KNOW thy CUSTOMER - Company Operations

Industry Standard, The, Nov 6, 2000 by Michelle V. Rafter

Big companies are spending big dollars to implement customer relationship management systems. Some of the early pioneers are already finding gold in that mountain of data.

You're a young associate at a New York City law firm with checking, savings and money market accounts at Chase Manhattan. Chances are the bank treats you better than it does a secretary at your firm. Your customer service calls go to the head of the line. You get better rates on investments. You receive promotions on the bank's Web site that other customers don't see.

Unfair? Maybe. Smart? Very. By grouping and analyzing data pulled from the bank's tellers, ATM machines, Web site and telephone service reps, Chase can pinpoint which of 3.5 million customers in its 720-branch network could one day be millionaires -- like young attorneys -- and offer them white-glove service before they've arrived. It's part of a program the nation's No. 2 bank is undertaking to integrate and mine customer information to improve sales and service.

When it comes to manipulating customer data, Chase may be a trendsetter, but it's hardly alone. Across industries, from established companies to startups, businesses are realizing that customer information is a gold mine -- if they can figure out how to mine it.

The catch-all phrase used to describe this concept is customer relationship management, or CRM. Behind that simple idea is an incredibly complex undertaking. Today, most companies get information on customers through multiple channels or contact points. A recent poll by Forrester Research found that companies give customers an average of 3.5 ways to reach them. But in most cases, that information isn't linked. Data on purchases that shoppers make at a company's retail store resides in one database. Information on Web site activity lives in another. And customer-service reps in a company's telephone help center might not have real-time access to either one.

For a company to implement CRM, various departments -- typically sales, marketing and customer service -- need to work together to weave those previously separate channels into integrated databases and contact centers. More often than not, it means building everything on Internet standards, and for established companies, tying them into legacy systems, too.

Companies must decide whether to buy technology or build it themselves. Then they must train people to use it and analyze the outcome. And they must enroll a high-level executive to act as head cheerleader to rally the troops to use it. [See "Broad Brand," page 214.]

All this is costly. Analysts estimate financial institutions such as Chase could spend hundreds of millions of dollars over many years to complete a companywide CRM program. Other estimates calculate the cost of planning, technology and training at $6,000 per employee, though prices could drop to a third of that as volume picks up.

For many, the end justifies the means. Acquiring a new customer costs five times as much as hanging onto an old one, according to Frederick Reichheld, Bain & Co. director and loyalty expert, in his 1996 book on the subject, The Loyalty Effect. If you use the information you have at your disposal to treat the customers you have right, they'll stick around longer. And the longer a customer stays, the more they contribute to the bottom line.

In the boomtown early days of the Internet Economy, companies were too busy drawing new customers to devote much time to follow-up services or mining customer data for cross-selling purposes. It shows. In a recent Gartner Group survey of 50 top online retailers on their customer service practices -- including big names such as Amazon.com, The Gap and Lands' End -- none were rated "exceptional" or even "good," and a whopping 77 percent rated "fair" or "poor."

Attitudes are changing. Struggling dot-coins now see improved customer service and data mining as a way out of the red. For their part, Net-savvy consumers accustomed to instantly getting information expect the same response when they deal with banks, bookstores or other merchants. They also expect companies to have data on them, whether they shop or buy stocks in person, by phone or online.

"The advent of the Net is pushing the envelope, making everyone say relationship management would really benefit us," says Beth Devin, senior VP of retail technology at Charles Schwab.

Companies like Schwab, Dell and Cisco are already CRM pros. But given how much time and money it takes to get a CRM initiative off the ground, it's no surprise other companies are just getting started. Amazon.com, for example, recently ditched homegrown technology for a CRM platform from vendor E.piphany. Amazon officials declined to discuss their progress with CRM. EarthLink Networks, the Internet service provider, recently appointed a chief customer officer, and in September was phasing in several CRM initiatives, including having service reps monitor customer activity and contact people by phone with troubleshooting tips or upgrade offers. "We'll be in full gear with a comprehensive plan by this time next year," an EarthLink spokesman says.