The CRM Process: Its Measurement and Impact on Performance

Abstract

Understanding how to effectively manage relationships with customers has become a very important topic to both academicians and practitioners in recent years. Yet, the existing academic literature and the practical applications of CRM strategies do not provide a clear indication of specifically what constitutes CRM processes. In this study, we (a) conceptualize a construct of the CRM process and its dimensions, (b) operationalize and validate this construct, and (c) empirically investigate the organizational performance consequences of implementing CRM processes. Our research questions are addressed in two cross-sectional studies across four different industries and three countries. Our first key outcome is a theoretically sound CRM process measure, which outlines three key stages -namely the initiation, maintenance and termination phase. Our second key result is the finding that implementing CRM processes has a moderate positive association with both perceptual and objective company performance. The CRM Process: It’s Measurement and Impact on Performance Understanding how to effectively manage customer relationships has become a very important topic to both academicians and practitioners in recent years. Organizations are realizing that customers have different economic value to the company and are subsequently adapting their customer offerings and communications strategy accordingly. Thus, organizations are in essence, moving away from product or brand-centered marketing towards a customer-centered approach. Nevertheless, some key problems need to be addressed. While the conceptual underpinnings of a customer relationship management strategy are hardly questioned, the implementation challenges appear to be enormous as evidenced by commercial market research studies. These studies provide some convergent validity that about 70% of customer relationship management projects result in either losses or in no bottom line improvement in company performance (Gartner 2003). Previous studies have focused on components of a CRM strategy such as the link between satisfaction and business performance (Kamakura et al. 2002), the link between customer loyalty and profitability (Reinartz and Kumar 2000), customer profitability heterogeneity (Niraj, Gupta, and Narasimhan 2001), and customer loyalty programs (Verhoef 2003). However, there is a severe lack of research which takes a broader, strategic focus across firms. There is no clear evidence regarding either the characteristics of successful CRM approaches nor why CRM may potentially fail. Furthermore, the existing academic literature and practical applications of CRM do not provide a clear indication of specifically what constitutes the implementation of CRM processes. Some view CRM primarily as investing in technology and software, while others treat CRM more expansively and are aggressive in developing sound and productive relationships with customers. In addition, some companies have implemented CRM processes to a greater degree than others. It is therefore important to identify the types of CRM activities that can be employed and how these might relate to company performance and profitability.