HKU295

BENJAMIN YEN

TOWNGAS: ACHIEVING COMPETITIVE

ADVANTAGE THROUGH CUSTOMER
RELATIONSHIP MANAGEMENT

Introduction
In April 2003, Hong Kong’s Secretary for Economic Development and Labour, Stephen Ip
Shu-kwan, ruled out government regulation of Towngas’ rate of return or its tariff, saying that
Towngas had no exclusive right or franchise over gas supply. The call for government
regulation was sparked by a report that revealed Towngas’ dominant position in the piped-gas
market and its high return on assets. Towngas captured 70 per cent of the piped-gas market,
at the expense of centralised LPG (Liquefied Petroleum Gas). 1 In spite of its dominant
position in the piped-gas market, Towngas faced competition with Hong Kong Electric, China
Light and Power (CLP) and other bottled-gas suppliers.

Government policies certainly helped Towngas to become one of the dominant players in the
energy market, however such policies were subject to change. Government regulations were
forces external to the company, so Towngas realised that it had to work on strengthening the
Company from within. In order to get more customers to use towngas as their energy source
of choice, Towngas started a series of customer focus initiatives in the early 1990s. Flagship
programmes such as the Total Quality Management and the Business Process Re-engineering
programmes – known internally and respectively as Superior Quality Service (launched in
1992) and Continuing Transformation (launched in 1996) – had been catalysts for a sea
change in quality attitudes and behaviour within Towngas. These programmes turned out to

1
Towngas supplies piped naphtha gas.

Monica Wong prepared this Case under the supervision of Dr. Benjamin Yen for class discussion. This Case is not intended to
show effective or ineffective handling of decision or business processes.
This Case is part of the Trade & Industry Department SME case series funded by the Hong Kong Special Administrative Region
Trade and Industry Department SME Development Fund. Any opinions, conclusions or recommendations expressed in this
material/event (by members of the project team) do not reflect the views of the Government of the Hong Kong Special
Administrative Region, Trade and Industry Department or the vetting committee for the SME Development Fund.
© 2003 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or
transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise (including the Internet)
- without the permission of The University of Hong Kong.
Ref. 03/178C

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 03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

be the cornerstone of Towngas’ Customer Relationship Management initiatives. Why did

Towngas, an exclusive towngas supplier, choose CRM as a tool to strengthen its business?
How did Towngas, primarily a gas production and distribution company,
implementsuccessful CRM strategies? What did it do differently to many other companies
that had also invested a lot of money in CRM only to find that the system was not generating
the expected returns?

Company Background
Incorporated as the Hong Kong and China Gas Company, more commonly known as
Towngas, the Company was Hong Kong’s oldest energy supplier, established during colonial
times. 2 It had been listed on the Hong Kong Stock Exchange since 1960. Its business
consisted mainly of the production and distribution of gas, and the marketing of gas and
appliances. It was the sole supplier of towngas and related services for 1.4 million
households and businesses in Hong Kong.

Residential, commercial and industrial markets made up the three major customer groups of
Towngas. They contributed 45 per cent, 35 per cent and three per cent respectively of the
Company’s total turnover in 2002, with the remaining 17 per cent being contributed by
equipment sales and other sources. These customers were looked after by major marketing
departments within Towngas – Retail Marketing managed domestic household customers;
Commercial & Industrial Marketing serviced restaurants, hotels, supermarkets and industrial
markets, and Project Marketing was responsible for residential project bidding and account
servicing for real estate development projects.

Faced with increasing competition and rising consumer expectations, Towngas launched a
number of new initiatives, starting in the 1990s. Besides expanding business in the Chinese
mainland, significant resources were devoted to the marketing and customer relationship-
building effort.

Customer Relationship Management (CRM) at Towngas

CRM is for the survival and success of Towngas. We make sure that our
employees at all levels have the same understanding and aspiration to the
core customer value. We are glad that Towngas gets recognition in the utility
industry both locally and internationally for the years of hard work we put in.
CRM is definitely one of the reasons contributing to Towngas’ success.
- Catherine Wong, Customer Relationship Manager, Towngas.

CRM Strategy
Every year, twelve million contacts (including telephone calls handled by the call centre)
were made between the staff and customers of Towngas. They interacted for a variety of
reasons - 24-hour emergency service, appliance and piping installation, meter reading, regular
maintenance and safety checks, bill payments and other servicing. The call centre handled an
average of more than 6,500 enquiries per day, seven days a week. The customer information
database contained detailed information about the 1.4 million customers and more than two
million items of equipment installed throughout Hong Kong. General user profiles, gas

2
Towngas was founded in England in 1862 and started supplying towngas to Hong Kong in 1864.

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 03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

consumption rates, types of equipment purchased, the condition of equipment, bill-related

information such as payment patterns, banking information and other data were updated every
time there was an interaction between Towngas and its customers. This tremendous database
formed the pillar of Towngas’ CRM strategies, which in turn transformed customer service,
sales and marketing strategies at Towngas. Leveraging the value contained in the customer
database, the ultimate corporate goal was to achieve competitive advantages through CRM
[see Exhibit 1 for a flowchart about Towngas’ Customer Relationship Building].

Customer Service
In the past, Towngas’ customers had to deal with multiple contact points for different service
requirements. For example, there would be one number to call to open an account, and
another number to arrange equipment installation. The process was streamlined in 1994 with
the launch of a 24-hour Customer Service Hotline. Like every other hotline, it served as a
one-stop-shop, but what differentiated this one from the competition was the five-language
human answering feature. The multi-language answering was an added benefit to many
Towngas customers, who relied upon their Filipino or Indonesian domestic helpers to handle
household chores. Human answering was not only preferable to pre-recorded messages, it
also gave Towngas an opportunity to actively collect immediate feedback from customers
while they were on the telephone line [see Exhibit 2 for details of the One-Stop-Shop
Customer Service Concept].

Customer contact did not end with the call; in fact, it was just the beginning. According to
the customer’s need, relevant departments would follow up with appropriate action. For
services that required on-site procedures, field servers would visit the households. After each
field visit, more detailed information regarding gas consumption patterns, equipment type and
conditions would be collected. More comprehensive feedback was usually collected on these
occasions. In 1993, Towngas also launched the Customer Focus Team (CFT) Programme.
The CFTs were formed by senior representatives of various departments. The teams visited
residential estates and obtained direct and first-hand information and feedback from
customers. Other channels of customer interaction included the customer centres and the
Internet. For commercial and industrial customers, an account manager would usually be the
first point of contact, except in the case of emergencies.

The driving reason behind these customer service initiatives was to increase customer
satisfaction. Customers were expected to derive some sense of value, satisfaction and loyalty
through each and every interaction point, therefore Towngas stressed a consistent quality of
service delivery across all contact points. The only way to achieve this consistency was to
ensure that the whole Company shared the same goal.

In order to benchmark performance against the common goal, Towngas conducted a monthly
telephone survey to gauge the level of customer satisfaction. A more comprehensive survey
was done yearly to measure customers’ overall perceptions of value in relation to Towngas’
service.

Sales & Marketing Strategies

The CRM strategy at Towngas had an influential role in the formulation of sales and
marketing strategies, which revolved around having satisfied customers in order to generate
more business [see Exhibit 3 for details of Towngas’ sales and marketing strategies]. With
up-to-date customer information, detailed market analyses were carried out to refine products
and services to better suit the needs of different market segments.

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 03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

One example of a marketing strategy stemming from CRM was a new concept store that
targeted a more sophisticated segment of customers. Towngas Avenue, which was opened in
2001 in Tsim Sha Tsui, presented a lifestyle concept store selling contemporary gas
appliances and other kitchen and bathroom accessories. There was also a café equipped with
LCD panels showing live action from the kitchen, a recipe-on-request service and a library of
cookbooks on display. Towngas Avenue was designed to tap into the segment of high-
income customers who were possibly not frequent users of gas at home because of their hectic
lifestyle, but who were in constant pursuit of a quality lifestyle. Towngas Avenue was very
different from the traditional customer centre, which was nothing more than a showroom with
a bill-payment counter. The first store was a huge success, giving Towngas the opportunity to
cross-sell and encourage the use of towngas. A second store was opened in Causeway Bay
the following year [see Exhibit 4 for information about Towngas Avenue]. Other lifestyle-
related products included the Towngas/Bank of East Asia joint credit card, and the
www.iCare.com.hk portal providing Internet services and selling household merchandise.
Towngas’ marketing strategy was summed up in a quote in the 2002 Annual Report:

Promoting gas as a lifestyle choice and versatile energy source is enhancing

the Company's bottomline.

Internal Alignment

An innovative mix of marketing and policy strategies impacted bottom line

profits last year, and continued to help position gas as an energy source of
choice rather than just a commodity of necessity.
- Towngas Corporate Information Booklet, 2002.

Despite the proven success with lifestyle marketing, the core business of Towngas remained
the production and distribution of gas. Eighty-three per cent of its total turnover came from
gas sales and 40 per cent of its costs were attributable to fuel costs. 3 The Company dealt with
pipelines and gas, and had previously been very much engineering-focused. When Towngas
shifted its focus from an engineering focus to a customer and market focus, this required a
corporate-wide culture change. How did the management lead the Company through this
transition?

Corporate Culture Change

Mindsets and behaviours could not be changed overnight. The Customer Relationship
Management at Towngas could be traced back to the introduction of the Total Quality
Management (TQM) concept in 1992. A Superior Quality Service (SQS) group was formed.
Small teams of Quality Service Committees were set up in almost every department, each
consisting of seven or eight full-time seconded staff. The teams were chartered to identify
opportunities for constant improvement. The initiatives engaged employees at all levels to
fine-tune processes and procedures in order to enhance the new corporate direction. SQS
evolved into the more top-down initiative of Continuous Transformation (CT) in 1996. CT
was a continuous improvement group responsible for corporate-wide re-engineering and re-
structuring to further the customer-orientated culture of the Company. The CT unit was an
independent unit with a direct reporting line to the Managing Director. SQS continued to
function within CT and the corporate strategies and policies formulated would then be

3
The remaining 17 per cent of total turnover came from equipment sales and other sources.

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 03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

communicated through the “strategy ambassadors” to different departments within the

organisation.

The Executive Committee (ECM) 4 was established to put in place an effective management
system within Towngas. ECM mapped out key management focus (KMF) on various aspects
and customer value was one of those key focuses. The ECM initiatives culminated in a
major organisational restructuring in 1998. Under the ECM, 22 department managers were in
charge of different functions and the formulation of functional objectives and tactics, while
the section managers were responsible for the implementation of the action plans.
Furthermore, Towngas’ organisational structure was flattened, reducing the former seven-
layer hierarchy to four layers in order to facilitate more direct and effective communication
between front-line staff and department managers. Customers were able to talk to the right
person and get their problems resolved more efficiently. With empowerment as a common
practice, front-line staff could make sensible decisions to take the extra step in delighting
customers.

The Towngas Shared Values Model

Driven by the goal of delivering customer value, Towngas’ quality programmes were
designed to fulfil the Towngas Shared Values, a concept that addressed the needs of the
Company’s main stakeholders, namely customers, shareholders and employees, and ensured
that their interests were well balanced. The aim was to achieve sustainable business growth
through leadership at all levels, maintaining a strong central focus on customers, and offering
products and services that delivered high customer value [see Exhibit 5 for Towngas’ Shared
Values Model].

The Customer Value Formula

A Customer Value formula was set for all employees to follow, and the corporate-wide target
was to maximise this value through improving quality and/or service and reducing cost and/or
lead-times. The formula was simple and easy to understand, and represented ways to achieve
a clear and measurable goal. Customer value would be achieved through improving quality in
ways such as providing a wider choice of products and services, increasing first-time
completion of tasks and maximising the success rate. At the same time, employees had to
strive to reduce lead-times and costs to customers by improving productivity.

Quality x Service
Customer Value = ----------------------
Lead Time x Cost

To infuse all employees with the concept of customer value, a series of training programmes
in the areas of customer service concepts and practice was carried out and widely promoted at
all levels. The result was the alignment of corporate culture and value, shifting from a
traditional utility company mindset to a market and customer focus, and thus a more
competitive organisation.

Towngas invested all these resources in changing the corporate value because the
management believed that in order for the customer relationship management to be
successful, the corporate culture needed to be customer-centric. In short, Customer
Relationship Management started with every employee’s ingrained concept of customer
service.

4
The ECM consisted of the Managing Director and heads of Finance and Administration, Marketing and Customer Service,
Production, Network, Information Technology, Quality and Human Resources.

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 03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

Outcomes of the Investment in CRM

The proactive initiatives, backed by our hallmark reputation for reliability

and service, were powerful consumer acquisition and retention.
- Towngas Annual Report, 2002.

Towngas’ investment in CRM continued to pay off. Despite a slow-down in property

developments and the Government’s decision to stop selling Home Ownership Scheme flats,
the number of Towngas’ residential customers grew by 4.5 per cent during 2002. With weak
industrial and commercial sectors, the growth was 0.3 per cent. The overall turnover, gas
sales and profitability showed a steady upward trend despite the economic downturn and
fierce competition [see Exhibit 6 for details of Towngas’ sales and profitability trend].

At the same time, Towngas’ published service commitments and targets were being met or
exceeded, as shown in the excerpt from its service pledge:

1999/2000 2000/2001 2001/2002 2001/2002

target actual
Reliability

Uninterrupted gas supply 99.997% 99.997% over 99.99% 99.995%

Restoration of gas supply within 24 99.87% 99.97% 100% 100%
hours
Safety
Emergency teams arrived on site within 99.95% 99.83% 100% within 99.93%
an hour 45 mins

Appointments
Availability within 3 working days 1.23 1.14 2 1.04
Speed and Convenience
Customer Service Hotline calls 94.63% 98.18% over 95% 97.83%
answered within 5 rings

According to Towngas, 1,334 complimentary letters were received in 2002, five times more
than the 286 letters received in 1999. During the same period, the number of complaint
letters dropped from 48 to 34. Towngas’ CRM effort was also recognised by the Hong Kong
Retail Management Association, which selected Towngas as the winner for the 2002
Customer Service Award. The Customer Satisfaction ratings had surged since 1999, and
surging together with it was employee productivity [see Exhibit 7 for Employee Productivity
trends and Exhibit 8 for a comparison with CLP and Hong Kong Electric].

The Next Step

Towngas was planning to upgrade the customer information system (CIS) into part of a larger
operational system that could support the whole Company. The planned roll-out date was
May 2004. Looking back at the first initiatives of TQM introduced in 1992 and the
subsequent re-restructuring and business process re-engineering in 1998, Towngas had waited
several years before implementing a comprehensive system that encompassed CRM. So why
didn’t Towngas install the system earlier? What were the implications for companies that
were planning to implement CRM?

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 03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

EXHIBIT I
CUSTOMER RELATIONSHIP BUILDING

Source: Adapted from Towngas, September, 2003.

EXHIBIT 2
ONE-STOP-SHOP CUSTOMER SERVICE

Integrated Sales, Service and Marketing

Source: Adpated from Towngas, September, 2003.

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 03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

EXHIBIT 3
TOWNGAS SALES AND MARKETING STRATEGY

Source: Adapted from Towngas, 2002.

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 03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

EXHIBIT 4
TOWNGAS AVENUE

Source: www.towngasavenue.com

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 03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

EXHIBIT 5
TOWNGAS’ SHARED VALUES MODEL

Source: Towngas, September 2003.

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03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

EXHIBIT 6
TOWNGAS’ TEN-YEAR KEY FINANCIAL FIGURES

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Sales (HK$ million) 3,260 3,718 4,523 4,797 5,584 5,427 5,842 6,651 6,857 6,878
Profit After Tax 1,136 1,368 1,635 1,940 2,276 2,652 2,99 3,133 3,190 3,099
Profit Margin 34.8% 36.8% 38.4% 40.4% 40.8% 48.9% 49.6% 47.1% 46.5% 45.1%

Source: Towngas Annual Reports, 1993-2002.

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 03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

EXHIBIT 7
EMPLOYEE PRODUCTIVITY

Source: Towngas Annual Report, 2002.

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03/178C Towngas: Achieving Competitive Advantage through Customer Relationship Management

EXHIBIT 8
COMPARISON WITH CLP AND HONG KONG ELECTRIC

2002 Sales 1-Year Net Income Net Profit 1-Year Net No. of No. of No. of Sales per
(million) Sales (million) Margin Income Growth Employees Customer Customers Employee
Growth Accounts per (thousand)
(million) Employee
Towngas US$881.8 0.3% US$395.7 45.1% (3.0%) 1,989 1.47 739 US$443.3
CLP US$3,350.4 4.5% US$907.5 27.1% (2.5%) 4,303 2.10 488 US$778.6
Hong Kong US$1,487.8 6.8% US$875.2 58.8% 4.9% 2,204 0.54 246 US$675.0
Electric

Source: Annual Reports of Towngas, CLP and Hong Kong Electric.

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