What is Customer Equity.

The following extract is from Gaurav Marya’s latest book, ‘It Takes Two To Tango’, published by Entrepreneur India. It is in spirit of sharing his thoughts that he has authored two bestselling titles on subjects dear to his heart and central to his business: Take Charge! Building an Entrepreneurial Mindset and Franchising: The Science of Reproducing Success. This is from his third bestselling book, It Takes Two To Tango. Read on:

It was in 1975 when Robert Blattberg first became aware of the power of viewing the customer like an asset. In the book he co-authored in 2001, he wrote: “The customer is a financial asset that companies and organisations should measure, manage, and maximise just like any other asset.” He saw customer equity as the lifetime value of a customer for an enterprise. He differentiated customer equity from brand equity; as the former helped us focus on how the customer perceives us and is thus willing to invest in us, and the latter draws attention to the product or service we offer.

(In 1991, Robert Blattberg used the concept “customer-equity” in a lecture at the Wharton School. In 1996, the term was first used in an academic paper. In 2001, he co-authored the book; Customer Equity: Building and Managing Relationships and valuable Assets.)

I have always recognised the importance of seeing customers from a long-term perspective. The existence of a customer is a static fact created by a single purchase; when they keep coming back for repeated purchases, they become subscribers. Customers will come back only if the service that they are made to experience is satisfactory. Customer equity built on subscribers who are created by excellent service.

The importance of the concept of customer equity, and subsequently having customers become your subscribers can be seen in how the value of an enterprise increases by the number of subscribers it has, and the ticket value they bring to the organisation.

Vodafone purchased Hutch in 2007 to acquire the customer base the latter had and built up within the high-end segment of the post-paid user. Emerging as the second largest mobile services provider in India, soon after the purchase, enabled them to launch Vodafone Global Enterprise in India, which provided global mobility services to transnational corporations. This instance demonstrates how securing a strong subscriber base enables a business to widen the stream of value offerings that flow to them.

To be Continued…

Problems Exist and They Have to be Tacked - III

In the last post we discussed how the customer dominates in the markets where many sellers exist. Now we’ll discuss if the country like ours is ready to handle customer domination.

Is India ready to handle customer domination?

Indian companies are inordinately focused on sales. We look at year-to-year performance and become happy with our growth. Alarm bells start to ring only when there is a dip in sales and market share, but, by that time it is often too late.

I am worried because I see longer lines being drawn next to some of my favourite brands. Many Indian brands are losing relevance. I was a Titan wrist-watch owner. I have switched. Most of my colleagues in office no longer wear Titan watches. I see Fastrack, Tommy Hilfiger, Giordano, Polo – these are fashion brands licensed to watch manufacturers! The first two brands are available at Titan stores, and the Titan brand is still the leading brand in India; but is the wheel turning?

It is not a simple question of a generation shift. Ford, Dell, HP and Apple are all multi-generation brands that have survived and flourished. It is not a simple Indian mentality issue, either. It impacts international brands in India. For decades, the leading luxury car brand in our country was Mercedes. Every rich household had one. Today, Mercedes trails behind Audi, the leader and BMW. It has lost market share too.

Niren Chaudhary, Managing Director, Yum Restaurants, India, made a presentation at one of our conferences where he also happened to be the chairperson. In the presentation, a slide showed a list of multiple restaurant-chain brands that were active in 2005. They were a mixture of international brands and a few Indian ones. The following slide depicted the brands that had achieved 200 outlets by 2012 – seven from a field of 24; and only one Indian brand – Cafe Coffee Day.

In India, the shift has happened to an economy of abundance, where the customer is calling the shots. With more and more global brands wanting to enter this consumption market of 1.2 billion people, the “shifts” will happen faster and faster, with tectonic impact, ringing high on the Richter scale.

Are we ready for it?

Problems Exist and They Have to be Tacked - II

In the last post we discussed the ever-important need to evolve ways in which the retail investor, the micro customer and the small entrepreneur feel more empowered to design useful, profitable and desirable initiatives.

Let’s see what happens when individuals take charge.

Take the story of Mahesh Gupta. His children contracted jaundice, which is a water-borne disease. An engineer and an entrepreneur, having launched a successful designing and producing oil conservation equipment, Mahesh was not satisfied with the water purifying solutions available in the market. He decided to design his own water purifier and launched a new pioneering enterprise by the name of Kent RO that has introduced India to the reverse-osmosis technology.

Take the story of Vikaas Gutgutia. When he came from Kolkata to visit his girlfriend in Delhi, he was totally dissatisfied with the quality of flowers available. He went on to launch Ferns N Petals, a chain of boutique florists.

Phanindra Sama worked in Bengaluru and hailed from Hyderabad. One Diwali he could not book a ticket on a bus and hence could not get home in time. Along with friends, he launched Redbus.in that provides online bus tickets booking and has since delivered 1.5 crore happy rides!

Of course, every customer who is not content would not go on to launch their won enterprise. The simplest thing they can do is to vote with their feet, that is, they will discard the brand for an alternative offering. In a situation where the leading International brands are wooing the customers, can we afford to lose them? When many sellers are in the market, the customer dominates.

Here we are, in continuation of the previous post, on ways to tackle the problems faced by the country due to the abundant nature of the Indian economy, as explained in the previous two posts. The excerpt is from It Takes Two To Tango, written by serial entrepreneur, Gaurav Marya. We have divided the subject in three parts. This is the first of the three-part article.

I am an optimist but I don’t wear rose-tinted glasses. I am well aware that problems exist for us in India. The World Bank global “Doing Business Project” ranks India 132 among the 183 countries judged on the criteria of the “ease of doing business.” This is a rank lower than Gaza and the West Bank, but higher than Nigeria. Our neighbours score better; Bangladesh – 122, Nepal – 107, Pakistan – 105 and Sri Lanka – 89.

I share the concern expressed by Prof. Dipankar Gupta, an eminent scholar who started the Business Ethic and Integrity Services at KPMG, when he says: “If India is teaming ahead with a growth rate of roughly seven top nice per cent. . .why is India shining on some fronts and not on others?” (This is from the book The Caged Phoenix.) Prof. Gupta goes on to talk about the “structural impediments. . .[that] deny growth benefits to the majority of one billion plus Indians.”

He is not alone. The Anna Hazare movement has put corruption back on the popular agenda. Aamir Khan, through his television reality show, Satyamev Jayate, has tried to awaken the nation’s conscience on many horrifying facts that still hold true in the country. We still face the challenge of providing quality education to our youth and children. Infosys co-founder Nandan Nilenkani has said: “Technically we have free public schooling. Government schools exist for that. However, in reality, the government schools are dysfunctional.” In his book Imagining India, the quotes that of the 350,000 engineering students who graduate every year, only half can be considered to be employable.

In sum, we need to evolve ways in which the retail investor, the micro customer and the small entrepreneur feel more empowered to design useful, profitable and desirable initiatives. So is the glass half-full or half-empty? Frankly speaking, I don’t have the time to debate that. I want to focus my energies on joining the entrepreneurs who are coming forward to fill the glass. And we are slowly yet steadily succeeding to do so.

My concern here is to move beyond the complacence that “feel good” thinking gives us when we hear growth stories. My urge is to shake off the despondency that is settled within when we think of all the things we still have to achieve as a nation. My urgent need is to share the conviction that ultimately we can only sustain our individual growth if we can create benefit for the whole nation. What encourages me is that I see this same spirit that moves the Indian entrepreneur.

Continued. . .

The Era of Abundant Choice.

It Takes Two To Tango, an Entrepreneur India publication, written by serial entrepreneur Gaurav Marya talks on building vibrant relationships in the complex market of today by understanding what he actually needs. The following excerpt is reproduced from the same book.

The consumers of luxury items always had choice. We have all heard stories of how the rulers of princely states would import the best and finest from Europe. To a significant degree the luxury brands have entered the Indian market, but choice has emerged in dramatic abundance at the mid-level and to a much lesser degree at the base level also.

Let us look at cars.

In the distant past (till the 1980s), there was only a choice of two automobiles to be had – the Ambassador and the Fiat. If we look at the automobile market today, we can only marvel at the range of choices available to the consumer. Take for instance Maruti Suzuki. They have 17 base models and an average of above five variations on each of them. The low-end model, Maruti 800 has two variants – AC and non-AC, and the top-end model, the Grand Vitara also has two variants – manual and automatic transmission.

What this translates into is that the customers, especially in mid-range vehicles’ category, have at least four options to choose from at the same price! Let us focus on the price range of three-lakh-plus and four-lakh-plus. Maruti offers eight base models and 44 variants. Let us look across all brands to see the full range of options available in the market today. We have 14 automobile brands offering 26 base models in this price range, with some of them offering only one variant and some 19, making a total of 99 variants. When we put everything together, it is a staggering 144 variants within the three-lakh and four-lakh-plus price range! More is to come as high-end car brands are looking to follow Honda and launch offerings in the mid-range segment.

As we said before, the automobile industry is a startling example, but signs of the emerging abundant economy are to be seen all over. There was a time when restaurants had an AC section and a non-AC section. Today, AC has become more like a default. The malls, which are open to all, provide an air-conditioned public space without any commitment to spend. The Delhi Metro is air-conditioned too. The Delhi Transport Corporation runs a fleet of buses that are air-conditioned. Many cities have air-conditioned taxis and bus services being extended to a broader demographic. What used to be a premium feature has today become standard and default in the base model.

There was a time when the global Indian would create aspirations for global brands amongst their network on social media. Today, global brands have come to India, and compete at the same price range, as their counterpart Indian brands. The retail revolution has also had its impact. The customer in India is restless. Bombarded with marketing communication of all kinds, they shop around, experiment, look out for novelty, and are hungry for world-class production at their price point. They may even buy things they don’t need, but if does not serve a sustainable purpose they will stop. The writing on the wall is clear: “Customer loyalty is Dead.”

We shall continue with more on the abundance economy, its problems and the ways to tackle those in our forthcoming articles. Write in to us for your feedback and opinions.

In Gaurav Marya’s, author of Franchising and Take Charge, third book, “It Takes Two To Tango”, which builds a case for how we have emerged into a customer dominated, shape-shifting world, there’s a mention of Karl Fisch’s “Shift Happens” video that sets up the premise behind the changing world demographics and the technological shift. Let’s read what it is all about:

Go to your favourite search engine on the Internet and type out the words “Shift Happens”. Amongst the first five items will be a presentation with the same title. Watch it! The moment I first saw it I liked it. It was this that inspired the foundation of this book. Let me tell you the story behind this presentation. In 2006, Karl Fisch, a schoolteacher in the United States was invited by his school administration to address the beginning-of-the-year faculty meeting. He decided to take the help of a friend and prepared a presentation that confronted his colleagues with dramatic, thought-provoking facts. A copy of the slideshow was placed on Karl Fisch’s blog on August 15, 2006, and it went viral.

By June 2007, five million people across the globe had seen an improved version of the original slideshow. Over the years, many versions of the audio-visual have been made. David S. Rose, who is the Chair for Finance and Entrepreneurship at Singularity University, and is also the Chairman of the New York Angels investment association, did version 6.0 in January 2012. By that time, more than 20 million people had viewed one or the other edition of the presentation. The structure of the AV is very simple. It starts with a simple question: “Did you know?” And then it presents facts based on a theme. This structure is repeated across various themes. In the original slideshow, though, the first part pertained specifically to Karl’s school, it has been removed from the versions available on the Internet.

One of the themes dealt with is changing world demographics. The case is made that in the foreseeable future, a majority of educated English-speaking population in the world will be from India and China. Looking back at history, we are reminded that the leading country in the world in 1990s was the United Kingdom. The implication is that USA need not always be the leading economy or paramount nation. The inference that viewers draw is that soon Asia, led by China and India, will be the centre of the economic world. The message is reinforced by facts showing that the US is lagging behind other countries in Internet penetration. This is a significant point as world over the Internet users are growing to become communities even larger than most nations. With 800 million accounts in December 2011, a nation of Facebook community is now the world’s third-largest country.

Technological change is making the twenty-first-century world witness exponential change. The first text message was sent in December 1992; the number of text messages sent and received today exceeds the population of the planet. The years it took to reach a market audience of 50 million in the era of radio was 38 years, for TV – 13 years, for the Internet – 4 years, for the iPod – 3 years, for the Facebook – 2 years and for Google+ — just a year!

The conclusion of Karl Fisch’s message is a simple yet profound one. He takes the American slang version of the philosophical French phase c’est la vie! (Such is life), which is “Sh_t happens!” and adds an “f” to it, saying, “Shift Happens”.

We have for too long measured customer impact in terms of demographics and market share. We need to focus deeper into the impact we make in the lives of individual customers. This calls for a more intimate knowledge of our customer. Write in to us in the comments’ section for your opinions on this.