Conceptual Model of CRM in the Social Media Age



Modelling CRM in the Social Media Age

Introduction

Customer relationship management (CRM) is a concept that is as old as business (Sheth and Parvatiyar, 1995b; Drucker, 1954; Payne and Frow, 2006). CRM is often confused with relationship marketing, and in actual fact there appears to be no general consensus on the difference between these two phenomena in previous literature (Parvitiyar and Sheth, 2001). However, the best differentiation may be that, where relationship marketing is concerned with managing relationships with multiple stakeholders, CRM is concerned with managing the most important relationship; that with the customer (Ryals and Payne, 2001; Chen and Ching, 2007).

What is certain is that CRM is a critical research domain (Boulding et al., 2005; Kumar et al., 2006; Cooper et al., 2008; Verhoef et al., 2010). Its importance is only increasing as more and more enabling technologies are available to businesses. This paper seeks to conceptualise CRM in an age where digital and social technologies are prominent and disruptive marketing tools. First though, CRM is defined as ‘the cross-functional integration of processes, people, operations, and marketing capabilities that is enabled through information, technology and applications’ (Payne and Frow, 2005:168).

Customer Relationships

The relatively new term of ‘customer engagement’ was devoted a special issue in the Journal of Service Research in 2010. Fundamentally, it questions the classic view that the customer is exogenous to the firm and is the passive recipient of marketing efforts (Deshpande´ 1983). Instead, customers are now active participants in a process of value-creation that reaches from the marketing effort as far as business strategy (Bijmolt et al., 2010; Hennig-Thurau et al., 2010). In essence, the relationship between the firm and its customers becomes much closer (Bijmolt et al., 2010). This view of marketing, and of business in general, is gathering more and more credence as evidenced by the moves by The Advertising Research Foundation, American Association of Advertising Agencies, and Association of National Advertisers to ‘define’ a ‘consumer engagement’ metric (Dwyer, 2007).

The principal enabler of customer engagement is technology, specifically social technologies. Technology as a term has always led to confusion as to what exactly it constitutes. However, social media as the ‘group of Internet-based applications that build on the ideological and technological foundations of Web 2.0 and that allow the creation and exchange of user-generated content’ (Kaplan and Haenlein 2010) forms an important development for the customer–firm relationship (Bijmolt et al., 2010). Such technologies include among others websites, email, social media and networks, discussion forums and blogs. All of these two-way, interactive channels are highly disruptive for the management of relationships with customers (Hennig-Thurau et al., 2010).

CRM Technology

Technology has always been vital to CRM implementation, but problems have arisen when the technology focus has predominated over the marketing focus (Reinartz et al., 2004; Boulding et al., 2005; Cooper et al., 2008). Effective CRM implementation does not necessarily require sophisticated analyses, concepts, or technologies (Boulding et al., 2005). What it does require are technologies that facilitate the underlying marketing and customer-related strategies (Jayachandran et al., 2005; Ahearne et al., 2007). Two principal areas in which technology can enable CRM are customer communication and customer information management (Jayachandran et al., 2005; Harrigan et al., 2010). Whether it has been simple technologies such as websites, email and databases or more complex CRM packages such as Onyx, the basic aim has been to build customer insight and use that to better tailor communications to customers, which in turn will lead to a higher customer lifetime value (CLV) (Dwyer et al., 1987).

The major development of the 21st century, however, has been the widespread availability of social-type technologies among customers, first on computers but now on smartphones (Ganesan et al. 2009). These technologies have empowered customers to ‘serve as retailers themselves on eBay, media producer-directors on YouTube, authors on Wikipedia, and critical reviewers on Amazon and Tripadvisor’ (Hennig-Thurau et al., 2010:311). Underlying all these social media are tools such as Facebook and Twitter. If this is where the customers are, then this is also where CRM also ought to be? The fact that these technologies by their nature possess the characteristics and capabilities for relationship-building only increases their potential for successful CRM.

Customer Engagement

Back in 1990, Huber theorized that advanced technologies enable managers to communicate and stay informed. In 2007, Chen and Ching posited that communication and information are vital to the success of CRM (Chen and Ching, 2007). Engaging with customers can be seen as an extension of communicating with customers, made possible through social media.

Customers are participating in social networks, creating and sharing content, communicating and building relationships with each other (Gordon 2010; Libai et al. 2010). These customer-to-customer (C2C) interactions are extremely powerful marketing tools, if tapped into in the right way. There are examples of firms like Blackberry and Apple who have forums that proactively encourage customer involvement in every stage of the co-creation process. These customers input into the product and service quality and also become ambassadors for the firm (Hoyer et al., 2010; van Doorn et al., 2010). However, how processes like this can strategically fit into CRM remains relatively unknown. In addition, there are challenges in how to manage such social media processes on a day-to-basis, where for example negative opinions are aired and spread about the company. Unlike previous media, the company cannot be seen to be controlling the message and suppressing their customers’ voice (van Doorn et al., 2010). Likewise, the trusting environment that usually exists in the social media prevents firms from advertising as such, where word-of-mouth spreads more organically based on customer experiences (Libai et al., 2010).

What is required is a shift in marketing thinking that recognises ‘consumers as highly active partners, serving as customers as well as producers and retailers, being strongly connected with a network of other consumers’ (Hennig-Thurau et al., 2010:324). The co-creation of value becomes a reality (O’Hern and Rindfleisch 2009:4). Thus, it is the level of customer engagement that drives customer, and indeed firm, value (Kumar et al., 2010)

Information Management

As well as engaging with customers, CRM also requires firms to gather, manage and analyse information on customers (Jayachandran et al., 2005). There has been significant prior research around the role of information in CRM (e.g. Jayachandran et al., 2005; Chen and Ching, 2007; Ahearne et al., 2007). This has focused on issues such as profiling and classifying customers, predicting customer behaviour, conducting target marketing, and cross and up selling into existing customer base (Chan, 2005). Another major issue identified in previous literature has been the integration of information from disparate sources (Jayachandran et al., 2005). To sum up, customer information can be thought of as the ‘engine’ that drives CRM activities.

Just as newer social media have revolutionised communications with customers, so too have they revolutionised the information processes in CRM. Information on customers now can flow in real-time, and in significant quantities from sources such as virtual communities, blogs and social media (Hennig-Thurau et al., 2010). The type of information that exists within these communities is an invaluable resource for CRM purposes, with real-time customer views, preferences, buying behaviours and much more (Mathwick et al., 2008; Trusov et al., 2009). Baker (2009) speculated that the availability of social network data will be as transformative for the social sciences as Galileo’s telescope had been for the physical sciences (c.f. Libai et al., 2010:278).

The major theoretical and practical research question posed by these new forms of data is how can they be tapped in to and utilised for CRM purposes (Hennig-Thurau et al., 2010)? Some proposed metrics are the aforementioned CLV, but also customer referral value (CRV) which involves determining how much of each customer’s value stems from his or her referrals of new customers, customer influencer value (CIV) which is more subtle that referring but involves influencing through information-sharing, and customer knowledge value (CKV) which involves indentifying those customers with the best knowledge of the marketplace to help the company (Kumar et al., 2010). However, these do not deal with the issue of actually gathering the data; specifically what social media to monitor and how to gather the data in an effective and efficient manner on a large scale. The exponential growth of mobile social media use opens up even more possibilities for CRM, where location-based marketing is made possible (Hennig-Thurau et al., 2010; Shankar et al. 2010). Naturally, there is scope for new CRM software packages in this area, if CRM providers have the vision to view social media as within their remit.

Research Model

Extending on the resource-based view (RBV) of the firm (Barney, 1991), higher-order organisational capabilities are suggested as a source of firm performance in the strategic management literature (Grant, 1996) and more recently in the IS literature (Barua et al., 2004; Mithas et al., 2005). The rationale behind dynamic capabilities theory is that the RBV has not adequately explained how and why certain firms have competitive advantage in situations of rapid and unpredictable change (Eisenhardt and Martin, 2000). In brief, high-velocity markets are a boundary condition for the RBV (Lengnick-Hall and Wolff, 1999; Priem and Butler, 2001). As an evolution of the RBV, dynamic capabilities remains an inside-out approach, yet accepts the influence of outside events (Ferdinand et al., 2004). This notion of market dynamism encompasses influences such as customers, suppliers, technological advances and industry norms (Wang and Ahmed, 2007). While allowing for best practice, the existence of common features among effective dynamic capabilities does not imply that any particular dynamic capability is exactly alike across firms. It is held that while firm resources may be copied easily, capabilities are more difficult to replicate because they are often tightly connected to the history, culture and experience of the firm (Zhang et al., 2008). The concept of dynamic capabilities is especially relevant within the marketing discipline, and particularly to CRM (Sambamurthy et al., 2003; Boulding et al., 2005; Coltman, 2007). Information systems research has applied dynamic capabilities theory to understand the way in which technologies are used and integrated into organisational processes (Peppard and Ward, 2004; Rai et al., 2006; Coltman, 2007). This research applies dynamic capabilities to CRM as an organizational process.

This research builds on Jayachandran’s (2005) model of CRM published in the Journal of Marketing, but seeks to update it to place more emphasis on understanding the role of new social media technologies, within ‘CRM technology use’. Another construct added to the original model is ‘Customer engagement initiatives’, where customer engagement is a current phenomenon in marketing facilitated by these new technologies. See Figure 1 for a conceptual model.

Figure 1 Conceptual Model of CRM

Model adapted from Jayachandran et al. (2005), Journal of Marketing

A customer relationship orientation is a derivative of a market orientation (Kohli and Jaworski, 1990; Coltman, 2007). A market orientation comprises the organisation-wide generation of market intelligence on current and future customer needs, the dissemination of that intelligence across departments and the use of that intelligence across the organisation (Kohli and Jaworski, 1990). These are clear CRM activities, and are most certainly enabled by technologies. Thus, we hypothesise that a customer relationship orientation will have a positive impact on the level of CRM technology use.

H1 Customer relationship orientation will have a positive association with CRM technology use

In using CRM technology, which encompasses any Internet-based technology that facilitates CRM, two main activities of CRM should be facilitated; that is customer engagement initiatives and relational information processes (Chen and Ching, 2007; Jayachandran et al., 2005). Customer engagement initiatives are defined as activities that facilitate two-way interactive communications with customers leading to a co-creation of value (Hennig-Thurau et al., 2010; van Doorn et al., 2010). Relational information processes are defined as those processes that gather, manage, analyse and utilise information on customers to better segment, target and personalise communications and offerings (Jayachandran et al., 2005; Mathwick et al., 2008; Trusov et al., 2009). We also question whether CRM technology use has a direct impact on customer relationship performance, which is defined as a better understanding of customers leading to increased customer loyalty and CLV (Jayachandran et al., 2005).

H2 CRM technology use will have a positive association with customer engagement initiatives

H3 CRM technology use will have a positive association with relational information processes

H4 CRM technology use will have a positive association with customer relationship performance

Examining in more depth the two main activities of CRM, customer engagement initiatives and relational information processes, we also investigate the relationships between the two. We hypothesise that this is a cyclical process, where increased customer engagement will lead to more customer information and this more relational information processes (Jayachandran et al., 2005; Kumar et al., 2010). In turn, the more information on customers a firm possesses, the higher level of engagement with customers they should b able to maintain (Hennig-Thurau et al., 2010; Libai et al. 2010).

H5 Customer engagement initiatives will have a positive association with relational information processes

H6 Relational information processes will have a positive association with customer engagement initiatives

Finally, we propose that both of the above activities will be important antecedents to customer relationship performance, which has been defined as a better understanding of customers leading to increased customer loyalty and CLV (Jayachandran et al., 2005).

H7 Customer engagement initiatives will have a positive association with customer relationship performance

H8 Relational information processes will have a positive association with customer relationship performance

Future Research

The next phase of the research will be to develop a survey instrument which, although drawing heavily on Jayachandran’s (2005) scales, will require new constructs and scales to measure the social media aspect of the study. This will require further literature reviewing and a phase of qualitative in-depth interviews with practitioners (Ahearne et al., 2007). After pre-testing, a final survey will then be distributed to a large sample of service-sector firms, with the precise sample yet to be confirmed. However, the service-sector in general is more suited to a customer relationship orientation (Lovelock, 1983; Eisingerich and Bell, 2007).

We will use structural equations modeling (SEM) as the analytical tool because it estimates both the measurement model, to ascertain construct validity and reliability of measures, and the structural model, which tests the strength of hypothesized relationships, as specified by researchers (Bollen, 1989). SEM is also convenient when the research model contains multiple dependent (endogenous) constructs, some of which are causally related to each other (Kline, 2005).

In conclusion, this conceptual paper is a stepping-stone in a research investigation of CRM in the social media age. We build on the extremely useful model provided by Jayachandran (2005) in the Journal of Marketing, but extend it to account for the disruptive influence of new social media technologies that customers have taken up at an exponential rate, and that marketers must follow. In particular, these tools by their very definition are so suited to CRM that there will be significant theoretical and practical implications of this research.

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Customer relationship orientation

CRM technology use

H1

H6

H5

Relational information processes

Customer relationship performance

Customer engagement initiatives

H2

H3

H4

H7

H8

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