Magazine Article | January 1, 2002

See The CRM Light

Source: Innovative Retail Technologies

The first step in understanding CRM (customer relationship management) is knowing how to make your sales data work for you.

Integrated Solutions For Retailers, January 2002

I f you don't know what CRM stands for by now, you are in the wrong business. The problem with some retail companies is that, instead of focusing their efforts on managing customer relationships, they still choose to look at their sales data as merely product data. If it were more beneficial to concentrate on product data, there would be a variety of solutions called PRM (product relationship management); but there isn't. "The key [to CRM] is that retailers need to be constantly feeding into one consistent customer database that keeps a running list of who customers are and their purchasing patterns," said Mark Smith, president of Quadstone.

Even during tough economic times, retailers should not hesitate to invest in CRM technology. While retailers Smith has spoken with are expecting a single-figure percentage drop in sales revenue this year over last year, there are retailers, such as Great Universal stores in the UK, that have been able to increase their profits by focusing on CRM initiatives. "This is when it is most important to keep the customers you have, rather than try to go out and find new ones," Smith said. "Retailers with the strongest CRM foundations will not only be able to drive profits during good times, but turn profits around even when their sales figures are down."

But it's not just the economy that threatens retail profits; there is also an increase in retail competition with the explosion of the multichannel strategies and discount stores. This is forcing all retailers to be smarter about how they buy and sell merchandise. Knowing more about your customers through a CRM solution can help you do this.

The Wrong Way To Approach CRM
A mistake retailers make when entering into a CRM project is failing to set out how they will accurately measure the results. "You need to know the current level of profitability from a promotional mailing and then see what happens to the numbers when you change something about it," Smith said. "You may earn an extra $1 off each direct mail piece; that's great, but you better make sure that this profit exceeds the cost to build the system, or you don't have a payback on your investment."

An investment in CRM doesn't have to happen all at once. Focus on smaller pieces of a solution and work toward more once the first phases have proven to be successful. "For each step, a retailer should ensure that it gets a payback in three months, and if it can't do this, it is looking at the wrong kind of solution," Smith said.

The Basics Of Database Design
With so many vendors offering CRM solutions, retailers should be leery of those that do not boast a focus on retail. "A CRM application that is not focused on the retail market might not offer reports based on merchandise categories down to the color, size, or SKU (stock keeping unit) level. It also might not be able to recognize multiple sales channels such as the Web or a catalog," said Nathalie Belanger, product manager for CRM solutions at STS, an NSB company. "Be sure your solution is adapted to what you need it to do."

The base of a CRM solution is sales and customer data that retailers already have, but that information needs to be consolidated into one enterprise-wide pool of names. "We had some retailers who used silo databases. They sent mail pieces to the same customer multiple times, or sometimes they would send them mailers offering different deals," Belanger said. "Not only are these practices expensive for the retailer, but it also confuses their customers when they receive different messages."

Once you have all of that information collected in the same place, it is also important to look at a group of customers' buying behaviors, frequency of purchases, and popular product categories. Once you determine who your target customers are, CRM makes it easier for you to market directly to that group. Then you can move away from mass media messages and focus marketing efforts on specific segments of the customer database. CRM can help put a stop to slipping profits by arming your retail operation with the tools you need. You have the data. Now learn how to use it.