In search of CRM

Jan 01, 2000 10:30 PM  By

It’s the buzzword among marketing proselytizers, visionaries, and MBA-types. But even catalogers that recognize the term `customer relationship management’ aren’t sure what it means – or how to achieve it

These days, it takes just three letters to bring even the most sophisticated catalogers to a state of head scratching. Those letters – CRM – stand for “customer relationship management.” Some say CRM is going to revolutionize the industry, increase customer loyalty, and build retention. Some say CRM is the harbinger of true one-to-one marketing. But most catalogers and technology consultants, when asked to define CRM, say something like this:

Randy Erdahl, group manager of database marketing, general merchandise cataloger Fingerhut Cos.: (Pause) That’s a good one.

Don Gordon, vice president of advertising, computer cataloger CDW: We define customer relationship management as using the technology we have developed internally to provide information to customers that we believe is something that responds specifically to their information needs….

Greg Amrofell, senior analyst, CRM consultancy IMT Strategies: We have a precise definition that I can e-mail to you.

In short, CRM is a buzzword so new and vague it seems almost pointless to catalogers – except for one thing. By most accounts, CRM really is going to increase customer loyalty and retention, and it really is about as close as catalogers are going to get to the holy grail of one-to-one marketing.

Some catalog marketers, by beginning to embrace some of the principles of CRM, are reaping the benefits. But before looking at these companies, it’s important to clarify exactly what CRM is.

Each consultant and cataloger has his or her own definition, but most agree that the ultimate goal of CRM is to enable customers to drive a marketing offer. “It’s basically taking a holistic view of customers,” says Kathy Biro, CEO of Strategic Interactive Group, a technological marketing consultancy. “It’s a data-driven understanding of the customer at all points of contact. It’s about understanding her channel preference and purchase history and being able to predict with reasonable ability what she’s likely to do next.”

In other words, “CRM is the ability to learn from and keep track of individual customers so that we can do something for that customer that our competitors cannot do,” says Martha Rogers, partner of Stamford, CT-based marketing consultancy Peppers and Rogers Group (formerly Marketing 1to1). Example: Telecommunications company AT&T now routes incoming customer calls automatically according to the customer’s importance. Big long-distance spenders, in other words, don’t dangle on hold. Floral gifts marketer Calyx & Corolla personalizes catalogs with the customer’s previous gift purchases, asking if she would like to once again send Aunt Sue an orchid for Thanksgiving. “Most catalogers,” Rogers says, “are falling way short of that.”

CRM is also about channel management. Catalogers with a Website, a fax, and a phone order system, for instance, would use CRM to track not only what customers buy, but also how they prefer to be contacted. Say a customer goes to the Website of an outdoor apparel cataloger and looks at Wellington boots, then at sherpa coats. Two days later, she calls the company to order the boots. The cataloger could then use the CRM strategy to take the following actions:

n flag a special on coats next time she clicks on the site;

n send an e-mail message offering a discount on coats or boots;

n flag the order-taker with a message to offer the customer a discount on coats;

n personalize the customer’s next catalog with a special coat or boot offer – or with whatever product the cataloger knows is likely to follow a boot purchase.

Granted, in some ways CRM doesn’t sound a lot different from the same old target marketing strategies. After all, practically every cataloger with a database can model customer and prospecting lists to cherry-pick the most responsive names. Many also analyze past purchase data to refine mailing campaigns: If Customer X purchased shoes twice in six months, send her an accessories offer.

“I’ve been doing database marketing for 23 years,” Fingerhut’s Erdahl says. “CRM is just a new term for an old thing for me. It’s personalization, it’s targeting, it’s matching [products and mailings to] what the customer’s stated preferences are.”

But in reality, CRM goes beyond Erdahl’s simplistic definition. It goes beyond database marketing. In fact, database marketing is just one part of the CRM strategy.

A true CRM system provides everyone in a company – order-takers, sales reps, managers, and marketers – with a unified view of a customer’s information: Everyone knows that Customer A ordered six pairs of size 10 socks via the Web after ordering hiking boots over the phone last month.

Here’s how it’s done: CRM integrates and houses customer data from all touch points (catalog, retail, telemarketing, direct sales, Websites) in a data warehouse. That information can then be fed, in real time, to everyone across the firm.

Here’s why it’s done: With CRM, catalogers wouldn’t simply be marketing more efficiently – the usual goal of “target” marketing. They’d be marketing more effectively by letting customers dictate what and how they want to buy. As Rogers says, “CRM is not about slicing and dicing mailing lists. It’s not about better-targeted harassment.”

It’s no coincidence that the buzz about CRM has escalated in tandem with the Internet. Thanks to the Web, customers can now access price and product information everywhere. That means commodities, such as books and CDs, are sold more and more by companies that offer not only superior price and selection but also superior service. Why wait for a phone order-taker to gather reams of customer data when the Football for Dummies book is literally one click away?

“When you introduce the Web [as a shopping channel], there are very high expectations about service and delivery,” consultant Biro says. “Targeted marketing is one-shot: I understand you and give you this offer. CRM has to do as much with servicing and customer care as it does with marketing. Because we live in a multichannel environment, you have to say, `I know what you’ve done in the catalog, the store, and the Website. I can now deliver you information that is more relevant and improves your loyalty. Even if I don’t make a sale now, over time I will enhance the lifetime value of you as a customer.’”

So who’s doing CRM successfully in cataloging? Below, we look at four firms that claim to be successful CRM users. In reality, however, most haven’t integrated the total CRM approach – that is, they’re not really using all their customer data to drive all their marketing strategies.

But all four are doing a lot better with their customer data than they used to.

INSIGHT ENTERPRISES

Location: Tempe, AZ

Type of company: Computer hardware, software, peripherals

Size: 1999 sales of about $1.5 billion

How Insight defines CRM: “We’re focused on the customer and how to deliver value and how to get information in front of them.” – Brian Burch, former senior vice president, marketing

How it works: “Our mission is to be proactive to the customer,” Burch says. All customer transactions are captured in a proprietary data warehouse; emphasis is on using the Web and account managers to collect information, drive sales, and maintain relationships among customer base of small and midsize businesses.

Data warehouse specifics: Built when the company launched 12 years ago. Insight is moving to an Oracle-based software system and negotiating with InterWorld, an infrastructure-enhancement company, to speed up and expand the system’s front end. Won’t disclose cost and size of data warehouse.

Data warehouse name: Max

How data warehouse information is used: 1) Via account managers. Each customer is assigned an account manager who tracks and collects all customer information across all channels. Information is stored on Max and used to target outbound calls (for instance, introduce products, check in on large repeat buyers) and to service customers through phone and e-mail. 2) Through “customer self-service” over the Internet. Insight enables customers to “subscribe” to more than 100 electronic publications (featuring product specials, close-outs, and so forth) and to access customized Web pages that feature products and offers that match their buying profiles. All customer sales, whether over the phone or through the Website, are confirmed via e-mail.

The results: Insight has cut back catalog mailings dramatically. All prospecting is now done through outbound calls and through electronic links with marketing partners such as U.S. West. Catalogs are mailed only to people who request them. Outbound calls total 1 million a month; outbound e-mail communications total 1 million a week. Web-generated sales were 9.1% of total sales in ’99. Insight has 1,400 account managers worldwide.

FINGERHUT COS.

Location: Minnetonka, MN

Type of company: General merchandise

Size: Estimated 1999 sales of $2 billion

How Fingerhut defines CRM: “I called it target marketing up until people started calling it CRM. It’s matching the product and the offer to the customer based on the information we have for the customer.” – Randy Erdahl, group manager, database marketing

How it works: The data warehouse collects customer purchase and payment information across every catalog mailing, which is overlaid with demographic and lifestyle data. The company has not yet integrated its Website data into the system.

Data warehouse specifics: Fingerhut began building its current database system about five years ago; it’s been live since September 1998. Fingerhut has 60 million customers in its file. Records for each of the 12 million active 12-month customers contain more than 3,500 attributes that feed predictive scoring models. Website data will be added in the next few years. “We want to tailor the whole sequence of outgoing marketing efforts, whether they be by phone, Internet, or catalog,” Erdahl says. Cost is undisclosed, but “we spend tons of money annually on this,” he says.

Data warehouse name: Eureka

How data warehouse information is used: 1) To optimize the mail stream. Fingerhut potentially can mail up to 100 different catalogs per customer. By modeling and scoring both its customer data and its catalog mailing data, Fingerhut now can predict the outcome of mailing every individual catalog to every individual customer. “We can choose which is the optimal number of catalog mailings for each customer, and which are the right catalogs,” Erdahl says. 2) To support customer service reps and order-takers with purchase history data.

The results: Fingerhut has cut marketing costs by millions of dollars, with no significant effect on revenue. “Truly redundant, wasteful catalogs are staying out of the mailbox – at least the ones that we have control over,” Erdahl says.

CDW

Location: Chicago

Type of company: Computer hardware, software, peripherals

Size: 1999 sales of about $2.3 billion

How CDW defines CRM: “We use all the information we can get our hands on and the technology we’ve developed so that we can provide the customer with specific information of a specific value at a specific time.” – Don Gordon, vice president, advertising

How it works: Proprietary data warehouse collects customer purchase information overlaid with business-to-business data, such as SIC codes, as well as CDW customer survey data. Information flows in from all customer contact points. Each customer is assigned an account manager. Seven catalog variations mail every six weeks, not counting product-specific mailings.

Data warehouse specifics: Two years old; CDW won’t disclose cost. The company has 475,000 active 12-month buyers.

Data warehouse name: “We call it awesome,” Gordon says.

How data warehouse information is used: 1) To target specific computer brand offers to specific customer segments. For instance, proven Compaq buyers would receive 16-page supplements on new Compaq products, as well as e-mail or phone offers, depending on how they prefer to be contacted. 2) To support the 750 account managers, who make outbound and inbound calls to their specific customer base of small and midsize businesses. “They get to know that customer very well and are always communicating with the customer and constantly updating information,” Gordon says. 3) To build customized Web pages for repeat buyers. “The customer can look at products that are custom-configured to his specifications, his unique pricing, and his purchase history.” The Website, which features 50,000 products, is now the company’s primary source of product information to customers and prospects. 4) To streamline mailings. CDW now has direct mail and catalogs targeted to specific users.

The results: Eighty percent of CDW’s sales now come from repeat business. The company’s total sales grew 40% last year, and Web sales, which make up 6% of CDW’s total sales, were up 140%. CDW no longer mails any “big books” or advertises in trade magazines for prospects.

HANOVER DIRECT

Location: Weehawken, NJ

Type of company: Sells apparel, home goods, and gifts through 12 specialty catalog brands

Size: 1998 sales of $546 million

How Hanover defines CRM: “A branded customer experience.” – Michael Contino, senior vice president/chief information officer

How it works: The data warehouse collects customer data and purchase information in real time, from all Hanover catalogs and across all contact channels – phone, fax, and Web. Address standardization minimizes redundant mailings across brands. Hanover has 4 million 12-month active customers, mails 235 million catalogs annually, and has 900 call center operators. Previously the company collected transactional data for each of its catalogs without merging any of the information; catalog mailings were often redundant.

Data warehouse specifics: Houses 40 million unique records across all catalog brands. The system runs on a Sun platform with Oracle software. Initially built three years ago; cost so far is about $5 million.

Data warehouse name: Snoopy

How data warehouse information is used: 1) To plan predictive marketing across the catalog brands. For example, someone buying certain linens from Hanover’s Domestications catalog may receive an offer from its Company Store title, which also sells linens. 2) To support operators at the call center. Operators are now assigned and trained in particular catalog brands and customer profiles for each brand. Reps for high-ticket gifts book Gump’s are trained to discuss unique product and gift ideas; Improvements reps give information to customers in a hurry. Product history is available for upselling and cross-selling. 3) To customize Web interactions in real time. Customers who spend time with a product on one Web page will find a tailored product offer or banner ad when they click to the next page. 4) To halt mail waste. The data warehouse takes into account not only purchases, but also returns and other customer behavior that affects profitability. Customers with a poor profit pr! ! ofile don’t get remailed, regard less of purchase history.

The results: The call center, once treated as an internal service bureau rather than a marketing arm, is now a profit center. Sales on Hanover’s real-time customized Web pages are twice that of sales on its standard Web pages. And “we’re mailing much smarter, which allows us to mail deeper to prospect lists,” Contino says.

So how do catalogers move from database marketing to CRM? First, they need technology. That means developing or buying software that can track customers and capture purchase data, whether it’s done by phone, fax, snail mail, or e-mail. It also means creating a data warehouse to store the information, as well as building integrated systems that flow that data back to every other catalog operation. Thus, marketing, sales, customer service, and fulfillment all know what the customer is doing, when, where, and how – and in real time.

Catalogers also need to make an attitudinal shift. That means looking at their business strictly from the perspective of the customer, not the product or the offer. “[Regular] target marketing means, `How do I improve the ROI on this specific campaign,’” says Kathy Biro, CEO of Strategic Interactive Group, a technological marketing consultancy. “CRM is looking at customers as an asset across the board.”

In moving to CRM, a cataloger’s biggest asset is probably the Internet. For one thing, e-commerce data allow catalogers to track not only what customers buy, but also what they’re interested in buying or what they’re not buying. That information alone can enable catalogers to enhance their data warehouses with detailed information about how and why customers shop with them.

Second, one-to-one marketing is much easier to achieve on the Web than in print. Even if a cataloger knows, for instance, that 17 customers from Cleveland bought umbrellas in the past month, mailing special raincoat offers to these buyers wastes time and money, given that the books wouldn’t arrive until weeks after the umbrella purchase. Customizing Web pages, on the other hand, is a fast, cheap alternative. As soon as the customer clicks on “umbrella,” Web software can prompt a banner for raincoats. “It’s more cost-effective in e-commerce to create a custom offer for an individual,” says Mike Grant, president of New York-based database marketing consultancy Michael I. Grant & Associates.

The Web, adds Rick Schultz, vice president for retail industry at NCR Corp., a Dayton, OH-based database company, “is key to creating a continuous customer relationship process.” Once a customer shows a product preference on a cataloger’s site, “you can have real-time delivery [of a special offer], followed by capturing more data and more analysis. With electronic customer service and support, you’ve got all the meaningful transactional data to understand cause and effect. You can learn if you really captured the customers you were truly targeting with your offer.”

The only question left, then, is whether any catalogers are in the realm of CRM, or can even afford to aim for it. Considering the investment required (the cost, says Biro, “can be really significant,” often in the hundreds of thousands to millions of dollars), relatively few catalogers have the size and money to build or buy integrated CRM packages and data warehouses. Moreover, CRM packages are not plug-and-play. Catalogers often don’t know which data elements are worth capturing and which aren’t, nor do they always know how to turn that data into marketing intelligence.

The slower, modular approach

The average cataloger looking for CRM, then, would probably do best by building a system gradually, adding separate modular components. Some business-to-business catalogers – many of which are already database marketing masters – have started off with sales force automation, enabling sales reps to automatically access critical customer data, such as title, previous products purchased, company size, and years in business. Beyond that, catalogers can use marketing automation systems to manage sales campaigns, mine databases, customize products or product offers, or track leads.

Most small catalogers, though, have to get even more basic. Only about half of small catalogers surveyed by Catalog Age even calculate lifetime value, according to this year’s Benchmark Report on Databases (April 1999 issue). That means many catalogers looking to get closer to customers simply have to invest more in database marketing.

“What’s critical to CRM success is having a well-defined objective with specific measurable goals attached,” says Greg Amrofell, senior analyst at CRM consultancy IMT Strategies. “An objective could be to improve customer retention by a certain percentage, or to raise the average purchase size from a particular customer segment. Those things are pretty straightforward. But it’s easy to get caught up in the hype and try to do 17 things at one time. Making the shift to being a customer-centric organization is not a one-year process.”

So is anyone really implementing CRM? In the catalog world, the answer so far is probably no.