Marketing Expert Frederick Newell How do you take database marketing to the next level? Customer relationship management.

You know the drill: Go through the checkout line at thesupermarket and whip out one of the several hundred plastic cardsin your wallet so the checker can scan it for your extra-special"club savings." So did the savings of $.35 on a can ofolives and $1 on dog food buy your loyalty for that particularchain? Not likely.

There's a whole lot more to gaining customer loyalty thandiscounts, and that's where customer relationship managementcomes in. We've asked marketing guru Frederick Newell, authorof Loyalty.com: Customer Relationship Management in the New Eraof Internet Marketing (McGraw-Hill, $29.95), to give us aprimer on the subject and explain how marketing has changed withthe times.

Entrepreneur.com: What is customer relationshipmanagement? How is it revolutionary compared to databasemarketing?

Frederick Newell: It's the next stage of databasemarketing. In database marketing, we were trying to learn aboutcustomers to sell more of what we wanted to sell. With customerrelationship management, we're trying to learn more aboutcustomers so we can offer them things they want to buy. There'sa big difference.

Entrepreneur.com: What are the biggest mistakes you seecompanies making when trying to build customer relationships andloyalty?

Newell: One of the major points of my book is thatdiscount and points programs are not going to build loyalty.They'll get people to show a card so you can capturetransactional information and that's fine, but you can'tbuy loyalty with discounts or points. You have to develop loyaltyby making customers' lives easier and more pleasant, making iteasier for them to do business with you. And that's a mistakemany, many people are making.

Entrepreneur.com: What are a few examples of whatcompanies are doing right to make customers' lives easier?

Newell: In the book, I talk about Nat Sherman, thetobacconist. The company keeps track of all its customers'likes, dislikes and purchases, and knows so much about itscustomers that it can serve them beautifully. The company knowswhen it's time for customers to reorder. Their reminder isonline for them, their order form filled out, and all they have todo is just click it. And the company literally does makecustomers' lives easier. The reason for the loyalty is thatcustomers aren't going to bother to teach somebody elseeverthing they've already taught Nat Sherman.

Many, many businesses now are collecting data, but theydon't know what to do with it, or if they know what to do withit, they're not doing it. And that includes most of the dotcomsand most of the supermarkets in North America. Some of thesupermarkets in Europe and the United Kingdom are doing excellentwork with this. If Tesco [a supermarket chain in the UnitedKingdom] does a 5 million mailing, it will have five differentmagazines based on people's interests. Within each version,there will be 100,000 totally different cover letters addressingspecific interests of the customers.

Entrepreneur.com: Why shouldn't a company try tobuild relationships with all its customers? Why is it important tofocus on certain groups?

Newell: Because some customers are just cherry pickers.They come in for low prices, and when the discount goes away, theygo away. So you want to find out which customers are profitable andinvest your efforts with them. Take the money you were spending intrying to reach everybody and wasting on that bottom group, andyou'll be able to afford more communication with your bestcustomers.

Entrepreneur.com: What are some ways a company can usethe Web to develop customer relationships?

Newell: First, they've got to get e-mail addresses,which not many companies have done yet. And in the process ofgetting them, they've got to get approval to send e-mails tocustomers because customers don't want any more spam. Once youget that information, it's quick and easy and near zero cost tosend out thousands of very specific, personalized messages. And Ithink that's the secret. If you're using e-mail, it has tobe very, very personalized.

If you get in the e-mail game and are asking people to reply toyou, you'd better be able to handle the replies because peopledon't want it next week or next day. They want it right now.And not too many people are well staffed to do that, though someare outsourcing it very well. So it's a different ballgame.

Entrepreneur.com: How are customer relationshipmanagement and the Web changing brick-and-mortar businesses?

Newell: The fact is that customers have the power nowbecause they have so much more information. But I don't thinkit's the end of brick-and-mortar businesses. I read the otherday that 63 percent of people shopping online get their researchand information online and then go buy at a brick-and-mortarlocation. So I actually think that brick-and-mortar companies, inthe long run, will do better than the pure dotcoms. Themultichannel is going to be the answer, although I think they haveto understand that there's a lot more to the Web than justselling merchandise. E-commerce is fine, but e-service ande-information is just as important. Customers value informationhighly, and the smart retailer, whether pure dotcom orbrick-and-mortar, is going to use the Web as a communication toolmore than just as an e-commerce selling tool.