Mystery Shoppers

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As retailers branch out online, management of customer data across channels may determine whether the registers keep ringing.

Each winter, Todd & Holland Tea Merchants employs temporary salespeople for the busy holiday season in their River Forest, Illinois store. These new hires have little insight into customers' tastes, preferences, and previous purchases, making it difficult for them to make informed or effective sales suggestions. But that's changing this year, thanks to a new analytic system from SPSS Inc. called CustomerCentric.

Now when tea connoisseurs' credit cards are run through the system, their past purchases from Todd & Holland's store, Web site, and catalog will be analyzed, and a sales suggestion will appear on the register screen. Thus even the most inexperienced salesperson can point out the charming new English ceramic teapot to customers whose past purchases have shown them to be good prospects for such an item.

Stores large and small are making the move onto the Web, transforming themselves into multichannel retailers. But along with the opportunities these disparate channels offer comes the challenge of integrating data in order to create a holistic view of the customer. Only by combining data from the brick-and-mortar stores, Web sites, and catalogs can a system such as CustomerCentric help marketers have a true understanding of a customer's tastes and preferences in order to make an accurate and profitable sales suggestion. And only by integrating data will multichannel retailers be able to create a consistent shopping experience and provide a higher level of service for their customers.

When given the opportunity, consumers will use all the available shopping outlets presented to them. In a September study of major multichannel retailers, the National Retail Federation found that 68 percent of any particular company's catalog shoppers have also shopped at the company's stores. Among a retailer's online shoppers, 59 percent have also made purchases in the store, and 43 percent from its catalogs. "The pure-play model is over," says Sheryl Kingstone of the Yankee Group.

These switch-hitting shoppers are highly valuable to retailers. Jupiter Research estimates that these multichannel shoppers spend about one-third more than their single-channel counterparts. What's more, each channel can drive sales to another. Forrester Research calculates that e-commerce channels will influence $300 billion in offline purchases by 2005, as consumers research on the Web, and then buy in stores or from catalogs. Recreational Equipment Inc., for example, found that existing customers who shopped REI online for the first time increased their in-store spending by 22 percent over a six-month period.

Retailers are moving steadily to meet the consumer demand for online and offline channels. A September survey of the 164 largest retailers in the United States, conducted by the LakeWest Group, found that nearly 50 percent operated e-commerce sites.

Not only are traditional retailers making the move onto the Web, online retailers are expanding their offline presence. Gateway, for example, operates 349 stores throughout the United States, and sites such as Garden.com, Tivolo.com, Cooking.com, and Lucy.com have all started sending out catalogs. "They want to remind customers of their existence and inspire them to log on," says Seema Williams, a senior analyst at Forrester.

But among the growing number of multichannel retailers, there are many that have not effectively integrated their data-collection efforts across channels. Rather than a single source of information from which to make decisions and understand customers, separate databases have been created from the various channels. Jupiter estimates that 76 percent of multichannel retailers cannot track customer data across channels. "What we have now are data silos from Web sites, stores, and call centers, which are not connected to each other," says Debashish Sinha, a senior analyst at GartnerGroup. "This makes it impossible for a retailer to present a uniform, well-informed customer experience across channels."

Just ask David Joseph, a retail industry strategist at software provider SAS Institute. Joseph recently ordered an expensive new computer from an online retailer. After receiving an e-mail confirming his order, which indicated a delivery date much later than he expected, he phoned a customer service center but the representative could not pull up the e-mail. "I call this anti-customer relationship management," says Joseph.

Such breakdowns in customer relationship efforts can be deadly for a retailer. Many products have been turned into commodities, so service is what many retailers are actually selling to consumers. "The battle for the customer is no longer won by the retailer's products, but rather, the manner in which they provide those products to the customer," says Andrew McGlasson, senior marketing manager at Retek, a leading software provider to the retail industry. The armament in that battle is customer data, and building customer relationships with comprehensive and integrated data can be the strategic differentiation between competing retailers.

There are several major software providers that are working with retailers to address this challenge, including SPSS (CustomerCentric), SAS Institute, and IBM (MerchantReach). Using a process called ETLM - which extracts, transports, loads, and manages a company's existing data stores into a single, comprehensive data warehouse - they can help provide a "360 degree" view of the customer. CustomerCentric, for example, then goes a step further and uses predictive modeling to understand a customer's shopping behavior and anticipate what they would like or want in the future.

Eddie Bauer is one major retailer that believes in integrating its channels. Using software and service from SAS, the apparel and outdoor-gear retailer created a channel-neutral data warehouse two years ago to unify customer data from its stores, catalogs, and Web sites. Using this data, the retailer is developing a segmentation program to personalize service and target appropriate marketing messages to different types of customers. The four distinct segments can be targeted with separate e-mail messages, Web site presentations, catalog layouts, and in-store displays.

"It takes data from all our channels in a customer-centric way, and it is applicable to all our channels. It's universal," says Michael Boyd, Eddie Bauer's director of CRM. Using only the data from either the Web site or the catalog would provide a skewed view of each customer, making it difficult to accurately categorize their shopping behavior and attitudes. The company has found that utilizing this segmentation system led to a 10 percent to 15 percent increase in spending for those shoppers who were targeted, according to Boyd.

Tracking customers across channels not only helps increase sales but can lead to reduced marketing costs by cutting unprofitable customers from target lists. Coldwater Creek, a Sandpoint, Idaho-based, multichannel retailer of women's apparel and jewelry, has been able to send more catalogs to its most profitable customers and fewer to its less profitable ones, thus reducing paper and postal costs. "These channels are different points on a triangle, but our multichannel strategy is one integral unit," says David Gunter, a spokesperson for Coldwater Creek. "It is really helpful to be able to see what percentage of a shopper's purchases come online and offline, and have a continuum of data on her, rather than separate silos."

Outside of targeted marketing, an integrated data warehouse allows customer service representatives to access purchase records in real time - regardless of where such purchases were made - and help resolve problems quickly and easily. Gift registries can be manipulated both online and in stores, and updated in real time as purchases are made - regardless of the channel. And automated replenishment services, such as for office supplies, can be manipulated and updated in a similar fashion.

One important barrier to full integration of retail data is the difficulty in collecting data in brick-and-mortar stores. "There is obviously a limit to what you can inflict on the customer in a store," says Anne Stern, a retail specialist at SPSS. A recent Jupiter study found that The Sports Authority and CVS pharmacy got less than 5 percent of their customers to identify themselves through direct requests at the register over a three-month period.

But this doesn't mean retailers should forgo attempts to add this piece of the puzzle to their data-gathering efforts. Credit cards, loyalty programs, warranty registrations, gift registries, and in-store kiosks present the opportunity to collect customer data.

Eddie Bauer, for one, is planning to test a novel data-collection method in its stores by placing a kiosk with a barcode scanner within dressing rooms. Customers who enter their e-mail address can scan items and then later be notified if and when that particular item goes on markdown. This will provide a valuable service and an incentive for the customer to exchange information with the retailer, while Eddie Bauer creates an opportunity for personalized communication and a ready-made audience with whom it can liquidate overstock.

But the biggest barrier to data integration may be the investment of time and money that is required. A full-scale implementation of CustomerCentric for a major retailer will cost around $1.2 million, and take about five to six months to get up and running. (CustomerCentric is designed for large chain retailers, and Todd & Holland was a prototype installation.) The retail sector has long lagged behind other industries in the adoption of new technology, and many retailers have been hesitant to implement cross-channel solutions to help manage relationships with customers.

Moreover, Steven Dull, a partner with Andersen Consulting, points out that investments on this scale may, in fact, be put to better use in upgrading Web site speed or brand selection. But Kingstone of the Yankee Group and Sinha of Gartner believe those retailers that ignore the integration issue will be left behind as competitors move to update their systems.

The retail industry is rapidly moving in new directions, as technology innovations permit new ways to communicate with and sell to customers. Kiosks, wireless devices, and PDAs all offer retailers new opportunities to interact with consumers. "But all this data will also need to be integrated into the big picture," says Cindy Baum, global marketing executive at IBM.

While this may sound daunting to companies still struggling with integrating online and offline data channels today, there is little choice but to adapt. That's the cost of doing business in the Information Age.

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