StrateScapes - The New Retail Reality


		Excerpted from StrateScapes - Volume 6, Number 2

The New Retail Reality

Retailers are plumping profits by holding tight to their CRM vision.

Consumers have struck a mighty blow against retail sales. With the recent military conflict and continued economic woes, consumers say they’re hoarding their dollars to pay down debt, decrease overall household spending and save more.¹So how, exactly, is that going to help retailers meet revenue goals? Take a look inside the latest CRMretail Study presented at the CRMretail Conference, and you’ll find that despite the waning spending levels, retailers are still plumping profits by holding tight to their CRM vision.

CRM still a top priority
Companies are embracing customer-centricity, with 63 percent of retailers polled for the CRMretail Study saying they already have a CRM vision in place and another 16 percent planning to follow suit within the coming year. They’re funding the vision, too — 59 percent have a budget in place now, and 21 percent will fatten coffers by 2004. That budget will be parlayed to accomplish their top five goals, including increased:

			Revenues
			Loyalty
			ROI
			Acquisition
			Retention

Tactical approaches to tackling goals
Considering the bad press CRM has suffered in recent years, you wonder if pursuing it is just throwing good money after bad. Not so, say retailers. They’re making headway on their CRM goals by taking the first, best step toward customer-centricity in CRM: getting to know their customers better by segmenting customers using criteria beyond RFM — 70 percent of retailers now say they include lifestyle data in their segmentation efforts.

That’s something Helzberg Diamonds knows a lot about. Its database is home to some 50 segments derived from transactional and demographic data collected at the point of sale, and buoyed with ongoing lifestyle research. This segmenting helps Helzberg assign a lifetime value to every customer, allowing it to not only focus marketing efforts on the top-producing segments, but also to target those marketing efforts to appeal to top customers’ lifestyle interests.

Segmenting isn’t the only way retailers are working toward CRM goals. By year-end 2003, nearly half of all retailers will have some form of loyalty program. Some retailers tie their programs to a proprietary card, such as the Fashion Bug Charge Rebate Program and Dillard’s VIP Rewards™ program. While others, such as Petco’s Petco Pals and Chico’s Passport Club, use a preferred-member card approach. Both proprietary and preferred-member card-based programs allow retailers to effectively capture very telling customer data. Data-gathering isn’t limited to loyalty programs, though. Circuit City, American Eagle Outfitters and The Container Store have all fed their databases through reverse appending from customer telephone numbers.

By year-end 2003, nearly half of all retailers will have some form of loyalty program.

Customer-specific marketing is shaping the marketing efforts of retailers who already have purchase history, demographic and lifestyle data — and with pleasing results. Fresno, Calif.-based department store Gottschalks used predictive modeling to precision-target communications and found that names selected using the model had a four-times-higher average monthly spending rate and three-times-higher purchase rate. They also spent two-and-a-half times more per direct mail piece than names selected using an RFM model.

Moreover, when Gottschalks eschewed RFM in a back-to-school campaign in favor of a cross-departmental model incorporating detailed purchase behavior, such as the average time between purchases and the amount spent, they found that if they had used the RFM criteria, they would have missed an opportunity with 40,000 customers highly likely to buy — and that ultimately outperformed the RFM group.

One pet products retailer is working its data harder by identifying customer segments based on type of animal owned and lifecycle of the pet. This information is then used to target communications to better cross-sell and upsell by delivering more relevant offers and information. For example, puppy owners might get diet information to help them transition their puppies to adult maintenance food, whereas bird owners might get information about how to keep their winged friends from getting bored.

In-store initiatives are getting a boost from data, too, with 52 percent of retailers leveraging customer information at the store level, something Eddie Bauer Canada does with the help of smart card technology. Eddie Bauer customers can shop at any location with their branded loyalty card and have their point totals updated in real-time. This allows Eddie Bauer to automatically issue customer-specific messages and reward certificates at the point of sale when customers reach pre-assigned point levels. By doing so, Eddie Bauer delivers immediate gratification to its customers and saves money since they no longer have to mail customer rewards.

Canadian grocer A&P also rewards its Baby Bonus Club members with offers based on purchase history. For example, a member who’s bought formula and baby wipes might receive a diaper offer, effectively fulfilling a member need and cross-selling related products. Members also get updates on the points earned — and how close they are to receiving their $20 gift certificate reward, keeping aspirational momentum going.

And to keep their CRM efforts off the budget chopping block? Retailers polled say they’re tracking metrics such as:

			Customer Retention
			Sales per Customer
			Customer Repeat Purchase Rate
			Profit by Customer
			Accuracy of Customer Profile
			Lifetime Customer Value
			Customer Acquisition
			Cross Channel Promotion

Indeed, these metrics are sure indicators that your CRM vision’s coming to fruition. And it’s no surprise that customer retention and sales per customer came out on top. After all, when you look at the familiar statistic that a 5 percent increase in retention leads to a 25 percent increase in profits,² it’s hard to deny how crucial measurement is to your program’s survival — and CRM’s validity.

¹ March 2003 BIG Research data
² Bain Study

STRATESCAPES and STRATESCAPES SUPPLEMENTS are published by Customer Communications Group, Inc., a full-service agency specializing in relationship marketing and customer communications. Our comprehensive, turnkey services include data analysis, customer segmentation, strategic consulting, account management, creative execution, print production and multimedia solutions.