Relationship marketing and CRM
1. Introduction
Marketing is all about satisfying customer’s needs and wants by delivering suitable products or services. Relationship marketing is developing and nurturing strong customer relationships overtime. Marketing is facing a new paradigm, relationship marketing (Gronroos, 1994) The focus is shifting from the activity of attracting customers to activities which concern having customers and taking care of them. The core of relationship marketing is relations, maintenance of relations between the company and the actors in its microenvironment, i.e supplier, market intermediaries, and the public and of course customers as the most important actor.
Customer relationship management (CRM) has generally been assumed to create a
competitive edge for an organization, as well as to have a positive impact on organizational performance. However, there is still much debate over exactly what constitutes CRM.
In fact, many scholars have claimed that the precise meaning of CRM is not always clear in the literature (Nevin, 1995; Parvatiyar and Sheth, 2001). Furthermore, Nevin (1995) notes that the term has become a buzzword, with the concept being used to reflect a number of differing themes or perspectives. For example, at a tactical level, CRM may mean database marketing (Peppers and Rogers,1995) or electronic marketing (Blattberg and Deighton, 1991). At a strategic level, CRM may mean customer retention or customer partnering (Peppers and Rogers, 1993; Vavra, 1992). At a theoretical level, CRM may mean an emerging research paradigm in marketing (Parvatiyar and Sheth, 2001).
Thus, a clarification and conceptualization of this construct is needed to ensure that our knowledge of CRM grows in a “cumulative” way. Moreover, while we observe that there has been an increase in the attention paid to CRM by practitioners and academics, to date no systematic attempt has been made to develop a valid measure of it, or to assess its influence on business performance.
2. Relationship marketing and CRM
The relationship marketing (RM) literature is a theoretically, ideologically and empirically rich documentation of marketing practice beyond the mass-market focus of the mainstream marketing literature. Originating in the late 1970s on the edges of marketing practice (i.e. services, business-to-business, channel management), by the end of the 1980s RM was being proposed as a solution to some of the problems faced by mass marketers (see Dwyer et al., 1987). The 1990s represented the golden years for RM, as evidenced by the increasing academic and practitioner attention afforded to it.
Indeed, it might be argued that mass marketers attempted to obtain ownership of RM from their colleagues in services, industrial and channel contexts through the formulation and propagation of customer relationship management (CRM) as a mass marketing strategy or tactic.
While, in principle at least, CRM is influenced by the richness of RM, its almost exclusive focus on managing relationships with the end customer (as opposed to relationships with suppliers, competitors, intermediaries, etc.) may be somewhat counterproductive. We say counterproductive because most of the interaction that occurs with respect to a product or service in the mass-market happens within the channel and, as such, CRM deployments fail to influence many relevant exchanges within the network. Moreover, the management of supposed relationship outcomes,rather than relationship processes, must make it difficult to achieve those outcomes.
Perhaps not coincidentally, despite the extensive time, money and technology devoted
to CRM, results have been disappointing (Johnson, 2004; Kale, 2004) and many
managers are now sceptical or hostile to CRM deployments (Patron, 2002; see
commentary in McNulty et al., 2003).
To address this general issue in more detail, we undertake the following. First, we review briefly the rationale behind RM. Second, we outline the nature of CRM and critique its partial appropriation of the ideology and concepts of RM. Third, we identify and explore some problematic issues in the narrow treatment of CRM by focusing on the failure within CRM to understand that consumers are parts of complex, dynamic systems. Fourth, we argue that, in consumer markets, marketers need to re-engage with the RM ideal to prevent its ideological and conceptual richness being lost. In doing this, we clearly share the view of others (e.g. Fournier et al., 1998) that CRM, as it is currently envisaged and enacted, risks a premature death.
As such, we advocate an increased focus of the processes of engagement, which are themselves the desired outcomes of relationships and not instruments for achieving something else as CRM deployments typically presume. We also acknowledge that in many cases consumers do not want relationships with particular firms or that firms do not have the
relationship experience and expertise to enact successful RM programmes. In such
cases, improved execution of mix management programmes would seem to be most
appropriate (e.g. O’Malley and Mitussis, 2002).
The ideological appeal of RM has rarely been questioned and has regularly been appropriated in various “calls to arms” to instigate paradigm shifts in the theory and practice of marketing (e.g., McKenna, 1991; Blattberg and Deighton, 1991; Shani and Chalasani, 1992; Gro¨nroos, 1994; Ha°kansson, 1982; Morgan and Hunt, 1994). Traditional marketing, it has been argued, has failed in that (despite the extensive rhetoric) customers have been put last, not first (Brownlie and Saren, 1992; Desmond, 1997; O’Malley and Patterson, 1998). This inherent lack of customer focus on behalf of organisations led many consumers to conclude that organisations generally over-promise and under-deliver (Sisodia and Wolfe, 2000; O’Malley and Prothero, 2004).
This has earned marketing and associated public relations activities a much-maligned image as instruments of corporate manipulation (Fitchett and McDonagh, 2000). RM was positioned in such a way as to address this poor image directly by instigating a fundamental transformation in the practice of marketing. It heralded a distinct move away from customer manipulation and toward genuine customer involvement becoming, in the process, a champion of corporate credibility (McKenna, 1991).
Moreover, such a transformation would also increase both the efficiency and effectiveness of marketing by bringing the customer into a cooperative partnership with the organisation (Sheth and Parvatiyar, 1995; Gordon, 2000). Rather than competing on economies of scale, as had been the norm, organisations could leverage these relationships and compete on economies of scope (Gordon, 2000).
Although past studies have made significant progress toward understanding the importance of cooperative and collaborative relationships between buyers and sellers (e.g. Berry, 1983, 1995, 2002; Crosby et al., 1990; Dwyer et al., 1987; Hart and Johnson, 1999; Morgan and Hunt, 1994; Palmer, 2000; Sheth and Parvatiyar, 1995), two questions remain unanswered:
(1) What precisely is CRM?
(2) How can it be implemented properly in a business organization?
In the marketing literature, the terms CRM and relationship marketing are used almost
interchangeably (Parvatiyar and Sheth, 2000). For example, Berry (1983) defines
relationship marketing as “attracting, maintaining and enhancing customer relationships.”
Harker (1999) proposes the following definition: “An organization engaged in proactively creating, developing and maintaining committed, interactive and profitable exchanges with selected customers (partners) over time is engaged in relationship marketing.” Recently, by broadening the scope of relationship marketing and viewing it in a comprehensive management and social context, Gummesson (2002b) defines it as “marketing based on relationships, networks and interaction,recognizing that marketing is embedded in the total management of the networks of the selling organization, the market and society. It is directed to long term win-win relationships with individual customers, and value is jointly created between the
parties involved.”
On the other hand, Jackson (1985) suggests CRM to mean “marketing oriented toward strong, lasting relationships with individual accounts.” Payne (2000) asserts that CRM is concerned with “the creation, development and enhancement of individualized customer relationships with carefully targeted customers and customer groups resulting in maximizing their total customer life-time value.” Recently, Kotler and Armstrong (2004) define CRM as “the overall process of building and maintaining profitable customer relationships by delivering superior customer value andsatisfaction.”
Although the above definitions differ somewhat, they all indicate that the core theme of CRM and relationship marketing perspectives revolves around its focus on individual buyer-seller relationships, that these relationships are longitudinal in nature, and that both parties benefit in the relationship established. In short, from a firm’s perspective, both the CRM and relationship marketing concept can be viewed as a distinct organizational culture/value that puts the buyer-seller relationship at the center of the firm’s strategic or operational thinking.
In spite of the commonalities described above, some important differences between CRM and relationship marketing do exist: first, relationship marketing is relatively more strategic in nature, whilst CRM is used in a more tactical sense (Ryals and Payne,2001; Zablah et al., 2004). Second, relationship marketing is relatively more emotional and behavioral, centering on such variables as bonding, empathy, reciprocity, and trust (Yau et al., 2000).
On the other hand, CRM is more managerial per se, focusing on how management can make concerted efforts in attracting, maintaining, and enhancing customer relationships. Third, relationship marketing embraces not just the supplier-customer dyad (Gummesson, 2002b) but encompasses the building of relationships with stakeholders, such as suppliers, internal employees, customers, and even government as well (Morgan and Hunt, 1994), but CRM is more dedicated to building relationships with key customers (Tuominen et al., 2004).
Disappointedly, despite its increasingly acknowledged importance, little research has focused on the proper implementation of the CRM concept. Scattered research efforts have been observed in the realm of maintaining a deep customer focus (e.g. Vandermerwe, 2004), reengineering the organizational structure (e.g. Ryals and Knox, 2001), and managing knowledge by leveraging the use of information technology (e.g. Stefanou et al., 2003). There is no theoretical, integrative framework to delineate how the CRM concept can be properly translated into a comprehensive set of concrete organizational activities conducive to CRM success. Furthermore, very little has been done in terms of creating a valid measurement scale and testing the concept empirically. Thus, it is the goal of this paper to propose a conceptualization of the basic dimensions of CRM, as well as to develop a reliable and valid measurement scale for these dimensions. In this study, we define CRM as “a comprehensive strategy and process that enables an organization to identify, acquire, retain, and nurture profitable customers by building and maintaining long-term relationships with them.”
3. The components of CRM
Based on past related literature (Crosby and Johnson, 2001; Day, 2003; Fox and Stead,
2001; Kalustian et al., 2002; O’Halloran and Wagner, 2001; Paracha and Bulusu, 2002;
Ryals and Knox, 2001; Tiwana, 2001) and indepth interviews with CRM managers,
we hypothesize that CRM is a multi-dimensional construct consisting of four broad
behavioral components: key customer focus, CRM organization, knowledge
management, and technology-based CRM (see Figure 1). This is in accord with the
notion that successful CRM is predicated on addressing four key areas: strategy;
people; technology; and processes (Fox and Stead, 2001), and that only when all these
four work in concert can a superior customer-relating capability emerge (Day, 2003).
For a business to maximize its long-term performance in such aspects as customer
satisfaction, trust, return on sales, and return on investment, it must build, maintain,
and enhance long-term and mutually beneficial relationships with its target buyers. We
will discuss each component and then describe our research methodology along with
the findings from our analysis.
4. Key customer focus and lifetime value identification
Key customer focus involves an overwhelming customer-centric focus (Sheth et al.,
2000; Vandermerwe, 2004), and continuously delivering superior and added value to
selected key customers through personalized/customized offerings. Key facets of this
dimension include customer-centric marketing, key customer lifetime value identification, personalization, and interactive cocreation marketing.
Customer-centric marketing, which has been gaining momentum as we enter the new millennium, is the endeavor to understand and satisfy the needs, wants, and resources of selected individual consumers (Sheth et al., 2000).
CRM stresses the deliberate selection of key customers who are of strategic significance, as not all customers are equally desirable (Ryals and Knox, 2001) and profitable (Thomas et al., 2004). This can be illustrated by the hotly discussed Pareto 80/20 rule: 80 percent of a firm’s profit comes from 20 percent of its customers (Hoffman and Kashmeri, 2000; Ryals and Knox, 2001). Having meticulously selected key customers, a CRM-oriented company should make every effort to understand their needs and wants, which is crucial to developing strong relationships with them.
Customer lifetime value is defined by Jain and Singh (2002) as “the net of the revenues obtained from that customer over the lifetime of transactions with that customer minus the cost of attracting, selling, and servicing that customer, taking into account the time value of money.”
In CRM,marketers assess the lifetime value of each customer individually to decide whether to
build a relationship with him/her and provide customized offerings. This decision should enhance company profit by focusing on profitable customers via more customized offerings, and reducing the subsidization of unprofitable customers.
5. Personalization.
Personalization is defined as the practice of one-to-one marketing through the use of mass customization (Dyche´, 2002; Hart, 1995), allowing customers to seek unique solutions to their specific needs. The great diversity in the needs, wants,and resources of customers makes customer behavior less predictable and forecasting less accurate. In this environment, mass marketing is rendered obsolete. Successful companies must rapidly adjust their supply to meet demand by relationship-based marketing, which strives to tailor marketing to individual customers.
Interactive cocreation marketing. The ongoing two-way communication between exchange partners in cocreation marketing, where both marketers and customers interact in aspects of product design and production, is considered critical for establishing and maintaining strong relationships (Berry, 1995; Day and Montgomery,1999; Fox and Stead, 2001; Morgan and Hunt, 1994; Narayandas and Rangan, 2004).
The key to cocreation marketing is collaboration, cooperation, and communication.
Through this, firms can work with individual customers to offer customized solutions,
create relationship value, enhance customer loyalty, and reduce the cost of doing
business.
6. CRM organization
CRM essentially means fundamental changes in the way that firms are organized
(Ryals and Knox, 2001) and business processes are conducted (Hoffman and Kashmeri,
2000). Firms should pay heightened attention to the organizational challenges inherent
in any CRM initiative (Agarwal et al., 2004). The key considerations to successfully
organize the whole firm around CRM include organizational structure,
organization-wide commitment of resources, and human resources management.
Organizational structure. CRM requires that the entire organization work towards
the common goal of forging and nurturing strong customer relationships. As such, the
organizational structural designs that most effectively optimize customer relationships
include the establishment of process teams, customer-focused teams (Sheth and
Sisodia, 2002), cross-discipline segment teams, and cross-functional teams (Ryals and
Knox, 2001). All these structural designs demand strong interfunctional coordination
(Sheth et al., 2000) and interfunctional integration.
Organization-wide commitment of resources should follow after crafting the design of organizational structure and integrating properly those involved components. In particular, sales and marketing resources, technical expertise, as well as resources promoting service excellence should all be in place. The success of customer acquisition, development, retention, and reactivation all hinges on the company’s commitment of time and resources towards
identifying and satisfying key customer needs (Nykamp, 2001).
Human resources management. Strategy, people, technology, and processes are all vitally important to CRM, but it is the individual employees who are the building blocks of customer relationships (Brown, 2000, p. xvii; Horne, 2003; McGovern and Panaro, 2004; Ryals and Knox, 2001). According to Krauss (2002), “[t]he hardest part of becoming CRM-oriented isn’t the technology, it’s the people.” Internal marketing, where human resources and marketing interface, instills in employees the utmost importance of service-mindedness and customer orientation (e.g. Gro˝nroos, 1990). The four significant internal marketing processes include market training and education, internal communication, reward systems, and employee involvement.
7. Technology-based CRM
Accurate customer data is essential to successful CRM performance (Abbott et al.,2001) and, consequently, technology plays an important role in CRM in adding to firm intelligence (Boyle, 2004). In fact, the startling advances in IT equip enterprises with the capability to collect, store, analyze, and share customer information in ways that greatly enhance their ability to respond to the needs of individual customers and thus to attract and retain customers (Butler, 2000).
The promise of one-to-one relationships, customer-value analysis, and mass customization (Hart, 1995) are now brought to reality by unprecedented advances in IT, transforming the traditional approach to CRM to an integrated, web-enabled approach, featured by tools like customerinformation systems, automation of customer support processes, and call centers (Ghodeswar, 2001).
CRM calls for “information-intensive strategies” which utilize computer technologies in building relationships, leveraging existing technology and rigorously linking technology deployment to targeted business initiatives (Harding et al. 2004). Computer technologies such as computer-aided design/manufacturing,flexible manufacturing systems, just-in-time production databases, data warehouses,data mining, and CRM software systems enable firms to provide greater customization with better quality at lower cost. It also helps staff at all contact points serve customers better. Many customer-centric activities would be impossible without appropriate
technology.
The ability to develop successful customer relationships lies in an organisation’s ability to understand its customers, their individual preferences, expectations and changing needs. In other words, organisations need to understand “real customers on an individual basis” (Sisodia and Wolfe, 2000, p. 551, original emphasis) and communicate with them appropriately. The complexity of contemporary markets renders such customer intimacy difficult (Di Tienne and Thompson, 1996). As a consequence, the collection, analysis and use of information to identify, understand and meet customers’ needs is crucial to the successful implementation of RM in mass markets. As a result, technology, initially in the form of the database, is widely
regarded as the core of CRM with data used “to build a long-term connection between
the company and consumer” (Copulsky and Wolf, 1990, p. 17). As such, CRM can be
regarded as a “business strategy that uses information technology to provide an
enterprise with a comprehensive, reliable, and integrated view of its customer base so
that all processes and customer interactions help maintain and expand mutually
beneficial relationships” (Zikmund et al., 2002, p. 3).
8. Conclusion
CRM, as an emerging paradigm in marketing, will remain underdeveloped until its key dimensions have been identified and operationalized. In fact, Gummesson (2002a) comments that CRM, as an emerging discipline, is in need of further theoretical development. The identification of the key dimensions of CRM is therefore very important. It is no longer sufficient to advise practitioners or researchers that the key to successful marketing is through CRM without providing information on what dimensions actually constitute relationships upon which CRM can be considered to exist. There are also lessons to be learnt beyond CRM. In particular, although new concepts may be intuitively appealing, practitioners must be cautioned about embracing them without a full understanding of how those concepts will be used, and how their success will be measured.
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