Visitors to jewelry site Kay.com are greeted these days with a new option on the top right?Apply for your KAY charge. It?s part of parent Sterling Jewelers Inc.?s plan to extend its house credit program, which already accounts for a significant portion of Kay?s sales.

It?s also the result of research into which online CRM initiatives would help Sterling Jewelers service customers and maximize revenues. ?It has nothing to do with actually buying online, but it uses the Internet to enhance customer service,? says Len Pagon, CEO of Brulant Inc., a technology and e-business consulting firm that worked with Sterling on the project.

The outgrowth of that CRM initiative illustrates the customer relationship management issues that retailers wrestle with today: What is CRM? Is it better customer service? Or is it a boost to the bottom line?

Or perhaps a successful CRM initiative accomplishes both. In addition to improving the customer service experience and reducing overhead for the organization, a well-thought-out CRM program can generate top-line growth in the form of incremental sales while increasing the lifetime value of customers.

In fact, Sterling?s experience is a perfect example of that double-barreled benefit, Pagon says. Customers applying for credit online can elect to receive statements online by logging on to a personal account on the site. ?The online credit function has dramatically reduced the cost of sending out statements,? Pagon says.

Sterling operates more than 1,000 jewelry stores, including Kay Jewelers and a number of regional chains as well as Kay.com. Putting the credit program online for customers has not only reduced staff time to run the credit application program and cut paper, but it also has eliminated mailing costs and data entry errors. In fact, Kay estimates it?s cut the cost of administering the program by 80%. ?There?s been a pretty significant ROI in terms of better customer service at less cost,? Pagon says.

While those are measures by which retailers generally judge the ROI of their CRM programs, the tools, technologies and practices retailers are using today to implement CRM vary widely. They?re broadly defined in some cases to include not only traditional customer service but also marketing, web analytics, fulfillment and other operational functions.

The common elements among CRM programs, however defined within an organization, is that they revolve around customer touch points and how they?re handled to collect data that increases the profitability of customers.

The promise

That?s the promise of CRM, an opportunity that, as deployed on the web, tantalized retailers. The notion was that the web would allow them to collect customer data that would lead to stronger relationships, ultimately increasing spending. But in truth, a full realization of that promise remains out of the grasp of many retailers.

The web?s potential ability to collect personalized customer data and blend it with data from other channels raised retailers? expectations that the Internet would accelerate the process and yield a quick gold rush of customer-specific information for targeting online offers and ringing up more sales. The reality is that customer data gleaned from the web is indeed a rich store, but it?s proven more difficult to integrate and to translate into marketing programs than many initially believed.

Success on data-driven CRM initiatives by e-retailers at this point has been less in the form of a gold rush than nuggets, such as in the case of Sterling. In a Forrester Research Inc. retailer survey last year, 80% of those polled said they were satisfied with their current CRM projects?but the survey also found that their investment in such projects had so far been small.

?It?s difficult to point to a company doing CRM well on an enterprise level in every section of the business,? says Gartner Group analyst Adam Sarner. ?There are successes in departments, but silos exist. Yet the essence of CRM is to pull sales, marketing and customer service together on an enterprise level for one consistent view of the customer so as to leverage that relationship.?

That?s a tall order, and one that some initially thought technology would resolve?a mistaken belief at the root of some retailers? disenchantment. A report from consulting firm BearingPoint Inc. notes that many companies, disillusioned with CRM, are taking a step back to re-evaluate their initiatives.

?Too many retailers looked at CRM as a technology implementation,? says Ann Raives, senior manager in BearingPoint?s retail and wholesale practice. ?Technology is an enabler, but it?s not sufficient alone. Retailers have terabytes of data, and lot of them got stuck in it. The challenge is in making it operational.?

Even retailers who?ve moved beyond data collection to do customer segmentation may fail to get data into operational systems and that?s almost equivalent to having no data at all. Thus getting data into the right places and defining the processes to analyze the data may require a fundamental culture change?from informal talk within departments to structured communication between departments, from silos to the integration of data, and from a command-and-control organizational structure to interdepartmental decision making, Raives says.

The 68% failure rate

A recent survey of senior managers across several industries by Brulant identified other CRM failures. 68% pf those polled viewed their CRM initiatives as unsuccessful. ?Roughly half of the 68% are either full failures or cancellations initiated to avert disaster,? Pagon says. ?The other half have blown the budget or didn?t fully meet requirements on time. Many managers overseeing CRM implementation think the job?s done once the technology is in place, but that is actually just the beginning?

The Gartner Group?s marketing technology ?Hype Cycle,? an internal tool it uses to illustrate marketplace acceptance of new technologies along a continuum that evolves from product introduction to product maturity, places CRM technology in the middle of that evolution, near a low-lying mid-point it calls the ?trough of disillusionment.?

?CRM is a business strategy, not a technology?that?s been a trap for CRM,? Sarner says. ?A lot of companies have picked vendors to implement CRM without getting into why they are doing it in the first place. That can wind up simply automating bad business processes.?

Before defining what they want out of a CRM program, retailers should start by being clear on what CRM is and exactly how it works to deliver bottom-line results. Gartner and others frame it as two connected environments: operational CRM, which covers data collection and other functions at all the consumer touch points including the web, call center and others; and analytic CRM, which is back-end analysis, reporting and direct marketing to support the touch points. Critical data flow between the two environments.

Front to back

CRM works on the operational front end, for example, to collect information that marketers on the back end are interested in capturing?and vice versa. ?It works with the analytic back end to push what the marketers have found out to the point of customer contact, such as, for example, the type of banner ads I want to pop up when certain types of people order certain things on a web site,? says Steve Schultz, executive vice president for client solutions at CRM consulting firm Quaero Corp.

Retailers have spent a lot of cash over the last few years for the 360-degree view and channel integration. But many until recently have maintained channels separately, with separate organizations carved out as separate business lines managed by separate managers. ?It?s only in the last year it?s started to be integrated,? Pagon says. ?They?re now looking at the different channels as different touch points, and they don?t care what touch point you come through, but they want to be able to connect those interactions, leverage and learn from them and ultimately deliver a better customer experience.?

Brulant?s client Sears Optical, for example, a brand operated by Cole National Corp.?s Cole Vision Group, learned about customers? cross-channel preferences in focus groups. Then it pushed those learnings out to its web site. The goal was to provide better customer service based on feedback from shoppers; the result was an increase of 152% in sales of contact lenses, the only item sold on the site, within a few weeks of making those customer-driven changes.

The focus groups found that a significant number of Sears Optical?s customer audience, women aged 30-45, preferred to re-order prescription contact lenses online rather than going back to a store. ?The biggest thing we did was to apply some traditional merchandising principles to the web site,? Pagon says. ?We put certain offers in the upper right corner of the page so customers would see them first thing, similar to the way most people turn right on entering a physical store.?

The leverage points

The home page redesign also put some business intelligence behind reprioritizing how it presented features, based on focus group input about what customers would be most interested in seeing when they visited the site. ?It was all about how to enhance customer service so as to sell more, so it started with how to use CRM to do that,? Pagon says. ?There was a dramatic impact just by vectoring in what the highest points of leverage were and using them.?

While there?s CRM success in individual projects, the fully integrated, real-time multiple-channel customer view across the enterprise is still rare and faces a number of obstacles to wider implementation. Some involve data collection as retailers try to resolve what?s most important to get from customers and how to approach getting it. ?Many who?ve implemented CRM initiatives have failed to institute valid metrics and benchmarking,? Sarner says. Other retailers still don?t have a consistent cookie policy, notes Schultz, which prevents them from compiling data on repeat visitors who don?t register.

For others, the issue is not collecting data but the sheer volume of collected customer data, which challenges marketers to make sense of the data. ?In many cases, there is too much information and not enough time spent by people trying to figure out what to do with it,? says Paul Kowal, founder of technology consulting firm Kowal Associates. ?I rarely go into a contact center and see a system pop up to the rep something to suggest to a particular customer, or offer the rep something to thank the customer when the customer?s last order was three times the size of their average order,? he says.

Yet another issue in pushing multi-channel CRM data out to the point of sale has to do with Internet connectivity where some 97% of retail sales occur: in stores. Many retailers now employ systems that dial the stores at night to collect batched information. Some systems can bring up information at the point of sale, but it?s generally about transactions, not customers. ?If I can have just a few data points, I can do lots of interesting things at the POS, but to do that I need a richer interface, which requires higher bandwidth connectivity to the stores. But these things are big hurdles in an environment where capital is scarce, ? notes Pagon.

Yet, Nordstrom Inc. is reportedly testing a version of that scenario in a tech-supported version of retail CRM called clienteling. ?The idea is to use technology to get customer information from all the different channels to be used by the associate at the point of sale to manage the customer relationship better,? Sarner says. Using those data, the associate might be able to check purchase history against ongoing campaigns and make the shopper a promotional offer in the store, for example, or send out an e-mail targeting best customers with a relevant offer.

The power of potentially pulling all this information together so the salesperson can actually sell is a huge opportunity, Sarner says. ?This would work in a service oriented or boutique environment like a Nordstrom or a Williams-Sonoma,? he says. ?It?s less appropriate for Wal-Mart where self-service and kiosks might be more appropriate. The retailer?s value proposition is going to determine the clienteling strategy.?

Chunk it

Faced with a mountain of customer data, where are retailers to start in turning it into effective marketing programs online, and ultimately, sales? Experts say factors that contribute to success include identifying key points of leverage and taking on short-term projects to start.

?Early on, a lot of retailers were trying to install all aspects of CRM across the enterprise all at once instead of chunking it,? says Raives. ?We tell retailers to think big, by having a long-term vision, but start small, by quickly delivering small pieces of functionality informed by your master plan.?

On the data collection side, Kowal, whose firm specializes in CRM as deployed in web-enabled call centers, advises clients to set up a hierarchy of what they?d like to know about a customer and could get from the customer in a phone or web session. ?If you don?t have the basics, get a couple of pieces of information at each interaction,? he says. ?The next time you can build on that and get a little more information. So you are not overwhelming customers with requests for information, but you eventually have the top 10 or 12 things that you are going to collect. Your marketing people are now going to have a better ability to think about what that information means and how to design programs and offer products that will play off of that.?

Martha Stewart Omnimedia has done just that. Martha Stewart Omnimedia has been feeding customer data from its e-commerce, publishing, and media businesses into its Art Technology Group Inc. database for two years. ?After two years of tuning our engine to perform at the highest level, we have reached maturity in terms of the technology platform,? says Raffaele Pisacane, vice president of Internet development. ?Now we are able to explore some of the most important functionality that ATG provides to us.?

With the assistance of analytics provider E.piphany Inc., Martha Stewart Omnimedia has conducted preliminary cross-channel segmentation profiling of different customer groups and fed it back into ATG?s Scenario Server tool to test target marketing by customer segment. In one test, the customer data it collected in multiple channels successfully boosted online subscriptions and renewals for Martha Stewart?s three magazines, Pisacane says.

Marketers created customer segments of online visitors who were also subscribers to Martha Stewart Living magazines. Subscribers whose subscription would expire in one or two months got an incentive to renew. Those whose subscriptions had lapsed received an incentive to re-subscribe, while those whose subscriptions were about to expire got an incentive to renew right then online. ?This is huge from a cost point of view because if we can reconvert our magazine subscribers using the online channel, we don?t have to send a postcard or use more traditional means of reaching them at more expense,? Pisacane says.

It?s cooking

Though the online subscription initiative is still only in test mode, ?based on people clicking through the promotional content served up to them and based on the click-through rate and execution of magazine subscription and subscription renewal, we?ve been successful,? he says. ?We?ve proved it can convert at a higher level.?

When Martha Stewart Omnimedia launched its most recent magazine, Martha Stewart Everyday Food, for example, 33% of subscriptions in the first month came through the Internet, Pisacane says. That?s in part because of how CRM data informed online targeting of certain site visitors. ?We know (via cookies and registration) who is coming to our site. We know which customers are more keen to subscribe to the new magazine because they are coming more frequently to the cooking and entertainment areas of our site or they bought a cooking item,? he adds.

Such CRM-driven successes have helped refine the direct commerce strategy that Martha Stewart Omnimedia is rolling out this year and next. ?We want to leverage the Internet channel more and more, as a way to target customers in a more personalized way using data we?ve accumulated in the course of two years,? says Pisacane. ?This is a validation of what we are doing that works.?

Retailers? CRM spending plans for this year