May 28, 2003, 12:00 AM

Making CRM Work

In spite of a record of CRM failures, the promise of web-based customer relationship management still calls to retailers.

Visitors to jewelry site Kay.com are greeted these days with a new option on the top right-Apply for your KAY charge. It’s part of parent Sterling Jewelers Inc.’s plan to extend its house credit program, which already accounts for a significant portion of Kay’s sales.

It’s also the result of research into which online CRM initiatives would help Sterling Jewelers service customers and maximize revenues. “It has nothing to do with actually buying online, but it uses the Internet to enhance customer service,” says Len Pagon, CEO of Brulant Inc., a technology and e-business consulting firm that worked with Sterling on the project.

The outgrowth of that CRM initiative illustrates the customer relationship management issues that retailers wrestle with today: What is CRM? Is it better customer service? Or is it a boost to the bottom line?

Or perhaps a successful CRM initiative accomplishes both. In addition to improving the customer service experience and reducing overhead for the organization, a well-thought-out CRM program can generate top-line growth in the form of incremental sales while increasing the lifetime value of customers.

In fact, Sterling’s experience is a perfect example of that double-barreled benefit, Pagon says. Customers applying for credit online can elect to receive statements online by logging on to a personal account on the site. “The online credit function has dramatically reduced the cost of sending out statements,” Pagon says.

Sterling operates more than 1,000 jewelry stores, including Kay Jewelers and a number of regional chains as well as Kay.com. Putting the credit program online for customers has not only reduced staff time to run the credit application program and cut paper, but it also has eliminated mailing costs and data entry errors. In fact, Kay estimates it’s cut the cost of administering the program by 80%. “There’s been a pretty significant ROI in terms of better customer service at less cost,” Pagon says.

While those are measures by which retailers generally judge the ROI of their CRM programs, the tools, technologies and practices retailers are using today to implement CRM vary widely. They’re broadly defined in some cases to include not only traditional customer service but also marketing, web analytics, fulfillment and other operational functions.

The common elements among CRM programs, however defined within an organization, is that they revolve around customer touch points and how they’re handled to collect data that increases the profitability of customers.

The promise

That’s the promise of CRM, an opportunity that, as deployed on the web, tantalized retailers. The notion was that the web would allow them to collect customer data that would lead to stronger relationships, ultimately increasing spending. But in truth, a full realization of that promise remains out of the grasp of many retailers.

The web’s potential ability to collect personalized customer data and blend it with data from other channels raised retailers’ expectations that the Internet would accelerate the process and yield a quick gold rush of customer-specific information for targeting online offers and ringing up more sales. The reality is that customer data gleaned from the web is indeed a rich store, but it’s proven more difficult to integrate and to translate into marketing programs than many initially believed.

Success on data-driven CRM initiatives by e-retailers at this point has been less in the form of a gold rush than nuggets, such as in the case of Sterling. In a Forrester Research Inc. retailer survey last year, 80% of those polled said they were satisfied with their current CRM projects-but the survey also found that their investment in such projects had so far been small.

“It’s difficult to point to a company doing CRM well on an enterprise level in every section of the business,” says Gartner Group analyst Adam Sarner. “There are successes in departments, but silos exist. Yet the essence of CRM is to pull sales, marketing and customer service together on an enterprise level for one consistent view of the customer so as to leverage that relationship.”

That’s a tall order, and one that some initially thought technology would resolve-a mistaken belief at the root of some retailers’ disenchantment. A report from consulting firm BearingPoint Inc. notes that many companies, disillusioned with CRM, are taking a step back to re-evaluate their initiatives.

“Too many retailers looked at CRM as a technology implementation,” says Ann Raives, senior manager in BearingPoint’s retail and wholesale practice. “Technology is an enabler, but it’s not sufficient alone. Retailers have terabytes of data, and lot of them got stuck in it. The challenge is in making it operational.”

Even retailers who’ve moved beyond data collection to do customer segmentation may fail to get data into operational systems and that’s almost equivalent to having no data at all. Thus getting data into the right places and defining the processes to analyze the data may require a fundamental culture change-from informal talk within departments to structured communication between departments, from silos to the integration of data, and from a command-and-control organizational structure to interdepartmental decision making, Raives says.

The 68% failure rate

A recent survey of senior managers across several industries by Brulant identified other CRM failures. 68% pf those polled viewed their CRM initiatives as unsuccessful. “Roughly half of the 68% are either full failures or cancellations initiated to avert disaster,” Pagon says. “The other half have blown the budget or didn’t fully meet requirements on time. Many managers overseeing CRM implementation think the job’s done once the technology is in place, but that is actually just the beginning”

The Gartner Group’s marketing technology “Hype Cycle,” an internal tool it uses to illustrate marketplace acceptance of new technologies along a continuum that evolves from product introduction to product maturity, places CRM technology in the middle of that evolution, near a low-lying mid-point it calls the “trough of disillusionment.”

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