Nice Guys Finish First

Once upon a time, not so very long ago or far away, a kind-hearted customer service czar found himself in a bit of a pickle. His company had been pitching a special Christmas gift across the land: a chunky, gold NFL ring, custom-embossed with a favorite football team, guaranteed to arrive by Dec. 25. The ring was a hit-too much of a hit. Four days before Christmas, the czar learned that 250 orders were going to run late. Rather than see 250 customers have a very unmerry Christmas (and think very unmerry thoughts about the company that let them down), the czar sent each one a $100 NFL team jacket for free, shipped overnight to arrive by Christmas Eve.

It's the kind of Christmas tale that sounds a bit too good to be true-especially to any jaded shopper who's been burned by delays when ordering holiday gifts over the Web. Yet it did come true at home shopping giant QVC Inc., where folks believe that saving a customer's trust is worth spending a few extra bucks. "Some businesses would say that's stupid, because you're giving away money," says John Hunter, QVC's senior vice president of customer services, who rustled up the jackets from the warehouse. But QVC disagrees. "If you get loyal customers, you can keep them for a lifetime," Hunter says. "This is a business strategy, not just being nice to people."

These days, it's trendy to call that business strategy customer relationship management (CRM)-a catchall phrase for a broad collection of marketing, sales and service technologies and tactics that gives companies a handle on who their customers are, which ones are most profitable, and how to serve them better so they'll stick around. The goal, of course, is lowered costs and increased profits.

More and more technology vendors are trying to ride the CRM wave, hawking products that promise to corral customer data, integrate a website with a call center, or predict what customers want by analyzing past purchases. But amidst all the hype around these new-or in some cases, merely repackaged-technologies, it's easy to lose sight of this fundamental fact: Technology alone does not make for a sublime customer experience.

QVC, of course, is no Luddite when it comes to developing and managing customer relationships. A company that broadcasts live shopping shows 24 hours a day, seven days a week, to viewers in 73 million homes across the United States needs some pretty sophisticated technology to keep more than 6 million customers happy. Without its high-tech firepower, QVC wouldn't have been able to answer 115 million phone calls, ship 76 million packages or handle more than a billion page views on its website last year-in the process, hauling in $2.8 billion in sales from U.S. and overseas operations.

Yet technology won't ensure that a senior executive scrambles to find last-minute Christmas gifts. Technology doesn't make the hosts of shows like "Black Hills Gold" and "Now You're Cooking" talk to the camera like they're chatting with a neighbor over the back fence, sans TelePrompTers or cue cards. And technology isn't entirely responsible for the kind of customer ties that QVC has been able to foster-a 57 percent customer-retention rate and a body of customers so loyal that they come from across the country to tour QVC's state-of-the-art studios in suburban West Chester, Pa.

You see, QVC understands what many companies have yet to learn (or what many may forget given all the hoo-ha around CRM): Before a company can use technology to boost customer loyalty and sales, it must have a strategy to put customers at the core of corporate decision making. QVC has such a strategy-and it's carved into the company, literally and figuratively.

Small Screen, Big Relationships

Walk through the tall trees on QVC's campus toward the mirrored glass headquarters, and you'll see it just before you head up the stairs: "Customer Focus: Exceeding the Expectations of Every Customer," chiseled into a low wall that encircles a bench where employees eat lunch. The phrase shows up in the building's atrium (as a floor inlay), a customer service rep's cubicle (the first in a list of corporate values that's tacked up on the rep's wall and is given to every QVC worker) and sprinkled throughout conversations with QVC employees. The company touts the fact that even its name encompasses customer-focused principles: Quality, Value and Convenience.

QVC's customer focus has paid off with double-digit growth rates each year since it went on the air in 1986. It also has an "extraordinary" level of customer loyalty, notes Jeffrey Rayport, a professor at Harvard Business School and CEO of Marketspace Inc., part of The Monitor Group, a Boston-based consultancy. Top-flight catalog operations typically hang on to about two-thirds of their customers, Rayport says, and QVC's 57 percent customer-retention rate is in this league; other home shopping channels tend to have loyalty rates of 10 percent to 15 percent and lower.

QVC's secret is that it's a service organization, one that drives profit by developing long-term customer relationships-not just ringing up hit-and-run sales from "hapless victims," Rayport says. QVC's customers view QVC as a source of education (demonstrating product features and functions), entertainment and companionship. Viewers actually build a social relationship with show hosts, Rayport says, and a commercial relationship gets built on top of that social relationship. If Bob Bowersox, QVC's first and longest-running show host, tells you that this is the best VCR for the money, that it's been blessed by QVC's rigorous quality assurance department, and then shows you how to use it, you believe him, and you buy it. When you call, you may even decide to take the order-entry rep up on her offer to talk to Bob live on the air and thank him for recommending that cookware set you bought last month. You'll also be sure to visit Bob in person when QVC takes its live show on the road to your neighborhood.

"I don't think anyone believed that they could be building relationships that were this significant through a television screen, but that's what's happening here," Rayport said. (Building such relationships through a computer screen is another challenge altogether, Rayport says)The Customer Comes First...

It's one thing for a TV host to build viewers' trust ("Uncle Walter" Cronkite inspired similar feelings in his heyday); it's another thing for the rest of the company to live up to that trust. Company executives often say that QVC's relentless customer focus comes from the top down. QVC President Doug Briggs personally reviews the dozen or so customer letters that come to his office each week. And if there's a problem, he'll forward it to the executive responsible for fixing it, with a handwritten note. But Hunter makes sure that the customer-centric message is adhered to from the bottom up, or as he puts it, ensuring that "all of the decisions we make are geared toward some sort of long-term success with the customer." Hunter's role is still an unusual one to play in a large global company; a recent Forrester Research survey of such companies found that less than half have a vice-president-level executive responsible for the overall customer experience. Hunter also oversees QVC's four U.S. call centers, and for consistency's sake, he helps set up call centers for QVC's growing overseas operations.

Before Hunter arrived from Citibank nine years ago, QVC kept track of company-focused metrics: calls per hour, sales per minute, profitability per customer. Now QVC emphasizes customer-focused measures: How friendly are the call center reps? How knowledgeable are they about the products? How clear are invoices and product instructions? How many people does a customer have to speak with to get an answer? How often does a customer have to call a second time to get a problem resolved?

QVC gathers these metrics by fielding customer satisfaction surveys (quantitative and qualitative, run by outside companies) and by tracking every last phone call. Cross-functional teams made up of call center staff and systems staff review customer service reports every week and figure out what areas need work. For example, when Hunter arrived at QVC, 15 percent of customer service callers had to ring back a second time to get their problems resolved. Since some of those calls were from customers who had returned items and wanted to make sure their accounts had been credited, QVC began crediting customers' accounts more quickly and sending cablegrams to let customers know. Thanks to changes like this, the number of callers who need to make repeat calls to customer service has shrunk to 3 percent, Hunter says; the goal is for it to reach zero.

Customer service is only as good as the people delivering it. So QVC strives to keep its call center employees as satisfied as its customers. "If employees are happy at work, you hear it in their voice on the phone," Hunter says. "If you are basically running a sweatshop, you hear it in their voice." Although reps get scripting suggestions, they are allowed to go off the script. QVC also surveys customer-facing employees about their job satisfaction and strives to act on any complaints. The company's call center turnover rate for full-time and part-time employees is 24.8 percent, better than the average rate Gartner Group reports for large call centers, 28 percent.

QVC has also changed the job descriptions of customer service reps to make it clear that they are "customer advocates" who are rewarded for uncovering glitches and suggesting new processes-not just "complaint handlers" who respond to one gripe and move unthinkingly on to the next. It was fairly easy to get the reps to make the shift. Call center managers were another story and had to be encouraged to listen to reps. "Unfortunately, some people had to leave," Hunter says. "They didn't get it."

Making sure employees at all levels "get it" is crucial to a CRM initiative's success. Gartner Group estimates that through 2002, 65 percent of companies tackling a CRM project will fail to align their senior executives, IT executives, and department and functional managers to achieve the desired results. And through 2005, only 15 percent of "Type A" organizations-those quick to adopt cutting-edge technologies to gain a strategic advantage-will be able to transform themselves into customer-focused organizations. To succeed, companies must have the right metrics in place, offer adequate training and pick the right technology to make it happen.

...And Technology Comes Second

At QVC, technology plays a crucial supporting role to delivering good customer service. Some of its CRM technology is state-of-the-art; some is in the middle of a much-needed tune-up. And QVC is not afraid to take a pass on some of the new CRM technologies if they don't fit in with its philosophy of how customers should be treated.

QVC's call centers have computer-telephony integration (CTI), technology that identifies a caller's phone number and matches it to customer information in QVC's databases. When a customer who has ordered at least once from QVC calls, the customer's information pops up on the rep's screen. Given that CTI speeds up call handling and can make customers feel more valued (they don't have to spell their names every time they call), it is a "must have" for large call centers, says Cassandra Millhouse, former lead analyst at Ovum Ltd., a London-based research and consulting company. "But not as many firms have implemented [CTI] as you would have imagined," she says.

QVC's homegrown customer service system does have one shortcoming of note. Since the mainframe-based software was written before the Internet and e-mail became consumer communication tools, it doesn't let reps view customers' e-mail messages; if a customer calls with a question about an e-mail, the rep needs to route the call to a rep who handles Internet queries and works on a PC. QVC is not alone wrestling with this disconnect, Millhouse says. "Most organizations find it incredibly difficult to integrate across all of their means of interaction with customers," she says. At QVC, that unwelcome disconnect will go away when it begins rolling out its new, Web technology-based customer service software this year.

Even so, QVC hasn't had to wrestle with one of the biggest technology integration roadblocks to CRM: having a central repository for all customer data across the company. "That's kind of the first thing you need to get right in order to be able to do good customer relationship management," Millhouse says. "Most organizations haven't got that right." At QVC, all customer data, even from Web customers, is collected in a single database and always has been-in fact, QVC has buying history data on each one of the 18 million customers it has served since it first went on the air in 1986.

QVC's customer buying history data is correlated by zip code with psycho-demographic data from Experian Information Solutions Inc., a company that collects and analyzes scads of consumer information. That way, QVC can tell whether a customer is from a "suburban upper deck" neighborhood (to use the Experian lingo) or might be considered a "fortunate retiree," says Doug Rose, vice president, merchandising and brand development. QVC can tap into customer and purchase data real-time, knowing instantly whether a new cookware set being featured on the air is a hit with soccer moms or a bust with wealthy retirees. It uses the data to adjust its sales plans-to decide whether it needs to order extra of one item, or leave an item off that show when it airs again later in the week. The information also helps QVC's merchandisers identify groups of customers whose needs aren't met by existing product lines.

Through other data analysis, QVC knows that customers who learn about the company through a friend are likely to become much higher-value customers than those who stumble on a product while they're channel surfing. Because of the power of word of mouth, QVC focuses more on customer retention (that explains the last-minute search for those football jackets) than acquisition. "We trust that acquisition will happen organically, because if we do our job right, our customers become our advocates," Rose says.

One might expect that with QVC's gold mine of customer information, the company would be at the forefront of one of the hottest trends in technology-enabled marketing today: using the data to predict what customers want and tailor special offers to each one. But it has yet to take the plunge into so-called predictive modeling. QVC has evaluated off-the-shelf software and services for predictive modeling, but Rose is skeptical that they would work for QVC, given the company's broad range of merchandise; since each customer has such a heterogeneous shopping basket, it's not as easy to predict what they might want to buy next.

Yet that's not the only reason QVC is approaching predictive modeling with caution, Rose says. The company has an underlying hesitancy about over-badgering its customers, and it would be loath to have a rep offer up a clunker of a product recommendation and risk offending a valued customer. "We have had an enormous amount of internal debate over this issue," Rose says.

This reluctance to bother customers is one reason why QVC does little or no direct mail or outbound marketing. "People who have a database marketing bias will often tout the incredible success rates of predictive modeling by saying, 'I got a 9 percent response rate on a piece of direct mail,'" Rose says. "QVC would turn around and say, 'Well, what about the other 91 percent? Did they not appreciate getting contacted?'" Harvard Business School's Rayport says some observers might encourage the company to be more aggressive and do more outbound marketing. But he also notes that customers are drawn to home shopping because they can control their environment-they can buy what they want in the privacy of their homes, without any annoying sales reps watching their every move. "QVC believes that you violate this social contract if you get in the business of spamming people," Rayport says.

Customer relationship management at QVC relies on a complex web of people, customer and technology strategies. But the moral of QVC's CRM tale can be summed up in one word: trust. Viewers trust QVC to show them how products work, deliver them when they expect and resolve any problems with them quickly and cheerily. QVC trusts that if it keeps treating customers right, customers will keep coming back. QVC would not want to risk losing their trust by pestering them, assuming too much about them or invading their privacy (the company never sells customer data). And whenever technology and QVC's customer-oriented culture conflict, culture wins out. Why? Simply because, Hunter says, "the customer, not the technology, is the most important thing about this business."

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Call Center of the Future

QVC is bringing the power and flexibility of the Web to its call center. New software developed by QVC lets reps view customer data via a browser, much the same way you can point-and-click through this website (unlike data on a public website, the QVC customer data is private and can be searched only by QVC employees).

QVC's cumbersome old system ran on "dumb terminals" that connected to a mainframe computer, says Eric Smith, manager of systems and programming for QVC's MIS group. (To get an idea of what dumb terminals look like to a customer service rep, picture the kind of computer system you might see an airline ticket agent or retail store clerk use-a cloudy black screen with line after line of tiny green characters, operated via a keyboard with no mouse). The old system did not have any links into QVC's e-mail systems and didn't let reps search for old orders (they could scroll forward-but not backward). At the end of every call, the reps had to spend about 30 seconds reconstructing what took place-and in a call center that handles 115 million calls a year, every second counts.

The new system still connects to the mainframe and uses a lot of the old business logic. But reps access the system via browsers on PCs or Web terminals, making it more intuitive to use. Reps can search and sort through customer data or internal policy memos, and they can click on a link to find details on an order or see a color picture of a product. They can also see scripting suggestions along the right-hand side of their computer screen (that's much easier than having to fumble through a paper printout of scripting suggestions while you're trying to take a call). The improvements are expected to shave 15 seconds off of the time it takes to handle each call, says Susan Harris, a QVC project manager in customer services operations and engineering; since the system keeps a record of what happens during the call, reps will no longer need to spend 30 seconds after the call reconstructing what took place.

The new system is being rolled out this year for customer service reps (the e-mail integration will be rolled out in the second quarter of next year). Eventually, order-entry reps will use a similar interface. The long-term goal is for QVC to train "universal reps" who can handle any function through the browser window: order entry, customer service, e-mail and chat.

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From the Small Screen to the Smaller Screen A customer is a customer is a customer, right? Well, maybe not. As QVC has learned, customers' behavior on the Web bears little resemblance to their behavior while watching TV. Likewise, building strong ties with shoppers online is a radically different challenge than doing so via the tube. "It's more difficult to build a human-feeling relationship with a Web screen," says Jeffrey Rayport, a Harvard Business School professor and CEO of Marketspace.

QVC's TV viewers decide to buy a product on the spot after seeing a trusted host demonstrate its features and functions, never knowing what product they'll see next. Web shoppers, by contrast, tend to make "considered purchases," says Steve Hamlin, vice president of operations at iQVC, the division that oversees QVC's website. When they come to the site, Web shoppers know exactly what they want and expect to be able to search through a broad array of products.

QVC has adapted to that customer difference by expanding its product selection online, and by offering good search capability and convenient ordering. But in Rayport's view, iQVC has yet to deliver the automated tools to let shoppers compare products' features and functions-and it has yet to replicate the emotional connections that shoppers have with QVC's on-air hosts. "I'm not sure the magic that they're able to achieve on the cable screen is something they've been able to do on the Web, and I'm not sure anybody has," Rayport says. iQVC has been experimenting with new technologies that may help it deepen customer relationships. Web shoppers can engage in real-time online text chat with customer service reps, and the beauty section of the site lets them consult with makeup experts. Although Hamlin contends that chat is a great way to close a sale, QVC has yet to measure chat's ROI. Indeed, most companies have yet to do so, says Cassandra Millhouse, former lead analyst at Ovum. Yet intuitively, she says, it makes sense that chat would boost customer satisfaction. And making customers happy no matter what medium they choose will be critical to QVC's success, Hamlin says: Customers who shop via the Web and television are 25 percent more valuable than those who just shop over the air.

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