club-mahindraClub Mahindra, the BSE listed timeshare based holidays business, was impacted significantly by the implementation of TRAI’s spam guidelines, the company has acknowledged, in its last three earnings conference calls. Arun Nanda, Non-Executive Chairman on Club Mahindra’s board, acknowledged on the company’s Q3-FY14 conference call that “nearly 60% of direct impact comes through that channel and that section was very badly hit.” (Hat Tip: Capital Mind)

New member additions declined 19% in Q1, 42% in Q2 and 47% in Q3 in FY14, in comparison with corresponding quarters last year, with the company adding 1902 fewer members in Q3 this year, in comparison with the previous quarter. The company claims that things have improved this quarter because of institution of better practices and a push on digital marketing and referral programs.

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Two things to note about Q4-FY14 (ended March 31, 2014): Firstly, Club Mahindra hasn’t been specific in disclosing the exact number of subscriber additions, only saying that it added “Approx 4k new members” net (and on the conference call, a round figure of ‘4500’). Secondly, the additions in Q4-FY14 were still 28% lower than in Q4-FY13, although a possibly seasonal 89% improvement QoQ. Q4 over the last three years, has been the company’s best quarter in terms of new subscriber additions.

What Changed In August 2013

Rajiv Sawhney, former MD and CEO of Club Mahindra (who quit in January) had said on company’s conference call in Q2-FY14, that in August 2013, the TRAI guidelines were changed in a manner that “if you call from any number, then it’s a certainty that your numbers will then be disconnected en masse.” The TRAI began disconnecting marketers numbers following an amendment in August 2013, which we had covered here. Rohit Malik, Chief Sales Officer, had said on the Q3 conference call that this significantly reduced the ability of the company to “reach out to customers”. “If we were to be able to reach out to 100 phone numbers earlier”, that ability initially came down to 90-92, then (possibly in August), to 50. Note that while on the conference calls, the company refers to making calls to prospect customers, the August 2013 changes were about SMS.

What Club Mahindra Was Doing

Malik acknowledged that

“A significant part of our selling process is a call that we send out or make out to a prospect to fix up an appointment”…”As long as they were meeting the requirement it was fine, otherwise TRAI would come back and through the service providers shut all the telephone lines first. So we essentially work on primary data, which means that we get in touch with people, get them to respond to us and then based on that response we go back and fix up appointments, and for that one needs to have a very stringent internal compliance, whereby if by chance you have made a wrong call to somebody who had not filled up a response coupon to you and you were asked to proof that, you should be in a position to relate the two. So that is in line to something that was possibly not as compliant as you would want it to be.

Note that the TRAI regulations only mandated disconnections of numbers that were spamming (calling or SMS’ing customers), or were included in the text of the spam message. Club Mahindra was a repeat offender, at least in my case: see this and this from 2012, where they were sending promotional messages, but not through telemarketing firms registered with the TRAI. They only stopped after I complained repeatedly to Anand Mahindra, CMD of the Mahindra Group, on Twitter.

How They’ve Changed

The impact on Club Mahindra lasted from “September till about November” 2013. The disconnection of numbers, Malik had said, put the company’s model off track by about 4 months.

1. Changed processes to comply with TRAI guidelines: This forced the company to “recast, re-imagine what we are doing the way we do because clearly what we have been used to doing is what the industry has been doing and it’s not just our industry, it’s any direct selling business, any direct selling industry which has relied on generating prospects…”

Malik mentioned on the call that the company eventually “installed extensive processes in place to ensure DNC compliance and respect prospect privacy, offline and online“, which, obviously, is something it wasn’t doing earlier.

“… during the 3 to 4 months phase, we worked on internally ensuring the process was right. We had all the proofs and if required those could be provided in a day’s time and once that thing was achieved, we have therefore gone back to kind of doing what as a primary data generator we were doing, but it is far more compliant processes to give us that comfort that we were on the right side of facts.”

Deepali Naair, the company’s CMO said that the company began actively seeking permission from prospects with DND numbers to contact them.

2. Focused on Digital and Referrals: Club Mahindra began focusing on digital and referrals, putting calls to actions on websites (possibly a CPA advertising model), asking users to fill up forms. In Q2, the company mentioned setting up a call center facility for incoming leads through digital advertising, where “there would be special handling based on the profile of the customers who are coming in. So, digital therefore is a huge offensive for us going forward.”

It also mentioned putting together a “sales tool” (possibly an app), allowing for a selling experience that is interactive, with videos,” which also provided them with analytics. As of Q2, this was live in 40% of the company’s locations, in retail stores and was being carried by sales executives visiting clients.

In Q3, the company said that sales from referrals from existing members were around 30%, and it expects this to increase to 50% eventually.

An Aside

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Web reservations, as a percentage of total reservations improved significantly between November 2012 and March 2013, and have peaked at 52% during March 2014.

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Conference call transcripts, from where this information is sourced: Q4-FY14, Q3-FY14, Q2-FY14. Investor presentations and results related information is here.