CRM Under the Microscope - Measuring the Customer Relationship Management Construct

In 2003 firms spent almost $10.2 billion on customer relationship management (CRM) initiatives. Despite the size of this investment and the current enthusiasm for CRM, the concept remains indistinct and unexplored. CRM means different things to different people. What actually constitutes a CRM implementation, and moreover, whether they are effective in improving market performance are questions that need urgent attention. In this Working Paper, Professors Reinartz, Krafft and Hoyer turn an academic spotlight onto the hot topic of CRM. Their research breaks new ground in quantifying and cataloguing CRM initiatives, and draws important conclusions for managers.

by Werner Reinartz, Manfred Krafft,Wayne Hoyer
Last Updated: 23 Jul 2013

Faced with the challenge of fulfilling the diverse needs and interests of a heterogeneous customer base, many firms have embraced Customer Relationship Management (CRM) tools enthusiastically. In a bid to become more customer-centric, they have invested large sums in technology and software to help them with the task. Recent empirical studies suggest however that simply throwing money at the problem does not work. Up to 70 percent of CRM projects result in either losses or no bottom line improvement.

This suggests severe implementation challenges for CRM strategies. The need then for a deeper and more nuanced understanding of the dimensions and sub-components of CRM implementation is pressing if the link between CRM implementation and company performance is to be understood.

In a bid to achieve this urgent task, Werner Reinartz, Assistant Professor of Marketing, INSEAD, joins with Manfred Krafft, Professor of Marketing at the University of M√ľnster, Germany, and Wayne D. Hoyer, Chaired Professor and Chairman, Department of Marketing at the McCombs School of Business at the University of Texas, Austin in producing this Working Paper. They conducted a cross-sectional survey of firms in Austria, Germany and Switzerland in the financial services, hospitality, online retailing and power utility industries. With 211 CEOs and senior marketing or sales executives responding, they were able to better characterize the CRM-performance link.

Drawing from relationship marketing literature, the authors conceive of CRM as a systematic process to manage customer relationship initiation, maintenance, and termination across all customer contact points in order to maximize the value of the relationship portfolio. Developing a systematic understanding and deriving influencing strategies thereof at each stage of the customer lifecycle is critical.

Within this framework, the extent to which CRM activities were implemented by respondent firms at every customer lifecycle stage was assessed, producing an overall index of CRM implementation. The authors then linked the degree of CRM implementation across the sample of firms with firm performance. Counter to some of the results in the business press, the authors found a positive link between CRM activities on the whole and company performance. Besides this main effect, the researchers also investigated some contingencies.

These situational variables included whether a CRM compatible incentivization system was in place (e.g. training procedures, rewards and organizational structure), the degree of CRM technology investments, and the degree of customer heterogeneity that exists. For example, CRM implementation is more likely to improve performance when a supporting incentivization and organizing scheme also exists.

Although CRM is often equated with the use of technology, higher levels of technology did not correlate in this study with better performance. Finally, in the context of a very heterogeneous customer base (i.e. customers are rather different than alike), CRM activities have a stronger link with performance.

For managers, the message is clear: simply investing in CRM technology is not enough, successful implementation also requires a strong people-related component. Firms must bring the customer perspective deeper into other functional areas of the organization, reorganizing to support customer-related activities and developing an incentive system to motivate CRM implementation. In addition, by creating a measure of CRM implementation, the researchers provide an index for benchmarking across organizations.

INSEAD 2003

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