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Customer Relationship Management
 VSF
This book is dedicated to my children Emma and Lewis of whom I am
enormously proud.
Customer
Relationship
Management
Concepts and Technologies

Second edition

Francis Buttle

AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD

PARIS • SAN DIEGO • SAN FRANCISCO • SINGAPORE • SYDNEY • TOKYO
Butterworth-Heinemann is an imprint of Elsevier
Butterworth-Heinemann is an imprint of Elsevier
Linacre House, Jordan Hill, Oxford OX2 8DP
30 Corporate Drive, Suite 400, Burlington, MA 01803, USA
First edition 2009

Copyright © 2009, Francis Buttle

Published by Elsevier Ltd. All rights reserved.
The right of Francis Buttle to be identified as the author of this work has been
asserted in accordance with the Copyright, Designs and Patents Act 1988
No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means electronic, mechanical, photocopying,
recording or otherwise without the prior written permission of the publisher.
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Department in Oxford, UK: phone (44) (0) 1865 843830; fax: (44) (0) 1865
853333; email: [email protected]. Alternatively you can submit your
request online by visiting the Elsevier web site at http://elsevier.com/locate/
permissions, and selecting Obtaining permission to use Elsevier material.
Notice
No responsibility is assumed by the publisher for any injury and/or damage to
persons or property as a matter of products liability, negligence or otherwise,
or from any use or operation of any methods, products, instructions or ideas
contained in the material herein. Because of rapid advances in the medical
sciences, in particular, independent verification of diagnoses and drug dosages
should be made.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
A catalog record for this book is available from the Library of Congress
ISBN: 978-1-85617-522-7

For information on all Butterworth-Heinemann publications

visit our web site at www.elsevierdirect.com

Typeset by Charon Tec Ltd., A Macmillan Company.

(www.macmillansolutions.com).
Printed and bound in Hungary

09 10 11 12 13 10 9 8 7 6 5 4 3 2 1
Contents

Foreword xi
Preface xiii
Acknowledgements xvii
About the author xxi

1 Introduction to customer relationship management 1

Chapter objectives 3
Introduction 3
Strategic CRM 4
Operational CRM 6
Analytical CRM 9
Collaborative CRM 11
Misunderstandings about CRM 12
Defining CRM 14
CRM constituencies 16
Commercial contexts of CRM 17
The not-for-profit context 18
Models of CRM 18
Summary 22
References 22

2 Understanding relationships 25
Chapter objectives 27
What is a relationship? 27
Relationship quality 30
Why companies want relationships with customers 31
Why companies do NOT want relationships with customers 40
Why customers want relationships with suppliers 41
Why customers do NOT want relationships with suppliers 42
Customer satisfaction, loyalty and business performance 43
Researching the satisfaction–profit chain 46
Relationship management theories 50
Summary 55
References 55

3 Planning and implementing customer relationship

management projects 61
Chapter objectives 63
Introduction 63
vi Contents

CRM implementation 63
Phase 1: Develop the CRM strategy 65
Phase 2: Build CRM project foundations 72
Phase 3: Needs specification and partner selection 80
Phase 4: Project implementation 89
Phase 5: Evaluate performance 90
Summary 91
References 91

4 Developing, managing and using customer-related databases 93

Chapter objectives 95
Introduction 95
What is a customer-related database? 95
Developing a customer-related database 96
Select the database technology and hardware platform 102
Maintain the database 107
Desirable data attributes 108
Data integration 109
Data warehousing 111
Data marts 112
Data access and interrogation 113
Data mining 114
Privacy issues 117
Summary 120
References 120

5 Customer portfolio management 123

Chapter objectives 125
What is a portfolio? 125
Who is the customer? 126
Basic disciplines for CPM 127
Market segmentation 127
Sales forecasting 136
Activity-based costing 138
Lifetime value estimation 141
Data mining 143
CPM in the business-to-business context 147
Additional customer portfolio management tools 154
Strategically significant customers 157
The seven core customer management strategies 158
Summary 160
References 160

6 Customer relationship management and customer

experience 163
Chapter objectives 165
Introduction 165
What is meant by customer experience? 165
Experiential marketing strategies and tactics 174
Customer experience and the role of CRM 178
 Contents vii

Features of CRM software applications that influence

customer experience 179
Researching the link between customer experience and CRM 182
Summary 183
References 183

7 Creating value for customers 185

Chapter objectives 187
Introduction 187
Understanding value 187
Sources of customer value 191
Customization 193
Value from products 197
Value from service 201
Value from processes 210
Value from people 213
Value from physical evidence 214
Value from customer communication 216
Value from channels 218
Summary 219
References 220

8 Managing the customer lifecycle: customer acquisition 225

Chapter objectives 227
Introduction 227
What is a new customer? 228
Customer value estimates 231
Prospecting 233
Key performance indicators of customer acquisition programmes 248
Making the right offer 249
Operational CRM tools that help customer acquisition 250
Support from CRM analytics 252
Summary 253
References 253

9 Managing the customer lifecycle: customer retention

and development 255
Chapter objectives 257
Introduction 257
What is customer retention? 258
Manage customer retention or value retention? 260
Economics of customer retention 261
Which customers to retain? 262
Strategies for customer retention 263
Positive customer retention strategies 263
Learning from research into customer commitment 277
Context makes a difference 280
Key performance indicators of customer retention programmes 281
The role of research 282
Strategies for customer development 283
viii Contents

Strategies for terminating customer relationships 284

Summary 287
References 287

10 Managing networks for customer relationship

management performance 291
Chapter objectives 293
Introduction 293
What is a network? 294
Business networks 295
Network position 296
What is meant by ‘focal firm?’ 298
Business networks and CRM 298
The SCOPE of CRM 299
Supplier networks 300
Distribution networks 301
Principles of network management 303
Management of networks 303
Management in networks 306
Research into network competence 307
Summary 307
References 308

11 Managing supplier and partner relationships 311

Chapter objectives 313
Introduction 313
Supplier relationships 314
Product development 315
Supplier accreditation programmes 315
Process alignment 317
Trends in supplier relationship management 320
Product development alliances 323
Electronic procurement 324
Partners 327
Partners in value creation 327
Alliances between non-competing firms 329
Alliances between competing firms 330
Category teams 331
Benchmarking partners 331
Regulators 333
Customer advocacy groups 333
Sponsors 335
Partners in value delivery 336
Summary 340
References 340

12 Managing investor and employee relationships 343

Chapter objectives 345
Introduction 345
Owner/investor relationships 345
 Contents ix

Educate current investors 349

Investor relations portals 351
Employees 351
Internal marketing 353
Empowerment 354
The service–profit chain 355
Employee relationship management (ERM) software
applications 357
Summary 359
References 360

13 Information technology for customer relationship

management 363
Chapter objectives 365
Introduction 365
Origins of CRM technology 365
The CRM ecosystem 369
CRM solutions 372
CRM analytics 377
CRM architecture 381
Multichannel CRM 381
Mobile and wireless solutions 383
Integration 385
Knowledge management 389
Automated workflow 390
Summary 391
References 392

14 Sales-force automation 393

Chapter objectives 395
Introduction 395
What is SFA? 396
The SFA ecosystem 396
SFA software functionality 398
SFA adoption 406
How SFA changes sales performance 408
Summary 409
References 410

15 Marketing automation 413

Chapter objectives 415
Introduction 415
What is marketing automation? 415
Benefits of marketing automation 416
Software applications for marketing 417
Summary 439
References 440

16 Service automation 443

Chapter objectives 445
Introduction 445
x Contents

What is customer service? 445

What is service automation? 447
Benefits from service automation 449
Software applications for service 450
Summary 461
References 461

17 Organizational issues and customer relationship

management 463
Chapter objectives 465
Introduction 465
Organizational roles and CRM 465
Strategic goals of CRM 469
Conventional customer management structures 469
Network and virtual organizations 474
Person-to-person contacts 475
Key account management 476
Team selling 481
Summary 482
References 483

Index 485
Foreword
Customer relationship management’s impact in the commercial
marketplace cannot be undervalued. Despite traditional economic theory
on market entry and pricing prescribing that enterprises should engage
customers through prefabricated reactions and interactions given the
customer event taking place, the nature, impact and reach of the power
of enriching customer experiences has emerged in 2008.
Yet, one of the most common mistakes made by global companies is to
view CRM as solely a technology or business challenge. CRM is first and
foremost a business strategy that can be effectively executed through the
appropriate business process and technology management capabilities
that best match to an organization’s customer-facing goals.
Long gone are the views of CRM being applications or business
process methodologies for engaging customers in contact centers in the
customer service functional domains within an organization. Today,
every interaction or ‘moment of truth’ with customers can help sustain,
direct, implore or resuscitate desired outcomes by enterprises. These
processes transcend functional departmental silos and extend their reach
across the process network to include sales and distribution partners and
channels. Technology, process and organizational architectures together
in concert will determine the effectiveness of how these end-to-end
business processes will align to customer intents and enrich their overall
experience with an organization.
The CRM strategic paradigm has gone through a three-phase
generational shift over the last decade (1998–2008) with enterprises
maturing from: 1) Marketing to customers the best products at the best
prices, to 2) Marketing customers with the best services, to 3) Marketing
customers with the dynamic services and products that they want and
desire as measured by customer intent. Today, with the advent and
proliferation of social communities across the internet world customers
have channels for information-sharing on an enterprise’s services and
products that is extremely powerful. This emergence has disrupted
conventional approaches towards managing customer or product
information. Paradoxically, customers no longer look towards an enterprise
as the best source of data or information about their own commercial
product or service offerings. This sense of brand promise and brand trust
has deteriorated, and today customers place their confidence in the shared
and communal experiences of others through social community networks
which provide transparency on valued customer experiences in the
marketplace. In fact, as this book is being printed a great number of CRM
Application vendors in the marketplace are vying to provide technology
solutions for enterprises to integrate and use these social networks as part
of core enterprise ERP and CRM solutions.
xii Foreword

It is with distinct pleasure that I introduce you to Francis Buttle’s

comprehensive work on CRM. His passion for and grasp of the concepts,
disruptors and application of CRM approaches will accelerate readers’
abilities to grasp these exciting topics.
When considering CRM, there is no strategic alternative for enterprises
but a relentless approach towards driving customer centricity in order to
achieve current, future and lifetime profitability by creating customers
for life.
Isher Kaila
Research Director, Global CRM Stratety
Gartner Inc.
San Jose, CA
USA
Preface

Welcome to the second edition of Customer Relationship Management:

Concepts and Technologies.
The book provides a comprehensive and balanced review of Customer
Relationship Management. It explains what CRM is, the benefits it
delivers, the contexts in which it is used, the technologies that are
deployed, and how it can be implemented. It shows how CRM practices
and technologies are used to enhance the achievement of marketing,
sales and service objectives throughout the customer life-cycle stages of
customer acquisition, retention and development, whilst simultaneously
supporting broader organizational goals.
The book has been written to meet the demand for an impartial,
academically-sound, examination of CRM. It is a learning resource both
for students of CRM and for managers wanting a better appreciation of
the role that CRM can play in their own organizations.
The first edition was entitled Customer Relationship Management:
Concepts and Tools. The change to the new subtitle, Concepts and
Technologies, reflects the requirements of readers. In true customer-
oriented manner, we surveyed readers and adopters of the first edition.
They said they wanted more on CRM technologies. This book delivers
it. However, although there are a number of chapters dedicated to CRM
technologies, and technology matters are considered throughout the book,
the book puts technology into a managerial context. This is not a book
about technologies, but it is about how marketers, salespeople, service
staff and their managers can use technologies to better understand and
meet the requirements of customers, whilst also meeting organizational
goals and objectives. Our survey of readers and adopters also discovered
that they wanted more case illustrations and screenshots from CRM
software applications. The book delivers them, too.
The book draws on academic and independent research to ensure
that it is both theoretically sound and managerially relevant. Research
from a wide range of academic disciplines contributes to the book.
These include marketing, sales, customer service, human resources,
xiv Preface

technology management, strategy, change management, project

management, leadership, operations, management accounting, finance
and organizational behaviour. Supplementing these academic credentials,
the book also makes use of research conducted by independent analysts
such as Gartner and Forrester, two organizations that conduct leading-
edge, state-of-the-art research into CRM and related areas.

Audience for the book

This book has been written for a number of audiences, all of whom share
an interest in improving their understanding of CRM.

● MBA and Masters students, and upper-level undergraduates studying

CRM or related advanced courses, such as relationship marketing,
database marketing, customer management, sales management,
key account management, strategic management, customer value
management and customer service management.
● Those pursuing professional qualifications or accreditation in
marketing through international organizations, such as the Chartered
Institute of Marketing and the Institute of Direct Marketing, or national
bodies such as the Marketing Institute of Ireland or the Canadian
Institute of Marketing.
● Senior and mid-level managers who are involved in CRM programmes
and system implementations, whether in a marketing department, the
sales-force or the service centre.
● Students pursuing professional qualifications or accreditation in sales
management or key account management through international
organizations such as the Institute of Sales and Marketing Management
or the Association of International Marketing.
● CRM users who want a better understanding of this complex area. CRM
tools are deployed across the customer-facing parts of organizations.
Users includes sales representatives, account managers, marketing
managers, market analysts, campaign managers, market managers,
customer relationship managers and customer service managers. These
users are exposed to just a fragment of the CRM universe. This book
can put their role into broader context.

Key features of the book

● The book provides a helicopter view, an overview, of the domain of
CRM. As an impartial review of the field, it is not tied to any particular
perspective on CRM. Indeed, the book identifies a number of holistic
models that provide different and competing overviews of CRM.
● Although CRM is in widespread use, there is still some misunder-
standing about what CRM is. The book identifies four different
types of CRM: strategic, operational, analytical and collaborative.
 Preface xv

Several chapters are dedicated to strategic CRM and others focus on

operational CRM, whereas analytical CRM and collaborative CRM
issues are addressed throughout the book.
● The book defines CRM as the core business strategy that integrates
internal processes and functions, and external networks, to create
and deliver value to targeted customers at a profit. CRM is grounded
on high quality customer-related data and enabled by information
technology. This definition serves as a central point-of-reference
throughout the book.
● The book emphasizes a managerial perspective on CRM. Although
there is plenty of content on technology, it is not a book about
technology per se. The technology content of the book has been
written so that readers who are unfamiliar with technology, or who
are technophobes, can still understand what CRM technologies can
deliver. Technology is secondary to management throughout the
book. You don’t need a degree in information systems to benefit from
the book!
● The book has a strong academic foundation provided by research
from a number of disciplines.
● The book contains many examples of CRM technologies and their
application to marketing, selling or service functions. Screenshots are
a feature of the book.
● Every chapter contains case illustrations. These are not problem-based
cases, but examples of CRM in practice so that readers can come to
appreciate how CRM is deployed.
● All chapters follow a common format: learning objectives, text, case
illustrations, summary and references.

Improvements over the

first edition
There are a number of important improvements to this edition which
have been made largely as a result of input from readers and adopters.
The book is significantly expanded. At seventeen chapters, this
edition is seven chapters longer than the first edition. There are three
new chapters dedicated to operational CRM applications: sales-force
automation, marketing automation and service automation. The chapters
define important terms, identify the main vendors and actors, and set
out the benefits users can expect to experience and the functionality
that is available. There is a new chapter entitled ‘Understanding
relationships’. If CRM is about developing and maintaining relationships
with customers, it is important to have clear understanding of what
a relationship looks like, and how, if at all, it can be managed. This
chapter defines the term ‘relationship’, examines whether customers
want relationships with suppliers and vice versa, identifies attributes of
successful relationships and reviews five different schools of thought
that have influenced relationship management in a business context.
xvi Preface

There is a new chapter on planning and implementing CRM projects.

This takes readers through a disciplined five-stage process designed to
promote successful CRM outcomes. There is a new chapter on ‘Customer
experience’. Customer experience has become something of a buzzword
in the last few years. This chapter explores the concept of customer
experience, and addresses the question of whether CRM can or does
enhance customer experience.
Many new case illustrations have been added to every chapter, and
all other content has been revised and updated. An added feature of
this edition is the inclusion of a large number screenshots from CRM
software applications. This is designed to give readers a sense of the
CRM user’s experience.
A final enhancement to this edition is the provision of an array of
enriching online content, which is described below.

Additional online resources

Readers and adopters of the first edition said they wanted additional
online resources to be available. There are now two websites linked to
the book, designed to enrich the learning experience.
The website for adopters provides a range of pedagogical resources
for instructors. Accessed by password and only available to authorized
instructors, the site contains a full set of PowerPoint files; details of case
studies that can be used as a basis for classroom discussion or student
assignments; links to technology companies’ websites where CRM
technologies are demonstrated, and white papers and case histories
can be viewed; links on online CRM communities and links to analysts
websites where up-to-date CRM-related research is published. The
adopters’ website also includes a list of discussion topics, exercises,
projects and assignments that engage students and promote deeper,
more meaningful, learning.
The website for readers provides access to a range of value-adding
content including chapter-by-chapter learning objectives; links
to technology companies’ websites where CRM technologies are
demonstrated, and white papers and case histories can be viewed; links
to online CRM communities; and links to analysts websites where up-to-
date CRM-related research is published.
I hope you enjoy the book and find it a satisfying read. Writing a book
is a little like painting a picture, or tending a garden. You never reach a
point where you can safely say that the job is finished. There is always
more that you can do. With that in mind, I invite you to write to me at
[email protected]. I look forward to hearing from you.

Francis Buttle
Sydney
Acknowledgements

I’d like to express my appreciation to the many people and organizations

that have contributed to this book. Most of these contributions have
been requested and conscientiously delivered, but other contributors are
unaware that their occasional comment or question is reflected in these
pages. I thank you all.
I would particularly like to acknowledge the contribution of Isher Kaila
who wrote the book’s Foreword. Isher is Research Director, Global CRM
Strategy for Gartner Inc., San Jose, California, USA. Gartner is the world’s
leading information technology research and advisory company. I first met
Isher on one of his many global tours. He was visiting Australia where
I had the opportunity to hear him speak insightfully and informatively
about trends in CRM and customer experience management. Gartner
claims ‘We deliver the technology-related insight necessary for our clients
to make the right decisions, every day’. Isher certainly did on that day,
and he makes some similarly shrewd observations in his Foreword.
I would also like to acknowledge the input of John Turnbull and
Matthew Holden. I have a strong managerial and strategic emphasis on
CRM, which privileges the perspective of the user. In my 15 years or so
of teaching, researching, advising and consulting on CRM I have learned
much about technology, but am I by no means a match for these two
technology experts.
John Turnbull is the founder and Managing Director of Customer
Connect Australia (www.customerconnect.com.au). John began his
working life with operational and management roles in service, sales,
marketing support and project management. He has managed business
transition programmes for a wide range of organizations across
marketing, sales, service and operations. His experience also includes
managing the sales consulting organizations in Australia and New
Zealand for two major CRM vendors, PeopleSoft and Siebel (now Oracle).
At Customer Connect Australia, John has helped organizations in a wide
range of industries to succeed with their customer-centricity/customer
management programmes. His work includes business consulting, CRM
xviii Acknowledgements

strategy, customer management education, managing business transition

and customer management (CMAT™) assessment. John contributed a
chapter to the first edition of this book, and the current Chapter 13, IT for
CRM, draws heavily on that foundation. John and I have worked together
on a number of CRM educational projects.
Matthew Holden is a highly experienced IT executive who has held
senior positions at both Oracle and SAP. Currently based in Singapore,
he has been a lead CRM implementation consultant at various companies
including Fosters Ltd, AAPT and Cellarmaster Wines. He now works
with large Asian companies and governments across the entire
information technology software spectrum from ERP to CRM. More
information is available at www.matthewholden.com.au. I first met
Matthew when he enrolled as a PhD candidate and I had the pleasure of
assisting him on the doctoral pathway. We have since worked together on
a number of CRM educational projects. John and Matthew both read and
commented on the technology-heavy chapters of this book. Thank you
both for your input.
A number of doctoral candidates that I have supervised or advised
have contributed significantly to the book. Special mention must go to
Daniel Prior who identified and reviewed a number of different schools
of relationship management. His thoughtful analysis provides a strong
foundation for the discussion in Chapter 2. A number of chapters
were read and critiqued by doctoral candidates Sergio Biggemann,
Martin Williams, Reiny Iriana and Chris Baumann. Thank you, and
congratulations on your own achievements: you are all Doctors now.
May you continue to be successful. Jana Bowden also reviewed early
drafts of chapters. You’re the next to graduate.
A number of academic colleagues past, present and perhaps future,
have also contributed feedback on drafts or engaged in helpful debate
and discussion, amongst them Lawrence Ang, David Ballantyne, Sue
Creswick, Christine Ennew, Robert East, John Murphy, Pete Naude,
Sharon Murray, Adrian Payne, Thomas Ritter, Willem Selen, Alan
Thomas, Ian Wilkinson, Steve Worthington and Louise Young.
I’d like to thank a number of clients with whom I’ve worked,
including DNAML, MGSM, Microsoft, NIB, Nu-Wa, SAS and PLAUT.
Special mention goes to Adam Schmidt, Bill Gates, Asha Oudit, Bob
Knox, Helene Cederqvist and David Prior.
Many publishers, companies and authors have granted permission for
their copyright materials to be reproduced in this book. These include
photographs, line drawings, conceptual models, research data and
screenshots. Every effort has been made to identify and contact copyright
owners, and I am very pleased to acknowledge their contributions in
the body of the book and in chapter endnotes. In the event that there
has been any failure to acknowledge a source appropriately, please let
me know and I’ll correct the omission or amend the error at the first
opportunity.
To all those at Elsevier who have been involved in the process of
bringing the book to market I extend a vote of thanks: Ailsa Marks, Tim
Goodfellow, Liz Burton, Sarah You and Stephani Allison. Appreciation is
also extended to Lewis Buttle of eLAB Design who designed the cover.
 Acknowledgements xix

Thanks, too, to my colleagues at Francis Buttle & Associates (www.

buttleassociates.com) including Sam English, Lawrence Ang, Lee
Williams, Abdullah Aldlaigan and Rizal Ahmad. Also, I appreciate the
support of colleagues at Listening Post (www.listeningpost.com.au),
particularly Leigh Thomas, David Young and Andrew Jones.
Finally, if you want to get in touch about the book, you can reach me
at [email protected]
This page intentionally left blank
About the author

Francis Buttle, PhD, is founder and principal consultant of Francis Buttle &
Associates, a Sydney, Australia-based business that helps organizations
become more skilled and successful at customer acquisition, retention
and development. Francis has spent most of the last 30 years in various
academic roles around the world. He has been a Professor of Customer
Relationship Management, Professor of Marketing, Professor of Relation-
ship Marketing and Professor of Management at a number of leading
graduate schools of management, including Manchester Business School
(UK), Cranfield School of Management (UK) and Macquarie Graduate
School of Management (Australia). He was appointed as the world’s first
Professor of CRM in 1995, and remains an Adjunct Professor at MGSM.
Francis has authored, co-authored or edited seven books, and over
100 peer-reviewed academic journal articles or conference papers.
In addition, he is a frequent contributor to practitioner magazines,
presenter at business conferences and a serial blogger.
Francis has developed, run or contributed to many management
development programs, and has advised or consulted to numerous for-
profit and not-for-profit organizations in the UK, Australia, USA, Hong
Kong, Singapore and New Zealand.
Although he quit full-time academic life in 2006, he still supervises
doctoral candidates and conducts customer-related research. Francis
lives on Sydney’s North Shore, is a qualified but reluctantly retired
rugby union referee, enjoys cycling and kayaking, and rides a Suzuki.
Francis has degrees in management science, marketing and
communication. His PhD was earned at the University of Massachusetts.
He is an elected Fellow of the Chartered Institute of Marketing. He can
be contacted at [email protected].
This page intentionally left blank
Chapter 1
Introduction to
customer relationship
management
This page intentionally left blank
 Chapter objectives
By the end of this chapter, you will be aware of:

1. four major perspectives on CRM: strategic, operational, analytical and collaborative

2. several common misunderstandings about CRM
3. a definition of CRM
4. the six constituencies having an interest in CRM
5. how important CRM issues vary across industries
6. five generic models of CRM.

Introduction
The expression customer relationship management (CRM) has only 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 in Table 1.1. As
a relatively immature business or organizational practice, a consensus
has not yet emerged about what counts as CRM. Even the meaning
of the three-letter acronym CRM is contested. For example, although
most people would understand that CRM means customer relationship
management, others have used the acronym to mean customer
relationship marketing.1
Information technology (IT) companies have tended to use the term
CRM to describe the software applications that automate the marketing,
selling and service functions of businesses. This equates CRM with
technology. Although the market for CRM software is now populated
with many players, it started in 1993 when Tom Siebel founded Siebel
Systems Inc. Use of the term CRM can be traced back to that period.
Forrester, the technology research organization, estimates that worldwide
spending on CRM technologies will reach US$11 billion per annum by
2010.2 Others with a managerial rather than technological emphasis,
claim that CRM is a disciplined approach to developing and maintaining
profitable customer relationships, and that technology may or may not
have a role.
Some of the differences of opinion can be explained by considering
that a number of different types of CRM have been identified: strategic,
operational, analytical and collaborative, as summarized in Table 1.2 and
described below.
4 Customer Relationship Management

CRM is an information industry term for methodologies, software and usually Internet capabilities that
help an enterprise manage customer relationships in an organized way.3
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.4
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.5
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 centre, 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 behaviour. CRM aims to provide more effective feedback and improved integration to better
gauge the return on investment (ROI) in these areas.6
CRM is a business strategy that maximizes profitability, revenue and customer satisfaction by organizing
around customer segments, fostering behaviour that satisfies customers and implementing customer-
centric processes.7

Table 1.1
Definitions of CRM

Type of CRM Dominant characteristic

Strategic Strategic CRM is a core customer-centric business strategy that aims at winning
and keeping profitable customers
Operational Operational CRM focuses on the automation of customer-facing processes such
as selling, marketing and customer service
Analytical Analytical CRM focuses on the intelligent mining of customer-related data for
strategic or tactical purposes
Collaborative Collaborative CRM applies technology across organizational boundaries with a
view to optimizing company, partner and customer value

Table 1.2 Types of

CRM

Strategic CRM
Strategic CRM is focused upon the development of a customer-centric
business culture. This culture is dedicated to winning and keeping
customers by creating and delivering value better than competitors. The
culture is reflected in leadership behaviours, the design of formal systems
of the company, and the myths and stories that are created within the
firm. In a customer-centric culture you would expect resources to be
allocated where they would best enhance customer value, reward systems
 Introduction to customer relationship management 5

to promote employee behaviours that enhance customer satisfaction

and retention, and customer information to be collected, shared and
applied across the business. You would also expect to find the heroes
of the business to be those who deliver outstanding value or service to
customers. Many businesses claim to be customer-centric, customer-led,
customer-focused or customer-oriented, but few are. Indeed, there can
be very few companies of any size that do not claim that they are on a
mission to satisfy customer requirements profitably.
Customer-centricity competes with other business logics. Philip Kotler
identifies three other major business orientations: product, production,
and selling.8
Product-oriented businesses believe that customers choose products
with the best quality, performance, design or features. These are often
highly innovative and entrepreneurial firms. Many new business start-ups
are product-oriented. In these firms it is common for the customer’s voice
to be missing when important marketing, selling or service decisions are
made. Little or no customer research is conducted. Management makes
assumptions about what customers want. The outcome is that sometimes
products are overspecified or overengineered for the requirements of the
market, and therefore too costly for many customers. However, marketers
have identified a subset of relatively price-insensitive customers whom
they dub ‘innovators’, who are likely to respond positively to company
claims about product excellence. Unfortunately, this is a relatively small
segment, no more than 2.5 per cent of the potential market.9
Production-oriented businesses believe that customers choose low-
price products. Consequently, these businesses strive to keep operating
costs low, and develop low-cost routes to market. This may well be
appropriate in developing economies or in subsistence segments
of developed economies, but the majority of customers have other
requirements. Drivers of BMWs would not be attracted to the brand
if they knew that the company only sourced inputs such as braking
systems from the lowest-cost supplier.
Sales-oriented businesses make the assumption that if they invest
enough in advertising, selling, public relations (PR) and sales promotion,
customers will be persuaded to buy. Very often, a sales orientation follows
a production orientation. The company produces low-cost products and
then has to promote them heavily to shift inventory.
A customer or market-oriented company shares a set of beliefs about
putting the customer first. It collects, disseminates and uses customer
and competitive information to develop better value propositions for
customers. A customer-centric firm is a learning firm that constantly
adapts to customer requirements and competitive conditions. There
is evidence that customer-centricity correlates strongly with business
performance.10
Many managers would argue that customer-centricity must be right
for all companies. However, at different stages of market or economic
development, other orientations may have stronger appeal.
6 Customer Relationship Management

Case 1.1
Strategic CRM at Boise Office Solutions
In 1998 the CEO of Itasca, Illinois-based Boise Office Solutions, decided that the only way to
escape the bruising price competition and razor-thin margins of office supply superstores
such as Staples and Office Depot was to provide greater value through superior customer
service, with the support of a CRM system. Three years and $20 million later, the $3.5 billion
subsidiary of Boise Cascade switched on a CRM system that differentiated them from other
competitors in the office supplies industry. The company can now share customer data
across five business units, 47 distribution centres and three customer service centres. This
has allowed Boise to cross-sell, retain and service accounts much more effectively. One of the
CRM system’s many features is web collaboration which allows representatives to co-browse
and chat with customers online while making recommendations.
Source: Greenguard (2002)11

Operational CRM
Operational CRM automates and improves customer-facing and customer-
supporting business processes. CRM software applications enable the
marketing, selling and service functions to be automated and integrated.
Some of the major applications within operational CRM appear in Table
1.3. Although we cover the technology aspects of operational CRM in
Chapters 14, 15 and 16, it is worth making a few observations at this point.

Marketing automation
Market segmentation
Campaign management
Event-based (trigger) marketing
Sales force automation
Account management
Lead management
Opportunity management
Pipeline management
Contact management
Quotation and proposal generation
Product configuration
Service automation
Case (incident or issue) management
Inbound communications management
Queuing and routing
Service level management

Table 1.3
Operational CRM
 Introduction to customer relationship management 7

Marketing automation
Marketing automation (MA) applies technology to marketing processes.
Campaign management modules allow marketers to use customer-related
data in order to develop, execute and evaluate targeted communications
and offers. Customer targeting for campaigning purposes is, in some
cases, possible at the level of the individual customer, enabling unique
communications to be designed.
In multichannel environments, campaign management is particularly
challenging. Some fashion retailers, for example, have multiple
transactional channels including free-standing stores, department store
concessions, e-tail websites, home shopping catalogues, catalogue stores
and perhaps even a television shopping channel. Some customers may
be unique to a single channel, but most will be multichannel prospects,
if they are not already customers of several channels. Integration of
communication and offer strategies and evaluation of performance
requires a substantial amount of technology-aided coordination across
these channels.
Event-based, or trigger, marketing is the term used to describe
messaging and offer presentation to customers at particular points in time.
An event triggers the communication and offer. Event-based campaigns
can be initiated by customer behaviours or contextual conditions. A call
to a contact centre is an example of a customer-initiated event. When a
credit-card customer calls a contact centre to enquire about the current rate
of interest, this can be taken as indication that the customer is comparing
alternatives and may switch to a different provider. This event may trigger
an offer designed to retain the customer. Examples of contextual events
are the birth of a child or a public holiday. Both of these indicate potential
changes in buyer behaviour, initiating a marketing response. Event-based
marketing also occurs in the business-to-business context. The event may
be a change of personnel on the customer-side, the approaching expiry of
a contract or a request for information (RFI).

Sales-force automation
Sales-force automation (SFA) was the original form of operational
CRM. SFA systems are now widely adopted in business-to-business
environments and are seen as ‘a competitive imperative’12 that offers
‘competitive parity’.13
SFA applies technology to the management of a company’s selling
activities. The selling process can be decomposed into a number of
stages, such as lead generation, lead qualification, needs identification,
development of specifications, proposal generation, proposal presentation,
handling objections and closing the sale. SFA software can be configured so
that it is modelled on the selling process of any industry or organization.
Automation of selling activities is often linked to efforts to improve
and standardize the selling process. This involves the implementation
of a sales methodology. Sales methodologies allow sales team members
and management to adopt a standardized view of the sales cycle and a
common language for discussion of sales issues.
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