The Research Issue to Understand the Effectiveness of Retailer’s CRM : Toward the Strategic Implications for Efficient Consumer Response

The purpose of this paper is to identify the research issue to understand the effectiveness of retailer’s CRM (Customer Relationship Management) by reviewing existing research. We propose the examination on the effect of CRM to consumer purchase behavior in consideration of the CRM diversity. The CRM diversity means various types of CRM activities, from the basic one such as point-rewarding to consumers, to advanced ones such as selective promotions based on purchase data and display improvement by sharing purchase data with suppliers. Existing researches confirm the effectiveness of CRM by demonstrating the difference between CRM members and non-members. These researches have enormous significance in confirming the importance of CRM. However, it remains unclear about how manage the CRM to improve consumer’s response continually after customers enroll in CRM program. The examination with CRM diversity has significance to improve the absence of strategic perspective on how to integrate CRM activities (Boulding et al. 2005). Additionally, it makes more effective to examine the effect of diverse CRM activity with various contingent factors. It helps retailers to make decisions on CRM management. Finally, we point out the necessity to understand the influence to retailer’s collaborative relationship with suppliers to understand how CRM result in the sustainable competitive advantage to receive efficient consumer response continually. 1. BRIEF REVIEW OF EXISTING RESEARCH 1-1. THE IMPORTANCE OF “COMPREHENSIVE AND INTEGRATED CRM ACTIVITY” As a new information technology to improve customer management, CRM has attracted attention of practitioners since the middle of 1990s against the background of the development of IT technology and relational marketing thought with consumers in mature market (Payne & Frow 2005 p.167, Payne 2006 pp.4-5). CRM has gradually attracted attention not only practitioners but researchers. From the marketing research perspective, CRM was researched with the framework of relationship marketing, loyalty marketing, and service marketing, and so on (Parvatiyar & Sheth 2001 pp.1-5). 2 Various approaches to CRM resulted in various CRM concepts. Payne & Frow (2005) and Boulding et al. (2005) reviewed the CRM concepts, set out the CRM concept, and indicated the directions for future research. The issues in their discussion can be summarized as below. First, constructive concept of CRM was clarified. Payne & Frow (2005) noted that there had been various concepts, from narrow perspective to broad one, which is the cause of confusion in CRM research (pp.167, 174-175, and Boulding et al. 2005 p.157). Concretely, the narrow one sees CRM as the implementation of a specific technology project, the middle one sees CRM as the implementation of an integrated series of customer-oriented technology solutions, and broad one sees CRM as a holistic approach to managing customer relationships to create shareholder value (Payne & Frow 2005 p.168). They pointed out CRM should be seen not as IT solution, but as a strategic approach that helps companies to understand the characteristics of customer value, utilize the understanding of their market cross-functionally, and plan the company-wide strategy. According to Payne & Frow (2005), it is important to manage the CRM activity with strategic viewpoints. Secondly, Payne & Frow (2005) and Boulding et al. (2005) emphasized that comprehensive and integrated CRM activity lead excellent performance (Payne & Frow 2005 p.168, Boulding et al. 2005 pp.158-159). That is, they pointed out cross-sectional or inter-enterprise coordination is important to improve the performance of CRM. Comprehensive and integrated CRM leads to improvement of the company’s organizational capability, to building long-term relationship with customers, and to providing customer’s life time value. Third, the future research directions were indicated. Efficient CRM needs the comprehensive and integrated activity. Therefore, it is important to understand the performance of CRM with the broad perspective in which CRM is seen as strategic approach (Boulding et al. 2005 p.157). In particular, firstly, the link between the CRM and company’s revenue and long-term competitive advantage should be investigated. They notes how CRM enhances firm performance and results in competitive advantage is an important issue. They indicated that researchers should investigate what resources or capabilities are needed to conduct comprehensive CRM (Boulding et al. 2005 pp.161-162). Second, the research on the link between the CRM and long-term relationship with customers and their life time value is necessary. That is, it is necessary to understand whether CRM really leads to building the 3 long-term relationship such as customer satisfaction and behavioral loyalty, and improving their life time value or not, and what types of CRM activities encourage customers in particular purchase behavior and help to build relationship efficiently (Boulding et al. 2005 p.157). The purpose of CRM is not only to lock-in the existing customers but to provide the firm deeper insight on the markets and customers thorough CRM (Boulding et al. 2005 p.158). Therefore, what enriches the firm’s understanding on the purchase behavior and market by CRM activity is an important research issue. Finally, the effect of CRM under competition is important. For CRM includes strategic elements as Payne & Frow (2005) notes, we should take account of the relationship between the CRM and competitive process to discuss the performance of CRM accurately. Payne & Frow (2005) indicates that the firm which implements excellent CRM may have ability to integrate the knowledge which they acquire through market competition into CRM and increase the accuracy of CRM. However, Payne & Frow (2005) and Boulding et al. (2005) note that existing researches haven’t uncover how the effectiveness of CRM is influenced by the competitor’s actions, how should the firm reflect the change of competitive environment to CRM in order to enhance the effectiveness of CRM. Therefore, we should clarify whether the firm can obtain desirable benefits under competitive conditions or not, and how the firm acquires their sustainable advantage by CRM (Boulding et al. 2005 p.161) 1-2. THE EXPERIMENTAL RESEARCH ON THE EFFECTIVENESS OF CRM Experimental researches have confirmed the effectiveness of CRM. CRM is the business practice to build the long-term relationship between firms and customers, and to provide more value to both sides. Especially, in retail context, many researches see the CRM activity such as loyalty programs, frequent shoppers program, point program as practical tools to shape the CRM strategy. And they confirm the effectiveness of CRM activities. According to many existing researches, CRM activity is defined as “and integrated system of marketing actions that aims to make member customers more loyal” (Leenheer et al. 2007p.32, Mayer-Waarden 2007 p.224). That is, CRM activity is seen as a system by which provides customers incentive to purchase continually, to build relationship with customers, and to bring in them (Liu 2007 p.20, Liu & Yang 2009 p.94, Dorotic et al. 2012 p.218). Therefore, the main discussion point in experimental research has been on the right and wrong of introducing the 4 CRM. In other words, whether the CRM activity really leads to efficient consumer response or not has been mainly focused (Liu 2007 p.19). Many experimental researches confirm the CRM effect by demonstrating the difference of the performance between CRM activity members and non-members (Mauri 2003 p.13, Demoulin & Zidda 2009 p.393). Magi (2003), Lewis (2004), Seiders et al. (2005), Meyer-Waarden (2007), Leenheer et al. (2007), Mayer-Waarden and Benavent (2009) are the examples. Representatively, Lewis (2004) confirms the effect of CRM activity to enhance the customer’s repeat-purchase behavior by comparing members of CRM activity and non-members. Thus, they indicate CRM activity actually has significant effects by offering the evidence on the difference on purchase behavior and long-term loyalty. Some researches advocate the effectiveness of CRM activity by confirming the effect of a specific reward-program in CRM activity. For example, Taylor & Neslin (2005) covers the point-reward program and uncovers it has not only short-term effect to purchase behavior, but long-term effect. Verhoef (2003) demonstrates the effect of point-reward and selective promotion (direct mail) based on the purchase data through CRM activity. They indicates point-reward has effects both to retaining the customers and to improving share of purchase, while direct mail has effect only to improving share of purchase. Gazquez-Abad et al. (2013) examines the effect of some types of DM. They identify the difference of the effect to customer’s purchase behavior between the promotional DM and relational DM. They imply the necessity to introduce the CRM proactively by demonstrating the effect of a particular activity. Many of existing researches expressed the positive view to CRM effect. On the other hand, some researches questioned the effectiveness. For example, Sharp & Sharp (1997), which examined the effect of CRM activity of several retailers, indicated the effect of CRM activity was quite weak and was lower level than expected. Similarly, Dowling & Uncles (1997), Bolton et al. (2000), Dowling (2002) demonstrates CRM activity doesn’t improve the pattern of customer’s purchase behavior, and questioned the effect. Furthermore, Shugan (2005), which examined the CRM activity of certain brand, indicated CRM activity didn’t relate to cultivation of customer’s brand loyalty and creation of customer assets. They even referred to CRM activity as shams. Overall, existing researches have provides mixed support for CRM effect (Magi 2003 p.98, Verhoef 2003 p.36, Liu 2007 p.19, Liu &