The expression, Customer Relationship Management (CRM), has been in use since the early
1990s. Since then, there have been many attempts to define the domain of CRM, a number
of which appear in Table 1.1. As a discipline hotly contested by various information
technology (IT) vendors, consultants and academics, a clear consensus has not yet emerged.
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 companies have tended to use the term CRM to describe the
software applications that are used to support 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, its commercialization was greatly boosted in 1993 when
Tom Siebel founded Siebel Systems Inc. (now part of Oracle). Use of the term CRM can be
traced back to that period. Gartner Inc., the information technology research and advisory
firm, estimated that annual spending on CRM technology was $14 billion in 2013, and
By the end of this chapter you will be aware of:
• Three major perspectives on CRM: strategic, operational and
• Where social CRM ﬁts in the CRM landscape.
• Several common misunderstandings about CRM.
• A deﬁnition of CRM.
• The seven constituencies having an interest in CRM.
• How CRM contributes to performance in different industries.
• Four models of CRM.
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predicted that it would top $18.4 billion in 2016.7Others, 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. That said, it is hard to conceive of a large organization dealing with millions of customers
across multiple channels that can implement a customer strategy cost-effectively without the
use of Information Systems technology and carefully designed business processes.
We can resolve the debate between managerial and technological schools by conceiving
of CRM as taking three main forms: strategic, operational and analytical, as summarized in
Table 1.2 and described below.
Deﬁnitions of CRM
• CRM is an information industry term for methodologies, software and usually Internet
capabilities that help an enterprise manage customer relationships in an organized
• CRM is the process of managing all aspects of interaction a company has with its
customers, including prospecting, sales and service. CRM applications attempt to
provide insight into and improve the company/customer relationship by combining all
these views of customer interaction into one picture.
• CRM is an integrated approach to identifying, acquiring and retaining customers. By
enabling organizations to manage and coordinate customer interactions across multiple
channels, departments, lines of business and geographies, CRM helps organizations
maximize the value of every customer interaction and drive superior corporate
• 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.
• 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.
Types 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 is the process through which organizations transform
customer-related data into actionable insight for either strategic or tactical
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Strategic CRM is focused upon the development of a customer-centric business culture
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 to promote employee behaviours that enhance customer
satisfaction and retention, and customer information to be collected, shared and applied
across the business. The heroes of customer-centric businesses 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. 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. ese are oen highly innovative and entrepreneurial
rms. Many new business start-ups are product-oriented. In these rms 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 and/or provides visionary leadership for the market. Perhaps
the most iconic example of product-orientation is Apple. Apple has created huge demand
for products that customers did not know they needed, for example the iPad. Leading
fashion houses tend to be product-oriented and try to establish new fashion trends rather
than respond to consumer research about what should be next year’s look. However, these
are exceptional. Product-oriented companies oen over-specify or over-engineer for the
requirements of the market, and therefore are too costly for many customers. e subset
of relatively price-insensitive customers marketers dub ‘innovators’, who are likely to
respond positively to company claims about product excellence, is a relatively small
segment, perhaps 2.5 per cent of the potential market.9
•Production-oriented businesses focus on operational excellence.10 ey seek to oer the
customers the best value for money, time and/or eort. Consequently, they strive to keep
operating costs low, and develop standardized oers and routes to market. Complexity,
customization and innovation are very costly and unappealing to production-oriented
businesses. Production-oriented rms rarely are rst to market with the best new oer.
ey focus their innovation on supply chain optimization and simplication. ey tend
to serve customers who want ‘good-enough’, low-priced products and services.
Production-oriented businesses choose not to believe that customers have unique needs
or wants. It is possible to be highly protable by being the lowest cost business player,
for example Wal-Mart. ere is a price and convenience segment in most markets but
the majority of customers have other requirements. Moreover, an excessive focus on
operational eciency might make you blind to disruptive changes just over the horizon;
making cheap products that no one wants to buy is not a sustainable strategy.
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•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 oen, a sales orientation follows a production orientation. e company produces
low-cost products and then has to promote them heavily to shi inventory – a ‘make
and sell’ approach. e deal-maker and persuader is king in such rms. In markets that
are growing rapidly, such an approach can promote strong market share growth and
attendant economies of scale. Many large technology rms have promoted an emphasis
on selling. e risks of this orientation are twofold: (1) winning large contracts is not
the same thing as making money from them and (2) focus on the immediate sale rarely
allows enough slack resources to experiment and innovate to serve emerging needs and
wants not yet articulated by customers.
•A customer or market-oriented company shares a set of beliefs about putting the customer
rst. It collects, disseminates and uses customer and competitive information to develop
better-value propositions for customers. A customer-centric rm is a learning rm that
constantly adapts to customer requirements and competitive conditions. ere is
evidence that customer-centricity correlates strongly to business performance.11
STRATEGIC CRM AT HONDA AUSTRALIA12
Honda manufactures and markets a successful range of motorcycle, power equipment and
marine products. The Honda brand has a reputation for quality, technology and performance.
Honda Australia recognized that while it was diligently nurturing individual relationships with
partners, dealers and customers, each was closed off from the others. Inevitably, this meant
valuable customer data being trapped in pockets within the organization and not available
to potential users.
Honda realized that consolidating and freeing up the ﬂow of data could have a huge
positive impact on the effectiveness and efﬁciency of the business. Honda developed a strategy
Customers For Life
, based on data integration and a whole-of-customer view. Honda
found customer-related data in numerous spreadsheets and databases across the business.
These were integrated into a single CRM platform, supplied by salesforce.com, and hosted
in the cloud. This was enriched with customer information from Honda Australia Rider Training
(HART), Automobile Association memberships and several other sources to create a single
comprehensive data source and reporting system. Honda then removed responsibility for
managing customer relationships from individual departments, and moved it to the CRM unit.
An integrated view of the customer has allowed Honda to stop different operating units
from bombarding customers with multiple communications. Instead, Honda now consolidates
outbound customer contact into meaningful and relevant communications, and accurately
measures communications effectiveness. Honda has built workﬂows into customer touchpoints,
for example customer satisfaction surveys, guaranteeing follow-up of any negative comments.
The immediate effect was a reduction in complaint resolution time from months to minutes.
Honda has shifted closer to becoming a uniﬁed brand that really knows and understands its
CASE STUDY 1.1
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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
Operational CRM automates customer-facing 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.
Operational CRM – some applications
• Campaign management
• Event-based (trigger) marketing
• Marketing optimization
Sales force automation
• Account management
• Lead management
• Opportunity management
• Pipeline management
• Contact management
• Quotation and proposal generation
• Product conﬁguration
• Case (incident or issue) management
• Customer communications management
• Queuing and routing
• Service level management
Although we cover the technological aspects of operational CRM in Part III, it is worth
making a few observations at this point.
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 segmentation
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for campaigning purposes is, in some cases, possible at the level of the individual customer,
enabling unique communications to be designed.
In multi-channel 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 multi-channel prospects, if 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
Event-based, or trigger, marketing is the term used to describe messaging and offer
development 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).
Real-time marketing (automation), combining predictive modelling and work-flow
automation, enables companies to make relevant offers to customers as they interact with
company technologies at different touchpoints such as website and retail outlet. As consumers
share more data with companies, and as the company’s ability to analyze those data improves,
online marketing increasingly occurs in real time. The choices the customer makes as she
navigates through the Web, the enquiries she makes and her profile enable firms to predict
which products and services will be most appealing to her: the so-called Next Best Offer or
NBO. This offer can be refreshed in real time as a result of customer behaviour online.
E-retailers such as Amazon continually refresh their recommendations as a result of customer
searches, and Google changes the advertising it pushes to you as a function of your location
and search behaviours.
More information about marketing automation appears in Chapter 9.
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’13 that offers ‘competitive parity’.14
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,
lead nurturing, 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.
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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.
SFA software enables companies to assign leads automatically and track opportunities
as they progress through the sales pipeline towards closure. Opportunity management lets
users identify and progress opportunities-to-sell from lead status through to closure and
beyond, into after-sales support. Opportunity management software usually contains lead
management and sales forecasting applications. Lead management applications enable users
to qualify leads and assign them to the appropriate salesperson. Sales forecasting applications
generally use transactional histories and salesperson estimates to produce estimates of future
Contact management lets users manage their communications programme with
customers. Digital customer records contain customer contact histories. Contact management
applications often have features such as automated customer dialling, the salesperson’s
personal calendar and email functionality.
Quotation and proposal generation allow the salesperson to automate the production
of prices and proposals for customers. The salesperson enters details such as product codes,
volumes, customer name and delivery requirements, and the software automatically generates
a priced quotation.
Product configuration applications enable salespeople, or customers themselves,
automatically to design and price customized products, services or solutions. Configurators
are useful when the product is particularly complex, such as IT solutions. Configurators are
typically based on an ‘if . . . then’ rules structure. The general case of this rule is ‘If X is chosen,
then Y is required or prohibited or legitimated or unaffected’. For example, if the customer
chooses a particular feature (say, a particular hard drive for a computer), then this rules out
SALES FORCE AUTOMATION AT ROCHE
Roche is one of the world’s leading research-based healthcare organizations, active in the
discovery, development and manufacture of pharmaceuticals and diagnostic systems. The
organization has traditionally been product-centric and quite poor in the area of customer
management. Roche’s customers are medical practitioners prescribing products to patients.
Customer information was previously collected through several mutually exclusive sources,
ranging from personal visits to handwritten correspondence, and not integrated into a
database, giving incomplete views of the customer.
Roche identiﬁed the need to adopt a more customer-centric approach to better understand
their customers, improve services offered to them and to increase sales effectiveness. Roche
implemented a sales force automation system where all data and interactions with customers
are stored in a central database which can be accessed throughout the organization. This
has resulted in Roche being able to create customer proﬁles, segment customers and
communicate with existing and potential customers. Since implementation Roche has been
more successful in identifying, winning and retaining customers.
CASE STUDY 1.2
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certain other choices or related features that are technologically incompatible or too costly
or complex to manufacture.
More information about sales force automation appears in Chapter 8.
Service automation involves the application of technology to customer service operations.
Service automation helps companies to manage their service operations, whether delivered
through a call centre, contact centre, field service, the Web or face-to-face, with high levels
of efficiency, reliability and effectiveness.15 Service automation software enables companies
to handle inbound and outbound communications across all channels. Software vendors
claim that this enables users to become more efficient and effective, by reducing service costs,
improving service quality, lifting productivity, enhancing customer experience and lifting
Service automation differs significantly depending upon the product being serviced. The
first point of contact for service of consumer products is usually the retail outlet, or a call
centre. People working at these touchpoints often use online diagnostic tools that help
identify and resolve the problem. A number of technologies are common in service auto -
mation. Call routing software can be used to direct inbound calls to the most appropriate
handler. Technologies such as Interactive Voice Response (IVR) enable customers to interact
with company computers. Customers can input to an IVR system after listening to menu
instructions either by telephone keypad (key 1 for option A, key 2 for option B), or by voice.
If first contact problem resolution is not possible, the service process may then involve
authorizing a return of goods, or a repair cycle involving a third-party service provider.
Companies are beginning to learn to respond to customer complaints in social media
such as Facebook and Twitter in close to real time. Social media have greatly increased the
risks of consumer complaints remaining unanswered. Real-time engagement in the social
conversation enables companies to intervene immediately and resolve an issue before a social
media storm erupts. A case can be made that companies consider employing people and/or
CUSTOMER SERVICE AT JETBLUE
JetBlue is a successful US low-cost carrier known not only for its prices, but for friendly and
helpful customer service, winning multiple JD Power customer service awards. It created its
ﬁrst Twitter account in 2007.
Initially, like so many new technology users, the company felt
that Twitter would be a sales promotion channel. Indeed, JetBlue has been imaginative in
building its following and promoting ticket sales over the new channel. As its competence
grew, JetBlue was able to use Twitter for real-time customer service. An anecdote is that a
customer tweeted that he had left sunglasses at one of the stages before boarding and head
ofﬁce team monitoring the Twitter-feed was able to arrange for them to be found and returned
to the passenger prior to boarding the aircraft. Customer frustrations, experiences and pleasant
surprises are easier to capture at the moment they are experienced, and JetBlue’s active
engagement with customers over Twitter improves its ability to feel the experience as a
customer does and make necessary improvements quickly.
CASE STUDY 1.3
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technologies to monitor and respond to tweets and other social media content. However,
other participants in the conversation, for example other users of Twitter, might also be able
to contribute to the resolution of a consumer’s problem, through what is known as crowd-
sourced customer service.
Service automation for large capital equipment is quite different. This normally involves
diagnostic and corrective action taken in the field, at the location of the equipment. Examples
of this type of service include industrial air conditioning and refrigeration. In these cases,
service automation may involve providing the service technician with diagnostics, repair
manuals, inventory management and job information on a laptop or mobile device. This
information is then synchronized at regular intervals to update the central CRM system. An
alternative strategy for providing service for capital equipment is for diagnostics to be built
into the equipment, and back-to-base issue reporting to be automated. Rolls-Royce aero-
engines, for example, are offered with a service contract that involves Rolls-Royce engineers
monitoring engines in flight to help airlines maximize efficiencies, reduce service cost and,
most importantly, reduce downtime of the airplane through preventive service interventions.
Rolls-Royce calls this ‘Power-by-Hour’. GE, its chief competitor in aircraft engines, offers a
similar service. Turning products into services, or developing combined ‘product-service
systems’,17 is known as ‘servitization’. This is not a new strategy; indeed, IBM famously made
a transition from selling computers to providing solutions and systems. In all such cases, the
nature of the customer relationship changes. Modern operational CRM systems permit the
delivery of such solutions in a cost-effective manner.
Many companies use a combination of direct and indirect channels especially for sales
and service functions. When indirect channels are employed, operational CRM supports this
function through partner relationship management (PRM). This technology allows partners
to communicate with the supplier through a portal, to manage leads, sales orders, product
information and incentives.
More information about service automation appears in Chapter 10.
ANALYTICAL (OR ANALYTIC) CRM
Analytical CRM, also called analytic CRM, is concerned with capturing, storing, extracting,
integrating, processing, interpreting, distributing, using and reporting customer-related data
to enhance both customer and company value.
Analytical CRM builds on the foundation of customer-related information. Customer-
related data may be found in enterprise-wide repositories: sales data (purchase history),
financial data (payment history, credit score), marketing data (campaign response, loyalty
scheme data) and service data. To these internal data can be added data from external sources:
geo-demographic and lifestyle data from business intelligence organizations, for example.
These are typically structured datasets held in relational databases. A relational database is
like an Excel spreadsheet where all the data in any row is about a particular customer, and
the columns report a particular variable such as name, postcode and so on. See Chapter 11
for more detail. With the application of data mining tools, a company can then interrogate
these data. Intelligent interrogation provides answers to questions such as: Who are our most
valuable customers? Which customers have the highest propensity to switch to competitors?
Which customers would be most likely to respond to a particular offer?
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In recent years, we have seen the emergence of ‘big data’. Although the expression ‘big
data’ has been around since 2000, it is only since 2010 that businesses have become seriously
interested in these huge datasets. According to IBM, Big data comes from everywhere: from
sensors used to gather climate information, posts to social media sites, digital pictures and
videos posted online, transaction records of online purchases, and from cell phone GPS
signals to name a few’.18 Big data extends beyond structured data, including unstructured data
of all varieties: text, audio, video, click streams, log files and more. The tools for searching,
making sense of, and acting on unstructured data differ from those available for data-mining
ANALYTICAL CRM AT AXA SEGUROS E INVERSIONES (AXA)19
Spanish insurer AXA Seguros e Inversiones (AXA) has revenues of over €1.8 billion (US$2.3
billion), two million customers and is a member of global giant The AXA Group.
AXA runs marketing campaigns in Spain for its many products and services. The
company wanted a better understanding of its customers, in order to be able to make more
personalized offers and implement customer loyalty campaigns.
AXA used CRM vendor SAS’s data mining solution to build a predictive policy
cancellation model. The solution creates proﬁles and predictive models from customer data
that enable more ﬁnely targeted campaign management, call centre management, sales force
automation and other activities involved in customer relationship management.
The model was applied to current and cancelled policies in various ofﬁces, so as to
validate it before deploying it across Spain. Moreover, the model was used to create two
control groups (subdivided into high and low probability) that were not targeted in any way,
while other groups, similarly divided into high and low probability, were targeted by various
marketing actions. The outcome was that the auto insurance policy cancellation rate was cut
by up to nine percentage points in speciﬁc targeted segments.
With the customer insight obtained from the model, AXA is now able to design and
execute personalized actions and customer loyalty campaigns tailored to the needs and
expectations of high-value customers.
CASE STUDY 1.4
Analytical CRM has become an essential part of many CRM implementations.
Operational CRM struggles to reach full effectiveness without analytical information about
customers. For example, an understanding of customer value or propensities to buy underpins
many operational CRM decisions, such as:
• Which customers shall we target with this oer?
• What is the relative priority of customers waiting on the line, and what level of service
should be oered?
• Where should I focus my sales eort?
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Analytical CRM can lead companies to decide that selling approaches should differ between
customer groups. Higher potential value customers may be offered face-to-face selling; lower
value customers may experience telesales.
From the customer’s point of view, analytical CRM can deliver timely, customized
solutions to the customer’s problems, thereby enhancing customer satisfaction. From the
company’s point of view, analytical CRM offers the prospect of more powerful cross-selling
and up-selling programmes, and more effective customer retention and customer acquisition
WHERE DOES SOCIAL CRM FIT?
We have identified three different types of CRM – strategic, operational and analytical.
Another expression that has recently found widespread traction is ‘social CRM’. This
expression is widely used by technology firms with solutions to sell, but we do not regard it
as a fundamental type of CRM, equivalent to strategic, operational and analytical. We suspect
that this term will in time be subordinated by a larger discussion of big data which we cover
in this book. Social CRM technologies, which we discuss in more detail in Chapter 9,
essentially enable users to exploit social network data for customer management purposes.
Interactions between individuals within social networks have produced a colossal amount of
data, often unstructured, which some businesses are now trying to collect, interpret and use
to create and maintain long-term beneficial relationships with their customers. CRM as a
management practice was popularized by the advances in database technology that allowed
a single view of the customer for most firms and the analytical tools and operational systems
(e.g. call centres) that enabled firms to exploit those data. The data that fuelled CRM
were largely generated and held within organizations’ operational systems: sales, call centres,
service requests, etc. Now, data about customers are as likely to be found in their Facebook
or Twitter activities and user-generated content posted to YouTube. There is, therefore, a
desire to integrate organization ‘owned’ data with that generated socially to create a more
comprehensive view of the customer.
When social media generate customer-related data that are used by companies to
manage customer relationships, social media support and enhance analytical CRM. Where
consumers use social media (e.g. Facebook) to make purchases, social media become part of
operational CRM. Social media also feature heavily in crowd-sourced customer service. At
a strategic level, we believe that only a limited number of firms are currently poised to replace
an overall relationship strategy with one purely activated through social media, but interesting
new business models will develop undoubtedly.
MISUNDERSTANDINGS ABOUT CRM
As with all major management initiatives, there are a number of common misunderstandings
about the nature of CRM. Sometimes, to scope a phenomenon, it is useful to say what it is
not. These misunderstandings are described below.
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Misunderstanding 1: CRM is merely database marketing
Database marketing is concerned with building and exploiting high-quality customer data -
bases for marketing purposes. Companies collect data from a number of sources. These
data are verified, cleaned, integrated and stored on computers, often in data warehouses
or data-marts. They are then used for marketing purposes such as market segmentation,
targeting, offer development and customer communication.
Whereas most large and medium-sized companies do indeed build and exploit customer
databases, CRM is much wider in scope than database marketing. A lot of what we have
described above as analytical CRM has the appearance of database marketing. However,
database marketing is less evident in strategic and operational CRM.
Misunderstanding 2: CRM is a marketing process
CRM software applications are used for many marketing activities: market segmentation,
customer acquisition, customer retention and customer development (cross-selling and up-
selling), for example. However, operational CRM extends into selling and service functions.
The deployment of CRM software to support a company’s mission to become more
customer-centric often means that customer-related data are shared more widely throughout
the enterprise than the marketing function alone. Operations management can use customer-
related data to produce customized products and services. People management (HR) can use
customer preference data to help recruit and train staff for the front-line jobs that interface
with customers. Research and development management can use customer-related data to
focus new product development.
Customer data can not only be used to integrate various internal departments but can
also be shared across the extended enterprise with outside suppliers and partners.
Misunderstanding 3: CRM is an IT issue
In the authors’ experience, this is the most serious of the misunderstandings. There is no
doubt that IT is a necessary enabler of CRM in most organizations, given the need to store,
analyze and distribute huge amounts of data quickly throughout the organization and its
business partners. CRM technology keeps advancing and can be costly (see discussion above
on social CRM). It is therefore too easy for senior management to look to the IT function
for CRM leadership. Too many CRM implementations are framed at the outset as IT
initiatives, rather than broader strategic initiatives.
CRM technology provides tools that can be used to generate better value for cus-
tomers and company alike. However, two other important parts of most CRM projects are
people and process. People develop and implement the processes that are enabled by
the IT. IT cannot compensate for bad processes and inept people. Successful CRM
implementations involve people designing and implementing processes that deliver customer
and company value. Often, these processes are IT-enabled. IT is therefore a part of most CRM
That said, not all CRM initiatives involve IT investments. An overarching goal of many
CRM projects is the development of relationships with, and retention of, highly valued
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customers. This may involve behavioural changes in store employees, education of call centre
staff, and a focus on empathy and reliability from salespeople. IT may play no role at all.
Misunderstanding 4: CRM is about loyalty schemes
Loyalty schemes are commonplace in many industries: car hire, airlines, food retail and hotels,
for example. Customers accumulate credits, such as air miles, from purchases. These are then
redeemed at some future point. Most loyalty schemes require new members to complete an
application form when they join the programme. This demographic information is typically
used together with purchasing data to help companies become more effective at customer
communication and offer development. Whereas some CRM implementations are linked to
loyalty schemes, not all are.
Loyalty schemes may play two roles in CRM implementations. First, they generate data
that can be used to guide customer acquisition, retention and development. Second, loyalty
schemes may serve as an exit barrier. Customers who have accumulated credits in a scheme
may be reluctant to exit the relationship. The credits accumulated reflect the value of the
investment that the customer has made in the scheme, and therefore in the relationship.
Misunderstanding 5: CRM can be implemented by any
Strategic CRM can, indeed, be implemented in any company. Every organization can be
driven by a desire to be more customer-centric. Chief executives can establish a vision,
mission and set of values that bring the customer into the heart of the business. CRM
technology may play a role in that transformation. Some companies are certainly more
successful than others. The banking industry has implemented CRM very widely, yet there
are significant differences between the customer satisfaction ratings and customer retention
rates of different banks.
Any company can also try to implement operational CRM. Any company with a sales
force can automate its selling, lead management and contact management processes. The
same is true for marketing and service processes. CRM technology can be used to support
marketing campaigns, service requests and complaints management.
Analytical CRM is a different matter, being based on customer-related data. At the very
least, data are needed to identify which customers are likely to generate most value in the
future, and to identify within the customer base the segments or customers that have different
requirements. Only then can different offers be communicated to each customer group to
optimize company and customer value over the long term. If these data are missing then
analytical CRM cannot be implemented.
Against this background of three types of CRM, and the misunderstandings about CRM,
it is no easy matter to settle on a single definition of CRM. However, we can identify a
number of core CRM attributes, and integrate them into a definition that underpins the rest
of this book.
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CRM is the core business strategy that integrates internal processes and functions,
and external networks, to create and deliver value to targeted customers at a
proﬁt. It is grounded on high-quality customer-related data and enabled by
CRM is a ‘core business strategy’ that aims to ‘create and deliver value to targeted customers
at a profit’. This clearly denotes that CRM is not just about IT. CRM ‘integrates internal
process and functions’. That is, it allows departments within businesses to dissolve the silo
walls that separate them. Access to ‘customer-related data’ allows selling, marketing and
service functions to be aware of each other’s interactions with customers. Furthermore, back
office functions such as operations and finance can learn from and contribute customer-
related data. Customer-related data allow suppliers and members of their ‘external network’,
for example distributors, value-added resellers and agents, to align their efforts with those of
the focal company. Underpinning this core business strategy in the majority of cases is IT –
software applications and hardware.
Historically, most companies were located close to the markets they served, and knew
their customers intimately. Very often there would be face-to-face, even day-to-day,
interaction with customers, through which knowledge of customer requirements and
preferences grew. However, as companies have grown larger, they have become more remote
from the customers they serve. The remoteness is not only geographic; it may be cultural also.
Even some of the most widely admired American companies have not always understood
the markets they served. Disney’s development of a theme park near to the French capital,
Paris, was not an initial success because they failed to deliver to the value expectations of
European customers. For example, Disney failed to offer visitors alcohol on-site. Europeans,
however, are accustomed to enjoying a glass or two of wine with their food.
Geographic and cultural remoteness, together with business owner and management
separation from customer contact, means that many companies, even small companies, do
not have the intuitive knowledge and understanding of their customers so often found in
micro-businesses such as neighbourhood stores and hairdressing salons. This has given rise
to demand for better customer-related data, a cornerstone of effective CRM.
In summary, we take the view that CRM is a technology-enabled approach to manage -
ment of the customer interface. Most CRM initiatives expect to have impact on the costs-to-
serve and revenues streams from customers. The use of technology also changes the
customer’s experience of transacting and communicating with a supplier. For that reason,
the customer’s perspective on CRM is an important consideration in this book. CRM influ -
ences customer experience, and that is of fundamental strategic significance.
There are several important constituencies having an interest in CRM:
1Companies implementing CRM. Many companies have implemented CRM.
Early adopters were larger companies in nancial services, telecommunications and
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manu facturing in the USA and Europe. Medium-sized businesses are following. ere
is still potential for the CRM message to reach smaller companies, other worldwide
markets, not-for-prots and new business start-ups.
2Customers and partners of those companies. e customers and partners of companies
that implement CRM are a particularly important constituency. Because CRM inuences
customer experience, it can impact on customer satisfaction ratings, and inuence
loyalty to the supplier.
3Vendors of CRM systems. Vendors of CRM include Oracle, IBM, SAP and SAS. ere
has been considerable consolidation of the CRM vendor marketplace in recent years.
PeopleSo and Siebel, two of the pioneering CRM vendors, are now integrated into
Oracle. IBM has been integrating analytic solution providers as it builds a more
comprehensive analytical CRM capability. Vendors sell licences to companies, and
install CRM soware on the customer’s servers. e client’s people are trained to use
4CRM cloud solutions providers. Companies implementing CRM can also choose to
access CRM functionality on a subscription basis through hosted CRM vendors such as
salesforce.com, RightNow (part of Oracle), Microso Dynamics and NetSuite. Clients
upload their customer data to the host’s servers and interact with the data using their
web browsers. ese service providers deliver and manage applications and other
services from remote sites to multiple users via the Internet. ese companies are also
known as Soware as a Service (SaaS) rms or Application Service Providers (ASPs).
Clients access CRM functionality in much the same way as they would use eBay or
5Social media players. Facebook, Twitter and some other platforms are building enormous
communities that generate valuable data about people’s preferences, activities, friends
and wants. We predict a major battle between the major social media players and
companies with large numbers of customers for the analysis and use of that data.
6Vendors of CRM hardware and infrastructure. Hardware and infrastructure vendors
provide the technological foundations for CRM implementations. ey supply
technologies such as servers, computers, hand-held and mobile devices, call centre
hardware and telephony systems.
7Management consultants. Consultancies oer clients a diverse range of CRM-related
capabilities such as strategy, business, application and technical consulting. Consultants
can help companies implementing CRM in several ways: systems integration, choosing
between dierent vendors, developing implementation plans and project management
as the implementation is rolled out. Most CRM implementations are composed of a large
number of smaller projects, for example: systems integration, data quality improvement,
market segmentation, process engineering and culture change. e major consultancies
such as Accenture, McKinsey, Bearing Point, Braxton Group and CGEY all oer CRM
consultancy. Smaller companies sometimes oer specialized expertise. Peppers and
Rogers provide strategy consulting. Dunnhumby is known for its expertise in data
mining for segmentation purposes.
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COMMERCIAL CONTEXTS OF CRM
CRM is practised in a wide variety of commercial contexts, which present a range of different
customer relationship management problems. We’ll consider four contexts: banks,
automobile manufacturers, technology solution vendors and consumer goods manufacturers.
•Banks deal with a large number of individual retail customers. ey want CRM for its
analytical capability to help them manage customer defection (churn) rates and to
enhance cross-sell performance. Data mining techniques can be used to identify which
customers are likely to defect, what can be done to win them back, which customers are
hot prospects for cross-sell oers and how best to communicate those oers. Banks want
to win a greater share of customer spend (share-of-wallet) on nancial services. In terms
of operational CRM, many banks have been transferring service into contact centres and
online in an eort to reduce costs, in the face of considerable resistance from some
•Auto manufacturers sell through distributor/dealer networks. ey have little contact
with the end-user owner or driver. ey use CRM for its ability to help them develop
better and more protable relationships with their distribution networks. Being
physically disconnected from drivers, they have built websites that enable them to
interact with these end-users. is has improved their knowledge of customer
requirements. Ultimately, they hope CRM will enable them to win a greater share of end-
user spend across the car purchase, maintenance and replacement cycle.
•Technology solution vendors manufacture or assemble complex bundles of hardware,
soware and implementation that are generally sold by partner organizations. For
example, small innovative soware developers have traditionally partnered with
companies such as IBM to obtain distribution and sales. Other companies have copied
Michael Dell’s direct-to-customer (DTC) channel strategy for personal computers.
CRM helps these DTC companies to collect customer information, segment their
customer base, automate their sales processes with product congurator soware and
deliver their customer service online.
•Consumer goods manufacturers deal with the retail trade. ey use CRM to help them
develop protable relationships with retailers. CRM helps them understand costs-to-
serve and customer protability. Key account management practices are applied to
strategically signicant customers. IT-enabled purchasing processes deliver higher levels
of accuracy in stock replenishment. Manufacturers can run CRM-enabled marketing
campaigns that are highly cost-eective.
THE NOT-FOR-PROFIT CONTEXT – THE ‘THIRD SECTOR’
Most of this chapter has been concerned with CRM in the for-profit context. However, CRM
is also found in the not-for-profit context. The ‘third sector’, the not-for-profit community
(charity, non-government organization (NGO), education and government), is very active
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in implementing CRM. Universities wish to maintain relationships with alumni, charities
campaign to raise income and government increasingly is interested in changing citizens’
behaviour gently, through ‘nudges’ (behavioural economics). It is sometimes difficult to
translate concepts developed for commercial, profit-centric organizations to the third sector.
Fundamental to CRM is the customer selection and targeting process: there are some
customers for whom we do more, and some customers for whom we do less. Governments
interact with citizens, not customers. Governments typically provide more services to the most
vulnerable citizens; in terms of profit maximization, these are ‘unprofitable’ customers, but
government does not exist to maximize profit – we consent to be governed for our mutual
benefit. This includes helping those in most need. Operational CRM solutions are often used
to improve government service delivery. The UK’s annual licensing of private road vehicles
is online, and charities segment donors by regularity and size of gift, trying to manage small
givers up a donation value tree to major bequests.
THE UK DRIVER AND VEHICLE LICENSING AGENCY
The UK’s Driver and Vehicle Licensing Agency (DVLA) organizes the annual
taxation of road vehicles through the issuance of a ‘tax disc’ that private car
owners must display in their windscreen so that authorities know a vehicle is
licensed. Owners must prove that they are insured and that their vehicle is
roadworthy; the latter is achieved by passing a test at an authorized service
point that issues roadworthiness certiﬁcates. The process for most Britons used
to consist of waiting for hard-copy papers to be mailed from the DVLA as the
tax disc reached its expiry, paying for a certiﬁcate of insurance, getting a
roadworthiness certiﬁcate. The bundle of papers would then be taken to a Post
Ofﬁce, where other forms would be completed, evidence presented and
payment made. A call centre in Wales managed a large volume of calls to
support car owners as they engaged this process. The DVLA re-engineered
the process such that roadworthiness certiﬁcates were stored online and
insurers allowed the DVLA access to sufﬁcient data so that it could verify the
insurance on each vehicle. Today, the about-to-lapse notiﬁcation comes to the
car owner, who can go online and enter the reference number from the
notiﬁcation; computer systems verify that the vehicle is insured and roadworthy,
the owner is asked to pay online and the tax disc comes via the post in a few
days. For the government, compliance is improved and costs reduced. For car
owners, time, effort and errors are taken out of the process. Such self-service
online is an example of operational CRM (Citizen Relationship Management,
rather than Customer Relationship Management) systems improving outcomes
for both parties in a not-for-proﬁt context.
CASE STUDY 1.5
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MODELS OF CRM
A number of comprehensive CRM models have been developed. We introduce four of them
The IDIC model
The IDIC model was developed by Don Peppers and Martha Rogers, of the Peppers & Rogers
Group, and has featured in a number of their books.20 The IDIC model suggests that
companies should take four actions in order to build closer one-to-one relationships with
•Identify who your customers are and build a deep understanding of them.
•Dierentiate your customers to identify which customers have most value now and which
oer most for the future.
•Interact with customers to ensure that you understand customer expectations and their
relationships with other suppliers or brands.
•Customize the oer and communications to ensure that the expectations of customers
The CRM Value Chain
Francis Buttle’s model, shown in Figure 1.1, consists of five primary stages and four
supporting conditions leading towards the end goal of enhanced customer profitability.21 The
primary stages of customer portfolio analysis, customer intimacy, network development, value
proposition development and managing the customer lifecycle are sequenced to ensure that
a company, with the support of its network of suppliers, partners and employees, creates and
Leadership and culture
Data and information technology
The CRM Value Chain
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delivers value propositions that acquire and retain profitable customers. The supporting
conditions of leadership and culture, data and IT, people and processes enable the CRM
strategy to function effectively and efficiently.
Payne and Frow’s 5-process model
Adrian Payne and Pennie Frow developed the 5-process model of CRM.22 This model
(Figure 1.2) clearly identifies five core processes in CRM: the strategy development process,
the value creation process, the multi-channel integration process, the performance assessment
process and the information management process. The first two represent strategic CRM;
the multi-channel integration process represents operational CRM; the information
management process is analytical CRM.
• Industry and
• Employee value
• Customer value
• Cost reduction
• Results and
Customer Segment Lifetime Value Analysis
Data Repository (‘the corporate memory’)
Integrated channel management
Payne’s model of CRM
The Gartner competency model
The final comprehensive CRM model comes from Gartner Inc. Gartner Inc. is a leading IT
research and advisory company that employs some 1,450 research analysts and consultants
in 85 countries, and has a significant place in CRM research. Figure 1.3 presents Gartner’s
CRM competency model.
The model suggests that companies need competencies in eight areas for CRM to be
successful. These include building a CRM vision, developing CRM strategies, designing valued
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1. CRM Vision: Leadership, Social Worth, Value Proposition
2. CRM Strategy: Objectives, Segments, Effective Interaction
3. Valued Customer Experience
Satisfaction vs Competition
Collaboration and Feedback
Culture and Structure
People: Skills, Competencies
Incentives and Compensation
Partners and Suppliers
5. CRM Processes: Customer Lifecycle, Knowledge Management
6. CRM Information: Data, Analysis, One View Across Channels
7. CRM Technology: Applications, Architecture, Infrastructure
8. CRM Metrics: Cost to Serve, Satisfaction, Loyalty, Social Costs
4. Organizational Collaboration
Gartner’s CRM model
In this chapter you have learned that the expression CRM has a variety of meanings.
Three major types of CRM have been identiﬁed: strategic, operational and analytical.
There are many misunderstandings about CRM. For example, some people wrongly
equate CRM with loyalty programmes, whereas others think of CRM as an IT issue.
Although CRM is generally thought of as a business practice it is also applied in the
not-for-proﬁt context. A number of different constituencies have an interest in CRM,
including CRM consultancies, CRM software vendors, CRM cloud solutions providers,
CRM hardware and infrastructure vendors, companies that are implementing CRM
and their customers.
We have produced a deﬁnition that underpins the rest of this book. We deﬁne
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.
It is grounded on high-quality customer-related data and enabled by information
Finally we have introduced a few models of CRM that try to scope the ﬁeld.
UNDERSTANDING CUSTOMER RELATIONSHIPS
customer experiences, intra- and extra-organizational collaboration, managing customer
lifecycle processes, information management, technology implementation and developing
measures indicative of CRM success or failure.
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NOTES AND REFERENCES
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direct and customer relationship marketing. London: omson.
2 http://whatis.techtarget.com/denition/0,289893,sid9_gci213567,00.html (Accessed 29 Novem -
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5 http://computing-dictionary.thefreedictionary.com/CRM (Accessed 29 November 2005).
6 http://www.destinationcrm.com/articles/default.asp?ArticleID=5460 (Accessed 29 November
2005). is denition is attributed to Gartner Inc. (www.gartner.com).
7 Gartner Inc. (2012). Reported in: www.crmsearch.com/crm-market.php (Accessed 24 January
8 Kotler, P. (2000). Marketing management: the millennium edition. Englewood Clis, NJ: Prentice-
9 Rogers, E.M. (1962). Diusion of innovations. New York: Free Press.
10 Treacy, M. and Wiersema, F. (1995). e discipline of market leaders. London: Harper-Collins.
11 Deshpandé, R. (1999). Developing a market orientation. London: Sage.
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13 Morgan, A. and Inks, S.A. (2001). Technology and the sales force. Industrial Marketing
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14 Engle, R.L. and Barnes, M.L. (2000). Sales force automation usage, eectiveness, and cost-benet
in Germany, England and the United States. Journal of Business and Industrial Marketing, 15(4),
15 Contact centres dier from call centres in that they handle not only phone calls, but com -
munications in other media such as mail, fax, email and Short Message Service (SMS).
16 Amplifying perceptions: how JetBlue uses Twitter to drive engagement and satisfaction. Case
Clearing House: M-336 (2010), Stanford Graduate School of Business.
17 Baines, T.S., Lightfoot, H.W., Evans, S., Neely, A., Greenough, R., Peppard, J., et al. (2007). State-
of-the-art in product-service systems. Proceedings of the Institution of Mechanical Engineers – Part
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18 http://www-01.ibm.com/soware/au/data/bigdata/ (Accessed 24 January 2014).
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20 Peppers, D. and Rogers, M. (1996). e 1-to-1 future: building business relationships one customer
at a time. London: Piatkus; Peppers, D. and Rogers, M. (1998). Enterprise 1-to-1. London: Piatkus;
Peppers, D. and Rogers, M. (1999). e 1-to-1 eldbook. London: Piatkus; Peppers, D. and Rogers,
M. (2000). e 1-to-1 manager. London: Piatkus; Peppers, D. and Rogers, M. (2001). One-to-one
B2B: CRM strategies for the real economy. London: Piatkus; Peppers, D. and Rogers, M. (2004).
Managing customer relationships: a strategic framework. Hoboken, NJ: John Wiley; Peppers, D. and
Rogers, M. (2005). Return on customer: creating maximum value from your scarcest resource. New
21 Buttle, F. (2004). Customer relationship management: concepts and tools. Oxford: Elsevier
22 Payne, A. and Frow, P. (2013). Strategic customer management: integrating CRM and relationship
marketing. Cambridge: Cambridge University Press, p. 211. See also Payne, A. (2005). Handbook
of CRM: achieving excellence through customer management. Oxford: Elsevier Butterworth-
Heinemann; Payne, A. and Frow, P. (2005). A strategic framework for customer relationship
management. Journal of Marketing, 69 (October), 167–76.
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