Market Focus: Retail: How (and Where) May We Serve You?
Retail consumers want to receive a high level of service regardless if they shop online, in a store, through catalogs and telephone marketers, or some combination of channels. The retailers that recognize and meet this challenge of multichannel customer service are the ones that will get the best profit margins.
"Customers want it their way in this multichannel world," says Leslie Ament, director of customer intelligence research at Aberdeen Group. "So retailers are pressed to serve customers through the different channels and to track which channels those customers are using."
Smaller retailers aren't trying to compete directly with the likes of Wal-Mart and Target, but are trying to differentiate themselves by "delighting the customer," says Anu Shukla, founder and CEO of Rubiconsoft. They're investing in CRM technologies like Web 2.0 that enable them to see a total customer view across different channels. "They're no longer treating online as a separate store," Shukla says.
Most customers will use a combination of channels, so retailers need to leverage the information they have regarding customer desires for high- quality, high-touch service in the online and offline world, according to Ament. For example, CompUSA has developed an online community that enables customers to share information about different products, post notices, discuss technology solutions, and have other online discussions.
"The bottom line is what's driving investment in retailer CRM," says Zachary McGeary, associate analyst for Jupiter Research. "The sheer volume of contacts will grow to 32.1 billion by 2010, up from 21.3 billion today. Online contacts are growing at 11 percent per year. As more customers move online, retailers are seeking to broaden their relationships." The most successful retailers doing this, according to McGeary, are those that ensure their online customer service meets real customer needs. Failure on this issue will prompt customers to go to competitors.
McGeary also sees growth in online customer segmentation, with a small, though increasing, number of retailers following the lead of Amazon.com in packaging items and offers together. Typically, when making a purchase at Amazon, the customer will receive a notification that "customers who bought item X also bought item Y," to prompt additional sales.
Another area where retailers are using CRM to enhance their business, according to John Long, senior executive with Accenture, is to determine inventory needs at the local level depending on customer preferences in a particular geographic location. The most dramatic example of this, Long says, is the Wal-Mart store that recently opened in Plano, TX. Unlike most Wal-Mart stores, which cater primarily to customers seeking to save a few dollars on common retail goods, the Plano store features a sushi bar and $400 bottles of wine.
Also, more companies are doing more with test stores, where retailers' theories regarding customer behaviors/reactions are tried out to ascertain reactions before changes are rolled out nationally. "Retailers today are closely looking at customers at the transactional level to better understand what the customers want in stores."
Intelligent Customer Segmentation
Companies don't need to buy complex CRM programs or hire expensive analysts to launch and have success with CRM campaigns. Indigo Books and Music, a Canada-based book retailer, started its own CRM program with nothing more than Microsoft Excel and Microsoft Access and an employee who liked to develop queries.
"You don't need to start with massive budgets," says Grant Packard, vice president of marketing and customer insight for Indigo. "What you need is a commitment of focusing on customer information; access to and comfort with customers; access to and comfort with data; and a patient test-and-learn ethic because you will fail a lot." But testing and failing will help determine the best ways to segment customers for advertising, promotions, and special offers, which will in turn provide significant returns on investments for retailers, based on Indigo's experience.
Customer information helps Indigo determine everything from real estate location to staffing to marketing. The company has different types of stores based on the demographics of the local population. While segmentation has proven to be successful, augmenting marketing campaigns and customer communications with this information and other customer information has provided Indigo with additional benefits.
"Most retailers will have some customers that are very passionate about what they sell," Packard says. In Indigo's case, 2 percent of the customers provide 15 percent of the company's revenue. Fifteen percent of the customers provide 40 percent of the revenue.
The best returns, according to Packard, come from combining customer interests with offers. Rather than offering the top 15 percent of customers "the book of the month," Indigo targets customers based on their previous purchases. Offering customers promotions in the same category (e.g., science fiction books to previous science fiction buyers) provides an additional 50 percent return on the advertising investment. Further targeting these customers by preferred genre (i.e., science fiction humor) and author provides even higher returns--108 percent and 305 percent, respectively. --P.B.