Dump the silos

May 01, 2008 9:30 PM  By

If you ever play air hockey at Bud Reed’s house, get him to tell you the horror story about how he got his table. It’s a perfect illustration of how many retail dinosaurs still separate their multichannel customers into silos.

Reed, president/CEO of the e-commerce firm Timberline Interactive, bought the air hockey table on the Web and had it shipped to his local Sears. When he went to pick it up, he noticed damage, but was told by the store manager he’d have to talk with someone in the online division.

That person, in turn, told him to call the store manager.

“I bought it from Sears. I don’t care what channel the order came from, and that’s how any customer is going to view it,” Reed says. “I don’t think some of the big retailers have adopted that mindset yet.”

Dinosaurs move slowly, which would explain why some small and niche retailers are able to be more creative with their multichannel contact strategies. The ones that are doing it well are typically less than 10 years old, and started as Web merchants, says Ken Lane, president of direct marketing agency Hathaway & Lane Direct.

“They’re nimble,” Lane says. “They incorporated contact strategies into their plans, and built a database able to support other channels in the future.”

As a result, these guys can get a much better view of their house file and come up with more targeted offers they can send via a customer’s preferred method of communication.

Some, like motorcycle accessories and parts merchant Dennis Kirk, are able to send out offers based on the make, model and year of a customers ride. Wine merchant Geerlings & Wade and its home party title The Traveling Vineyard can customize offers based not only on a preferred channel, but on a vintage that may be to a buyer’s liking.

If your database can’t do that, don’t fret. It’s not too late. Still, why haven’t the geezers of retail tried to keep up with the whippersnappers? Lane says for those still using legacy platforms, it may be a fear of the unknown.

“The problem is they know they have to do this, but they’re hitting a wall, or don’t want to put out the expense to do it the right way,” Lane says. “They keep putting it off. Then suddenly after Christmas, they still haven’t done anything.”

Creating a more efficient customer database is essential if you don’t want to fade into retail extinction. “With postage rates rising and prospecting becoming harder, this is the time for retailers to stop talking about improving their contact management and start implementing,” Lane says.

Reed agrees, especially when he sees old-school merchants like Macy’s unable to deliver targeted and relative messages based on in-store purchases. But, they seem to do a good job with customers acquired online.

“Those big merchants have legacy systems that have driven their businesses for decades,” Reed says. “They may have multiple channels, but it’s one company, and customers don’t care. The attitude that channels have to be run as separate businesses has dissipated.”

Another problem was that many old-school companies — including catalogers — saw the Web as something separate from their other businesses, and even considered it a necessary evil cannibalizing other sales. So, the silos remained.

Revamping a legacy system may be a major investment, and it certainly won’t happen overnight.

“To get to the point at which it can integrate with Web data is a very big IT project,” Reed says.

Getting it right That also goes for merchants that went through the process even only a few years ago, says Bob MacInnis, a vice president and marketing systems architect at e-mail marketing firm eDialog.

“The concept of taking from multiple silos and [creating a single] database has been going on forever,” MacInnis says. “If you look back 15 years ago, it’s something that needed to occur. In the last few years, as people started to get the pieces in place for effective direct mail, more e-mail marketing kicked in, and a whole new set of data was needed. Now real-time data should be combined with direct marketing data.”

MacInnis says only about 20% of merchants are doing a good job with their database marketing. And about four years down the road, as new tactics like mobile marketing start to kick in, only 21% or 22% of merchants will have a strong handle on their multichannel contact strategy.

Is there a quick fix? Or will the project be a long and winding — and expensive — road? It depends on what you want to accomplish, and how much of your marketing budget you can devote to refining your strategy.

Lane says he tells clients to take their marketing budget, determine the percentage they want to dedicate to building the database, and then recognize it’s going to increase over time. You can start as low as 5%, or go to extremes like 50% if that’s what the situation dictates.

“A former client in the travel sector realized they hadn’t put enough strategy dollars into managing their contacts,” Lane says. “But they’ve been around for a while and didn’t want to move 40% of the marketing spend there. So maybe they start at $2,500 a month, or $5,000. But the point is that you have to start somewhere.”

What kind of information fields do you need to make your database effective? Again, it depends on what you sell, and where you see future business expansion.

For example, eDialog leverages what customer information a merchant already has and combines it with other pieces of information not already on file, such as past purchases and contact info. If the merchant was doing a good job with its database marketing, it can build a virtual view of the customer file, even if the information isn’t fully integrated, before putting everything into a data warehouse.

“It gives the marketer a virtual view of the customer file,” MacInnis says. “We know it’s the same person, but the information hasn’t been physically merged yet.”

That’s the quick fix. But after that, how long can it take for a fully-integrated multichannel database to be built? MacInnis says anywhere from six months to two years. And it’s an ongoing process that requires constant updating.

“You can have 20 sources of information coming in, and you need to continuously take the feeds and keep them correct and updated,” MacInnis says. “Most marketers haven’t done that.”

Vintage strategy Wine seller Geerlings & Wade is one small marketer the big guys can look to for an example of how to get multichannel right.

Jake Hall, director of consumer marketing at Geerlings & Wade, says in years past its customer file was mostly built on single wine mailings or letters mailed to customers that focused on a particular SKU. The strategy worked well, and the company moved on to transition into catalogs and launched the home party title.

“Now, thanks to four-color printing digital technology, we’re looking to go back to our roots, sending out more customized mailings,” Hall says. “For very little incremental cost, we can have a dozen versions of the catalog going out. And we’ve seen definite conversion rate and cost improvements that we couldn’t do when mailing out thousands of a single piece.”

By going through SKU data and preferred past purchases at Geerlings & Wade, or survey and tasting data received from Traveling Vineyard home party hosts, the merchant can determine what kind of wine offer a customer is more likely to respond to, Hall says.

How hard was it for Geerlings & Wade to change — or change back — its ways? Not very.

“We’re leveraging data we already have,” Hall says. “It’s fairly easy to come up with cross sell opportunities, and then decide whether to send physical mail or e-mail.”

Can something like this be an intrusive marketing tactic? Not really, says Lane. If you are a niche seller, there’s a better chance your customer will open up more to you about his or her likes and dislikes.

“If you have the right customer data on file, for certain niche markets like running, the cross-sell can work,” Lane says. “Let’s say I buy and like a pair of New Balance running shoes in a size 12, and I indicate how many miles I run a week in season. If the merchant sends me an e-mail saying that they are running a special on the shoes, and mine are about to wear out, you can bet I’m going to buy.”