Building Customer Relationships

In the table at the bottom of this page is information on two furniture stores that differ in their business objectives, customer orientation, the ways their salespeople function, and in their approach to customer service. How do each of these stores increase and maintain sales?

Store X increases sales using traditional methods, by increasing their advertising and discounting their prices. The profitability of Store X depends primarily on volume and, secondarily on aggressive cost control. Any downturn in discretionary spending by the public will severely affect this store.

Store Y increases sales in the traditional manner described above, but they also place strong emphasis on repeat business and word of mouth. The profitability of Store Y depends on volume and costs, but their emphasis on repeat business and word of mouth magnify and enhance the effectiveness of their advertising dollars. The cost of computer systems and training to track customer relationships and trends has increased their costs slightly, but they are only minimally affected by downturns in discretionary spending as a result of their strong customer ties.

What must Store Y do that Store X doesn't do? There may be many important differences, but the focus of this article is Customer Relationship Management Systems (CMRS) and how they are used. A Customer Relationship Management System is a set of policies and procedures (and possibly computer hardware and software) that guides all interactions between store staff and customers or prospects. Store Y must implement a Customer Relationship Management System that includes an Ups management component, a customer sales and service history component, word processing for consumer communications and the appropriate reporting capability for productivity analysis. A computer-based system is essential for stores of even modest size. Storeowners often try to utilize file cards and good memories as substitutes for a computer system with specialized software, but they can not provide the necessary consistency inherent in computer automation. We all know that "Systems Define Outcomes."

First, the bad news: Effective use of a Customer Relationship Management System requires an initial investment in hardware, software, training of staff, initial loading of several databases and most difficult, a change in the way people think. Once installed, the elements that form the basis for success are: consistent daily system use by all staff, analysis and interpretation of system reports by management, and incentive structures that reward establishing customer relationships. The initial implementation of this process costs money. It can also be difficult for people to change their routines to include a new function in their already busy day, and results can be slow to materialize. In many cases, management must change their philosophy about what is important as they view different functions of the business. Gathering information about customers and establishing ongoing relationships with customers is almost as important as closing a sale. Gathering customer information can be difficult at times, but well worth the return from the lowered costs associated with repeat sales.

The good news. If the information is gathered and the store systems are modified, the users of a Customer Relationship Management System should expect significantly more Ups per dollar of advertising, better profitability through lowered overhead for word of mouth and repeat business, and a different caliber of employee attracted to the store. Customer Relationship Management System software is among the fastest growing category of "enterprise software" according to Fortune magazine. This type of software allows management to chronicle and analyze the interactions between a customer and their staff from the time the customer first walked into the store.

The UP management function of the CRMS distributes customers fairly among sales staff, tracks shopper preferences and objections, evaluates advertising effectiveness, and provides a tool for easy customized follow up to each buyer or non-buyer for whom data is gathered. There are typically twice as many non-buyers as there are buyers. Up Management systems give the store a second chance to bring the prospect back into the store. Furthermore, sales management reports can track sales staff performance by style, category of item, original interests and objections. Managers can evaluate sales staff by average ticket, close rate in the aggregate, category, style, preference, objection, or based on any of the data collected by the sales staff with the computer software. The effectiveness of sales staff, their need for future training in specific areas and the effectiveness of promotional campaigns can be evaluated by the same criteria. The database will provide guidance for areas such as: training, stocking of new inventory, shift scheduling and rotation management. A CRMS can be used to provide information about most store operations.

The key to effective use is consistent use. To have an effective system, it becomes essential for staff and management alike to maintain an accurate and current database. Some stores return 1%, some return 6%, and others still more. Effective customer relationship management accounts for a significant part of that difference.

Is there a difference between Store X and your store? Do you have important decisions to make if you do not want to be vulnerable to a downturn in discretionary spending? Some store niches will not support the relational approach to customers required by a Customer Relationship Management System because the local population turnover is too high, there is low personal disposable income in the area, or because the owner or management are not inclined to automate or look at customers in a relational fashion. On the other hand, customers will return to stores where they received good service and they will refer their friends.

Every store needs a strong "Value Proposition." If your store does not provide a value that other stores or sources of competing goods do, you will not be their first thought when it comes to buying furniture. While it is trite, the golden rule is true in most cases. We need to treat others the way we want to be treated. A consumer today expects more than just a business transaction, they expect value. That means good, considerate service and quality products. The first step in providing those services is good listening and the means to evaluate the data you collect. Strong customer relationships are built upon strong "Value Propositions."

The Internet will take a progressively larger market share and the competition from new entrants will make it more difficult for storeowners to profitably grow or even maintain current profit levels. Installing a CRMS expands every stores opportunities for profitability and increases sales, not for free, but for a cost lower than most owners might think. It is a cost that comes with a guaranteed return.

David Middlebrook of AAAA Development LLC, developers of UpFront™ software speaks and writes extensively on customer relationship management and related topics. Questions can be sent to FURNITURE WORLD at editor@furninfo.com.