E-Business: CRM vs. eCRM vs. eRM

• 12/01/2000

This is the second in a series of columns that focus on the application of clickstream data warehouse technology to an e-business environment.

We live in interesting times. Customer Relationship Management (CRM) systems are currently driving a huge information systems-led customer relationship revolution in the brick-and-mortar-business world, while simultaneously, electronic Relationship Management (eRM) systems and clickstream data warehouses are driving an even broader scope revolution in the way both purely Internet and click-and-mortar enterprises relate to their markets. The best way to understand this dichotomy is to first define the component parts of a brick-and-mortar customer relationship management system, and then compare this to what can be done in the eRM Internet environment.

The brick-and-mortar CRM movement is driven by the networked automation of virtually all business functions, especially the front-office functions. A key tenet of CRM is that the information stream generated by front-office automation can be analyzed, and then used to greatly enhance the customer experience. Sales force automation, marketing automation, consumer-oriented loyalty card programs, customer service automation and risk assessment automation products all create rich historical data streams of these different dimensions of the total customer experience.

It is also worth noting that CRM movement would not be as large as it is without the Internet as its lubricant. How else could any business feed sales operational data from all over the world into a centralized data mart for storage and analysis? How else could any business distribute CRM market intelligence to roving laptop users in a timely and cost-effective fashion? As a result, it has become fashionable for many CRM vendors to declare their products part of a new breed of eCRM technology because they use the Internet. Frankly, the difference between CRM and eCRM is mostly in the name. But, there is a new challenger called electronic Relationship Management (eRM), which is a significant leap forward in relationship management technology. But, before we explain eRM, we need to further explain the situation with CRM.

The brick-and-mortar CRM movement is so strong, that, in the past year, the bulk of total IT spending has shifted from ERP systems (back-office automation) to front-office CRM projects and fast-growing front-office solution vendors, like Siebel. The construction of data marts and warehouses beneath these systems has necessarily lagged the implementation of these automation systems -- after all, you have to have a working operational data source, before you can use it as a historical data stream for a data warehouse/mart.

There is a natural ordering to CRM system construction, in three stages:

Consider lofty CRM goals like maximizing the lifetime value of a customer -- with a Stage 3 CRM solution, an enterprise would actually be able to measure its progress toward this goal. It's clear that CRM needs to go to Stage 3 in order to reach its full potential (see Figure 1, page 55).

In the brick-and-mortar CRM/eCRM IT movement, we are in the middle of Stage 1, the early part of Stage 2, and virtually no enterprise has implemented Stage 3. At the same time, the prevalent CRM-vendor marketing vision is way out there at Stage 3, far beyond the Stage 1 locus of the implementation effort.

Contrast this with the situation in e-business. E-business customer relationships are automated by definition -- that's the whole idea. All market-facing e-business functions are computerized via the Web sites of the e-business. Stage 1 is already done. If anything, back-office, not front-office, automation is lagging in the e-business environment. The market-facing Web sites automatically produce log files that record all aspects of customer and non-customer behavior in minute detail, creating a clickstream that places Stages 2 and 3 of relationship management within reach. And, remember that eRM creates a picture of an electronic enterprise's relationship to its overall market, not just its customers. eRM takes the concept of relationship management to a powerful new level that goes beyond customer-centric CRM.

The odd thing is that most e-businesses fail to fully utilize the rich market intelligence from the eRM clickstream. Until the recent market downturn, most e-businesses parked clickstream data warehouse projects in the outer reaches of their development agendas. Instead, they tended to use log file analysis tools to do coarse roll-ups of business indicators, much like brick-and-mortar businesses used the old Executive Information Systems of the 80s and early 90s. Log analysis tools produce relatively crude aggregate business indicators like site hit tallies, the most popular entry and exit pages, the number of advertisements served, tallies of the number and total value of goods sold, etc. While these statistics are certainly useful, I find it ironic that the executive suites of new-economy e-businesses are typically running on old-economy EIS-style business indicators from a decade or more ago. This, during the same period when their brick-and-mortar competitors are using their customer data stream for a much more sophisticated CRM understanding of their marketplace. To me, it is no wonder that many e-businesses are getting creamed by their brick-and-mortar competitors.

The double irony is that the clickstream data from the log files is much richer than any customer data that can be economically collected in the brick-and-mortar environment. The inexpensive eRM business-intelligence derivable from the clickstream theoretically gives the e-business a significant edge over brick-and-mortar competition, whose cost to acquire such information would be much higher or, in many cases, simply impossible.

Let's illustrate this with an example. I can walk into the brick-and-mortar Safeway grocery store near my home, look for an item like oat bread that is not on the shelves and leave the store. The store will never know that I was there, much less which item I was seeking. They only know about my visit if I actually buy something, and they only know about what I actually bought, not what I considered and rejected, or what I couldn't find in the store. And Safeway is no CRM -- it implements a leading-edge CRM environment that includes my well-worn Safeway customer loyalty card that I swipe at checkout. The card drives a loyalty-based CRM system that gives me instant rebates and coupons that are automatically applied to my purchases, assuming I ever make it to the checkout.

But, in an online grocery store environment, I could have the same prospecting store visitor experience, and the online grocery store will automatically record, via its Web server log files, every aspect of my foray for oat bread, even though it was not in stock. The online grocery's Web server automatically emits a clickstream that records when I entered the store, what I looked for, and when and how I left. It is as if I had an overhead camera following me through my earlier brick-and-mortar search for oat bread.

Through cookie files and user registration techniques, it is likely that the online grocery knows my identity, even though I purchased nothing. This ability to record the entire scope of the user experience raises the level of actionable market intelligence that can be gathered in the e-commerce environment to a much higher level than that of the brick-and-mortar environment. One can see all aspects of the behavior of customers, prospects and even casual visitors. And, one can enhance the experience of all of these types of users using the knowledge derived from their clickstream. An e-grocery could offer a coupon, rebate or back-order the oat bread for this hapless potential customer, something that is virtually impossible to accomplish in a brick-and-mortar grocery where one must be an actual customer to receive the benefits of CRM.

Now, consider the power of the eRM clickstream in a hybrid click-and-mortar business environment. Many brick-and-mortar businesses are establishing e-business channels to their marketplaces. For example, a brick-and-mortar grocery could establish an online sales channel that used the neighborhood stores as the delivery sites. Safeway already does this in the UK. The clickstream generated by these e-channels will automatically record all aspects of user behavior in just as much detail as a pure e-business. If a click-and-mortar business extends its CRM effort to embrace the e-channel clickstream, it gains a much better understanding of total market behavior than is possible with just CRM. By combining brick-and-mortar CRM and e-channel eRM business intelligence, click-and-mortar enterprises can potentially have the same breadth of market information as their pure e-business competitors, while retaining many of the advantages of a brick-and-mortar presence, like manufacturing and distribution capabilities, local customer service presence, etc. I think eRM systems have the potential to drive click-and-mortar enterprises to the forefront of their marketplaces.

What is the moral of this story? If your enterprise is engaged in an e-business, whether purely Internet or click-and-mortar, it's time to implement an eRM solution, driven by your clickstream data warehouse. It is your strategic weapon, and the source of your competitive advantage in your marketplace.

In the next column, we will explore how a clickstream data warehouse can be used to gauge Internet advertising effectiveness and create a personalized online experience.