Customer Relationship Management

Kristen Cimiluca
Honors Thesis
Marketing: Dr. Lutz

Customer Relationship Management

I.

Introduction of Customer Relationship Management

a. Definition of CRM
b. Importance of CRM
i. Customer Value and Retention
ii. Profit maximization

II.

Evolution of CRM
a. Mass Marketing
b. Brand Loyalty
c. Transactional Marketing
d. Relationship Marketing

III.

Emergence of CRM
a. Technology
b. Total Quality Management
c. Service Industry Growth
d. Customer Expectations

IV.

Components of CRM
a. Customer Database
b. Analysis and Selection
i. Traditional method
ii. Lifetime Customer Value
iii. Clickstream Analysis
c. Customer Targeting

d. Customer Relationships
i. Customization
ii. Customer Service
iii. Brand Community
iv. Loyalty Programs
1. Types of Loyalty
a. Attitudinal
b. Behavioral
2. Reward structure
a. Hard/Soft rewards
b. Rate of reward
V.

Managing the CRM Process

a. Role Specification
b. Employee Training
c. Communication
i. Internal (with employees)
ii. External (with customers)
d. Performance Metrics/Evaluation
i. General Challenges
ii. CRM Scorecard

VI.

Advantages of CRM
a. Customer Perspective
i. Utilitarian Benefits

ii. Hedonic Benefits

iii. Symbolic Benefits
b. Company Perspective
VII.

Disadvantages of CRM
a. Company Perspective
i. Cost
ii. Difficulty in Measuring Success
b. Customer Perspective and Ethical Implications
i. Privacy Issues
ii. Discrimination
c. CRM Criticism

VIII.

Conclusion

Customer Relationship Management

Customer relationship management (CRM), also known as relationship
marketing, has recently emerged as an integral marketing concept in the business world.
In an attempt to reach and connect with customers in an environment highly saturated
with products, advertisements, and promotions, businesses are implementing a customer
relationship management component in their marketing schemes. CRM practices enable
marketers to build long lasting relationships with consumers at the individual level
through the use and management of a number of different programs and key components.
As a relatively new practice, the definition of customer relationship management
has been debated by field experts and is ever evolving. In fact, the term has come to
mean different things to different individuals and organizations. In its inception,
customer relationship management was narrowly defined as promotional marketing based
on a customer database (Bickert, 1992). Peppers and Rogers define CRM to be a
complex process that builds one-to-one relationships with customers in order to achieve
long term growth (1993). According to Gronroos, relationship marketing extends past
persuading customers to buy products; it is about fulfilling their expectations in the hope
of transforming them into long term, loyal customers (2009). Most experts can agree,
however, that the central theme of CRM is carefully selecting the most valuable
customers and maintaining and strengthening relationships with those customers for long
term profit maximization. Sheth and Parvatiyar define CRM as a comprehensive
strategy and process of acquiring, retaining, and partnering with selective customers to
create superior value for the company and the customer (2001, p. 5). It is a mutually

beneficial relationship built upon a foundation of trust and loyalty through marketing,
customer service, and relationship programs.
Customer relationship management is a relatively new field, but its importance is
becoming even more evident as time passes. The paradigm shift from focusing on
attracting new customers to retaining current ones is at the backbone of CRM (Winer
2001). Reichhelds studies revealed that small increases in customer retention rates
greatly increased profits, proving that long term customers can be more valuable (1996).
More revenue on average is generated from repeat-purchase customers when compared to
one time buyers (Reichheld 1996). With potential profit maximization in mind,
businesses are turning to customer relationship management in order to better understand
customers. Traditional marketing and mass advertising are proving to be ineffective in
such a commoditized environment. With the number of similar products on the market
increasing and competition among the firms escalating, companies must look toward
capturing customers on some factor other than product quality, price, or convenience
(Brown 2000). They must focus on building unique, one to one relationships with
customers based on individual needs and wants; thus, implementing customer
relationship management is critical to the growth and future success of firms.

Evolution of CRM
Customer relationship management has evolved from the foundations of mass
marketing and brand loyalty. The height of the industrial era brought with it mass
production and a division of specialized corporate functions (Achrol 1991; Parvatiyar &
Sheth 1995). The era was dominated by product innovation, and firms created

competitive advantage by creating products that were better than those products of their
competitors (Peppers & Rogers 2004). Firms focused on the amount of products that
could be produced and since speed and efficiency were the top priorities, very little
attention was given to customization and overall customer satisfaction. The marketing
departments used mass advertising for their products in order to increase awareness and
build market share (Parvatiyar & Sheth 1995). Since the firms were solely concentrated
on persuading the customers to buy similar products, the marketing departments were
often completely separated from direct consumer contact; no attempts were made to truly
understand the customers or their purchasing behaviors.
As competition increased, however, firms looked to differentiate their products in
the highly commoditized market through branding (Peppers & Rogers 2004). Branding
refers to any feature or quality that can differentiate a product or service from that of a
competitor (Brown 2000). The ultimate goals of branding were to create brand
awareness and brand loyalty among consumers through building relationships of trust,
familiarity, and reliability (Peppers & Rogers 2004) and to make them (the customers)
feel comfortable with the brand (Bogart 1996, p. 172). According to Peppers & Rogers,
brand awareness and loyalty will ultimately transform into a branded relationship with
ongoing dialogue where customer needs influence the products or services (2004, p.
16). Because of the focus on the consumer-brand relationship, brand loyalty can be seen
as a precursor to customer relationship management.
The concept of mass marketing naturally led into the competitive transactional
marketing that is widely used today. The primary short term focus of transactional
marketing is to attract new customers for single transactions. There is a limited amount

of contact between the customers and firms, and the primary way that customer
satisfaction is measured is through analysis of market share (Hennig-Thurau & Hansen
2000). All relationships, including those with suppliers and customers, are kept at a
distance in order to ensure that each party is acting in its own interest. Competition in the
form of product price and quantity is the driving force behind transactional marketing,
and firms offer value to customers in regard to the firms own self interest (Parvatiyar &
Sheth 1995).
Relationship marketing is on the opposite end of the spectrum and differs from
transactional marketing in a number of fundamental concepts. Relationship marketing is
based on long-term trust and satisfaction and is centered on customer retention and
customization (Parvatiyar & Sheth 1995). Instead of influencing customers to buy the
products, relationship marketing suggests making products to fit the customers.
Interaction between firms and customers is critical in the success of managing the
customer base. This interaction is based upon personal and social bonds, which are
strengthened by the integration of customers in the value production process (HennigThurau & Hansen 2000).

Emergence of CRM
A number of factors have contributed to the emergence of customer relationship
management including technology, total quality management, growth in the service
industry, and heightened customer expectations. Technology is at the heart of CRM
development and is essential on multiple levels of the process. Some believe that
technology can be credited with the wide acceptance of relationship marketing (Hennig-

Thurau & Hansen 2000). The customer database and software technology enable firms to
track consumer purchase behavior, product preference, and personal contact information
(Formant 2000). Technological advancements in database programs have allowed
marketers to improve direct marketing tactics through individualization (Parvatiyar &
Sheth 1995). Once customer patterns are recorded in the database, the software can cater
direct marketing efforts, such as emails or mailers with coupons and special offers, to
each individual customer. This customer value can only be delivered by highly
sophisticated databases that combine information from several external and internal
sources regarding demographics, psychographics, survey results and purchase patterns
(Formant 2000). Technology is also imperative in creating customer-friendly and easily
accessible websites where customers can enter information, provide feedback, and
explore product offerings.
The practice of total quality management has also contributed to the development
of customer relationship management. Total quality management is the strategic
management of cost and quality control. It integrates all divisions and levels of a firm
with the goal of emphasizing employee teamwork, constant improvement, quality
measurement, and efficient problem solving (Powell 1995 & Spencer 1994). Total quality
management results in closer relationships between firms, suppliers and customers in
order to add value and ensure quality control all along the production chain (Parvatiyar &
Sheth 2001). The practice of maintaining and strengthening those relationships result in
firms adopting customer relationship management.
In addition to the practice of total quality management and the advent of new
technology, the growth of the service industry has drastically impacted the emergence of

customer relationship management. Unlike products, services are intangible and

consumption is tied closely with production. Therefore, services are delivered directly
from the service provider (or the firm) to the consumer without the use of middlemen in
the distribution channel (Parvatiyar & Sheth 2001). As middlemen disappear from the
equation, it is more common to see customers as the co-producers when they customize
products and interact with employees and websites on a more intimate level (Vargo &
Lusch 2004). The necessity of this direct contact fosters an environment in which
relationships naturally form, but the service quality of the provider is essential in
developing a long term, satisfactory relationship (Crosby, Evans & Cowles 1990). In
order to capitalize on profitable consumers and to maintain and strengthen the producerconsumer relationship, firms are turning to customer relationship management.
With every customer interaction that takes place within a firm, there is a
possibility that customer expectations will not be met. The ending outcome can meet,
exceed, or fall short of customer expectations. As competition increases among firms,
however, there is a greater emphasis on customer satisfaction and in turn, customer
expectations are increasing. Although some customers value price over all other
characteristics, many customers are not willing to compromise when it comes to products
and services; therefore, firms are adopting the practices of customer relationship
management to ensure those expectations are met (Parvatiyar & Sheth 2001).

Components of CRM
Implementation of customer relationship management is a multi-step process that
involves seven basic components. The first key component is the creation of a customer

database which contains all pertinent information including descriptive information (such
as psychographics and demographics), transaction history, and customer contact
information (Winer 2001). Customer responses to marketing tactics such as redemption
rates regarding coupons, mailers, or emails is also usually recorded in the database. The
customer database can serve as a competitive advantage if it is maintained correctly since
it is the beginning step in customer relationship management (Espinoza & Rust 2006).
In order to build up the content of the database, companies acquire customer information
from warranty cards, loyalty customer cards, company websites, and contests. The
ultimate goal is to collect customer information with every customer interaction (Winer
2001). Internet transactions allow for prime tracking and cross-referencing since
information inputted by the customer is generally very useful and applicable to building a
potential relationship with that customer (Espinoza & Rust 2006). Although it is easy for
some companies to collect data, it is extremely difficult for others. Winer (2001) created
a framework regarding data collection and the potential problems that might ensue based
on customer interaction and interaction frequency. The ideal situation for a company
involves direct interaction at a high frequency; data collection is relatively easy for these
firms. Firms that have indirect customer interaction have the most difficult time
collecting data and must work harder to develop ways in which to retrieve customer
information.
Since technology has enabled customer databases to collect and store a large
amount of information, the next vital step in the CRM process is the analysis of this
information. Historically, the data was used to separate the customers into different
segments based on descriptive information and comparable purchase behaviors in order

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to develop marketing tactics specifically for them (Brown 2000 & Winer 2001). This
traditional segmenting failed to account for the times when customers could fall into a
number of categories (Espinoza & Rust 2006). With a greater understanding and the
technological capability, the customer database can by analyzed in smaller, more specific
categories; each customer can also fall into more than one category (Wedel & Steenkamp
1991). Instead of developing marketing schemes for entire segments, each customer can
be analyzed in order to understand future purchases and individual profit potential for the
firm (Winer 2001). This innovative one to one marketing concept encourages firms to
address individual customer needs and to analyze lifetime customer value. When
determining lifetime customer value, several factors are considered, including customer
purchase history, the contribution margin, and variable marketing costs (Venkatesan &
Kumar 2004). Each customers past profit is calculated by adding up past profit margins
of all purchases and then subtracting the variable costs associated with obtaining that
customer. Customers are often ranked by their lifetime customer values, allowing firms
to distinguish the most valuable customers and to allocate necessary resources efficiently
among them (Venkatesan & Kumar 2004).
Clickstream analysis is another kind of data analysis, but it takes place on the
Internet and company websites. The database records and analyzes consumer website
visits, purchases, and shopping patterns in order to predict future customer behavior. The
goal of clickstream analysis is to convert those potential shoppers who are browsing the
websites into purchasing consumers (Winer 2001). Through analyzing past behavioral
patterns, companies can predict future purchases and tailor their websites to each

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individual by changing the layout of the website, product offerings, and special
promotions (Fader & Moe 2001).
After analyzing all of the collected data, the next step in the CRM process is to
actually select the customers that the marketing programs will target (Winer 2001).
Customer relationship management is built upon retaining existing customers instead of
acquiring new ones. Therefore, the most desired customers are those who have the
highest customer lifetime values. Firms should concentrate on retaining these customers
by focusing marketing programs on them. Customers who dont necessarily have high
customer lifetime values but have the potential to be profitable in the future should also
be targeted with special customer promotions. Customers who offer no long-term profits
or who may be hurting present profits should be carefully identified and abandoned, but
companies must be careful to avoid spillover defections by profitable customers (Roberts,
Liu & Hazard 2005).
Targeting these selected customers involves a combination of direct marketing
including direct mail, emails, sales calls, and telemarketing (Winer 2001). Although
these strategies may be successful sometimes, customer relationship management
emphasizes the need for individualized targeting through one to one marketing.
According to Peppers & Rogers, The one to one marketing paradigm is based on
individualized communication and customized products and services (1994). One to
one marketing involves modifying tactics based on each customers needs, wants, and
preferences; products and services are refined to meet the expectations of the most
profitable customer segments (Brown 2000).

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One of the more popular CRM tactics is using opt-in email services in which
customers must agree to receive emails from a company (Winer 2001). Since this is an
opt-in marketing service, customers are more prone to clicking through the email to get to
the company website and therefore the success rate is high. The emailing approach is
very beneficial to the company because of the high success rate and low costs associated
with it.
Once customers are selected from analysis of the database and targeted through
one to one marketing programs, the next vital component in customer relationship
management is the focus on the actual customer relationships. Firms are now constantly
competing with one another to provide better service and higher customer satisfaction
(Winer 2001). Not only do customers demand to be satisfied with product performance,
they also expect the cumulative customer experience to be satisfactory (Anderson,
Fornell & Lehmann 1994).
Customer relationships can be built upon, reinforced, and improved through a
number of CRM programs, including customization, community building, customer
service requirements, rewards programs, and loyalty programs (Winer 2001).
Customization can pertain to both products and promotions. Although more cost is
incurred when customizing promotions for particular customers, many companies find
that their return on investment makes it worthwhile. Revenues from customized
promotions are higher when compared to the revenues generated from standardized
promotions (Kahn, Lewis & Singh 2009). When it comes to products, customization has
been growing in popularity from both a consumer and company standpoint. Consumers
enjoy the option to build their own products by selecting specific attributes or product

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packages; this customization option only strengthens the relationship between the firm
and consumer (Stump, Athaide & Joshi 2002). As the seller, a company offers
customized products or services to increase customer value in order to gain competitive
advantage over competitors that offer only standardized products and services.
Customization emphasizes consumer-seller interaction and communication while
increasing the chances of satisfaction and future exchanges (Porter 1980).
Customer service goes hand in hand with product and service customization.
With customization of essentially every customer-firm contact, customer service is vital
in developing long term relationships and CRM. Customer service begins before the
purchase transaction, but extends far beyond it through increasing the perceived value of
the product or service (Christopher, Payne, Ballantyne 1991). Firms can engage in two
general types of customer service: reactive and proactive. Reactive service takes place
when the customer initiates contact with the firm due to a problem or question. Proactive
service involves the firm making the first contact with the customer in order to ensure
satisfaction before a formal complaint is made (Winer 2001).
Another relationship program in the implementation of CRM is brand community
building. According to McAlexander, Schouten, and Koenig (2002, p. 38), a brand
community is a network of relationships including those between the customer and the
brand, between the customer and the firm, between the customer and the product in use,
and among fellow customers. The web offers the ideal location for these networks to
develop and for customers to interact with each other by allowing them to provide
discussion and feedback about information regarding products, the brand, and the firm.
As these customers exchange stories, product suggestions, and other product related

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information, they begin to feel part of a community and become personally attached to
the brand or the company behind the brand (Winer 2001). This exclusive community
offers benefits only to those who partake in it, and it therefore creates an in-group/outgroup split (Reinartz 2006). This split is desirable when the consumers who are
included in the exclusive group make repeat purchases and remain profitable to the
company. Those who do not feel a part of the group, however, can have negative
perceptions and may choose not to support the brand or the company. The brand
community as a CRM program is customer-centric and promotes relationship building in
an open, interactive environment.
Perhaps one of the most powerful programs in the customer relationship
management process is the loyalty program, which is designed to increase customer
loyalty and satisfaction. Through a loyalty program, the firm aspires to create a mutually
beneficial relationship with the customer; the ultimate goal is for each party to receive a
positive benefit (Brown 2000). Loyalty programs may be implemented in various ways,
but all of them are created to retain customers, to generate long term relationships, and to
increase the number of customer interactions in order to increase profit.
Before a firm creates a program, it must first define loyalty in company terms and
identify the firms goals regarding loyalty. True customer loyalty is a combination of two
components: attitudinal and behavioral loyalty. Attitudinal loyalty is created when
customers hold strong, positive beliefs about a specific company, brand, or product
(Uncles, Dowling & Hammond 2003). Once individuals have made a mental or
emotional commitment, behavioral loyalty often follows in the form of repeat purchases
or frequent store visits (Reinartz 2006). Since true loyalty depends on both the

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customers satisfaction and involvement with the purchase, companies design loyalty
programs to enhance these experiences.
According to Reinartz, a loyalty program is defined as a marketing practice that
offers rewards for customers to encourage them to make repeat purchases (2006).
Effective loyalty programs are those that are customized to fit the needs and goals of a
company and their customers. When designing a loyalty program, the reward structure
accounts for the most defining characteristic. The reward structure is the most alluring
component of the loyalty program; consumers are primarily attracted to loyalty programs
because of the rewards and benefits available to them (Mimouni-Chaabane & Volle
2009). Loyalty programs can offer hard and/or soft rewards depending upon the nature of
the product or service, but both should be perceived as valuable in the consumers minds.
Hard rewards offer tangible or financial benefits such as promotions, free products or
services, and price reductions. Soft rewards are based on psychological benefits and
often incorporate special customer recognition or status. These rewards may or may not
be connected with the companys product offerings. Firms can choose to directly support
their product proposition by allowing customers to redeem loyalty points for free
products or price reductions on those products (Reinartz 2006). On the other hand, firms
can offer products that are unrelated to their business. More often than not, however,
firms usually choose to offer rewards that are directly tied to their product offerings in
order to encourage additional business and further develop the relationships with the
consumers. Offering rewards directly related to the products is also less costly to the
firm. No matter the type of reward offered in the loyalty program, firms should reward
customers at a high rate, which is determined from the ratio of the monetary value of the

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reward to the monetary value of the initial transaction. Consumers are much more
satisfied and perceive the loyalty program justified when this rate is higher because the
decreased lag time between rewards keep customers perceiving the value of the program.
The effectiveness of the loyalty program comes down to whether or not the
consumer adopts the program and consistently uses the tools provided to them, such as a
loyalty card (Mauri 2003). Through offering valuable rewards in a timely manner,
customers will increase repeat purchases and strengthen their relationships with the firm
and its products. The loyalty program in combination with the other relationship
programs allows for the CRM process to cater to the needs and wants of the customer
base.

Managing the CRM Process

Once the CRM components are defined by the firm, the next step is to actively
manage the process through role specification, employee training, effective
communication, and evaluation. Role specification is necessary in managing the
relationships of CRM, and its main goal is to define the responsibilities and duties of the
relationship partners such as the firm, the employees, and the customers (Heide 1994).
As the CRM programs progress in complexity, role specification becomes more
important in managing the complex relationships (Parvatiyar & Sheth 2001). Role
specification ensures that the individuals responsible for maintaining the relationship are
held accountable and are given the necessary resources to continue the CRM programs.
After roles are specified, the employees must be adequately trained to implement
the programs within the CRM process. In order to successfully execute effective CRM,

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employees should be equipped with strong sales and communication skills, and they
should be trained to provide exceptional customer service (Formant 2000). Since
employees are responsible for direct contact with customers and can enhance or weaken
the customer-firm relationships, they should feel empowered to make decisions regarding
customer service. Employees need to know how to use and update the customer
information located in the databases efficiently and effectively in order to build
relationships and increase customer satisfaction (Liljander 2000). Since employees are
such an integral part of customer relationship management, companies should focus on
employee satisfaction and offer employee motivation in the form of rewards or incentives
(Parvatiyar &Sheth 2001). Customer and employee loyalty and satisfaction are positively
related to each other, so it is in the firms best interest to train and reward employees
(Reichheld 1996).
In order to carry out any successful programs or build any relationships, the firm
should accurately communicate with its internal audience (the employees) as well as its
external audience (the customers). Relationship marketing requires communication
among all key players since it is built upon trust and mutual satisfaction. Firms must
communicate with employees when training and enforcing guidelines and policies. The
top executives and customer relationship managers must explain the CRM goals of the
company and how the CRM programs will be implemented to the rest of the firm
(Liljander 2000). On an external level, communication is essential to building
relationships with the customers. Customers must be informed about the CRM programs
(such as loyalty programs) available in order to encourage repeat purchases. The firm

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must perfect the communication channels between the firm and the customers to ensure
that information is being accurately shared (Parvatiyar &Sheth 2001).
The final step in managing the CRM process is evaluating the results and overall
successfulness of the program. Customer relationship management is focused on
building and maintaining customer relationships in order to increase retention and profit
in the long run. If the programs arent successful and the firm does not get an adequate
return on investment, then the CRM process should be modified or ended immediately.
Since CRM incorporates subjective and abstract concepts such as satisfaction, loyalty,
and relationship development, it is often difficult to measure its success. Although most
scholars believe that there is no technology or method that measures the success of CRM
completely accurately, there have been attempts at developing a comprehensive report for
a firms CRM programs (Parvatiyar & Sheth 2001). The CRM process should be
evaluated using a set of unique performance metrics that reflect the core concepts of a
firms relationship marketing (Roberts, Liu, & Hazard 2005).
In addition to measuring profitability and market share, the firm can easily
evaluate its CRM programs by obtaining conversion rates, customer acquisition costs,
same customer sales and user adoption of loyalty programs (Winer 2001 & Goldenberg
2010). These components are often organized and recorded on a CRM scorecard that
divides the CRM framework into specific categories. The first category of the CRM
scorecard is the organizational performance perspective which ultimately proves whether
or not the CRM process increases profit (Goldenberg 2010). It details the customer
equity, shareholder value, and profitability of the CRM plan using perceived value,
customer lifetime value and brand equity calculations (Hyung-Su & Young-Gul 2009).

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The second category of the CRM scorecard is the customer perspective, which is centered
on evaluating how a customer views the particular firm and what value he or she
perceives to gain from the firm. The customer perspective includes customer loyalty
measured by customer satisfaction and customer value measured by surveys and number
of customer complaints. The process perspective is another component of the CRM
scorecard and includes evaluating the overall success of the business strategy by
measuring customer acquisition, retention, and expansion (Hyung-Su & Young-Gul
2009). Once the CRM initiatives have been evaluated, the firms executive leaders must
make a decision regarding the future. If the initiatives show an improvement in the firms
bottom line, then money should be continually invested into the CRM program. If the
initiatives dont improve the bottom line, then the CRM program should be revised or
ceased.

Advantages of CRM
Implementing customer relationship management offers a number of advantages
and disadvantages to both the companies that initiate the programs and the customers that
partake in them. From a customer perspective, the advantages are directly attached to
experiences and can mostly be attributed to the perceived benefits of the CRM programs
(Holbrook 1996). Customers obtain perceived value from the utilitarian benefits, hedonic
benefits, and symbolic benefits offered by the CRM programs. Utilitarian benefits derive
from completing a task or obtaining a tangible object, and they often are connected with a
products physical characteristics. Customers who seek utilitarian benefits from CRM
programs are often most concerned with the financial rewards, such as monetary savings

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from coupons or special offerings. Convenience benefits also provide utilitarian value by
saving a customers time (Mimouni-Chaabane & Volle 2009). Hedonic value originates
from emotionally gratifying or sensory fulfilling benefits that are not connected with
tangible product characteristics. For example, customers receive hedonic benefits from
CRM programs when they are encouraged to try new products and enjoy new
experiences after collecting a predetermined set of loyalty program points or after
obtaining a certain customer status (Arnold & Reynolds 2003). Customers may also
receive symbolic benefits through self expression, recognition, and approval. These
benefits are not related to tangible characteristics or to products; they pertain specifically
to an individuals self-esteem and how they feel they are perceived by the world
(Mimouni-Chaabane & Volle 2009). CRM programs provide its customers with
symbolic benefits by recognizing individuals and their own unique product preferences
and shopping behaviors. When these individuals are considered a part of an elite group
of customers or a brand community, they feel socially accepted and satisfied; therefore,
CRM programs should focus on giving these customers the experiences they desire
(Muniz & OGuinn 2001).
The advantages of successful CRM implementation from a company perspective
involve increasing customer retention, repeat purchases, and customer relationships in
order to gain the ultimate objective of raising profits. In a world inundated with
marketing tactics and advertising campaigns, companies must redefine themselves in the
eyes of the customers, and CRM allows them to do just that. CRM provides companies
with a customer knowledge advantage through effective and efficient internal and
external information flow and communication (Minocha 2000). The technology created

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for the CRM process and the focus on customer relationships discover customer leads,
encourages loyalty, and generates sales. Once companies create and strengthen those
customer relationships, they gain a competitive advantage through customer commitment
and trust (Morgan & Hunt 1994); thereby, the companies psychologically connect with
customers and capitalize on their purchase behaviors.

Disadvantages of CRM
From a company perspective, the costs associated with CRM programs and
technology can serve as a great disadvantage if the return on investment does not reach
the optimal level. Once firms commit to adopting the CRM practice, they must invest in
training employees, developing the database software, and targeting marketing efforts at
the most profitable customers. Evaluating the CRM process is another disadvantage due
to the fact that there is no one factor that can determine if the program is successful or
not. There are many contributing factors that cannot be easily numerically measured, and
therefore, firms may find it difficult to get the true value of its CRM programs (Winer
2001).
Two main ethical implications, which pertain to both the customers and
companies, involve customer discrimination behavior and privacy issues. Although CRM
attempts to target the most profitable customers and maintain strong relationships with
them, the process inherently discriminates against other current and potential customers
when they are treated differently. When consumer segments are defined and separated
according to their values, some customers are evaluated as being more valuable and
therefore they hold priority over others. Problems arise when these segments

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communicate with each other and with the company via social networking sites and other
community building sites. When unfavorable communication takes place regarding
differences in customer experiences, the company may have to defend itself (Stauss
2000). Discrimination can be seen as unfair and can ultimately be counterproductive to
building customer relationships and maintaining a sense of community. According to
Hansen (2000), a discrimination relationship policy is tied up with problems of moral
sensitivity, and therefore may be detrimental in relationship building.
Since the CRM process requires a vast amount of customer information, privacy
issues remain an important and sensitive issue with firms and customers alike. In order to
customize products and services for individual customers, personal information is
collected and stored in CRM databases. There is a fine line, however, between collecting
and capitalizing on information and stepping over customer privacy boundaries.
According to Forrester Research, individuals have reported feelings of irritation and
violation and some have admitted that they are fearful about internet usage tracking
(Stanley 2000). When firms violate customer privacy by sending unwanted e-mails and
mailings or by sharing private information, customers can backlash and boycott the firms.
Some privacy issues can be resolved by an opt-in option in which the customer must
explicitly give consent to personal data collection or by an opt-out option in which
customers must forbid the use of data (Winer 2001). As more firms adopt and develop
CRM processes, privacy issues should be addressed in order to ensure that consumers
feel comfortable and confident with the firms and with the data those firms are collecting
and using.

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Although there are many advocates for the adoption of customer relationship
management, many skeptics criticize the practice for a number of reasons. The initial
criticism attacks the fact that no top marketers, or executives of the same firm for that
matter, can agree on a single definition of CRM; this lack of consistency makes it
difficult for an organization to create a united front regarding CRM objectives and
programs (Newell 2003; Plakoyiannaki & Tzokas 2001). This lack of definition may not
be critical, however, if the firms are able to successfully implement their own individual
working systems. Other critics believe that CRM is failing to meet customer needs; CRM
practitioners are too focused on managing the customer and not enough on satisfying the
customer. Finally, marketing executives often view technology as the most important
part of CRM, but many see technology as the only requirement for CRM implementation.
Technology does not build relationships, and critics argue that the process of CRM puts
too much emphasis on databases and not enough on personal interactions (Newell 2003).

Final Thoughts: The Future of CRM

The future of CRM is bright if companies are willing to invest money and
improve their current practices. Currently, CRM implementation is relatively weak
among firms; the future of CRM will be determined by how well these firms adapt to its
practices. According to Winer, technology and database functions will continue to
improve, but companies will have to become more effective in analyzing customer
behavior and information (2001). Firms must continue to build company and brand
communities to encourage communication and increase loyalty levels among current and
potential customers (Reinartz 2006). A popular trend in improving CRM involves the

24

splitting of the marketing manager job into two separate positions. One position would
be responsible for customer acquisition and the other for customer retention, allowing for
the managers to solely focus on ones responsibilities and objectives (Winer 2001).
Customer experience management (CEM) is another marketing movement that is an
offshoot of CRM, and it focuses on the customer experience at every touch point between
the firm and the customer. If CEM proves to be a valuable and effective practice, then it
is likely that CRM will evolve to include CEM techniques (Schmitt 2003 & Winer 2001).
Customer relationship management has become the new wave of marketing in
an attempt to build loyalty, strengthen customer relationships and increase profits. Using
software technology and advanced databases, CRM aims to reach out to customers to
meet their individual needs and exceed their expectations. Firms implement relationship
programs, such as community-building websites and loyalty card programs, to develop a
trusting relationship among consumers to gain their confidence and increase repeat
purchases. CRM will continue to be a dominant marketing technique that will contribute
to ongoing customer relationships and bottom line profits.

25

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