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the
Understanding Effect of
Customer Relationship
Managemen
Efforts on Customer Retention and
CustomerShare Development
Scholars have questioned the effectiveness of several customer relationshipmanagement strategies. The author
investigates the differentialeffects of customer relationshipperceptionsand relationshipmarketinginstrumentson
customer retentionand customer share developmentover time. Customerrelationshipperceptionsare considered
evaluations of relationshipstrength and a supplier'sofferings,and customer share development is the change in
customer share between two periods. The results show that affective commitmentand loyaltyprogramsthat pro-
vide economic incentives positively affect both customer retentionand customer share development, whereas
directmailingsinfluencecustomer share development. However,the effect of these variables is rathersmall. The
results also indicatethat firmscan use the same strategies to affect both customer retentionand customer share
development.
relationships have been increasingly studied tics can succeed in developing customer share in consumer
in the academic marketing literature(Berry 1995; markets(Dowling 2002; Dowling and Uncles 1997).
Dwyer, Schurr, and Oh 1987; Morgan and Hunt
Customer Several studies have considered the impact of CRP on
1994; Sheth and Parvatiyar1995). An intense interestin cus- either customerretentionor customershare,but not on both
tomer relationships is also apparentin marketingpractice (e.g., Anderson and Sullivan 1993; Bolton 1998; Bowman
and is most evident in firms' significant investmentsin cus- and Narayandas2001; De Wulf, Odekerken-Schrider,and
tomer relationshipmanagement(CRM) systems (Kerstetter Iacobucci2001). A few studies have consideredthe effect of
2001; Reinartz and Kumar 2002; Winer 2001). Customer RMIs on customer retention (e.g., Bolton, Kannan, and
retentionrates and customer share are importantmetrics in Bramlett2000). In contrast,the effect of RMIs on customer
CRM (Hoekstra, Leeflang, and Wittink 1999; Reichheld sharehas been overlooked.Furthermore,most studies focus
1996). Customershare is defined as the ratioof a customer's on customer share in a particularproduct category (e.g.,
purchases of a particularcategory of products or services Bowman and Narayandas2001). Higher sales of more of the
from supplierX to the customer'stotal purchasesof thatcat- same product or brand can increase this share; however,
egory of productsor services from all suppliers(Peppersand firms that sell multiple products or services achieve share
Rogers 1999). increases by cross-selling other products. Moreover, no
To maximize these metrics, firms use relationshipmar- study has consideredthe effect of CRPs and RMIs on both
keting instruments(RMIs), such as loyalty programs and customer retentionand customer share. It is often assumed
direct mailings (Hartet al. 1999; Robertsand Berger 1999). in the literaturethatthe same strategiesused for maximizing
Firmsalso aim to build close relationshipswith customersto customer share can be used to retain customers; however,
enhance customers' relationship perceptions (CRPs). recent studies indicate that increasingcustomershare might
Although the impact of these tactics on customer retention require different strategies than retaining customers (Blat-
has been reported(e.g., Bolton 1998; Bolton, Kannan,and tberg,Getz, and Thomas 2001; Bolton, Lemon, and Verhoef
Bramlett2000), there is skepticism about whethersuch tac- 2002; Reinartzand Kumar2003).
Prior studies have used self-reported, cross-sectional
data that describe both CRPs and customer share (e.g., De
PeterC.Verhoefis Assistant
Professorof Marketing,
Department of Mar- Wulf, Odekerken-Schrider,and Iacobucci2001). The use of
ketingandOrganization,RotterdamSchoolof Economics, Erasmus Uni-
Rotterdam.Theauthor thefinancialand such data may have led to overestimationof the considered
versity, acknowledges
gratefully
datasupportof a Dutchfinancialservicescompany. Theauthor thanks associations because of methodological problems such as
BasDonkers, FredLangerak, PeterLeeflang,LorenLemon, PeeterVer- carryoverand backfireeffects and common methodvariance
legh,DickWittink,
andthefouranonymous JM reviewersfortheirhelpful (Bickart 1993). Such datacannotestablish a causal relation-
Theauthoralsoacknowledges
suggestions. the comments of research ship; indeed, the argument could be made that causality
seminar of Groningen,
at theUniversity
participants YaleSchoolof Man- works the other way (i.e., I am loyal, therefore I like the
agement,Tilburg andthe University
University, of Maryland. he
Finally,
company) (Ehrenberg1997). Longitudinaldata ratherthan
acknowledges his twodissertationadvisers,PhilipHansFransesand cross-sectional data should be used to establish the causal
JannyHoekstra,fortheirenduring
support.
relationshipbetween customershare and its antecedents.
Journal of Marketing
30/ Journal
of Marketing,
October
2003 Vol. 67 (October 2003), 30-45
CustomerRelationshipManagementEfforts/ 31
Behavioral
visitors brands card card services
on Contextindustries industries market market
Channels Retailing
Retailing
Car associationCredit
Professional Car Credit
1 CRPs Study Theater Grocery Entertainment
entertainment
Various Various Financial
of Telecommunications Telecommunications,
TABLE
Effect
on
Design
and/or
duration
Purchase Customer Customer Service Cross-buying
Behavioral
Measurement
Self-Reported Observed
Customer
Relationship
Management / 33
Efforts
card
Study brands
Grocery
Context Retailing Airlines
Retailing Credit Retailing
data on on
use
direct
survey, survey survey
onuse panel treatment
design
Design
Loyalty program
mail perceptions perceptions
programs
StudyPanel Longitudinal
loyalty
data,
perceptions Aggregated Cross-sectional data,
preferential
Cross-sectional Cross-sectional
Behavioral
2 on
share, service
RMIs
TABLE data
of share
purchase share
Measure penetration,
purchase intentions
buyers
shares customer usage
retention,
Effect empirical sole
on Loyalty CustomerNo average Purchase Customer
Aggregated
Aggregated
frequency, Customer
Studies
(1987) (1997)
(1997) Lemon Bramlett
(2001) (2001)
and and
Uncles
Sharp
StudyShoemaker (2000) (2000)
and and
Odekerken-Schrider,
lacobucci lacobucci
Odekerken-Schrider,
and Zeithaml,Kannan,
and and
Wulf, Sharp Wulf,
Bawa De Dowling Rust,
Bolton,De
programs
mail
RMIDirect Loyalty
34/ Journal
of Marketing,
October
2003
CRPs RMIs
Satisfaction H3
H6a
CustomerretentionT, To Loyaltyprogram
Ha H6b
Paymentequity H1
/H2 A CustomershareT, TO IH5 Directmailings
Affectivecommitment
ControlVariables
CustomershareTo
age To
Relationship
Typeof servicepurchased
TO
CustomerRelationshipManagementEfforts135
DatafromCustomerDatabase
Startof T0
0 T1
Relationship
(Survey1Among (Survey2 Among
Customers) CustomersInterviewed
in Survey1)
361Journal
of Marketing,
October
2003
TABLE 3
Means (Standard Deviation) and Correlation Matrix Independent Variables
Mean X1 X2 X3 X4 X5 X6
CustomerRelationship Efforts/37
Management
38 / Journalof Marketing,October2003
Perceptions
Commitment H1(+) .21 (2.66)** .20 (2.58)**
Satisfaction H3(+) -.21 (1.52) -.22 (1.63)
Paymentequity H4(+) -.03 (.26) -.03 (.30)
RMIs
Loyaltyprogram H6a(+) .38 (2.02)*
McFaddenR2 .168 .178 .184
AdjustedMcFaddenR2 .165 .173 .179
Likelihoodratiostatistic 127.64** 135.20** 139.68**
(d.f.) (6) (9) (10)
Akaikeinformationcriterion .384 .383 .382
*p< .05.
**p<.01.
CustomerRelationshipManagementEfforts/ 39
Perceptions
Commitment H2(+) .03 (2.55)* .03 (2.58)**
Satisfaction H3(+) .00 (.01) -.00 (.21)
Paymentequity H4(+) -.01 (.85) -.01 (.66)
RMIs
Loyaltyprogram H5(+) .04 (2.22)*
Directmailing H6(+) .01 (2.31)*
R2 .10 .11 .13
AdjustedR2 .10 .10 .12
F-value 16.95** 12.21** 11.72**
*p < .05.
**p< .01.
tomer share development(p < .05).4 Thus, both H5 and H6b First, I cannot include direct mailings as an explanatory
are supported. variablebecause, as I noted previously,no mailings are sent
The Heckman (1976) correctionterm is not significant, to defectors.Second, because the log of 0 does not exist, the
which implies that selecting only the remainingcustomers differencesin logs of customersharebetween T1 and To for
does not affect the estimation results (Franses and Paap defectors cannotbe calculated.A solution to this problemis
2001). It might be arguedthat leaving out defectors would to impute a share value that is close to 0 (e.g., .001). I used
reducevariancein the customersharedevelopmentmeasure, this approachand imputedseveral differentvalues to assess
which in turn might affect the estimation results. To assess the stabilityof the results, and the results remainedthe same
this issue further,I also estimateda model that included the for the different imputations.The estimation results for an
defectors.5However,thereare two problemswith the model. imputedvalue for customershareat T1 for defectorsof .001
show that the coefficients of affective commitmentand the
4Anissue in estimatingthe effectof directmailingsis thatthe loyalty programremain significant,but there is no effect of
companywhosedataareuseddoesnotrandomlyselectcustomers satisfactionor paymentequity. The R2 of the model is .09,
to receive such mailings; the company uses models to target the which is lower than the R2 of .12 of the model that includes
most receptivecustomers.These models are not known. The com-
pany's use of such models might lead to an endogeneity problem, only the remaining customers reported in Table 5. Given
which could result in (upwardly biased) inconsistent parameter these results, I conclude that restricting the sample to
estimates for direct mailings. To test for possible endogeneity, I remaining customers does not affect the hypotheses-testing
used the Hausmantest that Davidson and MacKinnon(1989) pro- results.
pose. This test does not reveal any evidence for endogeneity (p =
.88).
5Notwithstandingthis result, I also used two approachesto cor- AdditionalAnalysis
rect for possible endogeneity. The first approachapplied instru-
mental variablesusing two-stage least squaresin the estimationof MediatingEffectof CommitmentS
a system of two equations (Pindyck and Rubinfeld 1998). I used
two sociodemographicvariablesas instrumentalvariables:income In the relationship marketing literature, there has been a
and age. I selected these variablesbecause they are often included debate about the mediating role of commitment (Garbarino
in CRM models (Verhoefet al. 2003). The estimationof this model and Johnson 1999; Morgan and Hunt 1994). In this study,
results in the same parameterestimate for direct mailings (.04); commitment may mediate the effect of payment equity and
however, this parameteris only marginally significant (p = .10). satisfaction on customer share development, which in turn
The second approachestimateda system of equationsin which two
separateequations are estimated:one with customer share devel-
may explain the nonsignificanteffects of both satisfaction
opment as a dependentvariable and the other with the numberof and paymentequity.To test for this mediatingeffect, I used
direct mailings as a dependent variable. With this approach,the Baron and Kenny's(1986) proposedmediationtest. I reesti-
effect of direct mailings remained significant (p < .05); however, mated Model 2 (Column 3, Tables 4 and 5) in both the cus-
the parameterestimate decreasedfrom .04 to .013. On the basis of tomer retentionand the customer share developmentappli-
these analyses, I conclude thatendogeneity of directmailings does
not affect the hypothesis testing. 6Areviewersuggestedthisanalysis.
TABLE 6
Summary of Hypothesis-Testing Results
Customer Retention Customer Share Development
Hypothesis Hypothesis
Antecedents (Sign) Effect Support (Sign) Effect Support
Affective H1(+) + Yes H2(+) + Yes
commitment
CustomerRelationshipManagementEfforts/ 41
42/ Journal
of Marketing,
October
2003
CustomerRelationshipManagementEfforts/ 43
44 / Journalof Marketing,October2003
CustomerRelationshipManagementEfforts/ 45