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Database Marketing & Customer Strategy Management Vol. 14, 1, 4–16 © 2006 Palgrave Macmillan Ltd 1741-2439 $30.00
4
www.palgrave-journals.com/dbm
Lawrence Ang
Macquarie Graduate School
of Management
Macquarie University
Sydney NSW 2109, Australia
Tel: + 61 2 9850 9135;
Fax: + 61 2 9850 9019;
e-mail: lawrence.ang@
mgsm.edu.au ;
francis.buttle@mgsm.edu.au
INTRODUCTION
Companies have access to an abundance of
customer-related information in ways that
were unimaginable a couple of decades ago.
An ability to extract high-quality usable
information in a timely manner is
increasingly important, particularly given
a marketing environment of fragmented
communications media, and of sophisticated
technologies such as mobile messaging,
web-based supply chains and e-commerce.
1
As a result, companies are becoming more
dependent on software to convert
information into actionable intelligence,
and to communicate that intelligence to
customer touch-points in a timely manner.
Customer management software is an
important component of both analytical
and operational customer relationship
management (CRM) implementations. But
Papers
CRM software applications
and business performance
Received (in revised form): 2nd August, 2006
Lawrence Ang
is Senior Lecturer in Marketing at Macquarie Graduate School of Management, Macquarie University.
Francis Buttle
is Professor of CRM and Marketing at Macquarie Graduate School of Management, Macquarie University.
Keywords CRM software , CRM , ROI , business performance , customer acquisition ,
customer retention , customer development
Abstract After a period of decline at the turn of the century, demand for customer
relationship management (CRM) software is rebounding. Our investigation of the
Australian context, however, shows that a large proportion of companies are still
undeveloped in terms of their application of software to support their customer
management strategies. Less than 40 per cent of companies use CRM software. When it
is used, the software is more commonly deployed for customer retention and customer
development purposes. It is less extensively used to support customer acquisition, but
when this does happen it results in more cost-effective marketing campaigns. Companies
that do employ CRM software are generally satisfi ed with their return on investment (ROI)
from the software. Our data suggest that companies ’ level of satisfaction with software
performance varies directly with its reported impact on business profi tability. The
performance of the software in meeting companies ’ expectations of customer retention
is a statistically signifi cant predictor of profi tability. Larger companies tend to be less
satisfi ed with software ROI, while service companies appear to be more likely to adopt
CRM software than companies in other sectors. We fi nd that the intelligent application of
CRM software can yield improvements in business performance.
Journal of Database Marketing & Customer Strategy Management (2006) 14, 4 – 16.
doi: 10.1057/palgrave.dbm.3250034
CRM software applications and business performance
© 2006 Palgrave Macmillan Ltd 1741-2439 $30.00 Vol. 14, 1, 4–16 Database Marketing & Customer Strategy Management
5
how do companies use CRM software
to support their customer management
activities, and how satisfi ed are they with
the results they experience? Importantly, is
the implementation of this software
associated with enhanced business
performance? These questions are the focus
of our paper.
What is CRM and CRM software?
CRM is a business practice that has been
defi ned as follows:
CRM is the core business strategy that
integrates internal process and functions,
and external networks, to create and deliver
value to targeted customers, at a profi t. It is
grounded on high quality customer data and
enabled by IT.
2
The application of information technology
(IT) is a distinguishing attribute of CRM,
particularly in its operational and analytical
forms.
3
Operational CRM relies on
software to automate selling, marketing and
service processes. Operational software
applications include salesforce automation
(SFA), campaign management, event-based
marketing, opportunity management,
product confi guration and contact
management solutions, inter alia. Analytical
CRM is enabled by engines such as
Enterprise Miner from SAS Institute and 7i
Business Intelligence from MicroStrategy.
Analytical CRM software explores
customer-related data to answer questions
such as ‘ what should we offer this customer
next? ’ , ‘ what is this customer ’ s propensity to
churn? ’ or ‘ how can our customers be
segmented for campaigning purposes? ’ In
general, CRM software applications help
companies manage their customer
relationships more effi ciently and effectively.
But as captured in our chosen CRM
defi nition, we, like others do recognise that
CRM is not simply about technology
alone.
4,5
The market for CRM software is
rebounding. The Gartner Group reported
that CRM software licence revenues had
fallen 15 per cent in 2002.
6
They estimated
that revenues would recover to 5 per cent
CAGR through to 2007, driven by
economic recovery and increased
competition. In similar vein, AMR Research
estimated that CRM software sales grew by
6 per cent in 2004.
7
This rebound may also
signify the infl uence of the Technology
Hype cycle, which shows how companies
fi nally come to understand and benefi t from
CRM after earlier periods of over-
enthusiasm and disappointment ( Figure 1 ).
8
Technology costs are not the only costs that
CRM implementations incur. Forrester
Research estimated that although $ 3.2
billion would be spent on CRM software
worldwide in 2005, more than three times
this amount, or $ 9.8 billion would be spent
on software integration, administration and
maintenance.
9
LITERATURE REVIEW
Much of the research into CRM
implementation tends to focus either on its
alleged failure to deliver business benefi ts, or
the enabling and disabling conditions that
impact on CRM performance. Sweat,
10
for
example, reported failure rates of between
25 and 80 per cent. Overly expensive
investment in technology — both software
and hardware — is cited as a signifi cant
cause of CRM ’ s failure to deliver value.
11
People issues are also implicated in the
failure of CRM implementations. McKinsey
Visibility
Maturity
Peak of
Inflated
Expectations
Technology
trigger
Trough of
Disillusionment
Slope of
Enlightenment
Plateau of
Productivity
Figure 1: The Hype Cycle
(Source: The Gartner Group, 2005)
Ang and Buttle
Database Marketing & Customer Strategy Management Vol. 14, 1, 4–16 © 2006 Palgrave Macmillan Ltd 1741-2439 $30.00
6
reported that 59 per cent of companies
who were successful in their CRM
implementations addressed cultural change
issues compared to 33 per cent of those
who failed.
12
More recently, Iriana and
Buttle
13
found that companies that promote
an atmosphere of innovation or risk taking,
hence creating a climate for employees to
act in the best interest of customers tend to
fare better in their CRM outcomes. But
very little has been published about the
deployment of CRM software, and its
impact on company performance. In fact,
the whole area is so under-researched, that
it has been earmarked by the Marketing
Science Institute to be a priority research
area.
14
SFA software
During the early 1990s, the CRM software
market was dominated by SFA applications.
This remains a core component in CRM
software suites. Rackman
15
has argued that
we should review what we have learnt
about the adoption of SFA in order not to
make the same mistake with CRM software
more broadly. History shows that success
rates of SFA implementations may not be as
high as vendors would wish. One study
estimates this to be around 50 per cent.
16
Others are even more pessimistic, reporting
failure rates of between 60 and 75 per
cent.
17,18,19
Where successes are reported,
they tend to occur several years after
adoption. For example, Erffmeyer and
Johnson
20
in a sample of 43 companies
found that up to 85 per cent of
management and 80 per cent of the
salesforce were ‘ very ’ or ‘ somewhat satisfi ed ’
(ie, top two boxes in a 5-point scale) with
their SFA. Their sample had an average of
6.4 years of implementation experience.
Just as disappointing are the results of a
study by Speier and Ventakash.
21
They
surveyed two companies across three time
periods: (i) immediately after their SFA
training, (ii) three months after
implementation and then (iii) six months
after implementation. Not only did they
discover that SFA failed to contribute
signifi cantly to any increase in the number
of sales contracts or sales volumes, but they
also found that it was instrumental in
causing sales people to leave the company
after 6 months. In a qualitative in-depth
investigation of three companies Bush et
al .
22
found that only one company (a global
communication services provider) was
prepared to say that their SFA has been a
success, and then only after 5 years of
implementation. Even so, all the respondents
found it diffi cult to defi ne and explain what
specifi c value the SFA delivered to their
salespeople.
CRM software
Literature in the area of CRM software has
tended to centre on software package or
vendor reviews,
23
or case studies about its
implementation.
24
One case study into
three companies concluded that one of the
main concerns in adopting CRM software
is that it is perceived to come in a ‘ one size
fi ts all ’ package.
25
This is fuelled by the fact
that vendors tend to have a standardised
view of what relationship management
process should be, creating problems in
fl exibility and functionality.
Two recent academic studies have begun
to shed light on the impact of CRM-
related technologies on company
performance. Based on a sample of 172 US
companies, split 50:50 between goods
manufacturers and service organisations,
Jayachandran et al . found that companies
with relational information management
processes (ie, they have interactive customer
contact, from which customer information
is captured, integrated and widely deployed
and used across the business) tend to
experience better customer satisfaction and
customer retention outcomes. Furthermore,
this association is even stronger when the
company ’ s CRM system is capable of front-
offi ce activities across the sales, marketing
and service functions.
26
CRM software applications and business performance
© 2006 Palgrave Macmillan Ltd 1741-2439 $30.00 Vol. 14, 1, 4–16 Database Marketing & Customer Strategy Management
7
In contrast, Reinartz et al . found a
negative relationship between CRM
technologies and the economic performance
of fi rms. From a sample of 211 Swiss,
German and Austrian companies across
fi ve industries (hospitality, power utilities,
fi nancial services and online retailing),
they found that the more sophisticated
companies are in their CRM technologies,
the worse is their economic performance
as judged subjectively by key informants.
Furthermore, they found a signifi cant
interactive effect in that this negative
relationship was most pronounced when
companies were trying to initiate a
relationship with customers (eg, customer
acquisition or win-back of lost customers).
27
In relation to our research objectives, it
should be noted that these two studies do
not directly evaluate the infl uence of CRM
software, per se , but focus on the much
broader issue of CRM-related technologies.
Reinartz et al. chose company performance
as their ultimate dependent variable,
measuring this both objectively (using
return on assets (RoA) data reported in
the annual accounts), and subjectively (using
key informants ’ assessments of overall
performance, market share, growth and
profi tability).
28
We believe that RoA is
infl uenced by so many variables that it is
not a useful dependent variable for the
assessment of CRM-related investments.
Neither of these two studies investigated
the effects of CRM-related technologies
on customer acquisition, retention and
development outcomes. Rather, these
activities were bundled together. We believe
that customer acquisition, retention and
development are strategically important
business objectives in their own right,
and merit assessment.
Finally, both these studies have chosen
different ways of conceptualising and
operationalising similar constructs.
Jayachandran et al.
29
use 42 items to measure
CRM technologies, while their dependent
variable is a composite index of customer
satisfaction and customer retention. Reinartz
et al .
30
measure CRM-related technologies
using only four items, with the dependent
variable being company performance.
In summary, we are not aware of any
academic study that looks at the
performance of CRM software per se ,
rather than more broadly defi ned CRM
technologies. Neither can we fi nd any
work that focuses on software ’ s role in
management of the customer lifecycle stages
of acquisition, retention and development,
user satisfaction with software return on
investment (ROI) and the software ’ s impact
on business performance. Our aim is to fi ll
this knowledge gap.
HYPOTHESES DEVELOPMENT
ROI, satisfaction and business
performance
Other than vendor-produced case studies,
very little has been written about ROI
from, satisfaction with, and business
outcomes associated with CRM software.
These are important issues because they will
affect CRM adoption. We will now review
the extant literature on these issues before
developing our hypotheses.
In one survey of senior executives across
fi ve continents (North and South America,
Europe, Asia and Africa), Bain and Co.
found that the use of CRM tools had
increased from 35 to 78 per cent between
2000 and 2002. But satisfaction with the
performance of these tools was below 50
per cent.
31
But a more recent survey of 328
US IT executives by CIO Insight magazine
found that satisfaction may be increasing —
20 per cent said that their CRM deployment
exceeded their expectations, 50 per cent said
they met their expectations, while only 20
per cent said they were below expectations.
32
Different authors provide confl icting
views on the impact of CRM software on
business performance. Thirty-one per cent
of a sample of 202 projects reports that
CRM software had improved their ability
Ang and Buttle
Database Marketing & Customer Strategy Management Vol. 14, 1, 4–16 © 2006 Palgrave Macmillan Ltd 1741-2439 $30.00
8
to sell and service their customers.
33
Starkey
and Woodcock
34
claim that returns on
CRM investments can be as high as 400
per cent over the full life of a CRM
project. Woodcock ’ s benchmarking study
suggests a strong positive association
(r = 0.80) between customer management
expertise and business performance. Success
is not guaranteed by simply adopting new
software. Rather it depends on overcoming
a host of barriers such as a lack of
ownership among senior executives, lack
of education, resistance from functional
and departmental silos, and so on.
35
Research into ROI from SFA
implementations is also thin. According to
Erffmeyer and Johnson,
36
only 50 per cent
of companies bother to formally evaluate
the adoption of SFA, even when they have
had the software in place for several years.
In a more recent review of SFA in eight
companies, Bush et al .
37
found that only
two had any sort of outcome measure in
place. Only one of these was a business
performance outcome.
Another investigation of SFA in both
Europe and the USA reported that SFA
helped companies lift their revenues by an
average of $ 22 million, even though the
payback period was about 6 – 7 years.
38
A
single-company case study conducted by
Gillan
39
found that a $ 1.5million
investment in SFA had a payback period of
18 months.
Finally, Wright and Donaldson
40
in a
survey of 72 banks in the UK found their
use of SFA to be not very sophisticated and
hence unlikely to lead to any signifi cant
improvement in the marketing outcomes
of customer acquisition, retention and
development.
One possible reason why there is a
dearth of research into the ROI of CRM
is because it is too diffi cult to assess
objectively or experimentally. For example,
Starkey et al .
41
found that only 34 per cent
of companies in Malaysia ( n = 34 companies)
had explicit key performance indicators for
their CRM implementation. We suggest that
there are three reasons why ROI is hard to
evaluate: (i) delimiting the boundaries of
CRM, (ii) defi ning the time-frame for
assessment and (iii) agreeing on what
constitutes investment and return.
42
Our
solution is to divide the CRM task into
three different stages: customer acquisition,
retention and development. Assessment of
ROI can then be performed in the
context of these three stages separately.
Indeed, this is also a framework which can
be deployed for estimation of customer
value.
43
Similarly, we propose to evaluate the
effectiveness of the software by assessing
how well it is deployed across the three
lifecycle stages. It follows that if the
performance of the software exceeds the
company ’ s expectations in each of these
three customer management activities, then
logically, it should be refl ected in higher
satisfaction with the software ’ s ROI
performance. This should in turn impact
positively on business outcomes, signifi cant
among which is enhanced company
profi tability (see Figure 2 ). Thus, we
hypothesise:
Software Software Software
Satisfaction
with
Improve
performance performance performance
exceeds exceeds exceeds
Company
ROI
customer customer customer
Profitability
from CRM
acquisition retention development
software
expectations expectations expectations
Figure 2 : CRM software performance ROI model
CRM software applications and business performance
© 2006 Palgrave Macmillan Ltd 1741-2439 $30.00 Vol. 14, 1, 4–16 Database Marketing & Customer Strategy Management
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H1: There is a signifi cant and
positive relationship between
satisfaction with the ROI delivered
by CRM software and the
performance of the software in
exceeding company expectations of
customer acquisition, retention and
development.
H2: There is a signifi cant and positive
relationship between satisfaction
with the ROI delivered by CRM
software and improvements in
company profi tability.
Company size
The size of the company may also be
linked to satisfaction with the ROI
generated by the adopted CRM software.
Rivers and Dart
44
found that larger
companies with more salespeople tend to
adopt SFA. This is consistent with other
fi ndings that larger companies are generally
more willing to adopt IT than smaller
companies. Starkey and Woodcock
45
also
found that larger companies tend to fi nd
managing their customers more diffi cult
than smaller companies and hence were
more likely to adopt CRM technologies.
Thus, we hypothesise:
H3: Larger companies are signifi cantly
more likely to use the CRM
software to assist in customer
acquisition, retention and
development than smaller
companies.
But this does not mean that larger
companies are necessarily more satisfi ed
with the results of their adoption of CRM
software. Larger companies may have to
contend with more organisational issues that
make software deployment and integration
more diffi cult. Larger companies may also
be more demanding of their CRM partners
such as vendors and consultants. This
implies that they may be more dissatisfi ed
especially if they have invested signifi cant
sums in their CRM solutions. Larger
companies may also have different customer
management goals. Rigby,
46
for instance,
found that smaller companies are more
focussed on growth than larger companies
and are thus more sanguine about the use
of management tools, including CRM,
compared to larger companies who may be
more focussed on cost cutting. This
corroborates an earlier study in which
Hendricks and Singhal
47
found that smaller
companies outperformed larger companies
in terms of many growth-related metrics. In
totality, all these lead to the following
hypothesis:
H4: Larger companies are more likely
to be dissatisfi ed with the ROI
delivered by CRM software than
smaller companies.
Manufacturing and service
companies
The nature of a company ’ s goods and
services may also infl uence its use of, and
satisfaction with, CRM software. It can be
argued that service companies have a higher
propensity to relationship-building than
non-service companies. Because of their
intangibility and variability, services are said
to be higher in perceived risk than similarly
priced goods.
48
Risk is reduced for
customers if they build a closer relationship
with a trusted supplier. Service companies
are therefore motivated to invest in
relationship-building. Because of their
higher levels of intangibility, services are
also more readily customised. Customisation
depends on the ability of the service
provider to sense and respond to customers ’
different requirements. This creates a
signifi cant role for customer-specifi c insight,
which can be gained through customer
interaction. We therefore expect service
companies to be more active in using the
CRM software for the activities of customer
acquisition, retention and development.
Indeed, Starkey et al .
49
found that credit
Ang and Buttle
Database Marketing & Customer Strategy Management Vol. 14, 1, 4–16 © 2006 Palgrave Macmillan Ltd 1741-2439 $30.00
10
card companies have the most sophisticated
customer management practices. This leads
to the following two hypotheses:
H5: Service companies are signifi cantly
more likely to use CRM software
to assist in customer acquisition,
retention and development than
non-service companies.
H6: Service companies are more
satisfi ed with the ROI delivered
by CRM software than non-
service companies.
METHODOLOGY
Sampling
Our population of interest is Australian
industry and commerce. A stratifi ed random
sample of 732 companies was contacted
from the Dun and Bradstreet database of
the top 1,000 companies in Australia. The
population was stratifi ed into three annual
turnover groups: $ 50 – $ 99 million, $ 100 –
$ 500 million, and above $ 500 million. The
invitation to participate was addressed to
the person in charge of customer relations.
The incentive was a summary report of the
study, which has now been fulfi lled.
Data collection
We fi rst contacted the 732 selected companies
by telephone, across a period of 2 months. We
asked to speak to the person in charge of
marketing, and then more specifi cally the
person / s in charge of customer acquisition,
retention or development. Following
agreement to participate, the instrument was
mailed to the sample. A response rate of 23
per cent was achieved resulting in a sample
size of 170 companies.
Instrument development and data
analysis
Items in the instrument were developed
from a literature review, and piloted and
refi ned over several iterations. Some of the
questions measuring independent variables
were nominal in nature. These focussed on
the use of CRM software to support three
customer management activities —
acquisition, retention and development.
Overall satisfaction with the ROI of the
software was measured using a 7-point
Likert scale, as was the extent to which the
software met respondent expectations in
supporting the three management goals of
customer acquisition, retention and
development.
The ultimate dependent variable was
whether the CRM software had made a
contribution to company profi tability, again
measured on 7-point scale with 7 anchored
as ‘ a critical contribution ’ and 1 as ‘ no
contribution ’ .
Sample questions used in this survey are
found in Appendix .
RESULTS
Response rate
One hundred and seventy responses were
obtained (23 per cent response rate).
Forty-three reported annual turnover
between $ 50 – $ 99 million, 46 were between
$ 100 – $ 500 million and 42 were above
$ 500 million. Thirty-nine companies
declined to divulge their annual turnover.
Participants represented all major standard
industrial classifi cation (ANZSIC) codes.
Dominant sectors were manufacturing (43
companies); wholesale and retail (24) and
health, community services, accommodation,
cultural / recreation, personal and other
services (23).
Table 1: Percentage reporting satisfaction with ROI
from their CRM software
n=67 (%)
Satisfi ed to very satisfi ed (5–7) 40
Midpoint (4) 24
Dissatisfi ed to very
dissatisfi ed (1–3)
20
Don’t know 16
Total 100
Mean 4.5
CRM software applications and business performance
© 2006 Palgrave Macmillan Ltd 1741-2439 $30.00 Vol. 14, 1, 4–16 Database Marketing & Customer Strategy Management
11
Descriptive results
Only 39 per cent of companies in our
sample use CRM software. Of these, 40 per
cent reported they were satisfi ed (above the
midpoint 4) with the ROI the software
generated, 24 per cent were lukewarm
(midpoint) and 20 per cent were dissatisfi ed
(below midpoint 4). The mean across the
sample ( n = 67) was 4.5 (s.d. = 1.54). A
one-sample t -test reveals the mean to be
signifi cantly above 4, the midpoint ( t = 2.4,
p < 0.05), indicating a generally positive
reporting of ROI (see Table 1).
Furthermore, 35 per cent of companies
used CRM software to support their
customer retention strategy; 31 per cent
to support their customer development
strategy; 29 per cent to support their
customer acquisition strategy. But how
satisfi ed are companies with this?
As shown in Table 2 , 48 per cent of
companies ( n = 60) using CRM software to
support customer retention reported that it
had exceeded their expectations (points 5 – 7
on the 7-point scale); 42 per cent of
companies ( n = 52) using CRM software to
support customer development reported
that the software exceeded their
expectations; 33 per cent of companies
( n = 49) using CRM software to support
customer acquisition reported that the
software exceeded their expectations.
Overall, the sample reports that CRM
software is more effective for supporting
customer retention (mean = 4.5, s.d. = 1.26)
and customer development activities
(mean = 4.6, s.d. = 1.29) than customer
acquisition (mean = 4.1, s.d. = 1.27).
A one-sample t -test for the three means
(4.1, 4.6 and 4.5) against the midpoint, 4,
reveals signifi cant differences for customer
retention ( t = 2.8, p < 0.05) and development
( t = 4.6, p < 0.05) only. There is no signifi cant
difference between retention and
development ( t = 0.72, p >0.05).
Bivariate and multivariate results
In H1, we hypothesised a signifi cant and
positive relationship between satisfaction
with the ROI delivered by CRM software
and the performance of the software in
exceeding company expectations of customer
acquisition, retention and development. We
tested this hypothesis by running a Pearson
correlation between the two variables. The
results in Table 3 support this hypothesis. The
associations are all positive and statistically
signifi cant ( p < 0.001): customer retention
expectations at r = 0.65; customer
development at r = 0.69 and customer
acquisition at r = 0.55. H1 is thus supported.
In H2, we hypothesised a signifi cant and
positive relationship between satisfaction
with the ROI delivered by CRM software
and improvements in business profi tability.
Table 3 shows that this correlation is
positive and signifi cant ( r = 0.48; p < 0.01).
Thus, H2 is supported.
We conducted additional analyses to
establish which variables were the strongest
predictors of company profi tability. First, we
converted all four independent variables
(ROI satisfaction ratings, and expectations
ratings for customer acquisition, retention
and development) and the dependent
variable (company profi tability
Table 2: Percentage reporting that CRM software met, exceeded or fell short of expectations
Acquisition %
(n=49)
Retention %
(n=60)
Development %
(n=52)
Exceeded expectations (5–7) 33 48 42
Met expectations (4) 25 17 21
Below expectations (1–3) 28 17 15
Don’t know 14 18 22
Total 100 100 100
Mean 4.1 4.5 4.6
Ang and Buttle
Database Marketing & Customer Strategy Management Vol. 14, 1, 4–16 © 2006 Palgrave Macmillan Ltd 1741-2439 $30.00
12
improvement) into z -scores. We then
employed step-wise regression, thereby
reducing multi-collinearity.
The results show that that the only
signifi cant predictor of company profi tability
is the performance of CRM software in
meeting companies ’ expectations of
customer retention ( t = 3.62, p < 0.001). All
the other independent variables were
insignifi cantly correlated with improvements
in profi tability. This single-factor model is
signifi cant (F = 13.1, p < 0.05) and accounts
for about 30 per cent of the variance
of the dependent variable (adjusted
R -square = 0.295).
In H3, and H4, we hypothesised that
larger companies would be more likely to
deploy CRM software to assist them in
customer acquisition, retention and
development than smaller companies, but
would be less satisfi ed with the ROI
delivered by the software.
To test these, we ran three chi-square
tests to see if there was a relationship
between company size and the extent to
which the three marketing activities of
customer acquisition, retention and
development are supported by the software.
Across the three marketing activities, all
chi-square values show no statistically
signifi cant differences (acquisition,
2
= 1.10,
p >0.05; retention,
2
= 1.34, p >0.05;
development,
2
= 0.50, p >0.05). In other
words, company size is not associated with
the adoption of CRM software for these
three customer management activities. Hence,
H3 is not supported. But we have found
evidence to support H4. From Table 3 , we
can see that the larger the company, the less
satisfi ed they are with the ROI delivered by
the CRM software ( r = − 0.34, p < 0.01).
In H5, we hypothesised that service
companies would be signifi cantly more
likely to use CRM software to assist in
customer acquisition, retention and
development than non-service companies.
To test this hypothesis, we fi rst divided the
sample into two groups: (1) those companies
Table 3: Correlations matrix
Improving
co. profi tability
Satisfaction
with ROI of
CRM software
Software meeting
expectations
of customer
acquisition
Software meeting
expectations
of customer
development
Software meeting
expectations
of customer
retention
Company
size
Service
orientation
a
Improving co. profi tability 1
Satisfaction with ROI of CRM
software
0.48** 1
Software meeting expectations of
customer acquisition
0.40** 0.55** 1
Software meeting expectations of
customer development
0.47** 0.69** 0.54** 1
Software meeting expectations of
customer retention
0.51** 0.65** 0.48** 0.86** 1
Company size − 0.07 − 0.34** − 0.02 − 0.14 − 0.19 1
Service orientation
a
0.08 0.08 0.18 0.17 − 0.10 0.11 1
**Correlation is signifi cant at the 0.01 level (two- tailed).
a
Correlations here are based on non-parametric Kendall’s tau because of dichotomy scaling used for service orientation.
CRM software applications and business performance
© 2006 Palgrave Macmillan Ltd 1741-2439 $30.00 Vol. 14, 1, 4–16 Database Marketing & Customer Strategy Management
13
that are in the service sector ( n = 116) (ie,
ANZSIC codes for accommodation and
caf é s, communication services, construction,
culture and recreational services, fi nance and
insurance, health and community services,
personal and other services, property and
business services, retail and wholesale trade,
transport and storage, electricity, gas and
water, government and education) versus (2)
those that are not ( n = 53) (ie, ANZSIC
codes for manufacturing, mining, agriculture,
forestry and fi shing).
We found support for H5. Service
companies are signifi cantly more likely
to use CRM software to assist in their
customer management activities than non-
service companies. Since these two variables
are nominally scaled, we tested H5 using
non-parametric chi-square and Kendall ’ s tau
correlation. Service companies show up as
signifi cantly more likely to deploy CRM
software for all three activities: acquisition
( r = 0.24, p < 0.05;
2
= 9.3, p < 0.005),
retention ( r = 0.26, p < 0.0001;
2
= 11.6,
p < 0.001) and development ( r = 0.23,
p < 0.0001;
2
= 8.9, p < 0.005).
In H6, we hypothesised that service
companies would be more satisfi ed with
the ROI delivered by CRM software than
non-service companies. Since one variable
is categorised as a dichotomy (service or
non-service), but ROI satisfaction is not,
we recoded the 7-point scale of the latter
into a dichotomy, where ‘ 1 ’ represents 1 to
4, and ‘ 2 ’ represents 5 to 7. We then tested
this hypothesis running non-parametric
(Kendall ’ s tau) correlations between the two
variables. Table 3 shows this relationship to
be statistically non-signifi cant ( r = 0.08;
p >0.05).
50
H6 is thus not supported.
DISCUSSION
Our research yields three major insights.
First, we found that although less than 40
per cent of Australian companies use any
form of CRM software to support their
customer management activities, the CRM
software is not equally applied across all
three customer management activities —
acquisition, retention and development.
Australian companies use CRM software
more extensively to support customer
retention and development, rather than
customer acquisition activities. Furthermore,
they are also more satisfi ed when the
software is used for retention and
development purposes. Software applications
normally associated with customer
acquisition are lead generation, lead
qualifi cation, market segmentation and
customer profi ling applications. It appears
that these have limited adoption.
Second, software performance (as
measured relative to expectations) has a
positive relationship with both ROI and
company profi tability. Specifi cally, if the
expectations of the software are exceeded in
the three marketing activities of acquisition,
retention and development, there is greater
likelihood that the respondent is satisfi ed
with the ROI (supporting H1), and this in
turn correlates with improvements in
company profi tability (supporting H2).
Furthermore, the software exceeding
customer retention expectations is the single
most important variable in explaining
company profi tability, accounting for
about 30 per cent of its variance. This is
compatible with the recent fi nding by Gupta
et al .
51
that customer retention is the most
effective way of increasing the value of the
company. They computed that a 1 per cent
improvement in retention leads to 5 per cent
improvement in fi rm value. This is
signifi cantly better than the results from a
number of alternative strategies, including
improvement in margin, reduction in
customer acquisition cost and adjustments to
the discount rate or cost of capital.
52,53
Third, Table 3 shows that company size
has a negative relationship with ROI. That
is, the larger the company, the more likely it
is to be dissatisfi ed with the ROI delivered
by the CRM software (supporting H4).
The implication for software and solutions
vendors is to pay special attention to larger
Ang and Buttle
Database Marketing & Customer Strategy Management Vol. 14, 1, 4–16 © 2006 Palgrave Macmillan Ltd 1741-2439 $30.00
14
companies since they are more likely to be
dissatisfi ed. Surprisingly, smaller companies
are just as likely as larger companies to
adopt CRM software (rejecting H3). We
suspect that reduced software costs and
access to hosted solutions mean that CRM
is no longer the privilege of larger
corporations. Indeed, evidence from several
sources suggests many SMEs are now
adopting CRM systems.
54,55
We found that although service
companies are more likely to use CRM
software to assist them in their customer
management activities (supporting H5),
there is no signifi cant difference in their
satisfaction with ROI compared to non-
service companies (rejecting H6). Possible
reasons for this fi nding are that service
companies may have higher expectations of
their CRM software, or that the software in
a service environment may be more diffi cult
to deploy.
LIMITATIONS
This study suffers from a number of
limitations. First, we only reported
satisfaction with the delivered ROI, rather
than the ROI itself. Similarly, we did not
objectively measure improvements in
company profi tability, but relied on
respondent self-reporting. Second, we
did not measure how much experience
companies had accumulated with their
CRM software. Likewise we do not know
the amount each had invested. Third, we
did not measure organisational factors
(eg process excellence, training or top
management buy-in) that could potentially
act as barriers or facilitators to the software
performance. All these factors could
potentially infl uence the level of satisfaction
level with the ROI.
CONCLUSION AND PRACTICAL
IMPLICATIONS
The deployment of CRM software in
Australian industry is far from mature,
whether employed for customer acquisition,
retention or development purposes. A
number of managerial implications fl ow
from this research. First, companies need to
ensure that their investments in CRM
software will achieve desired goals across the
three-stage customer lifecycle: customer
acquisition, retention and development. The
more each of these goals is enhanced by the
deployment of CRM software, the more
satisfi ed companies will be with their
investment. Second, of the three lifecycle
stages, customer retention seems to be
most strongly associated with managers ’
reporting of improved company profi tability.
To gain credibility, CRM software vendors
must demonstrate convincingly that the
software will assist in customer acquisition,
retention and development, with greater
emphasis on customer retention. Finally,
vendors should note larger companies may
be more diffi cult to satisfy with their CRM
deployment than smaller companies. This
may be simply because larger companies
have higher expectations by virtue of the
fact that they tend to spend more. Indeed,
a recent report found that companies who
spent an average of $ 4.4 million on their
CRM deployment were more likely to
agree with the statement ‘ CRM deserves
the bad press it has often received ’ than
companies who spent an average of only
$ 2.0 million.
56
On a concluding note, one could perhaps
look at the Royal Bank of Canada (RBC)
as a model of CRM excellence. RBC has
enjoyed considerable ROI from its CRM
deployment.
A model of excellence is the winner of the fi rst
international CRM Industry awards, the Royal
Bank of Canada. Their CRM journey began in 1995
and has cost them over $ 100million. Today, the
VP for CRM claims that ‘ we no longer view CRM
as a program. [It] is our core strategy ’ . Revenue
growth is running at 10 – 15 per cent p.a. and profi t
growth approaches 25 per cent p.a. ‘ We absolutely
conclude that CRM is paying us back in spades.
It has enabled us to grow both the top of house
revenue line and at the same time achieve huge
cost savings. ’ Among the ROI indicators that RBC
employ are Internal Rate of Return for investments
CRM software applications and business performance
© 2006 Palgrave Macmillan Ltd 1741-2439 $30.00 Vol. 14, 1, 4–16 Database Marketing & Customer Strategy Management
15
in major CRM functionality or initiatives such as a
new pricing strategy. They also track measures such
as deposit rates, credit limits, direct mail response
rates, experimentally testing new tactics on subsets
of customers before rolling them out across the
chosen customer segments. The Bank also focuses
on major metrics such as revenue growth, profi t
growth, cost control, risk, and debt write-offs. The
Bank also credits CRM with reducing the costs of
acquiring each dollar of revenue from 63 to 55 cents.
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27 Reinartz , W . , Krafft , M . and Hoyer , W . ( 2004 ) ‘ The
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28 Reinartz , W . , Krafft , M . and Hoyer , W . ( 2004 ) ibid .
29 Jayachandran , S . , Sharma , S . , Kaufman , P . and
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30 Reinartz , W . , Krafft , M . and Hoyer , W . ( 2004 ) op cit .
31 Rigby , D . ( 2003 ) ‘ Management tools survey, 2003:
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32 eMarketer ( 2005 ) op cit .
33 Bull , C . ( 2003 ) ‘ Strategic issues in Customer
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35 Woodcock , N . ( 2000 ) ‘ Does CRM performance
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Ang and Buttle
Database Marketing & Customer Strategy Management Vol. 14, 1, 4–16 © 2006 Palgrave Macmillan Ltd 1741-2439 $30.00
16
36 Erffmeyer , R . C . and Johnson , D . A . ( 2001 ) op cit .
37 Bush , A . , Moore , J . and Rocco , R . ( 2005 ) op cit .
38 Engle , R . and Barnes , M . ( 2000 ) ‘ Sales force
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40 Wright , G . and Donaldson , B . ( 2002 ) ‘ Sales
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50 We adopted non-parametric tests because our
preliminary analysis showed that the assumptions
of normality and homogeneity of variance were
violated when we compared service versus non-
service companies on their satisfaction of their
ROI. However, Even if one were to ignore these
violations, one-way ANOVA tests revealed non-
signifi cant results similar to those reported in Table 3 .
51 Gupta , S . , Lehmann , D . and Stuart , J . A . ( 2004 ) op cit .
52 See also Reichheld , F . ( 1996 ) ‘ The loyalty effect: The
hidden force behind growth, profi ts, and lasting
value ’ , Harvard Business School Press, Boston .
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54 Buttle , F . ( 2006 ) Hosted CRM: Literature Review
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55 eMarketer (2005), op cit .
56 eMarketer ( 2005 ) op cit .
Appendix
1. Which of the following customer management activities are supported by CRM software?
Yes No
Customer acquisition 1 2
Customer development 1 2
Customer retention 1 2
2. Overall, how would you rate your satisfaction with the return on investment from your use of this CRM
software? (Please check ‘ Don ’ t Know ’ if you don ’ t know or are not sure)
Not at all satisfi ed Very
satisfi ed
Don ’ t
know
1 2 3 4 5 6 7 9
3. Now, thinking about customer acquisition, customer retention and customer development in turn, to what
extent has the software met your expectations? (Please check ‘ Don ’ t Know ’ if you don ’ t know or are not sure)
Greatly under
performed
expectations
Met expectations Greatly
exceeded
expectations
Don ’ t
know
Customer acquisition 1 2 3 4 5 6 7 9
Customer development 1 2 3 4 5 6 7 9
Customer retention 1 2 3 4 5 6 7 9
4. Using the scale from 1 to 7, circle the number that best refl ects the contribution that your CRM
implementation has made to improved company profi tability.
No contribution
Critical
contribution
Don ’ t
know
Improved company
profi tability
1 2 3 4 5 6 7 9
