Module

Customer Relationship Management

Topic

Customer Value

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Table of Contents
1.
2.
3.
4.
5.
6.

Introduction
Customer Value
The Scope of CRM
eCRM
Self Assessment
Summary

1. Introduction
In the recent years, delivering superior customer value has become a strategic
weapon in attracting and retaining customers and has become one of the most
significant factors in the success of both manufacturing businesses and service
providers. In order to build and sustain competitive advantage, firms should drive
customer relationship management (CRM) performance by orientating their
operations towards the creation and delivery of superior customer value. This topic
covers the concept of customer value, its dimension as well as the scope of CRM and
eCRM.
Objectives: Customer Value
Upon completion of this topic, you should be able to
describe the concept of customer value
outline the key dimensions of customer value
describe the scope of customer relationship management
outline the opportunities and challenges of eCRM

2. Customer Value
Customer Value and its Key Dimensions
Customer value refers to the customer's overall assessment of the utility of a product
based on the perception of what is received and what is given (Zeithaml, 1988 ).
Customer value as perceived by customers (rather than being objectively determined
by sellers or other stakeholders) typically involves a trade-off between what
customers receive (such as quality, benefits, and utilities) and what they sacrifice
(such as price, opportunity cost, maintenance and learning cost).
In order to understand the concept of customer value better, we will look at other
factors that might constitute perceived benefits and sacrifices as well as study the
managerial implications of these factors. From a firms perspective, customer value
can be understood in terms of product value, service value, employee value, and
image value (Kotler and Keller, 2006). Focusing on the customers perspective, the
customer value construct can be extended to five dimensions, namely social,
emotional, functional, epistemic, and conditional (Sheth at al., 1991 ). Although
these dimensions are related to each other, they do not have an equal significance at
any time. Click each tab to view the explanation of each dimension.

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Module

Customer Relationship Management

Topic

Customer Value

Social
The social dimension refers to the social utility derived from the product or service.
Emotional
The emotional dimension refers to the utility derived from the affective states that a
product or service generates.
Functional
The functional dimension refers to the utility derived from the perceived quality and
expected performance of the product or service.
Epistemic
The epistemic dimension relates to the surprise or novelty aspect of a product.
Conditional
The conditional dimension refers to the conditional effects of a specific situation on
value perceptions.

Reading: An integrated framework for customer value and customerrelationship-management performance

In this article, Wang et al. (2004) develop an integrative framework for customer
value and CRM performance based on the identification of the key dimensions of
customer value. Emphasising the customer equity-based view, the paper explores
the decomposed effects of customer value on CRM performance in terms of
relationship quality and customer behaviours.
Wang, Y., Hing Po, L., Chi, R., & Yang, Y. (2004). An integrated framework for
customer value and customer-relationship-management performance: A customerbased perspective from china. Managing Service Quality, 14(2), 169-182.
Customer Value and Competitive Advantage
CRM is not simply a method used by leading service firms to gain a competitive
advantage: it has become a necessity for their survival. As markets become
increasingly competitive, the development of long term customer relationships is
often viewed as a method of creating a sustainable competitive advantage.
According to Christensen (2010), the concept of customer value can be incorporated
into the definition of competitive advantage, which is defined as "whatever value a
business provides that motivates its customers to purchase its products or services
rather than those of its competitors and that poses impediments to imitation by
actual or potential direct competitors." To operationalise this concept, the
organisation needs to focus its attention on the customer's perceptions of its
products or services as well as the customer's purchase decision making process. In
doing so, the organisation can gain a better understanding of its customers and its
competitors, which will, in turn help them improve their assessment, analysis, and
achievement of competitive advantage.

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Module

Customer Relationship Management

Topic

Customer Value

Reading: Defining customer value as the drive of competitive advantage

Kurt Christensen, H. (2010). Defining customer value as the driver of competitive
advantage. Strategy & Leadership, 38(5), 20-25. 3.

3. The Scope of CRM

Kotler and Armstrong (2010) define customer relationship management (CRM) as
the overall process of building and maintaining profitable customer relationships by
delivering superior customer value and satisfaction. Customers want to do business
with organisations that understand what they want and need, and CRM is used to
manage relationships more effectively so that organisations can drive down costs,
while at the same time increase their product and service offerings.
CRM is widely practiced in the finance, retail, and hospitality industry, where
different levels of CRM are being applied to customers segmented by their purchase
frequency/intensity. Relationship levels can range from basic relationships, which are
often used by companies with many low margin customers to full partnerships, which
are used in markets with few high margin customers.
With the integration of IT into CRM, enhanced opportunities can be created as data
and information can be used effectively to understand customers and co-create value
with them. IT-based CRM systems have been applied in many industry sectors. CRM
provides analytical, operational, and direction capabilities as seen in the table below

CRM Capabilities
Analytical Capabilities

Description
The analytical capabilities enhance profitability
maximisation from the customer relationship

Operational Capabilities

The operational capabilities cut across the customer

value process

Directional Capabilities

This capability depends on strategic skill and reflects the

sharpness of long-term cooperation and organisational
values.

Successful CRM implementation would require a cross-functional integration of

processes, people, operations, and marketing capabilities that is enabled through
information, technology, and applications.
Reading: The impact of customer relationship management through
implementation of information systems
As outlined earlier, CRM has been widely regarded as a company activity related to
developing and retaining customers through increased satisfaction and loyalty. In
this article, Ku (2010) investigates how a customer-oriented firm uses information
systems to affect CRM profitability.
Ku, E. S. (2010). The impact of customer relationship management through
implementation of information systems. Total Quality Management & Business
Excellence, 21(11), 1085-1102.
Now let's look at the case on how Amazon CRM tools support its business operation.

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Module

Customer Relationship Management

Topic

Customer Value

CRM case: Amazon.com

CRM case: Amazon.com

CRM is about creating a high touch feel in a high tech environment. At Amazon.com,
customers have never spoken to a human being during their service interactions
online. Yet, Amazon.com is able to create a sense of customer relationship because
their CRM tools support Amazons customer relationship strategy via the following:
Add value to customer transactions by identifying related items with their
further recommendations on "customers who bought an item also bought
other items". This is similar to the way a retail sales associate would provide
recommendations in a brick and mortar setting.
Reinforce the sense of relationship by recognising repeat shoppers and
targeting them with customised direct marketing emails on new products or
new suggestions.

4. eCRM
The use of the Internet and information technology to deliver CRM has lead to the
emergence of electronic customer relationship management (eCRM). eCRM, which is
sometimes referred to as web-enabled or web-based CRM, expands the traditional
CRM techniques by integrating technologies of new electronic channels, such as Web,
wireless, and voice technologies, and combines them with e-business applications
into the overall enterprise CRM strategy. Similar to CRM, eCRM involves people,
processes, technology, and other factors, which are critical to successful eCRM
implementation.
Reading: Evaluation of Electronic Customer Relationship Management: The
Critical Success Factors
This article outlines the critical success factors of eCRM, which includes benefits,
costs, and risks. This framework enables organisations to examine their relationships
in the context of eCRM implementation.
Lin, C., Lin, K., Yu-An Huang, & Wen-Liang Kuo. (2006). Evaluation of electronic
customer relationship management: The critical success factors.The Business
Review, Cambridge, 6(2), 206-212.
Reading: What signifies success in e-CRM?
In this article, Kimiloglu and Zarali (2009) examine an exhaustive list of criteria to
assess the performance of e-CRM implementations according to the four perspectives
of the balanced scorecard, which includes measures related to customers, internal
business processes, innovation, and financial outcomes. The authors found that
successful e-CRM programs can bring about significant levels of improvements under
all the four perspectives of the balanced scorecard, including tangible measures such
as financial outcomes and the less tangible indicators such as customer value,
innovation, excellence, and efficiency in business processes.
Kimiloglu, H., & Hlya Zarali. (2009). What signifies success in e-CRM?Marketing
Intelligence & Planning, 27(2), 246-267.

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Customer Relationship Management

Topic

Customer Value

Reading: eCRM: Opportunities and challenges in a digital world

In this article, Kennedy (2006) presented a coherent view of eCRM technologies by
exploring the opportunities and challenges of eCRM. Specific opportunities of eCRM
highlighted include
enhanced customer interactions and relationships
manage customer touch points, personalisation options
leverage eCRM capabilities as a potential source of competitive advantage.
On the other hand, several challenges of eCRM exist. As the author noted, the ability
to create intimacy with the customer is limited in an online environment, and
building trust can be difficult due to the remoteness of these channels. When
managing an online channel, companies are faced with the fact that greater choice
creates fickleness among customers and with competitors being only one click away,
there are no second chances to recover mistakes in these remote channels. Further,
data integration and IT architecture challenges also exist for organisations adopting
eCRM technologies.
Kennedy, A. (2006). ELECTRONIC CUSTOMER RELATIONSHIP MANAGEMENT
(eCRM): OPPORTUNITIES AND CHALLENGES IN A DIGITAL WORLD. Irish Marketing
Review, 18(1), 58-68.

5. Self Assessment
Now, try the self-assessment questions to test your understanding of the topic. Click
the following link to open the Self-Assessment in a new window.
Self-Assessment
Self-Assessment
Question 1: Which one of the following statements describe customer value?
Customer value refers to the customer's overall assessment of the utility of a
product based on the perception of what is received and what is given.
Customer value refers to what customers receive (such as quality, benefits,
and utilities).
Customer value refers to what customers sacrifice (such as price, opportunity
cost, maintenance and learning cost).
Question 2: What are the dimensions of customer value? (Select five that apply.)
Social
Emotional
Process
Functional
Epistemic
Conditional
Question 3: What are the opportunities of eCRM? (Select four that apply.)
Enhanced customer interactions and relationships
Managing customer touch points
IT architecture
Personalisation options
Leveraging eCRM

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Module

Customer Relationship Management

Topic

Customer Value

6. Summary
This topic covered the following main points:
Customer value refers to the customer's overall assessment of the utility of a
product based on the perception of what is received and what is given.
Customer value is made up of the following dimensions: social, emotional,
functional, epistemic, and conditional.
Customer relationship management (CRM) is the overall process of building
and maintaining profitable customer relationships by delivering superior
customer value and satisfaction.
eCRM involves people, processes, technology, and other factors, which are
critical to successful eCRM implementation.
Some opportunities of eCRM include
o ability to enhanced customer interactions and relationships
o ability to manage customer touch points, personalisation options
o ability to leverage eCRM capabilities as a potential source of
competitive advantage.
Some of the challenges of eCRM are:
o Limited ability to create intimacy and trust with customer in an online
environment
o Greater choice in an online environment creates fickleness among
customers
o With competitors being just one click away, there are no second
chances to recover mistakes
o Challenges in adopting eCRM technologies
References
Zeithaml, V. A. (1988). Consumer perceptions of price, quality, and value: A means-end model and synthesis of
evidence. Journal of Marketing, 52(3), 2-22.
Sheth, J.N., Newman, B.I. and Gross, B.L. (1991). Consumption Values and Market Choice. Cincinnati, OH: South
Western Publishing.

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