Customer Relationship Managemnt
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
C
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
87
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
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
C
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
87
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