Customer Relationship Management (CRM) is a Management

Abstract

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

information technology with marketing. It originated in the United States in the late

1990’s, and, to date, has been accepted in a significant number of companies

worldwide. On the other hand, some people have negative opinions of CRM; such

views hold that it is difficult to implement successfully and that its cost-benefit

performance is low, among others.

CRM is about introducing the right product to the right customer at the right time

through the right channel to satisfy the customer’s evolving demands. Ideally, it

should follow the development of each individual customer and develop integrated

multi-segment, multi-stage, and multi-channel CRM decisions in order to maximize

the total customer lifetime profit. However, most existing CRM practice and

academic research focuses on methods to select the most profitable customers for a

scheduled CRM intervention.

Introduction

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

build long term relationships with customers. Customer Relationship Management

can be defined as “the development and maintenance of mutually beneficial long-term

relationships with strategically significant customers.”

Under certain circumstances it may result in the termination of relationships. It can

also be noted that the relationship is developed with strategically significant

customers, and hence it is necessary for the organisation to determine the nature of the

significance. Traditionally this would be done by determining the value of the

customer to the organisation, but other criteria that can be used include whether a

customer serves as a benchmark for other customers or whether the customer inspires

change in the supplier .

The use of information-enabled systems for enhancing individual customer

relationships to ensure long-term customer loyalty and retention

CRM is about understanding the nature of the exchange between customer and

supplier and managing it appropriately. The exchange contains monetary

considerations between supplier and customer – but also communication. The

challenge to all supplier organizations is to optimize communications between

parties to ensure profitable long-term relationships. CRM is a key focus for many

organizations now as a shift away from customer acquisition toward customer-

retention and churn reduction strategies dictates a need for best practice

CRM processes.

- Jeffrey Peel, CEO of Quadriga Consulting

“The long-term success of the organization and improved value for its shareholders

lies to a very great extent in the company’s ability to develop and sustain genuine

relationships with its customer.” -James G. Barnes

“A view of the customer that asserts that he or she is a valuable asset to be managed.”

–S. Thomas Foster

Some other definitions are:

“Process of creating and maintaining relationships with business customers or

consumers”

“A holistic process of identifying, attracting, differentiating, and retaining

customers”

“Integrating the firm’s value chain to create enhanced customer value at every

step”

“An integrated cross-functional focus on improving customer retention and

profitability for the company.”

Deciding that “you want lifetime clients.” -Richard Buckingham

The essence of the information technology revolution and, in particular, the World

Wide Web is the opportunity to build better relationships with customers than has

been previously possible in the offline world. By combining the abilities to respond

directly to customer requests and to provide the customer with a highly interactive,

customized experience, companies have a greater ability today to establish, nurture,

and sustain long-term customer relationships than ever before. The ultimate goal is to

transform these relationships into greater profitability by increasing repeat purchase

rates and reducing customer acquisition costs.

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

called, has been referred to as the new “mantra” of marketing. Companies like Siebel,

E.piphany, Oracle, Broadvision, Net Perceptions, Kana and others have filled this

CRM space with products that do everything from track customer behavior on the

Web to predicting their future moves to sending direct e-mail communications. This

has created a worldwide market for CRM products and services of $34 billion in 1999

and which is forecasted by IDC to grow to $125 billion by 2004.

The need to better understand customer behavior and focus on those customers who

can deliver long-term profits has changed how marketers view the world.

Traditionally, marketers have been trained to acquire customers, either new ones who

have not bought the product category before or those who are currently competitors’

customers. This has required heavy doses of mass advertising and price-oriented

promotions to customers and channel members. Today, the tone of the conversation

has changed from customer acquisition to retention. This requires a different mindset

and a different and new set of tools. A good thought experiment for an executive

audience is to ask them how much they spend and/or focus on acquisition versus

retention activities. While it is difficult to perfectly distinguish the two activities from

each other, the answer is usually that acquisition dominates retention.

The impetus for this interest in CRM came from Reichheld where he showed the

dramatic increase in profits from small increases in customer retention rates. For

example, his studies showed that as little as a 5% increase in retention had impacts as

high as 95% on the net present value delivered by customers (advertising agencies)

with a low of 35% (computer software). Other studies done by consultants such as

McKinsey have shown that repeat customers generate over twice as much gross

income than new customers. The considerable improvements in technology and

innovation in CRM related products have made it much easier to deliver on the

promise of greater profitability from reduced customer “churn.”

For example, Exhibit 1 shows the results from a 1999 McKinsey study on the impact

of improvements in a number of customer-based metrics on the value of Internet

companies. The metrics are divided into three categories: customer attraction,

customer conversion, and customer retention. As can be seen, the greatest leverage

comes from investments in retention. If revenues from repeat customers, the

percentage of customers who repeat purchase, and the customer churn rate each

improves by 10%, the company value was found to increase (theoretically) by 5.8%,

9.5%, and 6.7% respectively.

A problem is that CRM means different things to different people. For some, CRM

means direct e-mails. For others, it is mass customization or developing products that

fit individual customers’ needs. For IT consultants, CRM translates into complicated

technical jargon related to terms like OLAP (on-line analytical processing) and CICs

(customer interaction centers).

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

process from a marketing perspective. The basic perspective taken is that of the

customer, not the company. In other words, what do managers need to know about

their customers and how is that information used to develop a complete CRM

perspective?

The basic model is shown in Exhibit 2 and contains a set of 7 basic components:

1. A database of customer activity.

2. Analyses of the database.

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

4. Tools for targeting the customers

5. How to build relationships with the targeted customers.

6. Privacy issues.

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

Creating a Customer Database

A necessary first step to a complete CRM solution is the construction of a customer

database or information file. This is the foundation for any customer relationship

management activity. For Web-based businesses, this should be a relatively straight

forward task as the customer transaction and contact information is accumulated as a

natural part of the interaction with customers. For existing companies that have not

previously collected much customer information, the task will involve seeking

historical customer contact data from internal sources such as accounting and

customer service.

What should be collected for the database? Ideally, the database should contain

information about the following:

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

details (price paid, SKU, delivery date)

2) Customer contacts. Today, there is an increasing number of customer contact

points from multiple channels and contexts. This should not only include sales calls

and service requests, but any customer- or company-initiated contact.

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

4) Response to marketing stimuli. This part of the information file should contain

whether or not the customer responded to a direct marketing initiative, a sales contact,

or any other direct contact.

5) The data should also be over time.

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

Durable goods manufacturers utilize information from warranty cards for basic

descriptive information. Unfortunately, response rates to warranty cards are in the 20-

30% range leaving big gaps in the databases. Service businesses are normally in better

shape since the nature of the product involves the kind of customer-company

interaction that naturally leads to better data collection. For example, banks have been

in the forefront of CRM activities for a number of years. Telecom-related industries

(long distance, wireless, cable services) similarly have a large amount of customer

information.

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

1. The networking company 3Com created a worldwide customer database from

“legacy” databases scattered throughout their global operations. They built

customer records from e-mails, direct mail, telemarketing, and other customer

contacts, with descriptive information by department, division, and location.

2. Thomson Holidays, the British tour company developed a Preferred Agents

Scheme to enlist the assistance of travel agents in building the database. They

collect customer descriptive information and data on trips taken. This enables

them to calculate the profit on a per customer trip basis.

3. Taylor Made, the golf equipment manufacturer, has a database of over 1.5

million golfers with their names, addresses, e-mail addresses, birthdays, types

of courses played, and vacations taken.

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

consumer products have greater problems constructing databases due to lack of

systematic information about their millions of customers and the fact that they use

intermediaries (i.e., supermarkets, drug stores) that prohibit direct contact. The

challenge is to create opportunities for customer interaction and, therefore, data

collection. This can be from running contests to encouraging customer visits to Web

sites. Waldenbooks offers a 10% discount on purchases if customers provide

information to the company and become Preferred Readers.

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

construction. Firms in the upper left-hand quadrant have many direct customer

interactions (banks, retail) and therefore have a relatively easy job constructing a

database. Firms in the lower right-hand quadrant have the most difficult job because

the interact less frequently with customers and those interactions are indirect (through

channels) in nature. Auto and furniture manufacturers are examples here. The other

two boxes represent intermediate situations.

The point of this framework is that unless you are in the high-direct box, you have to

work harder to build a database. The Thomson Holidays example above is a good

illustration of company that used channel incentives to take a low frequency product

and still obtain customer information. Kellogg has developed a creative solution to the

problem through its “Eat and Earn” program where children find a 15-digit code

inside cereal boxes and then go to the company’s Web site, enter some personal

information, and become eligible for free toys. The task is then to move towards the

upper left-hand quadrant through increased customer contact and “event” marketing.

A number of possible areas of research in the database area are the following:

What is the value of the database? While some research has started in this

direction, since the database is a significant corporate asset, more work from

an accounting perspective is needed.

What is the best database design from both an information and user

standpoint?

How can companies integrate disparate databases (e.g., marketing and

production, globally) more efficiently?

What are some new strategies for data generation?

Analyzing the Data

Traditionally, customer databases have been analyzed with the intent to define

customer segments. A variety of multivariate statistical methods ranging such as

cluster and discriminant analysis have been used to group together customers with

similar behavioral patterns and descriptive data which are then used to develop

different product offerings or direct marketing campaigns.9 Direct marketers have

used such techniques for many years. Their goals are to target the most profitable

prospects for catalogue mailings and to tailor the catalogues to different groups.

More recently, such segmentation approaches have been heavily criticized. Taking a

large number of customers and forming groups or segments presumes a marketing

effort towards an “average” customer in the group. Given the range of marketing tools

available that can reach customers one at a time using personalized messages (what

has been referred to as “1-to-1” marketing), there is less need to consider the usual

market segmentation schemes. Rather, there is increased attention being paid to

understanding each “row” of the database, that is, each customer and what he or she

can deliver to the company in terms of profits.

As a result, a new term, lifetime customer value or LCV, has been introduced into

the lexicon of marketers. The idea is that each row/customer of the database should be

analyzed in terms of current and future profitability to the firm. When a profit figure

can be assigned to each customer, the marketing manager can then decide which

customers to target.

A model of the profitability of a customer based on past and current purchases is the

following:

Profit = [ (Pj – Cj) - MCk] , T J K

where:

t = the current time period,

T = the total number of time periods in the database,

J = the number of products purchased,

K = the number of marketing tools used to target customers,

Pj = Price of the jth product purchased,

Cj = Cost of the jth product purchased,

MCk = Cost of the kth direct marketing tool (customer acquisition costs).

In words, the profit that a customer has produced for the firm is the sum of the

margins of all the products purchased over time less the cost of reaching that

customer. These costs include any that can be broken out at the individual customer

level such as direct mail, sales calls, etc. Note that mass advertising would not be part

of this formula. It could be assigned to individual customers by computing a per

customer dollar amount but because it is the same for each customer, it would not

affect the rank ordering of the customers in terms of their profitability.

The equation can be used as the basis for LCV calculations by adding forecasts for the

major parameters and discounting back. This obviously requires assumptions about

future purchasing, product and marketing costs, as well as how long the customer can

be expected to remain with the firm. Generally, this will result in a number of

scenarios for each customer depending upon these assumptions.

The equation not only is the basis for LCV, but it can also be used to show where

additional profits can be obtained from customers. Increased profits can result from:

Increasing J, the number of products purchased, by cross-selling;

Increasing P, the price paid, by up-selling or charging higher prices;

Reducing C, product marginal costs;

Reducing MC, the customer acquisition costs.

Other kinds of data analyses besides LCV are appropriate for CRM purposes.

Marketers are interested in what products are often purchased together, often referred

to as market basket analysis. Complementary products can then be displayed on the

same physical page in a hard-copy catalogue or virtual page on a Web site.

A new kind of analysis born from the Internet is clickstream analysis. In this kind

of data analysis, patterns of mouse “clicks” are examined from cyberstore visits and

purchases in order to better understand and predict customer behavior. The goal is to

increase “conversion” rates, the percentage of browsing customers to actual buyers.

Research issues include the following:

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

the aspects of customer value?

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

How can we modify the model to incorporate data from Web clickstream and

log file data?

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

Customer Selection

Given the construction and analysis of the customer information contained in the

database, the next step is to consider which customers to target with the firm’s

marketing programs. The results from the analysis could be of various types. If

segmentation-type analyses are performed on purchasing or related behavior, the

customers in the most desired segments (e.g., highest purchasing rates, greatest brand

loyalty) would normally be selected first. Other segments could also be chosen

depending upon additional factors.

For example, if the customers in the heaviest purchasing segment already purchase at

a rate that implies further purchasing is unlikely, a second tier with more potential

would also be attractive. The descriptor variables for these segments (e.g., age,

industry type) provide information for deploying the marketing tools. In addition,

these variables could be matched with commercially-available databases of names to

find additional customers matching the profiles of those chosen from the database.

If individual customer-based profitability is also available through LCV or similar

analysis, it would seem to be a simple task to determine on which customers to focus.

The marketing manager can use a number of criteria such as simply choosing those

customers that are profitable (or projected to be) or imposing an ROI hurdle. The goal

is to use the customer profitability analysis to separate customers that will provide the

most long-term profits from those that are currently hurting profits. This allows the

manager to “fire” customers that are too costly to serve relative to the revenues being

produced.

While this may seem contrary to being customer-oriented, the basis of the time-

honored “marketing concept,” in fact, there is nothing that says that marketing and

profits are contradictions in terms. The 80/20 rule often holds in approximation: most

of a company’s profits are derived from a small percentage of their customers.

For example:

AT&T offers different levels of customer service depending upon a

customer’s profitability in their long-distance telephone business. For highly

profitable customers, they offer “hot towel,” personalized service. For less

profitable customers, you get automated, menu-driven service.

The wireless provider PageNet raised monthly rates for unprofitable

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

Similarly, Federal Express raised shipping rates for residential customers in

expensive-to-serve areas where their volume did not justify normal rates. The

point is that without understanding customer profitability, these kinds of

decisions cannot be made.

On what basis should these customer selection decisions be made? One approach

would be to take the current profitability based on the above equation. An obvious

problem is that by not accounting for a customer’s possible growth in purchasing, you

could be eliminating a potentially important customer. Customers with high LCV

could be chosen; this does a better job incorporating potential purchases. However,

these are difficult to predict and you could include a large number of unprofitable

customers in the selected group. No matter what criterion is employed, de-selected

customers need to be chosen with care. Once driven away or ignored, unhappy

customers can spread negative word-of-mouth quickly, particularly in today’s Internet

age.

Some research issues in this area are the following:

What is the optimal selection criterion?

Are there new models of customer categorization?

What is the optimal mix of customer types?

Targeting the Customers

Mass marketing approaches such as television, radio, or print advertising are useful

for generating awareness and achieving other communications objectives, but they are

poorly-suited for CRM due to their impersonal nature. More conventional approaches

for targeting selected customers include a portfolio of direct marketing methods such

as telemarketing, direct mail, and, when the nature of the product is suitable, direct

sales. Writers such as Peppers and Rogers14 have urged companies to begin to

dialogue with their customers through these targeted approaches rather than talking

“at” customers with mass media.

In particular, the new mantra, “1-to-1” marketing, has come to mean using the

Internet to facilitate individual relationship building with customers. An extremely

popular form of Internet-based direct marketing is the use of personalized e-mails.

When this form of direct marketing first appeared, customers considered it no

different than “junk” mail that they receive at home and treated it as such with quick

hits on the delete button on the keyboard. However, sparked by Godin’s call for

“permission”-based programs whereby customers must first “opt-in” or agree to

receive messages from a company, direct e-mail has become a very popular and

effective method for targeting customers for CRM purposes. Companies such as Kana

and Digital Impact can send very sophisticated e-mails including video, audio, and

web pages. Targeted e-mails have become so popular that Jupiter Media Matrix

projects that over 50 billion of them will be sent in 2001.

A study by Forrester Research shows why this is so. Exhibit 4 demonstrates that e-

mail is a very cost-effective approach to customer retention. Through lower cost per

1,000 names by using the company’s own database (the “house” list) and greater

Click through rates than those afforded by banner advertisements and e-mails sent to

lists rented from suppliers, companies can reduce their cost per sale dramatically.

Some examples are the following:

Southwest Airlines’s e-mail-based Click ‘n Save program has 2.7 million

subscribers. Every Tuesday, the airline sends out e-mails to this database of loyal

users containing special fare offers.

The bookseller Borders (Borders.com, Borders and Waldenbooks offline

retailers) collected all of its customer information into a single database. The

company then uses e-mails tailored to the customer’s reading interests to alert them

about upcoming releases.

The Phoenix Suns basketball team sends streaming video messages from its

players promoting new ticket packages and pointing them to the team’s Web site.

The main criticisms of targeted e-mails have focused on the privacy issue which will

be discussed below. Some research issues are the following:

How do should we allocate resources over acquisition, retention, and greater

purchasing?

Does permission matter? What are the consumer behavior implications of

permission vs. no-permission?

What is the optimal allocation of resources over the different targeting tools?

Online vs. offline?

Relationship Programs

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

CRM, it is more of a technique for implementing CRM than a program itself.

Relationships are not built and sustained with direct e-mails themselves but rather

through the types of programs that are available for which e-mail may be a delivery

mechanism. The overall goal of relationship programs is to deliver a higher level of

customer satisfaction than competing firms deliver. There has been a large volume of

research in this area. From this research, managers today realize that customers match

realizations and expectations of product performance, and that it is critical for them to

deliver such performance at higher and higher levels as expectations increase due to

competition, marketing communications, and changing customer needs. In addition,

research has shown that there is a strong, positive relationship between customer

satisfaction and profits. Thus, managers must constantly measure satisfaction levels

and develop programs that help to deliver performance beyond targeted customer

expectations.

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

Customer service

Frequency/loyalty programs

Customization

Rewards programs

Community building.

Customer Service

Because customers have more choices today and the targeted customers are most

valuable to the company, customer service must receive a high priority within the

company. In a general sense, any contact or “touch points” that a customer has with a

firm is a customer service encounter and has the potential to gain repeat business and

help CRM or have the opposite effect. Programs designed to enhance customer

service are normally of two types. Reactive service is where the customer has a

problem (product failure, question about a bill, product return) and contacts the

company to solve it. Most companies today have established infrastructures to deal

with reactive service situations through 800 telephone numbers, faxback systems, e-

mail addresses, and a variety of other solutions. Proactive service is a different

matter; this is a situation where the manager has decided not to wait for customers to

contact the firm but to rather be aggressive in establishing a dialogue with customers

prior to complaining or other behavior sparking a reactive solution. This is more a

matter of good account management where the sales force or other people dealing

with specific customers are trained to reach out and anticipate customers’ needs.

A variety of systems leveraging the Web assist both kinds of service. Charles Schwab

has established MySchwab which allows customers to create personal Web pages

linking them to all Schwab services including stock quotes, trading, retirement

planning analyses. In this way, the company empowers the customer to deliver their

own service. Other Web-based services such as LivePerson, HumanClick, and net

Customer are bolt-on products that when added to a company’s Web site, provide

customers with the ability to interact with service representatives in real time.

Companies like Kmart are investing large amounts of money into kiosks that provide

information on product availability, order status, and a variety of other service-related

topics.

Loyalty/Frequency Programs

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

for repeat purchasing. A recent McKinsey study20 found that about half of the ten

largest retailers in the U.S. in each of the top seven sectors (category killers,

department stores, drugstores, gasoline, grocery, mass merchandisers, specialty

apparel) have such programs with similar findings in the U.K. The study also

identified the three leading problems with these programs: they are expensive,

mistakes can be difficult to correct as customers see the company as taking away

benefits, and, perhaps most importantly, there are large questions about whether they

work to increase loyalty or average spending behavior. A problem that can be added

to this list is that due to the ubiquity of these programs, it is increasingly difficult to

gain competitive advantage.

A number of Web-based companies providing incentives for repeat visits to Web sites

include MyPoints and Netcentives. Although these have not been wildly successful, it

is clear that the price orientation of many Web shoppers creates the need for programs

that can generate loyal behavior.

Customization

The notion of mass customization goes beyond 1-to-1 marketing as it implies the

creation of products and services for individual customers, not simply communicating

to them. Dell Computer popularized the concept with its build-to-order Web site.

Other companies such as Levi Strauss, Nike, and Mattel have developed processes

and systems for creating customized products according to customers’ tastes.

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

product attributes and determine which they want. The idea is that it has turned

customers into product makers rather than simply product takers. Shapiro and Varian

argue that such customization is cheap and easy to do with information goods. Such

customization is termed “versioning.” It is, of course, easier to do this for services and

intangible information goods than for products but the examples above show that even

manufacturers can take advantage of the increased information available from

customers to tailor products that at least give the appearance of being customized

even if they are simply variations on a common base.

Community

One of the major uses of the Web for both online and offline businesses is to build a

network of customers for exchanging product-related information and to create

relationships between the customers and the company or brand. These networks and

relationships are called communities. The goal is to take a prospective relationship

with a product and turn it into something more personal. In this way, the manager can

build an environment which makes it more difficult for the customer to leave the

“family” of other people who also purchase from the company.

For example, the software company Adobe builds community by devoting a section

of its Web site to users and developers. They exchange tips and other information

which binds them more to the company and its brands. By giving the customers the

impression that they own this section of the site and being open to the community

about product information, Adobe creates a more personal relationship with its

customers.

Some research issues in the area of building relationship programs are the following:

What are the key drivers of satisfaction when a company has both an on-line

and off-line presence?

Is there a difference between “proactive” (the company contacts the customer)

and “reactive” (the customer contacts the company) customer service?

What loyalty program strategies are effective differentiators?

How to mass customize? Methods for determining what kinds of product

options customers want and how to manufacture them.

Privacy Issues

The CRM system described in this report depends upon a database of customer

information and analysis of that data for more effective targeting of marketing

communications and relationship-building activities. There is an obvious tradeoff

between the ability of companies to better deliver customized products and services

and the amount of information necessary to enable this delivery. Particularly with the

popularity of the Internet, many consumers and advocacy groups are concerned about

the amount of personal information that is contained in databases and how it is being

used.

Thus, the privacy issue extends all the way through the hierarchy of steps outlined in

Exhibit 1. This is not a new issue. Direct marketers have mined databases for many

years using analyses based on census tract data, motor vehicle records, magazine

subscriptions, credit card transactions, and many other sources of information.

However, with the “in your face” nature of unwanted direct e-mails and the increasing

amount of information that is being collected surreptitiously as people browse the

Web through nefarious “cookies,” these concerns have received more prominence.25

The defining moment in Web privacy occurred in 1999 when the Web ad serving

company Doubleclick announced that it was acquiring the direct marketing data base

company, Abacus Direct, with intentions to cross-reference Web browsing and buying

behavior with real names and addresses.

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

1. Simple irritation. This comes mainly from unwanted e-mails.

2. Feelings of violation or “How do they know that about me?”

3. Fear of harm. This could come from browsing X-rated sites, booking travel that a

consumer does not want others to know about, etc.

4. Nightmarish visions: the IRS, “Big Brother,” and other thoughts.

As of this writing, there are 8 Internet privacy bills being considered by Congress.

The current debate about privacy and the debate in Congress centers around how

much control Web surfers should have over their own information. While many argue

that it is in customers’ best interests to give as much data as possible in order to take

maximum benefit of what the Web has to offer, many disagree. The opponents

formalize their arguments in the following two options:

“Opt-in”: In this case, Web users must consent to the collection and use of personal

data. This gives the customer more control over their own information and would help

to build industry confidence. However, from the marketer’s perspective, this may

substantially reduce the amount of information available in data bases.

“Opt-out”: This is the Web version of the direct marketing “negative reply” whereby

a customer has to explicitly forbid the collection and use of personal data. This gives

more information to marketers and therefore potentially improves the products and

services available to customers. However, the customers bear the loss of control.

These issues are only going to become thornier as the proliferation of wireless devices

means more information about customers becoming available over time.

Some possible research topics in the privacy area are the following:

Are there ways to build privacy “screens” into current Internet systems (e.g.,

Microsoft’s P3P technology)?

How important in privacy to consumers? How does this vary globally?

What are the components of privacy?

How can a company build “trust” into its Web site?

Metrics

The increased attention paid to CRM means that the traditional metrics used by

managers to measure the success of their products and services in the marketplace

have to be updated. Financial and market-based indicators like profitability, market

share, and profit margins have been and will continue to be important. However, in a

CRM world, increased emphasis is being placed on developing measures that are

customer-centric and give the manager a better idea of how her CRM policies and

programs are working.

Some of these CRM-based measures, both Web and non-Web based are the

following:

Customer acquisition costs

Conversion rates (from lookers to buyers)

Retention/churn rates

Same customer sales rates

Loyalty measures.

Customer share or share of requirements (the share of a customer’s purchases

in a category devoted to a brand).

All of these measures imply doing a better job acquiring and processing internal data

to focus on how the company is performing at the customer level. The Future of CRM

With the increased penetration of CRM philosophies in organizations and the

concomitant rise in spending on people and products to implement them, it is clear we

will see improvements in how companies work to establish long-term relationships

with their customers. However, there is a big difference between spending money on

these people and products and making it all work: implementation of CRM practices

is still far short of ideal. Everyone has his or her own stories about poor customer

service and emails sent to companies without hearing a response. Despite several

years of experience,

Web-based companies still did not fulfill many Christmas orders in 2000 and

customers continue to have difficulties returning unwanted or defective products.

We can expect that the technologies and methodologies employed to implement the

steps shown in Exhibit 1 will improve as they usually do. More companies are

recognizing the importance of creating databases and getting creative at capturing

customer information. Real-time analyses of customer behavior on the Web for better

customer selection and targeting is already here (e.g., Net Perceptions) which permits

companies to anticipate what customers are likely to buy. Companies will learn how

to develop better communities around their brands giving customers more incentives

to identify themselves with those brands and exhibit higher levels of loyalty.

One way that some companies are developing an improved focus on CRM is through

the establishment or consideration of splitting the marketing manager job into two

parts: one for acquisition and one for retention. The kinds of skills that are need for

the two tasks are quite different. People skilled in acquisition have experience in the

usual tactical aspects of marketing: advertising, sales, etc. However, the skills for

retention can be quite different as the job requires a better understanding of the

underpinnings of satisfaction and loyalty for the particular product category. In

addition, time being a critical scarce resource makes it difficult to do an excellent job

on both acquisition and retention. As a result, some companies have appointed a chief

customer officer (CCO) whose job focuses only on customer interactions.

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

organization, the person overseeing the company’s marketing activities, the

VPMarketing, has both product management and the CCO as direct reports. The

CCO’s job is to provide intelligence to the VP from marketing research and the

customer database for use by product managers in formulating marketing plans and

making decisions. In addition, the CCO manages the customer service operation.

Although it would perhaps seem more logical for the CCO to report to product

management, the reporting arrangement to the VP-Marketing is a signal to the

company of the prominence of the position. The CCO also interacts with other

company managers whose operations may have a direct impact on customer

satisfaction.

The CCO at EqualFooting.com, a company offering streamlined purchasing,

financing, and shipping services for small manufacturing and construction businesses,

has the job of integrating marketing and operations to make sure that customers are

satisfied. An alternate conceptualization is to create two jobs, customer managers and

capability managers. The former oversee the relationship with customers while the

latter make sure that their requirements are fulfilled.

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

Customer Experience Management. The idea behind this is that with the number of

customer contact points increasing all the time, it is more critical than ever to measure

the customer’s reactions to these contacts and develop immediate responses to

negative experiences. These responses could include timely apologies and special

offers to compensate for unsatisfactory service. The idea is to expand the notion of a

relationship from one that is transaction-based to one that is experiential and

continuous.

The “bottom line” is that companies that are not taking a customer-centric view of

their business operations are going to be passed by those that view relationship-

activities as the key to long-term profitability.

Exhibit 1

Impact of 10% Improvement in Indicator on the Current Value of E-Commerce Firms

Metric Definition Value If Improved 10% to Incr.in Value

Attraction

Visitor Marketing $/ $5.68 $5.11 0.7%

Acquisition visitor

Cost

New visitor Increase in the 62.4% 72.4% 3.1%

Change number of new

Visitors, 1Q-2Q

Conversion

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

Acq. Cost customer

New cust. % of new visitors 4.7% 14.7% 2.3%

Conversion who become

Rate customers

New cust. Increase in new 88.5% 98.5% 4.6%

Revenue revenue, 1Q-2Q

Change

Retention

Repeat-cust. Increase in revenue 21.0% 31.0% 5.8%

Revenue from repeat

Momentum customers, 1Q-2Q

Repeat-cust. % of customers who 30.2% 40.2% 9.5%

Conversion become repeat

Customers

Customer % of customers 55.3% 65.3% 6.7%

Churn rate repeating, 1st

Half of 1999

Source: McKinsey & Co. (1999)

Exhibit 2

Customer Relationship Management Model

CREATE A DATA BASE↓

ANALYSIS↓

CUSTOMER SELECTION↓

CUSTOMER TARGETING

↓RELATIONSHIP

↓MARKETING

↓PRIVACY ISSUES

↓METRICS

Exhibit 3

Getting More Customer Interaction

Customer Interaction

Direct Indirect

High

InteractionFrequency

Low

Banks

Telecom

Retail

Banks

Telecom

Retail

Personal Computers

Internet

Infrastructure

Furniture

Autos

Exhibit 4 E-mail Generates the Lowest Retention Costs

Cost per1,000

Click

through date

Purchase dateCost per sale

Source: Forrester Research, 2000

Customer Acquisition Customer Retention

Direct mail Banner Email toTo Rented Advertising rented list list

Direct mail to Email to “house” list “house” list

$850 $16 $200 $686 $5

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

1.2% 2.0% 2.0% 3.9% 2.5%

$71 $100 $286 $18 $2

Exhibit 5Customer Retention Programs

CUSTOMER

SERVICE

REWARDS

PROGRAMS

COMMUNITY

BUILDING

CUSTOMI-

ZATION

LOYALITY

PROGRAMS

CRM:

SATISFAC- TION

EMERGENCE OF CRM

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

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

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

Also, customer expectations have been changing rapidly over the last two decades. Fueled by new technology and the growing availability of advanced product features and services, customer expectations are changing almost on a daily basis. Consumers

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

A CRM Process Framework

A four-stage CRM process framework comprised of the following four sub-processes: a customer relationship formation process; a relationship management and governance process; a relational performance evaluation process, and a CRM evolution or Customer Relationship Management.Figure 1 depicts the important components of the process model.

Figure 1: The CRM Process Framework

Purpose- Increase Effectiveness- Improve EfficiencyPerformance- Strategic Goals- Financial Goals- Marketing Goals• Loyalty• SatisfactionRole SpecificationCommunicationCommon BondsPlanning ProcessProcess alignmentTeam StructureEmployee MotivationMonitoring ProcessProgram- Features & OfferingsPartners- Selection Criteria &ProcessEvolution- Enhancement

- Termination

The CRM Formation Process

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

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

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

Relational Parties and Partners. Customer partner selection (or parties with whom to engage in cooperative or collaborative relationships) is another important decision in the relationship formation stage. Even though a company may serve all customer types, few have the necessary resources and commitment to establish CRM programs for all. Therefore, in the initial phase, companies have to decide on which customer types and specific customers or customer groups to focus their CRM efforts on.

Subsequently, when a company gains experience and achieves successful results, the scope of CRM activities can be expanded to include other customers in the program or to include additional programs.

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

CRM Programs and Strategies

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

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

Figure 2 depicts the customer revenue-cost re-allocation opportunity zone. It suggests that in most companies instead of the average cost per customer being proportionate to the average revenue per customer, one consider a flat cost curve that is not sensitive to the revenue produced by the customer. Such a situation opens up an opportunity for competitors to increase their offerings by allocating expensive resources to the high-end customers. Thus, as shown in Figure 3, a hierarchy of CRM programs could be

considered for different customer groups based on the extent of service and the opportunity for customer business development.

Figure 2: Customer Revenue & Cost Relationship

Average Revenue/Customer

Average Cost/

Customer

Proportionate

Relationship

Competitor

Response

Prevalent Practice

Opportunity

Zone

Figure 3: Customer Segmentation & CRM Programs

Extent of Service and Cross-

Functional Support

Degree ofIntegration

Loyalty

Marketing

Major AccountRelationship

Key AccountRelationship

StrategicPartnering

Database andeCRM Program

The CRM Governance Process

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

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

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

Although communication with customer partners helps to foster relationship bonds, conscious efforts to create common bonds will have a more sustaining impact on the relationship. In business-to-business relationships, social bonds are created through interactions; however, with mass-market customers frequent face-to-face interactions will be uneconomical. Thus marketers should create common bonds through symbolic

relationships, endorsements, affinity groups, and membership benefits or by creating on-line communities. Whatever the chosen mode, institutionalizing relationships with customers is accomplished by creating value bonding, reputation bonding, and structural bonding.

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

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

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

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

CRM Performance Metrics

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

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

Another global measure used by firms to monitor CRM performance is the measurement of relationship satisfaction. Similar to the measurement of customer satisfaction, which is now widely applied in many companies, relationship satisfaction measurement would help in finding out to what extent relational partners are satisfied with their current cooperative and collaborative relationships. Unlike customer satisfaction measures that are applied to measure satisfaction on one side of the dyad,

relationship satisfaction measures could be applied on both sides of the dyad. Since both the customer and the marketing firm have to perform in order to produce the results in a cooperative relationship, each party’s relationship satisfaction should be measured (Biong, Parvatiyar, & Wathne, 1996). By measuring relationship satisfaction, one could estimate the propensity of either party to continue or terminate the relationship. Such a propensity could also be indirectly measured by measuring customer loyalty. When relationship satisfaction or loyalty measurement scales aredesigned based on the antecedents, they can provide rich information on their determinants and thereby help companies identify those managerial actions that are likely to improve relationship satisfaction and/or loyalty.

The CRM Evolution Process

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

CRM Implementation Issues

One of the most interesting aspects of CRM development is the multitude of customer interfaces that a company has to manage in today’s world. Until recently, a company’s direct interface with customers, if any, was primarily through sales people or service agents. In today’s business environment, most companies interface with their customers through a variety of channels including sales people, service personnel, call centers, Internet websites, marketing departments, fulfillment houses, market and business development agents, and so forth. For large customers, it also includes cross-functional teams that may include personnel from various functionaldepartments. Although each of these units could operate independently, they still need to share information about individual customers and their interactions with the company on a real-time basis. For example, a customer who just placed an order on the Internet and subsequently calls the call center for order verification expects the call center staff to know the details of his or her order history. Similarly, a customer approached by a sales person unaware of the fact that the customer had recently complained about dissatisfactory customer service is not likely to be treated kindly by

the customer. On the other hand, if the salesperson was aware of the problem encountered by the customer, the complaint, and the action already initiated to resolve the complaint, the salesperson would be in a relatively good position to handle the situation well. Therefore, effective CRM implementation requires a front-line information system that shares relevant customer information across all interface units. Relational databases, data warehousing, and data mining tools are thus very valuable for CRM systems and solutions.

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

Figure 4: Data Model/ Information Platform for CRMSalesGroupIntegrated MarketingInformation Platform• Information Content• Relational Databases• Decision Support System• Active Intelligence• Business Rules• Collaborative Communications• User ProfilesKnowledgeOutputDataInputKnowledgeOutputDataInputDataInputKnowledgeOutputDataInputKnowledgeOutputKnowledgeOutputDataInputDataInputKnowledgeOutputMarketDevelopmentMarketingCustomerServiceCall CenterInternet

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

CRM and Relationship Marketing as a Potential Discipline

Customer relationship management and relationship marketing with a focus on customer retention, customer commitment, and share of the customer’s business instead of market share have generated enormous research interest. Hundreds of papers have been presented at dozens of conferences.

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

Figure 5: Domain vs. DisciplineDESCRIPTIONDomainSCIENCE

EXPLANATIONOBSERVATIONDiscipline

In the past three decades, there have been at least three successes and three failures in the journey from domain to discipline. The three successes are consumer behavior, marketing strategy, and services marketing. The three that have failed to become distinct disciplines even though domain knowledge exits are international marketing, social marketing, and business marketing. By analyzing and understanding why they failed or succeeded in becoming disciplines of marketing, we arrived at the following insights aimed at ensuring that customer relationship management and relationship marketing becomes a distinct discipline in marketing.

Delimit the Domain. The concept of relationship and relational behavior is universal. It is a part of physical, animal, plant, and human sciences. Therefore, every discipline has applications and implications related to relational behavior. Indeed, it is so universal that the most widely used statistical technique is correlation, or the relationship between two or more phenomena, whether bivariate or multivariate in nature. Therefore, it is not only easy but also tempting to extend the concept of relationship beyond marketing and beyond business, but then it would lose its identity and uniqueness. This is analogous to consumer behavior, which is only one subset domain among all human behaviors—that is, the behavior and the roles people manifest as consumers in contrast to the roles of producers, middlemen, citizens, or family members. In short, relationship marketing must be limited to the discipline of marketing, which is focused on understanding and managing customers and their buying, paying, and consuming behaviors.

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

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

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

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

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

that are likely to be its determinants. For example, SERVQUAL, a standardized instrument to measure service quality, is now utilized across national boundaries, similar to the Myers-Briggs personality test or the 360- degree feedback for management performance.

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

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

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

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

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

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

IMPLEMENTING A CRM STRATEGY

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

The role of customer service in CRM strategy

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

The steps in the implementation of CRM strategy

Successful implementation requires specific actions on the part of the organisation. The implementation of a CRM strategy comprises four steps, namely the identification of customers, the differentiation of service, interaction with customers and the differentiation among customers.

Step 1: The identification of customers

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

Step 2: The differentiation of service

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

Step 3: Interaction with customers

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

Step 4: Customisation of products, services and communication

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

RESEARCH DESIGN

Research objectives

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

The research instrument

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

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

RESULTS OF THE STUDY

Discussion of the specific findingsH1: Identifying new and existing clients increases the level of customer service.Statistical null hypothesis: Ho: r = 0Statistical alternative hypothesis: Ha: r ≠ 0

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

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

VARIABLEVariable one (independent variable)Variable two (dependent variable)Pearson value (r) p-valueInteraction Customer service 0.598 0.00

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

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

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

Workflow of CRM

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

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

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

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

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

Peril 1: Implementing CRM Before Creating a Customer Strategy Many executives mistakenly believe that implementing CRM software is equivalent to creating a marketing strategy. But in fact, CRM software is just an enabler to move their strategy into action. Before implementing CRM software, therefore, a company should formulate its strategy and clarify the purpose for this strategy. In other words, a traditional and well-thought-out marketing strategy concept is necessary.

Peril 2: Rolling Out CRM Before Changing the Organization to Match After establishing the goals of its strategy, the company should revamp its organization and/or business processes accordingly. This includes not only external operations with customers but internal systems, such as job descriptions, performance measures, compensation systems, training courses, etc. If such reforms are implemented, employees will be able to recognize the nature and benefits of the new strategy.

Peril 3: Assuming That More CRM Technology Is Better Many executives also mistakenly believe that CRM is a technology-intensive product and are apt to put emphasis on new functions of CRM software. “CRM can be managed in many ways,” however, “and the objectives of CRM can be fulfilled without huge investments in technology simply by, say, motivating employees to be more aware of customer needs.”When a company begins to use packaged CRM software, it is very important for them to narrow down the specifications of the software in order to minimize the burden on its users and to suppress bugs. If a company concentrates excessively on new functions, this will cause false of integration of CRM software and existing system. This is a costly pitfall.

Peril 4: Stalking, Not Wooing, Customers With the aid of CRM software, marketing managers can more easily analyze great quantities of customer data than before; thus, they are apt to contact their customers without careful consideration. But the point is that they should establish contact only with individuals who have a real interest in their company and/or products. When they approach the wrong people, they can be perceived as stalkers and lose potential customers. And Much More... Other than the four perils described above, there are other issues to take into consideration. At the introductory stage of CRM, regular communication is of considerable importance to entire company. Doug Tanoury, president of Customer Interaction Consulting, indicated that it “should be delivered throughout the company highlighting ‘where we are’ in the project, sharing milestones and informing staff

what happens next.” Generally speaking, the cost of implementing CRM is quite high. Today, large businesses can spend between $30 and $90 million over a three-year period on software, technology, labor, consulting services, and employee training related to CRM initiatives.Implementing CRM is such a major project that most executives are apt to think that CRM is a software tool that will manage customer relationships by itself. But this is a big mistake. As Rigby pointed out: “CRM is the bundling of customer strategy and processes, supported by the relevant software, for the purpose of improving customer loyalty and, eventually, corporate profitability.”In recent years, there have been some companies that have been successful in implementing CRM software. Common among such firms is that “they’ve all taken a pragmatic, disciplined approach to CRM, launching highly focused projects that are relatively narrow in their scope and modest in their goals.”They only introduced CRM into the critical process or fatal flaw in their companies’ competitiveness. This method is so effective that it will become a common strategy in the future.

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

Conclusions

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

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

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

Company Strategy and Organization

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

Closing Remarks

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

BIBLIOGRAPHY

www.google.ac.in

www.wikipedia.com

www.amazon.com