CRM 4 New

The Customer Relationship Management Process: Its Measurement and Impact on
Performance
Author(s): Werner Reinartz, Manfred Krafft and Wayne D. Hoyer
Source: Journal of Marketing Research, Vol. 41, No. 3 (Aug., 2004), pp. 293-305
Published by: American Marketing Association
Stable URL: http://www.jstor.org/stable/30162340
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WERNER REINARTZ, MANFRED KRAFFT, and WAYNE D. HOVER*
An understanding of how to manage relationships with customers

effectively has become an important topic for both academicians and
practitioners in recent years. However, the existing academic literature
and the practical applications of customer relationship management
(CRM) strategies do not provide a clear indication of what specifically
constitutes CRM processes. In this study, the authors (1) conceptualize a
construct of the CRM process and its dimensions, (2) operationalize and
validate the construct, and (3) empirically investigate the organizational
performance consequences of implementing CRM processes. Their
research questions are addressed in two cross-sectional studies across
four different industries and three countries. The first key outcome is a
theoretically sound CRM process measure that outlines three key
stages: initiation, maintenance, and termination. The second key result is
that the implementation of CRM processes has a moderately positive
association with both perceptual and objective company performance.
The Customer Relationship Management

Process: Its Measurement and Impact on
Performance
An understanding of how to manage customer relation- tionship management (CRM) strategy are hardly ques-
ships effectively has become an important topic for both tioned, the implementation challenges appear to be enor-
academicians and practitioners in recent years. Organiza- mous, as evidenced by commercial market research studies.
tions are realizing that customers have different economic These studies provide some convergent validity that approx-
value to the company, and they are subsequently adapting imately 70% of CRM projects result in either losses or no
their customer offerings and communications strategy bottom-line improvement in company performance (Gart-
accordingly. Thus, organizations are, in essence, moving ner Group 2003).
away from product- or brand-centric marketing toward a Previous studies have focused on components of CRM
customer-centric approach. strategy, such as the link between satisfaction and business
Nevertheless, some key problems need to be addressed. performance (Kamakura et al. 2002), the link between cus-
Although the conceptual underpinnings of a customer rela- tomer loyalty and profitability (Reinartz and Kumar 2000),
customer profitability heterogeneity (Niraj, Gupta, and
Narasimhan 2001), and customer loyalty programs (Verhoef
*Werner Reinartz is Associate Professor of Marketing, INSEAD (e-
2003). However, there is a severe lack of research that takes
mail: werner.reinartz@insead.edu). Manfred Krafft is Professor of Market-
ing and Director of the Institute of Marketing, Westphalian Wilhelms Uni- a broader, strategic focus across firms. There is no clear evi-
versity Miinster (e-mail: mkrafft@uni-muenster.de). Wayne D. Hoyer is dence regarding either the characteristics of successful
James L. Bayless/William S. Farish Fund Chair for Free Enterprise and CRM approaches or the reasons CRM may potentially fail.
Chair, Department of Marketing, McCombs School of Business, Univer-
Furthermore, the existing academic literature and practical
sity of Texas at Austin (e-mail: wayne.hoyer@mccombs.utexas.edu). The
authors gratefully acknowledge financial support from the Teradata Center
applications of CRM do not provide a clear indication of
for Customer Relationship Management at Duke University. Additional what specifically constitutes the implementation of CRM
funding was provided by the INSEAD Research and Development Depart- processes. Some companies view CRM primarily as invest-
ment, the Center for Customer Insight (McCombs School of Business, ments in technology and software, whereas others treat
University of Texas at Austin), and the Center for Market-Oriented Man-
CRM more expansively and are aggressive in developing
agement (WHU-Koblenz). The authors thank Rick Staelin and Wagner
Kamakura from the Teradata Center at Duke University, Christoph van den sound and productive relationships with customers. In addi-
Bulte, Hubert Gatignon, Frenkel ter Hofstede, and participants of the 2003 tion, some companies have implemented CRM processes to
Marketing Science Conference for comments on a previous version of this a greater degree than others. Therefore, it is important to
article. They also thank Heiko Muller for valuable research assistance.
identify the types of CRM activities that companies can
Journal of Marketing Research

293 Vol. XLI (August 2004), 293-305
294 JOURNAL OF MARKETING RESEARCH, AUGUST 2004
employ and to explore how thesereceived

relatepreliminary
to companysupportper-
from Reichheld and Teal
formance and profitability. (1996). However, the observations have been tempered by
empirical evidence
Given this situation, the key contribution (e.g., article
of this Niraj, Gupta,
is and Narasimhan
2001;
to conceptualize and operationalize Reinartz and of
a measure Kumarthe 2000) that stresses the impor
degree
to which CRM processes have been tance of moderating effects.
implemented. In Thus, it is probably not true
partic-
that more
ular, we examine the functional and relationship building
organizational is always better; rather
compe-
building
tencies that are necessary to conduct the "right" and
effective type of relationship (which depends on
profitable
CRM activities. Developing such situational factors) is critical.
a measure or index In otherof words, facilitators
such as organizational
CRM processes will enable us to determine whetherdesign, adequate
higher incentive schemes,
levels of CRM implementation are associated
and information withas well as industry
technology resources,
improved economic performance. company,
We further or customer structures, some
examine may affect the perform-
conditions in which CRM processes are associated
ance of relationship with
marketing activities.
The second
superior performance outcomes (i.e., aspect of our conceptualization
moderators of this is that the
relationship). CRM process should acknowledge that relationships evolve
with distinct phases (Dwyer, Schurr, and Oh 1987). Thus,
THEORETICAL FOUNDATION OF THE CRM PROCESS
relationships cannot be viewed as multiple independent
A challenge of defining CRM is that any definition is
transactions; rather, the interdependency of the transaction
contingent on the level at which CRM is practicedcreates
in an its own dynamic over time. In other words, CRM
organization or, for that matter, what the researcher orprocesses
man- are longitudinal phenomena. The process of rela-
ager believes about the correct level of CRM. There are evolution can be subject to termination at any poin
tionship
through customer causes (ceasing of category consump
three different possible levels: (1) functional, (2) customer-
facing, and (3) companywide. tion), competitive causes, or internally unintended (attritio
In this article, we focus on the CRM process on the
through service problems) or internally intended (customer
firing) causes.
customer-facing level. This perspective includes the build-
The third aspect is that the recognition of relationship
ing of a single view of the customer across all contact chan-
nels and the distribution of customer intelligence evolution
to all has implications for the organization: Firm
should interact with customers and manage relationships
customer-facing functions. This view stresses the impor-
differently at each stage (Srivastava, Shervani, and Fahey
tance of coordinating information across time and contact
channels to manage the entire customer relationship 1998).
sys- For example, Jap and Ganesan (2000) find that the
effect
tematically. For example, a bank customer who has both a of transaction-specific investments on relationship
commitment
loan product and a savings product might interact with the in manufacturer-retailer relationships is posi-
bank through various channels and different types of tive in the exploration and the decline phases. A goal o
inter-
CRM is to manage the various stages of the relationshi
actions (e.g., transaction, information request, complaint),
which may change over time. A CRM process on systematically
the and proactively. For example, companie
customer-facing level would capture these interactionssystematically
and, attempt to mature relationships by cross-
selling
on the basis of the generated intelligence, would result in and up-selling products with high purchase likeli-
hood (Kamakura et al. 2002).
coordinated and well-defined actions through different
functions. The fourth aspect is the recognition that the distribution
A key question is, How should the CRM process be of relationship value to the firm is not homogeneous (Mulh-
con-
ceptualized at the customer-facing level? The literature ern 1999; Niraj, Gupta, and Narasimhan 2001). This is a
sug-
consequence of the increasing adoption of recent account-
gests that companies should recognize four distinct factors:
(1) Building and managing ongoing customer relationships ing practices, especially activity-based costing. The key
delivers the essence of the marketing concept (Morgan advantage
and of activity-based costing is that firms are able to
Hunt 1994; Webster 1992), (2) relationships evolvemake withprofitability statements along customer relationship
distinct phases (Dwyer, Schurr, and Oh 1987), (3) lines, firmsnot only along product lines. This enables firms to
interact with customers and manage relationships at investigate
each resource allocations that are made against the
stage (Srivastava, Shervani, and Fahey 1998), and (4) customer
the relationship profitability distribution. A common
finding is that best customers do not receive their fair shar
distribution of relationship value to the firm is not homoge-
neous (Mulhem 1999; Niraj, Gupta, and Narasimhan 2001). of attention and that some companies overspend on mar-
A key theoretical basis for CRM research is the relation-ginal customers. In a CRM paradigm, a key goal is to define
different resource allocations for different tiers of cus-
ship marketing literature. First, in this area it is theoretically
tomers, where the customer's tier membership depends on
held that the building and managing of ongoing customer
the economic value of that customer or segment to the firm
relationships delivers the essence of the marketing concept
(Morgan and Hunt 1994; Webster 1992). The new institu- (Zeithaml, Rust, and Lemon 2001).
tional economics approach uses economic theory to explain The continuous balance of CRM activities at each stage
(i.e., customer acquisition, retention, and relationship termi-
the development and breakdown of customer-firm relation-
nation)
ships. For example, transaction cost theory (Rindfleisch and should be guided by the attempt to maximize the
value of the set of concurrent customer relationships and
Heide 1997) focuses on minimizing the cost of structuring
and managing relationships and maximizing the returns thus should be associated with better overall company per-
from them. Common to all theoretical approaches in formance.
the Therefore, we define the CRM process at the
customer-facing level as a systematic process to manage
relationship marketing literature is that managing relation-
ships is beneficial for the firm. This perspectivecustomerhas relationship initiation, maintenance, and termina-
Customer Relationship Management Process 295
neous customer
tion across all customer contact points segments.
to In contrast, CRM expands
maximize theon
this approach by supplementing traditional marketing tech-
value of the relationship portfolio.
niques with other
Thus, our view of the CRM process entailsrelationship
the management
systematic activities (e.g.,
and proactive management of systems to regain lost customers,
relationships as they up-selling
move and cross-
from beginning (initiation) to selling,
end referral management) at the clearly
(termination), with identified
exe- stages
of the customer relationship
cution across the various customer-facing (i.e., initiation,
contact maintenance,
channels.
and termination).
This necessitates both information Finally, CAM and
generation CE focus on customer
through the
segments needs
analysis of customer and prospect as assets, whereas
andour CRM process framework
behavior and
centers on individual
action on this information, contingent on customer
the relationships.
customer's Thus, our
CRM approach supplements
value and life-cycle stage. We attempt to capture the important
theprinciples
multi- that
emanate from
dimensional components (life-cycle these other
stage, frameworks. In addition,
customer evalua- it is
tion, and interaction) in a multilevel model.
important to note that the key concept of customer satisfac-
tion is a central
Similar to other multilevel models in the foundation across all these
literature approaches
(Brady
(Oliver 1999).
and Cronin 2001), our model suggests that each of the pri-
mary dimensions of the CRM process (relationship initia-
A MODEL OF THE PERFORMANCE OUTCOMES OF
tion, maintenance, and termination) has distinct subdimen-
CRM IMPLEMENTATION
sions. Customer evaluation is the first subdimension of each
primary dimension. The subsequent subdimensions are Adoption and implementation of the CRM process i
acquisition and recovery management for the initiation only the initial part of the story. It is also critical to establis
stage; retention, up-selling/cross-selling, and referral man- whether CRM is "a good thing" for the company. Given th
agement for the maintenance stage; and exit management dearth of sound empirical findings in the domain and th
for the termination stage. These nine subdimensions pro- evidence now suggests that CRM strategies may not per-
vide a structure for different CRM-related activities and form as well as many people had expected, an investigation
serve as the basis for a conceptual framework for the CRM of the CRM process-economic performance link should be
process construct. We consider the nine subdimensions of great interest to managers and academics. Thus, a secon
formative (i.e., consisting of explanatory combinations of goal of this article is to conceptualize and test a model of
indicators that cover the distinct activities involved). how the three primary CRM dimensions are associated wit
Our conceptualization is intended to measure how sys- organizational performance. Figure 1 presents an overvie
tematic firms are in practicing the various activities of the of the theoretical model, which has two key components
CRM process. We believe that it is important to capture the First, we investigate the main effect of the CRM process
systematic aspects of the process, particularly if the processeconomic performance. Second, we examine moderatin
is practiced on a large scale, such as in a business-to-
effects, which may serve to establish some contingenc
consumer environment. If firms formalize their CRM conditions.
efforts, they become more consistent in execution across First, in terms of performance outcomes, we relate the
contact channels, employees, and the portfolio of three cus- CRM dimensions to two types of performance meas-
ures: perceptual and objective. Although most research in
tomers. It is important to note that we do not mean "formal-
marketing
ization" in terms of rigidity but in terms of conformance to strategy assesses the impact of the focal con-
specification. For example, firms want to avoid the mistake
of not identifying a good customer and subsequently not
rewarding the customer accordingly (Type I error). Firms
also want to prevent wrongful classification of low-value Figure 1
customers as high-value customers and subsequent over-
A MODEL OF THE PERFORMANCE OUTCOMES OF THE CRM
spending of resources (Type II error). The development of PROCESS
and reliance on a systematic approach that aids in the meas-
urement of customer value and in the interaction with these
heterogeneous customers decreases these errors.
CRM Process
It is important to compare our approach with other
frameworks that address similar issues, including the serv- Relationship
Economic Performance
initiation
ice profit chain (Heskett et al. 1994), return on quality H1
(Rust, Zahorik, and Keiningham 1995), customer asset Relationship Perceptual
maintenance
management (CAM; Berger et al. 2002), and customer
equity (CE; Blattberg, Getz, and Thomas 2001; Rust, Relationshir Objective
termination
Lemon, and Zeithaml 2001). All four approaches are H2 H3
customer-centric, and customer knowledge (e.g., customer
databases, surveys) is critical to their implementation. How- Moderators
ever, whereas the service profit chain and return on quality
CRM-compatible Control
approaches address service quality issues, the CAM and CE
organizational
approaches, as well as our measure of CRM processes, alignment
Industry
focus more on companies identifying profitable customers
and treating them adequately. The CAM and CE approaches CRM technology
deal more with the application of traditional marketing
techniques to manage customer assets in terms of homoge-
ine two Bharadwaj,

struct on perceived performance (e.g., moderators that have been identified as having
Varadara-
jan, and Fahy 1993; Kohli and Jaworski
strong theoretical 1990), we also
and/or managerial relevance and impact:
CRM-compatible
assess the association with a measure organizational
of objective economicalignment and CRM
performance (Varadarajan and Jayachandran
technology. 1999).
Second, regarding the contingencies of the CRM
CRM-Compatible Organizational Alignment
process-economic performance link, we examine several
Day are
important moderating variables that (1992) argues that the various corporate
of interest to man- functional
units
agers and that may either enhance orhaveweaken
become more marketing
the focal oriented because
linkmar-
(Bharadwaj, Varadarajan, and keting
Fahy 1993;
is becoming Holmstrom
more important. Likewise, the view that
1979). Supply-side characteristics
the marketing include a and
function is distinct CRM-nonoverlapping with
other corporate
compatible organizational alignment (i.e., functions
training has become mostly obsolete
proce-
(Webster 1992). Therefore, asstructure)
dures, employee incentives, and organizational firms become able to align
their organizationsin
and CRM technology (e.g., investments and structures
CRMmore effectively with
technol-
their market goals, it is expected
ogy, one-to-one communication capabilities). Finally, that theythe
would be more
successful
specification of our model controls forin thethat market because they
types of can adapt more read-
indus-
tries investigated. ily to the needs of customers. To address these needs, there
HYPOTHESIS DEVELOPMENT
is an imperative to bring customer knowledge and orienta-
tion deeper into the organization (Day and Montgomery
Effects on Economic Performance 1999; Kohli and Jaworski 1990).
As we mentioned previously, our CRM process construct A critical determinant of an organization's ability to
captures the degree of formalization of how to manage influence
cus- CRM-compatible activities and processes is the
tomer relationship initiation, maintenance, and termination. of appropriate compensation schemes and
development
If companies are able to understand more effectively organizational
the structures. For example, agency theory
value of the customer to the firm, they will perform argues that the design of incentive-compatible contracts
better
on these three primary dimensions. Companies willwith thenemployees
be that realign company goals and the employ-
better able to manage individual customer relationshipsees' utility
andis necessary to maximize company profit (Holm-
to determine more effectively the contribution of thesestrom 1979).
rela- Consistent with this argument, contingency
tionships to the profitability of the unit and/or the firm. hypothesizes that company profit will be maximized
theory
A high degree of CRM process implementation if appropriate
means organizational structures are depicted (Black
and Boal to
that firms are able to adjust their interactions according 1994; Miller 1996). The more that these aspects
the life-cycle stages of their customers and that theysupport
mayspecific
be CRM-compatible behavior, the stronger the
CRM process-economic
able to influence the stages actively (e.g., by maturing or performance link should be. In
others
extending relationships; Zeithaml, Rust, and Lemon 2001). words, if companies stress to employees that CRM
activities
The goal of these activities is to align the resources spent on are important, structure their organizations to
facilitate
customers with the revenues or profits derived from the these activities, and reward employees for engag-
same customers (Mulhem 1999). Firms will spend aing in CRM-related activities, the companies are more likely
dispro-
to stress these activities in their interactions with customers.
portionate amount of resources on highly profitable cus-
tomers or ones that are worth the resource allocation
H2: The greater the level of CRM-compatible organizational
because they are "high potentials." Furthermore, firms will alignment, the stronger is the positive link between eco-
economize on unprofitable or marginally profitable cus- nomic performance and relationship (a) initiation, (b) main-
tomers, who then either may leave the relationship or may tenance, and (c) termination.
build up their relationship with the focal firm. Therefore,
we expect a significant and positive association between CRM
the Technology
degree of a business unit's customer management practices
with regard to relationship initiation, maintenance, and ter-Another critical moderator of the CRM process-
mination and the business unit's economic performance. economic performance link may be the degree to which a
firm uses supporting information technology. In this con-
H1: Higher economic performance is associated with greater
text, CRM technology is the information technology that is
implementation of CRM processes at the stage of relation-
deployed for the specific purpose of better initiating, main-
ship (a) initiation, (b) maintenance, and (c) termination.
taining, and/or terminating customer relationships. The
It should be noted that though all three subsections ofpotential
the for information technology to constitute a sustain-
able competitive advantage has been amply discussed
hypothesis are in the same direction, the possibility exists
that the magnitude of the effect across the three stages (Bharadwaj, Varadarajan, and Fahy 1993). The key point is
that CRM technology plays a critical role in the context of
varies. Therefore, there is a question of whether the effec-
leveraging CRM-related activities and thus contributes to
tiveness of the different stages can differentially contribute
to economic performance. Unfortunately, prior research improved organizational performance in the market; indeed,
does not provide guidance to enable the development CRM
of technology is often (incorrectly) equated with CRM.
specific hypotheses. However, we perform an exploratory Therefore, we would expect that, ceteris paribus, CRM
analysis to address this important issue. technology functions as a facilitator of CRM activities and
contribute to better performance in the market.
As we mentioned previously, there are several factors that
may moderate the relationship between the implementation Nevertheless, this strong conceptual support should be
of the CRM process and economic performance. We exam- tempered in light of evidence from practitioner and com-
mercial market research reportsresponsible for CRM operations.

that investments in Whenever
CRM- possible, we
related technology may be associated asked potential
with respondents
lowertoeconomic
provide their e-mail address
performance. Day (2000) echoes and this
to fill out an electronic
view version of the questionnaire. In
by suggesting
that though the cost aspects of CRM 72% of investment
the cases, we received aredigital responses rather than
evident,
the revenue enhancing aspects are traditional
much mail less
responses. To increase Fur-
obvious. the response rate, we
thermore, there is anecdotal evidence conducted follow-up
that telephone
a large calls three weeks after the
proportion
of CRM technology deployments domailing.
initial not This perform toeffective
resulted in an expec- response rate of
tations (Gartner Group 2003). 21.1%. We consider this rate satisfactory, given that average
If this is so, there are likely totop be management
multiple survey-response
reasons,rates such are in the range of
as lack of defining objectives or lack 15% to of 20% appropriate
(Menon et al. 1999).training
Altogether, we obtained
procedures, for this disappointing result
214 responses, of which (Reinartz
211 were usable. and
Chugh 2002). However, this does In notmore than 75% of cases,
necessarily senior executives
mean that such as
marketing
the technology is at fault per se. It is also important to point or sales executives filled out the questionnaires.
out that investments in technology The executives
represent were knowledgeable
a direct key informants about
short-
term financial investment that may information
have pertaining
a negative to CRM design; they
effect ondirect entities
the bottom line in the short run. that, inThe payoffs
most cases, forfor
are responsible these
CRM activities. The
investments are more likely to unitbe realized
of analysis was theover
strategicabusiness
longer unit (SBU).
period. To strengthen the insight and veracity of our analysis, we
Taken together, it is clear that there are conflicting argu- also collected objective performance measures for the exist-
ments about the direction of the effect of CRM technology ing set of firms. This is particularly important for empirical
on firm or economic performance. However, because there survey research in which a reliance on subjective perform-
seems to be more evidence on the positive side, we still ance measures may be a limitation (Jaworski and Kohli
hypothesize a positive moderating effect for CRM technol- 1996). Our goal was to assess the degree to which the sub-
ogy. Thus: jective and the objective performance measures converge in
order to lend greater credibility to our survey results (Han,
H3: The greater the level of CRM technology, the stronger is the
positive link between economic performance and relation-
Kim, and Srivastava 1998). Because our sample consists of
ship (a) initiation, (b) maintenance, and (c) termination. public and nonpublic firms from different industries, we
could not rely on absolute performance measures; rather,
Control Variable we needed measures of relative performance. As in previous
studies, we assessed performance in terms of profitability
To control for the possibility of variance across different (Han, Kim, and Srivastava 1998; McKee, Varadarajan, and
industries, we entered the type of industry as a control. This Pride 1989). We obtained the information on profitability
enables us to account for mean differences of economic per- from company reports for public companies and from sec-
formance across industries. ondary sources for nonpublic companies. We chose the
return on assets (ROA) performance measure, which is con-
METHODOLOGY
sistent with previous studies (Han, Kim, and Srivastava
To test our framework, we collected data from both 1998).pri-
In total, we were able to collect the objective per-
mary and secondary sources. First, a cross-sectional formance
surveymeasures for 98 companies (81 public, 17 non-
was conducted in the fall of 2001 in three countries: Aus- public). The ROA measure that entered our analysis was the
tria, Germany, and Switzerland. We limited our investiga- average ROA of the years 2001 and 2002. It is more appro-
tion to consumer markets because business-to-business rela- priate for us to use the average because it is more realistic to
tionships are characterized by small numbers of customersexpect a longer-term impact of the CRM process rather than
and a strong reliance on salespeople as major means of a short-term spike.
communication between firms and clients. In our initial A possible concern in single-informant studies is that an
empirical work on CRM, we wanted to target a more informant may not necessarily possess a totally accurate or
diverse environment of multiple customer contact points, unbiased view of the entire organization. Relatedly, the reli-
which is characteristic of consumer markets. Using litera- ability of the subjective performance indicators used in the
ture reviews and pretest interviews, we selected industries study could be questioned (i.e., they could be artificially
on the basis of characteristics such as a large customer related
base, to the other indicators measured). Therefore, to
intensive use of various channels, professionalism in CRM cross-validate the analysis and to counter a possible
activities, and market pressure to differentiate from compe-common-method bias, we collected a second set of primary
tition. On the basis of these characteristics, we identified thefrom a different set of respondents in the same firm
data
sample (hereafter, Sample 2). The objective was to assess
following industries as adequate targets: financial services,
hospitality, online retailing, and power utilities. the robustness of the Sample 1 findings with a separate
A pretest of the questionnaire was given to a small sam- sample of respondents (Deshpande, Farley, and Webster
ple of marketing managers and CRM experts. Another
1993). The sampling frame was the 211 companies that
pretest of the questionnaire was administered to assess the
responded in the first round of data collection. We collected
the second set of data as soon as possible after we con-
validity of the scales. We obtained the data from a large-
scale mail survey. The final questionnaire was sentcludedto a Sample 1 to minimize any temporal biases. In Sam-
sample of 1015 companies, which we derived from industryple 2, we obtained 95 valid responses (45% response rate)
associations' member lists. A personalized mailing was from
sent the same group of target respondents (senior execu-
tives,
to the executives identified in premailing telephone calls as sales managers, marketing managers). Because a sub-
stantial percentage of participants in our study

Indicator were Because
collinearity. smallformative measurement
and medium-sized enterprises, it was extremely
models are based difficult to
on linear equation systems, substantial
identify a second knowledgeable informant inamong
collinearity such compa-
indicators would affect the stability of
nies. Many respondents from Sample 1 werecoefficients.
indicator also reluctant
In our example, none of the 42 indi-
to name second informants because they did
cators notserious
revealed appreciate
multicollinearity problems.
the cross-validation procedure. To assessExternal
potential
validity. differ-
The very nature of formative measure-
ences in sample respondents, we compared
ment renders Sample
traditional 1 and
assessments of convergent validity
Sample 2 respondents on several descriptive variables;
and individual how-irrelevant (Hulland 1999, p.
item reliability
ever, no differences between the groups201). However,
were this does not enable researchers to link sets
found.
of items to constructs arbitrarily. Aside from strong theoreti-
Item Measurement and Index Construction cal foundations, researchers must ensure that all indicators
that form a construct are included. To test for external valid-
As mentioned previously, the key goal of our study was
to develop a comprehensive operationalization of the three ity, we follow the suggestions of Diamantopoulos and Win-
primary dimensions of CRM process implementation (i.e., klhofer (2001) to estimate a multiple indicators and multiple
relationship initiation, maintenance, and termination). To causes model with our aggregate indexes INITIATE, MAIN-
achieve this goal, scales and measurement items for the TAIN, and TERMINATE, as well as their respective subdi-
mensions and formative indicators. We used four variables
study were developed as follows: All our constructs reflect
a composite of individual indicators across different, unique that capture the commitment of top management to imple-
sources and are therefore operationalized effectively in a ment CRM as reflective indicators of the implementation of
formative rather than reflective way (Bagozzi 1994). There- CRM processes.1 The loadings of all four items were highly
fore, we followed the guidelines for constructing indexes significant, with loadings of .861, .839, .729, and .802.
based on formative indicators, as proposed by Diaman- As we described previously, the CRM process is concep-
tualized as a second-order factor measurement model that
topoulos and Winklhofer (2001). They identify four issues
that are critical to successful construction of indexes with can be approximated with various procedures. One of the
formative indicators: (1) content specification, (2) indicator easiest procedures to implement is the hierarchical compo-
specification, (3) indicator collinearity, and (4) external nent model suggested by Wold (1980). In essence, a second-
validity. Our focal independent variables are the three pri- order factor is directly measured by observed variables for
mary dimensions of the CRM process. To exemplify how all the first-order factors. Partial least squares (PLS) is
we proceeded to construct valid indexes with formative appropriate for estimating our measurement model because
indicators, we refer to these key constructs. it provides a means for directly estimating component scores
Content specification. We developed a new formative, (i.e., the three dimensions of relationship initiation, mainte-
nance, and termination). Because the latent variable scores
multi-item scale of CRM processes at the customer-facing
are determinate, PLS can be used to model formative indica-
level that captures the three lifetime stages of customer rela-
tors, as is the case here. The determinate nature of the PLS
tionships. More precisely, on the construct level, the domain
of CRM process implementation was defined as covering approach avoids parameter identification problems that can
the activities of acquisition management and regain man- occur under covariance-based analysis (Bollen 1989).
agement at the initiation stage; retention management, Nomological validity. Given that the formation of imple-
up-sell/cross-sell management, and referral management at
mentation of CRM processes as a new formative construct
the maintenance stage; and termination management at the is a key objective of our study, we included 11 additional
final stage of the customer relationship. On the construct items in our survey. The items were measured on seven-
level, we also captured activities of customer evaluation at point semantic scale formats ("With regard to your SBU, to
each of the three stages, which led to nine subdimensions of what extent do each of the following activities represent a
CRM process implementation. The subdimensions repre- strength or weakness for you?"), where 1 = "major weak-
sent latent constructs that reflect the presence or absence of ness," 4 = "neither strength nor weakness," and 7 = "major
CRM activities. We also established higher-level indexes strength." To check the nomological validity of our nine
that express the total degree of CRM activities at the three subdimensions and the three higher-level indexes, we esti-
mated the bivariate correlations between the subdimensions
stages of customer life cycles. Thus, in our content
specification, we sought to capture major facets of evalua- or indexes and the respective independent weakness/
strength indicators.
tion and management activities along customer-company
relationships. Our formative index for acquisition management activi-
Indicator specification. Critical for the design of valid ties shows correlations of .36 and .34 with the independent
indexes with formative indicators is the choice of items, strength/weakness items "acquiring high value customers"
because the indicators must capture the entire scope of the and "implementing systematic customer acquisition," and
latent construct as described previously. On the basis of an
extensive review of relevant articles in marketing journals,
1Two items were stated as "strongly disagree-strongly agree" seven-
the business press, and exploratory interviews with man- point Likert scale formats ("CRM is a central aspect of our business strat-
agers who are responsible for CRM systems, we identified egy" and "CRM has become a top management issue in our SBU"),
42 items that were evaluated by participants of pretest inter- whereas the other two items were measured on seven-point semantic scale
formats ("With regard to your SBU, to what extent do each of the follow-
views as capturing all major subprocesses in the implemen-
ing activities represent a strength or weakness for you?" "The institutional-
tation of CRM at the customer-facing level. These indica- ization of a CRM philosophy" and "Getting top management commitment
tors are listed in the Appendix. All items were measured on to CRM"), where 1 = "major weakness," 4 = "neither strength nor weak-
a seven-point Likert scale. ness," and 7 = "major strength."
our regain management index wherereveals a correlation of .35

with the statement "regaining high value customers" as a
.Economic performance
strength of the SBU. The measurement (perceptual) = form
at the maintaining
measure (adapted from
stage index is significantly correlated with the item the"under-
work of Desph
Webster [1993] and Kohli and Jaworski [1
standing and determining the value of a customer" (p =
indicators,
.55). Similar strong associations are observable between our
.Economic performance (objective) = net income in year x/total
retention management index, retaining high value cus-
assets in year x (ROA),
tomers (.38) and building long-term relationships with our
.Relationship initiation, relationship maintenance, relationship
valued customers (.32). Our management of up-selling/
termination, CRM-compatible organizational alignment, and
cross-selling index reveals even stronger correlations with
CRM technology = formative multi-item measures,
the items "implementing procedures for up-selling" (.50)
.Industry 2 = financial services,
and "implementing procedures .Industry
for 3 cross-selling"
= power utilities, and
(.51). Cor-
relations of .36 ("management of word-of-mouth")
.Industry 4 = hospitality.
and .47
("managing customer referrals") emphasize that the cus-
tomer referral management indexAll multi-itemmeasures
measures are given inthe degree
the Appendix. Table 1 of
activities related to customer referrals. Because the
lists the summary statistics for the measurement scales.
weakness/strength statement "discontinuing relationships On the basis of our previous discussion, we estimate
with low-value customers" is also significantly correlated to
three different models:
activities to demarket customers index (.44), we conclude
that all our indexes represent valid measures of the respec- Model 1: Economic performance (perceptual)sampie
tive constructs. f(covariates)sampie
For the regression analysis, we constructed the relation-Model 2: Economic performance (objective)
ship initiation, maintenance, and termination indexes by = f(covariates) and Sample
weighted multiplication of the individual indicators with the
standardized PLS weights, similar to the American cus- Model 3: Economic performance (perceptual)sample 2
tomer satisfaction index (Fornell and Johnson 1996).2 = f(covariates)sampie i .
Given our data structure, this configuration maximizes the

Model Specification and Estimation
degrees of freedom for each estimation and simultaneously
The complete model specification is given in Equation 1.
addresses the issue of common-method bias. We mean-
Variables are grouped into main effects (Ps), interaction
centered the variables for the analysis.
effects (ys), and control variables (6s). The control variables
in our system of equations are dummy variables for industry RESULTS
effets
The results of the estimation are summarized in Table 2.
(1) Economic performance = The effective sample size for the estimation with perceptual
+ 13, relationship initiation
performance (Model 1) is 211 observations; for objective
+ 132 relationship maintenance
+ 33 relationship termination
performance (Model 2), the effective sample size is 98
+ 134 CRM-compatible organiza- observations. Both estimations fit the data well; the R2 is
tional alignment .24 for perceptual performance and .49 for objective per-
+ 35 CRM technology formance. Thus, our model helps highlight some factors
+ yl (CRM-compatible organiza- that are associated with more successful CRM process
tional alignment x relationship
implementations.
initiation)
+ y2 (CRM-compatible organiza- We report one-tailed significance levels. This is appropri-
tional alignment x relationship ate because we exclusively test directional hypotheses.
maintenance) Because the hypothesized effects are equal for both per-
+ y3 (CRM-compatible organiza- formance measures (perceptual and objective), we discuss
tional alignment x relationship the results together.
termination)
+ y4 (CRM technology x relation- Relationship Stages and Economic Performance
ship initiation)
+ y5 (CRM technology x relation- We hypothesized that the degree of CRM process imple-
ship maintenance) mentation is positively associated with economic perform-
-yo (CRM technology x relation- ance (H1) at the three stages of initiation, maintenance, and
ship termination)
termination. For our perceptual performance measure, sup-
+ 61 Industry 2
port is strongest for maintenance (132 = .71, p < .01). For ini-
+ 82 Industry 3
+ 83 Industry 4
tiation, support is marginal ((31 = .47, p < .05), and it is not
El. significant for termination. In the case of objective perform-
ance, all three coefficients are marginally significant (131 =
9.04, p < .1; (32 = 8.16, p < .05; 133 = 6.97, p < .05). Thus, it
seems that the more firms engage in implementing CRM
2Details of the measurement model, particularly a description of the data
structure, correlations, and PLS coefficients, are processes, especially
available from the at the initiation
authors and maintenance
on request. stage, the better they perform.
8.4 6.9
10.5
26.0 20. 28.0
.74 .39 .3 .1 .92
1.
Maximu
.29
StandrEo
10
Model3
1.6 1.0
8.0 3.2 4.0 4.0
Minmu
.93* .60* N.S N.S N.S N.S
N.S N.S N.S N.S N.S
Perfomanc(ptul):
1.79
-.17* 3.2*
Estimae 17.3*
Sample2
1.6 1.6 1.6 3.9

4.0 6.2
Standr
Deviaton
1.7
5.9 4.80 3.4
20.7
StandrEo
.49
98
Model2
4.9 6.7 3.6
19.0 12.6 15.6
Mean
Perfomanc(Objtiv):
N.S N.S N.S N.S N.S N.S N.S N.S N.S N.S
9.04* 8.16*' 6.97*' 2.45*'
3.92*
Estimae.
.269
9. 9.3
1.2
27.0 21.0 28.0
Maximu
.5 .26 .23 .07 .08 .05 .06 .04 .80
StandrEo .24
1.5 1.3
6.0 -.19 2.4 4.0 4.0
21
Minmu Model1
Sample1
.47* .71* .17* .18* .09*
N.S N.S N.S N.S N.S N.S

1.53*
Perfomanc(ptul): -.16* -.1*
18.4*
Estimae
.06
1.8 1.8
4. 2.0 4.1 5.3
Standr
Table1 Table2
Deviaton
13 02 13 134 135 71 Y2 73 74 Y5 16 81 82 83
Coeficnt
RESULTOFMD1-3
.0'
5.1 7.1 4.1

Mean
18.4 13.7 16.4
64 78 28 41
SUMARYTICFOHENL
Frequncy
1 1 1 1 1
4 4 4 4
15
20
Number ofItems
Intercp
Descripton
CRMtechnolgy
Relationshp
Industry4(hopial)
Relationshprm
Relationshpmc
Industry3(poweil)
Industry2(fiaclev)
CRMtechnolgyxraisp
CRM-compatiblergnz
CRMtechnolgyxraispm
CRMtechnolgyxraispm
CRMorganiztlmexshp
CRMorganiztlmexshp
CRMorganiztlmexshpc
*p.-1 *p.05 *p.01 aDepndtvriblhsc(x103). Notes:Wrpn-aildgfcv.S=
Varible Industry3(poweil) Industry4(hopial) DepndtVaribl MainEfects Interacios ContrlVaibes N R2

Perfomanc(ptul) Perfomanc(bjtiv) Relationshp Relationshpmc Relationshprm CRM-compatiblergnz CRMtechnolgy Industry1(oliea) Industry2(fiaclev)
Moderating Effects of CRM-Compatible data with Sample 2Organizational

data. Specifically, we estimated the
Alignment association of our Sample 1 covariates with the Sample 2
perceptual performance measure (Model 3). The results of
We hypothesized that a CRM-compatible organizational
this cross-validation are shown in Table 2.
alignment has a positive, moderating effect on the CRM
processes-economic performance link at each stage of Similar to Model 1, the estimated specification fits the
CRM (H2). For the perceptual performance measure, H2 data reasonably well, with an R2 of .29. The key finding is
that all three effects for H1 were replicated. In other words,
was marginally supported for the initiation stage (yi = .17 ,
the relationship to economic performance is positive at both
p < .05) and fully supported for the termination stage (73 =
.18, p < .01). H2 was not supported at the maintenance the initiation stage ((31 = .93, p < .01) and the maintenance
stage ((32 = .60, p < .05). As in Model 1, the effect at the ter-
stage, but the association at least was in the hypothesized
direction (positive). For objective performance, the moder- mination stage was negative but not significant. For H2, the
signs of all three coefficients are consistent with our find-
ating effect was marginally significant for initiation (yi =
2.45, p < .05), but not for the other two stages. ings for Model 1. However, they are not significant even at
the initiation and termination stage. For H3, we found all
Moderating Effects of CRM Technology three coefficients to be consistent with our results for Model
We hypothesized that CRM technology has a positive, 1. Again, the coefficients are not significant even at the ini-
moderating effect on the CRM processes-economic per- tiation and termination stages. However, we have a margin-
formance link at each stage of the relationship (H3). For ally significant, negative main effect for CRM technology
perceptual performance, H3 was supported only in the case 035 -.17, p < .1). That the effect size for H2 and H3 is sim-
ilar to that of Model 1 could be an indication that the non-
of termination (76 = .09, p < .05). Notably, for the initiation
significant findings of Model 3 are a function of the smaller
stage, the moderating effect was negative (74 = -.11, p <
.05). At the maintenance stage, the moderating effect was in sample size. This occurred because of a difficulty in acquir-
the expected positive direction, but it was not significant. In
ing second informants in many of the companies.
terms of objective measures, all three interaction effects
DISCUSSION
were not significant. The findings are somewhat contrary to
our expectations. Thus, the sophistication of the CRM tech- The goal of the current study was threefold: (1) to c
nology used is not necessarily linked to a company's ability ceptualize and operationalize the process of CRM im
to improve economic performance through CRM processes. mentation, (2) to determine whether the implementatio
CRM processes is positively linked to performance, and
Industry
to identify some key moderators of the relationship betwe
Our control variables capture effects due to industry CRM processes and performance. The results of this em
membership. The hospitality industry had marginally higher ical effort from two studies produced several not
average performance compared with the base case, both for findings.
perceptual performance (63 = 1.53, p < .05) and for objec- First, the data provide support for our conceptualization
tive performance (63 = 33.92, p < .1). The remaining indus- for the CRM construct. We grouped the key activities of a
try dummies were not significant for either perceptual or formalized CRM process in terms of three primary dimen-
objective performance. Thus, our findings appear to be rela- sions: relationship initiation, maintenance, and termination.
tively consistent across industries.3 We then developed items to assess the extent to which the
dimensions are implemented. This is an important contribu-
Common-Method Bias
tion for several key reasons. On the one hand, this repre-
When dependent and independent variable data are col- sents a first step toward development of what constitutes a
lected from a single informant, common-method bias canstandard for defining the nature of CRM processes. As we
be a problem. Based on the work of Podsakoff and Organ mentioned previously, there have been different ways of
(1986), we used Harman's one-factor test to examine the conceptualizing CRM processes in the academic literature
extent of this bias. The results of the principal componentsand in practice. A good metric for this construct is needed
factor analysis revealed that there are ten factors with eigen-to establish a common ground so that the results of CRM
values greater than 1.0, which accounts for 76% of the total processes can be compared across companies and research
variance. Common-method variance does not appear to be studies.a This index can also be employed as a guide for fur-
problem because several factors were identified, the firstther research. On the other hand, our conceptualization
factor did not account for the majority of the variance (only highlights the importance of separating the three dimen-
24%), and there is no general factor in the unrotated struc-sions of CRM processes, because performance may vary at
ture (Podsakoff and Organ 1986). each stage. Mere examination of CRM processes at a gen-
To address any other concerns about common-method eral level does not capture the detailed nature of relation-
variance, we cross-validated the estimation of Sample 1ship management. A key goal of further research could be
to examine factors that influence performance at each stage
in more detail.
3We also tested for differences in the effects of interest (initiation, main-
tenance, and termination) for the various industries for Model 1. None of Second, our findings indicate that the implementation of
the interactions was significant. We also explored the possibility of mean CRM processes is associated with better company perform-
differences between the different countries. Taking Switzerland as a base
ance in two of the three stages. The strongest effect is for
case, we found a significant, positive effect for the cross-validation (Model
3) for Austria and Germany. For the other two equations (Models 1 and 2), relationship maintenance, followed by relationship initia-
the country effects were not significant. When we included the country tion. The effects for relationship termination were either
effects, none of the other parameter signs or significances changed. low or not significant (even in the negative direction for
perceptual performance). Thus,outline

CRM of theappears
different CRM activities
to producethat occur at each of
the expect
some of the payoff that companies three main when
stages. Thus,
theya company
investcould use our
in CRM activities. However, someapproach
types to identify key activities may
of activities that must be imple-
increase performance and others may mentednot.to be successful,
In the andcase
an evaluation
of ter-of the activities
mination, a possible explanation forcan provide
the a means for comparing
negative their level is
results of implemen-
that companies are subject to Type tationII
witherrors. That
that of competitors andis,
otherit is
industries.
possible that companies are reluctant Second,
to our results indicaterelation-
terminate that the CRM process-
ships with customers who are not performance
profitable. link is not
Itasisstrong
alsoas we expected. This sug-
possi-
ble that companies are not as effective
gests that there is in implementing
considerable room for improvement in the
CRM processes at this stage. implementation of CRM processes. In particular, our find-
ings stronglyby
Additional notable results are provided suggest
thethat moderator
mere implementation of CRM
technology interaction
variables. First, there was a significant will not lead to the desired
betweeneffect; it may even
a CRM-compatible organizational have a negative effect.
alignment Therefore,
and both managers
rela- need to evaluate
tionship termination and initiation.the contributions of technology differently of
Thus, implementation at the three
CRM processes is more likely to improve
stages of CRM processes. performance
when the company develops an incentive Third, managersandalso need to pay greater attention to
organizational
scheme to support CRM-compatible otherbehavior.
aspects of CRM process
It might implementation.
be Our data
show that the
argued that CRM processes are already morealignment of organizational at
developed aspects is a criti-
the maintenance stage, which leaves cal element
the in greatest
the CRM implementation
roomeffort. forFor exam-
improvement at the initiation and ple, termination
a customer focus needs stages.
to be broughtThis
deeper into the
functional
rationale is supported by data in Table 1,areas
which of the indicate
company; it cannot
thatbe isolated
companies most often implementamong marketing managers.
maintenance The installation of technology
processes.
or CRM
If a proper organizational structure software
and is not enough toare
incentives ensure that a program
not
in place, it may be difficult for will
CRM be profitable.
processesEmployeesto mustproduce
be rewarded for engag-
ing in
the desired effects. Thus, it is not CRM activities
enough and customer-oriented
for a company behaviors.
simply to implement CRM processes. Fourth,
It itmust
is often argued that CRM works
organize itselfbetter in some
and install a reward structure to industries
support than in others. However,
these in our data, we do not
processes.
This also suggests that organization find support for this contention,
variables need at to least for the a
play four indus-
key role in further research efforts tries under
that investigation.
attempt Therefore, our findings suggest
to under-
stand the performance impact of that CRM. many of the key issues and problems are relevant
Another notable finding is that ouracross various
dataindustries.
are partially con-
sistent with existing evidence that a large proportion of CRM
technology deployments do not performLimitations and toFurther Research
expectations. We
found one moderately positive effect and one moderately
Although our study produced interesting and meaningful
negative effect, and all other moderating
findings, there are CRM technology
some limitations that need to be dis-
effects were not significant. This is First,
cussed. an important finding
a key objective of our study was to conceptu-
because it attests to the difficulty of
alize making CRM
and operationalize technology
a measure of the three stages of
investments pay off. However, it could also be argued
CRM processes. In particular, we conducted that an extensive
technological investments offer positive returns
search through only
the business after
press ini- literature
and academic
tial implementation difficulties are overcome.
and supplemented Because
this with interviewsCRM
of CRM experts to
information technology investments identifyare relatively
relevant CRM processes. recent,
Thus, we attempted to
there could be a potentially reversed effect
capture as manyin the relevant
current, future.CRM activities as possi-
Nevertheless, our results emphasize the key point that
ble. However, because new CRM processes evolve over
successful implementation of atime, CRMit couldprogram
be argued that ourrequires
sets of processes at each
more than just technology, and ifstagefirms
will needfocus on only
to be "enriched" this
or updated as new activities
aspect, their efforts are likely to be disappointing,
become common practice. at least in
the short run. In particular, the successful implementation
Second, it should be noted that we are studying a
of CRM requires a strong people-related component. This perspective.
dynamic phenomenon from a cross-sectional
may partially explain the negativeBecause relationship
capturing this process overfor time CRM
is often difficult,
technology at the initiation stage.
we Perhaps
took a "snapshot"in of establishing
the situation at a singleapoint in
relationship with a company, potential customers
time. Nevertheless, would
it is possible that some of the effects are
rather have contact with people than with technology-driven
more longitudinal in nature. For example, it is possible that
systems. However, at the termination stage,
the negative effectsit of may
technologybechange
costover time as
efficient to manage low-value relationships with technolog-
employees and customers become more accustomed to the
ical support systems. Because our systems.
findings It mightsuggest
be that in the that the
long run, a more positive
effectiveness of CRM technology varies
relationship across
between the three
the two variables could be expected.
stages, further work in this area Therefore,
needs ato explore
future processes
longitudinal study might also provide
at each of these stages in more detail.
worthwhile insights.
Third, it would be worthwhile to investigate how various
Managerial Implications industry- and firm-specific characteristics drive the degree
to which the
The results of our study have several three CRM dimensions
important are developed across
implica-
firms. Finally, we examine
tions for managers. First, our research provides a systematicCRM processes at the customer-
facing level only. It would be interesting .We continuously track customer

to information
determine in order to assess
how
our findings compare with observations customer value. (3.808)
from the company-
wide or functional levels. The critical issues are different at .We actively attempt to determine the costs of retaining cus-
tomers. (1.826)
these other levels. For a complete picture of CRM, all three
levels must be examined. .We track the status of the relationship during the entire cus-
tomer life cycle (relationship maturity). (1.760)
APPENDIX: DESCRIPTION OF MEASURES
Activities to Retain Customers (RETAIN)
The scales for CRM initiation, maintenance, and termina-
With regard to your SBU, to what extent do you agree to
tion are new and were considered formative constructs,
the following statements?
rated on a seven-point Likert scale, anchored by 1
.We maintain an interactive two-way communication with our
"strongly disagree" and 7 = "strongly agree." The variance
customers. (1.453)
inflation factors of each item with regard to the other items
.We actively stress customer loyalty or retention programs.
of the respective construct are in parentheses. (1.379)
.We integrate customer information across customer contact
CRM Initiation (INITIATE)
points (e.g., mail, telephone, Web, fax, face-to-face). (1.581)
Measurement at Initiating Stage (IMEASURE) .We are structured to optimally respond to groups of customers
with
With regard to your SBU, to what extent do you agree todifferent values. (1.660)
the following statements? .We systematically attempt to customize products/services
based on the value of the customer. (1.870)
.We have a formal system for identifying potential customers.
.We systematically attempt to manage the expectations of high
(4.253) value customers. (1.580)
.We have a formal system for identifying which of the potential
.We attempt to build long-term relationships with our high-
customers are more valuable. (4.663) value customers. (1.282)
.We use data from external sources for identifying potential
high value customers. (1.590) Activities to Manage Up-Selling and Cross-Selling
(CROSS_UP)
.We have a formal system in place that facilitates the continu-
ous evaluation of prospects. (2.615) With regard to your SBU, to what extent do you agree to
.We have a system in place to determine the cost of the following statements?
reestablishing a relationship with a lost customer. (1.993)
.We have a systematic process for assessing the value of past .We have formalized procedures for cross-selling to valuable
customers with whom we no longer have a relationship. (2.021) customers. (2.488)
.We have a system for determining the costs of reestablishing a .We have formalized procedures for up-selling to valuable cus-
relationship with inactive customers. (1.953) tomers. (2.902)
.We try to systematically extend our "share of customer" with
Activities to Acquire Customers (ACQUISIT) high-value customers. (1.978)
With regard to your SBU, to what extent do you agree to .We have systematic approaches to mature relationships with
the following statements? high-value customers in order to be able to cross-sell or up-sell
earlier. (2.289)
.We made attempts to attract prospects in order to coordinate .We provide individualized incentives for valuable customers if
messages across media channels. (1.397) they intensify their business with us. (1.415)
.We have a formal system in place that differentiates targeting
of our communications based on the prospect's value. (1.733) Activities to Manage Customer Referrals (REFERRAL)
.We systematically present different offers to prospects based With regard to your SBU, to what extent do you agree to
on the prospects' economic value. (1.710) the following statements?
.We differentiate our acquisition investments based on cus-
tomer value. (1.580) .We systematically track referrals. (1.992)
.We try to actively manage the customer referral process.
Activities to Regain Customers (REGAIN) (2.487)
With regard to your SBU, to what extent do you agree to .We provide current customers with incentives for acquiring
the following statements? new potential customers. (2.440)
.We offer different incentives for referral generation based on
.We have a systematic process/approach to reestablish relation- the value of acquired customers. (2.103)
ships with valuable customers who have been lost to competi-
tors. (1.786) CRM Termination (TERMINATE)
.We have a system in place to be able to interact with lost cus-
tomers. (1.881) Measurement at Termination Stage (TMEASURE)
.We have a systematic process for reestablishing a relationship With regard to your SBU, to what extent do you agree to
with valued inactive customers. (1.663) the following statement?
.We develop a system for interacting with inactive customers.
(1.796) .We have a formal system for identifying nonprofitable or
lower-value customers.
CRM Maintenance (MAINTAIN)

Activities to Demarket Customers Actively (EXIT)
Measurement at Maintaining Stage (MMEASURE) With regard to your SBU, to what extent do you agree to
With regard to your SBU, to what extent do you agree to the following statements?
the following statements?
.We have a formal policy or procedure for actively discontinu-
.We have a formal system for determining which of our current ing relationships with low-value or problem customers (e.g.,
customers are of the highest value. (3.144) canceling customer accounts). (1.237)
.We try to passively discontinue relationships with low-value

Conceptual Model and or
Research," Journal of Marketing,
(October),
problem customers (e.g., raising basic service fees).83-99.
(1.675)
Black, for
.We offer disincentives to low-value customers Janice and Kimberly Boal (1994), "Strategic Resourc
terminating
their relationships (e.g., offering poorer service). (1.505)
Traits, Configurations, and Paths to Sustainable Competiti
Advantage," Strategic Management Journal, 15 (Summe
We computed the following indexes on131-48. the basis of the
construct formation: INITIATE = .389 x IMEASURE + Blattberg, Robert C., Gary Getz, and Jacquelyn S. Thomas (2001),
.379 x ACQUISIT + .375 x REGAIN; MAINTAIN = .283 xCustomer Equity: Building and Managing Relationships as
MMEASURE + .340 x RETAIN + .388 x CROSS UP + Valuable Assets. Boston: Harvard Business School Press.
.267 x REFERRAL; and TERMINATE = .367 x Bollen, Kenneth (1989), Structural Equations with Latent Vari-
TMEASURE + .759 x EXIT. ables. New York: John Wiley & Sons.
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The Customer Relationship Management Process: Its Measurement and Impact on

American Marketing Association is collaborating with JSTOR to digitize, preserve and

An understanding of how to manage relationships with customers

The Customer Relationship Management

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A NEW EDITION OF THE CLASSIC WORK JAI/ARABLE FOR IMMEDIATE ADOPTION

A NEW IDEA, COMMUNICATED

"A classic work....Full of interesting insights, solid

"Incorporates important advances... resented

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