Being able to accurately monitor, interpret, second-guess or even know precisely the ins and outs of every customer's shopping behaviour is a retailer's dream. The first step along this road is to put in place appropriate IT systems and business processes and then follow up with multimedia, multi-channel communications with customers to ultimately create a personalised sales relationship.
Boots the Chemist is in hot pursuit of this nirvana - but not in reaction to the rise of so-called customer relationship management (CRM), argues senior IT project manager Ian Radmore.
Radmore calls CRM "a red herring". "Boots was becoming customer-centric long before the CRM buzzword came along," he says. "CRM is only about developing the business so that it pays more than lip service to what the customer wants and still makes money, and that's always been as true for us as for anyone. It's just good business sense."
Radmore adds, "We will become more multimedia and multi-contact in our relationship with customers through phones, digital TV and the Internet but that's only because it's the kind of communication that customers are going to want with us, and it's a while away yet. Customers don't suddenly migrate overnight - it's a cultural thing. But it's certainly something we think about in relation to our in-store kiosks - how they can be tied in with other activities."
Boots' network of Advantage Point in-store kiosks housed in some 380 stores nationwide, delivers personalised offers to Advantage Card holders. The loyalty scheme is a strong foundation on which Boots can build a knowledgeable and mutually satisfying relationship with its customers.
The card was launched nationally in 1997 and in its first 18 months had a 4% impact on the retailer's sales. Today, of Boots' 27 million customers, more than 12 million are Advantage Card holders and 10 million are active users. These customers account for more than 40% of transactions in Boots' 1,400 chemist shops and 300 Boots Opticians UK stores. On average, cardholders spend 50% more than non-card holders.
Crawford Davidson, head of Boots Advantage Card, says, "Having introduced the Advantage Point kiosks, we must now look forward and see how we can replicate that contact in a multimedia, multi-contact environment. Ultimately, the customer will be the one to select the way in which he or she chooses to contact the brand."
In September 2000, Boots strengthened its commitment to its card and to mining customer loyalty for mutual benefit with the launch of a combined credit and loyalty smartcard supported by Egg. The card was the first of its type in Europe, with smart chip technology managing the Advantage Card loyalty scheme and simultaneous Europay, Mastercard and Visa payment.
The smartcard presents new opportunities for electronic marketing through Boots' in-store kiosks. Customers can add the points earned on their credit card to their loyalty account, and service their accounts.
In an initiative designed to export the Boots brand to new media and reach customers in new ways, last month the company officially announced an e-business joint venture with Granada Media - the formation of an independent Internet and broadband company designed to be Britain's leading e-business for health, beauty and well-being.
The new company, called Digital Wellbeing, also provides an interactive forum for individuals to exchange personal experience and consult experts online, on air and by phone.
The market for health and beauty products is one of the world's largest growth areas. In the UK alone, and excluding the National Health Service, sales of health and beauty products and services amount to £11bn a year, according to research by Verdict.
By creating a strong new media contender in consumer health and beauty in the UK and with 10,000 products available, Wellbeing intends to become the natural platform for all those with an interest in well-being, including professional associations, government bodies, commercial organisations and interest groups.
Wellbeing was launched with an information and transactional Web site together with an interactive digital television channel. Described as a personalised health service, it enables customers to enjoy secure delivery of information, services and products through whatever access service they choose, be it digital TV, PC or laptop and, as they develop, mobile and handheld devices.
As broadband technology becomes available to every home and office, Wellbeing will increasingly integrate the TV channel with the Web site, adding to the interactivity and offering a growing range of products and personalised services, says Boots.
Sixty per cent of the new venture is owned by Boots with Granada Media taking the rest, and its operating cost in the first year to 31 March 2001 is expected to be £18m.
Steve Russell, chief executive of Boots, says, "This new, innovative company will be Boots' primary initiative in consumer e-commerce. Within a few years, we would anticipate new revenues equivalent to around 2% of Boots the Chemists' current UK sales. In the digital world, we will create a store of unlimited scale, going far beyond our current offer."
Revenues will flow from the sale of products and services, from broadcast and online advertising and from TV programmes and online sponsorship.
Meanwhile, the data on customer buying behaviour that Wellbeing will generate will be pooled with that gathered from traditional in-store card transactions, other anonymous point-of-sale data and third-party data from Experian. Together these inputs will provide invaluable, 3D-style insights into what customers want from the company.
Boots has a special Insight team, a group of 25 people dedicated to analysing data gathered from card transactions and skilled in customer segmentation, clustering and predictive modelling. They use Boots' Customer Data Analysis System (CDAS) to help the retailer delve into new areas of business, provide further information points and enhance product offerings.
Using the IBM-based business intelligence solution, the team knows which customers buy more products, the demographics of high purchasing customer segments and specific patterns among customers, as well as subtle data, such as specific moments when customer behaviour can be positively influenced.
"Discerning which customers have the potential to become more valuable is a complex and interesting area our new system has opened up," says Helen James, head of customer and marketing insight.
But proving the value of such insights is a hard thing to measure, admits Radmore.
"It's extremely difficult, but the number of things the Insight team is increasingly getting involved in probably demonstrates how much value it has to the business in terms of helping the decision-making process," Radmore says. "It's a very important support tool."
The team's work has already reaped rewards in photographic sales, says Radmore.
"We targeted kiosk offers at different types of usage to encourage broader take-up of photographic offers and that's been quite successful. Also - and significantly for CRM - when we have to do product recalls, we can easily identify individual purchasers, which means we can provide a comprehensive service: not something we could do otherwise."
The way Boots merchandises its stores plays a big part in drawing customers in and keeping them there. To this end, customer data has been used to reveal which product categories contain "hooks" and which are mainly "basket fillers". Boots has used Advantage Card analysis to understand the role of its store categories and whether they attract people to the store or encourage customers to fill their baskets once inside the particular location.
Armed with actionable data, Boots then makes informed decisions about category strategies while the Insight team links specific tactics to the overall corporate marketing strategy.
"Although we're still refining our approach, we're consistent in thinking of categories as a means of making shopping easier and more orderly," says James. "In the long run, we think this philosophy will help us with customer retention and value."
With the help of business intelligence capabilities, Boots has created a model that looks at financial impacts as well as customer behaviour. This will help the Insight team entice existing customers to spend more money on items and products that they already buy, as well as determine which customers have the potential to buy from new categories. The idea is to understand how customers shop and which products should be linked to promote additional purchases.
"One of the techniques we use involves determining the items that people tend to buy at the same time and using that knowledge to position products in the store," says Radmore.
"Making shopping easy and in-tuitive for customers is the goal. We've determined which products logically fit together and, in some cases, which offerings might be eliminated from the product mix and layout all together."
By designing retail stores based on the buying behaviour of Boots' most valuable customer segment, the team hopes to encourage top customers to continue buying and to positively impact the behaviour of other customer segments. In addition, the information gathered about what increases customer value and lifts customer spending will be used to target marketing to specific customer segments.
The information generated by the team has also made additional and important strides in helping Boots deal with its supply chain. Boots' marketeers and buyers now have more informed conversations with suppliers about the customers who buy their products.
"Three communities of users at Boots access the data contained in the CDAS system - the team of analysts access the data regularly and deeply, the direct marketing team uses the database to create lists of people for particular campaigns and the category teams are able to access customer data to help with everyday decision-making, such as product development and promotional activity," says Radmore.
"Actionable data is accessible to key decision makers - extending the impact of the data beyond the outputs that a team of analysts can provide," adds Radmore
The system supplies flexible, structured reports to more than 70 business end-users, who use the data to perform their own analysis and track their own initiatives.
DSS Agent from MicroStrategy and BI/Query from Andyne are used for most queries. Eventually, CDAS will hold 1Tbyte of data, including more than two years of individual cardholder transaction records and a selection of non-cardholder sales records.
Boots still has some way to go to create a multi-channel, multi-contact CRM-style system that is end-to-end across the business. But the foundations being laid are wide-ranging and rooted in a strategy to improve customer service, not just to apply technology for technology's sake.
The company sees good business as making choices to enhance the shopping experience - but if its strategy also boosts profits at the expense of diverse competitors, that will also be welcome.
Boots' CRM system
- IBM RS/6000 SP, 10 nodes
- IBM Universal Database EEE (Extended Enterprise Edition)
- IBM AIX
- IBM Intelligent Miner
- DSS Agent from MicroStrategy
- DSS Web from MicroStrategy
- BI/Query from Andyne
- SPSS, a statistics package
What CRM does for Boots
Boots aims to become more multimedia and multi-contact in its relationship with customers through phones, digital TV and the Internet, According to Boots senior IT manager Ian Radmore, the retailer was becoming customer-centric long before the CRM buzzword came along. However Boots:
- Delivers personalised offers to holders of its loyalty Advantage Card scheme through a network of Advantage Point in-store kiosks in 380 stores nationwide
- Launched a credit and loyalty smartcard supplied by Egg. The smartcard presents new opportunities for e-marketing through in-store kiosks. People add points earned on their credit card to loyalty and service accounts
- Formed a joint venture with Granada Media called Digital Wellbeing to provide an interactive forum for people to exchange experiences and consult experts online, on air and by phone. The data generated by Wellbeing will be pooled from traditional in-store card transactions, other point-of-sale data and third-party data from Experian, to provide invaluable, 3D-style insights into what customers want
- Created an Insight team to analyse data gathered and is skilled in customer segmentation, clustering and predictive modelling. It uses Boots' Customer Data Analysis System to help the retailer delve into new business, providing
further information and enhanced product offerings. The team knows which customers buy more products, the demographics of high purchasing segments and specific patterns as well as when customer behaviour can be positively influenced
- Analyses its merchandising to draw customers in and keep them there. Customer data has been used to reveal which categories contain "hooks" and which are "basket fillers". Boots has used Advantage Card analysis to understand store categories and find out if they attract people to the store or encourage them to fill baskets. Boots then decides category strategies while the Insight team Iinks tactics to the corporate marketing strategy
- Created a model that looks at financial impacts and customer behaviour. This helps the Insight team to entice existing customers to spend more money on items and categories of products they already buy, as well as determine which customers have potential to buy from new categories
- Designed stores based on Boots' most valuable customer segment. In this way, the team hopes to encourage top customers to continue buying and to affect other segments
- Collected information on what increases customer value and lifts customer spending to target specific segments
- Generated information that helps Boots deal with its supply chain. Its marketeers and buyers are now more informed about customers when talking to suppliers.
Lessons for others
- Keep customer needs uppermost in your mind, not technology buzzwords like CRM
- CRM is a business strategy and need not necessarily involve IT
- The CRM concept should permeate the whole business ethos
- Build on customer data from multiple sources, internal and external
- Consider creating an Insight team dedicated to analysing customer buying behaviour
- Share CRM data with your customers and your supply chain
- Be driven by customer needs; don't rush them into a personalised relationship they may not be ready for
- Roll out customer-facing technology gradually
- Offer customers a communication channel of their choice, not yours
- For retailers, aim to enhance the customer's shopping experience, not just the company's bottom line.