Customer Relationship Management: Emerging Concepts, Tools and Applications

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MANAGING CUSTOMER RELATIONSHIPS

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CHAPTER 1

MANAGING CUSTOMER RELATIONSHIPS
RUTH N. BOLTON AND CRINA O. TARASI

Abstract The customer relationship management (CRM) literature recognizes the long-run value of potential and current customers. Increased revenues, profits, and shareholder value are the result of marketing activities directed toward developing, maintaining, and enhancing successful company–customer relationships. These activities require an in-depth understanding of the underlying sources of value that the firm both derives from customers, as well as delivers to customers. We built our review from the perspective that customers are the building blocks of a firm. In order to endure long-term success, the role of marketing in a firm is to contribute to building strong market assets, including a valuable customer portfolio. CRM is an integral part of a company’s strategy, and its input should be actively considered in decisions regarding the development of organizational capabilities, the management of value creation, and the allocation of resources. CRM principles provide a strategic and tactical focus for identifying and realizing sources of value for the customer and the firm and can guide five key organizational processes: making strategic choices that foster organizational learning, creating value for customers and the firm, managing sources of value, investing resources across functions, organizational units, and channels, and globally optimizing product and customer portfolios. For each organizational process, we identify some of the challenges facing marketing scientists and practitioners, and develop an extensive research agenda. Companies are increasingly focused on managing customer relationships, the customer asset, or customer equity. Customer relationship management (CRM) explicitly recognizes the long-run value of potential and current customers, and seeks to increase revenues, profits, and shareholder value through targeted marketing activities directed toward developing, maintaining, and enhancing successful company-customer relationships (Berry, 1983, p. 25; Morgan and Hunt, 1994, p. 22; Gronroos, 1990 p. 138). These activities require an in-depth understanding of the underlying sources of value the firm both derives from customers and delivers to them. The purpose of this chapter is to describe how companies can effectively cultivate customer relationships and develop customer portfolios that increase shareholder value in the long run. We review the extensive literature on customer relationship management, customer asset management, and customer portfolio management, and summarize key findings. The chapter has three major components. First, we define CRM, describe how marketing thinking about CRM has evolved over time, and assess whether CRM principles and systems have improved business performance (to date). Second, we examine (in detail) five organizational processes that we believe are necessary for effective CRM: making strategic choices that foster organizational learning, creating value 3

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RUTH N. BOLTON AND CRINA O. TARASI

for customers and the firm, managing sources of value (acquisition, retention, etc.), investing resources across functions, organizational units, and channels, and globally optimizing product and customer portfolios. We describe each process, summarize key findings, identify emerging trends and issues, and predict likely future developments (both theoretical and methodological). Our concluding remarks make recommendations about areas where further research is needed. Perspective on the Evolution of Customer Relationship Management Current Definition of CRM After surveying many alternative definitions of CRM, Payne and Frow (2005, p. 168) offer the following comprehensive definition, which we will use to frame the discussion in our chapter: CRM is a strategic approach concerned with creating improved shareholder value through the development of appropriate...
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