Research on Improving Customer Value by Using QCC in Drugstores Based on Customer Life Cycle

Wang Shuling,Liu Linchuan,Zhang Chunlei

(1.School of Business Administration,Shenyang Pharmaceutical University,Shenyang 110016,China;2.Ningbo Siming drugstore Co.,Ltd,Ningbo 315000,China)

Abstract Objective To build a model to improve the customer value of drugstores,so as to enhance their core competitiveness and share the value between drugstores and customers.Methods The quality control circle (QCC)was used to establish the model based on the theory of customer life cycle.According to recency-frequencymonetary (RFM) model,a general value index evaluation system was constructed for customers in different life cycles,and an example was studied.Results and Conclusion The flow model of drugstore customer management system and the method of evaluating the customer value were designed.Taking the activities of the QCC in a drugstore as an example,the deficiencies of pharmaceutical care such as medication consultation,shortage of drug supply and irrational drug display were improved.It also promoted the transformation of customers from a starting period into stable period and improved the comprehensive value of customers,indicating that QCC was effective.Drugstores should carry out the QCC activities with different themes according to the characteristics of customers in different life circles.Meanwhile,suggestions from customers on improving the environment and facilities,service quality and management mechanism of the drugstores should be effectively adopted to promote the transformation of customers from the starting period to the stable period for the realization of the highest value.This will bring economic value to drugstores and achieve the value sharing between drugstores and customers.

Keywords:drugstore; quality control circle (QCC); customer life cycle; customer management; value sharing

With the transformation of economic system,the market has changed from transaction to relationship management.Enterprises find the profitability brought by customer value,and they begin to pay attention to customer management to enhance customer value.On the premise of limited resources,they carefully analyze and evaluate the high-value customers.Drugstores,as drug retail terminals,occupy an important position in the growth of drug economy.Under such condition,they are facing the transition from providing drugs to providing services.It is urgent for drugstores to explore customer management and improve customer value since they lack strategic guidance for long-term development and systematic customer management methods.The keywords of drugstore,quality control circle (QCC),customer value and customer relationship were used to searched on CNKI,and there were 11,5 and 1 relevant literatures,which were mainly on the necessity of drugstore customer management and the factors affecting customer satisfaction.Wang Shuling et al.[1]explored the feasibility of applying QCC management in drugstores.They also verified that the QCC could improve the management of drugstores through case analysis.However,they did not have a complete evaluation system.This paper combines the QCC with the drugstore customer management so as to improve the quality of customer management and the core competitiveness of drugstore.

1 Analysis of the advantages of applying QCC to drugstore customer management

1.1 Problems in customer management of drugstores

With the development of drugstores,the competition is becoming increasingly fierce.The form of competition has changed from price war to service quality.However,the following problems still exist in the customer management of drugstores in China.The first is the lack of customer management mode with its own characteristics.Customer management is a new strategic concept of business management.However,domestic drugstores restrict the customer management to the front-line services of drugstores,which regards customer management as a tool rather than a complex system.Because they lack the long-term objective research,they fail to implement customer management as a whole and establish a comprehensive relationship with customers,which seriously affect the effectiveness of customer management.Second,the drugstore departments do not have effective coordination and communication.Domestic drugstores attach great importance to customer management,but they ignore it in the process of procurement,operation and product design.As to customer management,it is not enough to rely on the direct sales departments alone because they cannot meet the overall business needs of the drugstore and ultimately affect the effectiveness of customer management.Third,their understanding of customer management is inaccurate,and the investment for it is insufficient.If drugstores adopt the customer management,they need a huge capital investment for both technology and human resources.Therefore,in the overall evaluation,many drugstores will reduce the investment in customer management.Due to the lack of later supplement and improvement,many drugstores gradually withdraw from the competition.

1.2 Analysis on the advantages of drugstores applying QCC to manage customers

QCC is a small group of 3-10 people with related interests that meet in the workplace at regular intervals to discuss the quality of their own work and develop strategies for improvement.The QCC is a management method developed from the plan-do-check-act (PDCA)proposed by American management scientist Deming.It means that management should follow the principles of finding problems and making plans,dealing with problems,checking the results,reflecting afterwards and finding new problems[2].

The QCC has a high adaptability to modern comprehensive management[3],which is more in line with the concept of modern quality management.The application of QCC to the medical field and drugstore field in China has been for ten years.Its application in retail drugstores is in the infant stage.The combination of drugstore customer relationship management(CRM) with QCC method is the first attempt.This combination has the following three advantages.First,it can continuously improve the customer management and business process.Customer management needs an institutionalized and active business process modification mechanism as well as an effective and continuous quality management method.Second,people-oriented method makes customer management more humane.By applying QCC,employees will think from the perspective of customers.Therefore,they not only regard customers as the source of profits,but also provide the best services.Third,filling in customer management data and experience documents is conducive to the promotion of customer longterm value.The collection,storage and application of customer information has always been a difficult part of drugstore customer management.Information from sales of pharmaceutical enterprises,customer demand,customer online procurement and customer consultation is difficult to collect and analyze.The QCC not only provides a new quality improvement method,but also provides a large number of data processing records.In this way,the key information will not be missed,and it is convenient for team members to read it at any time.In general,the application of QCC to manage customers of drugstores can bring overall benefits.

1.3 Analysis of customer relationship and customer life cycle of drugstores

The earliest CRM was proposed by Gartner,an American scholar.In 1990,it evolved into customer care,which included the data analysis of the telephone service center[4].CRM has become a convenient practical application by using data mining[5].CRM is to establish long-term stable and mutually beneficial relations through summarizing,mastering and analyzing all customers’ data of the trade activities,and communicate with customers.Drugstores should comply with the demand of customers,continuously improve their product quality,services,and management,so as maintain a long-term relationship with customers[6],which will maximize customer value.Sewell et al.found that customers and the enterprises make different contributions to the enterprises in each transaction period through empirical study,thus putting forward the concept of customer life cycle.This paper refers to Dwyer’s definition of customer life cycle,which is divided into five stages:cognition,investigation,expansion,commitment and disintegration.Based on the research results of Chen Mingliang[7]and Dwyer’s five-stage model,the customer life cycle is divided into four stages:investigation,formation,stabilization and degradation.For drugstores,customers are the core of market competition and the fundamental of survival.

2 Constructing customer life cycle flow chart of drugstore under the management of QCC

2.1 Analysis of the drugstore customer value index based on the different stages of the life cycle

The customers’ contribution to drugstores,that is,the value is different.Customers’ contribution is their perceived preference and evaluation,as well as the function and effect under the specific situation.Customers’ satisfaction and loyalty related to their perception are important indicators to judge their value.According to the dynamic and significant characteristics of each stage of the customer life cycle,the value of the contribution of customers to the drugstore in different stages is analyzed and defined,as shown in Table 1.

Table 1 The value index of drugstore customers in each stage of life cycle

According to their value,customers are divided into potential customers,target customers,value customers,silent customers and lost customers.Through the identification and differentiation of various types of customers,the customer information collection and analysis and service tracking system are completed.On the basis of fully understanding of customers,the quality of products and services should be continuously improved to meet customer needs and maximize the interests of both parties.

2.2 Building QCC and applying it to diff erent stages of the drugstore customer life cycle

Based on the life cycle of drugstore customers,customers are divided into f ive types.After identifying different types of customers,QCC is used to strengthen the eff ective interaction with customers[8],which can improve the quality of products and services,and customer satisfaction as well.It is an important part of the activities for the QCC to promote the transformation of customers to the stable period in the customer life cycle and explore the customer value,as shown in Fig.1.

2.3 The changes of drugstore customer value in diff erent stages

Based on customer life cycle theory,customer management collects and analyzes customer information,and uses unified CRM software technology to manage customers in diff erent stages[9].For new customers,effective identification and diff erentiation shall be carried out.If customers have repeated purchases with good feedback,they shall be regarded as potential customers.The value of the potential customers is judged,and their consumption information is studied so as to select the customers with higher profit as the target customers.The value of such customers should be enhanced greatly.If the target customers bring drugstore high profits for a long time,they will be regarded as valuable customers.Drugstores should focus on maintaining such customers relationship.If the number of customers and their purchases drops quickly but the number of opinions increases in the stable period,the relationship will enter a recession period and these customers will become silent customers.For these customers,the relationship should be adjusted and repaired.If it cannot be recovered,they will become the lost customers.

2.4 Improving the customer value of drugstores through the activity of QCC

In the customer life cycle of drugstores,the first stage of customer value inspection is for potential customers.The problems solved by using the QCC include improving quality of product,service and environmental facilities,etc.These can bring new customers a good buying experience,improve their perception of management quality,and develop potential customers into target customers.The second stage of customer value formation is for the target customers.The problems to be solved by using the QCC include in-depth promotion and interactive service,which will continuously improve customer satisfaction and loyalty.Improving customers’perception of management interaction can develop target customers into valuable customers.The third stage is for the valuable customers.The problems in this stage include improving the quality of customer information system management,maintaining relationship as well as enhancing customers’perception of the quality,technology and stability of customer management.The fourth stage of customer value decline is for silent customers.The problems include finding and solving problems,reducing the types of drugs and quantity errors that cause customer dissatisfaction.Besides,building a more standardized customer management system and properly adjusting customer management strategies can improve customers’ sense of management quality[10].

3 Evaluating the effect of QCC activities by improving the customer value of drugstores

3.1 Evaluating the comprehensive value of drugstore customers through the recency-frequency-monetary(RFM) model

As an effective tool for continuous improvement of management quality,QCC can bring tangible and intangible benefits.Now,the comprehensive evaluation system for drugstore customers is established,which will improve the quantitative effect based on the activities of QCC.According to the RFM model[11]proposed by Database Marketing Research Institute of the United States and the basic theory of QCC,an evaluation system for the comprehensive value promotion of drugstore customers is constructed,which can evaluate and calculate the improvement of tangible value and intangible value for different categories of customers.The improvement of tangible value includes the increase in gross profit,purchase volume and service cost.Meanwhile,the improvement of intangible value includes customer loyalty,activity and purchasing tendency,as shown in Fig.2.

The improvement of the comprehensive value of drugstore customers can be obtained by the following formula:

Customer comprehensive value improvement ΔV(C)=Tangible value improvement+Intangible value improvement=(N1-N0)/ N0+(P1-P0)/ P0

Among them,tangible value promotion and intangible value promotion can be obtained by the following formula:

Tangible value increase ΔN=(Gross profit increase+Purchase volume increase-Service cost increase)/ 3=[(G1-G0)/G0+(Q1-Q0)/Q0-(C1-C0)/ C0]/ 3

Intangible value increase ΔP=(Customer loyalty increase+Customer activity increase+Purchase intention increase)/ 3=[(L1-L0)/L0+(A1-A0)/A0+(I1-I0)/ I0]/ 3

3.2 Description of customer management effect ref ined from comprehensive indicators

In the improvement of customers’ tangible value,the gross prof it indicator is mainly manifested in the increase in customers’ actual payment and the prof it of drugstores after the activities of QCC.The purchase volume indicator is reflected through the increase in customers’ contribution to the turnover of drugstores after the activities of QCC.The service cost index directly shows the changes of drugstores’ service input to different types of customers.The lower the customers service cost is,the greater the contribution to the drugstore is made.Therefore,the QCC activities can bring high customer value.

In the promotion of intangible customer value,customer loyalty index is considered to be the key to the long-term profit growth of drugstores.The improvement of customer loyalty through the activities of QCC will improve the actual purchase value for drugstores.The promotion of customer’s activity is an important aspect that affects drugstore’s perceived customer value.The better the activity is,the higher the customer’s value will be.By analyzing the customers’ purchase tendency,we can predict the incremental purchase contribution that customers can make and their expected growth value in the future.

3.3 Managing the customer value index of drugstores by QCC activities in diff erent stages of life cycle

The QCC activities will formulate the theme of each activity according to the problems in the drugstore at this stage.Based on the value index characteristics of drugstore customers in the life cycle(Table 1) in 2.1 above,the promotion of customer value in diff erent life cycles is subdivided as follows.

(1) Customers in the inspection period have the characteristics of low purchasing volume and fewer activities.Therefore,good experience will be off ered to customers through the QCC activities with the theme of improving products and environment,and the result is the parametersΔQand ΔAare improved greatly.

(2) Customers in the forming period have the characteristics of increased purchasing times,volumes and more customer activities.So,the customer satisfaction and loyalty can be enhanced through the QCC activities with the theme of improving service quality.The result is the parameters ΔAand ΔLare improved signif icantly.

(3) Customers in stable period have the characteristics of stable purchase times,volumes,more activities and loyalty.Therefore,the relationship with value customers should be maintained by improving private service and better meeting customer demand as the theme of QCC activities,and the result is the parameter ΔLis improved.

(4) Customers in recession period have the characteristics of reduced purchase times and quantity,significantly reduced activities and loyalty.Therefore,the QCC activities with the theme of improving customer dissatisfaction caused by medication types and quantity errors should be done,so as to achieve the results of improving the parameters ΔQand ΔI.

The above calculation system can evaluate the change of customer value after the activity of QCC.Through the activity of QCC,the transformation time from the inspection period to formation period and the stabilization period can be shortened.Meanwhile,the transformation time from the stabilization period to the recession period will be postponed.This system also can promote different types of customers to the stable period with the highest value.The core of the QCC activity is based on Deming cycle.By summing up the experience and lessons before and after the last activity,it can provide practical basis for the next round of QCC activity,which is conducive to the promotion of customers’ long-term value.

4 Taking Hunan medicine circle as an example

4.1 Background information

A drugstore has been in operation for two years,carrying out QCC activities,which is in the transformation stage from potential customers in the investigation period to stable customers.

The theme of the activity is to increase the number of visitors per day based on monthly standard.The name of the activity is Hunan medicine circle.Its aim is to enhance the drug consultation and adequate drug supply.Pharmaceutical care in the aspect of rationality of drug display enables customers to have a good evaluation and impression on the store,increasing the reputation of the store and cultivating customers’loyalty,which can make customers have stable value.

The activities of Hunan medicine circle include asking the customers’ opinions on drug consultation,recording the times of timely and delayed drug dispensing,learning customers’ satisfaction with drug display,and counting the times of daily publicity activity on ordinary member day and senior member day.Based on the effective review and analysis of the previous activities of the QCC,with the help of Mr.Zhang,a counselor with rich experience,the schedule of the activities of the Hunan medicine circle is arranged as follows.

(1) Planning and communication.In the first week of each month,planning and communication is made and the duration is 5 weeks.

(2) Topic selection.In the first week of August,the topic is selected and the duration is one week.

(3) Plan formulation.In the first week of August,the plan is made and the duration is one week.

(4) Grasping and analyzing the current situation.From the 4th week of August to the 1st week of September,the current situation is analyzed and the duration is 2 weeks.

(5) Goal setting and countermeasures formulation.From the 2nd to the 4th week of September,the goal is set and the duration is 3 weeks.

(6) Implementation and effect confirmation.From the fourth week of September to the second week of November,the plan shoul d be implemented and the duration is seven weeks.

(7) Review and improvement.From the 3rd to the 4th week of November,the activity should be reviewed and the duration is 2 weeks.

(8) Effect display.From the 3rd to the 4th week of December,the effect should be displayed and the duration is 2 weeks.

4.2 Implementation

Under the leadership of the head of the circle,all members use brainstorming,employee interviews and other methods to analyze the reasons affecting the daily average number of visitors to the store and find out countermeasures.Finally,according to the evaluation index and level,the feasibility,experience and economy of all countermeasures are scored,and the person in charge is appointed to implement the plan and formulate specific countermeasures.To solve the problem of inadequate medication consultation,the countermeasure is to carry out training on the use of common drugs,pathology and medication every Wednesday afternoons.To solve the problem of shortage of drug supply,the countermeasure is to assign a person to be responsible for drug supply with standard process.To solve the problem of unreasonable drug display,the countermeasure is to know the current hot products and place them in an eye-catching position.Besides,the shelves shall be adjusted quarterly.

After the implementation of the countermeasures for a period of time,the leader of the circle and all members should confirm,review and improve the effects.According to the calculation system of drugstore customers’ comprehensive value improvement,different types of customers are evaluated from the improvement of customers’ tangible value and intangible value.Before calculating the improvement of drugstore customer value,the improvement of customer loyalty should be evaluated first according to the customer consumption frequency.The increase in customer activities can be calculated according to the time interval of each purchase.Customer purchase tendency can be evaluated according to the increase of customer purchase quantity relative to the average purchase quantity of other customers.

4.3 Results

After 2 months’ efforts by the members of the circle,the daily average number of visitors to the store has increased from 233 per day to 287 per day.Based on the data of the drugstore,the gross profit,purchase volume and the service cost have increased to 8%,10%,and 3% respectively.Therefore,the final tangible value is increased to (8%+10% -3%)/ 3=5%.Based on the constructed evaluation index,customer loyalty,activity and purchase intention have increased to 2%,4%,and 3% respectively.And the final intangible value has increased to (2%+4% +3%)/ 3=3%.Thus,it can be calculated that the comprehensive value of customers has increased to 5%+3%=8%.

Hunan medicine circle has made good progress and achieved the expected results,which shows that it is effective for drugstores to use QCC to improve customer value.

5 Conclusions and suggestions

5.1 QCC activities promote the transformation of customer value

Customers are the core of the survival and development of enterprises.Customers in different life cycles have different values for enterprises.The application of QCC to improve customer value,it is necessary to effectively adopt customer’s suggestions and improve the environmental facilities,service quality and management mechanism of drugstores.Improving customer satisfaction through multiple QCC activities can promote the transformation of customers from the investigation period to the formation period,from the formation period to the stable period with the highest life cycle value.The realization of the highest customer value will bring economic value to drugstores.

5.2 QCC customer management activities promote the value sharing between drugstores and customers

The survival and development of enterprises depend on their relationships with customers.Nowadays,the key of efficient customer service lies in using new quality management method to solve the conflict between the interests of enterprises and customers.It means to improve the economic benefits of enterprises while meeting the needs of customers,which will achieve the value sharing between enterprises and customers,and to promote the overall social benefits.Customer value sharing is to provide different types of customers with personalized products or services,and communicate with them to know their needs.QCC activities can continuously improve the interaction between drugstores and customers to find their needs and meet them.The adoption of good suggestions not only gives customers a sense of existence and identity,but also promote the development of customers to a stable period.This method should be gradually formed in the continuous improvement of QCC activities.Through the activities of QCC,the transformation of customer value can be promoted.Meanwhile,the management quality of drugstores is gradually improved,so as to promote the value sharing between drugstores and customers.

5.3 Key points of QCC activities in the implementation of customer value sharing

Three reasonable suggestions are put forward for the practice of QCC in drugstores,which can provide reference for the customer management of drugstores and the standardized management of drug retail market.

First,talents should be selected to participate in the activities of QCC.When carrying out QCC activities in the drugstore,we should focus on the rationality and comprehensiveness of talent selection and allocation of all departments.While solving the problems in a drugstore,the scope of QCC activities is small,and the requirements for talent selection are not extensive.However,the goal of QCC activities is to drive the large circle by the small circle,so the talent selection of small-scale QCC activities is also important.Second,the implementation of the QCC should be assessed regularly.The QCC is a new method for the staff of drugstores.It is a step-by-step process for grass-roots employees to become familiar with the QCC.The initial training is just a process of introduction and learning.Since the acceptance capability of grass-roots employees in drugstores is different,the effect of using methods is different.Therefore,it is necessary to regularly assess the application of QCC for employees.Improving the ability of employees to continuously use QCC activities can promote customer value management through assessment.Third,the dissemination of successful experience and effective QCC activity management methods should have special guidance and activity training.Spreading the operation experience can help drugstore practitioners master the application,which will lay a solid foundation for the correct use of QCC activities in drug retail.Finally,it can achieve the effect of improving customer management.