Industrial Management & Data Systems

Emerald Article: Gaining customer knowledge through analytical CRM Mark Xu, John Walton

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To cite this document: Mark Xu, John Walton, (2005),"Gaining customer knowledge through analytical CRM", Industrial Management & Data Systems, Vol. 105 Iss: 7 pp. 955 - 971 Permanent link to this document: http://dx.doi.org/10.1108/02635570510616139 Downloaded on: 24-03-2012 References: This document contains references to 48 other documents Citations: This document has been cited by 5 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 11241 times.

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Gaining customer knowledge through analytical CRM

Mark Xu and John Walton
Department of Strategy & Business Systems, Portsmouth Business School, University of Portsmouth, Portsmouth, UK
Abstract
Purpose This paper aims to examine how customer relationship management (CRM) systems are implemented in practice with a focus on the strategic application, i.e. how analytical CRM systems are used to support customer knowledge acquisition and how such a system can be developed. Design/methodology/approach The current practice of CRM application is based on examining data reported from a four-year survey of CRM applications in the UK and an evaluation of CRM analytical functions provided by 20 leading software vendors. A conceptual model of an analytical CRM system for customer knowledge acquisition is developed based on the ndings and literature review. Findings Current CRM systems are dominated by operational applications such as call centres. The application of analytical CRM has been low, and the provision of these systems is limited to a few leading software vendors. Practical implications The ndings shed light on the potential area in which organisations can strategically use CRM systems. It also provides guidance for the IT industry as to how an analytical CRM system should be developed to support customer knowledge acquisition. Originality/value The latest ndings on CRM systems application are reported, and an innovative analytical CRM system is proposed for customer knowledge acquisition. Keywords Customer relations, Information systems, Knowledge management, Customer information, Customer retention, United Kingdom Paper type Research paper

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Introduction Customer relationship management (CRM) has been widely regarded as a company activity related to developing and retaining customers through increased satisfaction and loyalty. IT-based CRM systems have been applied in many industry sectors, and research on advancing these systems is continuing (Kotorov, 2002; Rowley, 2002; Xu et al., 2002; Bose, 2002; Choy et al., 2003; Ferguson et al., 2004; Sweet, 2004). One approach to address future CRM systems development is to link knowledge management (KM) and CRM in order to maximize not only operational, but strategic efciency of CRM through gaining and sharing knowledge about customers (Campbell, 2003; Rowley, 2004; Minna and Aino, 2005). Rowley (2004) argues that there is a need to develop an understanding of the interaction and interface between KM and relationship marketing (RM), and to operationalise this in the parallel contexts of systems, people and processes. The key KM process includes knowledge creation, sharing, dissemination and exploitation, and the RM process includes communication, creation of loyalty and stable customer base, customer service, trust cultivation and relationship maintenance. Rowley (2004) suggests that from a practical perspective, customer data or information can be used as a platform for both relationships and knowledge. Tzokas and Saren (2002) recognised some convergence of knowledge and

Industrial Management & Data Systems Vol. 105 No. 7, 2005 pp. 955-971 q Emerald Group Publishing Limited 0263-5577 DOI 10.1108/02635570510616139

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relationship marketing and competitive advantages, and developed a conceptualisation of the dynamics of the two signicant management paradigms. Minna and Aino (2005) conclude that there is an evident need in the marketing discipline to further elaborate on the concepts of customer knowledge and customer knowledge management. Knowledge is the only meaningful economic resource (Drucker, 1996), and gaining this knowledge is becoming an important differentiator for competitive advantage (Paiva et al., 2002; Tzokas and Saren, 2002). In the context of studying manufacturing companies, Paiva et al. (2002) found that customers information is the type of information that is most frequently updated, and the company focuses on specic customer information instead of general market information. Bose (2002) argues that to gain competitive advantage, there needs to be a shift from mass marketing and traditional customer segmentation towards customer-centric orientation and one-to-one marketing, which is centred on treating every customer individually and uniquely, according to the customers preference. Ahn et al. (2003) acknowledges that managing relationships with customers is a key point to solidify competitive power of a company. However, effective use of customer information and knowledge, particularly in the context of marketing decisions, is still inchoate in many organisations (Bose and Sugumaran, 2003). The customer is a strategic element in a companys downstream supply chain. It relates to the immediate business environment that a company needs to scan for strategic information (Xu et al., 2003). The customer, according to Daft et al.s (1988) environment sector classication, is in the layer closest to the organisations task environment that has direct transaction with an organisation. Changes in the type of customers, behaviour and patterns of customers are likely to have immediate effect on the operations of a company and also have implications for decision making relating to strategy setting in the future. It is recognised that not every customer is equally important to an organisation in terms of his/her lifetime value, thus, customers need to be segmented in order to identify strategically important customers. Important factors for improving customer service are to identify the reasons why customers defect and also ways of preventing customer defections. This requires information about customers preferences and behaviour patterns. However, very few studies have been established to address customer knowledge acquisition in the context of CRM implementation. Although a range of CRM technologies, particularly CRM software, are witnessed being developed and implemented in practice (Luck and Lancaster, 2003; Feinberg et al., 2002; Ferguson et al., 2004), there is little research addressing to what extent CRM has been implemented to provide strategic customer information i.e. to gain customer knowledge. Research on how to incorporate analytical functions into operational CRM has been limited (Xu et al., 2002; Bose, 2002), and the conceptualisation of such systems tends to be general and vague. As suggested by Ahn et al. (2003) the main concern in CRM systems is to understand and make practical use of customer information, and argue that with an enormous amount of data stored in databases and data warehouses, it is increasingly important to develop powerful tools for the analysis of such data and mining interesting knowledge from it. This study aims to examine the implementation of CRM systems in practice with a focus on its strategic application, i.e. to gain customer knowledge, and to explore the

ways of embracing CRM technology for strategic customer information provision. The signicance of this investigation is to explore the potential of CRM systems and the ways that organisations can better use the system to unlock the wealth of customer information and deliver it, enterprise wide, to both internal and external users. Literature review CRM is a process designed to collect data related to customers, to grasp features of customers, and to apply those qualities in specic marketing activities (Swift, 2001). Choy et al. (2003) suggests that CRM is an information industry term for methodologies, software, and usually internet capabilities that help an enterprise manage customer relationships in an organised way. It focuses on leveraging and exploiting interactions with the customer to maximise customer satisfaction, ensure return business, and ultimately enhance customer protability. In practice, however, managers often perceive CRM from different perspectives, for example, CRM is a part of marketing efforts, customer service, particular software and technology, or even process and strategy. Luck and Lancaster (2003) suggest that the term CRM has become a buzzword, with the concept being used to reect a number of different perspectives. In this paper, the term CRM system is used to reect computer-based systems that support CRM. Customer knowledge Rowley (2002) denes customer knowledge as: . knowledge about customers, which includes knowledge about potential customers, customer segments and individual customers; and . knowledge possessed by customers. Minna and Aino (2005) differentiate customer knowledge from customer data and customer information, and suggest that customer knowledge can be explicit, the structured customer information in databases, or in tacit customer knowledge knowledge in mind of employees and customers. In this paper, the term customer knowledge means knowledge about customers. There is no doubt about the importance of gaining customer knowledge. For instance, Zineldin (2000) suggests that IT tools should be used not only to provide relationship building credibility and opportunities but also to enable marketers to keep their ngers on the customers pulse and respond to changing needs. This is emphasised by Roscoe (2003), who argues that marketers must embrace customer knowledge management (CKM) to really get under the skin of consumers and deliver a protable relationship. CKM needs to provide customer insight, proles, habits, contact preferences and understanding to improve an organisations contact with the customer. It can be argued that knowledge gained on customers will enable organisations to make intelligent decisions as to which customer to acquire and develop, what channels to use when contacting the customer, what products/services to sell, acquire and develop, and how to get the business to deliver excellence using the CRM strategy. The strategic importance of gaining customer knowledge has been perceived by many managers, as stated by Shaw and Ivens (2002) that 71 per cent of senior business leaders say that customer experience is the new competitive battleground and is a source of sustainable differentiation.

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Review of developing analytical CRM systems Enhancing the analytical power of CRM systems has been recognised by researchers. For example, Rowley (2004) suggests that CRM systems include online order, e-mail and knowledge bases that can be used to generate customer proles, and to personalise service. Xu et al. (2002) state that CRM technologies allow the organisation to gain an insight into the behaviour of individual customers and, in turn to target and customise marketing communication and messages. In addition, these tools generate data that support the calculation of customer lifetime value for individual customers. The studies, however, do not specify the key components of the system, nor how such a system can be developed. Bose (2002) outlines a CRM development plan based on the typical system development life-cycle approach, in which he suggests that CRM involves acquisition, analysis and use of knowledge about customers in order to sell more goods or services and to do it more efciently. Developing such a system builds on an enterprise-wide integration of technologies working together such as data warehouse, web site, intranet/extranet, phone support systems, accounting, sales, marketing and production. The analytical function may be fullled by separate systems, such as decision support systems and expert systems. This approach is vague on how customer knowledge might be created, because it is not clear as to what technology in practice actually turns customer data into knowledge. A similar approach is suggested by Lee and Hong (2002) to create an organisation-wide KM infrastructure. In the model, database, data warehouse, digital library, data mining and online analytical process (OLAP) are suggested as being the tools to capture and develop knowledge. The model, however, is general to organisational KM rather than specic to customer knowledge creation. Ahn et al. (2003) proposes that data mining/analysis tools and a knowledge base should be the function of a CRM system, but did not go further to illustrate how such a system can be developed. Although how to develop an analytical CRM is far from clear, some explorative research may benet developing such a system. For example, Choy et al. (2003) reports to use case-based reasoning to evaluate and select suppliers in order to full the requirements of the key customers so as to retain a good relationship. Bose (2002) based on Wells et al.s (1999) argument to suggest that expanding customer data needs to include non-transactional information, which is equally, if not more, valuable than the transactional data. Such data may include general inquiries, support calls, suggestions, employee/management comments, registration cards and complaints. CRM systems application in practice The implementation of CRM systems has been widely reported by both CRM software vendors and academic researchers. The popular CRM systems appear to be: call centre, contact management, data warehousing, portals, workow and business process management for the purposes of retaining existing customers and developing new customers. Xu et al. (2002) suggest that contact centres have been playing a major role within the CRM picture. Taylor and Hunter (2002) report that the European customer support and service market is still largely focused on call centres, particularly in the UK. Very few practitioners are making optimum use of their client database, because they are failing to update, quantify and qualify the information collated about the clients (Dyer, 1998). A few reports even suggest that CRM systems fail to have the

transformational impact widely promised by the software industry and expected by the business community. For example, Harvey (2001) cited Gartners report by saying that 65 per cent of CRM implementations result in failure. Most CRM systems are used to improve customer-facing operations. Rowley (2002) argues in line with Harvey that 80 per cent of CRM implementations fail, and academics express scepticism about the viability of interpreting customer data in such a way that it generates useful insights into customer and user behaviour. Bolton (2004) consents with these arguments by stating that many of the early CRM implementations seem to have failed. Sweet (2001, 2002, 2003, 2004) reported four survey results related to CRM applications in UK companies. The surveys were conducted by PMP Research from 2001 to 2004. A range of CRM-related issues are investigated including the success level of CRM, reasons for implementing CRM applications, degree of customising CRM solutions, current spending and future investment in CRM, degree of using analytical tools, and the perception of gaining competitive advantage from CRM. The following is a revisit of the data that is relevant to this study. Reasons for implementing CRM. The motivating factors for companies moving towards CRM technology are presented in Table I. The data shows that major considerations for companies in using CRM is to improve customer satisfaction level, to retain existing customers and to improve customer lifetime value. Providing strategic information from the CRM systems appears less important than improving satisfaction level and customer lifetime value. Using CRM systems to attract new customers has been perceived less important in the four surveys. This shows that most managers accept the view that gaining a new customer is more costly than retaining an existing customer. Several authors highlight the strategic advantage of maintaining the customer base as opposed to merely attracting new customers (Luck and Lancaster, 2003; Rowley, 2004). For example, Kandampully and Duddy (1999) quote that it costs ve times more to attract a new customer than it does to keep an existing one. Zineldin (1999) argues that getting customers is important, but keeping and satisfying them is more important. Customer retention is less costly and, therefore, more protable than customer attraction. Retention also contributes to the creation of reputation, which in turn further lowers customer acquisition costs. Managers no longer see CRM as a quick way to bring new customers on board. Using CRM for cost reduction is ranked the last in the four-year survey. This suggests that most managers do not perceive CRM systems as simply a means of
Mean Reasons for implementing CRM Improving customer satisfaction level Retaining existing customers Improving customer lifetime value Providing better strategic information to sales, marketing, nance, etc. Attracting new customers Cost savings Notes: 1 not important; 5 very important 2001 4.32 4.46 4.38 4.12 3.98 3.18 2002 4.00 4.16 4.22 3.88 3.60 3.33 2003 4.44 3.90 4.36 3.82 3.48 2.98 2004 4.19 3.95 3.48 4.08 3.50 2.98

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Table I. Reasons for implementing CRM

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reducing the costs of customer service. Sweet (2003) reports that specialist software supporting CRM operation such as contact management systems are perceived as important by 66 per cent of the respondents, 52 per cent of the respondents regard the call centre as important. The percentages are signicantly higher than that of the analytical CRM systems. Revisiting the data suggests that many CRM systems implemented are aimed at improving operational aspects of CRM. The operational efciency in dealing with customer enquiries could result in improved customer satisfaction level and customer loyalty. However, gaining customer knowledge from CRM systems and providing strategically important customer information to other departments are not perceived as important as improving operational efciency. The extent of using analytical CRM. Analytical CRM systems incorporate tools that can process the sheer volume of customer data to support strategic customer information provision and customer knowledge acquisition. Sweet (2001, 2002, 2003, 2004) reveals that the application of analytical CRM in the UK companies has been low. Figure 1 shows the application level of using analytical CRM. As shown by the chart, only a quarter of the UK companies use analytical CRM, although there is an increase in 2003 (38 per cent). The data supports our contention that CRM systems are mainly used for operational activities e.g. contact management, call centre, workow, and multiple touch points. There is a lack of focus on gaining customer knowledge for strategic decision making from CRM systems, and a lack of analytical CRM solutions from vendors. Methodology It is believed that evaluating the analytical CRM solutions is useful to explore the reasons behind the low level application of analytical CRM. Thus, a self-evaluation approach is adopted to assess the functionality of CRM systems provided by some leading vendors. To evaluate the analytical function of current CRM software, 20 CRM systems are selected including companies such as SAP, PeopleSoft, Siebel, Sage, Microsoft, Saratoga, Intershop, Firstwave, Epicor, etc. The CRM systems are evaluated based on the demo systems and the additional information available from the companys brochures, web site, and other literature. The following four categories suggested by Chaudhury and Kuiboer (2002) and Sap.com (2003) are used to evaluate the 20 CRM systems. Operational CRM. Customer data is collected through a whole range of touch points such as contact centre, contact management system, mail, fax, sales force, web, etc. The

Figure 1. Usage of analytical CRM (responses in per cent)

data then are stored and organised in a customer centric database, which is made available to all users who interact with the customer. A typical operational CRM is the contact centre and contact management. A contact management system can provide complete and comprehensive tracking of information relating to any contact with customers. This is known as 100 per cent focus on the customer (Kotorov, 2002). The benet of this type of CRM is to personalise the relationship with the customer, and to broaden the organisational response to the customers needs. Analytical CRM. Data stored in the contact centric database is analysed through a range of analytical tools in order to generate customer proles, identify behaviour patterns, determine satisfaction level, and support customer segmentation. The information and knowledge acquired from the analytical CRM will help develop appropriate marketing and promotion strategies. This type of CRM is referred by Kotorov (2002) as a 3608 view of the customer. Technologies underpinning the analytical CRM system include CRM portals, data warehouses, predictive and analytical engines (Eckerson and Watson, 2001); pattern discovery association rules, sequential patterns; clustering, classication and evaluation of customer value (Ahn et al., 2003). As a result of the analysis, customers are more effectively segmented and offered products and services that better t their buying proles. Collaborative CRM. The CRM systems are integrated with enterprise-wide systems to allow greater responsiveness to customers throughout the supply chain (Kracklauer and Mills, 2004). For instance, a CRM can be extended to include employees, suppliers, or partners. A collaborative selling CRM can offer knowledge and tools to everyone in the extended enterprise, and to help drive sales through every channel from call centre to the web. e-CRM. Allows customer information to be available at all touch-points within the company and among external business partners through the internet and the intranet. e-CRM can be dened as a web-centric approach to synchronizing customer relationships across communication channels, business functions, and audiences (Forrester Research, 2001). e-CRM enables online ordering, e-mail, a knowledge base that can be used to generate customer proles, personalised service, the generation of automatic response to e-mail, and automatic help (Rowley, 2002). Findings: provision of analytical CRM functions Table II shows the result of the evaluation of 20 leading CRM software functions (see Appendix). The results show that almost all of the CRM systems evaluated have operational functions with typical systems such as contact management, call centre applications, eld sales and eld service support, and panoramic customer view. Some 40 per cent of the CRM systems offer analytical functions, for example, mySAP CRM provides customer knowledge and analysis to the entire organization. PeopleSofts analytical
CRM function Operational CRM Analytical CRM Collaborative CRM e-CRM (web-based) Frequency 20 8 4 9 Per cent n 20 100 40 20 45

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Table II. Common functions of CRM software

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CRM provides real-time information about customers buying patterns, pre-and post-sales behaviour and factors for customer retention. Forty-ve per cent of the CRM vendors evaluated provide e-CRM solutions. The e-CRM systems allow internal and external users to access customer-related information via the internet or intranet, and also to enable e-commerce functionality. For example, Oracles E-commerce applications can develop, manage and personalize scalable internet storefronts for B2B and B2C sales. Such applications offer self-service access to critical information and integrates contact management functionality with online store operations. Collaborative CRM has been offered by less than a quarter (20 per cent) of the vendors. This is in line with the survey data that only one in ve (20 per cent) of the companies surveyed (2001) had already extended their CRM systems to include employees, suppliers, or partners, whilst the survey in 2003 found only 12 per cent. The ndings conrm Boses (2002) argument that currently, standard CRM packages have only scratched the surface of management support possibilities and that IT will need to look beyond the current offerings of just one or two vendors. The ndings are in line with Kirchheimers (2003) assertion that there are very few pure play analytics vendors and even fewer analytical CRM vendors. Analytical CRM in most cases are made up of a number of discrete pieces of technologies that work together to provide actionable information about customers. Most analytical CRM vendors are jostling for position within the market, having come from very different backgrounds and with very different technologies. In summary, the main driving force of the current implementation of CRM systems appears to be improving operational efciency, rather than acquiring strategic customer information from the systems. There is great potential for analytical CRM and e-CRM systems to be developed, as at present, they are provided by less than half of the software vendors. It is certain that the real challenge does not lie in automating the front ofce with call center and contact management systems, but in the way CRM system is strategically used by organizations, in particular, how the analytical CRM systems should be developed to provide customer knowledge throughout the organization. The next section will discuss some of the analytical functions of the CRM system, and their practical implication to those organizations that wish to become a true customer centric organisation. An analytical CRM model The essential of acquiring customer knowledge is to know not only who they are (customer proling and segmentation) but also how they behave and what pattern they follow. Customer knowledge acquisition should be treated as a dynamic and continuous process, to collect information about existing customers (internal), defecting customers (cross organisational boundary) and new customers. Knowledge about prospective customers and customers that are loyal to competitors (external) should also be obtained. The ndings suggest that in order to gain strategic benets from the investment of CRM systems, managers on the one hand need to be aware of the power of analytical CRM systems and the strategic importance of gaining customer knowledge; on the other hand, analytical CRM systems that can support customer knowledge acquisition need to be readily available and affordable. Thus, an analytical CRM system model that enables customer knowledge provision is developed and shown in Figure 2. The practical implication of this system is to increase the awareness

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Figure 2. An analytical CRM for customer knowledge acquisition

and the perception of the power of analytical CRM systems within managers and to provide guidance to CRM vendors to develop more analytical solutions for customer knowledge acquisition. Identifying strategically signicant customers Bolton (2004) refers to a banks CRM system by suggesting that maintaining the processing of cheques, withdrawals, transfers, etc. is well established. However, it is simply transactional. It has no concept of whether the person is an important and valued customer. An analytical CRM should provide customer proling and customer segmentation functions with the capability to identify strategically signicant customers. Marcus (2001) identied four types of strategically signicant customers, which underpins the suggested system. The rst is the high lifetime value customer. Lifetime value potential is the present-day value of all future margins that might be earned in a relationship. Some customers have higher value to an organisation than others. Alexander and Turner (2001) suggest that all customers are not equal in their future value to an organisation some may even affect a loss. Thus, organisations need to calculate and predict customer lifetime value. Not all high volume customers are necessarily high lifetime value, and as such it is the high life value customers that must be the focus of customer retention efforts. There are many ways to identify high value customers, for example, the Pareto or 80/20 rule, i.e. 20 per cent of existing customers may contribute 80 per cent of the prot (or revenue). For a more accurate prediction of the life long value of a customer, the prot/cost matrix together with retention/loyalty levels (variables) could be used. Figure 3 shows the prot/cost matrix for determining customer value. Customer protability is the difference between revenue and costs. Calculating the customer contribution margin requires detailed analysis including factors such as product costs, costs to acquire, costs to serve and cost to retain. Predicting the lifetime value of a customer also needs to take into account the retention level and loyalty weighting.

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Figure 3. Prot-cost matrix

The second group of strategically signicant customers are benchmarks. They may not necessarily be high value or high volume customers, but they are the early adopters of new products and the role model that will set the trend. Understanding the prole and the behaviour of these benchmarks would enable the company to foresee consumer trends earlier than their competitors. The third group are customers who inspire changes in the supplying company. They may be customers who stimulate the suppliers to nd new applications, come up with new product ideas, and nd ways of improving quality or reducing cost. Such customers may be the most demanding, or even frequent complainers, but they offer potential sources of value. The nal group are customers who absorb a disproportionately high volume of xed costs, thus enabling other smaller customers to become protable. This group of customers is a valuable source for analysing costs associated with CRM. Managing strategically signicant customers should be the focus of senior management. It is envisaged that an effective analytical CRM should be able to continuously identify and track such customers. Segmenting customers to personalize services In addition to identifying strategically signicant customers, the analytical CRM system will help prole and segment existing customers. Customer proling combines multiple aspects of customers into a coherent evaluation, such as customer details, historical records and contact details, customer attractiveness, or customer satisfaction. Ferguson et al. (2004) reported such a system used in a nancial service company that can prole customers and the service representative can promptly assist the customer by pulling up all the customers relevant information. Even though customer proling is oriented more towards the operational function than the analytical function, it does provide a comprehensive view of each customer. This is the information required to understand the true value of the customer and gain insights to understand customer behaviour. Existing customers can be segmented in many ways. This can lead to greater understanding about which customers and products have the most impact on the companys operation and strategy. The segmentation enables the company to provide more personalized and, therefore, more attractive product and service offerings to individual customer groups. Criteria for segmenting customers include: customer protability score, retention score, satisfaction and loyalty score, response to promotion. PeopleSoft uses a customer scorecard to track key performance measurements and communicate progress against CRM-related goals. The key performance indicators

(KPIs) delivered with the customer scorecard for an organizations nancial goals include revenue, margins, and protability; for customer goals, the KPIs include acquisition, retention, and satisfaction; for process goals, the KPIs include campaigns, sales, and support; for workforce goals, the measurements include retention and competencies. The possible criteria to support customer segmentation are: protability by customer and distribution channel; cost to support by product and customer; average order value by customer; customer acquisition rate; customer defection rate; repeat customer rate; and customer satisfaction. Although retaining existing customers is perceived more important than acquiring new customers, turning external, potential prospective customers into the companys customer is often the battleground between competitors. Attracting external customers reects a managers open and forward vision, which is often judged as a strategic competence of senior managers. Knowing prospective customers and customers loyal (or defecting) to competitors is an asset to CRM. The analytical CRM system offers the function of proling and analysing prospective customers. This requires data to be fed into the CRM from both internal and external sources. The CRM may also need to be integrated with a competitive intelligence system in order to prole and analyse customers that are loyal or have defected to the competitors. Tracking and modelling customer behaviour patterns Customer behaviour modelling is a process that includes segmenting target customer groups, establishing criteria for measuring behaviour, monitoring and tracking behaviour changes, generating behaviour patterns, and predicting possible future behaviour. Figure 4 shows the process of behaviour modelling. Select target customer groups. Different customer segments may have different behaviour patterns, thus modelling customer behaviour needs to select a particular customer group. For example, it would be useful to know how strategically signicant customers perceive the company, interact with the company and respond to the companys offerings and promotions. The target customer group may also be identied by their particular behaviour, for example, a group of defecting customers, a group of regular complainers. Based on such segmentation, their perceptions and shopping patterns can be monitored. Developing measures to monitor customer behaviour. It is important but often difcult to know what needs to be known. Effective behaviour modelling needs to pre-dene the types of behaviour to be modelled and how the behaviour is to be measured. Table III outlines some typical customer behaviour patterns that should be modelled by an analytical CRM system.

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Figure 4. Customer behaviour modelling

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Customer behaviour To know the type of products and volume/value To know how a particular customer contacts the company Reduces the likelihood to churn among valuable customers and increase customer retention Predict customer responses to marketing and sales campaigns Tracks the changing behaviour of customers and monitors the changes in customer segments

Purchasing behaviour

Contact behaviour

Retention behaviour

Respond behaviour

Migration and defection behaviour

Table III. Types of customer behaviour Purpose Measures Frequency, date, time, volume and value against product type Frequency of contact, length of each contact, channel of contact, and purpose of the contact Type of retention customers, frequency of retention, average volume of customer order, factors affecting customer retention Per cent ignoring, noticing, taking action; changes in perception/actions, e.g. frequency of purchasing Percentage of defection, trends of defection, type of defecting customers

Tracking and generating emerging patterns. Customer behaviour needs to be continuously monitored and tracked in order to identify customer behaviour patterns and trends, and to detect any abnormal behaviour or emerging patterns for managers attention. Monitoring and tracking should be based on the pre-dened criteria to guide what to monitor and how. To full this function, intelligent agent and expert systems can be included as a part of the analytical CRM system to enhance the detection, comparison, reasoning and alerting function. Predicting possible actions. Finally, the analytical CRM will predict possible actions that are likely to be taken by customers based on the behaviour and pattern generated. PeopleSoft refers to this as predictive analytics. Such analytics will enable managers to look ahead, and to provide guidance on how best to manage and treat customers. For example, to predict whether a customer is likely to purchase or defect, and which group of customers are at risk of attrition. In addition to managerial support, the analytics can guide staff that have direct contact with customers as to which offers can improve their satisfaction, and make real-time recommendations on the best offers. Managerial implications The implications for management of using analytical CRM lie not so much with improving operational efciency as with other CRM systems, but rather with the empowerment of management in the strategic decision-making process. Such empowerment is achieved through customer knowledge acquisition and knowledge sharing, thus enabling the business to become a knowledge driven organisation. To achieve this, senior management need to raise their awareness of analytical CRM and the potential benets, based on which to develop a vision focusing on gaining customer knowledge, and articulating the vision throughout the organisation, whilst also being supportive to the development of such systems. The biggest threat to CRM, as suggested by Bose (2002), is managements focus on short-run prots rather than long-term vision. A knowledge-based organisation would require more specialists and may need to eliminate middle managers (Drucker, 1998). The organisational strategy, structure and process may need to be transformed due to the application of analytical CRM. The success will lie not only with successful implementation of the analytical CRM software, but the synergy of the systems, process and people. Much of the customer knowledge gained through the analytical CRM can be codied, thus it can be made explicit for sharing. This falls primarily into the codication strategy for KM as suggested by Hansen et al. (1999). Codication strategy for implementing KM requires an information system that stores knowledge and allows its reuse. This is opposite to personalisation strategy for KM, which calls for a network system that links employees/expertise for sharing tacit knowledge. It is, however, envisaged that the analytical CRM will enhance customer knowledge creation, whilst the KM tools will enable customer knowledge to be communicated, disseminated and effectively used. Integration between the multiple touch points with customers (operational CRM), the analytical CRM, and KM tools is required in order to maximise the full power of the analytical system. How to implement the analytical CRM system for customer knowledge acquisition is beyond the scope of this paper, however, some issues tend to be critical to all types of

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CRM success, thus are outlined below and should be taken into account when implementing analytical CRM systems. Misunderstanding the power of CRM Snyder and Davidson (2003) suggest that up to 80 per cent of CRM projects resulted in failure. One of the reasons is the lack of CRM understanding. Bolton (2004) suggested that implementation may fail because the organisation fails to adopt a clear strategy and fails to make appropriate changes to its business process. Too many companies install a CRM software application in the belief that this will deliver the CRM capability the company needs. The most common fault was to focus on technology in setting out to implement CRM, to the exclusion of people, process and organisational changes required. Lack of customer focus by senior management Harvey (2001) reports (based on Qci Consultancys audit of 50 companies) that: only 17 per cent of companies incorporated customer acquisition, retention and development costs in their marketing plan. He concluded that despite all the talk of customer focus, there is little evidence that senior executives have their ngers on the pulse. Three quarters of senior management do not have regular, direct contact with their customers. Hung et al. (2005) examined the factors critical to adopt KM systems, and highlighted the leadership and commitment of senior management as one of the key factors. The perception and support of senior managers for the development of analytical CRM is critical. Conclusion The CRM systems that have been implemented by many companies are dominated by operational applications contact centres, sales and marketing solutions with limited customer knowledge gained from the current CRM application. The analytical power of CRM has not been adequately perceived by many organisations. The provision of analytical CRM solutions is limited to some large organisations. It is suggested that CRM systems should enhance not only an organizations ability to interact, attract and build one-to-one relationships with customers but also the ability to gain customer knowledge. Such a system should enable functionality for both internal (existing) and external (prospects) customer knowledge provision. The system will not only provide a panoramic customer view through proling but also generate customer behaviour patterns and predict future actions. The success of implementing such a system relies on senior managers awareness and support, the solutions provided by the IT industry, but more importantly, organisational changes required to create a knowledge centric organisation. The limitation of this study is noted and that the evaluation of CRM solutions is subjective. However, there is evidence to support the argument that organisations have not yet beneted from using analytical CRM to gain customer knowledge. The model proposed in this paper would shed light on how such a system can be developed.
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Alexander, D. and Turner, C. (2001), The CRM Pocketbook, Management Pocketbooks Ltd, Alresford. Bolton, M. (2004), Customer centric business processing, International Journal of Productivity and Performance Management, Vol. 53 No. 1, pp. 44-51. Bose, R. (2002), Customer relationship management: key components for IT success, Industrial Management & Data Systems, Vol. 102 No. 2, pp. 89-97. Bose, R. and Sugumaran, V. (2003), Application of knowledge management technology in customer relationship management, Knowledge & Process Management, Vol. 10 No. 1, pp. 3-17. Campbell, A. (2003), Creating customer knowledge: managing customer relationship management programs strategically, Industrial Marketing Management, Vol. 32 No. 5, pp. 375-83. Chaudhury, A. and Kuiboer, J.P. (2002), e-Business and e-Commerce Infrastructure, McGraw-Hill, New York, NY, p. 424. Choy, K.L., Fan, K.K. and Lo, V. (2003), Development of an intelligent customer-supplier relationship management system: the application of case-based reasoning, Industrial Management & Data Systems, Vol. 103 No. 4, pp. 263-74. Daft, R., Sormunen, J. and Parks, D. (1988), Chief executive scanning, environmental characteristics, and company performance: an empirical study, Strategic Management Journal, Vol. 9 No. 2, pp. 123-39. Drucker, P. (1996), The information executives truly need, Harvard Business Review, January-February, pp. 54-62. Drucker, P. (1998), The coming of new organisation, Harvard Business Review, January-February, pp. 45-53. Dyer, N.A. (1998), Whats in a relationship (other than relations)?, Insurance Brokers Monthly & Insurance Adviser, Vol. 48 No. 7, pp. 16-17. Eckerson, W. and Watson, H. (2001), Harnessing customer information for strategic advantage: technical challenges and business solutions, Industry Study, The Data Warehousing Institute, Seattle, WA, p. 6. Feinberg, R.A., Kadam, R., Hokama, L. and Kim, I. (2002), The state of electronic customer relationship management in retailing, International Journal of Retail & Distribution Management, Vol. 30 No. 10, pp. 470-81. Ferguson, T., Lin, B. and Chen, J. (2004), Leveraging the workforce using information technology: a nancial service case study, International Journal of Management Enterprise Development, Vol. 1 No. 4, pp. 316-32. Forrester Research (2001), Glossary, available at: www.forrester.com Hansen, M., Nohira, N. and Tierney, T. (1999), Whats your strategy for managing knowledge?, Harvard Business Review, March-April, pp. 106-16. Harvey, D. (2001), Tougher times ahead, Conspectus The IT Report for Directors and Decision Makers, October, pp. 38-9. Hung, Y.C., Huang, S.M., Lin, Q.P. and Tsao, M.L. (2005), Critical factors in adopting a knowledge management system for the pharmaceutical industry, Industrial Management & Data Systems, Vol. 105 No. 2, pp. 164-83. Kandampully, J. and Duddy, R. (1999), Relationship marketing: a concept beyond primary relationship, Marketing Intelligence & Planning, Vol. 17 No. 7.

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Kotorov, R. (2002), Ubiquitous organisation: organisational design for e-CRM, Business Process Management Journal, Vol. 8 No. 3, pp. 218-32. Kracklauer, A.H. and Mills, D.Q. (Eds) (2004), Collaborative Customer Relationship Management: Taking CRM to the Next Level, Springer, Berlin. Lee, S.M. and Hong, S. (2002), An enterprise-wide knowledge management system infrastructure, Industrial Management & Data Systems, Vol. 102 No. 1, pp. 17-25. Luck, D. and Lancaster, G. (2003), E-CRM: customer relationship marketing in the hotel industry, Managerial Auditing Journal, Vol. 18 No. 3, pp. 213-31. Marcus, C. (2001), Effective CRM requires sound segmentation, Research Notes, Gartner Research, available at: www.gartner.com Minna, R. and Aino, H. (2005), Customer knowledge management competence: towards a theoretical framework, Proceedings of the 38th Hawaii International Conference on System Sciences, IEEE 0-7695-2268-8/05, available at: www.hiess.hawaii.edu/home.htm Paiva, E.L., Roth, A.V. and Fensterseifer, J.E. (2002), Focusing information in manufacturing: a knowledge management perspective, Industrial Management & Data Systems, Vol. 102 No. 7, pp. 381-9. Roscoe, D. (2003), So what is the future for CRM?, Journal of Customer Management, pp. 42-3. Rowley, J. (2002), Eight questions for customer knowledge management in e-business, Journal of Knowledge Management, Vol. 6 No. 5, pp. 500-11. Rowley, J. (2004), Partnering paradigms? Knowledge management and relationship marketing, Industrial Management & Data Systems, Vol. 104 No. 2, pp. 149-57. Sap.com (2003), SAP white paper analytical CRM, available at: www.sap.com Shaw, C. and Ivens, J. (2002), The seven philosophies of building great customer experiences, Journal of Customer Management, Novemver, pp. 40-3. Snyder, M. and Davidson, I. (2003), In trouble?, Conspectus The IT Report for Directors and Decision Makers, pp. 30-2. Sweet, P. (2001), CRM purse strings tighten, Conspectus The IT Report for Directors and Decision Makers, October, pp. 2-4. Sweet, P. (2002), Users keep the faith, Conspectus The IT Report for Directors and Decision Makers, October, pp. 2-4. Sweet, P. (2003), New wave of CRM, Conspectus The IT Report for Directors and Decision Makers, March, pp. 2-4. Sweet, P. (2004), Light at the end of CRM tunnel, Conspectus The IT Report for Directors and Decision Makers, March, pp. 2-4. Swift, R.S. (2001), Accelerating Customer Relationship Using CRM and Relationship Technologies, Prentice-Hall, Englewood Cliffs, NJ. Taylor, S. and Hunter, G. (2002), The impact of loyalty with e-CRM software and e-services, International Journal of Service Industry Management, Vol. 13 No. 5, pp. 452-74. Tzokas, N. and Saren, M. (2002), Competitive advantage, knowledge and relationship marketing: where, what and how?, Journal of Business & Industrial Marketing, Vol. 19 No. 2, pp. 124-35. Wells, J.D., Fuerst, W.L. and Choobineh, J. (1999), Managing information technology (IT) for one-to-one customer interaction, Information & Management, Vol. 35, p. 54. Xu, X., Kaye, G.R. and Duan, Y. (2003), UK executives vision on business environment for information scanning a cross-industry study, Information & Management: The International Journal of Information Systems Applications, Vol. 40 No. 5, pp. 381-9.

Xu, Y., Yen, D., Lin, B. and Chou, D. (2002), Adopting customer relationship management technology, Industrial Management & Data Systems, Vol. 102 No. 8, pp. 442-52. Zineldin, M. (1999), Exploring the common ground of total relationship management and total quality management (TQM), Management Decision, Vol. 37 No. 9. Zineldin, M. (2000), Beyound relationship marketing: technologicalship marketing, Marketing Intelligence & Planning, Vol. 18 No. 1. Further reading Chien, T., Chang, T. and Su, C. (2003a), Did your efforts really win customers satisfaction?, Industrial Management & Data Systems, Vol. 103 No. 4, pp. 253-62. Chien, T., Su, C. and Su, C. (2003b), Implementation of a customer satisfaction program: a case study, Industrial Management & Data Systems, Vol. 102 No. 5, pp. 252-9. PeopleSoft (2003), Predictive analytics enables business users to look ahead, PeopleSoft, available at: www.peoplesoft.com Appendix
CRM vendors Applix UK Ascent Astea Cincom Compaq Connergent Epicor Noetica Onyx Oracle PeopleSoft royalblue Sage SAP Saratoga SAS Siebel The Prolog Tranzline Update Operational CRM p p p p p p p p p p p p p p p p p p p p Analytical CRM p Collaborative CRM e-CRM (web-based) p p p p p p p p p p p p p p p p p p p p

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Table AI. Common function of CRM