Customer Relationship Management Programs

Relationship Programs

While customer contaa through direct e-mail offerings is a useful component of CRM, it is more of a technique for implementing CRM than a program itself. Relationships are not built and sustained with direct e-mails themselves but rather through the types of programs that are available for which e-mail may be a delivery mechanism.

The overall goal of relationship programs is to deliver a higher level of customer satisfaaion than competing Hnns deliver. There has been a large volume of research in this area.’^ From this research, managers today realize that customers match realizations and expectations of product performance, and that it is critical for them to deliver such performance at higher and higher levels as expectations increase due to competition, marketing communications, and changing customer needs. In addition, research has shown that there is a strong, positive relationship between customer satisfaction and profits.” Thus, managers must constantly measure satisfaction levels and develop programs that help to deliver performance beyond targeted customer expectations.

A comprehensive set of relationship programs is shown in Exhibit 5 and includes customer service, frequency/loyalty programs, customization, rewards programs, and community building.

Customer Service

Because customers have more choices today and the targeted customers are most valuable to the company, customer service must receive a high priority within the company. In a general sense, any contact or “touch points” that a customer has with a firm is a customer service encounter and has the potential either to gain repeat business and help CRM or to have the opposite effect.

Programs designed to enhance customer service are normally of two types. Reactive service is where the customer has a problem (product failure, question about a bill, product return) and contacts the company to solve it. Most companies today have established infrastructures to deal with reactive service situations through 800 telephone numbers, faxback systems, e-mail addresses, and a variety of other solutions. Proactive service is a different matter: this is a situation where the manager has decided not to wait for customers to contact the firm but to rather be aggressive in establishing a dialogue with customers prior to complaining or other behavior sparking a reaaive solution. This is more a matter of good account management where the sales force or other people dealing with specific customers are trained to reach out and anticipate customers’ needs.

A variety of systems leveraging the Web assist both kinds of service. Charles Schwab has established MySchwab, which allows customers to create personal Web pages linking them to all Schwab services including stock quotes, trading, and retirement planning analyses. In this way, the company empowers customers to deliver their own service. Other Web-based services such as LivePerson, HumanCIick, and netCustomer are boit-on products that, when added to a company’s Web site, provide customers with the ability to interact with service representatives in real time. Companies such as Kmart are investing large amounts of money into kiosks that provide information on product availability, order status, and a variety of other service-related topics.

Loyalty/Frequency Programs

Loyalty programs (also called frequency programs) provide rewards to customers for repeat purchasing. A recent McKinsey study”* found that about half of the ten largest retailers in the U.S. in each of the top seven sectors (category killers, department stores, drugstores, gasoline, grocery, mass merchandisers, specialty apparel) have such programs with similar findings in the U.K. The study also identified the three leading problems with these programs: they are expensive, mistakes can be difficult to correct as customers see the company as taking away benefits, and, perhaps most importantly, there are large questions about whether they work to increase loyalty or average spending behavior.

A problem that can be added to this list is that due to the ubiquity of these programs, it is increasingly difficult to gain competitive advantage. However, as the managers for the airlines will attest, loyalty programs can be very successful by increasing customer switching costs and building barriers to entry. In addition, in some industries, such programs have become a competitive necessity.

A number of Web-based companies providing incentives for repeat visits to Web sites include MyPoints and Netcentives. Although these have not been wildly successful, it is clear that the price orientation of many Web shoppers creates the need for programs that can generate loyal behavior.


The notion of mass customization goes beyond 1-to-l marketing as it implies the creation of products and services for individual customers, not simply communicating with them. Dell Computer popularized the concept with its build-to-order Web site. Other companies such as Levi Strauss, Nike, and Mattel have developed processes and systems for creating customized products according to customers’ tastes. Slywotzky refers to this process as a “choiceboard” where customers take a list of product attributes and determine which they want.^’ The idea is that it has turned customers into product makers rather than simply product takers. Shapiro and Varian argue that such customization is cheap and easy to do with information goods.” Such customization is termed “versioning.” It is, of course, easier to do this for services and intangible information goods than for products, but the examples above show that even manufacturers can take advantage of the increased information available from customers to tailor products that at least give the appearance of being customized even if they are simply variations on a common base.


One of the major uses of the Web for both online and offline businesses is to build a network of customers for exchanging product-related information and to create relationships between the customers and the company or brand. These networks and relationships are called communities. The goal is to take a prospective relationship with a product and turn it into something more personal. In this way, the manager can build an environment that makes it more difficult for Ihe customer to leave the “family” of other people who also purchase from the company.

For example, the software company Adobe builds community by devoting a section of its Web site to users and developers. They exchange tips and other information, which binds them more to the company and its brands. By giving the customers the impression that they own this section of the site and by being open to the community about product information, Adobe creates a more personal relationship with its customers.

Privacy Issues

The CRM system depends upon a database of customer information and analysis of that data for more effective targeting of marketing communications and relationship-building activities. There is an obvious tradeoff between the ability of companies to better deliver customized products and services and the amount of information necessary to enable this delivery. Particularly with the popularity of the Intemet, many consumers and advocacy groups are concerned about the amount of personal information that is contained in databases and how il is being used. Thus, lhe privacy issue extends all the way through the hierarchy of steps outlined in Exhibit 1.
This is not a new issue. Direct marketers have mined databases for many years using analyses based on census traa data, motor vehicle records, magazine subscriptions, credit card transactions, and many other sources of information.

However, with the “in your face” nature of unwanted direct e-mails and the increasing amount of information that is being collected surreptitiously as people browse the Web through nefarious “cookies,” these concerns have received more prominence.^* The defining moment in Web privacy occurred in 1999 when the Web ad serving company Doubleclick announced that it was acquiring the direct marketing database company. Abacus Direa, with intentions to cross-reference Web browsing and buying behavior with real names and addresses.
The public outcry was so strong that Doubleclick had to state that it would not combine informaiion from the two companies.

A study by Forrester Research found a continuum of privacy concerns:”
• Simple irritation. This comes mainly from unwanted e-mails.
• Feelings of violation or “How do they know that about me?”
• Fear of harm. This could come from browsing X-rated sites, booking travel that a consumer does not want others to know about, and so on.
• Nightmarish visions: the IRS, “Big Brother,” and other thoughts.
As of this writing, there are 8 Intemet privacy hills being considered by Congress. The current debate about privacy and the debate in Congress centers around how much control Web surfers should have over their own information. While many argue that il is in customers’ best interests to give as much data as possible in order to take maximum benefit of what the Web has lo offer, many disagree. The opponents formalize their arguments in the following two options:
• “Opt-in”—In this case. Web users musl consent to the collection and use of personal data. This gives the customer more control over his or her own informaiion and would help to build industry confidence. However, from the marketer’s perspective, this may substantially reduce the amount of informaiion available in databases.
• “Opt-out”—This is Ihe Web version of the direa marketing “negative reply” whereby a customer has to explicitly forbid the collection and use of personal data. This gives more information to marketers and therefore potentially improves the products and services available to customers.

However, the customers bear the loss of control. These issues are only going to become thornier as the proliferation of wireless devices means more information about customers becoming available over.

by  Russell S. Winer

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