Sat, Feb 22, 2003 page8

• Forgetting customers killed thegiant Makro

  • By Yieh Kai-li 葉凱莉
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  Back when Makro Taiwan was setting a new record of more than NT$6 billion in annual sales at its Neihu branch, no one could have imagined the company would one day suffer the fate of having to close up shop entirely. Many people seem to be shocked that Makro would withdraw from the local market, but anyone who has taken note of market trends will understand why.

  Some people argue that Makro was forced to close because of its membership card system. This is not necessarily the case.

  The US wholesale warehouse store Costco Wholesale Club, for example, has had a membership card system since it was first established in 1983. Its operations have still grown at an average annual rate of 6 percent and profit margins have risen to 15 percent. At the same time, the company has captured 50 percent of the US wholesale club market. For these accomplishments, company founder Jim Sinegal was selected as one of the outstanding managers of last year.

  Apart from the membership card program, some people also attribute Makro's failure to its remote store locations or the saturation of the high-volume wholesale market. But didn't Shin Kong Mitsukoshi Department Stores gain a competitive advantage precisely from their locations in areas that have been re-zoned? And, all around the globe, businesses that enjoy profit and growth in saturated markets are too numerous to list.

  Makro's problems stemmed from shrinking customer support. In business, the era of "customers first" arrived long ago, and the role that consumers play in commercial transactions today is far different from the role they played in the past. The development of information technology and intense competition in the market has given customers quick access to information, more choice and more negotiating power. The root of Makro's failure lay in its loss of customers -- a problem that went unnoticed for too long.

  Makro's past glory does not mean that the company used to have no problems with customer relations. It's just that the customer value created in those days could compensate for the costs that customers put up with, so customers felt the membership system was acceptable. It didn't matter that stores were in suburban or industrial areas because the value of the conveniences that Makro provided for consumers, such as one-stop shopping and convenient parking, far outweighed the problems of unfriendly and inefficient service.

  But the environment is changing, and customers are also changing. As competitors entered the market one after another and standardized Makro's original advantages, customers no longer needed to make concessions to the company. Then the minor faults and the points where the company was remiss in its treatment of customers became key factors in the breakdown of customer relations.

  In 1996, for example, Makro still didn't allow children to enter its premises. Given that families were the company's target market, this sort of customer treatment was outrageous.

  Makro's failure stemmed from an inability to grasp customer demands in a timely manner and improve customer loyalty. It also underestimated changes in the consumer environment and consumer behavior. Understanding consumers and satisfying consumers are the only principles that will lead to success.

  Although Makro's gloomy departure is a source of regret, we must sincerely hope that their experience here will help them succeed in China and Thailand as well as aid the growth of other businesses in Taiwan.

  Yieh Kai-li is an associate professor in the business administration department of National Changhua University of Education.

  Translated by Ethan Harkness
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