November 19, 2003

Clienteling Retailers

Obstacles aside, retailers embrace new strategies. Loyalty, redemption, preferences, For Hallmark, The strategy, the systems, the analytics, the marketing programs-all are integrated horizontally into the business.

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Obstacles aside, retailers embrace new strategies

In a business that's all about selling to the customer, it would make sense that the retail sector would be a quick study when it came to better serving the customer.
But it's not.
Retail has been slow to adopt customer-centric principles and practices. 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. "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. It contains purchase history, preferences and contact information. Salespeople 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 Sarner. "It supercharges the salesperson'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 a new program in March 2003 called Gold Points. The points can be redeemed for cash savings at purchase or for other rewards such as travel or consumer electronics. Gold Points reward network is a coalition loyalty program managed by Carlson Marketing Group that includes 8 million customers from over 100 marketers, such as TGI Friday restaurants, Radisson Hotels, FTD florists and Thrifty Car Rental.

Value at the food chain
According to Janet Sparkman, executive VP of consumer strategies at Carlson, the Gold Points program was an immediate success for The Food Emporium. In its first five months, the program converted 250,000 members from the previous program, and recorded 52 percent of store sales on the card. Spend per member was 37 percent ahead of the previous year. "The earlier program was anonymous and offered little value," Sparkman says. "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 4,500 independently owned retail stores. Launched in 1994, the Gold Crown Card has more than 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 messages through direct mail and email, targeted to preferences.

Jay Dittmann is Hallmark's vice president of consumer one-to-one marketing. Activities reporting to him include the call center, a marketing analytics research group, the Gold Crown Card program, and 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," he says. "The strategy, the systems, the analytics, the marketing programs-all are integrated horizontally into the business."

Hallmark's customer strategy concentrates on tailoring products and offers through all Hallmark brand touchpoints, from the Hallmark stores, to the mass retailers that carry Hallmark cards, such as Wal-Mart and CVS, to But Dittmann admits his customer strategy cannot be called global. "Our dedicated retail network is strictly U.S. based," he says. "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 at 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."

Razor-thin margins
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 percent 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 Williams-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 retailer develop ongoing customer management strategies when there is no record of the transaction linked to an individual customer? Much of the retail industry's CRM activity to date has 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.

Understanding the customer
The next stage for retail CRM, after loyalty programs, is likely to be multi-stage marketing, where stores track buying patterns and develop up-sell 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 Kinikin. The key tool needed to drive this development are point-of-sale systems that can quickly and accurately capture customer data at the transaction stage.

As long as the retail sector is focused on cost savings rather than 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 call centers and email campaigns to drive traffic. As Kinikin observes, "In CRM, retail is just picking up the pennies."

Posted by Craig at November 19, 2003 07:40 PM