Customer Relationship Managemnt

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Customer Relationship Management:
IN B2C MARKETS, OFTEN LESS IS MORE

Grahame Dowling

ustomer Relationship Management (CRM) is premised on the belief that developing a relationship with customers is the best way to get them to become loyal and that loyal customers are more profitable than non-loyal customers.1 Frederick Reichheld has argued that a company can achieve significant increases in profits from only small improvements in customer retention rates. The strategy is to engineer increased customer retention, often with strategies labeled as CRM or Customer Loyalty Marketing. Research indicates that these schemes are generally liked by customers.2

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In recent years, the academic marketing community has began to question some of the key premises that are used to support CRM in general, and relationship marketing and customer loyalty programs in particular. These academics base their skepticism on two sources of information. One is a 30-year research tradition that focuses on the empirical patterns of purchasing for a wide variety of consumer products and services. The second is some emerging research that tests the key assumptions that underpin CRM and the effectiveness of the CRM tactic of customer loyalty programs.

Customer Relationship Management
CRM had its origins in two unrelated places. One was in the U.S. where it was driven by technology.3 Under the direction of marketers, information technology and statistical algorithms were developed to increase the efficiency and effectiveness of selling what a company makes. CRM systems such as call centers, web sites, customer service and support teams, and loyalty programs

CALIFORNIA MANAGEMENT REVIEW

VOL. 44, NO. 3

SPRING 2002

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Customer Relationship Management: In B2C Markets, Often Less Is More

FIGURE 1. How CRM Works

LOYAL CUSTOMERS • increased ARPU*

CRM Program

• better responsiveness to customer needs • increased customer satisfaction

Relationship

• stronger brand attitude • less price sensitive • reduce customer churn

Customer Database
• increased ARPU* Cross-selling

Data Mining

• cost reductions Better Target Marketing Market Research • new customer insights • early warning system • more targeted communications

* ARPU = average revenue per user

are used to manage the relationship with customers. Good examples of this approach can be found at and . Database-driven CRM has claimed significant improvements in identifying profitable (and unprofitable) customers, increasing the efficiency and effectiveness of target marketing, and increasing customer satisfaction. Critics have argued that: gathering an extensive amount of information about customers (“a 360 degree view”) raises concerns about privacy; managers concentrate less on what customers really want (their latent and expressed needs) and more on what the data patterns suggest they may want; and relationships seldom develop beyond satisfaction into rapport because they start with the seller “targeting” the customer and then attempting to seduce them.4 CRM programs have also experienced some significant implementation problems. Examples include, the high turnover rates of staff in call centers, the frequent cost blowouts associated with constructing a data warehouse, problems implementing new information technology systems, and the high cost involved in designing a new information architecture to support mass customized selling. Figure 1 presents a snapshot of how database-driven CRM is thought to work. The top row of effects leads to building relationships with customers and thus establishing customer loyalty. Depending on the type of product (e.g., high or low involvement), this relationship can be based on an affective association

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CALIFORNIA MANAGEMENT REVIEW

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SPRING 2002

Customer Relationship Management: In B2C Markets, Often Less Is More

or it may simply be the result of convenience and self-interest. The bottom row...
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