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Customer relationship management: Its dimensions and effect on customer

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DOI: 10.1080/08853134.2004.10749037

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 CUSTOMER RELATIONSHIP MANAGEMENT: ITS DIMENSIONS AND
EFFECT ON CUSTOMER OUTCOMES
Frederick Hong-kit Yim, Rolph E. Anderson, and Srinivasan Swaminathan

Despite the rapidly growing customer relationship management (CRM) literature, the dimensions of CRM and their
effects on customer outcomes remain equivocal. In this research, we first identify the requisite activities for effective CRM
implementation. We then investigate their effect on customer satisfaction, customer retention, and sales growth. Results
indicate that managers need to think beyond the technological components of CRM and focus on four key CRM dimen-
sions to significantly enhance customer loyalty and sales growth. In our analysis and discussion, we examine the expand-
ing role of salespeople in successful CRM implementation and outcomes.

Customer relationship management (CRM) has been called
an inevitable—literally relentless—movement because it rep-
resents the way customers want to be served, and offers a
more effective and efficient way of conducting business (Pep-
pers and Rogers 2004, p. 6). Underpinning the paradigm of
CRM is the basic belief that customer relationships, like other
important assets in an organization, can be effectively devel-
oped and managed. By better customizing of product and
service offerings for individual customers (Stefanou,
Sarmaniotis, and Stafyla 2003), customer retention
(Parasuraman and Grewal 2000; Srinivasan, Anderson, and
Ponnavolu 2002), and profitability (Oliver 1999; Ryals and
Knox 2001; Sheth and Sisodia 2001) can be increased.
Interest in CRM is gaining momentum among academi-
cians and businesspeople (e.g., Gruen, Summers, and Acito
2000; Rigby and Ledingham 2004; Srivastava, Shervani, and
Fahey 1999; Thomas, Blattberg, and Fox 2004), and progres-
sive companies, such as IBM and Boise Cascade, are placing
greater priority on their CRM investments (Kennedy 2004).
According to a survey of nearly 1,000 chief information offic-
ers (CIOs) conducted by Gartner Executive Programs (EXP),
two in three CIOs consider CRM efforts to be a high priority
Frederick Hong-kit Yim (Doctoral Student), LeBow College of Busi-
ness, Department of Marketing, Drexel University,
hong.kit.yim@drexel.edu.
Rolph E. Anderson (Ph.D., University of Florida), Royal H. Gibson,
Sr. Professor of Marketing, LeBow College of Business, Department
of Marketing, Drexel University, rolph.e.anderson@drexel.edu.
Srinivasan Swaminathan (Ph.D., University of Texas at Austin),
Associate Professor of Marketing, LeBow College of Business, De-
partment of Marketing, Drexel University, srinivasan.swaminathan@
drexel.edu.
The authors are indebted to three anonymous JPSSM reviewers and
to the editors for their very helpful comments and suggestions.
(Compton 2004). Moreover, according to Gartner, the CRM
software market is expected to produce at least a 5 percent
compound annual growth rate through the next several years
(Kumar et al. 2003). CRM solutions are deemed to be so criti-
cal that investments in them continue to be funded despite
shriveling information technology (IT) budgets (Brohman et
al. 2003). To achieve superior performance, a growing num-
ber of companies are developing elaborate CRM systems and
making creative use of sales force automation (SFA), data ware-
housing, data mining, push technology, and other query tools
to better understand and serve customers (Speier and Venkatesh
2002). CRM programs are helping sales managers identify
and target their most valuable customers as pressures mount
to make more effective and efficient allocation of resources to
achieve company goals (Dorsch et al. 2001).
Many salespeople are leveraging the use of CRM (Widmier,
Jackson, and Mccabe 2002) in enhancing their relationships
with customers to improve sales forecasting, lead management,
bid and quote management, and personalization (Rigby and
Ledingham 2004). Operating at the frontier of the customer-
organization interface, salespeople are essential in providing
added value for customers (Beverland 2001) while creatively
managing the buyer–seller relationship (Reynolds and Arnold
2000). With their empowerment via telecommunications tech-
nology, many salespeople have become more like “relationship
managers” (Crosby, Evans, and Cowles 1990), “procreators”
(Wotruba 1991), or “directors of customer relations” (Thorelli
1986), implementing CRM at the customer level (Guenzi
2002; Periatt, LeMay, and Chakrabarty 2004). Salespeople
generally have the greatest influence in reducing customer de-
fection (Johnson, Barksdale, and Boles 2001), and their suc-
cess vis-à-vis customers largely determines the effectiveness of
CRM implementations. Since there are often discrepancies or
even disconnects between marketing strategies and their tacti-
cal implementation in sales activities (Strahle, Spiro, and Acito
1996), it is paramount for salespeople to thoroughly understand

Journal of Personal Selling & Sales Management, vol. XXIV, no. 4 (fall 2004), pp. 265–280.
© 2005 PSE National Educational Foundation. All rights reserved.
ISSN 0885-3134 / 2005 $9.50 + 0.00.
266 Journal of Personal Selling & Sales Management
what CRM is, how CRM can facilitate negotiations with cus-
tomers, and how CRM expands the role of salespeople as “re-
lationship managers.”
Although claims about the favorable effects of CRM on
business performance are commonly espoused in the CRM
literature (e.g., Crosby and Johnson 2001; Gruen, Summers,
and Acito 2000; Kennedy 2004), actual results in the busi-
ness world remain controversial with respect to the benefit–
cost trade-offs (e.g., Payant 2004; Rigby, Reichheld, and
Schefter 2002). Widespread application of CRM programs
has not led to substantially higher customer retention rates
(Thomas, Blattberg, and Fox 2004). Too often, company in-
vestments in CRM projects are made in an uncoordinated
manner (Jeffery and Leliveld 2004). Unrealized expectations
for CRM implementations, however, are not causing many
firms to terminate their CRM efforts. Instead, executives are
endeavoring to learn from their mistakes and refine their CRM
activities and objectives (Sheth 2002).
Review of the CRM literature reveals that ambiguous re-
sults often may be attributed to disagreement and confusion
regarding the exact domain of CRM (Rigby, Reichheld, and
Schefter 2002). In other words, there is no consensus on what
constitutes CRM. Asking ten experts, whether academicians
or businesspeople, to define CRM, one is likely to receive ten
quite different descriptions (Kopf 2000). Some view CRM
largely as a technology-focused database management ap-
proach to gathering and analyzing information about cus-
tomers in order to more fully satisfy them (Krauss 2002).
Others think of CRM in terms of initiatives such as call cen-
ters, loyalty programs, Web sites, or personalized e-mails to
implement one-to-one marketing. Broader perspectives tend
to see CRM as an overall mix of marketing strategy, organiza-
tional structure and processes, and technology—all centered
around customer data that enables executives to better man-
age their companies (Hair, Bush, and Ortinau 2003). Con-
fronted with uncertainty as to the precise meaning and domain
of CRM, some executives seem conflicted and unsure about
how to properly implement CRM in their organizations
(Myron and Ganeshram 2002). Later, after heavy investment
of resources, they may be disappointed, or even embarrassed,
by unimpressive results in improving customer relationships
(James 2002).
CRM, as an emerging discipline, urgently cries out for
theoretical assistance (Gummesson 2002a) if it is to be prop-
erly embedded within organizational strategy (Langerak and
Verhoef 2003). Some even argue that, without prompt con-
ceptual and measurement attention, CRM could be largely
abandoned and perhaps experience a premature death
(Fournier, Dobscha, and Mick 1998). CRM, like most ini-
tiatives that are poorly understood, improperly applied, and
incorrectly measured and managed, may suffer and struggle
to survive (Peppers and Rogers 2004, p. 7). Yet, despite its
problems to date, CRM offers great potential for improving
long-term customer relationships and enhancing profitabil-
ity (Rigby and Ledingham 2004; Zikmund, McLeod, and
Gilbert 2003). Thus, the present research was undertaken
specifically (1) to provide more conceptual clarity to the do-
main of CRM, and (2) to investigate the effect of CRM imple-
mentation on important business performance metrics such
as customer satisfaction, customer retention, and sales growth.
THEORETICAL BACKGROUND
The essence of CRM thinking originates from three concepts
in marketing management: (1) customer orientation, (2) re-
lationship marketing, and (3) database marketing. With the
advancement of information and communication technol-
ogy (ICT), these three marketing tenets have come together
in the paradigm of CRM (Langerak and Verhoef 2003). As
customers became more difficult to reach with mass advertis-
ing, CRM emerged to more accurately target customer seg-
ments on a one-to-one basis. But, exactly what is CRM? At
present, in the universe of marketing management, multiple
definitions abound. For instance, Kotler and Armstrong de-
fine CRM as “the overall process of building and maintain-
ing profitable customer relationships by delivering superior
customer value and satisfaction” (2004, <<page>>). This defi-
nition seems to include the broad-based essence of marketing
wherein value and satisfaction are prominent. Zikmund,
McLeod, and Gilbert provide a more technology-oriented
perspective by defining CRM as “a business strategy that uses
information technology to provide an enterprise with a com-
prehensive, reliable, and integrated view of its customer base
so that all processes and customer interactions help maintain
and expand mutually beneficial relationships” (2003,
<<page>>). Numerous other definitions of CRM might be
cited—ranging from very narrow interpretations to very broad
ones—with no two being the same. Lack of consensus on the
meaning of CRM not only impedes academic discourse on
the subject, but also adds to business practitioner skepticism
and indecisiveness in establishing CRM systems.
In view of the wide variance among CRM definitions, Yim
(2002) attempts to provide more conceptual clarity of CRM
by synthesizing the relevant marketing, management, and IT
literature to identify four key areas necessary for successful
CRM implementation: (1) strategy, (2) people, (3) processes,
and (4) technology (Crosby and Johnson 2001; Fox and Stead
2001; Ryals and Knox 2001). Despite the fact that each of
these components, by itself, is relatively straightforward; it is
only when all four work in unison that a superior customer-
relationship capability is developed (Day 2003; Kotler and
Armstrong 2004, p. 60). Based on analyses of the CRM lit-
erature and in-depth interviews with experienced marketing
managers, CRM implementations usually involve four spe-

cific ongoing activities: (1) focusing on key customers
(Srivastava, Shervani, and Fahey 1999; Vandermerwe 2004),
(2) organizing around CRM (Homburg, Workman, and
Jensen 2000; Langerak and Verhoef 2003), (3) managing
knowledge (Stefanou, Sarmaniotis, and Stafyla 2003), and
(4) incorporating CRM-based technology (Bhaskar 2004;
Chen and Ching 2004).
The Four Dimensions of CRM Implementations
Focusing on Key Customers
A customer-focused structure, culture, policy, and reward sys-
tem should permeate any organization that strives to imple-
ment CRM successfully (Ryals and Knox 2001; Sheth, Sisodia,
and Sharma 2000). All interactions with key customers, who
are often identified by “lifetime value computations,” must
fully reflect this company-wide CRM focus (Jain and Singh
2002; Schmid and Weber 1998). The ultimate goal is to achieve
deep customer relationships through which the seller organi-
zation becomes indispensable to its most profitable custom-
ers (Vandermerwe 2004). Equipped with company-wide
understanding and internal support for key customer relation-
ships, the sales force generally is better enabled and motivated
to cultivate long-term customer relationships by offering more
personalized products and services (Armstrong and Kotler
2003, p. 514; Srinivasan, Anderson, and Ponnavolu 2002).
Organizing Around CRM
With a strong focus on key customers deeply embedded
throughout its CRM system, the entire company should be
organized around cultivating these valuable relationships. The
organizational structure needs to be flexible and, if necessary,
reconstructed to generate customer-centric values (Homburg,
Workman, and Jensen 2000) and improve coordination of
customer-focused, cross-functional teams (Brown 2000;
Homburg, Workman, and Jensen 2000; Sheth and Sisodia
2002). For CRM success, there also must be an organization-
wide commitment of resources. With concerted efforts by all
organizational functions to continuously provide a stream of
value-rich actions and customer outcomes (Ahmed and Rafiq
2003; GroÉnroos 1990), the company and its sales force are
assured that they can satisfy customers’ needs and enhance
customer relationships.
Managing Knowledge
Strongly related to knowledge management, successful CRM
is predicated on effectively transforming customer informa-
tion to customer knowledge (Freeland 2003; Peppard 2000;
Plessis and Boon 2004; Stefanou, Sarmaniotis, and Stafyla
2003; Stringfellow, Nie, and Bowen 2004). Specifically, to
Fall 2004 267
enhance customer profitability, information about custom-
ers should be gathered through interactions or touch points
across all functions or areas of the firm (Brohman et al. 2003),
so that a 360-degree customer view is established, maintained,
and continually updated (Fox and Stead 2001). Customer
knowledge thereby generated needs to be shared and dissemi-
nated throughout the organization (Peppard 2000; Ryals and
Knox 2001) to address customers’ current and anticipated
needs. Salespeople are then equipped with a wealth of valu-
able customer knowledge to meticulously adjust marketing
offers to fit the idiosyncratic needs of each customer (Arm-
strong and Kotler 2003, p. 514).
Incorporating CRM-Based Technology
Many CRM-oriented activities, such as knowledge manage-
ment, cannot be optimized without leveraging the latest tech-
nology. Indeed, most CRM applications take great advantage
of technology innovations with their ability to collect and
analyze data on customer patterns, develop prediction mod-
els, respond with timely and effective customized communi-
cations, and efficiently deliver personalized value offerings to
individual customers (Peppard 2000; Vrechopoulos 2004).
With the development of sophisticated information manage-
ment tools, such as database marketing, data warehousing,
data mining, and push technology, companies are striving to
seamlessly incorporate the latest technology into their CRM
systems. In particular, salespeople frequently depend on con-
tinually updated software programs to better respond to their
customers and build enduring customer relationships (Kotler
2004, p. 141). CRM technology helps companies and their
salespeople collect, analyze, and distribute information for
enhanced prospecting, improved communication and sales
presentations, and tailored product configurations. It also fa-
cilitates cross-referencing of customers within divisions of a
company for greater sales opportunities (Widmier, Jackson,
and Mccabe 2002). Among the major outcomes sought by
incorporating CRM-based technology are enhanced customer
satisfaction, higher customer retention, and more profitable
long-term customer relationships (Butler 2000).
In summary, successful CRM implementations depend on
combining the four aforementioned dimensions—focusing on
key customers, organizing around CRM, managing knowledge,
and incorporating CRM-based technology—into an effective over-
all CRM strategy. Deficiencies in any of these areas can render
the firm’s CRM endeavors attenuated or even ineffectual.
HYPOTHESIS DEVELOPMENT
Having provided more conceptual clarity to the CRM do-
main by exploring the critical aspects of successful CRM
implementation, we now turn our attention to the desired
268 Journal of Personal Selling & Sales Management
consequences of adopting a CRM orientation within the or-
ganization—customer satisfaction, customer retention, and
sales growth.
Customer Satisfaction
Customer satisfaction is a vital CRM variable that must not
evade our empirical scrutiny. Indeed, customer satisfaction is
central to successful application of the marketing concept.
Many company mission statements and marketing plans are
designed around the goal of increasing customer satisfaction
(Fournier and Mick 1999). Customer satisfaction can be de-
fined as “the extent to which a product’s perceived perfor-
mance in delivering value matches a buyer’s expectations”
(Armstrong and Kotler 2003, p. 10).
In implementing CRM, a firm seeks to establish and main-
tain a long-term relationship with customers based on cumula-
tive full customer satisfaction as opposed to transaction-specific
customer satisfaction (Garbarino and Johnson 1999; Reinartz
and Kumar 2002). More specifically, successful CRM imple-
mentation requires a dedicated company-wide focus on key
customers in one-to-one marketing efforts to fully understand
and satisfy their needs and wants on an ongoing basis (Sheth,
Sisodia, and Sharma 2000). The seller’s entire organizational
structure should be centered around customers, often with cus-
tomer-focused teams (Sheth and Sisodia 2002) designed to cre-
ate fully satisfying customer experiences (Ahmed and Rafiq
2003). By making creative use of the customer knowledge ac-
quired and by leveraging CRM-based technology, an organiza-
tion can provide customized offerings to its valued customers,
which should boost customer satisfaction (Anderson and
Srinivasan 2003; Johnson and Selnes 2004). Successful CRM
activities must cultivate customer satisfaction (e.g., Stefanou,
Sarmaniotis, and Stafyla 2003) by continuously adapting to
the evolving needs and wants of customers (Stringfellow, Nie,
and Bowen 2004). From this perspective, the following rela-
tionships are hypothesized:
H1a: There is a positive relationship between “focusing on
key customers” and customer satisfaction.
H1b: There is a positive relationship between “organizing
around CRM” and customer satisfaction.
H1c: There is a positive relationship between “managing
knowledge” and customer satisfaction.
H1d: There is a positive relationship between “incorporat-
ing CRM-based technology” and customer satisfaction.
Customer Retention
One of the primary goals of CRM is customer retention or
customer loyalty (Anderson and Srinivasan 2003; Aspinall,
Nancarrow, and Stone 2001; Verhoef 2003). Continuous ad-
vances in IT are enabling organizations to more efficiently
and effectively direct their CRM efforts at retaining custom-
ers (Butler 2000). Making skillful use of customer knowledge
gathered over a series of interactions or touch points and ap-
plying CRM-based technology, companies can more effec-
tively respond to the changing needs of customers with
customized offerings. This personalization of products and
services serves to further lock customers into long-term rela-
tionships by adding to customer switching costs (Burnham,
Frels, and Mahajan 2003; Vandermerew 2004). Furthermore,
by organizing their CRM operations around customer groups,
companies can assign direct accountability, keep abreast of
changing customer expectations for different segments, and
obtain early warnings from customers who may be on the
verge of leaving. With this CRM knowledge network, timely
remedial actions can be taken to address the specific problems
or expectations of discontent customers, thereby increasing
the retention rate. Providing monetary and recognition in-
centives to motivate a CRM-orientation can help keep sales-
people focused on customer satisfaction and customer loyalty
(Johnson 2004). All in all, a variety of CRM activities can
work together to enhance customer retention (Pfeifer and Farris
2004). Thus, the following relationships are hypothesized:
H2a: There is a positive relationship between “focusing on
key customers” and customer retention.
H2b: There is a positive relationship between “organizing
around CRM” and customer retention.
H2c: There is a positive relationship between “managing
knowledge” and customer retention.
H2d: There is a positive relationship between “incorporat-
ing CRM-based technology” and customer retention.
In several models of customer retention, satisfaction has
been explored as a key determinant in customers’ decisions to
continue or terminate a business relationship (e.g., Bolton
1998; Rust, Zahorik, and Keiningham 1995). In fact,
Reichheld (1996) finds that satisfaction measures account for
up to 40 percent of the variance in models of customer reten-
tion. High levels of customer satisfaction generally are con-
sidered essential to customer retention. Kotler expresses it
succinctly: “The higher the customer satisfaction, the higher
the retention” (2003, p. 41). We, therefore, put forth the fol-
lowing hypothesis:
H3: There is a positive relationship between customer sat-
isfaction and customer retention.
Sales Growth
According to Reichheld and Sasser (1990, p. 110), reducing
customer defections by 5 percent can boost profits by 25 per-
cent to 85 percent. This impressive finding has been advo-
 Fall 2004 269

cated as a strong justification for increased investments in Figure 1

CRM systems (Pfeifer and Farris 2004). Recently, Gupta and Conceptual Model for the Effects of CRM
Lehmann (2003) estimate a less dramatic increase of 22 per- Performance Dimensions on Customer Satisfaction,
cent to 37 percent in customer lifetime value or revenue, for Customer Retention, and Sales Growth
a 5 percent increase in customer retention. Although the pre-
cise numbers may vary, empirical findings consistently show
a substantial jump in revenue and profits with a small gain in
customer retention (Oliver 1999; Pfeifer and Farris 2004).
Thus, we hypothesize the following relationship:
H4: There is a positive relationship between customer re-
tention and sales growth.
The model we empirically tested is presented in Figure 1.

METHODOLOGY

Sample and Data Collection Procedure

To empirically test the model proposed in Figure 1, we col-
lected survey data on the four dimensions of CRM and com-
pany performance. The study sample consisted of 1,223 service
firms selected on a random probability basis from the Busi-
ness Directory of Hong Kong. Included in the sample frame
were banks, investment companies, insurance companies, and
other firms characterized by a high degree of relationship ori-
entation, and thus well suited for testing our CRM frame-
work. Questionnaires were sent directly to general managers
or similarly level senior managers at each of the companies
selected for the study. These senior-level respondents were
highly knowledgeable about CRM implementation and prac-
tice within their companies as indicated by their ability to
answer fully virtually all questions.
A total of 215 returned surveys were complete and usable,
for a response rate of 17.6 percent. Although this response
rate is not unusual in the literature, it might have been lower
than desired due to the high level of management being sur-
veyed. To test for nonresponse bias, responses from early re-
spondents were compared to those from late respondents on
a number of variables (Armstrong and Overton 1977). No
significant differences were found.
Measurements
Dimensions of CRM
Scale items for the four dimensions of CRM were developed
based on guidelines suggested by Churchill (1979) and
Gerbing and Anderson (1988). Following an analysis of the
relevant literature, the initial pool of 56 items was refined to
20 items based upon the following criteria: face validity, reli-
ability, and factor loadings. The four dimensions of CRM
were captured by 20 six-point Likert scale items (shown in
the Appendix).
Customer Satisfaction, Customer Retention, and
Sales Growth
Business performance variables—customer satisfaction, cus-
tomer retention, and sales growth—were measured by the
respondent’s evaluation of his or her company’s current per-
formance in the market relative to its major competitors on a
six-point scale ranging from “better than” to “worse than.” As
advocated by Narver and Slater, relative performance was used
to control for performance differences among firms (1990,
pp. 26–27). Subjective measures of performance are frequently
used in business research, and previous studies have demon-
strated a strong correlation between subjective assessments
and their objective counterparts (e.g., Dess and Robinson
1984; Pearce, Robbins, and Robinson 1987). Essentially, re-
spondents were asked to evaluate their company’s performance
on customer satisfaction, customer retention, and sales growth
by considering a series of one-statement judgments formu-
lated specifically to allow comparisons with major competi-
tors in their industries.
Factor Analysis
In order to identify the underlying factor structure for the
data collected, a factor analysis was done on the 20 items
270 Journal of Personal Selling & Sales Management
using a principal components method of extraction with a
varimax rotation. The same four-factor solution conceptual-
ized previously was reproduced (see Table 1). Heavy loadings
on the intended constructs provided evidence for the validity
of our scale.
Reliability and Confirmatory Factor Analysis
To test for reliability of these scale items, Cronbach’s alphas
were calculated for each of the four dimensions of the CRM
orientation (Churchill 1979; Nunnally 1978). Cronbach’s al-
phas are shown in Table 2. Reliability coefficients for all scales
exceeded 0.7, the threshold recommended by Nunnally
(1978).
To ensure that measures loaded on the constructs as ex-
pected, confirmatory factor analysis was conducted with re-
sults, as shown in Figure 2. Indicator variables correctly and
significantly loaded on the four factors as predicted, provid-
ing evidence of convergent validity (cf. Venkatesh, Challagalla,
and Kohli 2001). Factor loadings are provided in Table 3.
Our overall model fit the data well with a chi-square value of
317 and 164 degrees of freedom. The root mean square error
of approximation (RMSEA) was 0.045, goodness-of-fit in-
dex (GFI) was 0.92, and adjusted goodness-of-fit index
(AGFI) was 0.90.
Evidence of discriminant validity is demonstrated by the
fact that correlations among the four factors are significantly
different from 1.0, indicating that the four factors are not
perfectly correlated. Also, the correlations are significantly
different from 0.0, indicating that these factors are not fully
orthogonal.
Analysis and Results
Given a valid and reliable scale to measure the dimensions of
CRM, we tested the overall model given in Figure 1 using
LISREL. The model fit the data well with a chi-square value
of 428.3 and 217 degrees of freedom. Correlations between
the various latent constructs are presented in Table 4 and pa-
rameter estimates of the structural model are provided in
Table 5.
As can be seen in Table 5, both “focusing on key custom-
ers” and “managing knowledge” have significant effects on
customer satisfaction, with parameters equal to 0.50 and 0.28,
respectively. However, customer satisfaction is not directly
affected by “organizing around CRM” and “incorporating
CRM-based technology.”
LISREL results reported in Table 5 reveal that customer
satisfaction positively and significantly affects customer reten-
tion (parameter = 0.3). Also, “organizing around CRM” af-
fects customer retention directly (parameter = 0.21). Likewise,
“managing knowledge” has a significant effect on customer
retention directly (parameter = 0.61) and indirectly through
customer satisfaction. Parameter estimates disclose that “fo-
cusing on key customers” affects customer retention only
through customer satisfaction. Sales growth is positively and
significantly affected by customer retention (parameter = 0.51).
DISCUSSION
In both academic and practitioner marketing, emphasis on
building and maintaining customer relationships continues
to grow with a central focus on customer retention. Ironi-
cally, progress made in the management of customer relation-
ships to date generally has not substantially increased retention
rates (Thomas, Blattberg, and Fox 2004). What is more, con-
tinuing enthusiasm for CRM initiatives still has not brought
about a commonly accepted definition of CRM. In the present
study, however, a conceptual framework is provided for em-
pirical investigation of the CRM paradigm. Successful imple-
mentation of CRM systems depends on four pillars: “focusing
on key customers,” “organizing around CRM,” “managing
knowledge,” and “incorporating CRM-based technology.”
Despite the apparently straightforward nature of each of these
four pillars, all four are connected and must work in unison
to achieve superior customer relationships (Day 2003; Johnson
2004). This requirement further underscores the importance
of coordinated efforts across functional areas to actualize the
full benefits of CRM (Crosby and Johnson 2001; Ryals and
Knox 2001).
In particular, the benefits of CRM are manifested in per-
formance metrics such as customer satisfaction, customer re-
tention, and sales growth. In the present study, “focusing on
key customers” significantly affects customer satisfaction. This
is in accord with the tenet that an overwhelming customer-
focused mind-set should perpetuate a CRM-oriented organi-
zation with business strategy driven by key customers (e.g.,
Ryals and Knox 2001; Sheth and Sisodia 2001). The perfor-
mance dimension of “focusing on key customers” also has an
indirect effect through customer satisfaction on customer re-
tention and sales growth. Salespeople, who are the company’s
eyes and ears in the field, particularly are encouraged to focus
on key customers and foster close relationships with them
(Berry 1995). Improvement in salesperson–customer relation-
ships can be achieved by initiating more personal contacts
with customers to keep abreast of their changing needs
(Frankwick, Porter, and Crosby 2001). Collaborative com-
munication is also important to enhance sales relationships
(Schultz and Evans 2002). High-quality sales force perfor-
mances, when supported and augmented at the senior man-
agement level, can further enhance customer satisfaction,
retention, and sales growth (Liao and Chuang 2004).
“Managing knowledge” exhibits a significant and direct
effect on both customer satisfaction and retention. Also, it
 Table 1
Results of Exploratory Factor Analysis

Organizing Incorporating Focusing

Around CRM-Based on Key Managing
Variables CRM Technology Customers Knowledge

Customer-centric performance standards are established and monitored at all customer touch points. 0.812
My organization has established clear business goals related to customer acquisition, development,
retention, and reactivation. 0.737
My organization has the sales and marketing expertise and resources to succeed in CRM. 0.698
Our employee training programs are designed to develop the skills required for acquiring and deepening
customer relationships. 0.627
Employee performance is measured and rewarded based on meeting customer needs and on successfully
serving the customer. 0.603
Our organizational structure is meticulously designed around our customers. 0.558
My organization commits time and resources in managing customer relationships. 0.421
My organization has the right software to serve our customers. 0.756
My organization has the right hardware to serve our customers. 0.721
My organization has the right technical personnel to provide technical support for the utilization of
computer technology in building customer relationships. 0.712
My organization maintains a comprehensive database of our customers. 0.707
Individual customer information is available at every point of contact. 0.657
My organization provides customized services and products to our key customers. 0.744
Through ongoing dialogue, we work with individual key customer to customize our offerings. 0.741
My organization makes an effort to find out what our key customer needs are. 0.639
When my organization finds that customers would like to modify a product/service, the departments
involved make coordinated efforts to do so. 0.624
All people in my organization treat customers with great care. 0.468
My organization fully understands the needs of our key customers. 0.812
My organization provides channels to enable ongoing two-way communication between our key
customers and us. 0.649
Customers can expect exactly when services will be performed. 0.463
Eigenvalue 3.770 3.445 3.145 2.814
Percentage of Variance 18.851 17.223 15.723 14.072
Fall 2004
271
272 Journal of Personal Selling & Sales Management
Table 2
Scale Reliabilities
Number
α
of Items
Focusing on Key Customers 5 0.8524
Organizing Around CRM 7 0.8971
Managing Knowledge 3 0.7303
Incorporating CRM-Based Technology 5 0.8326
indirectly affects customer retention and sales growth via cus-
tomer satisfaction. These results may be attributable to the
importance of knowledge responsiveness taking the form of
customization, which acts as a critical value driver in building
relationships with customers (Gwinner, Gremler, and Bitner
1998; Sheth and Sisodia 2002; Srinivasan, Anderson, and
Ponnavolu 2002). Chonko et al. (2003) stress the need to
establish a continuous organizational learning environment
to acquire and creatively use customer knowledge to foster
long-term relationships and, thereby, business performance.
A continuous learning mode is especially critical in a sales
context to facilitate understanding of customers and counter
sales force obsolescence (Jones, Chonko, and Roberts 2004).
Salespeople who exhibit a high level of learning are better
able to leverage their customer knowledge and offer more per-
sonalized products and services that further customer satis-
faction, retention, and sales growth (Concevitch 2003).
Figure 2
Confirmatory Factor Analysis
Note: Other φ and λ paths have been omitted for the sake of clarity.
“Organizing around CRM” exerts significant direct effects
on customer retention as well as significant indirect effects
on sales growth through retention. This result highlights the
fact that organizational elements involved in implementing
CRM effectively can serve as enablers of successful CRM ap-
plications and programs. However, to achieve maximum re-
wards from greater customer retention and sales growth, top
management must invest resources and make concerted on-
going efforts to align all involved organizational components
and resources toward a CRM orientation (Homburg, Work-
man, and Jensen 2000). Even when customers merely per-
ceive that a company is trying to satisfy them, substantial
benefits may be derived. Support for the perceptual value of
investments in customer relationships comes from a study by
Wulf, Odekerken-SchroÉder, and Iacobucci (2001). Apparently,
customers feel obligated to reciprocate a retailer’s investment
in relationships with them by becoming more loyal. There-
fore, Wulf, Odekerken-SchroÉder, and Iacobucci (2001) con-
clude that companies should proactively promote their
investments in customer relationships thereby making mani-
fest their commitment to customer satisfaction. In particular,
these efforts should be focused on those customers who are
most responsive or likely to reciprocate.
Paradoxically, “incorporating CRM-based technology”
shows no sign of significant effect on the performance metrics.
This result counters the commonly held view that CRM
mainly depends upon technology. Instead, technology seems
to be only an enabler (e.g., Lovelock and Wirtz 2004, p. 378;
Rigby, Reichheld, and Schefter 2002; Sheth and Sisodia 2001).
 Fall 2004 273

Table 3
Factor Loadings of the Confirmatory Factor Analysis

To the Indicator Path

From the Latent Variable Variable Estimate* t-Value

Focusing on Key customers X1 0.81 13.94

X2 0.67 10.63
X3 0.73 12.07
X4 0.84 14.76
X5 0.73 12.00
Incorporating CRM-Based Technology X6 0.68 10.78
X7 0.82 13.99
X8 0.81 13.73
X9 0.80 13.59
X10 0.60 9.24
Managing Knowledge X11 0.67 10.14
X12 0.76 11.94
X13 0.62 9.33
Organizing Around CRM X14 0.78 13.33
X15 0.77 13.06
X16 0.77 12.99
X17 0.69 11.08
X18 0.68 10.88
X19 0.75 12.43
X20 0.80 13.64

* All the path estimates are significant at p < 0.05.

In other words, technology does not seem to significantly in-
crease customer satisfaction and loyalty over the long run. It
only makes the efforts more efficient. As Gummesson warned:
“By boosting the role of IT too far, marketing becomes tech-
nology and production obsessed and loses in customer orien-
tation” (2002b, p. 50). Too many business executives purchase
a CRM package, thinking that its installation alone will solve
all their customer relationship problems (Hall 2001). Man-
agers are cautioned not to fall into the trap of a myopic focus
on the latest CRM software (Langerak and Verhoef 2003).
MANAGERIAL IMPLICATIONS
Developing a CRM-Oriented Sales Force
Given the favorable effects of CRM practices on organiza-
tional performance, the logical question arises: At an indi-
vidual level, how can company employees, especially
salespeople who interact with customers daily, increase their
contributions to successful CRM? A majority of CRM soft-
ware providers have roots in SFA, so the bulk of CRM soft-
ware is designed to enhance sales and sales management
functionality (Shoemaker 2001). CRM initiatives, therefore,
need to be well understood by frontline salespeople. After all,
they are an organization’s key interface with its customers
(Weitz and Bradford 1999; Williams and Attaway 1996).
Therefore, they can play an indispensable role in CRM
(Crosby, Evans, and Cowles 1990) and in ultimate customer
satisfaction (Grewal and Sharma 1991). Provided with CRM
systems to enhance sales performance, salespeople need to be
motivated to develop and maintain a CRM orientation. This
can be facilitated by management’s internal marketing efforts
(Ahmed and Rafiq 2003). Specifically, market training and
education, internal communication, reward systems, and em-
ployee involvement are four internal marketing processes that
can significantly promote a CRM orientation among sales-
people (Yim 2002; Zikmund, McLeod, and Gilbert 2003).
Market Training and Education
Training programs with a CRM component are crucial for
frontline employees (Gursoy, Chen, and Kim 2005), espe-
cially salespeople who regularly interact with customers. In
particular, training programs are essential in conveying the
importance and nature of a CRM orientation to salespeople
so that they acquire the requisite relationship development
skills and sensitivity to changing customer needs (Brendler
and Loyle 2001; Brown 2000; Conduit and Mavondo 2001).
Such training programs are crucial because customer expec-
tations tend to be infinitely elastic (Anderson 1996); thus,
increasingly higher customer relationship performances will
be demanded in the future. Overall, if salespeople are trained
 274

Table 4
Correlation Matrix of Latent Variables
Journal of Personal Selling & Sales Management

Focusing Incorporating Organizing

Sales on Key CRM-Based Managing Around
Satisfaction Retention Growth Customers Technology Knowledge CRM

Satisfaction 1.00
Retention 0.50 1.00
Sales Growth 0.42 0.50 1.00
Focusing on Key
Customers 0.64 0.46 0.32 1.00
Incorporating CRM-Based
Technology 0.49 0.40 0.27 0.69 1.00
Managing Knowledge 0.62 0.54 0.35 0.85 0.73 1.00
Organizing Around CRM 0.56 0.53 0.33 0.83 0.78 0.80 1.00

Table 5
Results of Structural Equation Analysis
Path Path Estimate
Focusing on Key Customers → Satisfaction 0.50
Incorporating CRM-Based Technology → Satisfaction 0.17
Managing Knowledge → Satisfaction 0.28
Organizing Around CRM → Satisfaction 0.22
Focusing on Key Customers → Retention 0.41
Incorporating CRM-Based Technology → Retention 0.22
Managing Knowledge → Retention 0.61
Organizing Around CRM → Retention 0.21
Satisfaction → Retention 0.30
Retention → Sales Growth 0.51
* p < 0.05.
and motivated to continually demonstrate genuine concern
for customer welfare, favorable outcomes such as higher cus-
tomer satisfaction, retention, and sales growth can be expected
(Jain, Jain, and Dhar 2002).
Internal Communication
Often, managerial CRM desires are not fully understood or
translated into line and staff actions that “loyal” customers
readily perceive (Smith et al. 2004). Management should pay
heightened attention to the communication of CRM strate-
gies and objectives to all employees. CRM responsibilities must
be clearly defined, assigned, and understood via unequivocal
communication. As boundary spanners, salespeople are usu-
ally the business-to-business marketer’s primary source of in-
teraction and communication with customers (Sharma et al.
1999), so they, in particular, need accurate information to
effectively and efficiently build customer relationships.
However, like customers who reciprocate with increased
loyalty when they see that a company is working hard to sat-
isfy them (Wulf, Odekerken-SchroÉder, and Iacobucci 2001),
salespeople respond more to observed managerial actions than
mere communication concerning CRM. Organizational em-
ployees at all levels continually look to their superiors for clues
as to what is really important. Words can be viewed as hypo-
critical and counterproductive if not backed by CRM-ori-
ented managerial actions. Thus, senior managers serve as
important role models for CRM activities.
Reward Systems
Instrumental in shaping the behavior of all employees, re-
ward systems can provide direct motivation for salespeople
to adopt new attitudes and behaviors in harmony with a CRM
orientation. Accordingly, the traditional sales volume–oriented
yardstick in measuring and rewarding salesperson success
Fall 2004 275
t-value
2.28*
0.24
2.41*
1.21
1.21
1.06
2.89*
2.62*
3.71*
8.53*
should be modified to include tangible goals and rewards for
retention of key customers through CRM activities (Rigby,
Reichheld, and Schefter 2002; Schmalensee, Bernhardt, and
Gust 1985). It is important for the organization to openly
recognize and reward superior CRM performance by its sales-
people in order to reinforce CRM-oriented conduct and be-
haviors (Johnson 2004). In designing reward systems, however,
perceptions of managerial integrity and evenhandedness are
essential for maintaining highly motivated, satisfied, and com-
mitted CRM salespeople (Brashear, Brooks, and Boles 2004).
Employee Involvement
All company employees, especially salespeople, must “buy in”
to CRM through internal marketing by senior management.
Empowerment is a vital aspect of internal marketing that gives
frontline salespeople latitude over their service activities and
the ability to more fully address customer needs (Berry and
Parasuraman 1991). In other words, empowerment enables
salespeople to more easily negotiate mutually satisfying com-
mitments with customers. One important way to empower
salespeople is to grant them greater financial flexibility—for
example, in committing company resources to serve custom-
ers, approving reimbursements for flawed products, or in ne-
gotiating price discounts and other purchase incentives.
Empowered salespeople are able to resolve customer complaints
more promptly and, oftentimes, turn initially dissatisfied cus-
tomers into satisfied or even loyal customers. In addition,
empowered employees tend to be a great source of creative
customer service ideas (Zeithaml and Bitner 2003, p. 333).
Conversely, if salespeople must seek approval of management
before responding to most customer requests, their clout on
behalf of customers is visibly diminished and, also most likely,
their enthusiasm for CRM. In order for salespeople and other
employees to feel empowered, managers may need to share
some of their authority and prerogatives. However, the
276 Journal of Personal Selling & Sales Management
potential payoffs in higher customer satisfaction, customer
retention, company profits, and employee impetus for CRM
activities seem worth the managerial trade-offs.
LIMITATIONS AND FUTURE RESEARCH
It is important to understand some limitations associated with
this study. First, cross-sectional data were used. Consequently,
the time sequence of the relationships between CRM and
performance metrics cannot be determined unequivocally. A
longitudinal study is therefore desired to provide more in-
sights into probable causation. Also, the data were collected
from a single, although high-level management, respondent
within each organization. Future replications of this research
might benefit from collecting the data from multiple intra-
organizational respondents.
Second, customer commitment to the salesperson is a vari-
able that needs to be examined in a CRM framework (Johnson,
Barksdale, and Boles 2001). In fact, customer commitment
is “the most common dependent variable used in buyer-seller
relationship studies” (Wilson 1995, p. 337) and seems vital
to relationship maintenance (Morgan and Hunt 1994). Fu-
ture research should delve into the effect of this construct on
salesperson–customer relationships.
Finally, it seems worthwhile to examine how customer ex-
pectations of future benefits affect their decision to stay with
salespeople (Lemon, White, and Winer 2002; Lewis 2004).
Social penetration theory (Altman and Taylor 1973) main-
tains that parties involved in an exchange will continue to
deepen the relationship as long as the anticipated rewards
exceed the anticipated costs. It is therefore important to un-
derstand customer perceptions of seller benefits versus switch-
ing costs (Burnham, Frels, and Mahajan 2003). Lemon,
White, and Winer (2002, p. 12) recommend that companies
engage in dynamic customer relationship management because
customers consider past, present, and future transactions, in-
cluding expectations, when determining whether or not to
continue doing business with a company. This is a challeng-
ing and intriguing avenue for CRM research. If properly pur-
sued, it might provide greater understanding about how CRM
efforts work for customers and how organizations can take
responsive actions to increase their CRM effectiveness in fluc-
tuating business environments.
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280 Journal of Personal Selling & Sales Management
APPENDIX
Customer Relationship Management Orientation
Scale Items
Focusing on Key Customers
1. My organization provides customized services and
products to our key customers.
2. Through ongoing dialogue, we work with individual
key customer to customize our offerings.
3. When my organization finds that customers would
like to modify a product/service, the departments
involved make coordinated efforts to do so.
4. My organization makes an effort to find out what
our key customer needs are.
5. All people in my organization treat customers with
great care.
Organizing Around CRM
6. Customer-centric performance standards are estab-
lished and monitored at all customer touch points.
7. My organization has established clear business goals
related to customer acquisition, development,
retention, and reactivation.
8. My organization has the sales and marketing exper-
tise and resources to succeed in CRM.
9. My organization commits time and resources to
managing customer relationships.
10. Employee performance is measured and rewarded
based on meeting customer needs and successfully
serving them.
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11. Our employee training programs are designed to
develop the skills required for acquiring and deepen-
ing customer relationships.
12. Our organizational structure is meticulously designed
around our customers.
Managing Knowledge
13. My organization provides channels to enable ongoing
two-way communication between our key customers
and us.
14. Customers can expect exactly when services will be
performed.
15. My organization fully understands the needs of our
key customers.
Incorporating CRM-Based Technology
16. My organization maintains a comprehensive database
of our customers.
17. My organization has the right hardware to serve our
customers.
18. My organization has the right software to serve our
customers.
19. My organization has the right technical personnel to
provide technical support for the utilization of
computer technology in building customer
relationships.
20. Individual customer information is available at every
point of contact.