Maintaining Loyal Customers and Customer Service Strategy

Slide 1: Maintaining Loyal Customers CNI’s journey Kenny Ong CNI Holdings Berhad

Slide 2: How to fail without trying

Slide 3: The Roadmap to Failure Fred Wiersema and Mike Treacy The Moment of Downpresure of Truth Unclear Strategy X Performance s Tactic Ad-hoc Performance Freefall Today’s performance Doom Tomorrow’s Projections actual performance Clear Sailing Denial & Defense Overdue Failure Time

Slide 4: Denial and Defense • “It’s not really good value our competitor is offering, because it doesn’t include a lot of our features.” - ABC vs Air Asia • “It’s good value but not in our preferred customer market.” - ABC vs Toyota • “Sure they’re hurting us, but with their unfair advantage, what can we do?” – ABC vs MILO • “The rules we are playing by have always worked before” – AMEX vs VISA

Slide 5: The Roadmap to Failure Fred Wiersema and Mike Treacy The Moment of Downpresure of Truth Unclear Strategy X Performance s Tactic Ad-hoc Performance Freefall Today’s performance Doom Tomorrow’s Projections actual performance Clear Sailing Denial & Defense Overdue Failure Time

Slide 6: Ad Hoc Tactics • Selectively hold discounts to hold business that has started to go elsewhere • Introduce new promotions, terms, conditions, and offers to confuse and cloud the market • Beef up customer service by adding people to fix mess-ups and quicken delayed shipments • Delay capital investments and adjust accounting methods to portray quarterly financial results more favorably • Introduce “new and improved” products that are new in form, but not in substantive ways that are of consequence to purchasers

Slide 7: The Roadmap to Failure Fred Wiersema and Mike Treacy The Moment of Downpresure of Truth Unclear Strategy X Performance s Tactic Ad-hoc Performance Freefall Today’s performance Doom Tomorrow’s Projections actual performance Clear Sailing Denial & Defense Overdue Failure Time

Slide 8: Contents: Agenda: • Introduction • Philosophy • Customer Focus • Strategy Example • Next Steps

Slide 9: Introduction The basis for all our Customer Loyalty strategies

Slide 10: Intro: CNI 1. 17 years old 2. Main Board Public Listing: August 2005 3. Products: Consumer Goods and Services 4. Core Business: MLM 5. Others: Contract Manufacturing, Export/Trading, eCommerce 6. Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines 7. Staff force: ± 500 Malaysia 8. Distributors: ± 250,000

Slide 11: Intro: MLM 1. Sell through people 2. Relationship & people skills 3. Compensation Plan 4. Follow-up 5. Integrity 6. R&D 7. Training 8. Functions & Events 9. Tight regulations

Slide 12: Philosophy The anchor for all decisions

Slide 13: Philosophy: Goods Return Policy “I don’t care if they return a Goodyear tire. If they said they paid $200, pay them $200.” Nordstrom does not sell tires

Slide 14: Philosophy “In business after business, 60% to 80% of lost customers reported on a survey just prior to defecting that they were satisfied or very satisfied.” HBR March/April 1996

Slide 15: Philosophy “CNI is more than business. We strongly believe that every individual has the opportunity to attain a better living through CNI.”

Slide 16: Philosophy Ultimate Objective of Marketing: “Get more people, to buy more things, more frequently, at higher prices.” “Retention and Loyalty useless if No Conversion is happening.” Sergio Zyman

Slide 17: Philosophy Loyalty is Useless… • Virtual Consumption vs. Real Consumption

Slide 18: Philosophy Loyalty is misleading… • Heavy Consumption ≠ Loyalty • Loyalty ≠ Heavy Consumption *Today’s focus is on Loyalty, not Consumption. *To increase consumption, refer Marketing

Slide 19: Philosophy 1.Loyalty = Relationship (something like Dating) 2.Loyalty ≠ Points 3.Loyalty ≠ Redemption 4.Loyalty = Get more people, to buy more, more frequently, at higher prices

Slide 20: Customer Focus Keeping an eye on the right thing

Slide 21: Focus 1. Targeting 2. Alignment

Slide 22: Focus: Segment & Target Know your “Customer” 2. User 3. Distributor 4. Leaders 5. Super Leaders 6. DCO 7. SPO 8. Corporate

Slide 23: Focus: Segment & Target Targeting based on Value of the Customer: Value of Customer = RFM = Recency x Frequency x Monetary

Slide 24: Focus: Segment & Target Targeting based on Value of the Customer: High Conversion Micro Support Potential Value No action Maximize Low High Present Value

Slide 25: Focus: Segment & Target Loyalty Experience Swing Former Opposition

Slide 26: Loyalty 1: Experience Loyalty = Experience vs. Expectations Solution Strategy: Value Disciplines

Slide 27: Loyalty 1: Experience Product "They are the most innovative" Leadership "Constantly renewing and creative" "Always on the leading edge" Customer Operational Intimacy Excellence "Exactly what I need" "A great deal!" Customized products Excellent/attractive price Personalized communications Minimal acquisition cost and "They're very responsive" hassle Preferential service and Lowest overall cost of flexibility ownership Recommends what I need "A no-hassles firm" "I'm very loyal to them" Convenience and speed Helps us to be a success Reliable product and service

Slide 28: Loyalty 1: Experience Product/Service Attributes Relationship Image * Treacy & Wiersema, The Discipline of Market Leaders, 1995

Slide 29: Loyalty 1: Experience Operational Excellence: Quality and selection in key categories with unbeatable prices Product/Service Attributes Relationship Image Price Time √ Smart Selection √ Shopper Quality * Treacy & Wiersema, The Discipline of Market Leaders, 1995

Slide 30: Loyalty 1: Experience Product Leadership: Unique products and services that push the standards Product/Service Attributes Relationship Image √ Time √ Best Function √ Product Brand * Treacy & Wiersema, The Discipline of Market Leaders, 1995

Slide 31: Loyalty 1: Experience Customer Intimacy: Personal service tailored to produce results for customer and build long-term relationships Product/Service Attributes Relationship Image √ √ Service Trusted √ Brand √ Relations * Treacy & Wiersema, The Discipline of Market Leaders, 1995

Slide 32: Loyalty 2: Swing Loyalty = Best alternative at the current moment until I find another alternative Solution Strategy: Base Retention

Slide 33: Loyalty 2: Swing Swing Customers are “loyal” because: • Individual Relationships • Convenience (at that point in time) • Tied-up • Product Uniqueness • Promotions • No better alternative • Downlines • No known alternative • Psychologically lazy

Slide 34: Focus: Corporate Alignment Financial Customer “To satisfy our “Who are our target stakeholders, what customers? Financial objectives What is our value must we accomplish?” proposition?” Learning & Growth Internal Process “What capabilities and “To satisfy our customers, tools do our employees in which internal business require to help them processes must we excel?" execute our strategy?

Slide 35: Focus: Corporate Alignment Financial Revenue Market Value Productivity Growth Customers / Distributors Products/ Channel Target Services Strategies Markets Internal Supplier & Department External Process Alliances Operations Involvement Learning & Technology Growth Human Information & Resources Systems & Intelligence Processes

Slide 36: Focus: Corporate Alignment Financial Profit after Tax. Revenue. Cash-to-cash cycle. Operating cash flow Customers / Customer Complaints. Customer Acquisition Rate. Product Distributors Availability. Product Quality & Service. Renewal Annual Subscription. Distributor Rank Achievement. No. of Active Distributor. No. DC/Regional Sales. Distributor with commission Customer Database Availability. Accuracy of Forecast Planning. Internal Continuous Improvement. Response Time to Customer Needs. Process Perfect Order Fulfillment. Inventory Turnover. Number of Effective Sponsoring Program. On Time Delivery. No. of Effective Training. Number of Effective A&P % of staff evaluated on Core Competency Framework. % of staff Learning & with Career Development Plans. No. of training hours completed Growth per staff. % of staff with access to strategic information. Q12 Index. % staff evaluated on Culture alignment

Slide 37: Strategy Example What we have done and why

Slide 38: Strategy • Mamak stall

Slide 39: Strategy 1. Value Disciplines 2. Base Retention 3. 4-wheels

Slide 40: Strategy: Value Disciplines Product Leadership (best product) Operational Excellence Customer Intimacy (low cost producer) (best total solution) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

Slide 41: Zig Ziglar “Most prospects that don’t buy are confused about the offer”

Slide 42: Strategy: Value Disciplines Operational Excellence Product Leadership Customer Intimacy • Competitive price • New, state of the • Management by art products or Fact • Error free, reliable services • Easy to do business • Fast (on demand) • Risk takers with • Simple • Meet volatile • Have it your way • Responsive customer needs (customization) • Consistent • Fast concept-to- • Market segments of information for all counter one • Transactional • Never satisfied - • Proactive, flexible obsolete own and • 'Once and Done' • Relationship and competitors' consultative selling products • Cross selling • Learning organization

Slide 43: Strategy: Value Disciplines • Operational Excellence • Move know-how from top performing units to others • Benchmark against best in class • Ensure operations training for all employees • Use disciplines like TQM for continuous learning to reduce costs and improve quality

Slide 44: Strategy: Value Disciplines • Customer Intimacy • Capture knowledge about customers • Understand customer needs • Empower front line employees • Ensure that everyone knows the customer • Make company knowledge available to customers

Slide 45: Strategy: Value Disciplines • Product Leadership • Reduce time to market • Commercialize new products fast • Ensure that ideas flow • Reuse what other parts of the company have already learned • Ensure there are multiple sources of funding

Slide 46: Strategy: Value Disciplines Product Leadership (best product) Operational Excellence Customer Intimacy (low cost producer) (best total solution) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

Slide 47: Strategy: Value Disciplines Product Leadership (best product) Operational Excellence Customer Intimacy (low cost producer) (best total solution) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

Slide 48: The McPlaybook* Make it easy to eat Make it easy to prepare • 50% drive-thru • High Turnover • Meals held in one • Tasks simple to learn hand & repeat Make it quick Make what customers want • “Fast Food” • Prowls market for new • Tests new products products for Cooking Times • Monitored field tests *Adapted from: Businessweek , Februrary 5th 2007

Slide 49: Strategy: Base Retention • Increase switching costs – Complex relationships - they will be reluctant to go through the hassle of undoing those relationships in order to leave – Ensure no competitor will be able to come up with a big enough offer to outweigh their switching cost – Increase switching cost, by providing valuable, but entangling, services – E.g. Telcos, ERP, Microsoft, Consultants • Tailor your offering – Understand customer behaviors and motivations to personalize experience for its best customers – Share of Wallet – Information is KING – IBM, Amazon

Slide 50: Strategy: Base Retention • Preempt Defections – Predict, Response, Execute – Keep track of customers’ changing value criteria – Be ahead of the customer’s decision cycle – Credit cards, Avis • Bond with Customers – Most customers, under most circumstances, won’t evaluate a full range of alternative products when making a repurchase decision – Brands create emotions – Need to influence customers to be on your side – e.g. Apple, Baby products

Slide 51: Strategy: Base Retention • Mega packages • Suggestion Box • Community • Self Profiles • Reward programs (Points) • Programs x Lifestyle • Membership Subscription Matrix • Email communication • Fun, Interactive programs • (e.g. design and submit Newsletters your own: recipe, jewelry, • Personalized alerts greeting card etc.) • Reminder & Gift • Switching Techniques suggestion (e.g. Balance Transfer of • Survey credit cards)

Slide 52: Strategy: 4-Wheels Corporate Resources Structure Objective Corporate Strategy Culture Leadership Person

Slide 53: Strategy: Framework Structure • Org Structure • Job Design • C&B • Policies & procedures • Decision making • Job fit • Management Systems • BSC and KPIs • Decentralized & Empower

Slide 54: Strategy: Framework Resources • Tools • Physical facilities • Peer support • Information • T&D Programs (internal) • ICT Systems • eCommerce

Slide 55: Strategy: Framework Leadership • Role modeling • Vision/Mission/Philosophy • Leadership Style • F/L importance • Delegation & Empowerment • C&B, Promotions • Sense of Urgency • Speak regularly about customers

Slide 56: Strategy: Framework Person • Involve everyone in Customer Focus • Self managed teams • Recognition • Recruitment • Training • Profit sharing • Manager’s role • Values

Slide 57: Person Development: BES

Slide 58: Strategy: Framework Culture • Focus point • Alignment • Quality • Innovation & Differentiation • Risk taking • Performance Management • Corporate obsession • Decision making

Slide 59: Strategy: Framework Corporate Resources Structure Objective Corporate Strategy Culture Leadership Person

Slide 60: Mistakes and Challenges 1. ISO 1. Lack of Training 2. Separating Sales, 2. ‘Talent’ Criteria Marketing, and DCS 3. Internal Service 3. New products 4. Hiring 4. Misinterpreting 5. 2nd level CRM customer enthusiasm database 5. Lack of Frontliners 6. Balance between 6. Backoffice Service and Control 7. Customers = 7. Feedback from the Frontline Field

Slide 61: Next Steps

Slide 62: Next Steps… For CNI: 1. CRM 1. Product R&D 2. DC Online 2. External networks 3. eCommerce 3. Field support 4. Customer Intimacy 4. Upgrade DCs 5. TNA reduction 5. Smoothen supply 6. APQP chain 7. Branding 6. BES 8. Loyalty programs 7. Targeted marketing

Slide 63: Next Steps… For starting up: 1. Customer philosophy 1. Product Quality 2. Review SOPs 2. Customer Service 3. Re-orientate staff quality 4. Training 3. Stop defections 5. Performance Mgmt 4. Hiring System 5. Set standards 6. C&B 6. Make it everyone’s 7. Resources responsibility

Slide 64: Thank You. soft copy of slides: kennyong@cni.com.my