2. Customer Value

Module Customer Relationship Management

Topic Customer Value

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Table of Contents

1. Introduction

2. Customer Value

3. The Scope of CRM

4. eCRM

5. Self Assessment

6. Summary

1. Introduction

In the recent years, delivering superior customer value has become a strategic

weapon in attracting and retaining customers and has become one of the most

significant factors in the success of both manufacturing businesses and service

providers. In order to build and sustain competitive advantage, firms should drive

customer relationship management (CRM) performance by orientating their

operations towards the creation and delivery of superior customer value. This topic

covers the concept of customer value, its dimension as well as the scope of CRM and

eCRM.

Objectives: Customer Value

Upon completion of this topic, you should be able to

describe the concept of customer value

outline the key dimensions of customer value

describe the scope of customer relationship management

outline the opportunities and challenges of eCRM

2. Customer Value

Customer Value and its Key Dimensions

Customer value refers to the customer's overall assessment of the utility of a product

based on the perception of what is received and what is given (Zeithaml, 1988 ).

Customer value as perceived by customers (rather than being objectively determined

by sellers or other stakeholders) typically involves a trade-off between what

customers receive (such as quality, benefits, and utilities) and what they sacrifice

(such as price, opportunity cost, maintenance and learning cost).

In order to understand the concept of customer value better, we will look at other

factors that might constitute perceived benefits and sacrifices as well as study the

managerial implications of these factors. From a firms perspective, customer value

can be understood in terms of product value, service value, employee value, and

image value (Kotler and Keller, 2006). Focusing on the customers perspective, the

customer value construct can be extended to five dimensions, namely social,

emotional, functional, epistemic, and conditional (Sheth at al., 1991 ). Although

these dimensions are related to each other, they do not have an equal significance at

any time. Click each tab to view the explanation of each dimension.




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Social

The social dimension refers to the social utility derived from the product or service.

Emotional

The emotional dimension refers to the utility derived from the affective states that a

product or service generates.

Functional

The functional dimension refers to the utility derived from the perceived quality and

expected performance of the product or service.

Epistemic

The epistemic dimension relates to the surprise or novelty aspect of a product.

Conditional

The conditional dimension refers to the conditional effects of a specific situation on

value perceptions.

Reading: An integrated framework for customer value and customer-

relationship-management performance

In this article, Wang et al. (2004) develop an integrative framework for customer

value and CRM performance based on the identification of the key dimensions of

customer value. Emphasising the customer equity-based view, the paper explores

the decomposed effects of customer value on CRM performance in terms of

relationship quality and customer behaviours.

Wang, Y., Hing Po, L., Chi, R., & Yang, Y. (2004). An integrated framework for

customer value and customer-relationship-management performance: A customer-

based perspective from china. Managing Service Quality, 14(2), 169-182.

Customer Value and Competitive Advantage

CRM is not simply a method used by leading service firms to gain a competitive

advantage: it has become a necessity for their survival. As markets become

increasingly competitive, the development of long term customer relationships is

often viewed as a method of creating a sustainable competitive advantage.

According to Christensen (2010), the concept of customer value can be incorporated

into the definition of competitive advantage, which is defined as "whatever value a

business provides that motivates its customers to purchase its products or services

rather than those of its competitors and that poses impediments to imitation by

actual or potential direct competitors." To operationalise this concept, the

organisation needs to focus its attention on the customer's perceptions of its

products or services as well as the customer's purchase decision making process. In

doing so, the organisation can gain a better understanding of its customers and its

competitors, which will, in turn help them improve their assessment, analysis, and

achievement of competitive advantage.




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Reading: Defining customer value as the drive of competitive advantage

Kurt Christensen, H. (2010). Defining customer value as the driver of competitive

advantage. Strategy & Leadership, 38(5), 20-25. 3.

3. The Scope of CRM

Kotler and Armstrong (2010) define customer relationship management (CRM) as

the overall process of building and maintaining profitable customer relationships by

delivering superior customer value and satisfaction. Customers want to do business

with organisations that understand what they want and need, and CRM is used to

manage relationships more effectively so that organisations can drive down costs,

while at the same time increase their product and service offerings.

CRM is widely practiced in the finance, retail, and hospitality industry, where

different levels of CRM are being applied to customers segmented by their purchase

frequency/intensity. Relationship levels can range from basic relationships, which are

often used by companies with many low margin customers to full partnerships, which

are used in markets with few high margin customers.

With the integration of IT into CRM, enhanced opportunities can be created as data

and information can be used effectively to understand customers and co-create value

with them. IT-based CRM systems have been applied in many industry sectors. CRM

provides analytical, operational, and direction capabilities as seen in the table below

CRM Capabilities Description

Analytical Capabilities The analytical capabilities enhance profitability

maximisation from the customer relationship

Operational Capabilities The operational capabilities cut across the customer

value process

Directional Capabilities This capability depends on strategic skill and reflects the

sharpness of long-term cooperation and organisational

values.

Successful CRM implementation would require a cross-functional integration of

processes, people, operations, and marketing capabilities that is enabled through

information, technology, and applications.

Reading: The impact of customer relationship management through

implementation of information systems

As outlined earlier, CRM has been widely regarded as a company activity related to

developing and retaining customers through increased satisfaction and loyalty. In

this article, Ku (2010) investigates how a customer-oriented firm uses information

systems to affect CRM profitability.

Ku, E. S. (2010). The impact of customer relationship management through

implementation of information systems. Total Quality Management & Business

Excellence, 21(11), 1085-1102.

Now let's look at the case on how Amazon CRM tools support its business operation.




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CRM case: Amazon.com

CRM case: Amazon.com

CRM is about creating a high touch feel in a high tech environment. At Amazon.com,

customers have never spoken to a human being during their service interactions

online. Yet, Amazon.com is able to create a sense of customer relationship because

their CRM tools support Amazons customer relationship strategy via the following:

Add value to customer transactions by identifying related items with their

further recommendations on "customers who bought an item also bought

other items". This is similar to the way a retail sales associate would provide

recommendations in a brick and mortar setting.

Reinforce the sense of relationship by recognising repeat shoppers and

targeting them with customised direct marketing emails on new products or

new suggestions.

4. eCRM

The use of the Internet and information technology to deliver CRM has lead to the

emergence of electronic customer relationship management (eCRM). eCRM, which is

sometimes referred to as web-enabled or web-based CRM, expands the traditional

CRM techniques by integrating technologies of new electronic channels, such as Web,

wireless, and voice technologies, and combines them with e-business applications

into the overall enterprise CRM strategy. Similar to CRM, eCRM involves people,

processes, technology, and other factors, which are critical to successful eCRM

implementation.

Reading: Evaluation of Electronic Customer Relationship Management: The

Critical Success Factors

This article outlines the critical success factors of eCRM, which includes benefits,

costs, and risks. This framework enables organisations to examine their relationships

in the context of eCRM implementation.

Lin, C., Lin, K., Yu-An Huang, & Wen-Liang Kuo. (2006). Evaluation of electronic

customer relationship management: The critical success factors.The Business

Review, Cambridge, 6(2), 206-212.

Reading: What signifies success in e-CRM?

In this article, Kimiloglu and Zarali (2009) examine an exhaustive list of criteria to

assess the performance of e-CRM implementations according to the four perspectives

of the balanced scorecard, which includes measures related to customers, internal

business processes, innovation, and financial outcomes. The authors found that

successful e-CRM programs can bring about significant levels of improvements under

all the four perspectives of the balanced scorecard, including tangible measures such

as financial outcomes and the less tangible indicators such as customer value,

innovation, excellence, and efficiency in business processes.

Kimiloglu, H., & Hlya Zarali. (2009). What signifies success in e-CRM?Marketing

Intelligence & Planning, 27(2), 246-267.




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Reading: eCRM: Opportunities and challenges in a digital world

In this article, Kennedy (2006) presented a coherent view of eCRM technologies by

exploring the opportunities and challenges of eCRM. Specific opportunities of eCRM

highlighted include

enhanced customer interactions and relationships

manage customer touch points, personalisation options

leverage eCRM capabilities as a potential source of competitive advantage.

On the other hand, several challenges of eCRM exist. As the author noted, the ability

to create intimacy with the customer is limited in an online environment, and

building trust can be difficult due to the remoteness of these channels. When

managing an online channel, companies are faced with the fact that greater choice

creates fickleness among customers and with competitors being only one click away,

there are no second chances to recover mistakes in these remote channels. Further,

data integration and IT architecture challenges also exist for organisations adopting

eCRM technologies.

Kennedy, A. (2006). ELECTRONIC CUSTOMER RELATIONSHIP MANAGEMENT

(eCRM): OPPORTUNITIES AND CHALLENGES IN A DIGITAL WORLD. Irish Marketing

Review, 18(1), 58-68.

5. Self Assessment

Now, try the self-assessment questions to test your understanding of the topic. Click

the following link to open the Self-Assessment in a new window.

Self-Assessment

Self-Assessment

Question 1: Which one of the following statements describe customer value?

Customer value refers to the customer's overall assessment of the utility of a

product based on the perception of what is received and what is given.

Customer value refers to what customers receive (such as quality, benefits,

and utilities).

Customer value refers to what customers sacrifice (such as price, opportunity

cost, maintenance and learning cost).

Question 2: What are the dimensions of customer value? (Select five that apply.)

Social

Emotional

Process

Functional

Epistemic

Conditional

Question 3: What are the opportunities of eCRM? (Select four that apply.)

Enhanced customer interactions and relationships

Managing customer touch points

IT architecture

Personalisation options

Leveraging eCRM




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6. Summary

This topic covered the following main points:

Customer value refers to the customer's overall assessment of the utility of a

product based on the perception of what is received and what is given.

Customer value is made up of the following dimensions: social, emotional,

functional, epistemic, and conditional.

Customer relationship management (CRM) is the overall process of building

and maintaining profitable customer relationships by delivering superior

customer value and satisfaction.

eCRM involves people, processes, technology, and other factors, which are

critical to successful eCRM implementation.

Some opportunities of eCRM include

o ability to enhanced customer interactions and relationships

o ability to manage customer touch points, personalisation options

o ability to leverage eCRM capabilities as a potential source of

competitive advantage.

Some of the challenges of eCRM are:

o Limited ability to create intimacy and trust with customer in an online

environment

o Greater choice in an online environment creates fickleness among

customers

o With competitors being just one click away, there are no second

chances to recover mistakes

o Challenges in adopting eCRM technologies

References

Zeithaml, V. A. (1988). Consumer perceptions of price, quality, and value: A means-end model and synthesis of

evidence. Journal of Marketing, 52(3), 2-22.

Sheth, J.N., Newman, B.I. and Gross, B.L. (1991). Consumption Values and Market Choice. Cincinnati, OH: South Western Publishing.

2. Customer Value

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