Stereo System: Tower Records Refines Retail/Online Data Harmony

(Direct) Everyone likes to think they have varied musical tastes.

But let’s face it: The vast majority of folks who snap up the latest Green Day release probably aren’t in the market for an Artie Shaw boxed set. And those who listen to such swinging big band sounds might not be the best prospects for a Hellboy action figure.

Such is Tower Records’ dilemma. The retailer is working with BeNow of Wakefield, MA to integrate its online/store customer database to better segment its audience for targeted offers and attract a younger crowd than the current core 35- to 54-year-old shopper.

Direct talked recently with director of relationship marketing Lorelei Curt to get a view of Tower’s CRM initiatives.

Direct: Is there a typical Tower customer, since someone who listens to classical music probably is different from someone who likes rap CDs or action figures?

Curt: That’s exactly right. We definitely have a strategy in place to go after the younger folks, the 18- to 24-year-olds. When we looked at our marketing database, we realized our existing core customer is actually aging. We have a high concentration of 35- to 54-year-olds. They probably grew up with us—we’re a 45-year-old company and they probably shopped at Tower before there were big-box stores because it was the coolest place to spend a few hours. It’s a very nostalgic brand to those folks. And that’s great, but we need to start trying to get their kids and the younger customers too.

Direct: Does the customer vary between the Web site and the stores?

Curt: The key differences are that the online customers are more likely to be married and have children in the home, whereas the retail customer is going to be single or married with no children. We skew pretty highly with males in both channels.

Direct: Are you collecting names at the retail level?

Curt: We are. Of course, as the person with the goal of getting a ton of names, we’re not being as aggressive as I would like. When we started in May 2004, 95% of the customers in our database were from online. The only names we had from retail were contest entrants, which were more like prospects. We couldn’t actually tie in what they had purchased, unless they also went online. Now, our mix is more like 45% retail and 55% online. My goral is to have a million retail names by the end of 2006.

Direct: How are you gathering customer data in the stores?

Curt: Today, what we’re doing is just getting ZIP codes and appending off the ZIP. It’s not working great, as it relies on a unique name and ZIP For us to match. And even selling our culture on asking for ZIP codes was a huge battle, because that’s just not the ‘Tower way’ (Laughs). But at least it isn’t as personal as a phone number. I keep trying to encourage the stores to shift to asking [customers] if they want to join our e-mail list and provide their e-mail address. As soon as we get buy-in from all the regional directors, we’ll be launching an internal PR campaign. This will include educating the stores, the clerks, anybody who talks to the customer, as well as creating signage to put on the cash registers to inform customers about our privacy policy.

Direct: How many retail stores does Tower have?

Curt: Eighty-nine. Our primary markets are in Los Angeles, New York and San Francisco. The secondary markets are Chicago; Washington, DC; Philadelphia; Sacramento, CA; and Seattle. Then we have a lot of markets where we have one or two stores. We’re trying to change that, and get rid of those single-store markets by adding a second store or evaluating whether we need to just move out of that [area] altogether so we can better leverage our marketing spend.

Direct: Which channel does Tower see as a bigger growth opportunity, in terms of sales and the database?

Curt: In terms of customers, the growth opportunity is definitely at retail. In terms of sales, I see the opportunity online. I think our executive management may view the Web site as just another store. But the truth is that 70,000 unique people are [visiting] Tower.com every day. If that were happening in any [physical] store it would be pretty miraculous.

Direct: Are you seeing crossover sales between online and retail?

Curt: A little bit, but not a whole lot. We’re putting things in place to better recognize our cross-channel shoppers. I’ve been doing a lot of market research in the last couple of months and we’re finding that very, very few store shoppers actually even know there’s a Web site for Tower. There’s a huge opportunity with our core retail customers if we just tell them about the Web site.

Direct: Why was integrating the database of retail and online customers an important goal for Tower at this point?

Curt: We were information-rich with the online sales—customers had to give us their billing and shipping addresses and all that stuff. We had a ton of information, but when we would do demographic profiles of them and report back to management, they’d say, ‘Oh, this is biased. These are online customers. They’re not the same as retail customers.’ Well, in order to tell [management] about retail customers, we needed some form of a centralized database to let us know what they were buying. We can stand in a store and have people fill out surveys, but that still doesn’t tell us what they’re buying or how much they’re spending and what their true loyalty is to Tower. Executives saw the value of a fully holistic view of our customers.

Direct: As you started sifting through the data and profiling your customers, did you find out anything surprising about who the ‘typical’ Tower customers are and where your strengths lie with them?

Curt: I think it was kind of hard to swallow that our customers were older than we thought they were. Each of our stores is pretty unique. We don’t have this model that all of our stores are going to look and feel the same. If you got into a store in Boston you’re going to have a different experience than if you go into one in Santa Monica or Las Vegas. Because of that, we’ve got totally different-looking customers in each of those stores. Depending on who I’d be telling about our demographic profile, they’d say, ‘Oh, that’s not who’s in my store. We’re not profiling down to the individual store level, but we did highlight seven different key markets that we profiled separately. But even getting people to accept that is a tricky thing. After all, the people who stand out when you’re a clerk on the floor are the people who have spiked hair and tattoos. But when you look at what they’re buying, it’s a different story.

Direct: Have you crated any new promotions using what you’ve discovered in the database?

Curt: We started co-registration programs with other Web sites in the fall. It was a quick six-week test to see what kind of conversion we could get on this type of acquisition. For example, if you sign up to read WallStreetJournal.com articles, you’ll have an opportunity to get Tower.com’s classical newsletter. Through our segmentation our best-looking customers—in terms of how often they shop and how much they spend—indexed very high in the classical and jazz genres. We call that segment ‘the supremes,’ and we’re trying to get more customers like that.

Direct: Is Tower using direct mail as a promotional or sales tool?

Curt: Yes, we are. A few years ago, it was like ‘We want to send 400,000 pieces of direct mail. Can you scrape up 400,000 names?’ It didn’t matter what the person had bought. As long as we had a name and an address, they were going to get a direct mail piece. Today we’re doing a lot more slicing and dicing, targeting based on how close to a store they lived or how recently they purchased, or what genre they bought.

Direct: Are the drops primarily to existing customers, or are you suing direct mail as a prospecting tool as well?

Curt: Over the summer, we started prospecting. But I’m wondering if we are such a specialty retailer that it’s just not right for our business. The results were not nearly what I was hoping for, with less than half a percentage-point response rate. We only did it in two markets, Seattle and Tempe a couple of times, with a $5 off coupon for a purchase of $25 or more. Those markets were special in that we had moved a store in Seattle and opened a new one in Tempe.

Direct: What about e-mail marketing?

Curt: It was our only form of direct for many years. Today, we’re doing e-mail marketing very differently from when we started it in the late 1990s. We have about 700,000 active subscribers. We suppress people[s’ names] if they don’t open or respond to more than five campaigns, because we don’t want to bother people. We promote sign-ups at off-site events—if we’re sponsoring the Monterey Jazz Festival, we’ll inform people of our jazz e-mail newsletter. We also promote it at in-store events—in each market we have a couple of stores that do free concerts instore, so we encourage customers to sign up and get notified of [those] events. Actually, that’s a neat tool. We rolled this out in January and those e-mail campaigns are actually created by the event coordinators in the field at the various stores. We put some controls in place to make sure they adhere to our graphic standards and what-nots, but that’s working really well. It gives customers a sense of community behind Tower. You also can sign up for e-mail when you register for an account at Tower.com or if you’re shopping online. If you’re in the toys section of the site, you’re encouraged to get the toys newsletter. The same for classical, and so on.

Direct: What do you consider your primary marketing goals for the future?

Curt: For now, my primary focus is to increase the number of names and mailable customers so we can show value internally. And as the file grows, we’re trying to get more automation in place with our e-mail and direct mail campaigns. For example, each night when new customers are loaded we look at what channel they shopped in and what they purchased and automated e-mails will go out that are full of relevant content. We’ve found that with our product mix, the classical customer doesn’t want to know anything about the rap albums that are going out, and vice versa. So we really have to treat certain genres very carefully.