Optimal Crm Strategies

Information Systems Research
Vol. 22, No. 3, September 2011, pp. 624–639 issn 1047-7047 eissn 1526-5536 11 2203 0624 http://dx.doi.org/10.1287/isre.1100.0309 © 2011 INFORMS

Determining Optimal CRM Implementation Strategies
Seung Hyun Kim
Department of Information Systems, National University of Singapore, Singapore 117417, [e-mail]

Tridas Mukhopadhyay
Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213, [e-mail]

A

lthough companies have spent a great deal of money to adopt CRM (customer relationship management) technologies, many have not seen satisfactory returns on their CRM implementations. We study optimal CRM implementation strategies and the impact of CRM investments on profitability. For our analysis, we classify CRM technologies into two broad categories: targeting-related and support-related technologies. While targeting CRM improves the success rate of distinguishing between nonloyal and loyal customers, support CRM increases the probability of retaining the loyalty of existing customers. We also consider the costs of implementing each CRM type separately as well as both types simultaneously. We show that the optimal CRM implementation strategy depends on the initial mass of loyal customers and diseconomies of scale in simultaneous implementation. We also find that the two types of CRM technologies are substitutive rather than complementary in generating revenue. We discuss why it is difficult to avoid overinvestments in CRM when the nature of the investments is misunderstood. We study the optimal CRM implementation scope and the impact of different types of CRM on customers. We develop a model that not only considers both the revenue and costs sides but is also helpful in determining the deployment of right CRM technology in the right scope. Key words: customer relationship management; IT investments; CRM costs; consumer surplus; complementarity; substitutability; economics of IS History:

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