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.
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?
- 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.
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.
3. A. Johnson, “Hotels Take ‘Know Your Customer’ to a New Level,” Wall Street Journal, Feb. 7, 2006, sec. D, p. 1.
4. S. Fournier and L. Lee, “Getting Brand Communities Right,” Harvard Business Review 87 (April 2009): 105-111.
5. G.L. Christiansen and J.C. Olson, “Mapping Consumers’ Mental Models with ZMET,” Psychology and Marketing 19, no. 6 (June 2002): 477-501.
6. A typology of consumer-brand relationship forms may be found in S. Fournier, “Consumers and Their Brands: Developing Relationship Theory in Consumer Research,” Journal of Consumer Research 24, no. 4 (March 1998): 343-353. The typology includes the following types of relationships: arranged marriages, casual friends/buddies, marriages of convenience, committed partnerships, best friendships, compartmentalized friendships, kinships, rebounds/avoidance-driven relationships, childhood friendships, courtships, dependencies, flings, enmities, secret affairs and enslavements. Two broader relationship categories, communal and exchange relationships, are analyzed in P. Aggarwal, “The Effects of Brand Relationship Norms on Consumer Attitudes and Behavior,” Journal of Consumer Research 31, no. 1 (June 2004): 87-101.
7. S. Fournier, “Getting Brand Relationships Right” (presentation at Marketing Science Immersion Conference, Boston, October 27-28, 2010).
8. G. McWilliams, “Minding the Store: Analyzing Customers, Best Buy Decides Not All Are Welcome — Retailer Aims to Outsmart Dogged Bargain-Hunters and Coddle Big Spenders — Looking for ‘Barrys’ and ‘Jills.’” Wall Street Journal, Nov. 8, 2004, sec. A, p. 1.
9. S. McCartney, “Delta Sends Its 11,000 Agents to Charm School,” Wall Street Journal, Feb. 3, 2011, sec. D, p. 1.
10. Much has been written in the human and brand relationships literatures about the different types of relationships that people engage in and the rules that underpin them. For representative examples of interpersonal research studies to inform your relationship inventories, see S. Duck, “Handbook of Personal Relationships: Theory, Research, and Interventions” (New York: John Wiley & Sons, 1988); R.A. Hinde, “Toward Understanding Relationships” (London, United Kingdom: Academic Press, 1980); R.S. Weiss, “The Provisions of Social Relationships,” in “Doing Unto Others: Joining, Molding, Conforming, Helping, Loving,” ed. Z. Rubin (Englewood Cliffs, New Jersey: Prentice-Hall, 1974), 17-26; M. Wish, M. Deutsch and S.J. Kaplan, “Perceived Dimensions of Interpersonal Relations,” Journal of Personality and Social Psychology 33, no. 4 (April 1976): 409-420; and H.H. Kelley, “Personal Relationships: Their Nature and Significance,” in “The Emerging Field of Personal Relationships,” eds. R. Gilmour and S. Duck (Hillsdale, New Jersey: Lawrence Erlbaum, 1986), 3-19. For representative examples of consumer research documenting different types of commercial relationships, see Fournier, “Consumers and Their Brands”; L.L. Price and E.J. Arnould, “Commercial Friendships: Service Provider-Client Relationships in Context,” Journal of Marketing 63, no. 4, (October 1999): 38-56; M. Blackston, “Beyond Brand Personality: Building Brand Relationships,” in “Brand Equity and Advertising: Advertising’s Role in Building Strong Brands,” eds. D.A. Aaker and A.L. Biel (Hillsdale, New Jersey: Lawrence Erlbaum, 1993), 113-124; and Aggarwal, “The Effects of Brand Relationship Norms.”
11. S. Fournier, “Lessons Learned About Consumers’ Relationships With Their Brands,” in “Handbook of Brand Relationships,” eds. D.J. Macinnis, C.W. Park and J.R. Priester (Armonk, New York: M.E. Sharpe, 2009), 5-23.
12. S. Springfield and P. Sharma, “A Case Study in Bridge-Building Between Academics and Practitioners,” in “New Art and Science of Branding: Conference Summary,” Marketing Science Report 10-300, eds. I. Gallo and E. Paulson (September 2009).
13. Several recent studies suggest a battery of metrics that companies can use to understand the nature and strength of their consumer-brand relationships. Fournier’s brand relationship quality index (see Fournier, “Consumers and Their Brands”; and Thomson et al.’s measure of brand-self attachment (M. Thomson, D.J. Macinnis and C.W. Park, “The Ties That Bind: Measuring the Strength of Consumers’ Emotional Attachments to Brands,” Journal of Consumer Psychology 15, no. 1 (2005): 77-91) or the self-brand connection of Escalas (J.E. Escalas, “Narrative Processing: Building Consumer Connections to Brands,” Journal of Consumer Psychology 14, nos. 1 and 2 (2004): 168-180 may be useful in this regard.
Be a modern consumer and use Customer Relationship Management (CRM) to your advantage | The Woof of Newbury Street
Modern consumer tips: using relationship management (CRM) to your advantage | Justifying irrational purchases for everyone