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A White Paper 5 Steps to Effective Retail CRM Given the challenging business climate currently facing retailers, it may seem to be a bad time to talk about investment. But when business is at a premium, it is arguably the best time to invest in the most valuable resource a retailer has: customers. Much of the growth and value to be gained at retail in the near term will likely come from attracting and retaining customers. Customers today are constantly in a hurry and sometimes impatient but are always ready to spread the word about their experience, so the best a retailer can do is to understand them well enough to thoroughly meet their needs. For example, a recent research report from the IBM Institute for Business Value, titled “Why Advocacy Matters to Retailers,” found that Advocates (defined as customers who would recommend the retailer) spend on average 17% more with their primary retailer than Antagonists (defined as customers who actively dislike their primary retailer). SPONSORED BY Achieving this advantage means building strong customer relationships, which are typically formed by merchants who have the best information and intelligence about their customers. The majority of retailers are now realizing the value in building stronger bonds with their customers and putting dollars behind that effort. According to a 2007 report from AMR Research, 53% of retailers planned to add, improve or replace their CRM applications to increase intelligence about consumers and build shopping allegiance. “Retail leaders seek to retain and expand relationships with their most valuable customers by providing consistent and positive cross-channel interactions,” the report stated. The following white paper will detail five critical steps toward building a CRM strategy and processes in the face of today’s hyper competitive and cross-channel dominated retail landscape. These five steps represent a roadmap toward generating useful customer data, and then turning that data into action which will ultimately increase customer satisfaction as well as the efficiency of your marketing and store operations. STEP 1: Create a 360 Degree View of the Customer Increasing customer intelligence takes a myopic focus. All employees in a retail operation need to see the customer through one lens. That single view is the foundation of all relationship marketing efforts. In order for this foundation to be solid, realtime data on customer purchases, behaviors and preferences must be collected and presented in an accessible manner. By operating with a 360 degree view of the customer, retailers have a central database that can be accessed by sales, marketing, C-level executives, store associates, contact center agents, and even merchandise managers looking for information to accurately predict orders and inventory levels using market basket analysis and product affinity. With access to a single view of the customer, everyone in the retail operation sees the same view of individual customers or key customer groups. For example, the contact center agent that has an unhappy customer who is trying to return a product can use the database to determine how valuable that customer is. Maybe the customer’s purchase pattern has been very active over the past quarter. That means the contact center agent can see that this is a high value customer and should be treated with time, effort and careful follow up. The roadblock to obtaining a single view of customers has traditionally been that customer programs have been housed in a series of disparate solutions and databases. For example, in the past a retailer may have outsourced the management of their loyalty program to an outside vendor and the accompanying data on those members was hosted by that vendor. The marketing department often works on a separate system to measure the results of their campaigns and then the IT department typically has to develop custom reports to compare that against sales data. The emergence of cross-channel shopping has made the 360 degree view of the customer even more critical for retailers. With a single view of customers across channels, retailers can gain a deep understanding of changes, such as transaction history online vs. in-store to determine shifts in channel preferences. Ultimately, with one database and one dashboard, sales, marketing and operations make decisions based on facts, not interpretation. “Loyalty can be a great metric if it is tied to market basket and wallet share. If it is simply a discount card, then as a metric there is not much value,” said Rob Garf, Vice President of Retail Strategies for AMR Research. “One need only look at Best Buy or Chico’s to see what a good loyalty plan can do to increase sales and wallet share.” STEP 2: Reward Customer Loyalty As they navigate the multi-channel retail world, consumers clearly want rewards for their purchases. They even want rewards for engaging with your campaigns. According to a report on U.S. loyalty program membership released by Colloquy late in 2007, points-based programs are showing explosive consumer growth. More than 1.3 billion people claim membership in some kind of loyalty program. The annual growth rate of those programs over the past seven years is 5.9 percent a year, which is more than twice the growth rate of the Consumer Price Index. This means that retailers need to be ready to calculate, maintain, and administer loyalty programs across all channels. It’s very difficult to do this without a single customer view and impossible to do without a tracking technology for rewards. Since transactions play a critical role in all customer relationships, industry experts stress the importance of integrating all loyalty and CRM programs into your sales process. “CRM starts at the point of sale,” says Jim Dion, CEO of Dionco Inc., a leading retail consultant. “If you don’t have a system that allows you to capture customer information at the point of sale, you lose visibility into customer behavior, customer value and customer loyalty. If I don’t ask the customer for information, or have a system that captures information, I have a data problem.” Loyalty programs must meet customer expectations. If these programs are not implemented and maintained properly, they will ultimately backfire and lead to a diminished customer experience and the inevitable decrease in customer value. The same Colloquy data that shows the growth of loyalty program membership also reveals that consumers’ definition of loyalty is fairly loose. The average American belongs to 12 different loyalty programs, yet less than 40% consider themselves active members. Even more concerning is the stat that 80% would be willing to trade their allegiance to another retailer in order to receive a better loyalty offer. In order to provide a loyalty program that stands out from the crowd, retailers must have a combination of the right reward offers with the right infrastructure to properly manage the program. “An integrated CRM system gives retailers the ability to narrow their targeting to make more personal- ized offers to customers, enhancing the value of those offers, and enabling them to more accurately measure results,” said Diane Cerulli, Director of Product Marketing, Epicor Software Corporation. “Using any combination of demographics, recency, frequency and monetization, purchase history and response to loyalty initiatives, retailers need to offer promotions via integrated, multi-channel campaigns.” STEP 3: Match Customers to Targeted Offers Both a single customer view and a successful loyalty program depend on data. This leads to the third step in achieving retail relationship management: segmentation. Segmentation is viewed as the foundation of effective one-to-one marketing. For retailers, this means the ability to sort customers into addressable segments and send targeted messages to that segment will be a key component of their future growth. A segment is defined by a combination of factors, including purchase data, qualitative insight (surveys), demographics, and behaviors. It is important to point out that the concept of segmentation has changed radically since the rise of internet marketing. In the direct mail heyday, segmentation was largely a manual task that broke customers down by zip code, income level and response rate. For example, five years ago a sporting goods retailer might simply mail a flyer featuring its new running shoes to higher income zip codes, male oriented, in the Northeast. Now retailers know that different kinds of running shoes should be matched with more targeted cus- tomer segments. The higher income male breaks down into segments such as casual runner, intense racer, brand champion, bargain shopper, gift-giver, etc. Then it needs to be parsed along the more traditional lines of geography and response rates. The single view of the customer combined with loyalty programs, will help retailers paint a picture of customer value. For example, some retailers may be organized internally around product lines. But that might not work for customers, especially in a multi-channel environment. The product segment approach might be easy to apply, and does make sense on the surface, but may not work for customers who buy across product segments. To illustrate this, let’s go back to the sporting goods retailer. If that retailer segments by product line, it may send emails to running shoe customers, direct mail pieces to outdoor enthusiasts, and yet a different email campaign to golfers. What if the customer buys all three products? Then the retailer acts as if it doesn’t know the customer. It has crafted offers based on three different customer views. However, if a more sophisticated and informed customer segment is addressed the retailer can act from an informed viewpoint. For example, with a robust CRM system in place, a retailer can place a customer into a welldefined segment such as “email only, frequent shopper, male, instore purchaser” and then it is much easier to craft a targeted email campaign based on recent purchase behavior. Beyond using segmentation to target and acquire new customers, the practice is also critical in recog- Turning The Key On CRM: The Drivers of Successful Retail Loyalty Faced with a challenging business climate and increased competition from a variety of new sales channels, the new imperatives for retailers are: building deeper relationships with their best customers, presenting a consistently rewarding shopping experience across all channels; and, most importantly, having the ability to measure the impact of marketing campaigns on sales lift and profit margins. In order to execute on all of these imperatives, retailers need to make CRM data available to a number of different areas of disciplines throughout the organization, including marketing, merchandising, operations and finance. Therefore it is imperative that next generation CRM solutions for retail are not designed for use by the IT department only. The Epicor Retail CRM Solution Epicor Retail CRM was designed to be easy to access and operate for non-technical users, featuring a user-friendly, point-and-click interface. Built using the latest Microsoft technology including .NET, Microsoft SQL Server Reporting Services and Sharepoint Services, Epicor Retail CRM is an open architecture application that can integrate with any POS system or Microsoft SQL Server 2005 or Oracle database. This scalable solution is designed to meet the needs of specialty and general merchandise retailers from Tier 4 all the way to Tier 1. Addressing all of the new customer-facing business imperatives, Epicor Retail CRM provides a 360 degree view of the customer, enabling retailers to: ● Build and manage a loyalty program ● ● ● ● Manage and execute multi-channel campaigns and promotions Analyze a rich database of customer and transaction information Segment and manage lists Analyze and measure the impact of CRM efforts The solution provides a simple step-by-step wizard, allowing executives from all areas of the business to view data and run reports without IT support. Delivered on a browser-based interface, Epicor Retail CRM allows executives to access all reports and applications from corporate headquarters, in a store environment, from a home office or on the road. In addition to its user-friendly interface, Epicor Retail CRM also provides users with turnkey analytics features, including pre-built reports for: Customer Analysis, Customer Trend Analysis, Loyalty Plan Analysis, Retention Analysis, Cross Shopping Analysis and Campaign and Promotion Analysis. Unlike other customer relationship management solutions which traditionally have only focused on one area of the business, Epicor Retail CRM provides real-time connectivity to all sales channels. This real-time performance allows retailers to deliver instant promotional offers at the point of sale, using receipt coupons or on-screen offers, ultimately saving marketing dollars by eliminating the costs of designing and mailing coupons. nizing a retailer’s best customers. A CRM solution should help merchants easily identify their most profitable customers and send them personalized offers across all sales channels. STEP 4: Communicate in Real-Time Steps one, two and three will only drive results and have maximum impact if they are updated in real time. Very simply, customer data changes constantly. It is not based solely on the last purchase. Retailers need visibility into email response rates, contact center interactions, as well as sales activity within the store. Going back to Jim Dion’s point that CRM starts at the transaction level, many retailers are now seeing the value in recognizing and rewarding their best customers directly at the point of sale, by extending instant rewards and immediate discounts off a current purchase, or coupons for future trips. Proving this real-time information is not only rewarding for the customer, but also provides valuable intelligence to sales associates who can use the data to drive upsell, and cross-sell opportunities while shoppers are still in your store or on your site. By delivering offers directly at the point of sale or via a printed receipt, retailers also see significant savings by eliminating the need for an outside resource to track member points and send special offers based on point totals. Access to real-time data becomes even more critical for retailers who operate multiple locations and multiple channels. Cross-channel shoppers now expect to be recognized regardless of the location they are shopping, and they are demanding the ability to check their point totals and redeem their points in all channels as well. Those retailers that have integrated their CRM programs with their POS system can deliver targeted offers right to the POS screen or deliver a printed offer right on the coupon at check out. Some retailers have gone as far as providing kiosks at the front of the store so that customers can check their loyalty program status. This also provides the retailer with a chance to send personalized offers while the customer is in the shopping mindset, and also save the cost of sending separate offers via direct mail or on a coupon. The reality is that nearly all retailers are employing some kind of business intelligence tools today— it has really become the cost of entry in today’s business environment. But business intelligence must be actionable. If a retailer is making their decisions on customer data from last month or last quarter, they are likely going to be too late to respond to changes in buying habits. When a retailer is making media decisions potentially worth hundreds of thousands of dollars there’s a lot at stake. STEP 5: Close the Loop The most effective CRM solutions and processes will not only encourage and support customer relationships, they will allow companies to “close the loop” they started by initiating customer data and measuring and tracking the results of their marketing campaigns. Ultimately, all the data in the world will only be valuable if it can help forecast the success of future efforts. Tom Davenport, Babson College professor and author of “Competing on Analytics,” identifies three major analytics processes. The first is customers. Data analysis, as we saw in the segmentation step in this paper, allows retailers to target their most profitable customers. The second area is supply chain. Retailers can use analytics to solve inventory issues. The third is financial performance. Detailed customer data enables retailers to model and anticipate their performance, and try to understand the drivers of profitability and financial performance. “Just about anybody these days can buy the technology to do sophisticated analysis; almost everybody has a lot of data and a data warehouse,” Davenport wrote in Harvard Business Review article in 2007. “So what really distinguishes the analytical competitors from people competing on more traditional factors is this idea of an analytical culture. It’s the secret sauce behind analytical competition. It basically means that senior executives have said, ‘We’re going to use data and sophisticated statistics in our decision making; we’re not going to be satisfied with the same kind of information that other organizations have gotten.’ And they’re relentless about pushing this through many aspects of their organizations, targeting the kinds of processes and behaviors that it takes to be successful.” By building dashboards that analyze the effectiveness of their various campaigns and promotions, retailers can drill down into purchase histories, market baskets and their various sales channels to determine which efforts have been profitable and which need to be altered in the next quarter. A White Paper Conclusion: Next Steps As Davenport points out, data and the ability to analyze are a competitive necessity. Customers have become algorithms and representations of numbers as much as they are humans with emotions and changing behaviors. In the retail industry, where personal interactions are mixed with business intelligence in real-time, a competitive CRM system is a vital component of a retailer’s overall strategy. The five steps laid out in this whitepaper can move retailers toward that goal of achieving loyal customer relationships by employing the technology necessary to understanding what’s behind the emotions and behaviors. It is critical that retailers have a phased plan for their CRM program that includes feedback from their customers as well as regular analysis of the data. While physical expansion has slowed for many retailers, it is also still critical for retailers to make sure that all of their systems and processes are scalable to handle growth. Retailers should have an eye towards constantly growing their customer base across channels and also need to be prepared for potential acquisitions as well as new banners and formats. Regardless of how big a retailer grows in terms of store count and its customer data base, ultimately each customer wants to feel they are special and are having their unique preferences addressed. Whether customers are interacting with a store associate, a call center or a web site, they demand a seamless, personalized experience and will ultimately commit more share of their wallet to those retailers that deliver on these terms. ■ About Epicor Retail Solutions SPONSORED BY Epicor Retail Solutions are used by hundreds of the world’s leading retailers to become more profitable, productive, and competitive. Our solutions leverage proven Microsoft .NET technology to improve business operations and meet the evolving merchandise and service expectations of today’s crosschannel shoppers. Epicor delivers comprehensive retail management solutions to hundreds of retailers in all tiers – from regional chains to multi-channel global brands. Epicor employs more than 850 employees in retail-focused operations. For more information, please visit www.epicor.com/retail.