What a Deal

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Anyone who has "bought" the Brooklyn Bridge can tell you: If you want to buy something, make sure the seller owns it first. Yet that notion is growing quaint as companies routinely offer merchandise from partners without first taking possession. At QVC Network outside Philadelphia that idea is pushing the boundaries of retailing as the company continues its expansion from local cable television airwaves to the worldwide Internet. Streaming video on its Web site, selling online in Europe and Asia, and offering more new categories of items for sale than could ever fit in its warehouses mean the company is testing the accepted limits of time and space. Many of QVC's goods are clothing, cosmetics, or jewelry that are not sold elsewhere, which the company refers to as impulse purchases. But manufacturers including KitchenAid USA appliances and Birkenstock Footprint Sandals Inc. footwear are coming to QVC to let shoppers compare their goods online and on screen and make "considered" purchases for something as routine as a new telephone or toaster. Dell Computer Corp. for example, sold 22,000 PCs in a single day and, this fall offered a configuration that was only available to QVC, says Doug Rose, QVC's vice president of merchandising and brand development. All this is pointing to more proficient customer service with greater bandwidth and better inventory management capabilities. Since QVC consumers have moved to the Web in large numbers, the company has worked to keep pace. Inventory counts are refreshed minute-by-minute to reflect purchases tallied by telephone operators and Web counters. Managers and operators can view complete customer records of calls, orders, returns, and e-mails in real time--the elusive goal of retailers trying to fulfill the Internet's promise and a bottomless frustration for those coping with disconnected silos of customer records, and point-of-sale, inventory, return, and finance data that do not mix. Now QVC is moving ahead again, more deeply integrating its call centers so the company's 1,400 operators can look at the combined customer history while also viewing inventories, shipping options, and other data. "We are implementing universal workstations to integrate all of our customer contacts, whether by e-mail, live chat, or phone calls, says John Hunter, QVC's senior vice president for customer service. "This positions us for the future with the infrastructure to provide specialized services. The technology investment along with dedication and enthusiasm of our employees will guarantee success." With more than 110 million phone calls placed by customers in 2000, QVC has already moved a significant portion of its inbound orders to automated self-service systems. In 2000, 43 percent of automated order calls were completed with a transaction. Hundreds of live chat sessions with specialized customer service agents answered questions online. In that year QVC rang up $3.5 billion in total sales. In December 2000 alone QVC handled 65,000 Web e-mails and 69,000 live chats. The challenge of putting a CRM system in place with QVC's financial, distribution, and customer systems meant the company relied heavily on internal IT resources, Hunter says. After the nine-month installation, the new homegrown CRM system produced savings of $2.5 million, he says. Agents solve more customer problems on the first call, saving time on the phone and saving processing time for follow-up. Quality-control research reported an increase in zero-defect calls from 85 percent to 90 percent, and customer research yielded a similar rise in satisfaction, rising from an 87 percent "excellent" rating to 91 percent. Compared with the number of abandoned Internet shopping carts and failed online merchants, QVC's growth online and on-screen casts a long shadow, says Jeffrey Rayport of MarketSpaceGlobal LLC, a Cambridge, Mass. consulting firm. "QVC didn't invent the category but [the company] did it best. It's a 7-by-24 direct sale that lives and breathes based on the market," he says. "QVC doesn't care about Nielsen ratings like other broadcasters, it only cares about what sells. Most Web retailers believed a customer-centric approach was an economic win. But most of them went to a deep-discount model. That isn't a top priority for the customer." Customers of Customers Another leap forward was getting more closely connected to its vendors. QVC has more than 100,000 items on its Web site from 300 vendors and Web links to shipping companies and outside suppliers. A Web-based supply-chain automation system with Commerce Technologies Inc., of Clifton Park, N.Y., began with installation of its CommerceHub supply chain management and translation software for the Web operations. It then extended to the television operation and, finally, to an equity relationship. QVC parent, Comcast Corp., invested $4.65 million in the company in December 2001. Even so, the relationship with QVC is an arm's length transaction, says Commerce Technologies Chief Executive Frank Poore, and his company has been a supplier to QVC rivals Home Shopping Network and Target Corp. Most installations take fewer than 30 days to reach operation, he says, though the price varies depending on the number of suppliers and complexity of the functions. CommerceHub allows QVC's legacy system and homegrown software to communicate with any vendor's system. "We've created a universal plug-in system that lets them get connected to any supplier," Poore says. "It's like the table at the United Nations, where people are speaking different languages, but understanding each other. We do the interpretation and translation and exchange the data in EDI, XML, customized file formats, or a proprietary warehouse management system." Using a rules-based system, QVC executives receive notification whenever an order is not confirmed within 48 hours or when a tracking number is missing. This allows people to solve problems before they affect the consumer, says W. Stephen Hamlin, vice president of operations for QVC's Web operations. While he refused to disclose metrics such as return on investment, he says there have been bottom-line savings, such as not having to expand the company's 14-person IT department. Hamlin would not discuss the costs of the CommerceHub installation, saying only that the company pays a set amount per transaction, as it would with other electronic data interchange providers, while getting more capability. For customers it has meant new shopping options. QVC has expanded into new categories such as food, sporting goods, books, movies, and music, where virtual warehouses can provide about 20 percent of its sales. Drop shipments sent directly from vendors, instead of a QVC warehouse, speed delivery to the consumer and open up thousands of potential sales with minimal extra customer service in label printing or returns processing. "Most of our applications are built in-house, because we're a unique business. We had to build and create systems ourselves because there isn't off-the-shelf business software for our kind of operation," Hamlin says. "This is really integration software, with more than 200 vendors, and it's been phenomenal. We did a lot of manual things before that and didn't have a single platform to operate with a value-added network. [There was] no visibility to see what was done on the other end." The difference, Poore adds, is that while standard information systems show you what is happening, the retail systems allows users to set up rules that identify what has not occurred, then people can ask why. "It's an exception-based management: A delay of 24 hours may not be a concern on a piece of custom furniture that has a 12 week delivery time; it's critical for a video game that has been promised to ship overnight," Poore says. "Companies tend to treat customer service as a messaging concern and turn it over to the IT or operations group. QVC has been doing virtual inventory since it started and make suppliers literally an extension of its operation, he says. So-called virtual retailers, including grocery chains and Amazon.com, spent lavish amounts on warehousing, thinking they could better control the customer experience, Poore says. The drop-ship model makes it possible to sell the entire catalog of music, video, books, and even perishable food items, without the conventional "buy at wholesale, take items to warehouse, unpack and repack for shipment to end consumer" model of retail. Staying Ahead of the Curve
For retailers Christmas is the ultimate test. QVC's Hunter says the warehouse management systems installed in Lancaster, Pa., and Rocky Mount, N.C., handled the company's best holiday performance ever in terms of customer demand and shipping times. All Christmas delivery deadlines were met, he says, and 93 percent of customers surveyed gave the on-time delivery a 93 percent "excellent" rating. QVC often promises delivery dates to consumers that allows for an earlier-than-anticipated delivery, which adds to customer satisfaction. The company is sharing its expertise with other businesses seeking improvements in customer relations, Hunter says. American Airlines, Federal Express, Putnam Investments, and Wells Fargo Bank have consulting relationships with QVC, yet the company prefers not to offer consulting services unless there is a strategic business relationship or some equity arrangement, he says. "Other improvements come from our Customer Service Redesign, an intuitive system where the representatives are not required to remember policy changes. Instead they are built into the system and can change as the business changes without having to retrain all of the representatives. This system functionality ensures consistent service from each and every representative," Hunter says. Another objective is one-to-one marketing--one more dream as yet unrealized among Internet merchants, he says. Call data will be shared among departments within the company, delivering instant information for a customer's call, and letting the company take proactive steps to reduce repeat calls or solve a problem. Consider a scenario in which when customers return items, QVC can then contact other buyers to see if they are satisfied or having the same problems reported by others. Such personalized services are expected to increase profits and loyalty. The stakes are high for companies to map out multiple methods of making a sale, says Randy Covill, senior retail analyst at AMR Research Inc., in Boston. Catalogers now compete for Web buyers along with stores, Web-only merchants, and TV sellers. He found that multichannel consumers spent anywhere from 3 percent to 8 percent more than customers who chose only one method of purchase. And over time they tended to buy higher-profit-margin goods, he says. For example, Eddie Bauer's multichannel shoppers generate three times more revenue than single sourcers. "Catalog companies figured out how to handle fulfillment and returns years ago because they built the infrastructure. There are tremendous rewards if you get it right," he says. Just ask QVC, which saved $2.5 million, and built a 91 percent customer satisfaction rating by implementing CRM to do just that. David J. Wallace is a Boston-based freelance journalist.
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