Customer Relationship Management

Kristen Cimiluca Honors Thesis Marketing: Dr. Lutz

Customer Relationship Management I. Introduction of Customer Relationship Management a. Definition of CRM b. Importance of CRM i. Customer Value and Retention ii. Profit maximization II. Evolution of CRM a. Mass Marketing b. Brand Loyalty c. Transactional Marketing d. Relationship Marketing III. Emergence of CRM a. Technology b. Total Quality Management c. Service Industry Growth d. Customer Expectations IV. Components of CRM a. Customer Database b. Analysis and Selection i. Traditional method ii. Lifetime Customer Value iii. Clickstream Analysis c. Customer Targeting

d. Customer Relationships i. Customization ii. Customer Service iii. Brand Community iv. Loyalty Programs 1. Types of Loyalty a. Attitudinal b. Behavioral 2. Reward structure a. Hard/Soft rewards b. Rate of reward V. Managing the CRM Process a. Role Specification b. Employee Training c. Communication i. Internal (with employees) ii. External (with customers) d. Performance Metrics/Evaluation i. General Challenges ii. CRM Scorecard VI. Advantages of CRM a. Customer Perspective i. Utilitarian Benefits

ii. Hedonic Benefits iii. Symbolic Benefits b. Company Perspective VII. Disadvantages of CRM a. Company Perspective i. Cost ii. Difficulty in Measuring Success b. Customer Perspective and Ethical Implications i. Privacy Issues ii. Discrimination c. CRM Criticism VIII. Conclusion

Customer Relationship Management Customer relationship management (CRM), also known as relationship marketing, has recently emerged as an integral marketing concept in the business world. In an attempt to reach and connect with customers in an environment highly saturated with products, advertisements, and promotions, businesses are implementing a customer relationship management component in their marketing schemes. CRM practices enable marketers to build long lasting relationships with consumers at the individual level through the use and management of a number of different programs and key components. As a relatively new practice, the definition of customer relationship management has been debated by field experts and is ever evolving. In fact, the term has come to mean different things to different individuals and organizations. In its inception, customer relationship management was narrowly defined as promotional marketing based on a customer database (Bickert, 1992). Peppers and Rogers define CRM to be a complex process that builds one-to-one relationships with customers in order to achieve long term growth (1993). According to Gronroos, relationship marketing extends past persuading customers to buy products; it is about fulfilling their expectations in the hope of transforming them into long term, loyal customers (2009). Most experts can agree, however, that the central theme of CRM is carefully selecting the most valuable customers and maintaining and strengthening relationships with those customers for long term profit maximization. Sheth and Parvatiyar define CRM as a comprehensive strategy and process of acquiring, retaining, and partnering with selective customers to create superior value for the company and the customer (2001, p. 5). It is a mutually

beneficial relationship built upon a foundation of trust and loyalty through marketing, customer service, and relationship programs. Customer relationship management is a relatively new field, but its importance is becoming even more evident as time passes. The paradigm shift from focusing on attracting new customers to retaining current ones is at the backbone of CRM (Winer 2001). Reichhelds studies revealed that small increases in customer retention rates greatly increased profits, proving that long term customers can be more valuable (1996). More revenue on average is generated from repeat-purchase customers when compared to one time buyers (Reichheld 1996). With potential profit maximization in mind, businesses are turning to customer relationship management in order to better understand customers. Traditional marketing and mass advertising are proving to be ineffective in such a commoditized environment. With the number of similar products on the market increasing and competition among the firms escalating, companies must look toward capturing customers on some factor other than product quality, price, or convenience (Brown 2000). They must focus on building unique, one to one relationships with customers based on individual needs and wants; thus, implementing customer relationship management is critical to the growth and future success of firms.

Evolution of CRM Customer relationship management has evolved from the foundations of mass marketing and brand loyalty. The height of the industrial era brought with it mass production and a division of specialized corporate functions (Achrol 1991; Parvatiyar & Sheth 1995). The era was dominated by product innovation, and firms created

competitive advantage by creating products that were better than those products of their competitors (Peppers & Rogers 2004). Firms focused on the amount of products that could be produced and since speed and efficiency were the top priorities, very little attention was given to customization and overall customer satisfaction. The marketing departments used mass advertising for their products in order to increase awareness and build market share (Parvatiyar & Sheth 1995). Since the firms were solely concentrated on persuading the customers to buy similar products, the marketing departments were often completely separated from direct consumer contact; no attempts were made to truly understand the customers or their purchasing behaviors. As competition increased, however, firms looked to differentiate their products in the highly commoditized market through branding (Peppers & Rogers 2004). Branding refers to any feature or quality that can differentiate a product or service from that of a competitor (Brown 2000). The ultimate goals of branding were to create brand awareness and brand loyalty among consumers through building relationships of trust, familiarity, and reliability (Peppers & Rogers 2004) and to make them (the customers) feel comfortable with the brand (Bogart 1996, p. 172). According to Peppers & Rogers, brand awareness and loyalty will ultimately transform into a branded relationship with ongoing dialogue where customer needs influence the products or services (2004, p. 16). Because of the focus on the consumer-brand relationship, brand loyalty can be seen as a precursor to customer relationship management. The concept of mass marketing naturally led into the competitive transactional marketing that is widely used today. The primary short term focus of transactional marketing is to attract new customers for single transactions. There is a limited amount

of contact between the customers and firms, and the primary way that customer satisfaction is measured is through analysis of market share (Hennig-Thurau & Hansen 2000). All relationships, including those with suppliers and customers, are kept at a distance in order to ensure that each party is acting in its own interest. Competition in the form of product price and quantity is the driving force behind transactional marketing, and firms offer value to customers in regard to the firms own self interest (Parvatiyar & Sheth 1995). Relationship marketing is on the opposite end of the spectrum and differs from transactional marketing in a number of fundamental concepts. Relationship marketing is based on long-term trust and satisfaction and is centered on customer retention and customization (Parvatiyar & Sheth 1995). Instead of influencing customers to buy the products, relationship marketing suggests making products to fit the customers. Interaction between firms and customers is critical in the success of managing the customer base. This interaction is based upon personal and social bonds, which are strengthened by the integration of customers in the value production process (HennigThurau & Hansen 2000).

Emergence of CRM A number of factors have contributed to the emergence of customer relationship management including technology, total quality management, growth in the service industry, and heightened customer expectations. Technology is at the heart of CRM development and is essential on multiple levels of the process. Some believe that technology can be credited with the wide acceptance of relationship marketing (Hennig-

Thurau & Hansen 2000). The customer database and software technology enable firms to track consumer purchase behavior, product preference, and personal contact information (Formant 2000). Technological advancements in database programs have allowed marketers to improve direct marketing tactics through individualization (Parvatiyar & Sheth 1995). Once customer patterns are recorded in the database, the software can cater direct marketing efforts, such as emails or mailers with coupons and special offers, to each individual customer. This customer value can only be delivered by highly sophisticated databases that combine information from several external and internal sources regarding demographics, psychographics, survey results and purchase patterns (Formant 2000). Technology is also imperative in creating customer-friendly and easily accessible websites where customers can enter information, provide feedback, and explore product offerings. The practice of total quality management has also contributed to the development of customer relationship management. Total quality management is the strategic management of cost and quality control. It integrates all divisions and levels of a firm with the goal of emphasizing employee teamwork, constant improvement, quality measurement, and efficient problem solving (Powell 1995 & Spencer 1994). Total quality management results in closer relationships between firms, suppliers and customers in order to add value and ensure quality control all along the production chain (Parvatiyar & Sheth 2001). The practice of maintaining and strengthening those relationships result in firms adopting customer relationship management. In addition to the practice of total quality management and the advent of new technology, the growth of the service industry has drastically impacted the emergence of

customer relationship management. Unlike products, services are intangible and consumption is tied closely with production. Therefore, services are delivered directly from the service provider (or the firm) to the consumer without the use of middlemen in the distribution channel (Parvatiyar & Sheth 2001). As middlemen disappear from the equation, it is more common to see customers as the co-producers when they customize products and interact with employees and websites on a more intimate level (Vargo & Lusch 2004). The necessity of this direct contact fosters an environment in which relationships naturally form, but the service quality of the provider is essential in developing a long term, satisfactory relationship (Crosby, Evans & Cowles 1990). In order to capitalize on profitable consumers and to maintain and strengthen the producerconsumer relationship, firms are turning to customer relationship management. With every customer interaction that takes place within a firm, there is a possibility that customer expectations will not be met. The ending outcome can meet, exceed, or fall short of customer expectations. As competition increases among firms, however, there is a greater emphasis on customer satisfaction and in turn, customer expectations are increasing. Although some customers value price over all other characteristics, many customers are not willing to compromise when it comes to products and services; therefore, firms are adopting the practices of customer relationship management to ensure those expectations are met (Parvatiyar & Sheth 2001).

Components of CRM Implementation of customer relationship management is a multi-step process that involves seven basic components. The first key component is the creation of a customer

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database which contains all pertinent information including descriptive information (such as psychographics and demographics), transaction history, and customer contact information (Winer 2001). Customer responses to marketing tactics such as redemption rates regarding coupons, mailers, or emails is also usually recorded in the database. The customer database can serve as a competitive advantage if it is maintained correctly since it is the beginning step in customer relationship management (Espinoza & Rust 2006). In order to build up the content of the database, companies acquire customer information from warranty cards, loyalty customer cards, company websites, and contests. The ultimate goal is to collect customer information with every customer interaction (Winer 2001). Internet transactions allow for prime tracking and cross-referencing since information inputted by the customer is generally very useful and applicable to building a potential relationship with that customer (Espinoza & Rust 2006). Although it is easy for some companies to collect data, it is extremely difficult for others. Winer (2001) created a framework regarding data collection and the potential problems that might ensue based on customer interaction and interaction frequency. The ideal situation for a company involves direct interaction at a high frequency; data collection is relatively easy for these firms. Firms that have indirect customer interaction have the most difficult time collecting data and must work harder to develop ways in which to retrieve customer information. Since technology has enabled customer databases to collect and store a large amount of information, the next vital step in the CRM process is the analysis of this information. Historically, the data was used to separate the customers into different segments based on descriptive information and comparable purchase behaviors in order

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to develop marketing tactics specifically for them (Brown 2000 & Winer 2001). This traditional segmenting failed to account for the times when customers could fall into a number of categories (Espinoza & Rust 2006). With a greater understanding and the technological capability, the customer database can by analyzed in smaller, more specific categories; each customer can also fall into more than one category (Wedel & Steenkamp 1991). Instead of developing marketing schemes for entire segments, each customer can be analyzed in order to understand future purchases and individual profit potential for the firm (Winer 2001). This innovative one to one marketing concept encourages firms to address individual customer needs and to analyze lifetime customer value. When determining lifetime customer value, several factors are considered, including customer purchase history, the contribution margin, and variable marketing costs (Venkatesan & Kumar 2004). Each customers past profit is calculated by adding up past profit margins of all purchases and then subtracting the variable costs associated with obtaining that customer. Customers are often ranked by their lifetime customer values, allowing firms to distinguish the most valuable customers and to allocate necessary resources efficiently among them (Venkatesan & Kumar 2004). Clickstream analysis is another kind of data analysis, but it takes place on the Internet and company websites. The database records and analyzes consumer website visits, purchases, and shopping patterns in order to predict future customer behavior. The goal of clickstream analysis is to convert those potential shoppers who are browsing the websites into purchasing consumers (Winer 2001). Through analyzing past behavioral patterns, companies can predict future purchases and tailor their websites to each

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individual by changing the layout of the website, product offerings, and special promotions (Fader & Moe 2001). After analyzing all of the collected data, the next step in the CRM process is to actually select the customers that the marketing programs will target (Winer 2001). Customer relationship management is built upon retaining existing customers instead of acquiring new ones. Therefore, the most desired customers are those who have the highest customer lifetime values. Firms should concentrate on retaining these customers by focusing marketing programs on them. Customers who dont necessarily have high customer lifetime values but have the potential to be profitable in the future should also be targeted with special customer promotions. Customers who offer no long-term profits or who may be hurting present profits should be carefully identified and abandoned, but companies must be careful to avoid spillover defections by profitable customers (Roberts, Liu & Hazard 2005). Targeting these selected customers involves a combination of direct marketing including direct mail, emails, sales calls, and telemarketing (Winer 2001). Although these strategies may be successful sometimes, customer relationship management emphasizes the need for individualized targeting through one to one marketing. According to Peppers & Rogers, The one to one marketing paradigm is based on individualized communication and customized products and services (1994). One to one marketing involves modifying tactics based on each customers needs, wants, and preferences; products and services are refined to meet the expectations of the most profitable customer segments (Brown 2000).

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One of the more popular CRM tactics is using opt-in email services in which customers must agree to receive emails from a company (Winer 2001). Since this is an opt-in marketing service, customers are more prone to clicking through the email to get to the company website and therefore the success rate is high. The emailing approach is very beneficial to the company because of the high success rate and low costs associated with it. Once customers are selected from analysis of the database and targeted through one to one marketing programs, the next vital component in customer relationship management is the focus on the actual customer relationships. Firms are now constantly competing with one another to provide better service and higher customer satisfaction (Winer 2001). Not only do customers demand to be satisfied with product performance, they also expect the cumulative customer experience to be satisfactory (Anderson, Fornell & Lehmann 1994). Customer relationships can be built upon, reinforced, and improved through a number of CRM programs, including customization, community building, customer service requirements, rewards programs, and loyalty programs (Winer 2001). Customization can pertain to both products and promotions. Although more cost is incurred when customizing promotions for particular customers, many companies find that their return on investment makes it worthwhile. Revenues from customized promotions are higher when compared to the revenues generated from standardized promotions (Kahn, Lewis & Singh 2009). When it comes to products, customization has been growing in popularity from both a consumer and company standpoint. Consumers enjoy the option to build their own products by selecting specific attributes or product

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packages; this customization option only strengthens the relationship between the firm and consumer (Stump, Athaide & Joshi 2002). As the seller, a company offers customized products or services to increase customer value in order to gain competitive advantage over competitors that offer only standardized products and services. Customization emphasizes consumer-seller interaction and communication while increasing the chances of satisfaction and future exchanges (Porter 1980). Customer service goes hand in hand with product and service customization. With customization of essentially every customer-firm contact, customer service is vital in developing long term relationships and CRM. Customer service begins before the purchase transaction, but extends far beyond it through increasing the perceived value of the product or service (Christopher, Payne, Ballantyne 1991). Firms can engage in two general types of customer service: reactive and proactive. Reactive service takes place when the customer initiates contact with the firm due to a problem or question. Proactive service involves the firm making the first contact with the customer in order to ensure satisfaction before a formal complaint is made (Winer 2001). Another relationship program in the implementation of CRM is brand community building. According to McAlexander, Schouten, and Koenig (2002, p. 38), a brand community is a network of relationships including those between the customer and the brand, between the customer and the firm, between the customer and the product in use, and among fellow customers. The web offers the ideal location for these networks to develop and for customers to interact with each other by allowing them to provide discussion and feedback about information regarding products, the brand, and the firm. As these customers exchange stories, product suggestions, and other product related

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information, they begin to feel part of a community and become personally attached to the brand or the company behind the brand (Winer 2001). This exclusive community offers benefits only to those who partake in it, and it therefore creates an in-group/outgroup split (Reinartz 2006). This split is desirable when the consumers who are included in the exclusive group make repeat purchases and remain profitable to the company. Those who do not feel a part of the group, however, can have negative perceptions and may choose not to support the brand or the company. The brand community as a CRM program is customer-centric and promotes relationship building in an open, interactive environment. Perhaps one of the most powerful programs in the customer relationship management process is the loyalty program, which is designed to increase customer loyalty and satisfaction. Through a loyalty program, the firm aspires to create a mutually beneficial relationship with the customer; the ultimate goal is for each party to receive a positive benefit (Brown 2000). Loyalty programs may be implemented in various ways, but all of them are created to retain customers, to generate long term relationships, and to increase the number of customer interactions in order to increase profit. Before a firm creates a program, it must first define loyalty in company terms and identify the firms goals regarding loyalty. True customer loyalty is a combination of two components: attitudinal and behavioral loyalty. Attitudinal loyalty is created when customers hold strong, positive beliefs about a specific company, brand, or product (Uncles, Dowling & Hammond 2003). Once individuals have made a mental or emotional commitment, behavioral loyalty often follows in the form of repeat purchases or frequent store visits (Reinartz 2006). Since true loyalty depends on both the

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customers satisfaction and involvement with the purchase, companies design loyalty programs to enhance these experiences. According to Reinartz, a loyalty program is defined as a marketing practice that offers rewards for customers to encourage them to make repeat purchases (2006). Effective loyalty programs are those that are customized to fit the needs and goals of a company and their customers. When designing a loyalty program, the reward structure accounts for the most defining characteristic. The reward structure is the most alluring component of the loyalty program; consumers are primarily attracted to loyalty programs because of the rewards and benefits available to them (Mimouni-Chaabane & Volle 2009). Loyalty programs can offer hard and/or soft rewards depending upon the nature of the product or service, but both should be perceived as valuable in the consumers minds. Hard rewards offer tangible or financial benefits such as promotions, free products or services, and price reductions. Soft rewards are based on psychological benefits and often incorporate special customer recognition or status. These rewards may or may not be connected with the companys product offerings. Firms can choose to directly support their product proposition by allowing customers to redeem loyalty points for free products or price reductions on those products (Reinartz 2006). On the other hand, firms can offer products that are unrelated to their business. More often than not, however, firms usually choose to offer rewards that are directly tied to their product offerings in order to encourage additional business and further develop the relationships with the consumers. Offering rewards directly related to the products is also less costly to the firm. No matter the type of reward offered in the loyalty program, firms should reward customers at a high rate, which is determined from the ratio of the monetary value

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of the reward to the monetary value of the initial transaction. Consumers are much more satisfied and perceive the loyalty program justified when this rate is higher because the decreased lag time between rewards keep customers perceiving the value of the program. The effectiveness of the loyalty program comes down to whether or not the consumer adopts the program and consistently uses the tools provided to them, such as a loyalty card (Mauri 2003). Through offering valuable rewards in a timely manner, customers will increase repeat purchases and strengthen their relationships with the firm and its products. The loyalty program in combination with the other relationship programs allows for the CRM process to cater to the needs and wants of the customer base.

Managing the CRM Process Once the CRM components are defined by the firm, the next step is to actively manage the process through role specification, employee training, effective communication, and evaluation. Role specification is necessary in managing the relationships of CRM, and its main goal is to define the responsibilities and duties of the relationship partners such as the firm, the employees, and the customers (Heide 1994). As the CRM programs progress in complexity, role specification becomes more important in managing the complex relationships (Parvatiyar & Sheth 2001). Role specification ensures that the individuals responsible for maintaining the relationship are held accountable and are given the necessary resources to continue the CRM programs. After roles are specified, the employees must be adequately trained to implement the programs within the CRM process. In order to successfully execute effective CRM,

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employees should be equipped with strong sales and communication skills, and they should be trained to provide exceptional customer service (Formant 2000). Since employees are responsible for direct contact with customers and can enhance or weaken the customer-firm relationships, they should feel empowered to make decisions regarding customer service. Employees need to know how to use and update the customer information located in the databases efficiently and effectively in order to build relationships and increase customer satisfaction (Liljander 2000). Since employees are such an integral part of customer relationship management, companies should focus on employee satisfaction and offer employee motivation in the form of rewards or incentives (Parvatiyar &Sheth 2001). Customer and employee loyalty and satisfaction are positively related to each other, so it is in the firms best interest to train and reward employees (Reichheld 1996). In order to carry out any successful programs or build any relationships, the firm should accurately communicate with its internal audience (the employees) as well as its external audience (the customers). Relationship marketing requires communication among all key players since it is built upon trust and mutual satisfaction. Firms must communicate with employees when training and enforcing guidelines and policies. The top executives and customer relationship managers must explain the CRM goals of the company and how the CRM programs will be implemented to the rest of the firm (Liljander 2000). On an external level, communication is essential to building relationships with the customers. Customers must be informed about the CRM programs (such as loyalty programs) available in order to encourage repeat purchases. The firm

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must perfect the communication channels between the firm and the customers to ensure that information is being accurately shared (Parvatiyar &Sheth 2001). The final step in managing the CRM process is evaluating the results and overall successfulness of the program. Customer relationship management is focused on building and maintaining customer relationships in order to increase retention and profit in the long run. If the programs arent successful and the firm does not get an adequate return on investment, then the CRM process should be modified or ended immediately. Since CRM incorporates subjective and abstract concepts such as satisfaction, loyalty, and relationship development, it is often difficult to measure its success. Although most scholars believe that there is no technology or method that measures the success of CRM completely accurately, there have been attempts at developing a comprehensive report for a firms CRM programs (Parvatiyar & Sheth 2001). The CRM process should be evaluated using a set of unique performance metrics that reflect the core concepts of a firms relationship marketing (Roberts, Liu, & Hazard 2005). In addition to measuring profitability and market share, the firm can easily evaluate its CRM programs by obtaining conversion rates, customer acquisition costs, same customer sales and user adoption of loyalty programs (Winer 2001 & Goldenberg 2010). These components are often organized and recorded on a CRM scorecard that divides the CRM framework into specific categories. The first category of the CRM scorecard is the organizational performance perspective which ultimately proves whether or not the CRM process increases profit (Goldenberg 2010). It details the customer equity, shareholder value, and profitability of the CRM plan using perceived value, customer lifetime value and brand equity calculations (Hyung-Su & Young-Gul 2009).

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The second category of the CRM scorecard is the customer perspective, which is centered on evaluating how a customer views the particular firm and what value he or she perceives to gain from the firm. The customer perspective includes customer loyalty measured by customer satisfaction and customer value measured by surveys and number of customer complaints. The process perspective is another component of the CRM scorecard and includes evaluating the overall success of the business strategy by measuring customer acquisition, retention, and expansion (Hyung-Su & Young-Gul 2009). Once the CRM initiatives have been evaluated, the firms executive leaders must make a decision regarding the future. If the initiatives show an improvement in the firms bottom line, then money should be continually invested into the CRM program. If the initiatives dont improve the bottom line, then the CRM program should be revised or ceased.

Advantages of CRM Implementing customer relationship management offers a number of advantages and disadvantages to both the companies that initiate the programs and the customers that partake in them. From a customer perspective, the advantages are directly attached to experiences and can mostly be attributed to the perceived benefits of the CRM programs (Holbrook 1996). Customers obtain perceived value from the utilitarian benefits, hedonic benefits, and symbolic benefits offered by the CRM programs. Utilitarian benefits derive from completing a task or obtaining a tangible object, and they often are connected with a products physical characteristics. Customers who seek utilitarian benefits from CRM programs are often most concerned with the financial rewards, such as monetary savings

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from coupons or special offerings. Convenience benefits also provide utilitarian value by saving a customers time (Mimouni-Chaabane & Volle 2009). Hedonic value originates from emotionally gratifying or sensory fulfilling benefits that are not connected with tangible product characteristics. For example, customers receive hedonic benefits from CRM programs when they are encouraged to try new products and enjoy new experiences after collecting a predetermined set of loyalty program points or after obtaining a certain customer status (Arnold & Reynolds 2003). Customers may also receive symbolic benefits through self expression, recognition, and approval. These benefits are not related to tangible characteristics or to products; they pertain specifically to an individuals self-esteem and how they feel they are perceived by the world (Mimouni-Chaabane & Volle 2009). CRM programs provide its customers with symbolic benefits by recognizing individuals and their own unique product preferences and shopping behaviors. When these individuals are considered a part of an elite group of customers or a brand community, they feel socially accepted and satisfied; therefore, CRM programs should focus on giving these customers the experiences they desire (Muniz & OGuinn 2001). The advantages of successful CRM implementation from a company perspective involve increasing customer retention, repeat purchases, and customer relationships in order to gain the ultimate objective of raising profits. In a world inundated with marketing tactics and advertising campaigns, companies must redefine themselves in the eyes of the customers, and CRM allows them to do just that. CRM provides companies with a customer knowledge advantage through effective and efficient internal and external information flow and communication (Minocha 2000). The technology created

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for the CRM process and the focus on customer relationships discover customer leads, encourages loyalty, and generates sales. Once companies create and strengthen those customer relationships, they gain a competitive advantage through customer commitment and trust (Morgan & Hunt 1994); thereby, the companies psychologically connect with customers and capitalize on their purchase behaviors.

Disadvantages of CRM From a company perspective, the costs associated with CRM programs and technology can serve as a great disadvantage if the return on investment does not reach the optimal level. Once firms commit to adopting the CRM practice, they must invest in training employees, developing the database software, and targeting marketing efforts at the most profitable customers. Evaluating the CRM process is another disadvantage due to the fact that there is no one factor that can determine if the program is successful or not. There are many contributing factors that cannot be easily numerically measured, and therefore, firms may find it difficult to get the true value of its CRM programs (Winer 2001). Two main ethical implications, which pertain to both the customers and companies, involve customer discrimination behavior and privacy issues. Although CRM attempts to target the most profitable customers and maintain strong relationships with them, the process inherently discriminates against other current and potential customers when they are treated differently. When consumer segments are defined and separated according to their values, some customers are evaluated as being more valuable and therefore they hold priority over others. Problems arise when these segments

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communicate with each other and with the company via social networking sites and other community building sites. When unfavorable communication takes place regarding differences in customer experiences, the company may have to defend itself (Stauss 2000). Discrimination can be seen as unfair and can ultimately be counterproductive to building customer relationships and maintaining a sense of community. According to Hansen (2000), a discrimination relationship policy is tied up with problems of moral sensitivity, and therefore may be detrimental in relationship building. Since the CRM process requires a vast amount of customer information, privacy issues remain an important and sensitive issue with firms and customers alike. In order to customize products and services for individual customers, personal information is collected and stored in CRM databases. There is a fine line, however, between collecting and capitalizing on information and stepping over customer privacy boundaries. According to Forrester Research, individuals have reported feelings of irritation and violation and some have admitted that they are fearful about internet usage tracking (Stanley 2000). When firms violate customer privacy by sending unwanted e-mails and mailings or by sharing private information, customers can backlash and boycott the firms. Some privacy issues can be resolved by an opt-in option in which the customer must explicitly give consent to personal data collection or by an opt-out option in which customers must forbid the use of data (Winer 2001). As more firms adopt and develop CRM processes, privacy issues should be addressed in order to ensure that consumers feel comfortable and confident with the firms and with the data those firms are collecting and using.

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Although there are many advocates for the adoption of customer relationship management, many skeptics criticize the practice for a number of reasons. The initial criticism attacks the fact that no top marketers, or executives of the same firm for that matter, can agree on a single definition of CRM; this lack of consistency makes it difficult for an organization to create a united front regarding CRM objectives and programs (Newell 2003; Plakoyiannaki & Tzokas 2001). This lack of definition may not be critical, however, if the firms are able to successfully implement their own individual working systems. Other critics believe that CRM is failing to meet customer needs; CRM practitioners are too focused on managing the customer and not enough on satisfying the customer. Finally, marketing executives often view technology as the most important part of CRM, but many see technology as the only requirement for CRM implementation. Technology does not build relationships, and critics argue that the process of CRM puts too much emphasis on databases and not enough on personal interactions (Newell 2003).

Final Thoughts: The Future of CRM The future of CRM is bright if companies are willing to invest money and improve their current practices. Currently, CRM implementation is relatively weak among firms; the future of CRM will be determined by how well these firms adapt to its practices. According to Winer, technology and database functions will continue to improve, but companies will have to become more effective in analyzing customer behavior and information (2001). Firms must continue to build company and brand communities to encourage communication and increase loyalty levels among current and potential customers (Reinartz 2006). A popular trend in improving CRM involves the

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splitting of the marketing manager job into two separate positions. One position would be responsible for customer acquisition and the other for customer retention, allowing for the managers to solely focus on ones responsibilities and objectives (Winer 2001). Customer experience management (CEM) is another marketing movement that is an offshoot of CRM, and it focuses on the customer experience at every touch point between the firm and the customer. If CEM proves to be a valuable and effective practice, then it is likely that CRM will evolve to include CEM techniques (Schmitt 2003 & Winer 2001). Customer relationship management has become the new wave of marketing in an attempt to build loyalty, strengthen customer relationships and increase profits. Using software technology and advanced databases, CRM aims to reach out to customers to meet their individual needs and exceed their expectations. Firms implement relationship programs, such as community-building websites and loyalty card programs, to develop a trusting relationship among consumers to gain their confidence and increase repeat purchases. CRM will continue to be a dominant marketing technique that will contribute to ongoing customer relationships and bottom line profits.

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