Customer relationship management

Customer relationship management

The objective of customer relationship management (CRM) is to increase customer loyalty in order to increase profitability and is thus a key aspect of e-business.


  • CRM is an approach to building and sustaining long-term business with customers.
  • e-CRM is the use of digital communications technology to maximise sales to existing customers and encourage continued usage of online services.


Research into e-businesses suggests the following.

  • It is 20-30% more expensive to acquire new online customers than for traditional businesses.
  • Retaining an extra 5% of customers can boost online company profits by between 25 and 95%.

The customer lifecycle

CRM involves four key marketing activities (the 'customer lifecycle').

(1)  Customer selection - defining what type of customer is being targeted.

  • Who are we targeting?
  • What is their value?
  • Where do we reach them?

(2)  Customer acquisition - forming relationships with new customers.

  • Need to target the right segments.
  • Try to minimise acquisition costs. Methods include traditional off-line techniques (e.g. advertising, direct mail) and online techniques (e.g. search engine marketing, online PR, online partnerships, interactive adverts, opt-in e-mail and viral marketing)
  • Service quality is key here.
  • Choice of distribution channel also very important.

(3)  Customer retention - keeping existing customers.

  • Emphasis on understanding customer needs better to ensure better customer satisfaction.
  • Use offers to reward extended website usage.
  • Ensure ongoing service quality right by focussing on tangibles, reliability, responsiveness, assurance and empathy.

(4)  Customer extension (or 'customer development') - increasing the range of products bought by the customer.

  • "Re-sell" similar products to previous sales
  • "Cross-sell" closely related products
  • "Up-sell" more expensive products

Customer acquisition

Methods of acquiring customers can be split between traditional off-line techniques (e.g. advertising, direct mail, sponsorship, etc)and rapidly-evolving on-line techniques:

Search engine marketing

  • Search engine optimisation (SEO) - improving the position of a company in search engine listings for key terms or phrases. For example, increasing the number of inbound links to a page through 'link building' can improve the ranking with Google.
  • Pay per click (PPC) - an advert is displayed by search engines as a 'sponsored link' when particular phrases are entered. The advertiser typically pays a fee to the search engine each time the advert is clicked.
  • Trusted feed - database-driven sites such as travel, shopping and auctions are very difficult to optimise for search engines and consequently haven't enjoyed much visibility in the free listings. Trusted Feed works by allowing a 'trusted' third party, usually a search engine marketing company, to 'feed' a website's entire online inventory directly into the search engine's own database, bypassing the usual submission process.

Online PR

  • Media alerting services - using online media and journalists for press releases.
  • Portal representation - portals are websites that act as gateways to information and services. They typically contain search engines and directories.
  • Business blogs (effectively online journals) can be used to showcase the expertise of its employees.
  • Community C2C portals (effectively the e-equivalent of a village notice board) - e.g. an oil company could set up a discussion forum on its website to facilitate discussion on issues including pollution.

Online partnerships

  • Link-building - reciprocal links can be created by having quality content and linking to other sites with quality content. The objective is that they will then link to your site.
  • Affiliate marketing - a commission-based arrangement where an e-retailer pays sites that link to it for sales. For example, hundreds of thousands of sites direct customers to Amazon to buy the books or CDs that they have mentioned on their pages.
  • Sponsorship - web surfers are more likely to trust the integrity of a firm sponsoring a website than those who use straight ads.
  • Co-branding - a lower cost form of sponsorship where products are labelled with two brand names. For example, as well as including details about their cars, the website also includes immediate co-branded insurance quotes with Liberty Mutual Insurance and pages devoted to outdoor lifestyles developed with LL Bean.
  • Aggregators - these are comparison sites allowing customers to compare different product features and prices. For example, allows analysis of financial services products. Clearly a mortgage lender would want their products included in such comparisons.

Interactive adverts

  • Banners - banners are simply advertisements on websites with a click through facility so customers can surf to the advertiser's website.
  • Rich-media - many web users have become immune to conventional banner ads so firms have tried increasingly to make their ads more noticeable through the use of animation, larger formats, overlays, etc. For example, an animated ad for Barclays banking services will appear on some business start-up sites.
  • Some ads are more interactive and will change depending on user mouse movements, for example generating a slide show.

Opt-in e-mail

It is estimated that 80% of all e-mails are spam or viruses. Despite this e-mail marketing can still deliver good response rates. One survey found only 10% of e-mails were not delivered (e.g. due to spam filters), 30% were opened and 8% resulted in 'clickthroughs'. Options for e-mail include the following.

  • Cold, rented lists - here the retailer buys an e-mail list from a provider such as Experian.
  • Co-branded e-mail - for example, your bank sends you an e-mail advertising a mobile phone.
  • 3rd party newsletters - the retailers advertises itself in a 3rd party's news letter.
  • House list e-mails - lists built up in-house from previous customers, for example.

Viral marketing

  • Viral marketing is where e-mail is used to transmit a promotional message from one person to another.
  • Ideally the viral ad should be a clever idea, a game or a shocking idea that is compulsive viewing so people send it to their friends.

Evaluating online customer behaviour

Recency, frequency, monetary value analysis (RFM) is the main model used to classify online buyer behaviour.


  • The time since a customer completed an action - e.g. purchase, site visit, e-mail response.
  • Considered to be a good indicator of potential repeat purchases.
  • Allows 'vulnerable' customers to be specifically targeted.


  • The number of times an action is completed in a specified time period - e.g. five log-ins per week.
  • A related concept is latency – the average time between actions - e.g. the average time between first and second purchases.
  • Together these allow the firm to put in place triggers that alert them to behaviour outside the norm. For example, a customer may be taking longer than normal between first and second purchases. This could indicate that they are currently considering a purchase prompting the firm to e-mail or phone them with relevant offers.

Monetary value

  • The monetary value of purchases can be measured in many different ways such as average order value, total annual purchases, etc.
  • High monetary value is usually a good indicator of customer loyalty and higher future potential purchases. Such customers could be deliberately excluded from special promotions.

RFM is also known as FRAC:

  • Frequency
  • Recency
  • Amount = monetary value
  • Category = types of product purchased - not in RFM.

Customer retention

Customer retention has two goals:

  • to keep customers
  • to keep customers using the online channel.

Customer satisfaction and SERVQUAL

Key to retention is understanding and delivering the drivers of customer satisfaction as satisfaction drives loyalty and loyalty drives profitability.

The 'SERVQUAL' approach to service quality developed by Parasuraman et al focuses on the following factors.


  • The 'tangibles' heading considers the appearance of physical facilities, equipment, personnel and communications.
  • For online quality the key issue is the appearance and appeal of websites - customers will revisit websites that they find appealing.
  • This can include factors such as structural and graphic design, quality of content, ease of use, speed to upload and frequency of update.


  • Reliability is the ability to provide a promised service dependably and accurately and is usually the most important of the different aspects being discussed here.
  • For online service quality, reliability is mainly concerned with how easy it is to connect to the website.
  • If websites are inaccessible some of the time and/or e-mails are bounced back, then customers will lose confidence in the retailer.


  • Responsiveness looks at the willingness of a firm to help customers and provide prompt service.
  • In the context of e-business, excessive delays can cause customers to 'bail-out' of websites and/or transactions and go elsewhere.
  • This could relate to how long it takes for e-mails to be answered or even how long it takes for information to be downloaded to a user's browser.


  • Assurance is the knowledge and courtesy of employees and their ability to inspire trust and confidence.
  • For an online retailer, assurance looks at two issues - the quality of responses and the privacy/security of customer information.
  • Quality of response includes competence, credibility and courtesy and could involve looking at whether replies to e-mails are automatic or personalised and whether questions have been answered satisfactorily.


  • Empathy considers the caring, individualised attention a firm gives its customers.
  • Most people would assume that empathy can only occur through personal human contact but it can be achieved to some degree through personalising websites and e-mail.
  • Key here is whether customers feel understood. For example, being recommended products that they would never dream of buying can erode empathy.

There are three stages to applying the SERVQUAL framework.

(1)Understanding customer expectations through research.

(2)Setting and communicating the service promise.

(3)Delivering the service promise to ensure that a service quality gap does not exist.

Techniques for retaining customers

Given the above consideration of service quality, firms use the following techniques to try to retain customers.

  • Personalisation - delivering individualised content through web-pages or e-mail. For example, portals such as Yahoo! enable users to configure their home pages to give them the information they are most interested in.
  • Mass customisation - delivering customised content to groups of users through web-pages or e-mail. For example, Amazon may recommend a particular book based on what other customers in a particular segment have been buying.
  • Extranets - for example, Dell Computers uses an extranet to provide additional services to its 'Dell Premier' customers.
  • Opt-in e-mail - asking customers whether they wish to receive further offers.
  • Online communities - firms can set up communities where customers create the content. These could be focussed on purpose (e.g. Autotrader is for people buying/selling cars), positions (e.g. the teenage chat site Doobedo), interest (e.g. Football365) or profession. Despite the potential for criticism of a company's products on a community, firms will understand where service quality can be improved, gain a better understanding of customer needs and be in a position to answer criticism.

Customer extension

Customer extension has the objective of increasing the lifetime value of a customer and typically involves the following.

  • 'Re-sell' similar products to previous sales.
  • 'Cross sell' closely related products.
  • 'Up sell' more expensive products.
  • For example, having bought a book from Amazon you could be contacted with offers of other books, DVDs or DVD players.
  • Reactivate customers who have not bought anything for some time.

Key to these are propensity modelling and the 'sense, respond, adjust' model.

Propensity modelling

Propensity modelling involves evaluating customer behaviour and then making recommendations to them for future products.

For example, if you have bought products from Amazon, then each time you log on there will be a recommendation of other products you may be interested in.

This can involve the following.

  • Create automatic product relationships - e.g. through monitoring which products are typically bought together.
  • Using trigger words or phrases - e.g. 'customers who bought X also bought Y'.
  • Offering related products at checkout - e.g. batteries for electronic goods.

'Sense, respond, adjust'

  • Sense - monitor customer activities to classify them according to value, growth, responsiveness and defection risk. RFM analysis, discussed above, would also be relevant here.
  • Respond with timely, relevant communications to encourage desired behaviours.
  • Adjust - monitor responses and continue with additional communications.

Historically, marketing has focused on the first two elements in the customer lifecycle (selection and acquisition) at best. CRM aims to extend marketing over all four stages and build a lasting relationship with customers which creates loyalty and keeps them coming back for more.

Comparison with transactional marketing

Gordon (1998) states that there are six dimensions that illustrate how relationship marketing differs from the historical definition of marketing. These are that:

  • relationship marketing seeks to create new value for customers and then share it with these customers.
  • relationship marketing recognises the key role that customers have both as purchasers and in defining the value they wish to receive.
  • relationship marketing businesses are seen to design and align processes, communication, technology and people in support of customer value.
  • relationship marketing represents continuous cooperative effort between buyers and sellers.
  • relationship marketing recognises the value of customers' purchasing lifetimes (i.e. Customer Lifetime Value).
  • relationship marketing seeks to build a chain of relationships within the organisation, to create the value customers want, and between the organisation and its main stakeholders, including suppliers, distribution channels, intermediaries and shareholders.

The growing interest in relationship marketing suggests a shift in the nature of marketplace transactions from discrete to relational exchanges, from exchanges between parties with no past history and no future to interactions between parties with a history and plans for future interaction.

Software solutions

Software plays a vital role in CRM. It can organise, automate and synchronize marketing and sales actions.

For example, when a customer buys a book on Amazon's website, the software can recommend other similar books that the customer might be interested in based on both this individual customer's past purchases and preferences as well as data gathered on customers who have purchased this same book in the past.

SAP's Customer relationship management (CRM) module

The online aspects (there are many others) of SAP's CRM module includes the following features:


  • Supports customer loyalty processes via the Internet.
  • Personalizes customers' Web experiences.
  • Generates additional revenue through a website via catalogue management, content management, customer segmentation and personalization.


  • Runs B2B and B2C selling processes on the Internet.
  • Enables a full range of online selling processes, including pricing and contracts, interactive selling, web auctions, and selling via partners.
  • Streamlines sales and fulfilment with end-to-end order-to-cash processes.


  • Offers customers an intuitive channel to perform service tasks, from requesting a service visit to logging a complaint or registering a product.
  • Enables customers to checking order status, obtain order tracking information, manage accounts and payments, and research and resolve product problems.
  • Services complex products that require sophisticated maintenance.

Web channel analytics

  • Gains insight into, analyzes, and acts on e-business trends.
  • Measures and optimizes the success of Web shop and online content.
  • Performs analysis of marketing, sales, and service from a Web perspective.
  • Tracks Web behaviour to target customers and drive future marketing activities.

Customer relationship management systems (CRMs)

CRMs do what they say: they help organisations to form and maintain relationships with customers. Customers of large organisations rarely speak to a specific named individual. This is especially so if the organisation uses a call centre approach to handle customers' calls. It is, however, important that the customer feels he or she is getting a good service, where the organisation knows about previous sales,customer preferences, previous problems and previous conversations.Typically, a CRM will show the following information on-screen to employees dealing with customers.

  • The customer's name, address, telephone number, email and, if applicable, web address.
  • Current debtors ledger balance.
  • If the customer is an organisation, named individuals employed by the customer with whom the organisation deals, together with their job titles and authority levels.
  • Some additional information about customer's employees, for example that that person is a technical expert, or previously worked for a certain company, or does not like to be contacted before 2pm.
  • Summaries of previous conversations with the customer.
  • Details of previous sales to the customer – description of goods/services and value.
  • Diary entries to remind the organisation to carry out agreed tasks for the customer.

It is immensely valuable to have this information available when dealing with customers, both to talk intelligently to the customer, and identify sales opportunities that might arise during the conversation. CRM packages therefore allow organisations to have a much more informed, professional and, it is hoped, profitable relationship with customers.


Created at 10/10/2012 10:22 AM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 9/11/2013 12:23 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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customer relationship management;CRM;customer lifecycle;Customer selection;Customer acquisition;Customer retention;Customer extension;customer development;Search engine optimisation;SEO;Pay per click;PPC;Trusted feed;Online PR;Media alerting services;Portal representation;blogs;Link-building;Affiliate marketing;Sponsorship;Co-branding;Aggregators;Banners;Rich-media;Opt-in e-mail;Viral marketing;RFM;FRAC;SERVQUAL;Personalisation;Mass customisation;Propensity modelling;Sense respond adjust;Customer relationship management systems

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