As the U.S. economy worsens and consumers rein in discretionary spending, brands are ramping up their customer-relationship-management efforts, aiming to grab some of that money by building one-to-one relationships with consumers.
Feel-good talk about leveraging CRM -- the art of using tools such as database maintenance and customer segmentation -- to boost understanding of consumers isn't anything new. Ask around, though, and industry folks will tell you 2008 is shaping up to be the year in which companies put their money where their mouths are -- with a looming recession making brands more sensitive than ever about the returns on their marketing investments. CRM-software-industry global revenue is projected to jump 14.2% this year to $8.9 billion, according to research house Gartner.
CRM, long valued by marketers for its measurability, historically has been embraced by certain sectors (namely financial services and automotive) more than others. But the Direct Marketing Association's Quarterly Business Review for the first quarter of 2008 found that 50% of the marketers surveyed said they would increase their spending on database segmentation, overlays and analysis should there be a recession.
Converts to CRM
Package-goods giant Procter & Gamble, long accustomed to a bombard-the-masses-with-heavily-tested-ads strategy, has been working on better personalizing the consumer experience. CRM is also the force behind Coca-Cola's My Coke Rewards online program, the multiyear customer-loyalty marketing blitz into which it's poured millions of dollars. Hewlett-Packard is said to have recently completed the biggest implementation of Oracle's Siebel CRM software in history.
JCPenney is the latest big name trying to develop lasting consumer relationships. Its new JCP Rewards program lets customers earn points to snag members-only benefits. Rival Macy's West, one of the retailer's biggest divisions, also has been investing in CRM to decipher a more effective media mix and gauge reaction to digital efforts.
"We don't ever feel satisfied with our current media mix and are constantly looking to optimize either by improving response or reducing cost [or both]," said Mike Monroe, VP-media and advertising operations. "As customers become more adept at using digital media and other mediums, those fields have been added into our database. We're much more interested in measuring engagement and attaching a monetary value to it and less interested in looking at impressions."
"Providing a 10%-off reward because someone spends $100 today needs to be delivered within a personalized, relevant brand experience," said Loreen Babcock, CEO of consulting firm Unit 7. "Context is everything -- to the point of understanding whether 10% off is even relevant to specific individuals."
"Budgets are getting tight with the economy, and we all know it's cheaper to retain vs. acquire a customer," said Peter Kim, senior partner at Dachis Corp.
More choices, tight budgets
A number of agency pros said the surge in CRM isn't necessarily tied to the economy. But Mike Gatti, executive director of the Retail Advertising & Marketing Association, disagreed. "Absolutely it is," said Mr. Gatti, who has seen most association members increase their CRM efforts. "Budgets aren't being raised, and in some cases they're being squeezed, so they to have market as cost-effectively as possible. The choices of where to market are expanding much faster than budgets."
According to David Scholes, Targetbase President-CEO, "People are turning to more-measurable programs and a focus on ROI in a tight economy. But the bigger trend is the recognition that we need to understand the customer better. ... This is a sea change in the marketing discipline, not just the effects of the economy."