Customer Relationship Management

Kristen CimilucaHonors Thesis

Marketing: Dr. Lutz

Customer Relationship Management

I. Introduction of Customer Relationship Management

a. Definition of CRM

b. Importance of CRM

i. Customer Value and Retention

ii. Profit maximization

II. Evolution of CRM

a. Mass Marketing

b. Brand Loyalty

c. Transactional Marketing

d. Relationship Marketing

III. Emergence of CRM

a. Technology

b. Total Quality Management

c. Service Industry Growth

d. Customer Expectations

IV. Components of CRM

a. Customer Database

b. Analysis and Selection

i. Traditional method

ii. Lifetime Customer Value

iii. Clickstream Analysis

c. Customer Targeting

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d. Customer Relationships

i. Customization

ii. Customer Service

iii. Brand Community

iv. Loyalty Programs

1. Types of Loyalty

a. Attitudinal

b. Behavioral

2. Reward structure

a. Hard/Soft rewards

b. Rate of reward

V. Managing the CRM Process

a. Role Specification

b. Employee Training

c. Communication

i. Internal (with employees)

ii. External (with customers)

d. Performance Metrics/Evaluation

i. General Challenges

ii. CRM Scorecard

VI. Advantages of CRM

a. Customer Perspective

i. Utilitarian Benefits

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ii. Hedonic Benefits

iii. Symbolic Benefits

b. Company Perspective

VII. Disadvantages of CRM

a. Company Perspective

i. Cost

ii. Difficulty in Measuring Success

b. Customer Perspective and Ethical Implications

i. Privacy Issues

ii. Discrimination

c. CRM Criticism

VIII. Conclusion

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Customer Relationship Management

Customer relationship management (CRM), also known as relationship

marketing, has recently emerged as an integral marketing concept in the business world.

In an attempt to reach and connect with customers in an environment highly saturated

with products, advertisements, and promotions, businesses are implementing a customer

relationship management component in their marketing schemes. CRM practices enable

marketers to build long lasting relationships with consumers at the individual level

through the use and management of a number of different programs and key components.

As a relatively new practice, the definition of customer relationship management

has been debated by field experts and is ever evolving. In fact, the term has come to

mean different things to different individuals and organizations. In its inception,

customer relationship management was narrowly defined as promotional marketing based

on a customer database (Bickert, 1992). Peppers and Rogers define CRM to be a

complex process that builds one-to-one relationships with customers in order to achieve

long term growth (1993). According to Gronroos, relationship marketing extends past

persuading customers to buy products; it is about fulfilling their expectations in the hope

of transforming them into long term, loyal customers (2009). Most experts can agree,

however, that the central theme of CRM is carefully selecting the most valuable

customers and maintaining and strengthening relationships with those customers for long

term profit maximization. Sheth and Parvatiyar define CRM as a “comprehensive

strategy and process of acquiring, retaining, and partnering with selective customers to

create superior value for the company and the customer” (2001, p. 5). It is a mutually

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beneficial relationship built upon a foundation of trust and loyalty through marketing,

customer service, and relationship programs.

Customer relationship management is a relatively new field, but its importance is

becoming even more evident as time passes. The paradigm shift from focusing on

attracting new customers to retaining current ones is at the backbone of CRM (Winer

2001). Reichheld’s studies revealed that small increases in customer retention rates

greatly increased profits, proving that long term customers can be more valuable (1996).

More revenue on average is generated from repeat-purchase customers when compared to

one time buyers (Reichheld 1996). With potential profit maximization in mind,

businesses are turning to customer relationship management in order to better understand

customers. Traditional marketing and mass advertising are proving to be ineffective in

such a commoditized environment. With the number of similar products on the market

increasing and competition among the firms escalating, companies must look toward

capturing customers on some factor other than product quality, price, or convenience

(Brown 2000). They must focus on building unique, one to one relationships with

customers based on individual needs and wants; thus, implementing customer

relationship management is critical to the growth and future success of firms.

Evolution of CRM

Customer relationship management has evolved from the foundations of mass

marketing and brand loyalty. The height of the industrial era brought with it mass

production and a division of specialized corporate functions (Achrol 1991; Parvatiyar &

Sheth 1995). The era was dominated by product innovation, and firms created

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competitive advantage by creating products that were better than those products of their

competitors (Peppers & Rogers 2004). Firms focused on the amount of products that

could be produced and since speed and efficiency were the top priorities, very little

attention was given to customization and overall customer satisfaction. The marketing

departments used mass advertising for their products in order to increase awareness and

build market share (Parvatiyar & Sheth 1995). Since the firms were solely concentrated

on persuading the customers to buy similar products, the marketing departments were

often completely separated from direct consumer contact; no attempts were made to truly

understand the customers or their purchasing behaviors.

As competition increased, however, firms looked to differentiate their products in

the highly commoditized market through branding (Peppers & Rogers 2004). Branding

refers to any feature or quality that can differentiate a product or service from that of a

competitor (Brown 2000). The ultimate goals of branding were to create brand

awareness and brand loyalty among consumers through building relationships of trust,

familiarity, and reliability (Peppers & Rogers 2004) and to “make them (the customers)

feel comfortable with the brand” (Bogart 1996, p. 172). According to Peppers & Rogers,

brand awareness and loyalty will ultimately transform into a branded relationship with

“ongoing dialogue” where customer needs influence the products or services (2004, p.

16). Because of the focus on the consumer-brand relationship, brand loyalty can be seen

as a precursor to customer relationship management.

The concept of mass marketing naturally led into the competitive transactional

marketing that is widely used today. The primary short term focus of transactional

marketing is to attract new customers for single transactions. There is a limited amount

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of contact between the customers and firms, and the primary way that customer

satisfaction is measured is through analysis of market share (Hennig-Thurau & Hansen

2000). All relationships, including those with suppliers and customers, are kept at a

distance in order to ensure that each party is acting in its own interest. Competition in the

form of product price and quantity is the driving force behind transactional marketing,

and firms offer value to customers in regard to the firm’s own self interest (Parvatiyar &

Sheth 1995).

Relationship marketing is on the opposite end of the spectrum and differs from

transactional marketing in a number of fundamental concepts. Relationship marketing is

based on long-term trust and satisfaction and is centered on customer retention and

customization (Parvatiyar & Sheth 1995). Instead of influencing customers to buy the

products, relationship marketing suggests making products to fit the customers.

Interaction between firms and customers is critical in the success of managing the

customer base. This interaction is based upon personal and social bonds, which “are

strengthened by the integration of customers in the value production process” (Hennig-

Thurau & Hansen 2000).

Emergence of CRM

A number of factors have contributed to the emergence of customer relationship

management including technology, total quality management, growth in the service

industry, and heightened customer expectations. Technology is at the heart of CRM

development and is essential on multiple levels of the process. Some believe that

technology can be credited with the wide acceptance of relationship marketing (Hennig-

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Thurau & Hansen 2000). The customer database and software technology enable firms to

track consumer purchase behavior, product preference, and personal contact information

(Formant 2000). Technological advancements in database programs have allowed

marketers to improve direct marketing tactics through individualization (Parvatiyar &

Sheth 1995). Once customer patterns are recorded in the database, the software can cater

direct marketing efforts, such as emails or mailers with coupons and special offers, to

each individual customer. This customer value can only be delivered by highly

sophisticated databases that combine information from several external and internal

sources regarding demographics, psychographics, survey results and purchase patterns

(Formant 2000). Technology is also imperative in creating customer-friendly and easily

accessible websites where customers can enter information, provide feedback, and

explore product offerings.

The practice of total quality management has also contributed to the development

of customer relationship management. Total quality management is the strategic

management of cost and quality control. It integrates all divisions and levels of a firm

with the goal of emphasizing employee teamwork, constant improvement, quality

measurement, and efficient problem solving (Powell 1995 & Spencer 1994). Total quality

management results in closer relationships between firms, suppliers and customers in

order to add value and ensure quality control all along the production chain (Parvatiyar &

Sheth 2001). The practice of maintaining and strengthening those relationships result in

firms adopting customer relationship management.

In addition to the practice of total quality management and the advent of new

technology, the growth of the service industry has drastically impacted the emergence of

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customer relationship management. Unlike products, services are intangible and

consumption is tied closely with production. Therefore, services are delivered directly

from the service provider (or the firm) to the consumer without the use of middlemen in

the distribution channel (Parvatiyar & Sheth 2001). As middlemen disappear from the

equation, it is more common to see customers as the “co-producers” when they customize

products and interact with employees and websites on a more intimate level (Vargo &

Lusch 2004). The necessity of this direct contact fosters an environment in which

relationships naturally form, but the service quality of the provider is essential in

developing a long term, satisfactory relationship (Crosby, Evans & Cowles 1990). In

order to capitalize on profitable consumers and to maintain and strengthen the producer-

consumer relationship, firms are turning to customer relationship management.

With every customer interaction that takes place within a firm, there is a

possibility that customer expectations will not be met. The ending outcome can meet,

exceed, or fall short of customer expectations. As competition increases among firms,

however, there is a greater emphasis on customer satisfaction and in turn, customer

expectations are increasing. Although some customers value price over all other

characteristics, many customers are not willing to compromise when it comes to products

and services; therefore, firms are adopting the practices of customer relationship

management to ensure those expectations are met (Parvatiyar & Sheth 2001).

Components of CRM

Implementation of customer relationship management is a multi-step process that

involves seven basic components. The first key component is the creation of a customer

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database which contains all pertinent information including descriptive information (such

as psychographics and demographics), transaction history, and customer contact

information (Winer 2001). Customer responses to marketing tactics such as redemption

rates regarding coupons, mailers, or emails is also usually recorded in the database. The

customer database can serve as a competitive advantage if it is maintained correctly since

it is the beginning step in customer relationship management (Espinoza & Rust 2006).

In order to build up the content of the database, companies acquire customer information

from warranty cards, loyalty customer cards, company websites, and contests. The

ultimate goal is to collect customer information with every customer interaction (Winer

2001). Internet transactions allow for prime tracking and cross-referencing since

information inputted by the customer is generally very useful and applicable to building a

potential relationship with that customer (Espinoza & Rust 2006). Although it is easy

for some companies to collect data, it is extremely difficult for others. Winer (2001)

created a framework regarding data collection and the potential problems that might

ensue based on customer interaction and interaction frequency. The ideal situation for a

company involves direct interaction at a high frequency; data collection is relatively easy

for these firms. Firms that have indirect customer interaction have the most difficult time

collecting data and must work harder to develop ways in which to retrieve customer

information.

Since technology has enabled customer databases to collect and store a large

amount of information, the next vital step in the CRM process is the analysis of this

information. Historically, the data was used to separate the customers into different

segments based on descriptive information and comparable purchase behaviors in order

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to develop marketing tactics specifically for them (Brown 2000 & Winer 2001). This

traditional segmenting failed to account for the times when customers could fall into a

number of categories (Espinoza & Rust 2006). With a greater understanding and the

technological capability, the customer database can by analyzed in smaller, more specific

categories; each customer can also fall into more than one category (Wedel & Steenkamp

1991). Instead of developing marketing schemes for entire segments, each customer can

be analyzed in order to understand future purchases and individual profit potential for the

firm (Winer 2001). This innovative “one to one” marketing concept encourages firms to

address individual customer needs and to analyze lifetime customer value. When

determining lifetime customer value, several factors are considered, including customer

purchase history, the contribution margin, and variable marketing costs (Venkatesan &

Kumar 2004). Each customer’s past profit is calculated by adding up past profit margins

of all purchases and then subtracting the variable costs associated with obtaining that

customer. Customers are often ranked by their lifetime customer values, allowing firms

to distinguish the most valuable customers and to allocate necessary resources efficiently

among them (Venkatesan & Kumar 2004).

Clickstream analysis is another kind of data analysis, but it takes place on the

Internet and company websites. The database records and analyzes consumer website

visits, purchases, and shopping patterns in order to predict future customer behavior. The

goal of clickstream analysis is to convert those potential shoppers who are browsing the

websites into purchasing consumers (Winer 2001). Through analyzing past behavioral

patterns, companies can predict future purchases and tailor their websites to each

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individual by changing the layout of the website, product offerings, and special

promotions (Fader & Moe 2001).

After analyzing all of the collected data, the next step in the CRM process is to

actually select the customers that the marketing programs will target (Winer 2001).

Customer relationship management is built upon retaining existing customers instead of

acquiring new ones. Therefore, the most desired customers are those who have the

highest customer lifetime values. Firms should concentrate on retaining these customers

by focusing marketing programs on them. Customers who don’t necessarily have high

customer lifetime values but have the potential to be profitable in the future should also

be targeted with special customer promotions. Customers who offer no long-term profits

or who may be hurting present profits should be carefully identified and abandoned, but

companies must be careful to avoid spillover defections by profitable customers (Roberts,

Liu & Hazard 2005).

Targeting these selected customers involves a combination of direct marketing

including direct mail, emails, sales calls, and telemarketing (Winer 2001). Although

these strategies may be successful sometimes, customer relationship management

emphasizes the need for individualized targeting through one to one marketing.

According to Peppers & Rogers, “The one to one marketing paradigm is based on

individualized communication and ‘customized’ products and services” (1994). One to

one marketing involves modifying tactics based on each customer’s needs, wants, and

preferences; products and services are refined to meet the expectations of the most

profitable customer segments (Brown 2000).

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One of the more popular CRM tactics is using opt-in email services in which

customers must agree to receive emails from a company (Winer 2001). Since this is an

opt-in marketing service, customers are more prone to clicking through the email to get to

the company website and therefore the success rate is high. The emailing approach is

very beneficial to the company because of the high success rate and low costs associated

with it.

Once customers are selected from analysis of the database and targeted through

one to one marketing programs, the next vital component in customer relationship

management is the focus on the actual customer relationships. Firms are now constantly

competing with one another to provide better service and higher customer satisfaction

(Winer 2001). Not only do customers demand to be satisfied with product performance,

they also expect the “cumulative” customer experience to be satisfactory (Anderson,

Fornell & Lehmann 1994).

Customer relationships can be built upon, reinforced, and improved through a

number of CRM programs, including customization, community building, customer

service requirements, rewards programs, and loyalty programs (Winer 2001).

Customization can pertain to both products and promotions. Although more cost is

incurred when customizing promotions for particular customers, many companies find

that their return on investment makes it worthwhile. Revenues from customized

promotions are higher when compared to the revenues generated from standardized

promotions (Kahn, Lewis & Singh 2009). When it comes to products, customization has

been growing in popularity from both a consumer and company standpoint. Consumers

enjoy the option to build their own products by selecting specific attributes or product

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packages; this customization option only strengthens the relationship between the firm

and consumer (Stump, Athaide & Joshi 2002). As the seller, a company offers

customized products or services to increase customer value in order to gain competitive

advantage over competitors that offer only standardized products and services.

Customization emphasizes consumer-seller interaction and communication while

increasing the chances of satisfaction and future exchanges (Porter 1980).

Customer service goes hand in hand with product and service customization.

With customization of essentially every customer-firm contact, customer service is vital

in developing long term relationships and CRM. Customer service begins before the

purchase transaction, but extends far beyond it through increasing the perceived value of

the product or service (Christopher, Payne, Ballantyne 1991). Firms can engage in two

general types of customer service: reactive and proactive. Reactive service takes place

when the customer initiates contact with the firm due to a problem or question. Proactive

service involves the firm making the first contact with the customer in order to ensure

satisfaction before a formal complaint is made (Winer 2001).

Another relationship program in the implementation of CRM is brand community

building. According to McAlexander, Schouten, and Koenig (2002, p. 38), a brand

community is a network of relationships including those between “the customer and the

brand, between the customer and the firm, between the customer and the product in use,

and among fellow customers.” The web offers the ideal location for these networks to

develop and for customers to interact with each other by allowing them to provide

discussion and feedback about information regarding products, the brand, and the firm.

As these customers exchange stories, product suggestions, and other product related

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information, they begin to feel part of a community and become personally attached to

the brand or the company behind the brand (Winer 2001). This exclusive community

offers benefits only to those who partake in it, and it therefore creates an “in-group/out-

group split” (Reinartz 2006). This split is desirable when the consumers who are

included in the exclusive group make repeat purchases and remain profitable to the

company. Those who do not feel a part of the group, however, can have negative

perceptions and may choose not to support the brand or the company. The brand

community as a CRM program is customer-centric and promotes relationship building in

an open, interactive environment.

Perhaps one of the most powerful programs in the customer relationship

management process is the loyalty program, which is designed to increase customer

loyalty and satisfaction. Through a loyalty program, the firm aspires to create a mutually

beneficial relationship with the customer; the ultimate goal is for each party to receive a

positive benefit (Brown 2000). Loyalty programs may be implemented in various ways,

but all of them are created to retain customers, to generate long term relationships, and to

increase the number of customer interactions in order to increase profit.

Before a firm creates a program, it must first define loyalty in company terms and

identify the firm’s goals regarding loyalty. True customer loyalty is a combination of

two components: attitudinal and behavioral loyalty. Attitudinal loyalty is created when

customers hold strong, positive beliefs about a specific company, brand, or product

(Uncles, Dowling & Hammond 2003). Once individuals have made a mental or

emotional commitment, behavioral loyalty often follows in the form of repeat purchases

or frequent store visits (Reinartz 2006). Since true loyalty depends on both the

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customer’s satisfaction and involvement with the purchase, companies design loyalty

programs to enhance these experiences.

According to Reinartz, a loyalty program is defined as a marketing practice that

offers rewards for customers to encourage them to make repeat purchases (2006).

Effective loyalty programs are those that are customized to fit the needs and goals of a

company and their customers. When designing a loyalty program, the reward structure

accounts for the most defining characteristic. The reward structure is the most alluring

component of the loyalty program; consumers are primarily attracted to loyalty programs

because of the rewards and benefits available to them (Mimouni-Chaabane & Volle

2009). Loyalty programs can offer hard and/or soft rewards depending upon the nature

of the product or service, but both should be perceived as valuable in the consumers’

minds. Hard rewards offer tangible or financial benefits such as promotions, free

products or services, and price reductions. Soft rewards are based on psychological

benefits and often incorporate special customer recognition or status. These rewards may

or may not be connected with the company’s product offerings. Firms can choose to

directly support their product proposition by allowing customers to redeem loyalty points

for free products or price reductions on those products (Reinartz 2006). On the other

hand, firms can offer products that are unrelated to their business. More often than not,

however, firms usually choose to offer rewards that are directly tied to their product

offerings in order to encourage additional business and further develop the relationships

with the consumers. Offering rewards directly related to the products is also less costly

to the firm. No matter the type of reward offered in the loyalty program, firms should

reward customers at a high rate, which is determined from the ratio of the monetary value

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of the reward to the monetary value of the initial transaction. Consumers are much more

satisfied and perceive the loyalty program justified when this rate is higher because the

decreased lag time between rewards keep customers perceiving the value of the program.

The effectiveness of the loyalty program comes down to whether or not the

consumer adopts the program and consistently uses the tools provided to them, such as a

loyalty card (Mauri 2003). Through offering valuable rewards in a timely manner,

customers will increase repeat purchases and strengthen their relationships with the firm

and its products. The loyalty program in combination with the other relationship

programs allows for the CRM process to cater to the needs and wants of the customer

base.

Managing the CRM Process

Once the CRM components are defined by the firm, the next step is to actively

manage the process through role specification, employee training, effective

communication, and evaluation. Role specification is necessary in managing the

relationships of CRM, and its main goal is to define the responsibilities and duties of the

relationship partners such as the firm, the employees, and the customers (Heide 1994).

As the CRM programs progress in complexity, role specification becomes more

important in managing the complex relationships (Parvatiyar & Sheth 2001). Role

specification ensures that the individuals responsible for maintaining the relationship are

held accountable and are given the necessary resources to continue the CRM programs.

After roles are specified, the employees must be adequately trained to implement

the programs within the CRM process. In order to successfully execute effective CRM,

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employees should be equipped with strong sales and communication skills, and they

should be trained to provide exceptional customer service (Formant 2000). Since

employees are responsible for direct contact with customers and can enhance or weaken

the customer-firm relationships, they should feel empowered to make decisions regarding

customer service. Employees need to know how to use and update the customer

information located in the databases efficiently and effectively in order to build

relationships and increase customer satisfaction (Liljander 2000). Since employees are

such an integral part of customer relationship management, companies should focus on

employee satisfaction and offer employee motivation in the form of rewards or incentives

(Parvatiyar &Sheth 2001). Customer and employee loyalty and satisfaction are positively

related to each other, so it is in the firm’s best interest to train and reward employees

(Reichheld 1996).

In order to carry out any successful programs or build any relationships, the firm

should accurately communicate with its internal audience (the employees) as well as its

external audience (the customers). Relationship marketing requires communication

among all key players since it is built upon trust and mutual satisfaction. Firms must

communicate with employees when training and enforcing guidelines and policies. The

top executives and customer relationship managers must explain the CRM goals of the

company and how the CRM programs will be implemented to the rest of the firm

(Liljander 2000). On an external level, communication is essential to building

relationships with the customers. Customers must be informed about the CRM programs

(such as loyalty programs) available in order to encourage repeat purchases. The firm

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must perfect the communication channels between the firm and the customers to ensure

that information is being accurately shared (Parvatiyar &Sheth 2001).

The final step in managing the CRM process is evaluating the results and overall

successfulness of the program. Customer relationship management is focused on

building and maintaining customer relationships in order to increase retention and profit

in the long run. If the programs aren’t successful and the firm does not get an adequate

return on investment, then the CRM process should be modified or ended immediately.

Since CRM incorporates subjective and abstract concepts such as satisfaction, loyalty,

and relationship development, it is often difficult to measure its success. Although most

scholars believe that there is no technology or method that measures the success of CRM

completely accurately, there have been attempts at developing a comprehensive report for

a firm’s CRM programs (Parvatiyar & Sheth 2001). The CRM process should be

evaluated using a set of unique performance metrics that reflect the core concepts of a

firm’s relationship marketing (Roberts, Liu, & Hazard 2005).

In addition to measuring profitability and market share, the firm can easily

evaluate its CRM programs by obtaining conversion rates, customer acquisition costs,

same customer sales and user adoption of loyalty programs (Winer 2001 & Goldenberg

2010). These components are often organized and recorded on a CRM scorecard that

divides the CRM framework into specific categories. The first category of the CRM

scorecard is the organizational performance perspective which ultimately proves whether

or not the CRM process increases profit (Goldenberg 2010). It details the customer

equity, shareholder value, and profitability of the CRM plan using perceived value,

customer lifetime value and brand equity calculations (Hyung-Su & Young-Gul 2009).

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The second category of the CRM scorecard is the customer perspective, which is centered

on evaluating how a customer views the particular firm and what value he or she

perceives to gain from the firm. The customer perspective includes customer loyalty

measured by customer satisfaction and customer value measured by surveys and number

of customer complaints. The process perspective is another component of the CRM

scorecard and includes evaluating the overall success of the business strategy by

measuring customer acquisition, retention, and expansion (Hyung-Su & Young-Gul

2009). Once the CRM initiatives have been evaluated, the firm’s executive leaders must

make a decision regarding the future. If the initiatives show an improvement in the

firm’s bottom line, then money should be continually invested into the CRM program. If

the initiatives don’t improve the bottom line, then the CRM program should be revised or

ceased.

Advantages of CRM

Implementing customer relationship management offers a number of advantages

and disadvantages to both the companies that initiate the programs and the customers that

partake in them. From a customer perspective, the advantages are directly attached to

experiences and can mostly be attributed to the perceived benefits of the CRM programs

(Holbrook 1996). Customers obtain perceived value from the utilitarian benefits, hedonic

benefits, and symbolic benefits offered by the CRM programs. Utilitarian benefits derive

from completing a task or obtaining a tangible object, and they often are connected with a

product’s physical characteristics. Customers who seek utilitarian benefits from CRM

programs are often most concerned with the financial rewards, such as monetary savings

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from coupons or special offerings. Convenience benefits also provide utilitarian value by

saving a customer’s time (Mimouni-Chaabane & Volle 2009). Hedonic value originates

from emotionally gratifying or sensory fulfilling benefits that are not connected with

tangible product characteristics. For example, customers receive hedonic benefits from

CRM programs when they are encouraged to try new products and enjoy new

experiences after collecting a predetermined set of loyalty program points or after

obtaining a certain customer status (Arnold & Reynolds 2003). Customers may also

receive symbolic benefits through self expression, recognition, and approval. These

benefits are not related to tangible characteristics or to products; they pertain specifically

to an individual’s self-esteem and how they feel they are perceived by the world

(Mimouni-Chaabane & Volle 2009). CRM programs provide its customers with

symbolic benefits by recognizing individuals and their own unique product preferences

and shopping behaviors. When these individuals are considered a part of an elite group

of customers or a brand community, they feel socially accepted and satisfied; therefore,

CRM programs should focus on giving these customers the experiences they desire

(Muniz & O’Guinn 2001).

The advantages of successful CRM implementation from a company perspective

involve increasing customer retention, repeat purchases, and customer relationships in

order to gain the ultimate objective of raising profits. In a world inundated with

marketing tactics and advertising campaigns, companies must redefine themselves in the

eyes of the customers, and CRM allows them to do just that. CRM provides companies

with a customer knowledge advantage through effective and efficient internal and

external information flow and communication (Minocha 2000). The technology created

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for the CRM process and the focus on customer relationships discover customer leads,

encourages loyalty, and generates sales. Once companies create and strengthen those

customer relationships, they gain a competitive advantage through customer commitment

and trust (Morgan & Hunt 1994); thereby, the companies psychologically connect with

customers and capitalize on their purchase behaviors.

Disadvantages of CRM

From a company perspective, the costs associated with CRM programs and

technology can serve as a great disadvantage if the return on investment does not reach

the optimal level. Once firms commit to adopting the CRM practice, they must invest in

training employees, developing the database software, and targeting marketing efforts at

the most profitable customers. Evaluating the CRM process is another disadvantage due

to the fact that there is no one factor that can determine if the program is successful or

not. There are many contributing factors that cannot be easily numerically measured, and

therefore, firms may find it difficult to get the true value of its CRM programs (Winer

2001).

Two main ethical implications, which pertain to both the customers and

companies, involve customer discrimination behavior and privacy issues. Although

CRM attempts to target the most profitable customers and maintain strong relationships

with them, the process inherently discriminates against other current and potential

customers when they are treated differently. When consumer segments are defined and

separated according to their values, some customers are evaluated as being more valuable

and therefore they hold priority over others. Problems arise when these segments

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communicate with each other and with the company via social networking sites and other

community building sites. When unfavorable communication takes place regarding

differences in customer experiences, the company may have to defend itself (Stauss

2000). Discrimination can be seen as unfair and can ultimately be counterproductive to

building customer relationships and maintaining a sense of community. According to

Hansen (2000), a “discrimination relationship policy is tied up with problems of moral

sensitivity,” and therefore may be detrimental in relationship building.

Since the CRM process requires a vast amount of customer information, privacy

issues remain an important and sensitive issue with firms and customers alike. In order to

customize products and services for individual customers, personal information is

collected and stored in CRM databases. There is a fine line, however, between collecting

and capitalizing on information and stepping over customer privacy boundaries.

According to Forrester Research, individuals have reported feelings of irritation and

violation and some have admitted that they are fearful about internet usage tracking

(Stanley 2000). When firms violate customer privacy by sending unwanted e-mails and

mailings or by sharing private information, customers can backlash and boycott the firms.

Some privacy issues can be resolved by an “opt-in” option in which the customer must

explicitly give consent to personal data collection or by an “opt-out” option in which

customers must forbid the use of data (Winer 2001). As more firms adopt and develop

CRM processes, privacy issues should be addressed in order to ensure that consumers

feel comfortable and confident with the firms and with the data those firms are collecting

and using.

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Although there are many advocates for the adoption of customer relationship

management, many skeptics criticize the practice for a number of reasons. The initial

criticism attacks the fact that no top marketers, or executives of the same firm for that

matter, can agree on a single definition of CRM; this lack of consistency makes it

difficult for an organization to create a united front regarding CRM objectives and

programs (Newell 2003; Plakoyiannaki & Tzokas 2001). This lack of definition may not

be critical, however, if the firms are able to successfully implement their own individual

working systems. Other critics believe that CRM is failing to meet customer needs; CRM

practitioners are too focused on managing the customer and not enough on satisfying the

customer. Finally, marketing executives often view technology as the most important

part of CRM, but many see technology as the only requirement for CRM implementation.

Technology does not build relationships, and critics argue that the process of CRM puts

too much emphasis on databases and not enough on personal interactions (Newell 2003).

Final Thoughts: The Future of CRM

The future of CRM is bright if companies are willing to invest money and

improve their current practices. Currently, CRM implementation is relatively weak

among firms; the future of CRM will be determined by how well these firms adapt to its

practices. According to Winer, technology and database functions will continue to

improve, but companies will have to become more effective in analyzing customer

behavior and information (2001). Firms must continue to build company and brand

communities to encourage communication and increase loyalty levels among current and

potential customers (Reinartz 2006). A popular trend in improving CRM involves the

24

splitting of the marketing manager job into two separate positions. One position would

be responsible for customer acquisition and the other for customer retention, allowing for

the managers to solely focus on one’s responsibilities and objectives (Winer 2001).

Customer experience management (CEM) is another marketing movement that is an

offshoot of CRM, and it focuses on the customer experience at every touch point between

the firm and the customer. If CEM proves to be a valuable and effective practice, then it

is likely that CRM will evolve to include CEM techniques (Schmitt 2003 & Winer 2001).

Customer relationship management has become the new wave of marketing in

an attempt to build loyalty, strengthen customer relationships and increase profits. Using

software technology and advanced databases, CRM aims to reach out to customers to

meet their individual needs and exceed their expectations. Firms implement relationship

programs, such as community-building websites and loyalty card programs, to develop a

trusting relationship among consumers to gain their confidence and increase repeat

purchases. CRM will continue to be a dominant marketing technique that will contribute

to ongoing customer relationships and bottom line profits.

25

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