Pharmaceutical company and CSR

Andrew Witty, the CEO of GlaxoSmithKline says that drug companies must behave in step with society and put people before profits.  He says that the industry has acted as though it is detached from society causing an corrosion of trust.  GSK will therefore sell one of their vaccines against diarrhoeal disease for £1.50 per dose in poor countries compared with the £30 per dose in western countries.

This is an example of the ethical responsibilities in Carroll’s CSR model.  GSK has a responsibility to make profit, which it will surely do in some countries but also it has the flexibility to do the “right” thing by selling at a lower price in less well off countries.  Also this brings great publicity to GSK and may therefore increase its profitability and share price in the long term.

Customer service and repeat business

Sharing stories about poor service can become repetitive because there are many examples everywhere of how things could be improved. However, following are two examples, one of particularly poor customer service, and then gladly the opposite – particularly good service. Both can be used by students in ACCA paper P3 as examples of how businesses may lose future custom or win loyalty as these situations are transferable to most businesses.  Often when explaining how a strategy might succeed it is helpful to illustrate with examples.  Equally well when discussing potential problems of poor strategies, a few words applying real situtaions to the exam scearaio can make a point powerfully and succintly.

A friend was telling me recently his favourite example of how staff in a shop managed to annoy him more than average. He told me how he was wandering out of a well-known retailer that sells both food and clothing, carrying a small bag of the former, when he noticed a large plastic delivery box full of attractive looking ties, with price tags attached. The box was lying on the shop floor next to a display rack where a member of staff had evidently been hanging up the ties ready for sale. No-one was around at the moment he passed by.

He was looking into the box considering whether he might like to buy one of these ties, when a stern and rather sour looking staff member pushed past him and kicked the box in an appropriate manner such that the lid of the box shut, preventing him from further considering any purchase. The member of staff gave him a reproachful look as if to say “how dare you look at these ties when they’ve not yet been put on the rack.”

There are many conclusions that one can draw from this episode. But aside from the fact that the member of staff seemed not to have any idea that someone looking at retail products can result in a future sale and benefit her employer (and the importance of sales to most companies), my friend was particularly annoyed because he happened to be a shareholder in the company whose retail store he was visiting. He let this person know his feelings that he was disappointed that staff could be so thoughtless when it comes to customers.

The converse comes from a well-known electronics retailer, which I was visiting just the other day. Their shop is a matter of 100 meters from the store my friend was visiting. I had a similar situation – I was looking for an accessory for my tablet computer but the particular item (I wanted a black) one was not on the shelves. The shop assistant was joking saying that it’s amazing that these tablets had not yet even been launched in the country where we were in Central Europe, but they were selling so many accessories for these computers (which their owners had clearly purchased in other countries).

A delivery box was being unpacked by another shop assistant nearby, who overheard us talking about how quickly items were being sold – he had overheard that I wanted a black cover. He rummaged in the box and found a couple of black ones down near the bottom and was able to produce one such that they made the sale. “Going the extra mile” is a cliche often used by managers trying to influence the way in which customer loyalty can be achieved. However it can be a collection of little things which mean that some companies do better than others when it comes to customer service.
The electronics retailer has staff who are generally proud to offer the products and services which they are fortunate to sell. This means the staff project a good image and customers might even enjoy their shopping experience.

Not all companies are able to engender this level of staff excitement in their wares. However it is important for the customer face of any company (their sales or retail staff, perhaps) to put their company and their products forward positively. Generally I avoid shops in where I have received poor service or even hostility (Internet purchases provides a very simple way to avoid sour faced retail staff). On the other hand customers are generally happy to go back to place where they receive good treatment.

3Ps and theme parks

Application of your knowledge to scenarios is a key skill in ACCA paper P3. It is a key skill in all professional level ACCA papers. In a class at BPP that I was running this week one of the exercises the group attempted was to apply the marketing mix to a service business. There are seven Ps and students tend to be familiar with the first 4 Ps (product, price, place, promotion) applying the marketing mix to products and services. However once the group had developed ideas to implement first 4 Ps to a theme park (such as Disneyland, Legoland or others), we focused on the latter 3 Ps namely physical evidence, processes, and people.

The ideas to group came up with were excellent and as I had just come back from a trip to Legoland in Germany with my family I was able to verify that many of their ideas were in actual fact those tried by the theme park operator. However the 7 Ps model facilitated the students idea generation. I asked the class in advance of the exercise if any of them had ever visited DisneyWorld or Legoland, and none of the class had. Therefore it seems that the model was helpful in generating ideas.

Here are some of their suggestions for the 3 extra Ps:

Physical evidence: give away a free Mickey Mouse (or other branded) toy to kids who visit the theme park more than once. This P3 class at BPP thought the tactic would be helpful because kids love toys, and no doubt the toy will end up on the shelf or somewhere prominent in their bedroom to remind them of the happy days they had at the theme park. As kids see the toy they might remind their parents about how good it would be to visit the theme park again, and they might remind them again and again and again and again and again and again… some of the tactics my children use for persuasion are simple but remarkably effective

Processes: make sure the internal processes for returning lost kids within the theme park are effective. The students thought this would increase the confidence of parents that they can have a safe and fun day out. This was especially true as I found that within 30 seconds of entering Legoland last week my three year old and five- year old had both disappeared running off to find their favourite attractions. Realising that my wife might be disappointed if I returned home without the rugrats, I felt I ought to do my duty and not only find but also keep hold of the kids. I discovered that Legoland offer a simple armband on which I can write the name of the child and my mobile phone number. These armbands were branded with the theme park logo, and my daughter was so pleased with hers, that she didn’t want to take it off in the evenings and she wore it long after we had left the park. Therefore it seems the process increased my confidence as a customer but also reinforced the brand in the eyes of users.

People: staff around the park should be involved with fostering the family fun atmosphere and also trying to generate extra sales. For example when buying a ticket to enter the park, the class thought that staff may offer “just for an extra €20 you can upgrade your ticket to an annual pass and come as often as you like for the next few months”. On my trip I noted that staff around the park wearing Lego clothing seemed informed that they were one of the main conduits to deliver the image of the company. Therefore customer service was of paramount importance – welcoming the customer (the parents who may be dragging all the clobber required to keep 3 year olds happy) is a good way to make sure that parents will come back. “Thank you for visiting Legoland, we look forward to seeing you again.”

Overall the 7 Ps offer help to students in generating ideas to implement marketing.

Downstream supply chain management

To encourage customers to buy from you again and again can be difficult.  If you can make the process of buying as easy for them as possible, the chance of repeat purchasing increases.

Tesco have recently tried to improve their downstream supply chain by providing a new iPhone application.  As you use something in your home and you know you will need to replace it, you can take a picture of the bar code as you throw away the packaging and the app. will add it to your shopping list.

Or you are at a friend’s for dinner and you enjoy their meal.  You can scan the bar code of their ingredients and so on.

Tesco will even pick up everything from their shelves and deliver it to your home.  Of course there is a fee for this.  After all they are adding value so they should be charging for it according to Porter.

Sadly this service is not available in all countries yet.

Segmentation

In the ACCA P3 exam you may be asked to create a strategy and part of your strategy might be to differentiate your product or service depending on who is buying it.  This is segmentation.

Segments can be general such as male or female, or they can be quite specific such as the DINKY segment (Dual Income No Kids Yet) which indicates a couple with relatively high disposable income.

An interesting way to discover various types of segments is to look at dating websites.

http://www.marriedsecrets.com/ is for married people looking to have an affair.

http://www.uniformdating.com/ is for people who wear a uniform for work or want to date someone who wears a uniform.

http://www.heavenlyhearts.com.au/ is for Australians wanting to marry Eastern Europeans.

http://www.aish.com/d/ is for Jews.

http://www.12meetsenior.com/s/ is for those from a senior generation.

http://www.planetromance.cz/ for dating Czech ladies.

There are many more, and many target specific segments.

How the markets work

Pressure on auditors

The ACCA P7 exam syllabus includes practice management where you have to think about audit as a business rather than as a technical service.  Many ACCA exam candidates do not have much experience in running an audit firm and find it difficult to show the required commercial awareness expected by the examiner.

Last year, 82% of auditor changes resulted from companies firing their auditors (among the Big Four, the number was 90%). This means that if a company is unhappy with their auditors this is an opportunity for other audit firms to win new work. 

Companies have been negotiating lower fees and demanding more services–from corporate-board education to competitive intelligence. The P7 exam cover several non-audit assignments that can be offered to clients to compensate for losing revenue from other sources.  Auditing fees have been dropping in response, although new data indicates the decline may be moderating.  Analysis of audit and audit-related fees paid last year found that only three of the top eight audit firms (Deloitte, BDO, and RSM) showed a drop in fees charged as a percentage of total client revenue in 2009.

Poor audits by smaller firms

The Financial Reporting Council in the UK has recently criticised small audit firms for their poor audit work.  They have typically not gathered sufficient, appropriate audit evidence for the material areas of the financial statements.  Why?

Some of the firms complain about over regulation.  Changing from local auditing standards to ISAs recently were difficult for them.  Not all firms have fully understood the requirements of the ISAs.  This will be further complicated by the adoption of the clarified ISAs for audits at the end of this year for accounting periods starting on or after 15 December 2010.

There was a further criticism that because of the increasing competitive nature of the audit profession, some firms are agreeing to do work for which they are not competent or for which they do not have the resources.

Fee pressure is also likely to be preventing small audit firms from completing work as thoroughly as the ISAs require.

The ACCA P7 exam syllabus has a section about audit quality and small firms so this recent FRC report helps us to understand the issues better.

Kotler’s marketing concept

Kotler tells us that to be successful a business needs to understand the needs of the customer and then develop a product that meets those needs.  There is no need to waste money developing a product that exceeds those needs and there is no need to sell to customers aggressively.  Simply telling people about the existence of the product will be enough because the need already exists.

The trouble for business is finding out what customers need.  Historically finding out required a lot of expensive marketing research.  But things are different now.  Today customers can be more vocal and can do the work of the business for them.  A good example is TomTom, the satellite navigation system manufacturer.  In 2008 a Facebook member created a page suggesting that actor Brian Blessed should do a voice for sat nav.  TomTom said that it would begin negotiations with the actor if the page attracted 25,000 supporters which it duly did.

Will this make any money for TomTom?  Brian Blessed is a popular actor, well-known to some for his loud, resonating voice.  He played Emperor Augustus in I, Claudius, Prince Vultan in Flash Gordon (pictured), Boss Nass in Star Wars I and many more.  Fans of his may well be tempted to buy a TomTom sat nav just for his unique voice.  Others may be willing to buy from TomTom just to avoid the bland voices that are currently offered.  So potentially, yes, this may make money for TomTom.

But the point of this post is that businesses can use the power of social networking to do marketing research for them.  By having a Facebook page, by allowing honest feedback, by monitoring trends business can identify what their customers want or need and make profit by meeting those requirements.

Unlimited holiday

In Europe we expect that our employers will provide a certain number of paid holiday days.  You are given, say, 20 days each year and you use them during the year or, if you do not, you negotiate with the accounting department to have pay instead.  Outside Europe, this may not be the case.

In the USA, apparently, paid holiday is often limited to only 10 days and anecdotes tell us that employees are expected to answer their cell ‘phones and respond to e-mails while on holiday.  US internet and postal movie rental company Netflix has decided not to follow this approach.  They have decided that employees can have unlimited paid vacation.

In some companies you have strict 9 to 5 working hours but if you are reading this, you probably do not.  You probably start earlier sometimes and finish later sometimes.  You probably answer work related ‘phone calls at home and respond to e-mails during the evenings and weekends.  To compensate for this, you also probably have no guilt when you arrive at work late sometimes after a hard night and similarly feel happy to leave early to take your child to the doctor.  Netflix appreciated that they do not monitor employee work hours each day and have decided to extend this to not monitoring it at all apart from insisting that managers must know where employees are.

As far as they are concerned, as long as the work is done, then employees can take the rest of the day/month/year off.  They have decided to focus on the output rather than the input. 

This will not necessarily work in every business and for every industry.  Netflix is an internet based business.  If they rented DVDs in a traditional bricks-and-mortar shop, this system would not work, but nevertheless, it is an interesting lesson in the modern workplace.