Magazine Spring 2011 Research Feature

Putting the ‘Relationship’ Back Into CRM

Many managers think that the way to capture value through relationship marketing is to focus on the ‘good’ customers and get rid of the ‘bad’ ones. But there is a lot more to best practice relationship management than maximizing revenues on individual customers and minimizing costs to serve.

Susan Fournier and Jill Avery Reading Time: 26 min 

Topics

Permissions and PDF

Image courtesy of Flickr user **Maurice**.

Over the past two decades, managers have become enamored of relationship marketing. Lured by the opportunity to use customer data to build customized and profitable relationships, companies have invested heavily in customer relationship management systems that quantify the value of transactions. This interest shows no signs of tapering off. A recent Gartner Inc. research study showed that 75% of managers planned to make further investments in CRM in the coming year.1 However, most CRM systems have been used merely to categorize customers into segments based on their current levels of profitability. This approach may have implications for the bottom line, but it does little to advance the shift from mass marketing to one-to-one relationships. Customer relationship management has devolved into customer profitability management, a one-dimensional, company-centric practice based on economics and costs that provides little insight into why and in what ways people form relationships with companies and brands. That lack of relationship sensitivity has precipitated a new trend in which many companies use their CRM systems to identify and “fire” low-revenue, high-cost customers. In a recent survey we conducted of 900 customers, 30% said that they knew someone who had been cut loose by a company with which they had a commercial relationship. We are not so naïve as to think that companies should refrain from analyzing customer’ purchase data or the efficiency of marketing dollars spent. However, we have found that basic information about customer lifetime value can be a limited and even misleading indicator of the status and potential of a customer relationship. Loyalty programs, the most basic type of CRM program, do surprisingly little to address relationship realities or build relationship bonds. Although CRM programs may prevent customers from taking their business elsewhere, they are less effective at identifying the reasons to encourage them to stay. Ironically, CRM programs themselves may actually contribute to the creation of high-cost, low-value customers. However you look at it, companies are doing something wrong.

The Leading Question

How can companies build better relationships with their customers?

Findings
  • Get to know who your customers really are and what they need and value.
  • Be open to the different types of relationships that people form with your company and your brand.

Topics

About the Authors

Susan Fournier is an associate professor at Boston University’s School of Management. Jill Avery is an assistant professor at the Simmons School of Management in Boston, Massachusetts.

References (13)

1. S.A. Mertz, “Dataquest Insight: CRM Software Market Share Analysis, Worldwide, 2008,” Gartner Inc., July 6, 2009.

2. T.H. Davenport, J.G. Harris and A.K. Kohli, “How Do They Know Their Customers So Well?” MIT Sloan Management Review 42, no. 2 (winter 2001): 63-73.

Show All References

Tags:

Reprint #:

52310

More Like This

Add a comment

You must to post a comment.

First time here? Sign up for a free account: Comment on articles and get access to many more articles.

Comments (5)
Be a modern consumer and use Customer Relationship Management (CRM) to your advantage | The Woof of Newbury Street
[…] receive the same level of service from companies, that is just not true. The best customers – and by best, I mean most profitable – typically receive the highest level of service from companies. Fun fact: my mother was one […]
Modern consumer tips: using relationship management (CRM) to your advantage | Justifying irrational purchases for everyone
[…] receive the same level of service from companies, that is just not true. The best customers – and by best, I mean most profitable – typically receive the highest level of service from companies. Fun fact: my mother was one […]
Corey Weiner
Having spent five years researching consumers for one of the biggest publishers of such data in the world, Nielsen, I can appreciate both sides.

As professors of consumer behavior patterns, the authors know much of the CRM frenzy over the last decade or two is wasteful.

Intimidating-sounding acronym, but . . .

Various economic sectors are more saturated with competitors.

Many of whom compete on the only thing they can: lower prices. A five-year-old can figure out how to lower overheard expenses by using the web versus a store front. 

Hence e-Trade, Amazon, how many marketing and financial service agencies steal one or two clients from their employers and start up, et cetera. 

Look at Best Buy's troubles, for example. Their customers want to play video games, wander around the store and price compare on smart phones to find items three dollars cheaper from the web.

And if senior leaders or department heads of large and owners at small organizations are naive enough to think client preference note taking/record-keeping are cutting edge, they are misinformed.

Organizations usually only go on warpaths for CRM and customer retention, unfortunately, when revenues go flat. That is, when a VP or higher finds her/himself staring down the barrel of a metaphoric shot gun.

Good judgment should trump gadgetry like customer relationship management technology and tools.

I have worked for a global and two national corporations, both of which had customer retention problems. Both preached "relationships" and "long-term partnerships." 

Customers are not morons. They perceive well usually. 

On the contrary, however, organizations have to realize plenty of customers are unprofitable/unviable. Much consumer research does not bring up a great number of American consumers . . . have ZERO loyalty on lower price point items. 

Vanity or luxury items, yes. 

Consumer goods, members of a typical consumer price index, not so much.  Consumers often lie insofar as buying patterns and preferences out of shame or politeness.

So, end of the day, positioning a product or service can and does influence consumers. (i.e. having something appealing. More so than trying to rationalize why Consumer A buys a Mac versus her friend buying a Dell.)

Consumer research is expensive. Coca Cola's CEO spoke of this to HBR in 2011 - KO's use of social media to acquire real-time customer feedback for cost and time efficiency. Doesn't make it accurate. It's just CHEAPER and perceived as easier. They will learn.

Corey Weiner, Marketing Communications Management
Susan Fournier
Data is tempting Erich, and it blinds us to the people behind the numbers, I agree. Clients are guilty here but so too are academics also partly to blame for the forgotten human element. We teach classes in consumer behavior; we publish articles in the Journal of Consumer Research and the Journal of Consumer Psychology. The cultural community scholars seem to have always gotten this right: they speak about the linking value of brands and products in connecting people to important ideas or others (see Cova 1997). The academic marketing department that puts the people back in consumer research stands to gain great differentiation and resonance it would seem.

Thank you for the comment. Susan Fournier (Boston University)
Erich Joachimsthaler
Great article. I like particularly the first recommendation. Treating customers as people in the context of their daily life. I find many clients enamored with purchase data and totally ignorant of having an understanding of the daily life context of people. The statement: for meaning, context is everything; with information, context is noise. Perfect.

Thank you. Erich Joachimsthaler (Vivaldi Partners)
undefined