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Customer relationship management is a big chore that can start small.
By Kurt Peters
This spring, Cabela’s Inc. found itself with an overstock of men’s shoes size 14 and 15—not exactly an average size in great demand. But since the outdoor gear retailer launched Cabelas.com nearly three years ago, it has been encouraging customers to sign up for subscriptions to e-mail newsletters and to register at the site with information about preferences and interests. And it stepped up those efforts with a redesign of Cabelas.com last October.
Over that time, it has acquired a database of big-footed shoe buyers. And so in March, it shot off 3,466 e-mails announcing a great deal on shoes. Within a week, it had sold 132 pairs. “Our shoe buyers were very happy with the results,” says Sam Sidner, marketing manager of Cabelas.com.
Cabela’s experience demonstrates the importance of collecting customer data—and the right customer data—for CRM programs. And how even a relatively simple start to a CRM program can pay dividends. “Registration at the web site was a vital link to making this happen,” Sidner says.
Customer relationship management has been the buzzword of the retail industry for a couple of years now, even though retailers have been engaging in CRM for probably as long as there has been retailing. But while retailers may have known about CRM for a long time, today’s CRM is not the CRM that yesterday’s retailers were practicing, no matter what they called it. “This is an area that’s morphing all the time,” says Jeff Roster, senior retail analyst of Gartner Inc.’s Gartner Dataquest.
While once thought of in simple terms as customer service, customer relationship management today covers all the ways and times that a retailer interacts with the customer. “CRM is a business strategy to build loyalty and sales with one’s best customers,” says Janet Murphy, president of Morristown, N.J.-based consultants Ogden Associates Inc., which conducted a survey with Gartner of retailers’ CRM initiatives for the National Retail Federation. “It’s very important in retailing today.”
Retailers are developing a serious interest in CRM, according to the NRF’s survey: 54% of retail companies have already implemented at least one CRM application, another 39% expect to do so within two years. And many see true payback possible with CRM; 72% said they view CRM as a way to extend their business and generate revenue. Among the biggest uses that retailers plan to put CRM to are analyzing and understanding customers better, tracking results of marketing efforts and keeping track of customer contacts.
Retailers also expect to increase their spending on CRM initiatives: 57% expect to spend more on CRM this year, according to the survey, and 60% expect further increases next year. Those figures underscore how CRM is spreading throughout retailing. “CRM was pioneered by the biggest companies, even before many had their bearings and knew where a CRM project would take them, because they believed that they could gain a competitive advantage,” Murphy says. “But now we’re seeing adoption growing in a dramatic way from the over-$1 billion companies to the medium-sized and small businesses.”
The NRF survey is backed up by a survey that Jupiter Media Metrix released in February predicting that CRM spending by retailers will nearly double from $1.7 billion in 2001 to $3.2 billion in 2006. Jupiter reported that 26% of businesses will spend $500,000 or more on customer relationship management over the next two years. Many also view CRM as more important than other technology initiatives; 23% are planning to spend $500,000 in web content management and 19% on supply chain efforts. Jupiter expects total CRM spending to rise 70% to $16.5 billion in 2006, up from $9.7 billion last year.
A powerful mix
As CRM spreads, new participants are faced with the daunting task of determining where and how to begin to implement it. While CRM could be something as simple as a punch card that a customer redeems for a product after a certain number of purchases, most retailers today are looking at more sophisticated approaches. Thus many are turning to the web as a starting point, whether they sell online or not. They are undertaking such initiatives as custom portals for each customer, like Amazon.com Inc.’s personalized tabs, or using e-mail in a personalized way to direct materials to customers. “Retailers are increasingly realizing the power of the web in reaching customers,” says Jon Robertson, managing director of Ogden Associates. “Use of the bricks-and-mortar channel with the Internet together is very powerful.”
In fact, retailers rank e-mail communication with customers third in importance only behind contact at the point of sale—the primary touch point with the customer and unlikely to ever be anything but number one to retailers—and data mining and analytics.
Retailers need only look at Cabela’s experience to understand the power of combining customer data with e-mail. In fact, Cabela’s experience is even more interesting given the fact that the company does not think its customers are naturals for e-commerce. “Our core hunting and fishing customers are a little more behind the technology curve than customers of a company like The Sharper Image,” Sidner says. “So we still have a natural curve to climb.”
Or retailers can look at Replacements Ltd., seller of china, crystal and collectibles online and by telephone. Replacements understands the importance of web-based communications following the launch of an e-mail newsletter. Replacements sends the newsletter to 1.3 million customers monthly, many of whom also receive a customized e-mail catalog that features products they have expressed interest in or are likely to be interested in. The newsletter includes information of a more general nature, such as histories of china companies, dictionaries of tableware terms and place-setting layouts for various occasions. “You’d be amazed at the value created by something like that,” marvels Jack Whitley, director of sales and marketing, who also writes the newsletter. “The relationship with the newsletter customers is much better than the relationship with offline customers.”