Customer relationship management (CRM)

A marketing-led approach to building and sustaining long-term business with customers.

One-to-one marketing

A unique dialogue occurs between a company and individual customers (or groups of customers with similar needs).

Electronic customer relationship management

Using digital communications technologies to maximise sales to existing customers and encourage continued usage of online services.

Building long-term relationships with customers is essential for any sustainable business, and this applies equally to online elements of a business. Failure to build relationships largely caused the failures of many dot-coms following huge expenditure on customer acquisition. Research summarised by Reichheld and Schefter (2000) showed that acquiring online customers is so expensive (20-30% higher than for traditional businesses) that start-up companies may remain unprofitable for at least 2 to 3 years. The research also shows that by retaining just 5% more customers, online companies can boost their profits by 25% to 95%.

Over the last decade or more, relationship marketing, direct marketing and database marketing have combined to create a powerful new marketing paradigm. This paradigm is often referred to as customer relationship management (CRM). A related approach is known as one-to-one marketing, where in theory, relationships are managed on an individual basis. But, owing to the costs of managing relationships on an individual level, many companies will apply CRM by approaches which tailor services to develop relationships with particular customer segments or groups, rather than individuals. This involves a company in developing a long-term relationship with each customer in order to better understand that customer's needs and then deliver services that meet these individual needs.

The interactive nature of the web combined with e-mail communications provides an ideal environment in which to develop customer relationships, and databases provide a foundation for storing information about the relationship and providing information to strengthen it by improved, personalised services. This online approach to CRM is often known as e-CRM or electronic customer relationship management, and it is on this we focus in this chapter.

Figure 6.1 summarises the linkages between CRM and existing marketing approaches. Direct marketing provides the tactics that deliver the marketing communications and sometimes the product itself to the individual customer. Relationship marketing theory provides the conceptual underpinning of CRM since it emphasises enhanced customer service through knowledge of the customer, and deals with markets segmented to the level of the individual. Database marketing provides the technological enabler, allowing vast quantities of customer-related data to be stored and accessed in ways that create strategic and tactical marketing opportunities.

Customer relationship management

Direct marketing

Relationship marketing

Database marketing

One-to-one marketing

Figure 6.1 Linkages between customer relationship management and related marketing approaches

This chapter begins by introducing the key concepts of relationship marketing and e-CRM. We then review, in more detail how e-CRM can be implemented using techniques such as permission marketing, personalisation and e-mail. E-CRM operates within the context of multi-channel marketing. Since this concept has been covered as a major concept within Chapter 4 we mainly focus on online relationship marketing concepts in this chapter.

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