Retailers understand in theory that customer relationship management (CRM) is the foundation of profitable retailing.

Key aspects of this are customer value, customer care and customer retention. Most modern retailers have formally adopted loyalty schemes, and consumers are likely to have a collection of loyalty cards in their wallets.

However, loyalty is an emotional bond, and retailers have realised to their dismay that sophisticated technology and a piece of plastic alone are not sufficient to
inspire it.

During the current slowdown, every retailer is seeking ways to hold on to customers by invoking loyalty through various methods.

More than using cards and technology, retailers must establish the link between consumer experiences and repeat purchasing. By demonstrating that the quality of a customer relationship has an impact on recency, frequency and value (RFV) factor, retailers can justify investments in measures that will deepen those relationships.
They must identify which actions have the strongest effect to engender that all-important loyalty, and make strategic investments in technology.

But technology, no matter how sophisticated, cannot deliver loyalty on its own.

As an analogy, consider the computer software package Microsoft Word. When we write and make a typo or break a rule of grammar, we are alerted by the red and green lines that appear and enable us to make necessary corrections. But this does not make us all skilful writers. The ability to select words, construct sentences and express thoughts is something Bill Gates did not develop in us. All Gates did was to provide tools to make those jobs a little easier.

As we have seen, most of the CRM solutions in the market today have failed to deliver.
Let’s examine the reasons why, and explore some solutions.

CRM is based on three core elements: People, processes and technology. IT vendors and consultants have ensured that technology received the most investment and attention.

However, the best in the business have been quick to realise that you cannot install a system and expect it to deliver the desired results unless it also addresses the people and process issues. Until the gap between genuine CRM understanding and the technology to facilitate it is closed, all CRM projects — including up-and-running retailer loyalty schemes — are at risk.

In retail CRM, technology should primarily work to enable the following steps:

To establish who your loyal customers are, their satisfaction levels and what exactly it is that makes them keep coming back;

To identify the customers who do not come back, and why.

Based on what you learn, you can then set yourself clear objectives on the percentage of customers you want to retain per annum, the number of customers you want to acquire, and your marketing budgets to attract and retain those customers.

Loyalty doesn’t have to be about prizes. Once you have determined what motivates your loyal customers to stay, you should create the right mix of bonds to further improve their retention and increase their spending.

It is essential that the basic rules of customer service in your business should be in place before you go out in the market looking for a technological tool to implement those rules. The technology you select should be easy to adapt to your set rules and goals, and, most of all, easy to use by your business managers. In my opinion, profitable customer service is another term for organised retailing, and finding the right mix is likely to lead to a very high chance of successful CRM in your retail business.

From a series of articles commissioned by DNA (Money) dated 22 January 2009.