Higher buying rates and lower service costs make long-term customers more profitable and firms increasingly focus their marketing efforts on customer relationship management (CRM). However, they are often disappointed by the performance of CRM projects. These disappointing results are caused by managerial misconceptions about CRM C457and customer behaviour. This article focuses on 11 of these misconceptions to help managers make well-considered CRM-related decisions and raise the success rate of CRM projects.
Though marketing managers have traditionally been trained to acquire new customers with established marketing instruments such as price, promotions and mass advertising, they are now shifting their attention to customer retention and customer relationship development. The aim is to maximise customer lifetime value instead of maximising profits from discrete transactions with customers. In order to do this they have turned to customer relationship management.
CRM is not a totally new concept in marketing. It is based on three aspects of marketing management: customer orientation; relationship marketing; and database marketing (see Figure 1, overleaf). CRM is a managerial process that focuses on the development and maintenance of relationships with individual customers in such a way that value is created for both the customer and the firm using customer databases, statistical decision-support tools and interactive communication techniques.
Despite its roots in marketing, CRM is often associated with the use of software. Survey results show 65 per cent of large companies in the US and Europe are aware of CRM technology, 28 per cent are developing it and 12 per cent are now using CRM applications. Despite the increasing use of CRM software, however, there is an on-going debate about the effectiveness of CRM. The success rate of CRM projects reportedly varies between 30 per cent and 70 per cent. Not surprisingly, a majority of managers are dissatisfied with their CRM performance.
Much of this dissatisfaction is in fact the result of managerial misconceptions about the use of CRM software, the premises underlying CRM and customer behaviour.
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