Understanding the Effect of Customer Relationship Management Efforts on Customer Retention and Customer Share Development
Scholars have questioned the effectiveness of several customer relationship management strategies. The author investigates the differential effects of customer relationship perceptions and relationship marketing instruments on customer retention and customer share development over time. Customer relationship perceptions are considered evaluations of relationship strength and a supplier’s offerings, and customer share development is the change in customer share between two periods. The results show that affective commitment and loyalty programs that provide economic incentives positively affect both customer retention and customer share development, whereas direct mailings influence customer share development. However, the effect of these variables is rather small. The results also indicate that firms can use the same strategies to affect both customer retention and customer share development.
ustomer relationships have been increasingly studied in the academic marketing literature (Berry 1995; Dwyer, Schurr, and Oh 1987; Morgan and Hunt 1994; Sheth and Parvatiyar 1995). An intense interest in customer relationships is also apparent in marketing practice and is most evident in firms’ significant investments in customer relationship management (CRM) systems (Kerstetter 2001; Reinartz and Kumar 2002; Winer 2001). Customer retention rates and customer share are important metrics in CRM (Hoekstra, Leeflang, and Wittink 1999; Reichheld 1996). Customer share is defined as the ratio of a customer’s purchases of a particular category of products or services from supplier X to the customer’s total purchases of that category of products or services from all suppliers (Peppers and Rogers 1999). To maximize these metrics, firms use relationship marketing instruments (RMIs), such as loyalty programs and direct mailings (Hart et al.