Customer Relationship Management ~ A Strategy for Success in Electronic Commerce

Customer relationship management (CRM) is a concept for increasing companies’ profitability by enabling them to identify and concentrate on their profitable customers. The term “electronic commerce customer relationship management” (ECCRM) refers to the application of CRM in electronic commerce, i.e., when business relationships are maintained via the Internet or World Wide Web. Previous studies on the effectiveness of ECCRM have often focused on the process level, technical aspects, or on marketing issues. Yet only little evidence has been reported for the impact of ECCRM on the company level. The study comprises 469 cases of general companies in the German-speaking market. We find that ECCRM is a critical success factor in electronic commerce, independent of companies’ time on the Web. It is especially critical for B2C and small companies.

Customer relationship management (CRM) is a strategic concept enabling companies to systematically build up and extend the knowledge of their customers, thus empowering companies to actively conduct, i.e., manage, the business relationships with their customers. CRM can be understood as a revolving process during which companies interact with their customers, thereby generating, aggregating, and analyzing customer data obtained from all channels, and employing the results for service and marketing activities.

Companies may pursue several goals when employing CRM to manage their customer relationships. An economic goal which companies seek to achieve by the use of CRM is to increase profitability by concentrating on the economically valuable customers, thus increasing revenue (“share of wallet”) from them, while possibly “de-marketing” and discontinuing the business relationship with non-profitable customers. Strategic considerations represent another motivation for companies to employ CRM: By providing customized products and services to them, companies can increase their customer satisfaction, which is likely to lead to higher customer loyalty and longer customer retention. This, in turn, makes it less probable that their customers will defect to other companies (i.e., it lowers the churn rate).

Electronic commerce customer relationship management or ECCRM strongly relies on Internet or Web-based interaction of companies with their customers, yet also includes customer data obtained through the other channels. As the term suggests, ECCRM is a key element of CRM by specifically aiming at supporting electronic commerce, which we understand as the activities related to initiating, negotiating, and executing business transactions online. Since the beginning of the commercial use of the Web, ECCRM has received increasing attention from both practitioners and researchers.

In order to enable the revolving (EC)CRM process, a number of instruments must be implemented. They comprise a technical infrastructure as a base, as well as a number of business processes conducted on top. The instruments can be grouped into the following categories, each representing a step in the revolving process:

1. Data Collection. To generate customer information, customer data should first be collected across all available channels. In electronic commerce, these are typically a company’s website, but also email, interaction with the (Web) call center, and the offline channels. Customer data can be collected either actively, i.e., with the knowledge of the customers, e.g., through interactive questionnaires on the Web, or passively, i.e., without the knowledge of the customers, e.g., through clickstream analyses or by otherwise logging customers’ surfing behavior while on the company’s website. Correspondingly, the type of the data collected may range from personal information, preferences, or purchase histories, to rather intimate behavioral data which the customers themselves might even be unconscious of.

2. Data Aggregation. In this step, customer data is first pooled from all sources (channels) and then “distilled” (i.e., concentrated) to customer information. Depending on the industry and customer type, a considerable amount of business intelligence is necessary in order to recognize certain patterns within the customer information, i.e., typical profiles. While collecting all kinds of customer data may be relatively simple, condensing it and making proper sense of it, i.e., as the final consequence, drawing the right conclusion with respect to the profitability of a customer, is a lot more difficult. Over the Internet and World Wide Web, most competitors in a market (segment) may have access to the same customer base, especially as search and switching costs tend to be very low. Therefore it is the quality of customer information and its evaluation with which companies can secure their competitive advantage.

3. Customer Interaction. With this step, one cycle of the revolving ECCRM process is closed. Companies can react to their customers based on the customer information they have. They can provide positive feedback to, i.e., actively market to their customers, thus intensifying the revolving ECCRM process, or they can provide negative feedback to their customers, i.e., de-market and terminate the business relationship with them.

The central message is that a skill set based on accumulating and exploiting customer knowledge, which we term companies’ ECCRM-capability, is a key success factor in electronic commerce. Yet for the time being, it must be left up to every company to decide how they can attain a sufficient level of ECCRM-capability. While some companies may have already built up their ECCRM-capability through their regular business processes, others might require the implementation of an ECCRM system.