Florante P.

De Leon
SR Code: 19-52460

CUSTOMER LIFETIME VALUE (CLV)

Customer Lifetime Value (CLV) a marketing metric that projects the value of a
customer over the entire history of that customer's relationship with a company. It is the
current value of the likely future income flow generated by an individual purchaser. It is
variously referred to as lifetime customer value or just lifetime value, and abbreviated
CLV, LCV, or LTV).

Customer Lifetime Value (CLV) determines the value of a customer to the firm over
the life cycle of the customer. It seeks to maximize profit by analyzing customer
behavior and business cycles to identify and target customers with the greatest potential
net value over time. A Profitable customer is one that overtime yields a revenue system
that exceeds by an acceptable amount of the company's cost stream of attracting,
selling and servicing that customer over time.

People need to consume resources to survive. Consumption was based on

necessities. Being frugal and saving was the norm while spending heavily or
extravagantly was frowned upon and seen as wasteful by most all over the world.
Limited consumption in the past was due to the scarcity of resources due to the limited
ability to extract and use them.

Some of the factors which resulted in Consumerism are 

 Technological developments resulting in accessibility of additional resources

 These progress resulted in production of more goods than required. The
capitalists responded by convincing people to buy things, by altering basic
institutions and even generating a new ideology of pleasure.
 Expansion of consumer credit which created the required mass market
 Another revolutionary development to influence the creation of the consumer
was advertisement.
Over the years marketing have changed from transactions to relationship and is now
seen as the process of defining, developing and delivering value to the customer. The
production costs have been reduced through TQM, JIT, FMS and efficient supply chain
management.

These have however resulted in tough competition and the high rate of brand switch
among consumers. Quality and effective service leads to satisfied customers and helps
in developing loyalty. Commitment to innovation and customer oriented business
decision-making is the order of the day with the focus on

 Customer driven marketing practices,

 Profitability and
 Strategic marketing practices

Relationship marketing is about customer value and value chain. Customers define
the business and their relationships are the key strategic assets of the organization.
Quality and service act as the customer retention tools. The need to be in constant
contact with the customer is a key principle of Relationship marketing. Consumer credit
cards, Frequent Flyer programme, discount coupons by shops are all used to reward
customers for frequent and loyal purchasing behavior. Further each transaction is now
entered into a database.

Customer Lifetime Value is one of the major focus areas for companies because the
cost of acquisition of new customers is much higher than the cost of retention of existing
customers.

It allows companies to know exactly how much each customer is worth in monetary
terms, and therefore exactly how much a marketing department should be willing to
spend to acquire each customer. It is a concept adopted from direct marketing which
looks on the long term customer behavior as the key for success.

The norms for this success are based on

 The cost of acquiring a new customer ;and

 The benefits & costs of retaining an existing customer
Relationship marketing is the key concept that helps the companies in developing
loyal consumer base. It embraces all those steps that companies undertake to know
and provide value to its customers.

It is more profitable to have a set of regular long-term loyal and profitable customers
than to have more number of customers. The 20:80 rule of marketing is that 20 % of the
customers’ account for 80% of the company's profits and it is much cheaper to retain a
consumer than to attract a new one. To reach these customers and convert them into
partners is the real challenge.

Loyal customers become more valuable over time. They are different from other
customers as they tend to:

 Buy more often

 Buy more items
 Buy higher priced items
 Have lesser service cost
 Have lesser sensitivity to price
 Have higher retention rates.

A Profitable customer is one that overtime yields a revenue system that exceeds by
an acceptable amount of the company's cost stream of attracting, selling and servicing
that customer over time.

Building a relationship with customers only works when the customer benefits from the
relationship. This can happen when you provide to customers something that they will
appreciate and value, but at the same time do not cost you too much. One must try
therefore building a relationship with customers whose behavior can be modified, to
convert them over time into long run loyal and profitable customers.

Customer Lifetime Value (CLV) is the value of the customer over the Lifecycle and is
a multi-period calculation, usually stretching 3 to 7 years into the future.

Following steps can be used for calculating the CLV in a simple manner:
1. Calculate the average sale "S" by dividing the total amount of sale by number of
sales transaction for the period (usually one year.

2. Calculate the number of times an average customer buys " T" from the company by
diving the total number of sales transactions by the total number of customers.

3. Find out the number of years "Y" an average customer buys from the firm.

4. Find out the number of people " R " referred by the an average customer- this is
usually between 3 to 12

5. Find out the percentage of such referrals "C" who become customers-this is usually
between 20 to 70%

6. Customer Lifetime Value is calculated as Lifetime value = S * T* Y (1 + R* C )

The Lifetime Value of a customer is the net profit the customer generates over their
Lifecycle and is used to make decisions about allocating marketing to ideas that
generate high potential value customers, and away from ideas generating low potential
value customers.

Repeat behavior indicates higher Lifetime Value, and predicts future repeat behavior,
regardless of what the actual monetary Lifetime Value is.

The Customer Lifetime Value numbers are really very powerful measures as it include
in a single set of numbers based on the

 The retention rate;

 The spending rate;
 The costs of marketing, and ;
 The discount rate.

Customer lifetime value calculations are usually calculated based on certain data inputs
like

 Acquisition cost - average amount of money that is required to acquire a new

customer.
  Churn rate - the percentage of customers who end their relationship with a
company in a given time period.
 Discount rate - The cost of capital used to discount future revenue from a
customer. The formula for the discount rate is: D = (1 + i)n
Where i = the current interest rate plus a risk factor, and n = the number of
years that you have to wait to get your hands on the future money. The current
interest rate is often substituted for this
 Retention cost - The amount of money a company has to spend in a given time
period to retain an existing customer.
 Time period- The unit of time into which a customer relationship is divided for
analysis which is usually one year.

Lifetime Value is the value of the customer over the Life Cycle The most difficult part of
calculating lifetime value is deciding what a “lifetime” is. Lifetime Value doesn't exist
without a Life Cycle. Customer Life Cycle is simply the behavior of a customer with your
company over time.

Customers begin a relationship with you, and over time, either decide to continue this
relationship, or end it. At any point in this Life Cycle, the customer is either becoming
more or less likely to continue doing business with you, and demonstrates this likelihood
through their interactions with you.

If you can predict where customers are in the Life Cycle, you can maximize your
marketing ROI by targeting customers most likely to buy, trying to “save” customers who
have declining interest, and not wasting money on customers unlikely to continue doing
business with you.

Customers who are the cheapest to acquire may have the shortest Life Cycles, and
customers who are expensive to acquire might have very long Life Cycles. Customers
who purchased recently were more likely to buy again versus customers who had not
purchased in a while.

Customers who purchased frequently were more likely to buy again versus customers
who had made just one or two purchases. Customers who had spent the most money in
total were more likely to buy again. The most valuable customers tended to continue to
become even more valuable.

To retain and increase the value of customers, you have to engage them by
communicating on a regular basis. If you don't, customers will be less loyal and either
abandon you for a competitor who communicates with them, or will spend less with you
over time. Marketing promotions are essential to any kind of customer retention effort;
promotions drive the sales activity of customers.

By definition a customer who is more likely to respond has a higher future value than a
customer less likely to respond. The three key components to maximizing profits in
customer marketing are:

1. Structuring offers to get the most profitable mix of response rate and cost of
the offer.

2. Creating an "early warning system" to flag customers who are likely to leave
so by tracking customer behavior, so they can be targeted for special
promotions.

3. Identifying customer acquisition practices that optimize the value of new

customers coming to the business for the first time

You can organize your business around customer value, if you can compare the future
value of customers. Life Time value is used to make decisions about allocating
marketing to ideas that generate high potential value customers, and away from ideas
generating low potential value customers. Merchants typically use promotional offers,
trial periods, unique content, bundled offerings and more to attract potential consumers.

Customer Response, Retention and Valuation Concepts (RFM Model) using

Recency and Frequency can be used to rank the LifeTime Value and likelihood to
respond of customers relative to each other.

Customers are ranked based on their R, F, and M characteristics, and assigned a

"score" representing this rank. Assuming the behavior being ranked (purchase, visit)
using RFM has economic value, the higher the RFM score, the more profitable the
customer is to the business now and in the future.

After scoring customers using RFM, you will be able to:

1. Decide who to promote to and predict the response rate

2. Optimize promotional discounting by maximizing response rate while reducing overall

discount costs.

Determine which parts of the site or activities attract high value customers and focus on
them to increase customer loyalty and profitability.
 CUSTOMER RELATIONSHIP MANAGEMENT MODEL (CRM)

Customer relationship management (CRM) is a management strategy that unites

information technology with marketing. It originated in the United States in the late
1990’s, and, to date, has been accepted in a significant number of companies
worldwide.

CRM is the strategic process of selecting customers that a firm can most profitably
serve and shaping interactions between a company and these customers. The ultimate
goal is to optimize the current and future value of customers for the company.
Customer relationship management (CRM) is a broadly recognized, widely-
implemented strategy for managing and nurturing a Company’s interactions with
customers, clients and sales prospects. It involves using technology to organize,
automate, and synchronize business processes, principally sales activities, but also
those for marketing, customer service, and technical support. An important part of CRM
is identifying the different types of customers and then developing specific strategies for
interacting with each one. Examples of such strategies include developing better
relationships with profitable customers, locating and enticing new customers who will be
profitable, and finding appropriate strategies for unprofitable customers, which could
mean terminating those relationships that cause a company to lose money.

Three different perspectives of CRM

1. Functional level: Customer relationship management can be practiced on a very

limited functional basis (e.g., sales force automation in the sales function, campaign
management by the marketing function).

2. Customer-facing front-end level: This type of CRM focuses on the total customer
experience. The goal is to build a single view of the customer across all contact
channels and to distribute customer intelligence to all customer-facing functions.
3. Strategic level: This perspective tries to free the term CRM from any technology
underpinnings and from specific customer management techniques. It describes CRM
as a process to implement customer centricity in the market and build shareholder
value. Here, knowledge about customers and their preferences has implications for the
entire organization, such as for R&D or supply chain management.

Evolution of CRM

Figure 1. Timeline of CRM Evolution

1. First Generation (Functional CRM)

The collection of activities that later took on the umbrella acronym CRM originally
developed as two independent product offerings:
1. Sales force automation (SFA): These products addressed presales functions
such as maintaining prospect and customer data, telemarketing, generating
leads, creating sales quotes, and placing sales orders.
2. Customer service and support (CSS): This function addressed mainly after-
sales activities, such as help desks, contact and call centers, and field service
support.
2. Second Generation (Customer Facing Front-End Approach)

Innovations in CRM during the 1990s matched those of ERP, including the
integration of different independent subsystems into one package. CRM
 technology was expected to fill the gaps left by ERP functionality and address the
business needs of the company’s customer-facing front end. The goal was to
create a single view of all interactions with customers, independent of the
purpose of that contact (e.g., pre-sales, sales transaction, post-sales service) or
its means (e.g., telephone, e-mail, Internet). For the most part, this goal was not
achieved during the 1990s, leading to increasing disillusionment with CRM
technology and implementations. Customer expectations in this period far
exceeded the realized benefits of CRM technology.

Figure 2. Integration of Front-end Customers with Back-end system

3. Third Generation (Strategic Approach)

By the end of 2002, the CRM market had started to pick up, and the gap between
customers’ perceived value and value realized was closing. Organizations
 learned from experience and their failure to implement prior versions of
CRM. The best organizations began to focus on integrating customer-facing
front-end systems with back-end systems, as well as with the systems used by
partners and suppliers.

The integration of the Internet technology helped to boost CRM.  Many

organizations realized that they could benefit by adopting a strategic CRM
approach rather than blindly implementing technology-based solutions.
Companies recognized the eventual goal of CRM: to grow revenue, not just
control costs.

4. Fourth Generation (Agile and Flexible Strategic CRM)

At the end of the first decade of the twenty-first century, we face the start of the
fourth generation of CRM.  Strategic CRM is widely accepted and established as
an essential element of the marketing strategy, and an ever-increasing number of
small and medium-sized companies adopt this management tool and its
corresponding technologies to drive their business. Agility, flexibility, and low
fixed costs are key. The emergence of social media and increased self-service,
as well as the growing prevalence of web-based services, mean that customer
empowerment is an emerging topic. In particular, CRM technology on a pay-per-
use basis can provide on-demand functionality.

5. Fifth Generation (Social CRM)

The development of the new technological advances and the unprecedented
reach of social media gave rise to the fifth generation of CRM.  Social CRM is
characterized by the engagement of the customer through the integration of the
web 2.0 and social media and by the use of data driven insights to optimize the
overall customer experience. Companies encourage active customer
participation online, while they use software applications to track real time social
data. This information enables companies to offer relevant content and
personalized messages to specific customers and to improve the customer
experience at each touch point along the customer journey. Additionally, the
combination of data across different social media platforms allows companies to
determine the customer value not only based on profitability but also based on
their online behavior in terms of referrals, knowledge dispersion and influencing
other members of the social media community.
In view of the above perspectives, the study approaches CRM from strategy
development perspective. This approach in CRM has been adopted due to
globalization, changing economic conditions, demanding customer behavior and most
importantly knowledge-based organization. CRM cannot be viewed or understood
without Relationship Marketing (RM).

The debate on RM started in 1950s and prior to that the focus was on massive
production and selling, therefore it was called transaction marketing with a focus on
short term benefits and relationships and with emphasis on services and relationships.
Due to this short-term orientation; marketing had been seriously criticized and later on
this provided foundation to RM. Sheth (2000) finds CRM roots in RM, and Ryals and
Knox (2001) claim its foundation in RM and marketing.

CRM Models (Customer Relationship Management Model)

Managing customers profitably is the core objective of a company. How to manage

customers? This is the question that get asked very frequently. For this question, many
researchers and managers try to dig out the solution. There are a number of CRM
models have developed to learn how to manage customers.

CRM models are helpful to understand the concept of CRM and regulate the modern
concept of CRM.

Table 2
Contemporary CRM Models
Model Author & Year

1 QCI Model Hewson et.al 2002

2 KM-Based CRM Analytics Systems Bose and Sugumaran, 2003
3 IDIC Model Peppers and Roger, 2004
4 The CRM Value Chain Buttle, 2004
5 Payne's Model of CRM Payne and Frow, 2005
6 Model of Creation of CRM Systems Urbanskiene et al., 2008
7

8 Garrido-Moreno et al., 2014

9 CRM, Innovation and Performance Valmohammadi, 2017

1. QCI Model

The QCI model is a product of a consultancy firm. The model’s authors prefer to
describe their model as a customer management model, omitting the word ‘relationship’.

At the heart of the model, they depict a series of activities that companies need to
perform in order to acquire and retain customers.

The model features people performing processes and using technology to assist in
those activities.
 Figure. 3 QCI Model

This model includes the series of activities related to employees, people, and
organization, and technology as well.

According to this model, relationships process with the external environment. Because
when a customer wants to start selling process or wants to interact with the
organization, external environment directly affects the customer experience. External
environment also affects the planning process of the organizations.

Now as you can see in the figure that customer experience affects three activities
future: customer proposition, customer management activity, and measurement.

Customer proposition means something that a company offers to the customer

against the price. Customer management activity is a process of capturing
customers, start with targeting, conversation, selling and end with retaining or winning
back the customers. Customer management activity affects customer’s experience that
how a company acquires, retains a customer and also penetrates. Finally,
measurement process also affects the customer experience.

People and organization have relation with the planning process, customer proposition,
customer management activity and measurement. Because CRM starts with people and
ends with people.

Infrastructure deals with the organization in a sense of technology, customer

information, and process management. One big thing is that each activity, people,
organization, process, and technology have a dual effect and intercorrelated with each
other.

2. KM-Based CRM Analytics Systems

Bose and Sugumaran (2003) presented a KM based CRM system as given in Figure
4. The study established that in customer centric business environment, KM based
CRM system is much needed and is of utmost importance.
The model concludes that KM-based CRM systems support organizations in their
business decisions. The model is based on four major components:
(i) Internal and external data sources: This indicates different types of data
sources (both internal and external) required to manage the diverse types of
information, such as organizational processes and customer related
information to solve the problems or to make strategic decision.
(ii) Knowledge acquisition: This part of the model pertains to identifying,
acquiring, and storing relevant knowledge for managing customers.
(iii) Knowledge repositories: The repositories form third part of the model to
make continuously updated new information available.
(iv) Utilization of knowledge: The fourth component of the model demonstrates
searching and retrieving relevant knowledge for stakeholders to solve the
problem in hand.
 Figure 4. KM-based CRM Analytics Systems (Bose and Sugumaran, 2003)

Although the model is appropriate for storing massive information regarding customers
and organization and at the same time provides the required information whenever it is
needed to solve the problems or making business decisions. But it is not appropriate for
strategic marketing decision making, because the decision is taken on the basis of
analysis of data that restricts it to CRM analytics. It is dominated by IT. Technological
components have been used in codifying, storing, retrieving and disseminating the
knowledge such as XML and intelligent agents (human replacement, which interprets
the information). Furthermore, the researchers themselves admit that the model cannot
capture all types of knowledge and knowledge repositories are not consistent with the
business process, because repository cannot replace human beings.

3. IDIC Model
The IDIC model was developed by Peppers and Rogers. This model suggests that
companies should take four actions in order to the building, keeping and retaining
the long-term one-to-one relationships with customers.
 Identify
 Differentiate (value, need)
 Interaction
 Customize
 Figure 5. IDIC Model (Peppers and Roger, 2004)

Identify. First, a company must identify who is an actual customer and should know
about deep knowledge of their customers.

It is not only necessary to know about your customers but you have to know about more
and more your customers so that you can easily understand them and serve them
profitably.

Differentiate. Differentiate your customer on two bases: value and need

Value: Differentiate your customer to identify which customer is generating most value
now and which offer most for the future. Give more value to those customers who are
generating more value for you.
Need: Differentiate your customers according to their needs. Different customers have
different need and serving the in profitable ways need more knowledge about their
needs.

Interaction

The company must emphasis on interaction with the customer to ensure that you
understand customer’s expectations and their relationship with a brand. The company
must consider Interaction with customers according to their needs and value that they
are providing you. Interaction directly with customers makes believe that company has a
concern with them and company wants to serve them individually. These efforts make
customers loyal and help the company to build long-term relationships.

Customize

When you differentiate your customers according to their values and needs, after that,
you have to customize your product according to their needs and values.

Customize the offer and communications to ensure that the expectations of customers
are met. Interact to customize is information to customers about your ability to cope with
their need.

Failure in the third step means something wrong with second or third steps. So return or
go back to previous steps study them again and search out more and more and
rearrange these steps.

4. The CRM Value Chain

The captioned model (Figure 6) is given by Buttle (2004) which is useful for
developing and implementing the CRM strategies. The ultimate purpose of this
model is to build a strong relationship with strategically profitable customers (but not
a strong profitable relationship irrespective of any customers). The model
encompasses five primary stages with four supporting conditions.

The primary stages ensure that a company analyzes the customer portfolio to
identify the target customer and builds a customer database. That database makes
information accessible for decisions and analysis of the customer behaviors and
attitudes. It also builds a strong relationship network of suppliers, employees,
customers which helps to understand the requirements of the chosen customers.
That network brings value proposition to customers and company through
continuously creating and delivering value. The network enhances the customer life
time value by motivating customers to purchase repeatedly which results in retaining
and acquiring profitable customers.

Pre-determined supporting conditions of primary stages include leadership and

culture; data and information technology; organization design; people and processes
all aligned together help CRM to function effectively. The bottom line is to increase
the customer profitability

CRM, the meaning of those three letters, is emotionally contested. For some, CRM
is simply a bridge between marketing and IT: CRM is, therefore, an IT-enabled sales
and service function. For others, it’s little more than precisely targeted 1- to-1
communications.

Simply we can say, CRM Is a tool to manage customer relationships with the help of
people, information technology, customer’s data, company’s process and customers
themselves.
 Figure 6. CRM Value Chain (Buttle,2004)

The CRM value chain is an established model which businesses can easily follow when
they developing and implementing their CRM strategies. It has been five years in
development and has been piloted in a number of business-to-business and business-
to-consumer settings, with both large companies and SMEs: IT, software, telecoms,
financial services, retail, media, manufacturing, and construction.

The model is based on strong theoretical principles and the practical requirements of
business. The ultimate purpose of the CRM value chain process is to ensure that the
company builds long-term mutually-valued relationships with its strategically significant
customers. Not all customers are strategically significant. Indeed some customers are
simply too expensive to acquire and service. They buy little and infrequently; they pay
late or default; they make extraordinary demands on customer service and sales
resources; they demand expensive, short-run, customized output; and then they defect
to competitors. These are called strategically-insignificant customers.
Five primary steps to profitable relationships

The five steps in the CRM value chain are customer portfolio analysis, customer
intimacy, network development, value proposition development and managing the
relationship.

Customer Portfolio Analysis

A customer portfolio comprises the mixture of groups that make up the customer base
of a business. For example, Coca-Cola’s customer portfolio consists of restaurants,
grocery stores, amusement parks and sports arenas.

It means before starting the CRM process, an organization should know about their
customers thoroughly.

Customer Intimacy

Selecting customers to serve with your product is one thing and knowing your customer
is another thing. Most companies collect customer data.

Some industries are overwhelmed with information – scanner data, loyalty card data,
complaints files, market research, and geo-demographic data. Now the question is how
you will use this data in order to serve best ways to your customers. Long-term
relationships require more knowledge about you customers.

Knowing about what, who, why, when and how of customer behavior is most important
for a company to manage long-term relationships with loyal and strategically
insignificant customers.

Develop the Network

A company’s network position i.e. its connectedness to other parties who co-operate in
delivering value to the chosen customer is a source of great competitive advantage. In
order to serve customer’s relationships, it is important for a company to create value for
a customer on every stage of the selling process. It means the company must create a
complete network for customers to serve profitably. A good network may contain
suppliers, manufacturers, employees, investors, technology, distributors, and retailers.
CRM is not a quick fix; it requires owners and investors who will commit to the long-term
investment in the people, processes, and technology to implement CRM strategies.

Value Proposition Development

By the fourth step of the CRM value chain, you will know who you want to serve and will
have built, or be in the process of building, the network. Now the network has to work
together to create and deliver the chosen value(s) to the selected customers.

Network develop by the company now will create a value proposition. Every member in
a developed network works together as a whole to creating value for customers.

Managing the Relationship

This is the final step of primary stages. All previous steps help the company to create
the relationship and start the relationship. Now, this depends on company how a
company manages these relationships so that parties, company, and customer, get
value for the long term.

Five supporting conditions of CRM value chain model. These are five supporting
conditions to fulfill the CRM value chain model.

 Culture and leadership

 Procurement processes
 Human resource management processes
 IT/Data management processes
 Organization design

These are some basic conditions that a company even must consider while managing
the CRM. Company’s culture defines that whether you will manage long term
relationship or not because sometimes your culture doesn’t allow you to do such
activities. Company procurement process and HR process also suggest that how you
will do such activity.
Without IT and Data management process you cannot do CRM because customer’s
information and data related to customers save on technology.

5. Payne's Model of CRM

Figure 7. Payne's Model of CRM (Payne and Frow, 2005)

The five processes of the model are categorized as follows:

 Strategy development. Divided into two strategies, this process first looks at

business strategy, determining the vision of your product/service and how it
competes in the industry. Customer strategy means that you outline the
characteristics of your current and potential customers.

 Value creation. This process looks at the value customers bring to your

business, as well as the value you bring to your customers. Create a value
proposition based on this information.

 Multichannel integration. In this process, every department works together.

When every department (such as marketing, sales, and support) are all on the
 same page and understand the value that your company is bringing to the table,
your customers receive a cohesive experience.

 Performance assessment. Analyze how well your value proposition is

performing. Is revenue up? Are your customers happy? Are your reps engaged
with customers? With different departments?

 Information management. Also called “Data Repository,” this process supports

the other processes and includes IT systems, analysis tools, front-office
applications, and back-office applications.

This is really a comprehensive and too generic model, encompasses almost all types of
CRM. The first two processes deal strategic CRM, the multichannel integration process
represents operational CRM, and information management process enlightens upon the
scope of analytical CRM.

The strategy development process and value creation process have been considered
very important processes that support in strategy development and help in making
strategic decisions. The customer knowledge is channelized and gathered through
sales force (employees) of an organization, as indicated in this model, which is the most
important contribution of the model. But it cannot get the desired result because the
technology has been given the role of analyzing and interpreting the information.

6. Model of Creation of CRM Systems

This research-based model (Figure 8) has been developed by Urbanskiene et al.,

(2008). The main purpose of this model is to guide the successful CRM implementation
and the focus is to measure the effectiveness and profitability of enterprise and
customers. The process starts with screening the environment. The strategy has been
developed and formulated based on the audit of the current situation. The CRM strategy
is the basis for the creation and implementation of CRM system. In this model
customers’ element is primary and the most important part; and communication
channel, information sources and database are secondary but playing a vital role in
analysis of information and formation of customers’ data base.
 Figure 8. Model of Creation of CRM Systems (Urbanskiene et al., 2008)

The model is too generic in nature to practice. The system, conceived in the model,
integrates customers, employees, organization, processes and technology. It
summarizes the research elements for successful CRM implementation. The most
important is the involvement of employees in analyzing the situation, formulating the
strategy and taking actions to improve the relationship with customers. The model is
lacking in integrating knowledge because a database is being used for incorporating the
information in system.

7. CRM as a Strategic Approach

Figure 9. CRM as a Strategic Approach (Elmuti et al.,2009)

The above mentioned model is empirically tested research model developed by Elmuti
et al., (2009). The main purpose of this model is to uncover the links among variables
and their influence on organizational effectiveness and customer responsiveness that
facilitates to get a competitive advantage. The model (Figure 9) identifies five
measurement variables: integration factors, strategic planning, technical factors, and
business process re-engineering and human resource management. Each variable has
certain impact on other variable. The research model considers these variables as
important determinants for organization readiness to implement CRM strategy.

This empirical model is based on survey of 500 organizations throughout the United
States. There were 160 out of 500 questionnaires usable for this study. The result
revealed that 94% of the respondents view CRM as a strategic enabler and the role of
IT as a tool to enhance the strategic direction efficiently. The study also found that
increase in the integration of activities such as functional areas, information sharing,
cooperation and collaboration throughout the organization contributes to the CRM
success. However, this model lacks in dealing with knowledge. But it provides a good
insight which allows companies to improve the quality and productivity with reducing
cost due to improved communication among employees and customers.

8. Mediating role of KM and Organizational Commitment in CRM Success

CRM technology infrastructure is considered as a basic resource wherein both KM and

Organizational Commitment (OC) are playing the role of mediators (complementary
resources) in CRM success (Figure 10). CRM technology infrastructure comprises on
the IT solutions that provides the information readily available across the organization
resultantly helps in seeking in-depth customer information, facilitate employees job
performance, reduces role ambiguity, eliminating the non-productive information,
increase in market share, sales and organization performance.
Figure 10. Mediating role of KM and Organizational Commitment in CRM Success
(Garrido-Moreno et al., 2014)

Garrido-Moreno and his colleagues have found CRM technology infrastructure as an

enabler having the indirect impact on CRM success. Human factor is crucial to the
success of CRM strategy which has been addressed but overwhelming role of
technology is evident in this model. In contrast, (Basit et al., 2017) claim that the role of
management as a strategic enabler and Tacit Knowlede (TK) as a tool for successful
implementation of CRM and strategic direction of the whole organization is important for
KM.

9. CRM, Innovation and Performance

Given model (Figure 11) has investigated the relationship among CRM practices,
innovation capability and organizational performance of Iranian manufacturing firms.
Result revealed a significant and positive relationship of CRM practices on innovation
capability and organization performance. Innovation capabilities also have a significant
and positive impact on organization performance

Structure equation modeling test is used to validate the data collected from 211 firms.
Finding of this research has revealed CRM as a strategy to improve innovation
capability and enhance firm’s competitive advantage. No mechanism has been
suggested in this model to process the information other than IT. Foss and his
colleagues argue that IT enabled business strategy has not been considered truly
positive (Foss et al., 2006) and any competitive advantage that brings by IT is easily be
imitable (Davenport and Prusak, 1998)..

Figure 11. CRM, Innovation and Performance (Valmohammadi, 2017)

 References

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Approach: a knowledge management Perspective. DOI:
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CRM Models (Customer Relationship Management Model). Retrieve from:

https://ninjaoutreach.com/crm-models/. July 01,2020

Kumar V., Reinartz, W. (2006). Customer Relationship Management: Concept, Strategy

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