Retailers will have to grasp what CRM really entails if they are to count on customers to increase market share and profits. Loyalty schemes may just be money down the drain, by Christopher Field

The first problem with CRM in retailing is that few retailers understand what it is and few retailers are yet in the business of creating, maintaining and nurturing any sort of relationship with customers.

Some certainly think they are and have spent millions in the creation of loyalty schemes. However, most mainstream marketers quickly point out the limitations of cards as vehicles for CRM.

Tim Virdee, sales director at CRM company Consodata, says: "Retailers have tons of Epos [electronic point of sale] transaction data but what do they actually know about their customers? If they did [know more], they might not be so quick to give discounts to those people who shop with them anyway."

r Virdee and others say that the real opportunity lies in attracting customers away from the competition. While the current wisdom goes that it costs five times as much to win a new customer as to keep an existing one, this leaves little room for developing the business. Mr Virdee also points out that retailers do not have to carry all the costs anyway. "Their suppliers are doing amazing work in this area in discovering what customers really want and also what they don't want"

Consodata is the engine of a consortium called Jigsaw whose members are some of the biggest fast-moving consumer goods (FMCG) companies in the world. Unilever, Kimberley-Clark and Cadbury Schweppes are sharing the costs of a giant database that can divide countries into any size segment and tell exactly who lives there, where they shop and what they buy with added details about their lifestyles. It is the single most detailed database about consumers yet available and in September will add behavioural and attitudinal data about new channels such as the internet and digital television.

The consortium members, who are already working with retailers as category managers to plan store and product assortment, will use the data to determine exactly what should be on the shelf of each store rather than splitting stock equally between 400 stores. There is even talk of retailers auctioning shelf space to the supplier who can leverage the greatest profit from it.

Retailers must also use this data themselves if they are to be the guardians of the relationship. Mr Virdee says: "Once retailers can get inside the consumer's head, they can start to woo them away from the competition." CRM companies can find out what a group of shoppers in a given area dislike most about shopping for food in a certain supermarket. A rival supermarket group can then mail these people with information about its own unique services.

CRM companies which come from the mainstream marketing services industry admit that retailers are a tough sell. Retailers appear to be more comfortable talking CRM with their technology suppliers, most of whom simply do not understand marketing and tend to fall back on promoting data warehouses and data analysis tools. These tools are only part of the equation and are of limited benefit in supporting CRM unless they have access to detailed information about consumers.

Supermarket chain Waitrose is one retailer that is using transaction data from the data warehouse as well as data about customers to develop more loyal and profitable relationships. eMarketing software from Prime Response consolidates data from the internet, e-mail and direct mail with historical buying information.

Jane Rose, head of customer communications and research at John Lewis, the department store chain that owns Waitrose, says: "This will help us to close the gap between our traditional and internet marketing strategies."

CRM is also about two-way communications and, with the advent of the internet and the popularity of the telephone for shopping, retailers are being inundated with calls. Most inquiries are about shop opening times and availability of stock but between 30 per cent and 40 per cent will be complaints.

Complaints handling is increasingly automated on the premise that if it is well handled, it will boost loyalty. WH Smith uses Charter 2000 from Swallow Information Systems to handle 6,000 calls a month and an additional 1,000 letters and comments collected in-store. Merlin Stone, a Swallow partner, says: "The company can link inquiries to its loyalty system so that it knows if a complaint has come from a loyalty card holder, and to the supply chain so that orders can be speeded up."

New channels also bring threats to CRM projects that retailers may have initiated through their stores. Chris Underhill, managing director of consumer data company SmartFocus, says: "New channels will simply increase disloyalty as consumers have more choice and the competitor is only a click away."

The wealth of CRM technology available will have to be deployed intelligently to ensure that relationships are secured rather than lost. Already, Mr Underhill foresees the advent of junk e-mail and even junk Wap (Wireless Application Protocol) messages as companies scramble to reach consumers using multiple devices.

"The marketing industry in Europe has to get better at becoming permission-based, as it is in the US, so that consumers are asked how they want to be approached and if it's OK," he says. "The retailer has to be the custodian of the customer relationship and the relevant data."

At this level, retailers may start to make more innovative use of their data, whether taken from the point of sale or from external agencies. UK home shopping company Express Gifts is engaging in horizontal marketing using software from IBM to change its focus from products to customers by exploiting the knowledge contained in its customer database. The first mailing cut marketing costs by 20 per cent and boosted profits by £20,000. Express Gifts has clearly understood that it is not necessarily what you sell, it is who you sell it to.

* The table on Page 7 of Understanding CRM, a magazine published with the March 16 issue of the FT, should have been titled: "Market presence and breadth of offering of full CRM solutions. (European retail banking sector only, 1999)". This makes clear that the table, produced by Datamonitor, applied to one part of the market rather than the whole CRM sector. We apologise for omitting the correct title.

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