Outlook: Companies Continue Shift Toward Customer Service

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It has always been a cause for confusion: Does "CRM" stand for customer relationship marketing or customer relationship management? Some say it means "consultants rolling in money."


Interpreted in any way, CRM likely will have another chance to continue living up to its name this year. Stricter laws governing e-mail and outbound telemarketing will limit prospecting while forcing more value from in-house databases.


"Smart companies will shift much of their growth away from marketing and toward customer service since current customers are exempt from these regulations," said Chris Selland, managing director of Reservoir Partners, Cambridge, MA, and president of the Customer Relationship Management Association.


Legislation undoubtedly will hurt list rentals. But the danger of going back to the well so many times is over-mailing and turning customers off.


Little room exists for self-doubt. Database marketers are finding their jobs getting more difficult and complex. They have more data points to consider, more channels to manage. They have more partners and constituents to help them, and more second-guessing from others. Worst of all, the case for more CRM commitment weakens as the economy rebounds.


"The faster the economy rises, the more marketing funds will be allocated to customer acquisition purposes at the expense of further investment in customer retention and loyalty," said Pat LaPointe, managing partner of loyalty media firm MarketingNPV. "Not to suggest that the absolute spending on current customer initiatives will decline, but simply that human nature is to seek greater risk or return in good times and that the share of dollars spent on acquisition will once again rise accordingly."


Companies that installed CRM programs and software last year are lucky. Their initiatives probably were attained at a lower cost than at any other time, as a steadily fragmenting community of vendors clawed for more deals.


Now, in fact, is an opportune moment to undertake small proof-of-concept tests. It is common knowledge that many CRM vendors will underwrite the expense in return for a chance at a longer-term project.


CRM Is About Strategy


Amid such considerations, marketers must remember that CRM at its core is about strategy.


"CRM efforts will continue to experience high failure rates unless marketers realize that CRM is not a technology statement," said Ernan Roman, president of Ernan Roman Direct Marketing, Douglas Manor, NY. "Technology is not the problem. The biggest hurdle to success with CRM is changing how companies value a customer and engage with a customer, short- and long-term. To truly value customers, companies must expand corporate goals from just sales and revenue to also include customer retention and lifetime value as strategic measures."


Perhaps holdouts can take cues from some notable loyalty marketing efforts that worked last year. Consider electronics retailer Best Buy Co.'s Best Buy Reward Zone, widely regarded as an unqualified success. Begun last year, it resurrected a technique abandoned in the 1980s -- a fee-based program.


In the hotels business, LaQuinta told investment analysts its loyalty program was a key reason for a solid fiscal year. In airlines, there was more desire to reward and recognize on the basis of customer value, not on miles or segments flown. Delta Airlines took the lead here.


Target Corp. remains stuck in the electronic coupon mode. But the new radio frequency ID technology has gained users in ExxonMobil's SpeedPass, MasterCard's Pay Pass and American Express Co.'s ExpressPay cards.


In Britain, a loyalty coalition led by Barclays bank has penetrated 50 percent of all British households in its first year of operation despite competition from market leader AirMiles.


So there was a steady hum under the hood. CRM has moved from leading edge and headline grabbing to more quiet implementation and management of daily integration into business practice.


"Interestingly, it appears to have moved rapidly from the early adopting companies right through to the late majority without ever really causing the organizational tsunami it was originally touted to be," LaPointe said.


Rewarding the Customer


It's obvious that a long-term trend is emerging in loyalty marketing. Customer data analytics and business intelligence are taken more seriously in a highly competitive environment where consumers increasingly shop by price over brand.


According to AMR Research, investments in analytical CRM applications will grow at nearly double the rate of operational systems. That analytics market is anticipated to expand to $4.4 billion, or 19 percent of the total CRM market, by 2005.


Assessed by category, retailers clearly are returning with new loyalty marketing programs after a two-year slowdown brought on by economic, consumer and political uncertainties. In particular, more merchants will combine stored-value cards or co-branded cards with loyalty programs on the lines of coffee shop chain Starbucks Corp.


"New investments in point-of-sale technology, growing e-commerce competition -- sometimes within their own organization -- and a desire to feed the CRM machines are all contributing factors," said Mike Capizzi, vice president and general manager at Frequency Marketing Inc., Milford, OH.


Loyalty marketing appears to be gaining even more favor with the gaming industry as well as sports teams, airlines and the business-to-business sector. Expect more initiatives from other segments in the entertainment sector like movies, golf and theme parks. Also, programs like Vesdia are achieving critical mass on the micro-investing front.


"Every one of these verticals offers opportunity for direct mail and electronic direct marketing services providers," Capizzi said.


Of course, some loyalty programs are losing their glue. Take Upromise, a college savings program with participation from firms like General Motors Corp., Borders Books and Music, Citigroup and AT&T Corp. These companies rewarded enrolled consumers with money back for buying products or services from them.


LaPointe claims that the incentive to retain Upromise enrollees may have been too small to retain their interest.


"By some reports, up to 70 percent of enrolled members have gone inactive," he said. "When Toys 'R' Us pulled out, the air began to leak out of the balloon for altruistic marketing. The micro-investing model is alive as a niche solution, but cannot change consumer behavior sufficiently to pay back tens of millions of dollars in advertising."


Grocery chains, too, are stuck in a two-tier pricing model with their loyalty programs. The public backlash is becoming more obvious.


But one of the biggest setbacks last year was the Visa and MasterCard settlement with retailers that kicked the bottom out of debit card loyalty programs. Lower interchange revenue translated into funding rates too anemic to hold consumer attention.


Still, a rebounding economy will help credit card issuers realize that nothing attracts and retains cardholders better than focused loyalty programs. Card issuers will expand their share of total points issued in the market as retailers and service providers drop unilateral efforts, moving some of their discretionary loyalty funds to participating in payment card currency programs.


Customer Retention More Important


One thing is certain. Loyalty marketing programs will continue to penetrate all vertical markets and customer segments, including BTB companies that previously thought they could not afford such programs. Capizzi identified several reasons for this expectation.


First, customer retention and yield management remain far more important than customer acquisition in the current macro-marketing environment. Next, enabling technologies to track individual purchase behavior and build actionable data marts, both online and offline, have never been better and more affordable. New Web services-based customer data integration tools from CRM vendors like Siperian, DWL, MetaMatrix and Nimaya, for instance, avoid much of the cost of data warehouse development.


A key opportunity this year will rest with loyalty analytics. This requires using the data stream in a relevant, personalized and financially beneficial way to allocate marketing spending against identified segments and behavioral change dimensions.


"The result of segmentation will mean less overall contact volume," Reservoir Partners' Selland said. "That's the whole point of segmentation."


Finally, CRM is not just a supply-sider. Customers expect loyalty programs, or special treatment for their business.


"Loyalty remains the heartbeat of CRM," Capizzi said. "Where else can you operationalize a constantly refreshed, transactional database that fosters customer interaction to feed the CRM machines of American enterprises?"


That said, marketers slowly will come to grips with the consequences of legislation. Mildly put, the laws have ripped the heart from many databases and targeting strategies. Plus, shears may still crop marketing budgets at companies and staff at agencies.


"It will be a challenging year, with the legislative changes targeting marketers," Selland said. "Marketing dollars will shift to other channels. Mass-market advertising may even make somewhat of a comeback."


This raises another point: CRM is not new on the block. Nor is it viewed as such. Most of the bright ideas and theories are now part of normal business practice. Proponents within organizations may find it rough going getting the ear of skeptical senior executives.


"The board [of directors] has moved on and is more concerned with governance, accounting and the resurrection of the mergers and acquisition environment," LaPointe said. "So while your CRM projects are still likely to be of essential value to the organization, they are less likely to be a springboard to promotion or lure for retailers than they might have been just a short while ago."


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