Concept and background
Customer relationship management (CRM) is a strategy of collecting and analysing information about individual customers and using it to manage relationships with them over the long term. As markets matured and competition intensified, firms recognized that relationship marketing, which keeps existing customers, is often more profitable than one-off transactional marketing; advances in information technology then made it possible to handle large customer databases, and CRM spread widely in the 1990s. Where the marketing mix asks what to sell and how, CRM asks with whom to keep which relationship.
Core ideas
- Customer lifetime value (CLV): the present value of the profit a customer brings over the whole relationship. CRM concentrates resources on high-CLV customers.
- Retention and loyalty: because acquiring new customers usually costs more than keeping existing ones, the main goals are to lower churn and raise repeat purchases, cross-selling and referrals.
- Customer segmentation: customers are grouped by purchase history and profitability and given different benefits by tier (airline miles, membership levels and so on).
The CRM process and types
Reinartz, Krafft and Hoyer (2004) conceptualized the CRM process as the initiation, maintenance and termination of relationships, and found that firms implementing these processes perform moderately better. Notably, ending unprofitable relationships is part of what is managed.
- Operational CRM: automates customer-facing work such as sales, marketing and service.
- Analytical CRM: uses data warehouses and data mining to analyse customer behaviour and predict churn.
- Collaborative CRM: lets channels and departments such as call centres, web and stores share customer information.
Strategic framework
Payne and Frow (2005) treat CRM as a company-wide strategy rather than a technology project and identify five cross-functional processes: (1) strategy development, (2) value creation, (3) multichannel integration, (4) information management and (5) performance assessment. Value delivered to customers and value captured by the firm (CLV) must grow together.
Success factors and limits
CRM succeeds when there is top-management commitment, a customer-centred culture, good data quality and employee engagement. It tends to fail when firms merely install software, contact customers excessively, or handle personal data carelessly and lose trust. How satisfaction forms is covered in expectancy-disconfirmation theory and service quality and moments of truth, and referral effects in word-of-mouth marketing.
See also: Integrated Marketing Communications (IMC), O2O and Omnichannel
References
- Payne, A., & Frow, P. (2005). A strategic framework for customer relationship management. Journal of Marketing, 69(4), 167–176.
- Reinartz, W., Krafft, M., & Hoyer, W. D. (2004). The customer relationship management process: Its measurement and impact on performance. Journal of Marketing Research, 41(3), 293–305.