venkitesan: There are 3 steps one should follow in relationship marketing. First, identify the customers and, then, target those who use the product frequently. This target-group should be small and focused since it is then easy to manage. And you must make each member of the group feel important. The Super Value Club met all these criteria. Shariff: So did the Blondie Friends Club...Why, then, did it not take off?... Mahapatra: Why don't you recap how the whole thing began and ended so that we can get a fresh perspective on it? Shariff: You know, the compulsions for buying toys in the West and India are different. In the West, toys are a means to entertain and aid a child's mental development. A large proportion of the parents' income is, therefore, spent on toys. In India, a toy is an object to keep the child pre-occupied. But that perception is changing. Blondie's USP is that it is made of non-toxic plastic and has no rough edges. Safety is a key factor with parents in a toy purchase-decision. Our technical collaboration with La Belle ensures that every Blondie figurine that rolls out of our plant at Alwar (Rajasthan) is of high quality. Blondie's appeal to the customer-mainly, girls in the age-group of 3 to 13-is not just in catering to her maternal instinct, but an opportunity to place herself in a fantasy world of adulthood thanks to a wide range of lifestyle accessories-like the houses, the furnishings, her wardrobe, and her accessories-that we offer. These products-150 in all-help in extending the playtime, which is important in view of the competition from other products. They also fit in with our corporate mission: to prolong and protect those fleeting years of childhood when girls are old enough to read books, but still love to play with dolls. They also generate customer loyalty in their own way. When we set up the Blondie Friends Club, any child could become a member by paying an annual subscription fee of Rs 100. We enrolled 6,000 members in the very first year-a number that remained constant during the next 3 years. In turn, each child got a glossy monthly publication providing product-related data. We deputed a marketing manager to supervise the project. However, by the end of the first year, several problems began to surface. The cost of maintaining the Club was high, and Ace Toys was extending a subsidy of Rs 100 per member. Deadlines were going haywire since we did not have the necessary expertise in magazine-production. Since our efforts were, obviously, faltering, we decided to discontinue the Club in 1996... Patel: The absence of adequate dolls to stir up excitement in the target-group was certainly the main reason behind our decision to discontinue the Club. The basic appeal of Blondie was clear and continuous, but the lack of range and diversity left the target-group cold. More important, the target customer was always in a state of change: girls grow up to become adults. You should have a finite and captive group for relationship marketing to succeed. Investing in keeping a customer group that would, over time, move out of the segment did not seem to be a sustainable strategy... Mahapatra: Interestingly, more toys are sold through gift-shops than through dealers or exclusive outlets. That is the trend worldwide. Since the margins on toys are as high as 35 per cent, we could afford the more expensive route of sales promotion for the Blondie range. Perhaps advertising would have been a better option... Patel: Advertising makes the customer aware of the product, but relationship marketing brings in buyers. Advertising helps build brands and attracts customers while relationship marketing retains customers and enhances brand equity. Promotion and dealer support are more important for the toy business than advertising. Venkitesan: The success of relationship marketing depends largely on a company's perception of its sales transactions. Is it the terminal point of the company's value-chain? Or is it the beginning of a fruitful partnership? A sale is the beginning, rather than the end, of a company's interaction with the customer. It is an opportunity to know the customer more intimately. This can help redesign products and fine-tune your marketing operations. Relationship marketing rests on the premise that mass marketing has run its course and that conventional methods of advertising do not deliver the desired results. It is difficult to buy the argument that you discontinued the Club because you found it too expensive. On a turnover of Rs 25 crore, your expenditure of Rs 100 per member works out to less than 1 per cent of turnover. That is nothing. Nestlé spends 1.50 per cent of its turnover on the Maggie Club. Shopper's Stop spends 1.70 per cent of its annual sales on its customer-relationship programme. Besides, there are other ways of developing relationships with Blondie customers. You could have a Blondie Queen Contest for kids... Mahapatra: Last year, we received at least 5 letters every day from children to revive the Club. If we decide to do so, we must make sure it works this time. Should Ace Toys decide in favour of reviving the Blondie Friends Club? Where did it err in the first place? Can it undo the mistakes of the past? Is a captive group of customers a pre-requisite for the success of a relationship marketing programme? Is cost a major deterrent to its implementation? Is Ace Toys' business amenable to relationship marketing at all? How can Ace Toys build a loyal base of customers in a situation in which the core group of children keeps growing? Should Mahapatra bring in a consultant to rejuvenate Ace Toys' marketing gameplan? Or can Venkitesan successfully revive the relationship marketing drive? |
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