Retailers seek to retain customers: considering the potential revenue and competitive edge to be gained or lost, smart retailers need to invest in customer retention solutions

Retailers seek to retain customers: considering the potential revenue and competitive edge to be gained or lost, smart retailers need to invest in customer retention solutions – Supply Chain Management

Emily Kay

Thanks to a clear focus on retaining loyal customers, Bernie & Phyl’s Furniture has enjoyed tremendous revenue growth over the past six years. The furniture retailer “absolutely” pegs its expansion from $15 million in 1998 to an estimated $100 million in 2004 to the company’s customer-retention approach, says Larry Rubin, chief operating officer and chief financial officer with the Norton, Mass.-based firm.

“Making the customer happy and having them tell friends about us,” says Rubin, “is of major importance in our success.”

The time has long since passed when retailers knew every customer’s personal history and purchasing inclination and could tailor sales to each of them individually. Intense competitive demands to reduce costs and boost profits, increasingly demanding shoppers expecting superior multichannel support and expanding purchasing options have dramatically changed customer relationships.

Although wooing and winning customers are critical for retailers, creating loyal customers and holding onto them is tougher than ever. “If retailers don’t become more customer focused,” says Jeff Marr, people, products and strategies vice president with Walker Information Inc., a customer loyalty management research firm in Indianapolis, Ind., “it’s only a matter of time before customers go around the corner to a competitor that can provide a better shopping experience.”

Van Rhodes, marketing decision support manager with Newport News Inc., a women’s clothing retailer in Newport News, Va., confirms the challenge that retailers face. “It is supremely difficult to attract and retain customers,” says Rhodes, whose company is a division of $2.3 billion Spiegel Inc. “Women’s apparel and catalogs are brutal businesses.”

Struggling through a poor economy for the past few years, retailers are carefully scrutinizing their approaches–from marketing to service–to enhancing and personalizing relationships with each customer. Leading Internet retailers use a variety of technological solutions to strengthen their brands and hold on to customers. Sears, Roebuck and Co. customers can place, track and manage their orders online, and Dell Computer Corp. customers receive online support by communicating instantly with customer service agents. Amazon.com customers regularly receive Web-based product offerings tailored to their specific preferences and can chat online and in real time with other customers about their experiences with related products.

Bottom-Line Results

It’s easy to understand why retaining loyal customers has become an essential retail strategy. Merchants can achieve substantial financial gains by fostering robust customer relationships through superior products, prices and consistent service across all customer communications channels.

Customer loyalty “has a powerful effect on the bottom line,” says Channing Rollo, business intelligence manager with ClientLogic Corp., a Nashville, Tenn.-based customer management services outsourcer. “A 5% increase in retention can result in a bottom-line profit increase of up to 75%, depending on the industry.”

Lifelong customers deliver considerable advantages. “A customer retained for life is more cost-effective, requires less service, provides more business and contributes to new customer acquisition through positive referrals. Customer retention initiatives,” Rollo adds, “guarantee significant current and future economic benefit.”

Customer retention is all about the bottom line, experts agree. Retailers cut all the costs they could over the past few years and are now aiming to boost sales.

“The first place to start with that is among their core customer base,” says Al Falcione, senior marketing product manager with Blue Martini Software Inc., a customer relationship management (CRM) software vendor in San Mateo, Calif. Profitable businesses benefit from true consumer loyalty. “True loyalty dramatically drives consumer spending, word-of-mouth advertising and [increased wallet share],” says Marr.

Loyal customers are 15 times more likely to increase spending with a store brand than are high-risk customers, Marr notes. In addition, while some 51% of all consumer electronics customers plan to boost their spending in the future, that number jumps to 76% among “truly loyal shoppers” and diminishes to only 4% among high-risk customers.

Those figures are significant when it comes to sales. “In the direct retail business, loyal customers spend an average of three times more–and sometimes 10 to 20 times more–than a customer who’s not a loyal, repeat purchaser,” says Jonathan Dampier, marketing vice president with Newgistics Inc., a returns-management vendor in Austin, Tex.

Need to Build Customer Loyalty

Despite the obvious reward, many retailers fail to build customer loyalty. While 90% of customers say they are at least satisfied with their retailers, only 45% are “truly loyal,” which a Walker Information study on customer loyalty in the retail industry defines as those who “want to continue their relationship and plan to keep buying from their current, most-frequented retailers.” Another 43% consider themselves “trapped” or “less than pleased with their retailer, but they plan to continue the relationship until something better comes along.”

Losing loyal customers can have serious ramifications, especially when attracting a new customer can cost a typical company 5 to 10 times more than retaining an existing one, according to Harvard Business Review figures. Retailers can gain “millions or billions of dollars in increased revenues and earnings” by reducing the number of customers they lose within five years by some 5% or 10%, says Joe Davis, group vice president and general manager of CRM with PeopleSoft Inc., a business enterprise software vendor in Pleasanton, Calif.

Retailers that have implemented the most successful customer-retention approaches recognize that loyal customers require quality products, competitive prices, Web-based self-service abilities, multichannel customer interaction centers and effective complaint-resolution techniques.

“When a customer has a problem, it’s most important that the company appears to have its resources aligned to make the customer satisfied,” says Davis. “That’s how you build a tremendous amount of customer loyalty.”

Bernie & Phyl’s runs a GERS Inc. Enterprise retail system to ensure that each store and administrative facility has access to the same data. The integration of all aspects of the business–including point of sale, inventory and accounting–affords employees instant access to data so they can provide customers with correct information.

“At point of purchase,” says Rubin, “customers are given accurate information on when we can deliver the furniture, if it’s in stock and, if not, when it will be available.”

Customer satisfaction has increased substantially since Bernie & Phyl’s replaced its outdated ACCPAC International Inc. software package in 1998 with GERS software running on a Unix-based Data General Corp. NUMA server and Oracle Corp. 8.1 database.

With less accurate information readily available, Bernie & Phyl’s had fewer satisfied customers. “If you don’t provide customers with the right information, they won’t be happy,” Rubin says.

GERS helped Bernie & Phyl’s increase inventory turns–a key metric in the company’s customer-retention approach–from 3 to 12 times annually. “We get the right product into the right mix for our customers,” Rubin states. “When customers come in, we have [merchandise] available for them, we can reserve it or we can give them a date on when it’s coming in.”

Systems integration and consistent policies across all customer interaction channels are a must for Aerosoles, a division of Aerogroup Intl. in Edison, N.J. Customer retention is a top priority for the 500-employee women’s footwear retailer, says Bert Garris, Aerosoles’ vice president of direct marketing.

“It’s especially important, as a multichannel marketer, to make it as seamless as possible [for customers] across our catalog, the Internet and brick and mortar stores,” Garris notes.

Using CommercialWare Inc.’s CWDirect retail software and Geac Computer Corp. Ltd.’s System 21 enterprise software solution, Aerosoles captures customer data from catalog and Internet sales and manages catalog and Internet inventory and fulfillment data. Garris anticipates additional cross-channel integration and analysis capabilities in the future.

“You can’t have too much information,” Garris says. “Purchase patterns and history give the greatest insight into future buying behavior.”

Newport News certainly operates on that assumption. The company uses a suite of SAS Institute Inc. software applications to analyze between 3,000 and 4,000 customer-mailing segments per campaign. From there, the company can determine who its best customers are and provide them with better service, including private-label credit cards and discount clubs.

“Once you’ve identified someone who likes your product, you want to get the maximum revenue from that customer and make her as happy as you can,” says Rhodes.

Newport News tracks transactional data on more than 10 million customers purchasing hundreds of millions of items from millions of orders placed from half a billion catalogs mailed over five years. Prior to deploying SAS software, the company needed two analysts working for up to a month to gather data and crunch numbers. SAS’s multidimensional analysis capabilities let the retailer dissect any combination of mailing segments in under 30 seconds.

With SAS software running on Sun Microsystems Inc. StarFire servers, Newport News has increased the gross demand it obtains per catalog mailed by four cents per book, or $4 million per year.

“We’re targeting [catalog mailings] to a much finer detail,” says Rhodes. “We’re finding customer pockets we might not have mailed to, or others we mailed to but shouldn’t have. We might go from a 2% [response rate] to 2.2%. That’s huge in the catalog industry.”

From Personalization to Returns

Customer-retention approaches run the gamut from Amazon.com’s personalized Web pages welcoming regular customers, to Neiman Marcus Direct, the direct marketing and fulfillment division of The Neiman Marcus Group, offering simple and convenient ways to return merchandise.

Aerosoles finds the latter method helpful in managing its returns process while boosting customer service. Newgistics’ SmartLabel returns service helps Aerosoles offer “convenient shopping experiences,” says Garris. “Adding convenient methods for returning products makes sense, especially when–with SmartLabel–we can also gain operational efficiencies.”

When Aerosoles customers buy shoes, they receive a pre-paid, pre-addressed return shipping label on the merchandise packing slip. SmartLabel’s barcode links the package to the customer’s invoice and provides reliable package visibility to Aerosoles early in the return process. This lets customer service representatives proactively address customers’ exchange or credit needs, resulting in increased customer satisfaction and loyalty while improving Aerosoles control over the returns process.

With 61% of customers claiming they’re likely to purchase from retailers that have easy, convenient return processes, the ability to provide a seamless return experience can have a huge impact on customer retention, says Doug Kern, Newgistics’ product management vice president. Retailers benefit directly from Newgistics’ capabilities, with the typical retailer reducing its returns-related call center volume by 30%, Kern adds.

Investing in the Future

The ability to retain customers is a clear imperative for today’s retailers. With studies indicating that repeat business accounts for 70% of total revenues, Rollo stresses the importance of investing in customer-retention solutions.

“There is little business risk in investing in progressive value aimed at customer retention; loyalty has been empirically demonstrated to bring enormous economic returns,” says Rollo. “A smart, multichannel customer management plan, if implemented in conjunction with a great product/service and stellar CRM, will give the consumer ample incentive to remain loyal and purchase frequently over his or her lifetime.”

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Company Information

ClientLogic Corp.

Nashville, TN

615-301-7100

www.clentlogic.com

CommercialWare Inc.

Natick, MA

508-655-7500

www.commercialware.com

Data General Corp.

Westborough, MA

800-537-6084

www.dg.com

GEAC Computer Corp.

Ontario, Canada

905-475-0525

info@geac.com

www.geac.com

GERS Inc.

San Diego, CA

858-475-3888

www.gers.com

Newgistics Inc.

Austin, TX

512-225-6000

www.newgistics.com

Oracle Corp.

Redwood Shores, CA

800-646-5535

www.oracle.com

SAS Institute Inc.

Cary, NC

919-677-8000

www.sas.com

Sun Microsystems Inc.

Santa Clara, CA

800-555-9786

www.sun.com

Walker Information Inc.

Indianapolis, IN

317-843-3939

www.walkerinfo.com

www.frontlinetoday.com

Extra! Extra!

For further reading on this and related topics, see these articles, available at www.frontlinetoday.com/102003links:

“Retail Chargebacks: Is There an Upside?” October 2003

“Retail Revolution” September 2003

Emily Kay writes about technology as a principal at Choice Communications, an editorial consulting firm in Chelmsford, Mass.

COPYRIGHT 2004 Advanstar Communications, Inc.

COPYRIGHT 2004 Gale Group