CRM for Retailers
As a sector, retail has been slow to adopt CRM principles and practices. Compared with such industries as financial services and telecom, retail appears downright sluggish. The early CRM experiments at retail focused on store-based efforts like branded credit cards and frequent-shopper programs, some of which have taken root and been extended year after year. “There are pockets of CRM success in retail,” observes Adam Sarner, CRM analyst at Gartner Group. “We are seeing some interesting programs in email marketing, in customer service, and in customer segmentation.”
At the high end of the sector, several creative new CRM strategies have emerged. Both Nordstrom and Prada, for example, are experimenting with “clienteling,” which means automating the “black book” traditionally maintained by store sales personnel on their own customers, containing purchase history, preferences and contact information. Sales people will be able to pull up customer profiles and email their best customers about upcoming events like trunk shows or the arrival of new merchandise. “This is the ‘last mile’ of CRM,” says Gartner’s Sarner. “It supercharges the sales person’s ability to manage the existing relationship.”
At the mid-level of the retail sector, the focus is on loyalty programs. In the grocery business, early efforts produced discount cards, many of them still anonymous, that offered little more than the equivalent of manufacturers’ coupons for periodic specials. But grocers are now beginning to upgrade. The Food Emporium chain, a division of A&P, launched in March 2003 a new program called Gold Points. The points can be redeemed for cash savings at purchase or for other rewards like travel or consumer electronics. Gold Points is part of a syndicated program managed by Carlson Marketing Group that includes 8 million customers from over 100 marketers, like TGI Friday restaurants, Radisson Hotels, and FTD florists.
According to Janet Sparkman, executive vice president of consumer strategies at Carlson, the Gold Points program was an immediate success for The Food Emporium. In its first 5 months, the program converted 250,000 members from the previous program, and recorded 52% of store sales on the card. Spend per member was 37% ahead of the previous year. “The earlier program was anonymous and offered little value,” Sparkman comments. “Cashiers would swipe for cardless customers, which taints the data. With Gold Points, we move from a discount card to a reward card. It has more value, and it’s more fun.”
Hallmark also manages a successful loyalty program for its 4500 independently owned retail stores. Launched in 1994, the Gold Crown Card has over 12 million members, with data on their purchase history, contact information and demographics. Hallmark segments the customers by purchase pattern (greeting cards-only shoppers, cross-product shoppers, and promotion responders) and sends marketing messages through direct mail and email, targeted to their preferences.
Jay Dittmann is Hallmark’s vice president of consumer 1-to-1 marketing, and has reporting to him most of the activities one would associate with CRM: the call center, a marketing analytics research group, the Gold Crown Card program, and Hallmark.com. Dittmann notes that Hallmark evolved its enterprise-wide customer strategy over time. “We are not organized solely for CRM. Instead, we are organized for the capabilities. The strategy, the systems, the analytics, the marketing programs-all are integrated horizontally into the business. We don’t believe a functional silo called CRM would be successful.”
Hallmark’s customer strategy concentrates on tailoring products and offers through all Hallmark brand touchpoints, from the Hallmark stores, to the mass retailers who carry Hallmark cards, such as Walmart and CVS, to the Hallmark.com e-commerce channel. But Dittmann admits his customer strategy cannot be called global. “Our dedicated retail network is strictly U.S. based. In the U.K. and elsewhere, we face a very different retail environment. Abroad, our customer strategy must be handled locally, by the Hallmark marketing arms in each country.”
These store-based incentive programs are effective, but they are hardly on the cutting edge of CRM thinking today. What is in the way of faster CRM development in the retail sector? The root causes are many.
Perhaps the largest barrier is the natural tendency toward decentralization endemic to the industry’s structure. “The job description between central operations and store operations will be split forever,” observes Erin Kinikin, an analyst with Forrester Research. “Store people operate independently. To develop a single view of the customer, you need considerable cooperation across stores. Retail will never move to a single ownership model.”
A corollary structural issue is the industry’s traditionally thin margins. Store manager attention is on cost-cutting and operational efficiencies. Technology investments tend to be earmarked for systems that support merchandising, inventory and supply chain, tools like markdown optimization software and bar-coding systems. “When we ask retailers about their IT budget priorities,” says Christopher Boone, retail industry program manager at IDC, “customer-related programs fall to the bottom. Store systems are where the money is going. When we asked about CRM spending, nearly 60% said they were not using CRM tools and had no plans to use them in the next 12 months.”
Another barrier lies in the challenges of multi-channel marketing. As new channels are built-catalog, for example, and e-commerce-retailers have struggled with the systems integration necessary to link customer records. “It’s easy at a single-channel outfit like Amazon,” says Gartner’s Sarner. “But William-Sonoma is another story. It’s rare to find CRM enterprise-wide.”
At the customer level, the fundamental barrier to CRM at retail is anonymity. How can a re-tailer develop ongoing customer management strategies when there is no record of the transaction linked to an individual customer? Much of retail industry CRM activity to date has thus focused on overcoming this essential problem.
Over the years there have evolved a handful of distinct approaches, none of them perfect:
- Store cards, whether a branded credit card or a discount or loyalty card. Only a fraction of customers will use the card, and even then, usage can be sporadic.
- Data matchback from syndicated credit card purchases, where addresses are appended by credit bureaus and added to the store’s marketing database. This option that was essentially eliminated by the Graham-Leach-Bliley Act of 1999, which now forbids address append.
- Training reps at point of sale to collect and record customer contact information. Today, only a small percentage of retail customers will provide contact information when asked. Sales people need to provide customers with a strong rationale in order to improve these rates.
The next stage for retail CRM, after loyalty programs, is likely to be multi-stage marketing, where stores track buying patterns and develop upsell and cross-sell strategies accordingly. “The best retailers are moving toward using an understanding of how customers buy, and turning it into a plan for marketing to them,” says Forrester’s Kinikin. The key tool needed to drive this development is point-of-sale systems that can quickly and accurately capture customer data at the transaction stage. But the problem of training sales reps and motivating customers to give up their information remains.
As long as the retail sector is focused on cost savings, versus revenue enhancements, its customer strategies will be limited. Few retailers have reached the level of developing an enterprise-wide customer strategy, with an understanding of customer value and a plan to increase that value. Today, retailers are just looking for the quick hits of CRM, like screen pops for call centers, and email campaigns to drive store traffic.
As Kinikin observes, “In CRM, retail is just picking up the pennies.”