Proponents of Customer Relationship Management (CRM) suggest that a firm can develop a value creation relationship, such that an increase in customer value, leads to an increase in firm value (Mithas et al., 2005). The value for the customers comes from the provision of goods and services that match their needs. However, the research to date on using e-CRM systems to both foster and monitor this value creation process is somewhat mixed. This chapter proposes to cross-functionally integrate organizational assets with customers’ interests via technology. The resulting framework can assist managers in improving services, through the use of e-CRM, to understand what is important to the customer.
Crm Literature Review
Customer relationship management (CRM) has its roots in relationship marketing which supports the proposition that a firm can boost its profitability by establishing long term relationships with its customers (Boulding, et al., 2005). Proponents of CRM suggest that a firm can develop a value creation relationship such that an increase in customer value leads to an increase in firm value (Mithas et al., 2005). The value for the customers comes from the provision of goods and services that match their needs. The firm derives its value in the form of cost savings since it is less expensive to retain existing customers than to expend time and energy on constantly acquiring new customers. For example, Gupta et al. (2004) found that a 1% improvement in customer retention can increase firm value by 5%.
Despite the potential for this value creation proposition, widespread adoption of CRM languished until it was bolstered by new information technology systems and widespread use of the Internet (Greenberg, 2002) – thus being renamed e-CRM. Elements of e-CRM include email, chat rooms, interactive websites, and e-forums (Lee-Kelley et al., 2003). Today, e-CRM is considered a strategic imperative for firms looking to improve customer retention and an engine for “improved shareholder value” (Payne and Frow, 2005).
An examination of the research evaluating the effectiveness of e-CRM would show the results are quite mixed. The commercial market research studies suggest a lack of performance. In a Forrester Research survey of 260 business and technology executives, Band (2008) noted that a ‘significant’ number reported poor results on 11 different capabilities (e.g. customer service, customer data management, etc.) provided by e-CRM. Earlier, a Gartner Group study (Hagermeyer and Nelson, 2003) found 70% of the firms adopting e-CRM saw a decline or no improvement. This 70% figure matched the CRM project failure rates found by Tafti (2002) in an academic study.
However, there have been CRM studies with positive results. In a (2005) Journal of Marketing edition dedicated solely to CRM, Boulding et al. (2005) noted that eight different authors reported that CRM processes can improve firm performance. One of the eight authors, Ryals (2005), cited a case study where a business unit increased its profits by almost 300% by using specific CRM tools. Mithas et al. (2005) found that, for a cross-section of U.S. firms, the use of CRM applications is positively associated with improved customer satisfaction.