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- 10 Sep 2009
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CRM: The Science Behind a Good Relationship?

Many sprawling luxury firms today are ripe for CRM intervention but it will take a combination of serious brainstorming, long-term investment and substantial resource allocation first to mitigate the risks of CRM and then make it truly beneficial.

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They’ve adopted many other mass-market business practices like licensing, retail franchises and ecommerce, nevertheless some luxury brands have been hesitant — and others downright resistant — to embrace CRM. Certainly, being a perfunctory acronym hasn’t helped matters and it’s probably fair to say that the luxury fraternity still harbours more ambivalence toward technological automation than other industries. But this alone doesn’t explain why “customer relationship management” has been so slow to catch on over the years.

The corporate scaffolding that props up the larger luxury brands is by no means that different from the structure of their counterparts further downmarket. Luxury, premium and value brands of scale are all typically multinational businesses manoeuvring through a labyrinth of distribution channels and other complex consumer touchpoints. No matter the target market, they’re all crying out for a magic pill better to identify customers, harvest valuable data from them and customise their approach. At the luxury end of the spectrum, however, the fear has been that the CRM prescription is really just a placebo — or worse yet, that its side effects could outweigh the benefits.

“Various surveys have revealed over recent years that although 80% of companies are interested in CRM, around 65-70% of those who have implemented CRM are disappointed with the results,” says Lucian James, president of brand strategy consulting firm Agenda Inc., which has offices in Paris and San Francisco.

James regularly fields queries from luxury clients on the intricacies of CRM software and how to fit it into the corporate architecture. He remarks:

“Luxury brands often begin by shopping around for a technological CRM solution before they have framed the question that they are hoping CRM will solve. We get concerned when luxury brands only see CRM as a solution that they can buy from external vendors. CRM is being sold as a bolt-on business service that brands will not be able to fully take advantage of without external support.”

In theory at least, CRM is a holistic approach that should facilitate improved service by helping companies get to know their customers’ profiles, habits and preferences better. But when the technology is used as a quick fix without overarching CRM strategies and guidelines in place, the data acquired is isolated from the broader context of the brand-consumer relationship. Quantifying these relationships with variables and formulae requires the intuition of professionals privy to intimate knowledge of the company and its clientele. After all, data doesn’t become useful information until it has been interpreted properly.

“CRM can be very good at connecting sales patterns like: customers who buy ties also buy socks, especially on a Saturday. But this delivers information on share of wallet and bypasses the consumer motivation. It can lead to a situation where the brand is insisting that a consumer wants a certain thing — and they have CRM-based evidence to prove it — but the consumer feels harassed and invaded,” says James.

This strikes to the core of why the luxury industry has been at once hungry for and wary of CRM. In the old days, luxury brands prided themselves on knowing all their customers, selling to them face to face on a first-name basis. Now, of course, many brands have become multi-tentacled giants whose biggest fear is losing the personal touch. Even smaller firms can sometimes find it hard to get acquainted with their customers — despite the fact that it’s arguably easier to track them in the digital age. Making CRM systems all the more alluring is the assumption that they aid in customer retention, which is increasingly important as competition grows fiercer and promiscuity among consumers proliferates.

Hugues Cailleux co-authored an interesting essay in the journal Brand Management late last year called, “”http://www.palgrave-journals.com/bm/journal/v16/n5/abs/bm200850a.html" target=“_blank” title=“http://www.palgrave-journals.com/bm/journal/v16/n5/abs/bm200850a.html”>Is CRM for luxury brands?" The central issue for luxury brands, according to Cailleux, is whether they can develop a robust CRM philosophy and still maintain their prestige. As the defining guideline, Cailleux proposes a “shopkeeper’s benchmark” whereby any output from CRM should mirror the kind of cherished relationships that flourished in the 1950s between a shop owner and his clientele. Consequently, CRM technologies must work on many levels but always provide a “basic yet very personalised relationship to every single customer” while using a sliding scale of “dynamic segmentation” according to RFM (recency, frequency & monetary value) in order to distinguish high/elite from low/middle customers. He concluded that as brands get bigger, “over-segmentation” according to sub-groups can maintain the benchmark, but again, only if coupled with meticulous instinct. Cailleux cited CRM’s ability to offer more personal experience to the many car club members at Porsche and Jaguar as an example of successful over-segmentation.

As early as 2004, forward-looking industry experts were advocating CRM as the tool that would set brands apart from their rivals and provide a competitive advantage. Claudia D’Arpizio, the senior luxury goods specialist at Bain & Company, cited Ermenegildo Zegna as an early adopter that had already reaped benefits. Writing in the Wall Street Journal, she said that Zegna had successfully created “a process to convert CRM data from its retail network into decision-making in its stores,” and in so doing that it had “unearthed new segments with high potential and adjusted their marketing plans accordingly.” Her advice to “offer a tailored customer experience” through CRM has since reverberated with many of the major luxury players but the main obstacle is that a CRM model tailored specifically to the luxury industry hasn’t yet really taken shape.

“Whenever you talk to people who are keen on CRM you quickly find that everyone has a different idea of how it works. Some see it as a technology, others as a kind of advanced database management and others as a segmentation tool,” says James, naming IBM’s Cognos as a “persuasive” favourite CRM system among luxury brands.

One of the latest innovations of CRM has been to marry it with the many social networks that brands and consumers are using. Consolidation of these relationships makes them more efficient and streamlined, but there are other assets in the kinds of social networking modules now found in systems like SugarCRM. Microsoft recently announced that it will release CRM Accelerators for its software, Microsoft Dynamics CRM, which will help pull data from Twitter and other networks after its initial roll-out.

The intelligence that is harvested from interactive social networking relationships can often be richer than the conventional CRM model and, crucially, these interconnected relationships can be analysed in light of one another then to be applied to the direct relationships consumers have with the brand.

Shawn Broxson, a director of the American web agency Q-Industries told CRM Buyer magazine that since social networking has been integrated into CRM, “now you have tools to establish where the second, third, fourth order relationships are and how you can leverage them. You can judge the strength of relationships several levels down. This is considerably different from an external world — like LinkedIn — that you did not create or populate.”

While CRM technologies today from Oracle, SAP, Epiphany and even Microsoft are far more agile and dynamic than the unwieldy systems of a decade ago, they are still a pseudo-science at best. The artistry behind CRM lies in making the relationship ultra intuitive and invisible to the customer.

“Prada is a great example. Their NY flagship store is a kind of symphony to CRM, but you would never see it in the way of a traditional definition of CRM. The store is entirely modular, meaning that merchandise can move flexibly internally,” says James. “The consumer is empowered to have a relationship with the products and the brands – to investigate other styles, other colours, and to see the products in different conditions – and RFID is deployed throughout the store to gain a loop of constant feedback.”

But beyond orchestrating such complex interactions, even in its most primitive form as a “data mining” tool, CRM can reveal valuable facts about consumers. The danger for luxury brands is when the automated processes of CRM aren’t strictly monitored. The nuances of each and every relationship must be enhanced by CRM and never blunted by it. Many sprawling luxury firms today are ripe for CRM intervention but it will take a combination of serious brainstorming, long-term investment and substantial resource allocation first to mitigate the risks of CRM and then make it truly beneficial.

James, for one, seems to believe that CRM has yet to come full circle and that, until it does, anything like CRM that tries to make the intangibles of human relationships tangible must be buffered by more human contact, not less.
“Without wishing to be too sentimental about it, CRM can also be a handshake, and a piece of excellent sales service. But the area that has yet to catch up is that luxury brands need to steal back the revolution. They invented the whole idea of powerful, personalized relationships with their consumers in the first place.”

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Robb Young is Managing Editor