August 13 2007

Is CRM a worthwhile investment?

An article was posted recently on IR.net in which Penelope Ody from The Retail Business Show newsletter questioned the value of CRM. Graham Lomax, Head of Retail Sales for Neolane responds...

Retail companies have spent large amounts of money in the pursuit of CRM and certainly the promise of CRM has in many instances not been realised. In part this failure may be due to the lack of understanding of what is meant by CRM. Ask most marketing departments what is meant by customer relationship management and then ask what CRM is? You will find a lack of consistency in response.

The original promise of CRM was threefold: To understand the behaviour of customers to improve targeting, spread this information throughout the enterprise to allow customer facing staff to be more effective and to reduce costs. Unfortunately, as Penelope identifies, the reality can be something else, with customers treated as segments around products and services, the marketing department thinks it's in control and the customer feels bombarded with trash for the recycling bin.

Usually there are 3 overriding reasons for the failure of CRM in retail: The previously mentioned lack of understanding of what CRM means to the retailer and their customers, internal politics and a failure to recognise and implement organisational changes. Typically this is evidenced by the marketing department's total failure to establish any form of related commercial objectives often coupled with a complete abrogation of responsibility to an IT department. I have lost count of the number of occasions that senior marketers have told me that they have CRM, it will be arriving in 6 months time but they don't know exactly what they will get. I try to imagine the board meeting that delegated customer relationship management to the IT department.

The arrival of the web has done nothing to contribute to the clarity of customer relationship management. Most retail organisations have reacted to the web in a defensive manner replicating the offerings of online pure plays and websites that push limited information. For many retailers the web is just another store or an advertising medium. The web however is not just a broadcast medium; it is interactive and in that respect provides the one element necessary for a successful customer relationship to emerge within a fast moving and highly competitive environment.

The web enables the retailer to commence and sustain a dialogue with both its prospects and customers almost regardless of the scale of customer base and products stocked. Properly used it can enable the customer to define how the relationship with the retailer should be determined and on the customers own terms. There is much evidence to support the view that customers are happy to share personal information with retailers provided they see a benefit in return.

Penelope cites the example of Harrods which has taken 3 years to establish sufficient relevant customer data to drive down marketing communications costs whilst increasing response rates. Refining customer information is of course a perpetual task but new styles of technologies exist today that dramatically reduce the time to effectively implement meaningful customer relationships and realise value.

The key elements to success are:

A clear set of measurable objectives. The ability to quickly and easily assemble data, regardless of source and deliver it, fit for purpose in to the marketing department without constant reference to the IT or analyst community. The ability to segment the database by a combination of marketing department and customer defined criteria, allied to the ability to run campaigns along the same criteria. To be able to deliver those campaigns through customer determined media. A workflow that incorporates all the relevant staff and finally the ability to measure the results. Many readers at this point will be throwing their hands up in despair, simply because this sounds like an impossible task.

Typically it can take a retail organisation well over 2 months to take a marketing idea from concept to delivery. The potential friction points are multiple; involving data, cleansing, legal admissibility, creative elements, multiple formats and so forth. This is why Penelope receives inappropriate communications. The information required is usually available within the organisation but the time taken to access it and deliver it means that the short cuts and broad assumptions have to be made.

Yet there are also multiple examples of organisations that have overcome these problems and achieved significant benefits within remarkably short time scales.

In France, Alapage,the retail division of Wanadoo, has managed to automate very sophisticated relationship programmes with their customers that allow it to propose products and services to its customers in such a timely and relevant fashion that it has increased conversion rates by over 100%. As Catherine Declercy, the company's Direct Marketing Director recently informed FT.com

Accor Hotels has managed to save £200,000 in marketing spend whilst simultaneously carrying out more than twice the number of campaigns and increasing revenues by £120,000,000. Its customers have responded to this improved targeting very positively with a resultant 30% increase in reactivity rates

Packard Bell, Europe's leading supplier of PCs to home markets, is currently averaging 500 'campaigns' monthly with a recipient number per campaign of only 850. With this level of personalisation its customers have also responded positively resulting in 50% revenue gains.

French retailer FNAC has managed to maintain it's pre-eminence in the high street whilst simultaneously running the number one French e-retail site with over 20% audience share. The direct measurable result: turnover up by 132million Euros.

So, in answer to Penelope's questions: Is CRM a worthwhile investment? The answer for the above companies and many more that I can identify is a resounding yes. Penelope also asks "why do retailers have such a preoccupation with customer relationship management?" In answering her own question Penelope both identifies and commits the very same error she accuses the retailers of. She answers by stating that most of us don't want a relationship with our butcher we just want to buy meat. Meat to her is a commodity and thus she will approach buying meat in that fashion. I would suggest that there are just as many customers who take exactly the reverse view and do indeed want a relationship with their butcher and are interested in the provenance and advice of the supplier. An out-break of foot and mouth disease would substantially increase the number of customers with such a view.

The retailer, regardless of its size that gets it marketing communications relationship with its customers right will reap enormous dividends and the evidence to support this is out there. The scale of modern retailing requires this to be an automated process but automation does not mean a lack sensitivity or relevance and value.

A very close friend of mine constantly refers to the failure of junk mail and the invasive nature of marketing communications. This same friend also gets quite excited when the latest vouchers arrive through the letter box or inbox and avidly informs me of the savings that result. Perhaps we approach retailers in the same fashion we do politicians. We know we need them but we don't expect much from them. The retailer that manages customer relationships to meet and exceed expectation wins my vote every time.