Optimal Crm Strategies

Topics: Customer relationship management, Customer service, Marketing Pages: 41 (13280 words) Published: August 23, 2013
Information Systems Research
Vol. 22, No. 3, September 2011, pp. 624–639 issn 1047-7047 eissn 1526-5536 11 2203 0624 http://dx.doi.org/10.1287/isre.1100.0309 © 2011 INFORMS

Determining Optimal CRM Implementation Strategies
Seung Hyun Kim
Department of Information Systems, National University of Singapore, Singapore 117417, kimsh@comp.nus.edu.sg

Tridas Mukhopadhyay
Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213, tridas@cmu.edu

A

lthough companies have spent a great deal of money to adopt CRM (customer relationship management) technologies, many have not seen satisfactory returns on their CRM implementations. We study optimal CRM implementation strategies and the impact of CRM investments on profitability. For our analysis, we classify CRM technologies into two broad categories: targeting-related and support-related technologies. While targeting CRM improves the success rate of distinguishing between nonloyal and loyal customers, support CRM increases the probability of retaining the loyalty of existing customers. We also consider the costs of implementing each CRM type separately as well as both types simultaneously. We show that the optimal CRM implementation strategy depends on the initial mass of loyal customers and diseconomies of scale in simultaneous implementation. We also find that the two types of CRM technologies are substitutive rather than complementary in generating revenue. We discuss why it is difficult to avoid overinvestments in CRM when the nature of the investments is misunderstood. We study the optimal CRM implementation scope and the impact of different types of CRM on customers. We develop a model that not only considers both the revenue and costs sides but is also helpful in determining the deployment of right CRM technology in the right scope. Key words: customer relationship management; IT investments; CRM costs; consumer surplus; complementarity; substitutability; economics of IS History: Seungjin Whang, Senior Editor; Gautam Ray, Associate Editor. This paper was received on November 15, 2007, and was with the authors 15 1 months for 2 revisions. Published online in Articles in 2 Advance November 18, 2010.

1.

Introduction

Despite the fast growth of the CRM market1 and a great deal of money spent by companies (typically $5,000 per user and $2 million to $5 million per deployment), many have not seen a satisfactory return on their CRM installations (Fox 2001, Hendricks et al. 2007).2 Evidence also shows that many CRM features 1

According to IDC, the CRM market grew by 8% in 2004, resulting in total market revenues of $8.8 billion. Datamonitor estimated that the market for CRM software in the United States and major European countries is expected to increase by 9% annually over the next six years. (IT Facts 2005). More recently, Gartner has estimated that total revenue for CRM software in 2008 reached about $9 billion worldwide and will reach $11 billion in 2011 (Gartner 2007, 2009). 2

When managers were asked to assess CRM, no more than 35% of the respondents reported that their expectations had been met (Ebner et al. 2002). A Merrill Lynch survey of CIOs at large companies found that 45% of those surveyed were not satisfied with CRM installations (ZDNet 2002). Nucleus Research, Inc. reported that 61% of the surveyed CRM customers were yet to achieve anything close to an acceptable return on investment after two years with Siebel applications, which cost an average of about $6.6 million over a three-year period (Manakas 2002). 624

are never used after implementation (Lacey 2002). We attribute one of the reasons for such dissatisfaction to the lack of understanding of the impact of CRM technologies, which are very different from traditional cost-cutting and quality enhancing IT. Due to the popularity of CRM and marketing efforts of CRM software vendors, firms are likely to choose inappropriate CRM technologies and may overinvest in CRM...
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