Customer Relationships in the New Age
The problem is that the terms old economy and new economy have nothing to do with what is happening to the relationship between a business and its customers. Like it or not, the Internet and the capabilities of the computer are changing this relationship.
Old economy and new economy refer to a business model for an individual company - that is, to survive, a company must be profitable.
The new age refers to how the world of business is changing, and a company must adapt and adopt new techniques and tools to survive and be a winner.
A few months ago, I started writing a series of articles regarding what remote shopping companies must do to succeed in the new age. One of the keys is the customer relationship.
Traditional remote shopping companies have relied on the RFM model to determine their relationships with their customers. Most think of RFM as a marketing segmentation tool. In reality, what a company is doing when applying this model to its customers is determining the customer's value based on when he last took an action - that is, when he last bought from the company.
This is a very reactive approach to managing a company's customer relations.
This is a primary reason for the ridiculous 3 percent to 7 percent response rates produced by all remote shopping, regardless of the medium.
The response rate is so poor because all channels of direct marketing are still mired in push marketing. This includes most dot-com companies.
You contact your customers and prospects based on your schedules and needs, not when the customer is in the market. The vast majority of classic catalogers do little, if anything, to determine their customers' needs and timing. Last year, you mailed on the second Monday of January, and this year you will do the same. This tendency is already beginning to be seen among dot-com companies.
There is no question that the cash flow demands of running a company have some bearing on this decision and cannot be ignored.
However, even with these considerations, as well as economies of scale in printing and mailing/sending e-mails, the old method of RFM selection of a company's customers and contacting based on the company's historical sales pattern will not make the company a winner.
So how do you change the pattern, and how do you go about being part of the new age?
The starting point is your database.
Most data for the marketer are totally underused.
Even worse for many classic catalogers, their data collection can only be charitably called poor. For that group, the first step is to improve their data collection, even if this means investing in new software and systems. The competition for the wallet does not allow anyone to be behind in data collection.
What does this mean? Think about the data collected by most dot-coms. They not only get all the transactional data that classic catalogers get, but in most cases they also gather a great deal of demographic and shopping-habit information by asking customers to fill out a questionnaire/survey at the point of purchase.
Yet few classic catalogers do this when they have customers on the telephone line - which they pay for anyway. This is not because they have tested it and found that customers refuse them, but because they have never done it and are afraid of offending customers.
Assuming that you have a good database that contains at least the full transactional history of a customer, the next step in developing the relationship is to make sure that all departments in the company use the customer data in their planning and decisions. Not just marketing, where the data normally reside, but with every function.
The merchandising staff should be using this in its selection and continuation of products.
How many merchants really pore over the data to see who buys when, the relationships between those who buy from one category and those who buy from another, etc.?
The potential data for merchants are unlimited, and the data will assist them in their product selection rather than them having to rely on gut feeling and vendor recommendations. That may work for a few gifted merchants, but not for the vast majority.
The operations are where customers finally come into contact with the company, and this department should be using all the richness of the database to both answer customer queries and be proactive in contacting them.
Even the finance department, in budgeting and evaluating expenditures, should be studying the growth and activity of the database - not only overall, but down to finite segments.
Another thing that needs to be done is to better determine the customers' buying patterns. Reliance on RFM is not sufficient. This requires additional communication with the customer. Fortunately, there is now an inexpensive and easy way to communicate - e-mail. But you have to capture every e-mail address, on the Web, on the phone and in the mail. Some classic catalogers will have to redo their systems to capture and use this data.
The dot-coms had the advantage of building their data collections from scratch as well as having the financing to afford it. Thus, the dot-com survivors typically have some of the richest databases, but do they use them?
This effort to improve your customer relations one by one has its cost in terms of systems, cash and even the culture of the company. However, if you can improve response by approximately 30 percent - it will increase an overall response rate from 7 percent to 9 percent, for example, and you will be on the way to doing one-to-one marketing.
You also will be improving your relationship with each of your customers, treating them not as a class but as individuals you value. This is similar to the shopkeeper who greets you by name when you walk into his store. Therefore, if you are to be a winner in the next manifestation of remote shopping, you better make sure to study your customers as you never have before and serve them better than ever.