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Customer relationship management (CRM) is a management strategy that unites

information technology with marketing. It originated in the United States in the late
1990’s, and, to date, has been accepted in a significant number of companies
worldwide. On the other hand, some people have negative opinions of CRM; such
views hold that it is difficult to implement successfully and that its cost-benefit
performance is low, among others.

CRM is about introducing the right product to the right customer at the right time
through the right channel to satisfy the customer’s evolving demands. Ideally, it
should follow the development of each individual customer and develop integrated
multi-segment, multi-stage, and multi-channel CRM decisions in order to maximize
the total customer lifetime profit. However, most existing CRM practice and
academic research focuses on methods to select the most profitable customers for a
scheduled CRM intervention.

Customer Relationship Management (CRM) is a managerial philosophy that seeks to

build long term relationships with customers. Customer Relationship Management
can be defined as “the development and maintenance of mutually beneficial long-term
relationships with strategically significant customers.”
Under certain circumstances it may result in the termination of relationships. It can
also be noted that the relationship is developed with strategically significant
customers, and hence it is necessary for the organisation to determine the nature of the
significance. Traditionally this would be done by determining the value of the
customer to the organisation, but other criteria that can be used include whether a
customer serves as a benchmark for other customers or whether the customer inspires
change in the supplier .

The use of information-enabled systems for enhancing individual customer

relationships to ensure long-term customer loyalty and retention

CRM is about understanding the nature of the exchange between customer and
supplier and managing it appropriately. The exchange contains monetary
considerations between supplier and customer – but also communication. The
challenge to all supplier organizations is to optimize communications between
parties to ensure profitable long-term relationships. CRM is a key focus for many
organizations now as a shift away from customer acquisition toward customer-
retention and churn reduction strategies dictates a need for best practice
CRM processes.
- Jeffrey Peel, CEO of Quadriga Consulting

“The long-term success of the organization and improved value for its shareholders
lies to a very great extent in the company’s ability to develop and sustain genuine
relationships with its customer.” -James G. Barnes
“A view of the customer that asserts that he or she is a valuable asset to be managed.”
–S. Thomas Foster

Some other definitions are:

 “Process of creating and maintaining relationships with business customers or
 “A holistic process of identifying, attracting, differentiating, and retaining
 “Integrating the firm’s value chain to create enhanced customer value at every
 “An integrated cross-functional focus on improving customer retention and
profitability for the company.”
 Deciding that “you want lifetime clients.” -Richard Buckingham
The essence of the information technology revolution and, in particular, the World
Wide Web is the opportunity to build better relationships with customers than has
been previously possible in the offline world. By combining the abilities to respond
directly to customer requests and to provide the customer with a highly interactive,
customized experience, companies have a greater ability today to establish, nurture,
and sustain long-term customer relationships than ever before. The ultimate goal is to
transform these relationships into greater profitability by increasing repeat purchase
rates and reducing customer acquisition costs.

Indeed, this revolution in customer relationship management or CRM as it is

called, has been referred to as the new “mantra” of marketing. Companies like Siebel,
E.piphany, Oracle, Broadvision, Net Perceptions, Kana and others have filled this
CRM space with products that do everything from track customer behavior on the
Web to predicting their future moves to sending direct e-mail communications. This
has created a worldwide market for CRM products and services of $34 billion in 1999
and which is forecasted by IDC to grow to $125 billion by 2004.

The need to better understand customer behavior and focus on those customers who
can deliver long-term profits has changed how marketers view the world.
Traditionally, marketers have been trained to acquire customers, either new ones who
have not bought the product category before or those who are currently competitors’
customers. This has required heavy doses of mass advertising and price-oriented
promotions to customers and channel members. Today, the tone of the conversation
has changed from customer acquisition to retention. This requires a different mindset
and a different and new set of tools. A good thought experiment for an executive
audience is to ask them how much they spend and/or focus on acquisition versus
retention activities. While it is difficult to perfectly distinguish the two activities from
each other, the answer is usually that acquisition dominates retention.

The impetus for this interest in CRM came from Reichheld where he showed the
dramatic increase in profits from small increases in customer retention rates. For
example, his studies showed that as little as a 5% increase in retention had impacts as
high as 95% on the net present value delivered by customers (advertising agencies)
with a low of 35% (computer software). Other studies done by consultants such as
McKinsey have shown that repeat customers generate over twice as much gross
income than new customers. The considerable improvements in technology and
innovation in CRM related products have made it much easier to deliver on the
promise of greater profitability from reduced customer “churn.”
For example, Exhibit 1 shows the results from a 1999 McKinsey study on the impact
of improvements in a number of customer-based metrics on the value of Internet
companies. The metrics are divided into three categories: customer attraction,
customer conversion, and customer retention. As can be seen, the greatest leverage
comes from investments in retention. If revenues from repeat customers, the
percentage of customers who repeat purchase, and the customer churn rate each
improves by 10%, the company value was found to increase (theoretically) by 5.8%,
9.5%, and 6.7% respectively.

A problem is that CRM means different things to different people. For some, CRM
means direct e-mails. For others, it is mass customization or developing products that
fit individual customers’ needs. For IT consultants, CRM translates into complicated
technical jargon related to terms like OLAP (on-line analytical processing) and CICs
(customer interaction centers).

A major purpose is to provide a managerially useful, end-to-end view of the CRM

process from a marketing perspective. The basic perspective taken is that of the
customer, not the company. In other words, what do managers need to know about
their customers and how is that information used to develop a complete CRM
The basic model is shown in Exhibit 2 and contains a set of 7 basic components:

1. A database of customer activity.

2. Analyses of the database.

3. Given the analyses, decisions about which customers to target.

4. Tools for targeting the customers

5. How to build relationships with the targeted customers.

6. Privacy issues.

7. Metrics for measuring the success of the CRM program.

Creating a Customer Database

A necessary first step to a complete CRM solution is the construction of a customer
database or information file. This is the foundation for any customer relationship
management activity. For Web-based businesses, this should be a relatively straight
forward task as the customer transaction and contact information is accumulated as a
natural part of the interaction with customers. For existing companies that have not
previously collected much customer information, the task will involve seeking
historical customer contact data from internal sources such as accounting and
customer service.

What should be collected for the database? Ideally, the database should contain
information about the following:

1) Transactions: This should include a complete purchase history with accompanying

details (price paid, SKU, delivery date)
2) Customer contacts. Today, there is an increasing number of customer contact
points from multiple channels and contexts. This should not only include sales calls
and service requests, but any customer- or company-initiated contact.

3) Descriptive information. This is for segmentation and other data analysis purposes.

4) Response to marketing stimuli. This part of the information file should contain
whether or not the customer responded to a direct marketing initiative, a sales contact,
or any other direct contact.

5) The data should also be over time.

Companies have traditionally used a variety of methods to construct their databases.

Durable goods manufacturers utilize information from warranty cards for basic
descriptive information. Unfortunately, response rates to warranty cards are in the 20-
30% range leaving big gaps in the databases. Service businesses are normally in better
shape since the nature of the product involves the kind of customer-company
interaction that naturally leads to better data collection. For example, banks have been
in the forefront of CRM activities for a number of years. Telecom-related industries
(long distance, wireless, cable services) similarly have a large amount of customer

The following are illustrations of some corporate database-building efforts:

1. The networking company 3Com created a worldwide customer database from
“legacy” databases scattered throughout their global operations. They built
customer records from e-mails, direct mail, telemarketing, and other customer
contacts, with descriptive information by department, division, and location.
2. Thomson Holidays, the British tour company developed a Preferred Agents
Scheme to enlist the assistance of travel agents in building the database. They
collect customer descriptive information and data on trips taken. This enables
them to calculate the profit on a per customer trip basis.
3. Taylor Made, the golf equipment manufacturer, has a database of over 1.5
million golfers with their names, addresses, e-mail addresses, birthdays, types
of courses played, and vacations taken.

Companies such as Procter & Gamble and Unilever selling frequently-purchased

consumer products have greater problems constructing databases due to lack of
systematic information about their millions of customers and the fact that they use
intermediaries (i.e., supermarkets, drug stores) that prohibit direct contact. The
challenge is to create opportunities for customer interaction and, therefore, data
collection. This can be from running contests to encouraging customer visits to Web
sites. Waldenbooks offers a 10% discount on purchases if customers provide
information to the company and become Preferred Readers.

Exhibit 3 gives a general framework for considering the problems in database

construction. Firms in the upper left-hand quadrant have many direct customer
interactions (banks, retail) and therefore have a relatively easy job constructing a
database. Firms in the lower right-hand quadrant have the most difficult job because
the interact less frequently with customers and those interactions are indirect (through
channels) in nature. Auto and furniture manufacturers are examples here. The other
two boxes represent intermediate situations.
The point of this framework is that unless you are in the high-direct box, you have to
work harder to build a database. The Thomson Holidays example above is a good
illustration of company that used channel incentives to take a low frequency product
and still obtain customer information. Kellogg has developed a creative solution to the
problem through its “Eat and Earn” program where children find a 15-digit code
inside cereal boxes and then go to the company’s Web site, enter some personal
information, and become eligible for free toys. The task is then to move towards the
upper left-hand quadrant through increased customer contact and “event” marketing.
A number of possible areas of research in the database area are the following:
 What is the value of the database? While some research has started in this
direction, since the database is a significant corporate asset, more work from
an accounting perspective is needed.
 What is the best database design from both an information and user
 How can companies integrate disparate databases (e.g., marketing and
production, globally) more efficiently?
 What are some new strategies for data generation?

Analyzing the Data

Traditionally, customer databases have been analyzed with the intent to define
customer segments. A variety of multivariate statistical methods ranging such as
cluster and discriminant analysis have been used to group together customers with
similar behavioral patterns and descriptive data which are then used to develop
different product offerings or direct marketing campaigns.9 Direct marketers have
used such techniques for many years. Their goals are to target the most profitable
prospects for catalogue mailings and to tailor the catalogues to different groups.

More recently, such segmentation approaches have been heavily criticized. Taking a
large number of customers and forming groups or segments presumes a marketing
effort towards an “average” customer in the group. Given the range of marketing tools
available that can reach customers one at a time using personalized messages (what
has been referred to as “1-to-1” marketing), there is less need to consider the usual
market segmentation schemes. Rather, there is increased attention being paid to
understanding each “row” of the database, that is, each customer and what he or she
can deliver to the company in terms of profits.

As a result, a new term, lifetime customer value or LCV, has been introduced into
the lexicon of marketers. The idea is that each row/customer of the database should be
analyzed in terms of current and future profitability to the firm. When a profit figure
can be assigned to each customer, the marketing manager can then decide which
customers to target.
A model of the profitability of a customer based on past and current purchases is the

Profit = Σ [ Σ (Pj – Cj) - Σ MCk] ,

t = the current time period,
T = the total number of time periods in the database,
J = the number of products purchased,
K = the number of marketing tools used to target customers,
Pj = Price of the jth product purchased,
Cj = Cost of the jth product purchased,
MCk = Cost of the kth direct marketing tool (customer acquisition costs).

In words, the profit that a customer has produced for the firm is the sum of the
margins of all the products purchased over time less the cost of reaching that
customer. These costs include any that can be broken out at the individual customer
level such as direct mail, sales calls, etc. Note that mass advertising would not be part
of this formula. It could be assigned to individual customers by computing a per
customer dollar amount but because it is the same for each customer, it would not
affect the rank ordering of the customers in terms of their profitability.

The equation can be used as the basis for LCV calculations by adding forecasts for the
major parameters and discounting back. This obviously requires assumptions about
future purchasing, product and marketing costs, as well as how long the customer can
be expected to remain with the firm. Generally, this will result in a number of
scenarios for each customer depending upon these assumptions.

The equation not only is the basis for LCV, but it can also be used to show where
additional profits can be obtained from customers. Increased profits can result from:
 Increasing J, the number of products purchased, by cross-selling;
 Increasing P, the price paid, by up-selling or charging higher prices;
 Reducing C, product marginal costs;
 Reducing MC, the customer acquisition costs.
Other kinds of data analyses besides LCV are appropriate for CRM purposes.
Marketers are interested in what products are often purchased together, often referred
to as market basket analysis. Complementary products can then be displayed on the
same physical page in a hard-copy catalogue or virtual page on a Web site.

A new kind of analysis born from the Internet is clickstream analysis. In this kind
of data analysis, patterns of mouse “clicks” are examined from cyberstore visits and
purchases in order to better understand and predict customer behavior. The goal is to
increase “conversion” rates, the percentage of browsing customers to actual buyers.
Research issues include the following:

 What is the appropriate valuation method? Do current methods capture all of

the aspects of customer value?

 How do we impact the parameters of the model, e.g. increase P and J?

 How can we modify the model to incorporate data from Web clickstream and
log file data?

 Are there new market segmentation and analysis tools that can do a better job?
Customer Selection

Given the construction and analysis of the customer information contained in the
database, the next step is to consider which customers to target with the firm’s
marketing programs. The results from the analysis could be of various types. If
segmentation-type analyses are performed on purchasing or related behavior, the
customers in the most desired segments (e.g., highest purchasing rates, greatest brand
loyalty) would normally be selected first. Other segments could also be chosen
depending upon additional factors.

For example, if the customers in the heaviest purchasing segment already purchase at
a rate that implies further purchasing is unlikely, a second tier with more potential
would also be attractive. The descriptor variables for these segments (e.g., age,
industry type) provide information for deploying the marketing tools. In addition,
these variables could be matched with commercially-available databases of names to
find additional customers matching the profiles of those chosen from the database.
If individual customer-based profitability is also available through LCV or similar
analysis, it would seem to be a simple task to determine on which customers to focus.
The marketing manager can use a number of criteria such as simply choosing those
customers that are profitable (or projected to be) or imposing an ROI hurdle. The goal
is to use the customer profitability analysis to separate customers that will provide the
most long-term profits from those that are currently hurting profits. This allows the
manager to “fire” customers that are too costly to serve relative to the revenues being

While this may seem contrary to being customer-oriented, the basis of the time-
honored “marketing concept,” in fact, there is nothing that says that marketing and
profits are contradictions in terms. The 80/20 rule often holds in approximation: most
of a company’s profits are derived from a small percentage of their customers.
For example:
 AT&T offers different levels of customer service depending upon a
customer’s profitability in their long-distance telephone business. For highly
profitable customers, they offer “hot towel,” personalized service. For less
profitable customers, you get automated, menu-driven service.

 The wireless provider PageNet raised monthly rates for unprofitable

subscribers. Clearly, the intent was to drive them away.

 Similarly, Federal Express raised shipping rates for residential customers in

expensive-to-serve areas where their volume did not justify normal rates. The
point is that without understanding customer profitability, these kinds of
decisions cannot be made.

On what basis should these customer selection decisions be made? One approach
would be to take the current profitability based on the above equation. An obvious
problem is that by not accounting for a customer’s possible growth in purchasing, you
could be eliminating a potentially important customer. Customers with high LCV
could be chosen; this does a better job incorporating potential purchases. However,
these are difficult to predict and you could include a large number of unprofitable
customers in the selected group. No matter what criterion is employed, de-selected
customers need to be chosen with care. Once driven away or ignored, unhappy
customers can spread negative word-of-mouth quickly, particularly in today’s Internet

Some research issues in this area are the following:

 What is the optimal selection criterion?

 Are there new models of customer categorization?

 What is the optimal mix of customer types?

Targeting the Customers

Mass marketing approaches such as television, radio, or print advertising are useful
for generating awareness and achieving other communications objectives, but they are
poorly-suited for CRM due to their impersonal nature. More conventional approaches
for targeting selected customers include a portfolio of direct marketing methods such
as telemarketing, direct mail, and, when the nature of the product is suitable, direct
sales. Writers such as Peppers and Rogers14 have urged companies to begin to
dialogue with their customers through these targeted approaches rather than talking
“at” customers with mass media.

In particular, the new mantra, “1-to-1” marketing, has come to mean using the
Internet to facilitate individual relationship building with customers. An extremely
popular form of Internet-based direct marketing is the use of personalized e-mails.
When this form of direct marketing first appeared, customers considered it no
different than “junk” mail that they receive at home and treated it as such with quick
hits on the delete button on the keyboard. However, sparked by Godin’s call for
“permission”-based programs whereby customers must first “opt-in” or agree to
receive messages from a company, direct e-mail has become a very popular and
effective method for targeting customers for CRM purposes. Companies such as Kana
and Digital Impact can send very sophisticated e-mails including video, audio, and
web pages. Targeted e-mails have become so popular that Jupiter Media Matrix
projects that over 50 billion of them will be sent in 2001.

A study by Forrester Research shows why this is so. Exhibit 4 demonstrates that e-
mail is a very cost-effective approach to customer retention. Through lower cost per
1,000 names by using the company’s own database (the “house” list) and greater
Click through rates than those afforded by banner advertisements and e-mails sent to
lists rented from suppliers, companies can reduce their cost per sale dramatically.
Some examples are the following:
 Southwest Airlines’s e-mail-based Click ‘n Save program has 2.7 million
subscribers. Every Tuesday, the airline sends out e-mails to this database of loyal
users containing special fare offers.

 The bookseller Borders (, Borders and Waldenbooks offline

retailers) collected all of its customer information into a single database. The
company then uses e-mails tailored to the customer’s reading interests to alert them
about upcoming releases.

 The Phoenix Suns basketball team sends streaming video messages from its
players promoting new ticket packages and pointing them to the team’s Web site.

The main criticisms of targeted e-mails have focused on the privacy issue which will
be discussed below. Some research issues are the following:
 How do should we allocate resources over acquisition, retention, and greater

 Does permission matter? What are the consumer behavior implications of

permission vs. no-permission?

 What is the optimal allocation of resources over the different targeting tools?
Online vs. offline?
Relationship Programs

While customer contact through direct e-mail offerings is a useful component of

CRM, it is more of a technique for implementing CRM than a program itself.
Relationships are not built and sustained with direct e-mails themselves but rather
through the types of programs that are available for which e-mail may be a delivery
mechanism. The overall goal of relationship programs is to deliver a higher level of
customer satisfaction than competing firms deliver. There has been a large volume of
research in this area. From this research, managers today realize that customers match
realizations and expectations of product performance, and that it is critical for them to
deliver such performance at higher and higher levels as expectations increase due to
competition, marketing communications, and changing customer needs. In addition,
research has shown that there is a strong, positive relationship between customer
satisfaction and profits. Thus, managers must constantly measure satisfaction levels
and develop programs that help to deliver performance beyond targeted customer

A comprehensive set of relationship programs is shown in Exhibit 5 and includes

 Customer service
 Frequency/loyalty programs
 Customization
 Rewards programs
 Community building.
Customer Service

Because customers have more choices today and the targeted customers are most
valuable to the company, customer service must receive a high priority within the
company. In a general sense, any contact or “touch points” that a customer has with a
firm is a customer service encounter and has the potential to gain repeat business and
help CRM or have the opposite effect. Programs designed to enhance customer
service are normally of two types. Reactive service is where the customer has a
problem (product failure, question about a bill, product return) and contacts the
company to solve it. Most companies today have established infrastructures to deal
with reactive service situations through 800 telephone numbers, faxback systems, e-
mail addresses, and a variety of other solutions. Proactive service is a different
matter; this is a situation where the manager has decided not to wait for customers to
contact the firm but to rather be aggressive in establishing a dialogue with customers
prior to complaining or other behavior sparking a reactive solution. This is more a
matter of good account management where the sales force or other people dealing
with specific customers are trained to reach out and anticipate customers’ needs.

A variety of systems leveraging the Web assist both kinds of service. Charles Schwab
has established MySchwab which allows customers to create personal Web pages
linking them to all Schwab services including stock quotes, trading, retirement
planning analyses. In this way, the company empowers the customer to deliver their
own service. Other Web-based services such as LivePerson, HumanClick, and net
Customer are bolt-on products that when added to a company’s Web site, provide
customers with the ability to interact with service representatives in real time.
Companies like Kmart are investing large amounts of money into kiosks that provide
information on product availability, order status, and a variety of other service-related
Loyalty/Frequency Programs

Loyalty programs (also called frequency programs) provide rewards to customers

for repeat purchasing. A recent McKinsey study20 found that about half of the ten
largest retailers in the U.S. in each of the top seven sectors (category killers,
department stores, drugstores, gasoline, grocery, mass merchandisers, specialty
apparel) have such programs with similar findings in the U.K. The study also
identified the three leading problems with these programs: they are expensive,
mistakes can be difficult to correct as customers see the company as taking away
benefits, and, perhaps most importantly, there are large questions about whether they
work to increase loyalty or average spending behavior. A problem that can be added
to this list is that due to the ubiquity of these programs, it is increasingly difficult to
gain competitive advantage.

A number of Web-based companies providing incentives for repeat visits to Web sites
include MyPoints and Netcentives. Although these have not been wildly successful, it
is clear that the price orientation of many Web shoppers creates the need for programs
that can generate loyal behavior.

The notion of mass customization goes beyond 1-to-1 marketing as it implies the
creation of products and services for individual customers, not simply communicating
to them. Dell Computer popularized the concept with its build-to-order Web site.
Other companies such as Levi Strauss, Nike, and Mattel have developed processes
and systems for creating customized products according to customers’ tastes.

Slywotzky refers to this process as a “choiceboard” where customers take a list of

product attributes and determine which they want. The idea is that it has turned
customers into product makers rather than simply product takers. Shapiro and Varian
argue that such customization is cheap and easy to do with information goods. Such
customization is termed “versioning.” It is, of course, easier to do this for services and
intangible information goods than for products but the examples above show that even
manufacturers can take advantage of the increased information available from
customers to tailor products that at least give the appearance of being customized
even if they are simply variations on a common base.

One of the major uses of the Web for both online and offline businesses is to build a
network of customers for exchanging product-related information and to create
relationships between the customers and the company or brand. These networks and
relationships are called communities. The goal is to take a prospective relationship
with a product and turn it into something more personal. In this way, the manager can
build an environment which makes it more difficult for the customer to leave the
“family” of other people who also purchase from the company.

For example, the software company Adobe builds community by devoting a section
of its Web site to users and developers. They exchange tips and other information
which binds them more to the company and its brands. By giving the customers the
impression that they own this section of the site and being open to the community
about product information, Adobe creates a more personal relationship with its

Some research issues in the area of building relationship programs are the following:
 What are the key drivers of satisfaction when a company has both an on-line
and off-line presence?
 Is there a difference between “proactive” (the company contacts the customer)
and “reactive” (the customer contacts the company) customer service?
 What loyalty program strategies are effective differentiators?
 How to mass customize? Methods for determining what kinds of product
options customers want and how to manufacture them.
Privacy Issues

The CRM system described in this report depends upon a database of customer
information and analysis of that data for more effective targeting of marketing
communications and relationship-building activities. There is an obvious tradeoff
between the ability of companies to better deliver customized products and services
and the amount of information necessary to enable this delivery. Particularly with the
popularity of the Internet, many consumers and advocacy groups are concerned about
the amount of personal information that is contained in databases and how it is being

Thus, the privacy issue extends all the way through the hierarchy of steps outlined in
Exhibit 1. This is not a new issue. Direct marketers have mined databases for many
years using analyses based on census tract data, motor vehicle records, magazine
subscriptions, credit card transactions, and many other sources of information.
However, with the “in your face” nature of unwanted direct e-mails and the increasing
amount of information that is being collected surreptitiously as people browse the
Web through nefarious “cookies,” these concerns have received more prominence.25
The defining moment in Web privacy occurred in 1999 when the Web ad serving
company Doubleclick announced that it was acquiring the direct marketing data base
company, Abacus Direct, with intentions to cross-reference Web browsing and buying
behavior with real names and addresses.

A study by Forrester Research found a continuum of privacy concerns:

1. Simple irritation. This comes mainly from unwanted e-mails.
2. Feelings of violation or “How do they know that about me?”
3. Fear of harm. This could come from browsing X-rated sites, booking travel that a
consumer does not want others to know about, etc.
4. Nightmarish visions: the IRS, “Big Brother,” and other thoughts.
As of this writing, there are 8 Internet privacy bills being considered by Congress.
The current debate about privacy and the debate in Congress centers around how
much control Web surfers should have over their own information. While many argue
that it is in customers’ best interests to give as much data as possible in order to take
maximum benefit of what the Web has to offer, many disagree. The opponents
formalize their arguments in the following two options:
“Opt-in”: In this case, Web users must consent to the collection and use of personal
data. This gives the customer more control over their own information and would help
to build industry confidence. However, from the marketer’s perspective, this may
substantially reduce the amount of information available in data bases.
“Opt-out”: This is the Web version of the direct marketing “negative reply” whereby
a customer has to explicitly forbid the collection and use of personal data. This gives
more information to marketers and therefore potentially improves the products and
services available to customers. However, the customers bear the loss of control.

These issues are only going to become thornier as the proliferation of wireless devices
means more information about customers becoming available over time.
Some possible research topics in the privacy area are the following:
 Are there ways to build privacy “screens” into current Internet systems (e.g.,
Microsoft’s P3P technology)?
 How important in privacy to consumers? How does this vary globally?
 What are the components of privacy?
 How can a company build “trust” into its Web site?

The increased attention paid to CRM means that the traditional metrics used by
managers to measure the success of their products and services in the marketplace
have to be updated. Financial and market-based indicators like profitability, market
share, and profit margins have been and will continue to be important. However, in a
CRM world, increased emphasis is being placed on developing measures that are
customer-centric and give the manager a better idea of how her CRM policies and
programs are working.

Some of these CRM-based measures, both Web and non-Web based are the
 Customer acquisition costs
 Conversion rates (from lookers to buyers)
 Retention/churn rates
 Same customer sales rates
 Loyalty measures.
 Customer share or share of requirements (the share of a customer’s purchases
in a category devoted to a brand).

All of these measures imply doing a better job acquiring and processing internal data
to focus on how the company is performing at the customer level. The Future of CRM
With the increased penetration of CRM philosophies in organizations and the
concomitant rise in spending on people and products to implement them, it is clear we
will see improvements in how companies work to establish long-term relationships
with their customers. However, there is a big difference between spending money on
these people and products and making it all work: implementation of CRM practices
is still far short of ideal. Everyone has his or her own stories about poor customer
service and emails sent to companies without hearing a response. Despite several
years of experience,
Web-based companies still did not fulfill many Christmas orders in 2000 and
customers continue to have difficulties returning unwanted or defective products.
We can expect that the technologies and methodologies employed to implement the
steps shown in Exhibit 1 will improve as they usually do. More companies are
recognizing the importance of creating databases and getting creative at capturing
customer information. Real-time analyses of customer behavior on the Web for better
customer selection and targeting is already here (e.g., Net Perceptions) which permits
companies to anticipate what customers are likely to buy. Companies will learn how
to develop better communities around their brands giving customers more incentives
to identify themselves with those brands and exhibit higher levels of loyalty.

One way that some companies are developing an improved focus on CRM is through
the establishment or consideration of splitting the marketing manager job into two
parts: one for acquisition and one for retention. The kinds of skills that are need for
the two tasks are quite different. People skilled in acquisition have experience in the
usual tactical aspects of marketing: advertising, sales, etc. However, the skills for
retention can be quite different as the job requires a better understanding of the
underpinnings of satisfaction and loyalty for the particular product category. In
addition, time being a critical scarce resource makes it difficult to do an excellent job
on both acquisition and retention. As a result, some companies have appointed a chief
customer officer (CCO) whose job focuses only on customer interactions.

A possible marketing organizational structure is shown in Exhibit 6. In this

organization, the person overseeing the company’s marketing activities, the
VPMarketing, has both product management and the CCO as direct reports. The
CCO’s job is to provide intelligence to the VP from marketing research and the
customer database for use by product managers in formulating marketing plans and
making decisions. In addition, the CCO manages the customer service operation.
Although it would perhaps seem more logical for the CCO to report to product
management, the reporting arrangement to the VP-Marketing is a signal to the
company of the prominence of the position. The CCO also interacts with other
company managers whose operations may have a direct impact on customer
The CCO at, a company offering streamlined purchasing,
financing, and shipping services for small manufacturing and construction businesses,
has the job of integrating marketing and operations to make sure that customers are
satisfied. An alternate conceptualization is to create two jobs, customer managers and
capability managers. The former oversee the relationship with customers while the
latter make sure that their requirements are fulfilled.

The notion of customer satisfaction is being expanded to change CRM to CEM,

Customer Experience Management. The idea behind this is that with the number of
customer contact points increasing all the time, it is more critical than ever to measure
the customer’s reactions to these contacts and develop immediate responses to
negative experiences. These responses could include timely apologies and special
offers to compensate for unsatisfactory service. The idea is to expand the notion of a
relationship from one that is transaction-based to one that is experiential and

The “bottom line” is that companies that are not taking a customer-centric view of
their business operations are going to be passed by those that view relationship-
activities as the key to long-term profitability.
Exhibit 1
Impact of 10% Improvement in Indicator on the Current Value of E-Commerce Firms
Metric Definition Value If Improved 10% to

Visitor Marketing $/ $5.68 $5.11 0.7%

Acquisition visitor
New visitor Increase in the 62.4% 72.4% 3.1%
Change number of new
Visitors, 1Q-2Q

New cust. Marketing $/ $250 $225 0.8%

Acq. Cost customer
New cust. % of new visitors 4.7% 14.7% 2.3%
Conversion who become
Rate customers
New cust. Increase in new 88.5% 98.5% 4.6%
Revenue revenue, 1Q-2Q

Repeat-cust. Increase in revenue 21.0% 31.0% 5.8%
Revenue from repeat
Momentum customers, 1Q-2Q
Repeat-cust. % of customers who 30.2% 40.2% 9.5%
Conversion become repeat
Customer % of customers 55.3% 65.3% 6.7%
Churn rate repeating, 1st
Half of 1999
Source: McKinsey & Co. (1999)

Exhibit 2
Customer Relationship Management Model








Exhibit 3

Getting More Customer Interaction

Customer Interaction

Banks Banks
Telecom Telecom
Retail Retail

Personal Computers
Interaction Internet
Frequency Autos

Exhibit 4
E-mail Generates the Lowest Retention Costs

Cost per

Click through date

Purchase date
Cost per sale
Customer Acquisition Customer Retention

Direct mail Banner Email to Direct mail to Email to

To Rented Advertising rented “house” list “house” list
list list

$850 $16 $200 $686 $5

N/A 0.8% 3.5% N/A 10%

1.2% 2.0% 2.0% 3.9%

$71 $100 $286 $18 $2

Source: Forrester Research, 2000 LOYALITY



SERVICE Customer Retention Programs ZATION





Another force driving the adoption of CRM has been the total quality movement.
When companies embraced the Total Quality Management (TQM) philosophy to
improve quality and reduce costs, it became necessary to involve suppliers and
customers in implementing the program at all levels of the value chain. This created
the need for closer working relationships with customers, suppliers, and other
members of the marketing infrastructure. Thus, several companies, such as Motorola,
IBM, General Motors, Xerox, Ford, and Toyota, formed partnering relationships
with suppliers and customers to practice TQM. Other programs such as "just-in-time"
(JIT) supply and "materials-resource planning" (MRP) have also made use of
interdependent relationships between suppliers and customers .

With the advent of digital technology and complex products, the systems selling
approach has become common. This approach has emphasized the integration of
parts, supplies, and the sale of services along with the individual capital equipment.
Customers have liked the idea of systems integration and sellers have been able to sell
augmented products and services to customers. Then, the popularity of system
integration began to extend to consumer packaged goods as well as to services. At the
same time some companies started to insist upon new purchasing approaches, such as
national contracts and master purchasing agreements, forcing major vendors to
develop key account management programs. These measures created intimacy and
cooperation in the buyer-seller relationship. Instead of purchasing a product or
service, customers were more interested in buying a relationship with a vendor. The
key (or national) account management program designates account managers and
account teams that assess the customer’s needs and then husband the selling
company’s resources for the customer’s benefit.

Such programs have led to the establishment of strategic partnering within

the overall domain of customer relationship management. Similarly, in the current era
of hyper-competition, marketers are forced to be more concerned with customer
retention and loyalty. As several studies have indicated, retaining customers perhaps
offers a more sustainable competitive advantage than acquiring new ones. What
marketers are realizing is that it costs less to retain customers than to compete for new
ones. On the supply side it pays more to develop closer relationships with a few
suppliers than to work with more vendor. In addition, several marketers are concerned
with keeping customers for life rather than with only making a one-time sale. There is
greater opportunity for cross-selling and up-selling to a customer who is loyal and
committed to the firm and its offerings. In a recent study, Naidu, Parvatiyar, Sheth,
and Westgate (1999) found that relational intensity increased in hospitals facing a
higher degree of competitive intensity.

Also, customer expectations have been changing rapidly over the last two decades.
Fueled by new technology and the growing availability of advanced product features
and services, customer expectations are changing almost on a daily basis. Consumers
are less willing to make compromises or trade-offs in product and service quality. In a
world of ever changing customer expectations, building cooperative and collaborative
relationships with customers seems to be the most prudent way to keep track of their
changing expectations and appropriately influencing them. Finally, many large
internationally oriented companies are today trying to become global by integrating
their worldwide operations. To achieve this they are seeking cooperative and
collaborative solutions for global operations from their vendors instead of merely
engaging in transactional activities with them. Such customers' needs make it
imperative for marketers interested in the business of companies that are global to
adopt CRM programs, particularly global account management programs. Global
account management (GAM) is conceptually similar to national account management
programs except that they have to be global in scope and thus more complex.
Managing customer relationships around the world calls for external and internal
partnering activities, including partnering across a firm’s worldwide organization.
A CRM Process Framework

A four-stage CRM process framework comprised of the following four sub-processes:

a customer relationship formation process; a relationship management and
governance process; a relational performance evaluation process, and a CRM
evolution or Customer Relationship Management.
Figure 1 depicts the important components of the process model.

Figure 1: The CRM Process Framework

- Increase Effectiveness
- Improve Efficiency
- Strategic Goals
- Financial Goals
- Marketing Goals
• Loyalty
• Satisfaction
Role Specification
Common Bonds
Planning Process
Process alignment
Team Structure
Employee Motivation
Monitoring Process
- Features & Offerings
- Selection Criteria &
- Enhancement
- Termination

The CRM Formation Process

The formation process of CRM refers to the decisions regarding initiation of relational
activities for a firm with respect to a specific group of customers or to an individual
customer with whom the company wishes to engage in a cooperative or collaborative
relationship. Hence, it is important that a company be able to identify and differentiate
individual customers. In the formation process, there are three important decision
areas: defining the purpose (or objectives) of engaging in CRM; selecting parties (or
customer partners) for appropriate CRM programs; and developing programs (or
relational activity schemes) for relationship engagement with the customer.

The Purpose of CRM and Its Operational Goals. The overall purpose of CRM is to
improve marketing productivity and to enhance mutual value for the parties involved
in the relationship. Improving marketing productivity and creating mutual values can
be achieved by increasing marketing efficiencies and/or enhancing marketing
effectiveness. By seeking and achieving such operational goals as lower distribution
costs, streamlining order processing and inventory management, reducing the burden
of excessive customer acquisition costs, and by considering the economics of
customer retention, firms can achieve greater marketing efficiencies. They can also
enhance marketing effectiveness by carefully selecting customers for their various
programs, by individualizing and personalizing their market offerings to anticipate
and serve the emerging needs of individual customers, by building customer loyalty
and commitment; by partnering to enter new markets and develop new products, and
by redefining the competitive playing field for their company. Thus, stating the
objectives and defining the purpose of CRM in a company helps clarify the nature of
the CRM programs and activities that ought to be performed by the partners.

Defining the purpose also makes identifying the relationship partners with the
necessary expectations and capabilities to fulfill mutual goals an easier task.
Furthermore, it helps in the evaluation of the CRM performance. The results achieved
can be compared to the objectives. These objectives can be specified as financial
goals, marketing goals, strategic goals, operational goals, and organizational goals.
Similarly, in the mass-market context, consumers expect to fulfill their goals related
to efficiencies and effectiveness in their purchase and consumption behaviour.
Consumers are motivated to engage in relational behavior because of the
psychological and sociological benefits associated with reduction in choice decisions.
In addition, to their natural inclination to reduce choices, consumers are motivated to
seek the rewards and associated benefits offered by CRM programs.

Relational Parties and Partners. Customer partner selection (or parties with whom to
engage in cooperative or collaborative relationships) is another important decision in
the relationship formation stage. Even though a company may serve all customer
types, few have the necessary resources and commitment to establish CRM programs
for all. Therefore, in the initial phase, companies have to decide on which customer
types and specific customers or customer groups to focus their CRM efforts on.
Subsequently, when a company gains experience and achieves successful results, the
scope of CRM activities can be expanded to include other customers in the program
or to include additional programs.

Although partner selection is an important decision in achieving CRM goals, not all
companies have a formalized process of selecting customer partners. Some select
customer partners by following the intuitive judgments of their senior managers and
select other partners from those customers who demand to be selected. On the other
hand, other companies do have formalized processes of selecting relational partners
through the use of extensive research and the evaluation of chosen criteria. The
criteria for partner selection vary according to company goals and policies. They can
range from a single criterion such as the revenue potential of the customer to multiple
criteria that include variables such as customer commitment, resourcefulness,
management values, technological and market leadership, national and global
presence, strategic value, and complementary business processes. When several
criteria are applied and a complex model developed, it is necessary to test its validity
based on strategic fit and the distinctive competitive advantage to the firm.

CRM Programs and Strategies

A careful review of the literature and the observation of corporate practices suggest
that there are several types of CRM programs. Broadly specified, they fall into the
following three categories: continuity marketing, one-to-one marketing, and
partnering programs. Each one of these can take different forms depending on
whether they are meant for end-consumers, distributor customers, or business-
tobusiness customers. Obviously, marketing practitioners in search of new creative
ideas are able to develop many variations and combinations of CRM programs to
build mutually beneficial relationships with their customers.

However, the essence of CRM programs is customer selectivity. It has now become
common knowledge that the value of all customers is not equal. The 80/20 rule
prevails whereby we have learned that 20 percent of customers generate more than 80
percent of revenues for most companies, and it is not uncommon to find that an even
lower percentage of customers can generate more than 80 to 90 percent of the
revenues. Under such circumstances, it is not prudent for a company to allocate equal
resources to all customers. Customer segmentation and program differentiation is
needed in order to match revenue potential with service offerings. Those with
higher revenue potential deserve a greater allocation of costs and service. Otherwise,
competitors will seize the opportunity by offering better service and a greater
allocation of resources for the high-end customers. At the lower-end, attempts should
be made to achieve cost savings through the reallocation of efforts based on less-
expensive resources.

Figure 2 depicts the customer revenue-cost re-allocation opportunity zone. It suggests

that in most companies instead of the average cost per customer being proportionate
to the average revenue per customer, one consider a flat cost curve that is not sensitive
to the revenue produced by the customer. Such a situation opens up an opportunity for
competitors to increase their offerings by allocating expensive resources to the high-
end customers. Thus, as shown in Figure 3, a hierarchy of CRM programs could be
considered for different customer groups based on the extent of service and the
opportunity for customer business development.

Figure 2: Customer Revenue & Cost Relationship

Average Revenue/Customer

Average Cost/





Prevalent Practice



Figure 3: Customer Segmentation & CRM Programs

Extent of Service and Cross-

Functional Support

Degree of


Major Account

Key Account


Database and
eCRM Program

The CRM Governance Process

Once a CRM program is developed and rolled out, the program as well as the
individual relationships must be managed and governed. For massmarket customers,
the degree to which there is symmetry or asymmetry in the primary responsibility for
whether the customer or the program sponsoring company will be managing the
relationship varies with the size of the market. However, for programs directed at
distributors and business customers the management of the relationship would require
the involvement of both parties. The degree to which these governance
responsibilities are shared or managed independently will depend on the perception of
the norms of the governance processes among the relational partners given the nature
of their CRM program and the purpose of engaging in the relationship. Not all
relationships are or should be managed alike. In fact, several studies suggest
appropriate governance norms for different hybrid relationships.

Whether management and governance responsibilities are independently or jointly

undertaken by relational partners, several issues must be addressed. These include
decisions regarding role specification, communication, common bonds, the planning
process, process alignment, employee motivation, and monitoring procedures. Role
specification relates to determining the role of the partners in fulfilling the CRM tasks
as well as the role of specific individuals or teams in managing the relationships and
related activities. The greater the scope of the CRM program and the associated tasks
and the more complex the composition of the relationship management team, the
more critical is the role specification decision for the partnering firms. Role
specification also helps in clarifying the nature of the resources and empowerment
needed by the individuals or teams charged with the responsibility of managing the
relationship with the customers.

Communication with customer partners is a necessary process of relationship

marketing. It helps in relationship development, fosters trust, and provides the
information and knowledge needed to undertake the cooperative and collaborative
activities of relationship marketing. In many ways it is the lifeblood of relationship
marketing. By establishing proper communication channels for sharing information
with customers a company can enhance their relationship with them. In addition to
communicating with customers, it is also essential to establish intra-company
communication, particularly among all concerned individuals and corporate functions
that directly play a role in managing the relationship with a specific customer or
customer group.

Although communication with customer partners helps to foster relationship bonds,

conscious efforts to create common bonds will have a more sustaining impact on the
relationship. In business-to-business relationships, social bonds are created through
interactions; however, with mass-market customers frequent face-to-face interactions
will be uneconomical. Thus marketers should create common bonds through symbolic
relationships, endorsements, affinity groups, and membership benefits or by creating
on-line communities. Whatever the chosen mode, institutionalizing relationships with
customers is accomplished by creating value bonding, reputation bonding, and
structural bonding.

Another important aspect of relationship governance is the process of planning and

determining the degree to which customers need to be involved in the planning
process. Involving customers in the planning process would ensure their support in
plan implementation and in the achievement of planned goals. However, not all
customers are willing to participate in the planning process nor is it possible to
involve all of them in relationship marketing programs for the mass market. Yet, the
involvement of major customers in the planning process is desirable and sometimes
necessary for managing a cooperative and collaborative relationship. Executives are
sometimes unaware, or they choose to initially ignore the nature of misalignment in
operating processes between their company and customer partners leading to
problems in relationship marketing implementation. Several aspects of the operating
processes need to be aligned depending on the nature and scope of the relationship.
For example, operating alignment will be needed in order processing, accounting and
budgeting processes, information systems, merchandising processes, and so forth.

Several human resources decisions are also important in creating the right
organization and climate for managing relationship marketing. Training employees to
interact with customers, to work in teams, and manage relationship expectations is
important. So is the issue of creating the right motivation through incentives, rewards,
and compensation systems towards building stronger relationship bonds and customer
commitment. Although institutionalizing the relationship is desirable for the long-
term benefit of the company, personal relationships are nevertheless formed and have
an impact on the institutional relationship. Thus needed is proper training and
motivation of employees to professionally handle customer relationships.

Finally, proper monitoring processes are needed to safeguard against failure and
manage conflicts in relationships. Monitoring processes include periodic evaluation of
goals and results, initiating changes in the relationship structure, design, or the
governance process if needed, and creating a system for discussing problems and
resolving conflicts. Good monitoring procedures help avoid relationship
destabilization and the creation of power asymmetries. They also help keep CRM
programs on track given proper alignment of goals, results, and resources.

Overall, the governance process helps in the maintenance, development, and

execution aspects of CRM. It also helps in strengthening the relationship among
relational partners, and if the process is satisfactorily implemented, it ensures the
continuation and enhancement of the relationship. Relationship satisfaction for
involved parties would include governance process satisfaction in addition to
satisfaction from the results achieved in the relationship.

CRM Performance Metrics

Periodic assessment of results in CRM is needed to evaluate if the programs are

meeting expectations and if they are sustainable in the long run. Performance
evaluation also helps in taking corrective action in terms of relationship governance or
in modifying relationship marketing objectives and program features. Without proper
performance metrics to evaluate CRM efforts, it would be hard to make objective
decisions regarding continuation, modification, or termination of CRM programs.
Developing performance metrics is always a challenging activity as most firms are
inclined to use existing marketing measures to evaluate CRM. However, many
existing marketing measures, such as market share and total volume of sales may not
be appropriate in the context of CRM. Even when more CRM oriented measures are
selected, they cannot be applied uniformly across all CRM programs, particularly
when the purpose of each program is different.

For example, if the purpose of a particular CRM effort is to enhance distribution

efficiencies by reducing overall distribution cost, measuring the program's impact on
revenue growth and the customer’s share of the business may not be appropriate. In
this case, the program must be evaluated based on its impact on reducing distribution
costs and on other metrics that are aligned with those objectives. By harmonizing the
objectives and performance measures one would expect to see more goal directed
managerial action by those involved in managing the relationship. For measuring
CRM performance, a balanced scorecard that combines a variety of measures based
on the defined purpose of each program (or each cooperative/collaborative
relationship) is recommended. In other words, the performance evaluation metrics for
each relationship or CRM program should mirror the set of defined objectives for the
program. However, certain global measures of the impact of a CRM effort by a
company are also possible. Srivastava, Tassadduq, and Fahey (1998) developed a
model to suggest the asset value of cooperative relationships to firms. If the
cooperative and collaborative relationship with customers is treated as an intangible
asset of the firm, its economic value-add can be assessed using discounted future cash
flow estimates. In some ways, the value of relationships is similar to the concept of
the brand equity of the firm and hence many scholars have alluded to the term
relationship equity (Bharadwaj, 1994; Peterson, 1995). Although a well-accepted
model for measuring relationship equity is not available in the literature as yet,
companies are trying to estimate its value, particularly in measuring the intangible
assets of the firm.

Another global measure used by firms to monitor CRM performance is the

measurement of relationship satisfaction. Similar to the measurement of customer
satisfaction, which is now widely applied in many companies, relationship satisfaction
measurement would help in finding out to what extent relational partners are satisfied
with their current cooperative and collaborative relationships. Unlike customer
satisfaction measures that are applied to measure satisfaction on one side of the dyad,
relationship satisfaction measures could be applied on both sides of the dyad. Since
both the customer and the marketing firm have to perform in order to produce the
results in a cooperative relationship, each party’s relationship satisfaction should be
measured (Biong, Parvatiyar, & Wathne, 1996). By measuring relationship
satisfaction, one could estimate the propensity of either party to continue or terminate
the relationship. Such a propensity could also be indirectly measured by measuring
customer loyalty. When relationship satisfaction or loyalty measurement scales are
designed based on the antecedents, they can provide rich information on their
determinants and thereby help companies identify those managerial actions that are
likely to improve relationship satisfaction and/or loyalty.

The CRM Evolution Process

Individual customer relationships and CRM programs are likely to undergo evolution
as they mature. Some evolution paths may be pre-planned while others evolve
naturally. In any case, several decisions have to be made by the partners involved
about the evolution of the CRM programs. These include decisions regarding the
continuation, termination, enhancement, and modification of the relationship
engagement. Several factors could hasten any of these decisions. Amongst them
relationship performance and relationship satisfaction (including relationship process
satisfaction) are likely to have the greatest impact on the evolution of the CRM
programs. When performance is satisfactory, partners would be motivated to continue
or enhance their CRM program. When performance does not meet expectations,
partners may consider terminating or modifying the relationship. However,
extraneous factors could also impact on these decisions. For example, when
companies are acquired, merged, or divested, many relationships and relationship
marketing programs undergo changes. Also, when senior corporate executives and
senior leaders in the company move, CRM programs undergo changes. Yet, there are
many collaborative relationships that are terminated because they had planned
endings. For companies that can chart out their relationship evolution cycle and state
the contingencies for making evolutionary decisions, CRM programs can be more

CRM Implementation Issues

One of the most interesting aspects of CRM development is the multitude of customer
interfaces that a company has to manage in today’s world. Until recently, a
company’s direct interface with customers, if any, was primarily through sales people
or service agents. In today’s business environment, most companies interface with
their customers through a variety of channels including sales people, service
personnel, call centers, Internet websites, marketing departments, fulfillment houses,
market and business development agents, and so forth. For large customers, it also
includes cross-functional teams that may include personnel from various functional
departments. Although each of these units could operate independently, they still need
to share information about individual customers and their interactions with the
company on a real-time basis. For example, a customer who just placed an order on
the Internet and subsequently calls the call center for order verification expects the
call center staff to know the details of his or her order history. Similarly, a customer
approached by a sales person unaware of the fact that the customer had recently
complained about dissatisfactory customer service is not likely to be treated kindly by
the customer. On the other hand, if the salesperson was aware of the problem
encountered by the customer, the complaint, and the action already initiated to resolve
the complaint, the salesperson would be in a relatively good position to handle the
situation well. Therefore, effective CRM implementation requires a front-line
information system that shares relevant customer information across all interface
units. Relational databases, data warehousing, and data mining tools are thus very
valuable for CRM systems and solutions.

The challenge is to develop an integrated CRM platform that collects relevant data
input at each customer interface and simultaneously provides knowledge output about
the strategy and tactics suitable to win customer business and loyalty. For example, if
call center personnel cannot identify and differentiate a high value customer and do
not know what to upsell or cross-sell to this customer, it could mean a tremendous
opportunity lost. Although most CRM software solutions based on relational
databases are helping share customer information, they still do not provide knowledge
output to the front-line personnel. As shown in figure 4, the CRM solutions platform
needs to be based on interactive technology and processes. It should assist the
company in developing and enhancing customer interactions and one-to-one
marketing through the application of suitable intelligent agents that help develop the
front-line relationship with customers. Such a system would identify appropriate data
inputs at each customer interaction site and use analytical platforms to generate
appropriate knowledge output for front-line staff during customer interactions. In
addition, implementation tools to support interactive solutions for customer
profitability analysis, customer segmentation, demand generation, account planning,
opportunity management, contact management, integrated marketing
communications, customer care strategies, customer problem solving, virtual team
management of large global accounts, and measuring CRM performance would be the
next level of solutions sought by most enterprises.

Figure 4: Data Model/ Information Platform for CRM

Integrated Marketing
Information Platform
• Information Content
• Relational Databases
• Decision Support System
• Active Intelligence
• Business Rules
• Collaborative Communications
• User Profiles
Call Center

Unfortunately, in their enthusiasm to implement CRM solutions, some companies

seem to be overlooking the basic considerations that would make such initiatives
successful. Since CRM implementation comprises a significant information
technology (IT) component, these companies have often handed over the
responsibility of CRM implementation to IT Departments. In this way, they become
focused on simply installing CRM software solutions without developing a CRM
strategy or program. This leads to creating an operational tool within the company,
but the usability and effectiveness in producing desirable results from such tools can
be limited. CRM tools are valuable when they are used to identify and differentiate
individual customers and to generate individualized offers and fulfill customized
solutions. The lack of a CRM strategy or CRM programs would leave the front-line
people without any knowledge of what they should be doing with the additional
customer information that they now have access to. Those applying themselves and
developing improvised solutions could find that their ad hoc solutions backfire and
cause unintended deterioration in customer relationships. Hence, it is important to
consider the CRM process framework in its totality. CRM tools are meant to
supplement a company’s strategy for building effective customer relationships.
Appropriate strategy and excellent implementation are both needed for obtaining
successful results. In the future we expect to see more research on the barriers to
implementing successful CRM strategies as well as empirical research on the impact
of CRM on company performance.

CRM and Relationship Marketing as a Potential Discipline

Customer relationship management and relationship marketing with a focus on

customer retention, customer commitment, and share of the customer’s business
instead of market share have generated enormous research interest. Hundreds of
papers have been presented at dozens of conferences.

Journey from Domain to Discipline

Will relationship marketing and CRM create a paradigm shift? Will a discipline arise
out of a domain? Nobody knows for sure. In order for a domain to become a
discipline, it needs to go beyond description and into explanation of phenomenon by
providing hypotheses and theory, and at the same time, it needs to go beyond
observation and become a science by utilizing methodological rigor (see Figure 5).
Therefore, our concern here is with paradigms that guide disciplined inquiry. They
can be characterized by the way their proponents respond to the ontological (nature of
reality), epistemological (nature, sources and limits of knowledge), and
methodological (the process of conducting inquiry) questions (Guba, 1990). These
form the starting points or givens that determine what inquiry is and how it is to be
practiced. For a paradigm to be adopted as a discipline it must adequately summarize
knowledge of related entities, laws, and mechanisms in the form of time- and context-
free generalizations. Values and other biasing or confounding factors must be
excluded from influencing the outcomes; and questions and/or hypotheses should be
empirically tested through rigorous methodology .

Figure 5: Domain vs. Discipline


In the past three decades, there have been at least three successes and three failures in
the journey from domain to discipline. The three successes are consumer behavior,
marketing strategy, and services marketing. The three that have failed to become
distinct disciplines even though domain knowledge exits are international marketing,
social marketing, and business marketing. By analyzing and understanding why they
failed or succeeded in becoming disciplines of marketing, we arrived at the following
insights aimed at ensuring that customer relationship management and relationship
marketing becomes a distinct discipline in marketing.
Delimit the Domain. The concept of relationship and relational behavior is universal.
It is a part of physical, animal, plant, and human sciences. Therefore, every discipline
has applications and implications related to relational behavior. Indeed, it is so
universal that the most widely used statistical technique is correlation, or the
relationship between two or more phenomena, whether bivariate or multivariate in
nature. Therefore, it is not only easy but also tempting to extend the concept of
relationship beyond marketing and beyond business, but then it would lose its identity
and uniqueness. This is analogous to consumer behavior, which is only one subset
domain among all human behaviors—that is, the behavior and the roles people
manifest as consumers in contrast to the roles of producers, middlemen, citizens, or
family members. In short, relationship marketing must be limited to the discipline of
marketing, which is focused on understanding and managing customers and their
buying, paying, and consuming behaviors.

Furthermore, not all marketing can be relationship marketing or customer relationship

management. Relationship marketing and CRM have to be a subset of marketing. In
other words, not all marketing relationships are relationship marketing. Just as we
have services marketing, international marketing, and social marketing, there is or
should be a unique domain called relationship marketing whose objectives, processes,
performance, and governance are unique with respect to organizations' marketing and
nonmarketing resource allocations. The objective of relationship marketing is to
increase the customer's commitment to the organization through the process of
offering better value on a continuous basis at a reduced cost. This can be achieved
partly within the organization and partly through partnerships with suppliers and even
competitors. The measure of success is the growth of the share of the customer’s
business and its profitability.

Agree on a Definition. As discussed above in this paper, Customer Relationship

Management and Relationship Marketing have been presented based on many
definitions and many programs. Included are affinity marketing, loyalty marketing,
cross selling, up-selling, co-branding, comarketing, and customer-supplier partnering.
In the professional services, there are personalized one-to-one relationships with
individual clients and dedication of the organization’s resources to individual
relationships. In business-to-business marketing, there is key account management
and solution selling.

Analogous to social marketing, there is already a definitional debate about

relationship marketing. Some have argued that CRM is an old concept already
incorporated in existing schools of marketing thought, and therefore, needs no
separate identity; others have suggested that it overlaps with so many domains of
marketing (services, channels, global, and direct marketing) that again it needs no
separate identity. Still others believe that CRM and relationship marketing are
synonymous with direct marketing, and, thus, they are more appropriate in business-
to-business marketing and services marketing.

What is needed is a definition that will articulate the uniqueness of the concept, one
stating CRM's own distinct properties, similar to what has been done related to
services marketing. There are at least three aspects unique to CRM and relationship
marketing. First, it relates to a one-to-one relationship between the marketer and the
customer. In other words, relationships cannot be pursued in the aggregate; they must
be handled at the individual-entity level. Second, it occurs as an interactive process
and not as a transactional exchange. This is a fundamental distinction because
marketing is founded on the principle of exchange and transactions. CRM, however,
is all about interaction and activities; it involves co-production and co-consumption in
which time, location, and identity boundaries between the supplier and the customers
blur into one extended supply-and-demand chain of management. At the same time,
each member in the value chain is a distinct and independent organization with its
own capital and management, and, therefore, there is a virtually integrated network of
organizations and not a traditional vertically integrated organization.
The third, and equally important, unique aspect of customer relationship management
is that it is a value-added activity through mutual interdependence and collaboration
between suppliers and customers. Just as hardware and software create a symbiotic
value addition, where one without the other is less useful to users and consumers,
customer relationship management adds value through collaborative and partnering
mindsets and the resulting behaviors of the suppliers and customers. This is very
obvious in services industries where the user must cooperate and collaborate with the
provider whether it is a doctor, an accountant, a lawyer, or a teacher. It is also
becoming more the case with automated services such as automatic teller machines,
telephone answering systems, and gasoline pumps. Finally, with electronic ordering
and Internet commerce, it is also becoming prevalent for traditional product offerings,
especially in business-to-business marketing.

Build Respectable Databases. Perhaps the single biggest lesson we can learn from
marketing strategy is the access to PIMS databases with measures of financial
performance. We believe that customer relationship management needs to access
similar data from corporations and service bureaus. It was the availability of
household panel data on more than 200 consumer products that led to quantitative
performance measures of brand loyalty in consumer behavior. Today, it is the
availability of scanner data through IRI and A.C. Nielsen that is propelling scientific
research on brand equity. A CRM database that represents a general barometer of
customer relationships would be very valuable for academic research as well as for
companies and societal agencies interested in monitoring the progress of how
companies are doing with respect to their relationship with their most important
stakeholder. Develop Performance Metrics. It is equally important that we develop
some standardized metrics to measure CRM’s performance as well as antecedents
that are likely to be its determinants. For example, SERVQUAL, a standardized
instrument to measure service quality, is now utilized across national boundaries,
similar to the Myers-Briggs personality test or the 360- degree feedback for
management performance.

It is not sufficient to develop scales to measure constructs such a trust, commitment,

and long-term orientation. Equally important is measuring performance outcomes
using well-accepted financial and accounting measures. Recent studies by several
scholars concerning the merging and purging of existing public financial and
customer-supplier databases and utilizing them to examine the impact of relationship
marketing on the performance of the firm are very encouraging. However, we need to
do more. We do not believe that psychological instruments, no matter how well they
are validated, will be sufficient. What we need to know is not what informants say or
believe but rather what organizations do. This is equally true for household customers.
It is, therefore, encouraging to see that many services companies (such as telephone,
insurance, airlines, and utilities) have begun to analyze actual behavioral or usage data
of their customers through billing and customer service and to develop standardized
performance measures by linking them to the cost of serving each customer. Employ
Longitudinal Research Methods. Customer relationship management, like product life
cycle and diffusion of innovation, is a timecentric process. It is an evolutionary and
dynamic phenomenon over time. Therefore, it is important to utilize research
techniques such as longitudinal panels, which measure changes over time. We also
need time series data similar to what psychologists use in measuring learning or
econometricians use to measure business cycles and trends.

Although it is easy to use cross-sectional data as surrogates, this method is not as

legitimate as the use of longitudinal data. It is clear, though, that the need for
longitudinal data will create difficulties for young scholars, who have to publish
quickly to get tenure and promotions. It was the access to longitudinal household
panel data that enabled consumer behavior scholars to analyze brand loyalty relatively
quickly. Similarly, it is the time series data obtained from government agencies or the
stock market that enables scholars in economics, finance, and accounting to test
timecentric concepts in their respective disciplines. The point we are trying to make,
however, is that we should not compromise the integrity of research methodology
because of the urgent need to publish.

Publish in Top Journals. The Medium is the message. Therefore, it is very important
for an emerging discipline’s researchers to publish in first-tier journals of the main
discipline. These journals provide source credibility and legitimacy. Unfortunately, it
is also not easy to get published in first-tier journals, especially if the emerging
discipline is part of a paradigm shift. Resistance to changing or challenging a
discipline’s law-like generalizations is pervasive, and it takes strong editorial
leadership or a revolt by a journal’s readership to encourage innovation. However,
there are two alternatives to publishing in mainstream first-tier journals. The first is to
create a new journal devoted to the emerging discipline, but the success of this
strategy depends to a large extent on the new journal gaining the same academic
reputation as the traditional journals in the discipline. This is precisely what happened
in consumer behavior with the successful creation of the Journal of Consumer
Research and, more recently, with Marketing Science for modeling scholars.

The second alternative is to publish a seminal book on the topic. Indeed, there are
numerous examples of this in all disciplines. Books and monographs have often made
greater impacts on disciplines than the journals probably because of their wider reach
and distribution. Most journals have very limited circulation when compared to
books. That is what happened with the publication of Howard and Sheth’s The Theory
of Buyer Behavior (1969) and with Michael Porter’s Competitive Strategy (1980).
More recently, even such popular professional books on management as In Search
of Excellence (Peters & Waterman, 1982) and Reengineering the Corporation
(Hammer & Champy, 1993) have had a significant impact on business disciplines.
Encourage Respected Scholars. We must learn from the consumer behavior discipline
in marketing as well as from finance and accounting disciplines about this reality.
Finance became even more respectable when well-trained and well-known
economists got interested in finance. Similarly, rural sociology became more
respectable when top sociologists began to focus on that area, which led to seminal
theories such as the diffusion of innovation. Similarly, both behavioral concepts and
psychometric methodology enhanced accounting making it a discipline and not just
a double-entry system of practice. In addition, consumer behavior became
respectable when psychologists, modelers, and economists began to focus their time
and talent on the issue. CRM and relationship marketing need a similar infusion of
respected marketing scholars, especially those who can add conceptual and
methodological rigor to the domain. Since CRM and relationship marketing are very
popular, at least in practice, we believe that it is likely to attract respected scholars.

Develop Explanatory Theory. No domain has ever become a discipline without some
explanatory theory, or at least the development of some constructs. Fortunately,
relationship marketing and CRM have had a good start in this direction. A number of
constructs including trust, commitment, and long-term orientation have emerged as
the building blocks of a theory. Also, even if we cannot develop a theory, it is
important that we develop at least some law-like generalizations comparable to
product life cycle, diffusion of innovation, and PIMS research. However, no matter
what we do, it is important that we make sure that the constructs and the law-like
generalizations are unique and distinct to CRM and relationship marketing. In this
regard, trust and commitment may not be unique because even for a one-time
transaction, such as buying a home, there must be a minimum level of trust and
commitment between the seller and the buyer. On the other hand, the concept of
collaboration is unique because it is not characteristic of other types of marketing

Fortunately, it should be possible to develop a theory of customer relationship

management and relationship marketing because of the richness and universality of
relationships as a phenomenon. We already have a number of theories (social
contract, agency, and transaction cost theories) from other respected disciplines. Also,
there is a growing and interesting body of knowledge on cooperation, collaboration,
and co-opetition that have direct application to CRM and relationship marketing.


The success of any strategy is determined by the success with which it is
implemented. This is also true in the case of CRM strategies. Implementing CRM
require that the organisation and the associated business processes be in place in order
to facilitate its success.The risk in implementing any CRM strategy is that the
organisation is not ready to do so and relying on technology to implement the
The role of customer service in CRM strategy

In order to implement a CRM strategy, a key dimension is the question of customer

service and the way in which it is perceived by the recipient of the service. Customer
service can be defined as a task, other than pro-active selling, that involves
interactions with the customers in person, by telecommunication, or by mail. It is
designed, performed and communicated with two goals in mind: operational
efficiency and customer satisfaction. The quality of customer service is determined
and evaluated by the customer, and this affects the desirability of a relationship with
the organisation. Customer service creates the moments of truth with the customer,
and these service encounters need to be managed by the organisation. Service
encounters and CRM are thus associated.

The steps in the implementation of CRM strategy

Successful implementation requires specific actions on the part of the organisation.

The implementation of a CRM strategy comprises four steps, namely the
identification of customers, the differentiation of service, interaction with customers
and the differentiation among customers.

Step 1: The identification of customers

The identification of customers enables the organisations to select those customers

that they regard as being strategically significant and who they believe can contribute
to the success of the organisation. These customers have unique needs and due to their
value to the organisation, will have products developed to meet these needs. It must
be possible to identify these customers and so obtain as much detail as possible. This
involves collecting as much data as possible in order to obtain as clear a picture as
possible of the customer and their profile. This may require the development of a
database or the continued maintenance of a database in order to ensure that the data
stays as recent as possible. Having this information enables the organisation to
determine those customers that have been with the organisation for a long period and
those that have recently started using the products and services of the organisation.
The hypothesis regarding this aspect is formulated as follows:
H1: Identifying new and existing clients increases the level of customer service.

Step 2: The differentiation of service

The differentiation of service implies that different customers receive a different level
of service and a different product from the organisation, depending on the value to the
organisation and their specific needs. This requires the organisation to identify the top
(or most significant) customers and adapt service accordingly. Identification of these
top customers takes place using sales figures or by calculating the CLV associated
with each customer. As the organisation is aware of the value of their customers,
service levels can be adjusted accordingly. The hypothesis regarding this aspect is
formulated as follows:
H2: Differentiating between the services offered to new and existing clients increases
the level of customer service.
Step 3: Interaction with customers

This step refers to the importance of interacting with the customer in relationship
building efforts through a variety of communication tools and technologies. This is
necessary as the relationship can only develop and be sustained if there is
communication with the customers regarding their needs, perceptions and desires.
This involves developing methods of communication proactively with customers
regarding the organisation’s products and attempting to initiate dialogue with
customers. Use can be made of technology, but this is not essential. The customers
with whom communication takes place are not necessarily all the customers, but only
those that the organisation regards as being strategically significant. This interaction
with the organisation increases the expectations of the customers regarding the service
received as well as the quality of the relationship. The hypothesis regarding this
aspect is formulated as follows:
H3: The level of customer service is increased if there is an active interaction with
potential and existing clients.

Step 4: Customisation of products, services and communication

Customisation is carried out by the organisation in order to ensure that customer

needs are met. It requires that the organisation adapts its product, service or
communication in such as way have something unique for each customer.
Communication can be customised to address the specific needs and profile the
customer, and organisation also makes use of personalisation as part of this process.
Products can be customised as to the specific desires that the customer has of the
organisation. In the case of the financial services, it refers to the product package that
is offered to the customer. The purpose of customisation is to increase customer
satisfaction, and the loyalty that is exhibited by customers. The hypothesis regarding
this aspect is formulated as follows:
H4: The level of customer service is increased if customised service is offered
according to each individual client’s needs.


Research objectives
The survey was conducted among clients in a leading retail bank in South Africa. The
primary research objective was to determine how the implementing of a CRM
programme could optimise the relationship between a leading bank and its clients, and
thereby to gain competitive advantage in the marketplace. Hypotheses linked to each
step was formulated.

The research instrument

The research instrument used was developed by the researcher and measured both the
expectations and perceptions of the customers of the bank’s actions. Statements were
developed to reflect the steps in the CRM model, and hypotheses were formulated to
reflect the associations between these steps and the customer service offered by the
institution. The instrument was pre-tested whereafter a number of changes were made
to the original questionnaire. The main body of the questionnaire included 35 positive
individual statements reflecting customer service, identification, differentiation,
interaction and customisation. Use was made of a five-point Likert scale. Structured
questionnaires, with 35 statements, to measure the respondents’ perceptions and
expectations, were sent out to 52 branches and to the call centre. A total of 950
questionnaires were distributed among the branches, and 50 questionnaires were
distributed to the call centre. The respondents were selected randomly and personal
face-to-face interviews were conducted.

Statistical analysis
The statistical treatment of the study included the determination of the association
between the steps in the CRM model and the customer service offered by the
organisation. Use was made of Pearson’s coefficient to determine the level of
association between the steps in the implementation process as discussed earlier and
customer service. The level of association as measured by Pearson’s co-efficient falls
between -1.0 and +1.0, which indicates the strength and direction of association
between the two variables. The Rules of Thumb proposed by Burns & Bush suggests
that “moderate” ends at ±0.60, and “strong” starts at ± 0.61.
It is also necessary to determine a score (p-value) to evaluate the probability that the
correlation (r) falls within a desired significance level. The lower the p-value, the
stronger the evidence against the null hypothesis, hence the acceptance of the
alternative hypothesis.


Discussion of the specific findings

H1: Identifying new and existing clients increases the level of customer service.
Statistical null hypothesis: Ho: r = 0
Statistical alternative hypothesis: Ha: r ≠ 0
Variable one (independent variable)
Variable two (dependent variable)
Pearson value (r) p-value
Identification Customer service 0.5792 0.00
With a Pearson value (r) of 0.5792, the correlation is moderately positive as the r
value of 0.5792 is less than 0.6. The association between the identification of new and
existing clients and customer service is statistically significant because of the p-value
of 0.00, indicating the acceptance of the alternative hypothesis. The strength of this
association is seen in the p-value of 0.00 obtained and depicted above.
H2: Differentiating between the services offered to new and existing clients increases
the level of customer service.
Statistical null hypothesis: Ho: r = 0
Statistical alternative hypothesis: Ha: r ≠ 0

Variable one (independent variable)
Variable two (dependent variable)
Pearson value (r) p-value
Differentiation Customer service 0.5952 0.00
With a Pearson value (r) of 0.5952, the correlation is moderately positive as the r
value of 0.5952 is less than 0.6. The association between differentiation and customer
service is statistically significant because of the p-value of 0.00, resulting in the
acceptance of the alternative hypothesis. The strength of this association is seen in the
p-value of 0.00 obtained and depicted above.
H3: The level of customer service is increased if there is an active interaction with
potential and existing clients.
Statistical null hypothesis: Ho: r = 0
Statistical alternative hypothesis: Ha: r ≠ 0

Variable one (independent variable)
Variable two (dependent variable)
Pearson value (r) p-value
Interaction Customer service 0.598 0.00
With a Pearson value (r) of 0.598, the correlation is moderately positive as the r value
of 0.598 is less than 0.6. The association between interaction and customer service is
statistically significant because of the pvalue of 0.00, resulting in the acceptance of
the alternative hypothesis. This association is also a strong one due to the p-value of
0.00 obtained and depicted above.
H4: The level of customer service is increased if customised service is offered
according to each individual client’s needs.
Statistical null hypothesis: Ho: r = 0
Statistical alternative hypothesis: Ha: r ≠ 0

Variable one (independent variable)
Variable two (dependent variable) Pearson value (r) p-value
Customised service Customer service 0.5912 0.00
With a Pearson value (r) of 0.5912, the correlation is moderately positive as the r
value of 0.5912 is less than 0.6. The association between customised service and
customer service is statistically significant because of the p-value of 0.00, resulting in
the acceptance of the alternative hypothesis. This also shows a positive relationship
between these two factors, and the strength of the relationship is seen in the p-value

The managerial implications of these findings include a commitment to the

implementation of CRM within the organisation as well as a commitment to the
provision of excellent customer service in order to affect the relationship building and
the implementation of CRM. This places great emphasis on improving the customer
service of personnel in order to ensure that the objectives of the CRM strategy are
Specific actions that can be considered by management include:
• Customer service levels are critical in establishing and developing relationships.
Management need to examine existing processes and methods in which service is
offered, and where necessary make changes which can improve the service for
• Training with respect to customer service and improvement in the service levels
offered by staff. This is a key area in the development of long term customer
• In any implementation, it is necessary to identify, differentiate and then interact
customers in order to provide customised service. This requires that management have
the ability to identify customers who are important to the organisation and then be
able to ensure that their needs are different. This will enable them to communicate
more appropriately with the customer.
• Continuous interaction with the customers are necessary in order continue with
relationship building activities over the long term. This may require new methods and
techniques in communication such as the use of email, SMS and other technological
communication devises.

Workflow of CRM

A simplified CRM workflow is as follows.

1. Collecting Customer Data and Information
Acquisition of customers and basic data including name, address, gender, age, etc, is
fundamental, but transaction data such as date, time, item, value, etc. at every “touch
point,” a point of interaction when the company communicates with a customer, or
vice versa, are also essential. Information is often needed to complement these data.
It is “a knowledge that comes from asking questions to customers such as why and

2. Analyzing Data to Predict Customer Behavior

Marketers use these data and information so that they can record the interests and
preferences of customers. Furthermore, they attempt to ascertain purchasing patterns
on the basis of transaction records. “Using sophisticated modeling and data mining
techniques, behavior prediction uses historical customer behavior to foresee future
behaviors.” Understanding the tendency that a certain type of customer is apt to
purchase a specific product (“propensity-to-buy analysis”) and that certain products
are often bought with other specific products by a particular type of customer
(“product affinity analysis”) has a beneficial effect on making marketing decisions.

3. Marketing Campaigns: Applying the Results of Analysis

Companies conduct marketing campaigns that are designed on the basis of the results
of analysis or on hypotheses. They promote their products through various channels,
such as e-mail, the Internet, telemarketing, or direct mail. They also contact their
customers for follow-up after purchase. And, of course, they have to monitor the
results of that campaign in order to refine future campaigns. With CRM software,
they can, for the most part, automate these processes.

4. Measuring Results, Revising Hypotheses, and Repeating This Workflow Process

To improve their results, companies need to evaluate the effects of their marketing
campaigns. They should measure whether and how a given campaign achieves its
original goal and revise their hypotheses according to the results. After that, they
should repeat the workflow process, thereby making gradual progress.

Why Has CRM Failed?

Numerous consultants and critics have expressed various opinions as to why so many
CRM projects have failed. Darrell K. Rigby and his co-workers at Bain & Company,
for example, have cited “the Four Perils of CRM.”

Peril 1: Implementing CRM Before Creating a Customer Strategy

Many executives mistakenly believe that implementing CRM software is equivalent
to creating a marketing strategy. But in fact, CRM software is just an enabler to move
their strategy into action. Before implementing CRM software, therefore, a company
should formulate its strategy and clarify the purpose for this strategy. In other words,
a traditional and well-thought-out marketing strategy concept is necessary.

Peril 2: Rolling Out CRM Before Changing the Organization to Match

After establishing the goals of its strategy, the company should revamp its
organization and/or business processes accordingly. This includes not only external
operations with customers but internal systems, such as job descriptions, performance
measures, compensation systems, training courses, etc. If such reforms are
implemented, employees will be able to recognize the nature and benefits of the new

Peril 3: Assuming That More CRM Technology Is Better

Many executives also mistakenly believe that CRM is a technology-intensive product
and are apt to put emphasis on new functions of CRM software. “CRM can be
managed in many ways,” however, “and the objectives of CRM can be fulfilled
without huge investments in technology simply by, say, motivating employees to be
more aware of customer needs.”When a company begins to use packaged CRM
software, it is very important for them to narrow down the specifications of the
software in order to minimize the burden on its users and to suppress bugs. If a
company concentrates excessively on new functions, this will cause false of
integration of CRM software and existing system. This is a costly pitfall.

Peril 4: Stalking, Not Wooing, Customers

With the aid of CRM software, marketing managers can more easily analyze great
quantities of customer data than before; thus, they are apt to contact their customers
without careful consideration. But the point is that they should establish contact only
with individuals who have a real interest in their company and/or products. When
they approach the wrong people, they can be perceived as stalkers and lose potential
And Much More...
Other than the four perils described above, there are other issues to take into
consideration. At the introductory stage of CRM, regular communication is of
considerable importance to entire company. Doug Tanoury, president of Customer
Interaction Consulting, indicated that it “should be delivered throughout the company
highlighting ‘where we are’ in the project, sharing milestones and informing staff
what happens next.” Generally speaking, the cost of implementing CRM is quite high.
Today, large businesses can spend between $30 and $90 million over a three-year
period on software, technology, labor, consulting services, and employee training
related to CRM initiatives.
Implementing CRM is such a major project that most executives are apt to think that
CRM is a software tool that will manage customer relationships by itself. But this is a
big mistake. As Rigby pointed out: “CRM is the bundling of customer strategy and
processes, supported by the relevant software, for the purpose of improving customer
loyalty and, eventually, corporate profitability.”
In recent years, there have been some companies that have been successful in
implementing CRM software. Common among such firms is that “they’ve all taken a
pragmatic, disciplined approach to CRM, launching highly focused projects that are
relatively narrow in their scope and modest in their goals.”
They only introduced CRM into the critical process or fatal flaw in their companies’
competitiveness. This method is so effective that it will become a common strategy in
the future.

Privacy Concerns
The recognition of privacy has increased in today’s society, and companies should
handle personal information with extreme care. “Adequately addressing privacy
concerns will be a top business priority,” Scott Nelson, vice president and research
area director for Gartner, has said, continuing that: “This is going to require
rethinking of how information is gathered, how customers can access and control that
data and how enterprises can safeguard it from parties that might want it but
shouldn’t have it.”
Although personalization and customization are the key features of CRM, companies
need to balance these attributes with privacy.
On November 8, 2004 the Wall Street Journal gave an account of the new customer
approach of Best Buy Co., Inc., the top company in the United States in the
consumer-electronics retail industry. This account said that it “estimates that as many
as 100 million of its customer visits each year are undesirable,” and Brad Anderson,
CEO of the company “wants to be rid of these customers.”These figures were true
and derived from actual data; nevertheless the company should have given careful
consideration to the effect of these kinds of sentiments being disclosed in public. The
week after this article appeared, the Wall Street Journal published letters from angry
consumers, and Dell, one of the Best Buy’s main competitors, ran an advertisement in
The New York Times, which said “At Dell, We Love All Customers. Even the Ones
Best Buy Doesn’t.”In this case, Best Buy did not infringe on the law, but they
certainly made privacy advocates nervous.
In Japan, CRM has gradually become accepted, and software has been sold mainly to
large companies. As of now, the market size for CRM in Japan is still small, only
about 1/20 as large as in the United States. But, in 2006, Microsoft entered the
market, aiming at small and medium-sized companies.Thus, the market will be
expanding before too long. Total revenues have already increased dramatically and
are expected to continue to do so for the foreseeable future.

The domain of customer relationship management extends into many areas of
marketing and strategic decisions. Its recent prominence is facilitated by the
convergence of several other paradigms of marketing and by corporate initiatives that
have developed around the theme of cooperation and the collaboration of
organizational units and their stakeholders, including customers. CRM refers to a
conceptually broad phenomenon of business activity, and if the phenomenon of
cooperation and collaboration with customers becomes the dominant paradigm of
marketing practice and research, CRM has the potential to emerge as the predominant
perspective of marketing. From the corporate implementation point of view, CRM
should not be misunderstood to simply mean a software solution implementation
project. Building relationships with customers is a fundamental business of every
enterprise, and it requires a holistic strategy and process to make it successful.
From an academic standpoint an important question is whether CRM or relationship
marketing will become a well-respected, freestanding, and distinct discipline in
marketing. Our belief is that it certainly has the potential, and we wish that it would
happen because marketing will benefit enormously from it. The lessons learned from
previous efforts, both successful and unsuccessful, of various marketing domains that
have tried to become disciplines provide a good road map of how to develop CRM
and relationship marketing into a distinct discipline. As an intervention strategy, it
would be highly desirable for relationship marketing and CRM scholars to organize
their own association and their own scholarly journal.

The issue of CRM and customer service are vital in the developing environment as
customer expectations increase. This is especially the case in developing countries
where changes in customer expectations are linked to increasing educational standards
and literacy. This study has indicated that the implementation of a one-to-one
marketing of financial services in emerging markets do not differ from the way in
which it would be implemented among customers in other economies. This requires
organisation in developing environments to pay attention to the issues of customer
needs and differentiation in order to building long term customer relationships.
Limitations of the study include the fact that this was an exploratory study that has
been conducted within the South African context, and specifically the financial
services sector. The degree to which the finding can be generalised is also limited in
scope. Further, the question of the existence of the halo effect in the findings can be
raised. The halo effect refers to the bias that is introduced by carrying over a general
impression from one area to another. This means that the responses received in one
area relating to customer service are carried over into other areas in investigation.
It is however proposed that future research could be conducted to determine whether
these findings are consistent with other financial institutions in South Africa and
whether similar findings would be obtained in another industry, such as the insurance

Is CRM a Panacea?
All companies putting CRM to practical use? The answer is “No.” In fact, there is one
exceptional case for implementing CRM. The essential qualification for
implementing CRM is a high “frequency of customers’ purchases.” Without frequent
interaction, it is difficult for company to maintain a dialogue with its customers in
order to persuade them to buy more of its products. For instance, a construction
company that builds large bridges that have useful lives of 100 years or more does not
need to implement CRM.

Company Strategy and Organization

It is important to adopt CRM that is appropriate to a company’s strategy and

organization. According to the business consultants Michael Treacy and Fred
Wiersema, there are “three value disciplines, to the desirable ways in which
companies can combine operating models and value propositions to be the best in
their market.” The first is “Operational Excellence,” which means “providing
customers with reliable products or services at competitive prices, delivered with
minimal difficulty or inconvenience.”The second is “Product Leadership,” which
means “providing products that continually redefine the state of the art.” And the
third is “Customer Intimacy,” which means not delivering “what the market wants,
but what a specific customer wants.” Companies with these qualities should cultivate
relationships with their customers, and they will be optimal candidates for
implementing CRM. Even if a company chooses “Operational Excellence” or
“Product Leadership,” it should maintain threshold standards on other dimensions of
value. That is to say, these companies can also take advantage of CRM.

Closing Remarks

CRM is not a system, but a philosophy. If it is utilized it with care and attention, it
will have a positive effect on a number of organizations.