How a simple web-based approach can be the first steps to a full-blown CRM initiative
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.”
Important initiative
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.”
Great feedback
How much better? An e-mail newsletter recipient’s average order is $141,
nearly 20% higher than the $118 of customers who receive product updates via
mail. “We have developed a rapport with them by sending information that
was not just a solicitation,” Whitley says. And the boost that Replacements
gets comes at very little additional cost, he says. “It would cost us millions
to send the newsletter in hard copy, but with the e-mail newsletter, there’s
no increase in variable costs,” he says. “And we get great customer
feedback.”
E-mail fills retailers’ desire to engage one-on-one with customers, Robertson
says. “Retailers in the survey told us that communication and personalization
of the message is important to them,” he says.
Another approach is to personalize the web page when the customer visits. That’s
an approach that Cabela’s is taking. Cabela’s re-launched its site
using Art Technology Group Inc.’s Consumer Commerce Suite and its Scenario
Personalization product. By mid year, Cabela’s plans to serve up customized
information when a registered customer comes to the site. The right column will
feature the personalized material with a low-price impulse-purchase item at
the top of the list, Sidner says. Based on Cabela’s experience with customized
e-mails, Cabela’s expects the personalized features to drive sales. “With
customized e-mail, we see a higher percentage of customers willing to open them,
a higher percentage buying and a higher average order,” Sidner says. “We
expect to see the same kind of incremental improvement on the web site.”
Simple start
While simple, such techniques as sending communications to opt-in customers
or delivering personalized pages to customers who have registered are good ways
to start the CRM process and make an entire project easier to get off the ground,
analysts say. “You can fall prey to having too much information; it becomes
unmanageable and difficult to start anything,” says John Ripa, product
leader for InfoBase eProducts at Acxiom Corp.
Starting simple also addresses the issue of customer data—how does a retailer
gather it, make sure it’s correct and keep it fresh? “That’s
the toughest part for multi-channel retailers,” says Doug Clare, vice president
of global retail for data analytics company Fair, Isaac and Co. Inc. “It’s
difficult to assess who the customer is because 90% of customer interactions
are anonymous.”
That’s where web purchases, catalog purchases, proprietary credit cards
and loyalty programs come into play. Retailers often have a surprising amount
of information about customers, but are unable to use it because it does not
reside in a single data base. “The data are still mostly siloed,”
says Jennifer Kemp, director of global retail for Fair, Isaac. “You need
to get a view of the customer data that spans the channels. That’s obvious,
but it’s a lot more difficult than it seems.”
Not broken
While most agree that cross-channel sharing of data is a goal, not all agree
that the information needs to be perfect before the retailer can make use of
it. Some CRM services providers, such as Acxiom, apply information from other
databases to customer information to create a broader picture of the customer.
Replacements, for instance, knew its customers, but it didn’t know a lot
about them other than their activities with Replacements. It gave a 100,000-customer
slice from its data base of 4.5 million to Acxiom to learn such information,
on an aggregated basis, as income and lifestyle characteristics, which magazines
they subscribe to, what kind of cultural events they attend, how they entertain
and so on. “The whole point was to understand what our customers want,”
Whitley says.
Replacements previously had to gather such data by surveying customers, a process
that was so time-consuming and costly that the company hadn’t engaged in
a survey since 1993. That surveyed generated 2,400 responses at a cost of $26,000,
vs. $2,600 for the Acxiom analysis, Whitley says.
Others argue that customer data will never be clean and so retailers shouldn’t
waste time trying to make it pristine. “The question of data quality goes
to the heart of the misunderstanding about what kind of data you need and what
you can do with it,” says Stephen Brown, director of product marketing
for Ascential Software Corp., which in April acquired data quality company Vality
Technology Inc. “Data quality isn’t about data cleansing. And it isn’t
about fixing bad or broken data. It’s about understanding the meaning of
individual data values and their relationships to one another.”
Fuzzy math
To that end, Ascential uses statistical analysis and information theory to
determine the likelihood that two pieces of information will result in a third
piece of information that will allow the retailer to take some action. “We
apply artificial intelligence and fuzzy mathematics to navigate these gray areas,”
Brown says. “With every piece of corroborating evidence, my picture gets
clearer.”
In fact, he argues, anyone who wants to make progress with a CRM program has
to live with ambiguous data. “No matter how stringent your standards are,
you will not be able to prevent abnormalities from entering the data,”
he says. “If you try to prevent them, you make the whole process so onerous
that you discourage anyone from doing it.”
The ultimate aim of any CRM program is to increase sales, so whichever approach
a retailer takes must lead to action that achieves the retailer’s strategic
goals. “There could be hundreds of offers that could be presented to a
customer and it’s not always easy to know which ones to present to which
customers,” says Jamie Fiorda, product line manager with E.piphany Inc.’s
marketing solutions. “Make sure that the analytics you apply to the data
are in line with the company’s goals.”
Once the retailer has presented an offer, it can capture the customer’s
response to that offer, feed it into the CRM data base and analyze it. “The
organization can then learn from that feedback and put new offers out for customers,”
Fiorda says. Which the retailer then feeds into the data base. And that keeps
the cycle of CRM data going round.
kurt@verticalwebmedia.com
