Many e-retailers keep customer relationship management in-house even as online shoppers connect with them in more ways.
Thad Rueter , Senior Editor
When it comes to customer relationship management— a nebulous term that can encompass a variety of e-commerce marketing, data-collection and consumer-tracking functions—many e-retailers included in Internet Retailer's Top 1000 prefer to keep it in-house.
331 web merchants—66.2%—included in the 2014 Top 500 Guide report handling customer relationship management on their own, according to Internet Retailer's Top500Guide.com. That's down only slightly from the previous year, when 67.6% of retailers reported the same. Moreover, 70% of the Top 100 retailers as ranked by annual web sales in this year's guide report keeping customer relationship management in-house. That compares with 2% of the bottom 100.
In the most recent Second 500 Guide, which covers the next tier of retailers, 161—32.2%—said they handle customer relationship management in-house. That compares with 28.6% that said the same for the previous year's edition in 2012. (The list of retailers changes with each year's guide, but the rankings and associated data give an overview of trends for each web merchant tier.)
Providers of customer relationship management technology and services expect that the increasingly complex nature of e-retailers' customer interactions will drive more retailers to seek the services of CRM vendors. Consider these data points from a recent report from CFI Group and eBay Enterprise, the e-commerce technology and services division of eBay Inc. They say that 95% of consumers "frequently or occasionally shop" a retailer's web site and store. And 82% of all surveyed consumers say they consider it "important" to be able to place an order from a retailer's e-commerce site while inside that merchant's store.
In fact, some retailers once resistant to the idea of giving up control over their customer data have recently hired vendors to help organize and make sense of the deluge of data coming from consumers now shopping across multiple devices and shopping channels, and interacting with them across social media. But other retailers, including ones that can boast of top spots in Internet Retailer's annual rankings, seem content to keep things in-house.
Ask online retailers and vendors to define "customer relationship management" and you'll get a parade of answers (see chart on page 100) that generally converge upon this point: Collecting and using consumers' shopping and customer service data to make product recommendations and otherwise enable e-retailers to sharpen their marketing and merchandising efforts based on how those consumers browse and buy. Indeed, the phrase is too stretchy for some. "We don't use the term 'customer relationship management.' It means too many different things," says Soren Mills, North America chief marketing officer for Newegg Inc., No. 14 in the Top 500 Guide, and an example of a major retailer that strives to keep such functions in-house. "What we are doing is concentrating on the end-to-end customer experience."
Whatever retailers think the phrase means, they are prepared to put money into it, suggests an April report from The E-tailing Group Inc. that drew upon survey responses from 108 e-commerce executives. 27% of respondents plan "significant" investments in "big data or related CRM initiatives" in 2014, the e-commerce consultancy says. (Big data refers to the massive growth in the amount of consumer data available to companies from shoppers who create many digital footprints as they research, buy and express their opinions online through a variety of devices.) That is behind mobile optimization (42%) and "omnichannel integration" (30%), but ahead of such areas as logistical improvements (26%), cart abandonment strategies (16%) and marketing automation (15%).
According to technology research and advisory firm Gartner Inc., worldwide spending on CRM technology across all industries will grow at a compound annual growth rate of about 15% over the next several years, increasing from $20.8 billion last year to about $36.0 billion in 2017, Gartner analyst Joanne Morin Correia says.
The E-tailing Group report also shows how the responding e-commerce executives view their use of customer data. 47% of respondents aim to deliver "more sophisticated marketing" through their big data capabilities. 45% of respondents say their existing data enables effective customer segmentation. 44% of respondents say they use customer data on a "fairly frequent basis to impact marketing initiatives," and 26% of respondents say their data allows a "360-degree view of the customer"—a common phrase heard from retailers and vendors when discussing CRM.
So why does an e-retailer switch from doing customer relationship management in-house to hiring a vendor?
For Moose Country Gear, a 3-year-old outdoor gear store and web merchant whose online business accounts for about 80% of its sales, the answer was simple enough: About 18 months ago, its paper, pencils and Excel spreadsheets couldn't keep up with customer data, at least not efficiently, says president and owner Mark Infanger. Not only does the retailer track how consumers use its web site, it also records details about its conversations and other encounters with potential customers at gun and outdoor shows, and it gathers data from its telephone calls with consumers, many of them repeat shoppers who buy specialized equipment. Employees, working from Utah, California, Missouri and other locations, would typically enter such information into online databases, including those kept via Google Docs, a free program from Google Inc. that lets multiple users access and modify the same document.
But with the retailer's annual sales approaching $1 million—the retailer took in $200,000 in 2011, Infanger says—Moose Country Gear needed a better system, he says. It hired Insightly Inc., a customer relationship management technology provider that focuses on small businesses. Six employees from Moose Country Gear use the Insightly web-hosted software, and they log in from a variety of devices including iPhones and iPads. Certain employees have specific areas of expertise: Infanger, for instance, focuses on knives, and if a consumer wants to know more about knives, such a request gets routed to Infanger via the system, which also tracks the shopper's purchase history and equipment history so the retailer can notify him when he needs to replace his equipment.
"I don't have to worry about following up on things because I just set reminders, and Insightly allows me to make things happen the way I want them to happen," Infanger says. Since employing Insightly, Moose Country Gear has increased revenue 150%, he says. The vendor's standard plan costs $7 or $9 per month, depending on whether the customer opts for annual or monthly billing.
Women's apparel, accessories, cosmetics and home décor retail chain Soft Surroundings offers another example of a merchant striving to tie together customer data to boost its marketing. It uses the latest version of Knotice Ltd.'s data management platform, called Knotice 5, or K5, which creates a single profile for each one of a retailer's known customers by importing data from the various points that customers interact with the brand. It even saves anonymous web site activity and mobile browsing behavior data and matches it later on to individual shopper profiles once a customer engages in an activity where she identifies herself, such as when she makes her first purchase. (In March, digital marketing firm IgnitionOne Inc. said it would buy Knotice and discontinue the name by the end of the year.)
"If a customer checks our Facebook page from time to time, mostly shops on her tablet but goes to her desktop to buy, then calls us, my understanding that sequence of behaviors is incredibly important," says e-commerce director Jim Gallagher. "We then can know where, when and how to market and advertise to her." He says knowing "when to retouch a customer and with what kind of marketing" will increase how often a customer shops and how much she will buy.
"Knotice K5 will get a data dump from the CRM system, and then get real-time feeds from our web and mobile order management system, call center, in-store system and other sources," Gallagher says. "All data for a customer is stored in a universal profile with a unique Knotice customer identifier. Then we'll be able to retouch customers with things like e-mail recommendations based on a store purchase."
Another perspective comes from online jeweler Allurez.com, which launched in 2010 and keeps its customer relationship management in-house, with data often organized via Excel spreadsheets and Google Docs. "We feel that in order to truly and fully serve our customers to the best of our ability that we need our customer relations team in the middle of everything," says a spokesman.
Allurez.com wants to make sure it gives its customers a "personalized" experience, he says—which is better handled in-house. That's getting more challenging as consumers use more channels to shop. "We have the typical phone lines, e-mails and live chat of yesteryear, but as our company grows and our presence expands, our customers no longer necessarily go directly to our site, e-mail or phone," he says. "Instead they can contact us through our various social media platforms like Facebook, Twitter, Instagram and Pinterest. We have full-time reps dealing with our social media platforms, a team on the phones taking and making calls and an upper management staff that came from a customer relations background so they understand the importance and value that needs to be placed on CRM."
Allurez.com has 23 employees. The company would not reveal sales figures but says it is on track to increase revenue 50% this year over 2013.
A much larger retailer, Gap Inc., No. 19 in the Top 500 Guide, provides another example of an e-retailer going it alone on customer relationship management. The chain declines to comment specifically about its system, but in its 2014 investor day presentations to Wall Street analysts in April, the apparel seller shed light on its approach.
"We are leaders in bridging our physical stores with our innovative digital technology to make our customers' shopping experiences convenient," Art Peck, the chain's president of growth, innovation and digital, told analysts. He credits that success in part to Gap generally constructing its e-commerce technology in-house. According to Top500Guide.com data, Gap handles internally such systems as content management, customer relationship management, fulfillment and order management rather than farming them out to vendors. "Our technology is our own and it gives us the speed, scalability and flexibility to design customer experiences across channels," Peck said.
So what besides the trust that retailers place in their own abilities drives merchants to keep customer relationship management in-house? Part of it stems from frustration with existing CRM systems on the market, says Loretta Jones, vice president of marketing at Insightly.
"A common complaint is that [retailers] are only using 50% of a system," she says. That suggests that some CRM technology and services are too big or complicated for some retailers' needs, or that some retailers don't know what to do with all the data-analysis tools. Another possibility—this one expressed by open-source e-commerce platform provider Spree Commerce CEO Sean Schofield—is that some CRM systems focus more on offline and online sales leads than, say, tracking how online consumers shop and then integrating that data into marketing, merchandising and fulfillment. In short, such systems are not giving e-retailers the mix of tools and services they want.
Or, as Infanger of Moose Country Gear puts it about the systems he considered before choosing Insightly: "They weren't robust enough, or they were too robust."
That may be changing. Earlier this year, for instance, privately held e-commerce technology and services provider SugarCRM Inc. reported its 2013 sales increased 75% over 2012 thanks to customer gains and a rising demand for CRM applications. U.S-based SugarCRM is also riding on a $40 million shot of venture capital it raised last summer via a funding round led by investment banking firm Goldman Sachs & Co., bringing its total venture capital to more than $116 million.
In November the company launched the latest version of its CRM technology, introducing the "Sugar UX" application interface, which the company says makes it easier to create customer reports for use across smartphones, tablets, laptops and PCs. It also designed the new version of Sugar UX to access a wider range of customer data, from purchasing history to activity across social media and data pulled from such external databases as company reports compiled by research firm Dun & Bradstreet Inc. Pricing for SugarCRM ranges from $35 to $150 per user per month, billed annually, based on the amount of data storage and other features and levels of technical support.
Vendors expect retailers to increasingly cast off in-house systems. "As we move from a data management approach to CRM into one more focused on optimizing the customer lifecycle, a lot of the older homegrown systems are no longer viable," says Martin Schneider, SugarCRM's head of product evangelism. "Because of this evolution into more customer-centric approaches, we see more and more e-retailers making the move to packaged CRM."
Analysts make similar points. "CRM will be at the heart of digital initiatives in coming years," says Gartner's Correia. "This is one technology area that will get funding because digital business is critical for companies to remain competitive."
Such movement has yet to be solidly reflected in the actions of e-retailers, but as online shoppers become more sophisticated more retailers no doubt may have to consider upgrading their CRM capabilities.