Keep 'Em Happy 2Keep 'Em Happy 2

Many people are worried about their jobs. Some are unemployed. Some may have become a bit less materialistic after last year's terrorist attacks. Whatever the reasons, people are spending less as they wait for the end of the recession. Such cutbacks test the ties companies have with customers and force them to work harder to hold onto a share of their customers' shrinking wallets.

This recession also presents the biggest test yet to the customer-relationship management systems that many companies invested in when IT budgets rose in recent years. IT managers who envisioned CRM systems helping to manage rapid growth are tapping them for creative and increasingly personalized ways to identify their most important customers and make sure they keep at least that base of business coming back. "In a down economy, customers are more discerning about where they spend their money," says Jim Stahulak, manager of database and Internet marketing for the retail and service division of tire manufacturer Bridgestone/Firestone Inc. in Bloomingdale, Ind.

Not all the tests to CRM systems come from a stalling economy. Bridgestone/Firestone used its NuEdge CRM system to help deal with a crisis of reputation when its tires were linked to rollover accidents on the Ford Explorer. Although the retail group is a separate business, the public lumped it together with the manufacturing group. "Because the name on our store says Firestone, there was an impact on our business when that happened," Stahulak says. Not only did customer traffic slow down, but the stores were the initial focal point for tire replacement, which drained resources away from money-making sales. The CRM system helped assess how bad the damage was. Stahulak had feared that customers wouldn't make a distinction between Bridgestone/ Firestone the service company and Bridgestone/Firestone the tire manufacturer. When the company contacted customers in its database, however, the reaction wasn't as bad as he had expected. "The database showed us that our customers were more loyal and more forgiving than we as a group realized," Stahulak says.

That led to a marketing policy change. Rather than broadcasting mass-media messages to bring customers back--the company's usual advertising method--it chose to bolster its direct marketing to existing customers. These were people who had already forged relationships with store managers and mechanics--relationships that could conceivably weather bad press.

Marketing budgets are tighter these days, too, so companies focus on retaining existing customers because it's cheaper to keep them than to find new customers. Forrester Research estimates that attracting new business costs four to six times more than retaining an existing customer. Companies such as Bridgestone/Firestone are using CRM tools to analyze customer data to identify lapsed former customers and provide them a more customized offer, rather than sending generic promotions to everyone in the database.

Bridgestone/Firestone relies on NuEdge to let marketers analyze customer data gathered at the point of sale in order to identify lapsed customers--those who haven't done business at one of Bridgestone/Firestone's 1,500 automobile repair stores for eight to 12 months. The NuEdge CRM system also helps generate direct-mail campaigns tied to neighborhood stores. The payoff: People who received targeted mailings are 50% more likely to return than a control group that the company targeted with mass-market print advertising.

Air travel is among the hardest-hit industries in this recession, and airlines also are looking to CRM for help. At American Airlines, passenger revenue for the fourth quarter fell by 32% from the prior year, a primary reason that AMR Corp, the airline's parent company, lost $1.76 billion for the year. But the industry that gave the world frequent fliers isn't giving up. Rob Freedman, interactive marketing director of American's AA.com Web site, has his team using analytical CRM software from E.piphany Inc. to look at customer preferences and flight histories to target marketing messages.

The messages aren't completely personalized. Each customer can receive up to 10 campaign E-mails chosen from dozens of possibilities. As few as 1,200 people, or as many as 10,000, can receive one message--so it's still a classic segmentation marketing approach, except it's done with more precision. For example, AA.com can highlight American customers who've never booked a flight on the site--the cheapest way for the airline to sell a ticket since there's no direct staff or agent fee. To those people, American might offer a bonus of 4,000 frequent-flier miles for booking online. The airline then can make a different bonus offer to those who've booked online just once in hopes of getting them to return.

Companies need to build closer relationships with their customers in a tight economy, says Fred Reichheld, a fellow at management consulting company Bain & Co. and the author of Loyalty Rules! (Harvard Business School Press, 2001). People these days are consolidating their spending with a few known, trusted merchants, so businesses must show they're catering directly to the customers they need most. "Earning loyalty is important because the only stable source of revenue is your existing customers," Reichheld says. "In a downturn, if you can't earn that loyalty, you won't survive."

Of course, before you can sell to customers, you have to know who they are. For years, airlines have tried to identify and cater to loyal customers with frequent-flier miles and seat upgrades. That historical data has become more valuable in recent months. Data from the past three or four months isn't necessarily a good indicator of loyalty, because so many businesses and vacation travelers have been on the road less often, either out of fear or budget-cutting. Yet American hopes to lure those customers back to their former levels of travel. American and other airlines have tapped historical data so they can send extensions to memberships in top-tier flight clubs, even to travelers who didn't log the miles in 2001 needed to keep that status. "They represent the segment of passengers that we need to reward for their loyalty," Freedman says.

Bridgestone/Firestone gathers similar customer information from point-of-sale systems, then uses the NuEdge system to rank customers using three factors: frequency of visits, amount of goods purchased, and mileage driven. After first finding out who they are, Bridgestone/Firestone puts its best customers in a MasterCare Select program, which means free tire rotation, maps, roadside assistance, and lost-key service. Stahulak estimates the company has spent about $1 million on this during the past two to three years and says it will keep a similar pace in the future. The payoff will come from increased revenue. "It's easier to step customers up to a higher-end tire, to add incremental service, to get additional visits from existing customers," Stahulak says. "You've eliminated the emotional side of the purchase, the distrust."

Baseball's Seattle Mariners wouldn't seem like a business facing a crisis. Led by exciting new stars such as Ichiro Suzuki, the Mariners are coming off a season in which they tied the major league single-season record for victories and set a team attendance record by drawing more than 3.5 million fans. But the Mariners didn't get to the World Series, and sports fans can be a fickle bunch. Plus there have been layoffs in the technology and aerospace industries on which Seattle thrives, including Boeing Co., the area's leading employer. So the Mariners aren't waiting for their fans to defect. The team rolled out a CRM system from Onyx Software Corp. a year ago at a cost of about $500,000 so it could create a better loyalty-card system and better understand its fans. Larry Witherspoon, the Mariners' VP of technology services, knows the team has to be prepared for tougher times. "With the Boeing layoffs, there could be people that are less inclined to spend money or come to the game," he says.

While the Mariners use the system now, Witherspoon says, Onyx will be of the greatest help to the team if loyal fans stop attending, because it will let the team figure out quickly when to offer incentives or discounts to lure those fans back, and who should get them to deliver the best return. "We haven't seen the full power of it yet," he says of the Onyx system. "When we see a down year, we'll see the power unleashed."

The Mariners use a host of touchpoints to identify loyal customers: point-of-sale and online ticket purchases, group sales, concession stands, and retail stores where people use their frequent-fan cards when being served. The team has collected data on 700,000 individuals and 22,000 companies, and it's using that data to boost business.

Last summer, it scanned the Onyx system for fans who had been to nine games so far during the season and sent them an E-mail saying that if they bought one more ticket, they would qualify for status similar to a season-ticket holder, which means perks such as discounts at team stores. That resulted in a more than 6% response rate--almost double the results from its standard direct-mail coupon. And the cost? "I can tell you it cost a lot less than a decent second baseman," he says.

In addition to trying to get existing customers to buy more, the Mariners use the CRM system to keep them happy. Or more precisely, to compile complaints when they're unhappy. The team has been using Onyx to track complaints from fans about the stadium, from their seats to the food. The biggest complaint on opening day of 2001? Customers wanted sauerkraut for their hot dogs, something the team hadn't considered very important. So the team started ordering sauerkraut, and the complaints went away. But the Mariners also try to track and solve complaints for individual customers. That's what it faced when it received complaints about garlic fries--which are big in Seattle but, of course, come with a bit of an odor. A number of customers even asked to have their jackets dry-cleaned to get rid of the smell. The team declined, but it did offer to switch seats for season-ticket holders seated next to a frequent fan who was particularly fond of the aromatic snack.

Most companies aren't coming off a winning year. Instead, they face the prospect of winning back customers who've stopped buying or switched to a competitor. That's what Choice Hotels International Inc. wants to guard against, and it's the reason the hotel chain is making customer-related initiatives its No. 1 business-technology priority for the next 18 months. "We want to be able to recognize when a person backs off after staying with us a couple of times," CIO Gary Thomson says.

Yet Choice Hotels, which operates chains such as Clarion, Comfort Inn, and EconoLodge, takes a conservative approach to technology purchases, buying CRM applications piecemeal to conserve money and resources. "I tend to buy stuff as I need it," Thomson says. "I hate to buy software and just stick it on the shelf."

That seems to be a common business-technology strategy these days. information Research found in its IT Priorities survey fielded in December that customer-service initiatives remain the top two business-technology priorities, cited by nine of 10 managers. However, CRM software, while cited as a technology priority by a healthy 58%, ranked No. 15 on the list of technology spending priorities. And that comes amid a difficult budget environment, in which half of the companies surveyed are freezing IT spending at 2001 levels, and 17% are cutting spending.

So far, the Silver Springs, Md., hotelier has bought analytics and campaign-management applications from Unica Corp. and software that identifies customers from Madison Technology LLC. Choice's first goal is to integrate all of the customer touchpoints--reservations, Web site, and frequent-guest programs--a step that should be completed in March or April. When a customer calls the hotel's reservation lines or steps up to a check-in counter, the Madison software will be able to pull up the guest's record with a name, phone number, and address. The hotel employee will then be able to use the Unica CRM system to know how often the guest stays, or if he had any problems during the last visit. If there's a problem, the employee at the desk can enter it into a customer's file so the next employee to help that person knows about it. That will help the hotel to take care of good customers--or even watch out for bad ones, like those who abuse its satisfaction guarantees.

So far, Choice Hotels hasn't been hit as hard as higher-end chains by the drop in travel since the onset of the recession and the fallout from Sept. 11, in part because its roadside hotels aren't overly dependent on business and air travelers. But it has felt the drop in business. So it's using the Unica program to identify those formerly regular customers who haven't come back, tapping the campaign-management software to generate a marketing offer, such as triple airline miles for a stay. For a business traveler, Choice Hotels might give incentives for that person to bring his or her family on vacation to one of its hotels.

Look for businesses to continue using some kind of CRM technology to improve customer service, despite the pressure to cut costs. One reason comes back to the budget: As companies cut staff, they need to give their remaining employees the tools to be more efficient and maintain a high level of service, says Ronni Marshak, an analyst with the Patricia Seybold Group. "Even though CRM is expensive, it ultimately can help you maintain your relationship with your customer," she adds. "They can't lose the personal touch, even though they're losing the people." The pressure to cut costs has become increasingly intense these days, but the need to keep customers happy never goes away.

Photo by Black/Toby