The CRM imperative: Wooing existing customers is more important—yet harder—than ever
By Kurt Peters
If anyone had any doubts about the importance of customer relationship management, the news from Shop.org’s retail multi-channel report that came out last month will go a long way toward settling those doubts.
The report identified the Super Shopper, who shops all a retailer’s channels, and her importance to a retail organization: A customer who shops in three channels purchases four times more frequently online, 70% more often in a store and 110% more frequently from a catalog than the average customer in each channel. Knowing who’s doing what where thus takes on new importance. “Success in this business is related to how well you know your customer,” says Jim Sherman, vice president of customer care for Denver-based KBKids.com, the Internet operation of KB Toys.
Customer relationship management as conceived today is a broad undertaking. It no longer is just knowing all a customer’s activity with a retailer when the customer contacts the company. Rather, it is about marketing appropriately to each customer, making the right product recommendations when the customer is on the web site, making sure the follow-up to the order was handled correctly and, of course, making sure when the customer calls that the retailer knows all the contact that the customer has had with the company. “It’s woven throughout your whole company,” Sherman says. “It’s not just a customer service initiative.”
The Internet changes the way a company gathers its CRM data. With the ability to assign unique numbers to visitors and drop cookies—bits of identifying data—on a visitor’s hard drive so the retailer knows the customer when that customer returns, retailers can gather much more information about customers online than they ever can in the store.
And they can do it at relatively low cost. A recent survey of 400 marketing managers by Jupiter Research found that over 50% devoted less than 10% of their 2001 marketing budget to web-related efforts to improve customer relationship, while non-web spending on relationship improvement—such as direct mail and focus groups—took up over 25% of their marketing budgets. Yet the web portion of the spending was effective: 57% of retailers said the web drives sales to the brick-and-mortar store, 50% said that spending resulted in increased frequency of customer contact and 36% said it generated significantly better customer information. “Compared with other industries, retailers are reporting that doing business via the Internet is helping them significantly improve their return on relationship with customers, through its low cost per contact and its data gathering capabilities,” says David Taylor, an analyst with the Robert Frances Group of Westport, Conn., who specializes in measuring return on relationship.
Yet the retail industry has been slow to adopt CRM, researchers say. “Retailers have not been as aggressive as others—particularly financial services—in rolling out CRM,” says Scott Nelson, vice president and research director for Stamford, Conn.-based Gartner Group. Nelson gives two reasons for the lag in CRM among retailers. For one thing, margins are tighter than in other industries. For another: “Senior management usually has come up with a mass-merchandising and mass-advertising mentality,” Nelson says, “and CRM requires quite a change of thinking.”
Indeed it does, say retailers who have undertaken CRM initiatives. Todd & Holland Tea Merchants, for instance, found that by sifting through data on which credit cards its customers used when, it was able to identify likely prospects for a gift promotion—not the sort of thing that a mass-marketing orientation would have been tuned into. Using SPSS Inc.’s CustomerCentric product, River Forest, Ill.-based Todd & Holland learned that during the holidays, the typical user of an American Express or Discover card at its web site is a gift giver. Using that data, Todd & Holland entered into promotional agreements with the two card companies. “This system was able to come up with things that we didn’t see in our mind or things that had too many variables going in,” says Bill Todd, owner.
While Todd & Holland, which operates todd-holland.com, as well as a single retail store and a catalog business, doesn’t have results yet from the data mining, Todd says: “This promotion gives us an exposure we wouldn’t have had. We wouldn’t have pursued this had it not been that we discovered customers were using these cards for gift giving.” Todd & Holland expects to incorporate its web-based CRM system into its store operation via its POS terminal.
While some retailers are eager to get at the results that a CRM system can deliver, the first rule of implementing CRM is to develop a strategy, says David Cody, director of marketing for the CustomerCentric Solutions division of SPSS. As obvious as that seems, many organization undertake CRM initiatives without a strategy, says Nelson’s research from Gartner Group. In Nelson’s report “Seven Key Reasons Why CRM Fails” (see box), No. 4 is lack of a plan. “Most enterprises still undertake CRM with no idea of what they are hoping to build in the long term,” Nelson writes.
And the lack of the strategy, rather than any failings of CRM, is what has tarred CRM recently, Cody says. “CRM has gotten a terrible rap in the past year as some researchers report that 50% of CRM initiatives fail,” he says. “But if you start with a strategy, 100% of CRM initiatives done in support of that strategy will succeed. Zero percent will succeed if you’re simply reacting to the CEO saying, ‘We need some CRM, go get some.’”
A defining experience
One of the problems with defining a CRM strategy, however, is that the definition of CRM today is broader than it once was, so it becomes more difficult to focus on the goals of a CRM program. “The definition of CRM is broad enough to be almost meaningless,” says Randy Woods, CEO of Buystream Inc., vendor of a product to help online retailers understand shoppers’ behavior. “Almost anyone selling anything is a CRM company.”
A retailer can start building a CRM strategy by determining who its customer is and what it wants out of the customer, Cody says. “Are you in a business that is about getting more customer share or about getting more market share,” he says. “Especially as products have become more of a commodity, you really need to focus on the customer and not the product.”
Executives must continually re-check the strategy, warns Todd Bixby, managing director in the CRM practice of KPMG Consulting Inc. “Building the strategy is not like creating a blueprint for building a house because your priorities will change,” he says. “It’s more like a guidepost that keeps you moving forward.”
Once a retailer adopts a strategy, the hard work of data maintenance and mining begins. As Todd & Holland’s experience shows, the information that can come out of a CRM system is not obvious and in fact is usually hidden. And that underscores the first rule of implementing a good CRM system: Make sure the data is clean. “At its core, CRM is about data,” says Gartner’s Nelson.
Once the data is clean and ready to be mined, CRM becomes a continual process of “learn, act and monitor,” Cody says. Says KBKids.com’s Sherman: “It’s a path you’re always following. You’re never really there.”
A common view
Sherman says KBKids.com is careful to make sure that it records all interactions with customers. It tracks the marketing it sends to customers as well as customers’ buying habits, order history and contact notes. “We needed some type of common view of the customer,” he says.
How KBKids has used that information is a good example of why CRM is no longer just about good service when a customer calls in. Analyzing the data to learn customer buying preferences is important to marketing. “When we send a targeted e-mail to the Barbie group of customers, we absolutely get a lift,” Sherman says. “And it’s higher than if we send the same e-mail to the masses.”
Most retailers have a long way to go before they achieve that unified customer view, says Shop.org’s report, “The Multi-Channel Retail Report 2001.” Of the 22 retailers, which ranged in size from three organizations with under $250 million in annual sales to eight with sales over $5 billion, 30% had no integration of data across channels, 60% had data from two channels integrated and only 10% had data from three channels integrated. “Getting to know the customer and being able to mine that data are still in the early stages of evolution,” says Jim Okamura, senior partner with consultants J.C. Williams Group, and author of the study.
But with the relative ease of gathering data over the web, retailers of the future who do not know their customers surely will be in a tough competitive position.
“There have always been a lot of retailers who had no idea who their customers were,” Okamura says, “but that’s going to have to change.”
kurt@verticalwebmedia.com
Seven reasons
CRM fails
Scott Nelson, vice president and director of research
for the Gartner Group Inc. of Stamford, Conn., writes in his report “Seven Key
Reasons Why CRM Fails:” “CRM projects fail, but they don’t have to. Enterprises
that know the seven key reasons for CRM failure—and how to avoid them—will have
successful CRM projects.”
Here are Nelson’s 7 key reasons:
- Data is ignored
Enterprises must have a detailed understanding of the quality of their
data—how to clean it up, how to keep it clean, where to source it and what
third-party data are required. Devote half of the CRM timeline to data elements.
- Politics Rule
Departmental CRM is suboptimal
and can only yield departmental efficiencies and benefits.
- The IS organization and business users
can’t work together
Business users need the IS organization
to select the right technologies, the IS organization needs business users
to establish priorities. Establish cross-discipline teams early in the process.
- There is no plan
Most enterprises undertake CRM
with no idea of what they are hoping to build in the long term. Establish
a high-level CRM plan that addresses tactics, processes, skill sets and technology.
- CRM is implemented for the enterprise,
not the customer
CRM has to make the lives of customers
easier and not be implemented to solve some internal problem. Involve employees
and customers throughout the CRM process.
- A flawed process is automated
Years of minor corrections and
failing to keep up with customer demands create a flawed process. Making a
flawed process run faster means the enterprise can more quickly and efficiently
anger its customers. Use CRM as a springboard to examine all customer-related
processes.
- No attention is paid to skill sets
All the money in the world can’t
save a CRM project if, at the end of implementation, the organization places
it in the hands of underskilled and undertrained employees. Educate employees
on the CRM initiative and train them on CRM tools.
Where does CRM report?
Who is responsible for an effective CRM program? It must be a high level executive,
preferably the CEO, says David Cody, director of marketing for the CustomerCentric
Solutions division of SPSS Inc. “Alignment on CRM starts with the CEO,” he says.
The CEO’s function is to make sure that all CRM activities are creating the
results that the corporate strategy sought. “The CEO is like a dashboard,” Cody
says. “He looks at the key performance indicators.”
From there, everyone in an organization must be clear on a CRM program’s goals.
“It must be throughout the organization, all the way down to the buyer who might
be looking at customer segments to decide what to buy,” he says.
At the implementation level, CRM must be spearheaded by “somebody who owns
the customer,” Cody says. “IT people should not be deciding what CRM investments
to make. Ideally, it’s the CEO, the COO, the chief marketing officer or the
chief merchandiser; somebody who is directly responsible for that customer.”
