Reinvent the Wheel

Sep 01, 2001 9:30 PM  By

Merchants have been using customer relationship management since they first set up shop in clean, well-lit caves thousands of years ago. They knew, for example, that Og had delighted in the chopping power of his new flint axe, so they made sure to suggest a leather carrying pouch during his next shopping trip.

CRM is a holistic combination of all functions, from customer service to marketing and sales

One of the main functions of CRM solutions is collecting data about customers

Although CRM has risen to the status of a religion in business, sometimes it just doesn’t do the job

Alas, the treasury of customer service knowledge that merchants had passed from generation to generation disappeared during the Industrial Revolution. With the advent of mass production and distribution, a huge range of goods and services became affordable to the middle class — and while businessmen profited from the influx of new consumers, they largely had to forgo the tailored customer service that had been a hallmark of the mercantile trade for millennia.

But over the past decade, customer relationship management (or CRM, as it is now known) has returned from the bin of passé professional practices to again become the most popular business buzzword around. This rebirth comes largely from advances in microprocessor technology that allow for the large-scale and relatively inexpensive reintroduction of CRM.

Direct merchants, in particular, have found that they must embrace CRM, or else risk becoming only a footnote themselves in the history of business. “In today’s world, prices can be matched virtually instantaneously; there is no innovation you can make in products or services that can’t be copied in weeks, if not days,” says Josh Stailey, a senior consultant at Norwalk, CT-based Peppers and Rogers Group, which creates business strategies for customer development. “In many ways, the only differential advantage you can have is the quality of your relationship with the customer. Taking advantage of that opportunity to build loyalty in customers is absolutely critical.”

Hunting and gathering

Popular it may be, but getting a handle on what CRM actually is can be tricky. Typically, CRM falls into the domain of the call center, but everything from IVR systems to sales force automation to personalized marketing has been tagged as CRM.

In fact, CRM is a holistic combination of all functions, from customer service to marketing and sales. “It requires rethinking your company from the inside out,” says Stailey. “It’s a fundamental culture and commitment, and it reflects itself in many, many ways.”

So what does CRM really do? First of all, it gives a business the ability to conduct a true dialogue with its customers on an individual basis. A dialogue implies listening as well as talking, so employees must be trained — and given the tools needed — to listen to customers carefully and answer their questions.

Call center reps, for example, should have a complete view of a customer’s preferences, needs, and previous communications in one database so that second and third calls by the customer are never an issue. This need makes data integration an essential component of successful CRM.

Then there are Web sites, call centers, e-mail, and fax — any place where the customer comes in contact with the company and its products or services. The way a company handles these contacts is another, significant element of CRM.

Effective communication with the customer is only one part of CRM, however. CRM should also enable a company to change its behavior to accommodate each customer’s preferences and needs. A customer might prefer to pay his bills online, for instance, rather than pay by check, or perhaps he doesn’t like the company’s standard method of shipping. Information gathered from each of those contacts should enable that company to perform whatever changes are necessary to satisfy the customer. “In my mind, CRM means that you take all the data and make decisions based on who prefers what kind of contact,” says Steve Jones, vice president of marketing for Hillsboro, OR-based Norm Thompson Outfitters, a consumer specialty retailer that sells products online, in stores, and through mail-order catalogs. In response to its customers’ wishes, Norm Thompson implemented a multichannel alert and response system from PAR3 that automatically contacts customers with reports on their order status.

A properly implemented CRM system can also differentiate customers by their value to the business so that employees will know when to go the extra mile for a firm’s best customers. “Organizations can lose 10% of their customers and it’ll hurt them, but it won’t kill them,” says Stailey. “But if that 10% consists only of their best customers, then they can be crippled or killed.”

How are direct merchants doing on the CRM front? Pretty well, by most accounts. Direct-to-customer retailers, catalog merchandisers in particular, have a better handle on the lifetime value of their customers than most other organizations. “How they make it operational may be different,” says Stailey, “but at least they’re getting a good handle on who their customers are.”

Despite such success, these companies have failed to guard their most valuable customers from other marketers. The practice of selling customer lists actually dilutes a customer’s lifetime value and runs contrary to a true CRM system. To make the best use of its CRM, a business should shield its best customers from outside vendors. The fact that many companies don’t do this indicates that there are still very few fully embedded, CRM-driven organizations.

Cave artifacts

Although CRM is more of a philosophy than anything else, most companies view CRM as a software platform for use in the contact center. One of the main functions of CRM contact center solutions, after all, is collecting data about customers and deploying it anywhere that customers might contact the company. To this end, businesses have choices ranging from database software, call routing systems, and Web chat communication programs to systems that allow the customer and the rep to jointly surf the company’s Web site.

With so many CRM possibilities vying for shelf space, figuring out which software to choose can be a real chore. Andy Zelikovsky, chief logistics officer for San Francisco-based Reflect.com, which sells custom-blended beauty products online, says that one of his company’s top priorities was determining how the vendor views customer service. “We wanted to know how these companies work with customers,” he says. “Do they really mean it, or do they just say it in their slide presentation?” After asking for examples of customer service from each vendor he considered, Zelikovsky checked those references to find out how quickly the customer’s needs were actually met. “You can’t look under every rock, so to speak, but you can investigate and try to understand what these companies are all about,” he says.

Reflect.com naturally considered the core functionality of each platform as well. Says Zelikovsky, “We asked, ‘How easy is it to mine the database to collect the data? How can we cross-reference that data and use it?’”

When HSN (Home Shopping Network), an online retailer and television shopping network headquartered in St. Petersburg, FL, selected a CRM vendor, it examined four criteria: price, the vendor’s financial health, the product’s scalability, and its features and functionality. But it wasn’t as simple as all that. “Knowing what you’re looking for in a CRM solution and sorting through the confusing pile of information is a challenge,” says Jeff Scheerhorn, HSN’s vice president of information technology. “You really have to dig deep into each vendor’s proposal and system specifications to know if you’re making a good selection right now and one that’s going to serve your needs in the future.”

Also important is how a CRM platform will integrate with other functions within the company. “This is not a standalone solution,” Zelikovsky points out. “The information is applicable to many other areas of our business, such as distribution, manufacturing, and order manufacturing. And there are the broader implications of integrating the solution.”

Social behavior

Technology, the first thing that usually comes to mind when discussing CRM, actually represents only one-third of any CRM system. A second component is process, meaning the policies and procedures that affect CRM. Says Zelikovsky, “The CRM software is just a tool. It’s our customer service approach and philosophy that makes CRM work for us.” And work it does, he claims. “Over 20% of all contacts we have in customer service are people writing in and calling us to tell us how blown away they are by the product and the service.”

The third component of CRM involves the employees who will actually be using the system: How will they be trained and motivated to use the equipment? What will the transition process be like, and will the technology mesh with the existing corporate culture?

For HSN, the most challenging part of the implementation was helping its employees manage the change from a mainframe GUI environment to a client-server, feature-rich application. “It’s a pretty big change for the agents on the floor,” says Scheerhorn. “So we focused a lot of energy on communication and training — demonstrating the product to the front line and showing them some of the benefits it’s going to bring to their job.” He is careful to point out that the CRM solution would be an excellent tool for upselling and cross-selling, which would give the agents more opportunities to earn financial incentives.

HSN apparently had the right idea. Getting employees involved in the implementation of CRM can help counter any potential internal resistance to a new system. “We focused on a non-technical but critical issue — how you accept change and address it — with those who are going to be using the system,” says Scheerhorn. “I think the initial resistance was just to the fact that our environment was going to change, but we overcame that by doing an effective job of letting people see, touch, and experiment with the product. That way the agents could get an idea of what the screens look like and how they would navigate through a typical phone call.”

The birth of fire

Direct merchants employ various techniques to use their CRM platforms.

Reflect.com uses two CRM solutions — customer service software provided by Synchrony, and a front-end consumer information management system from E.piphany. In the customer service center, Synchrony populates the knowledge base with information and provides data about particular contacts. “When you get on the phone with a representative, you don’t want to spend ten minutes explaining what you did, what you bought, what you liked, what you didn’t like,” says Zelikovsky. “You want the representative to be extremely knowledgeable about your history, to understand what you’ve done in the past to quickly solve your problem. So we enhance the experience not just in the shopping mode, but in the customer service mode.”

Reflect.com offers a generous guarantee on its custom-blended cosmetics: If a customer doesn’t like the product, Reflect.com will reformulate it and ship it to the customer at no cost. “The CRM application plays a very important role in that service guarantee,” Zelikovsky. “When you call to recustomize that product, we need to know what you have done in the past, which choices you selected to create your unique product. That way we can work with the customer to make it work just for them.”

While off-the-shelf CRM products work fine in many applications, some companies need something a bit more tailored to their business. Los Angeles-based California Cosmetics, for example, tinkered with Computer Solutions’ Order Power! — a program designed for mail order firms — for more than a decade to create a one-of-a-kind system that suits its needs to a T.

Here’s how it works: When a new customer calls, the customer service rep establishes a profile that shows the customer’s name, address, birth date, and order history. Then, whenever that customer calls, her profile is called up on the rep’s screen. California Cosmetics uses the account information to, among other things, follow up on complaints, offer the customer periodic specials throughout the year, and send the customer a yearly birthday card and gift certificate. The company also uses the customer information in its VIP program, which automatically ships merchandise to the customer at certain intervals of time — say, a bottle of moisturizer every six months.

After many years of puttering with the CRM system, California Cosmetics CEO Bob Sidell is delighted with the results and certain that other direct-to-customer retailers should follow in his company’s footsteps. “I think the best choice is to find somebody who has a program off the shelf that gives you a start and the most bang for your buck, with the clear understanding up front that it isn’t going to be 100% what you want,” he says. “You can’t possibly grow a business without growing the software that runs it.”

The Ice Age

Although CRM has risen to the status of a religion in business, sometimes it just doesn’t do the job. If a company sees CRM as a magic bullet for its customer service woes and does little more than slap in a hunk of store-bought technology, the experiment is sure to fail.

Another pitfall is being unaware of the true costs of CRM before the implementation takes place. The CRM software itself might cost $3 million, for instance, but the process changes and employee training involved to get the system running might push the total cost up to $10 million.

Problems also may pop up during the implementation that increase the cost of the system. “There are a lot of other issues that must occur — dominoes, if you will, within the organization,” says Stailey. “And sometimes you don’t see those until the implementation begins. You suddenly realize that the key sales people have a system that’s not compatible with the CRM — or perhaps it’s compatible, but the data transfer doesn’t work for some reason.”

Then there’s cultural resistance and the failure to engage employees in the CRM process. As strategic planning gurus say, people aren’t resistant to change, but they need to be engaged in the process. “You can’t take change and drop it on their desks,” says Stailey. “You engage them in the process of change and they change right along with it. If you don’t do it, it usually doesn’t work. And technology doesn’t do this.”

In the face of falling temperatures, severe ecological changes, and herds of mammoths migrating through their living areas, early cave-dwellers were forced to adapt or die. When it comes to CRM, today’s direct merchants may have developed a sophisticated set of techniques to deal with their customers, but they still fall prey to the same problems that affect other businesses.

CRM is more than a software platform — it’s an organization-wide shift in philosophy. If direct-to-customer companies keep this in mind as they implement CRM, they will survive well into the current Age of Customer Service and make a smooth transition from Og to Zog.

Linda Formichelli has written for Woman’s Day, Business Start-Ups, Psychology Today, Wired, and eCommerce Business. She lives in southeast Massachusetts. Formichelli may be contacted at www.twowriters.net.