Customer Relationship Management (CRM)


TQM graphics Graphics courtesy of Spencer CooperOpens in new window

Before the supermarket, the mall, and the automobile, people purchased goods at their neighborhood store. The owners and employees recognized customers by name and knew their preferences and wants. For their part, customers remained loyal to the store and made repeated purchases.

Overtime, however, this personal customer relationship became impersonal as people moved from farms to cities, consumers became mobile, and supermarkets and department stores achieved economies of scale through mass marketing. Although prices were lower and products were more uniform in quality, the relationship with customers became anonymous and impersonal.

In today’s hypercompetitive marketplace, customers are increasingly powerful; if they are dissatisfied with a product and/or a service from one organization, a competitor is often just one mouse click away. Further, as more and more customers shop on the web, an enterprise does not even have the opportunity to make a good first impression in person.

With customer relationship management (CRM) systems and applications, businesses return to personal marketing. That is, rather than market to a mass of people or companies, businesses market to each customer individually.

By employing this approach, business can use information about each customer—for example, previous purchases, needs, and wants—to create offers that customers are more likely to accept. That is, the CRM approach is designed to achieve customer intimacy. This CRM approach is enabled by information technology in the form of various CRM systems and applications.

What is CRM?

Customer relationship management (CRM) is a customer-focused and customer-driven organizational strategy. That is, organizations concentrate on assessing customers’ requirements for products and services and then providing high-quality, responsive service.

Interestingly, the expression customer relationship management, has been in use since the early 1990s. Since then, there have been many attempts to define the domain of CRM, a number of which appear below.

Table X-1 | Definitions of CRM
  • CRM is an information industry term for methodologies, software and usually Internet capabilities that help an enterprise manage customer relationships in an organized way.
  • CRM is the process of managing all aspects of interaction a company has with its customers, including prospecting, sales and service.

    CRM applications attempt to provide insight into and improve the company/customer relationship by combining all these views of customer interaction into one picture.
  • CRM is an integrated approach to identifying, acquiring and retaining customers.

    By enabling organizations to manage and coordinate customer interactions across multiple channels, departments, lines of business and geographies, CRM helps organizations maximize the value of every customer interaction and drive superior corporate performance.
  • CRM is an integrated information system that is used to plan, schedule and control the pre-sales and post-sales activities in an organization.

    CRM embraces all aspects of dealing with prospects and customers, including the call center, sales force, marketing, technical support and field service.

    The primary goal of CRM is to improve long-term growth and profitability through a better understanding of customer behavior. CRM aims to provide more effective feedback and improved integration to better gauge the return on investment (ROI) in these areas.
  • CRM is a business strategy that maximizes profitability, revenue and customer satisfaction by organizing around customer segments, fostering behavior that satisfies customers, and implementing customer-centric processes.

We can resolve the debate between managerial and technological schools by conceiving of CRM as taking three main forms: strategic CRMOpens in new window, operationalOpens in new window and analyticalOpens in new window, as summarized in Table X-2 below.

Table X-2 | Types of CRM
Types of CRMDominant characteristic
StrategicOpens in new windowStrategic CRM is a core customer-centric business strategy that aims at winning and keeping profitable customers. Learn moreOpens in new window
OperationalOpens in new windowOperational CRM focuses on the automation of customer-facing processes such as selling, marketing and customer service. Learn moreOpens in new window
AnalyticalOpens in new windowAnalytical CRM is the process through which organizations transform customer-related data into actionable insight for either strategic or tactical purposes. Learn moreOpens in new window

CRM is not a process or a technology per se; rather, it is a customer-centric way of thinking and acting. The focus of organizationsOpens in new window today has shifted from conducting business transactions to managing customer relationships.

In general, organizations recognize that customers are the core of a successful enterprise, and the success of the enterprise depends on effectively managing relationships with them.

CRM builds sustainable long-term customer relationships that create value for the company as well as for the customer. That is, CRM helps companies acquire new customers, retain existing profitable customers, and grow relationships with existing customers. This last CRM function is particularly important because repeat customers are the largest generator of revenue for an enterprise.

Also, organizations have long understood that getting back a customer who has switched to a competitor is vastly more expensive than keeping that customer satisfied in the first place.

The Figure below depicts the CRM process. The process begins with marketing efforts, where the organization solicits prospects from a target population of potential customers. A certain number of these prospects will make a purchase, thus becoming customers.

The CRM process

Of the organization’s customers, a certain number will become repeat customers. The organization then segments its repeat customers into low-value and high-value repeat customers.

An organization’s overall goal is to maximize the lifetime valueOpens in new window of a customer, which is that customer’s potential revenue stream over a number of years.

The organization inevitably will lose a certain percentage of customers, a process called customer churn. The optimal result of the organization’s CRM efforts is to maximize the number of high-value repeat customers while minimizing customer churn.

CRM is basically a simple idea: Treat different customers differently, because their needs differ and their value to the company also may differ. A successful CRM strategy not only improves customer satisfaction, but it makes the company’s sales and service employees more productive, which in turn generates increased profits.

In fact, researchers at the National Quality Research Center at the University of Michigan found that a 1 percent increase in customer satisfaction can lead to as much as a 300 percent increase in a company’s market capitalization, defined as the number of shares of the company’s stock outstanding multiplied by the price per share of the stock. Put simply, a minor increase in customer satisfaction can lead to a major increase in a company’s overall value.

Broadly speaking, CRM systems lie on a continuum, from low-end CRM systems designed for enterprises with many small customers to high-end CRM systems for enterprises with a few large customers. CRM systems can also link to social networking sites. Exhibit X-1, About Small Business illustrates the case of P. F. Chang’s restaurants and how they used Twitter to score a customer-relationship coup.

Exhibit X-1 | IT’s about [small] business
While sitting in a P.F. Chang’s China Bistro restaurant in Florida, a woman tweeted that her lettuce-wrap appetizer was delicious. An employee at P.F. Chang’s headquarters in Scottsdale, Arizona, spotted the tweet. He alerted a manager, who immediately called the Florida restaurant. Using the customer’s profile picture, the restaurant manager identified the woman and had a server thank her for her support by presenting her free lettuce wraps and a desert.

P.F. Chang’s was being social media savvy, not only reinforcing the woman’s enthusiasm, but likely setting off a chain of word-of-mouth advertising among her friends and co-workers. The restaurant gets additional exposure for its social media coup when the case is mentioned in IT and marketing conferences as a good example of intuitive branding. In addition to rewarding happy customers, the chain, with more than 200 restaurants across the United States, systematically monitors what customers are saying on social networking sites such as Facebook, Twitter, and TripAdvisor and makes improvements when patrons have been unhappy, say with service or cold food. For example, the chain moved its takeout order-taking function to a call centre so hostesses in the restaurants could focus on greeting customers on location instead of answering the phone.

In the case of P.F. Chang’s, social media presented an easy opportunity to make the most of the customer experience and to demonstrate to the organization that there is “gold” in tweets. Regardless of whether organizations have a social media strategy, customers are on Twitter and Facebook, telling the world how they feel about companies, their products, and their services. Whether it is a Facebook group begging Trader Joe’s to open a grocery store in a certain geographic location or a blogger complaining about a washing machine to a million followers, companies ignore social media at their peril.
Sources: Compiled from W. Schuchart, “How P.F. Chang’s Turned a Plate of Lettuce Wraps into a Twitter Win,” IT Knowledge Exchange, March 16, 2011; J. Schectman, “P.F. Chang’s Adds Social Media to Its Menu,” CIO Journal, November 9, 2012.

Although CRM varies according to circumstances, all successful CRM policies share two basic elements. First, the company must identify the many types of customer touch points. Second, it needs to consolidate data about each customer. We examine these two elements in more detail below.

Customer Touch Points

Organizations must recognize the numerous and diverse interactions that they have with their customers. These various types of interactions are referred to as “customer touch points.

Traditional customer touch points include telephone contact, direct mailings, and actual physical interactions with customers during their visits to a store.

Organizational CRM systems, however, must manage many additional customer touch points that occur through the use of popular personal technologies. These touch points include e-mail, websites, and communications via smart phones (See below).


Data Consolidation

Data consolidation also is critical to an organization’s CRM efforts. Customer data must be managed effectively by the organization’s CRM systems. In the past, customer data were located in isolated systems in different functional areas across the business (for example, in separate databases in the finance, sales, logistics, and marketing departments). Even if all of these data are related to the same customer, they were difficult to share across the various functional areas.

Modern, interconnected systems built around a data warehouse now make all customer-related data available to every unit of the business. This complete data set on each customer is called a 360-degree view of that customer. By accessing this 360-degree view, a company can enhance its relationship with its customers and ultimately make more productive and profitable decisions.

Data consolidation and the 360-degree view of the customer enable the organization’s functional areas to readily share information about customers. This information sharing leads to collaborative CRM.

Collaborative CRM systems provide effective and efficient interactive communication with the customer throughout the entire organization. That is, collaborative CRM systems integrate communications between the organization and its customers in all aspects of marketing, sales, and customer support.

Collaborative CRM systems also enable customers to provide direct feedback to the organization. Web 2.0 applications such as blogs and wikis are very important to companies that value customer input into their product and service offerings, as well as into new product development.

Customer relationship management is not only about the software. Sometimes the problem with managing relationships is simply time and information. Old systems may contain needed information, but the information may take too long to access and may not be usable across a variety of applications. The result is reduced time to spend with customers.

Thus, companies can implement a CRM tool that manages e-mail distribution, scheduling, billing, and customer information. This tool enables them to find everything they need in one place so they can focus on what their business is really about: providing their customers with excellence service. The main CRM software vendors include SalesforceOpens in new window, SAPOpens in new window, OracleOpens in new window, and MicrosoftOpens in new window.

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  2. Evans, M., O’Malley, L. and Patterson, M. (2004). Exploring direct and customer relationship marketing. London: Thomson.
  3. Kotler, P. (2000), Marketing management: the millennium edition, Englewood Cliffs, NJ: Prentice-Hall International.
  4. Engle, R.L. and Barnes, M.L. (2000). Sales force automation usage, effectiveness, and cost-benefit in Germany, England and the United States. Journal of Business and Industrial Marketing, 15(4), 216 – 42.
  5. Buttle, F. (2004). Customer relationship management: concepts and tools. Oxford: Elsevier Butterworth-Heinemann.
  6. Payne, A. and Frow, P. (2013). Strategic customer management: integrating CRM and relationship marketing. Cambridge: Cambridge University Press, P. 211. See also Payne, A. (2005). Handbook of CRM: achieving excellence through customer management. Oxford: Elsevier Butterworth-Heinemann; Payne, A. and Frow, P. (2005). A strategic framework for customer relationship management. Journal of Marketing, 69 (October), 167 – 76.