July 12, 2004

Retail CRM: Does Data Create A Duty?

By Evan Schuman, eWEEK

Opinion: It's hard enough to successfully negotiate the bloodsport of a CRM project, says Evan Schuman, but now it just got nastier—thanks to a customer lawsuit over what responsibility CRM data carries with it.

Pity the poor retail CIO who is a CRM advocate. In acts of backstabbing betrayals worthy of the ancient Roman coliseum, our hero finds himself having to deal with a host of villains:

• Overzealous software sales reps, who conveniently forget to mention the money and person-hours the retailer will have to spend to make the CRM deliver. Installing—and, from the rep's perspective, paying for—the package is only one-fiftieth of the battle.
• Squabbling line-of-business, financial and IT managers—the very people our hero is trying to help —who can't agree on what answers they want the system to deliver.
• CFOs, those grumpy, eyeshade-wearing number-crunchers who question whether the CRM-generated answers thus far are really that much better than the field-force-generated answers they had before. Ahhh, yes, the ever-present weapon of a chief financial officer: Question the ROI, which is the accountant's version of FUD (fear, uncertainty and doubt).

As if our CRM-Advocating Hero needed any more headaches, news came last week of a lawsuit filed against a major retailer: $54 billion retail grocery chain Kroger.

Kroger's sin? A grocery store group it owns, QFC, had installed an extensive CRM system but didn't use it to alert specific customers that they had purchased contaminated and recalled beef. One of its customers—who did purchase the mad cow disease-infected product and was specifically and incorrectly told by store employees that her product had not been recalled—filed the lawsuit.

That customer's QFC loyalty card did ultimately prove she had purchased the contaminated beef, but not long after, her family ate it. The argument: Had the retailer e-mailed the customer—and the other affected customers—as soon as the recall was announced, they would have been spared the often-fatal illness.

So, now the technology itself is posing the threat of legal and PR nightmares. Et tu, CRM?

"CRM has already been getting somewhat of a black eye as it's not gotten the ROI expected. And now this?" lamented Marianne Gregory, vice president of CRM at ThinkFast Consulting.

The Kroger situation forces to the forefront an age-old problem with recalls. Typically, it's the manufacturer—the entity that normally made the error—that has to go through the cost and hassle of a recall.

Often, though, the manufacturer doesn't have a full list of who purchased the product as it sits with a retailer or distributor, unless the consumer sends in a registration form, which is only appropriate for a small percentage of retail products. (I personally like the idea of filling out a reg form for a bag of carrots, but I'm a masochist at heart.)

For items where a registration form doesn't apply, retailers have also not traditionally had that information, so the manufacturers had to rely on media coverage and advertising to publicize a recall. CRM changes that, and it's that unintended result that is causing the latest flap.

Is It Better Not to Know?

There's also a customer perception issue at play. Some would argue that if a retailer sends a consumer an e-mail alerting them that a package of hamburger that they specifically purchased two days earlier was contaminated—and assuming it reaches the consumer before any family member has eaten the hamburger—that consumer might become the world's most loyal lifetime customer of that retailer, praising them nonstop for saving their lives.

But some cynical retailers also argue the opposite, that the consumer would immediately blame the retailer for having sold them a tainted product and that they would lose that customer forever. Let's call this the "Don't Kill the Messenger" argument, or perhaps the "Damned If You Do, Damned If You Don't" argument.

Of course, we can get into the moral issue about whether a retailer has an obligation to use this technology for humanitarian purposes, if possible. This is what Maxwell Smart would have dubbed the "CRM should use its genius for good instead of profit" argument.

Perhaps the most important—but least voiced—issue is technological pragmatism. There is a serious question about whether a CRM-powered retailer could alert customers quickly enough even if it wanted to, especially where perishable products such as hamburger is concerned.

In the Kroger case, the customer had to jump through several hoops before the store finally agreed to check her card's records. They then quickly identified her purchases as having been on the recall list. But consultant and retail expert Gregory questioned how long it would have taken the retailer to have identified all of the customers who had purchased the recalled produce and then sent e-mails—or made phone calls—to them.

The exact amount of time would depend on the software they used, how many upgrades they had implemented and how many customers had made the purchases, but she estimated that it easily could have taken weeks. Checking one customer's records is quite different than checking all of the records for a particular purchase, she added.

With this particular incident, it appears that the retailer didn't do itself any favors. It put out no signs and made no attempt—not even cosmetic ones—to alert customers to the danger, said the customer's lawyer, Nick Styrant-Browne of Seattle law firm Hagens Berman. He argued that the retailer should have contacted customers as a "matter of human decency" and is suing the retailer for not having contacted them in an attempt to prevent the consumption, thereby causing emotional distress.

Given all of the hardships associated with this case and the angst some retailers will have regarding it, there is an ironic note. The CRM feature that is potentially getting Kroger into trouble is the ability to quickly e-mail and call customers. And yet, few retailers today even use that marketing capability.

This prompted analyst Gregory to question whether some retailers were pressured into purchasing full-blown CRM systems when all they would likely use would be a lower-cost market basket analysis package.

If they want customer buying patterns—and have no need or desire to directly connect with those customers routinely—"they don't need to spend all of those millions of dollars to understand who they all are."

It's a fair point. But it's also important to note that CRM, when used properly, is an amazingly effective part of a full business intelligence system. Done properly, CRM will deliver a depth and sophistication of answers unlike anything that could be done without it.

But those answers will not come cheap. This is not a package to try for awhile and see if it helps. This is a package that requires full company commitment, in terms of dollars, training, policies and buy-in from just about every impacted unit (which is pretty much all of them).

Those kinds of direct, timely answers also come with obligations. If you want to say to a consumer that his dryer is 5 years old and here's what the new ones can do, or that another customer's favorite brand of peanut butter is on sale, you better be prepared to tell them that the hamburger they bought last week might be poisoned. At the very least, try.

There's a classic quote from the Roman philosopher Cicero: "Inter Arma, Enim Silent Leges," which loosely translates to, "In time of war, the law falls silent." When it comes to modern-day CRM systems and retailers, perhaps an apt paraphrase might be, "In time of recall, marketers cannot fall silent."