Industrial Management & Data Systems

Emerald Article: Gaining customer knowledge through analytical CRM

Mark Xu, John Walton

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To cite this document: Mark Xu, John Walton, (2005),"Gaining customer knowledge through analytical CRM", Industrial Management &
Data Systems, Vol. 105 Iss: 7 pp. 955 - 971
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Gaining
Gaining customer knowledge customer
through analytical CRM knowledge
Mark Xu and John Walton
Department of Strategy & Business Systems, Portsmouth Business School, 955
University of Portsmouth, Portsmouth, UK

Abstract
Purpose This paper aims to examine how customer relationship management (CRM) systems are
implemented in practice with a focus on the strategic application, i.e. how analytical CRM systems are
used to support customer knowledge acquisition and how such a system can be developed.
Design/methodology/approach The current practice of CRM application is based on examining
data reported from a four-year survey of CRM applications in the UK and an evaluation of CRM
analytical functions provided by 20 leading software vendors. A conceptual model of an analytical
CRM system for customer knowledge acquisition is developed based on the findings and literature
review.
Findings Current CRM systems are dominated by operational applications such as call centres.
The application of analytical CRM has been low, and the provision of these systems is limited to a few
leading software vendors.
Practical implications The findings shed light on the potential area in which organisations can
strategically use CRM systems. It also provides guidance for the IT industry as to how an analytical
CRM system should be developed to support customer knowledge acquisition.
Originality/value The latest findings on CRM systems application are reported, and an innovative
analytical CRM system is proposed for customer knowledge acquisition.
Keywords Customer relations, Information systems, Knowledge management, Customer information,
Customer retention, United Kingdom
Paper type Research paper

Introduction
Customer relationship management (CRM) has been widely regarded as a company
activity related to developing and retaining customers through increased satisfaction
and loyalty. IT-based CRM systems have been applied in many industry sectors, and
research on advancing these systems is continuing (Kotorov, 2002; Rowley, 2002; Xu
et al., 2002; Bose, 2002; Choy et al., 2003; Ferguson et al., 2004; Sweet, 2004). One
approach to address future CRM systems development is to link knowledge
management (KM) and CRM in order to maximize not only operational, but strategic
efficiency of CRM through gaining and sharing knowledge about customers (Campbell,
2003; Rowley, 2004; Minna and Aino, 2005). Rowley (2004) argues that there is a need to
develop an understanding of the interaction and interface between KM and
relationship marketing (RM), and to operationalise this in the parallel contexts of
systems, people and processes. The key KM process includes knowledge creation,
sharing, dissemination and exploitation, and the RM process includes communication, Industrial Management & Data
creation of loyalty and stable customer base, customer service, trust cultivation and Systems
Vol. 105 No. 7, 2005
relationship maintenance. Rowley (2004) suggests that from a practical perspective, pp. 955-971
customer data or information can be used as a platform for both relationships and q Emerald Group Publishing Limited
0263-5577
knowledge. Tzokas and Saren (2002) recognised some convergence of knowledge and DOI 10.1108/02635570510616139
IMDS relationship marketing and competitive advantages, and developed a
105,7 conceptualisation of the dynamics of the two significant management paradigms.
Minna and Aino (2005) conclude that there is an evident need in the marketing
discipline to further elaborate on the concepts of customer knowledge and customer
knowledge management.
Knowledge is the only meaningful economic resource (Drucker, 1996), and gaining
956 this knowledge is becoming an important differentiator for competitive advantage
(Paiva et al., 2002; Tzokas and Saren, 2002). In the context of studying manufacturing
companies, Paiva et al. (2002) found that customers information is the type of
information that is most frequently updated, and the company focuses on specific
customer information instead of general market information. Bose (2002) argues that to
gain competitive advantage, there needs to be a shift from mass marketing and
traditional customer segmentation towards customer-centric orientation and
one-to-one marketing, which is centred on treating every customer individually and
uniquely, according to the customers preference. Ahn et al. (2003) acknowledges that
managing relationships with customers is a key point to solidify competitive power of
a company. However, effective use of customer information and knowledge,
particularly in the context of marketing decisions, is still inchoate in many
organisations (Bose and Sugumaran, 2003).
The customer is a strategic element in a companys downstream supply chain. It
relates to the immediate business environment that a company needs to scan for
strategic information (Xu et al., 2003). The customer, according to Daft et al.s (1988)
environment sector classification, is in the layer closest to the organisations task
environment that has direct transaction with an organisation. Changes in the type of
customers, behaviour and patterns of customers are likely to have immediate effect on
the operations of a company and also have implications for decision making relating to
strategy setting in the future. It is recognised that not every customer is equally
important to an organisation in terms of his/her lifetime value, thus, customers need to
be segmented in order to identify strategically important customers. Important factors
for improving customer service are to identify the reasons why customers defect and
also ways of preventing customer defections. This requires information about
customers preferences and behaviour patterns. However, very few studies have been
established to address customer knowledge acquisition in the context of CRM
implementation.
Although a range of CRM technologies, particularly CRM software, are witnessed
being developed and implemented in practice (Luck and Lancaster, 2003; Feinberg et al.,
2002; Ferguson et al., 2004), there is little research addressing to what extent CRM has
been implemented to provide strategic customer information i.e. to gain customer
knowledge. Research on how to incorporate analytical functions into operational CRM
has been limited (Xu et al., 2002; Bose, 2002), and the conceptualisation of such systems
tends to be general and vague. As suggested by Ahn et al. (2003) the main concern in
CRM systems is to understand and make practical use of customer information, and
argue that with an enormous amount of data stored in databases and data warehouses,
it is increasingly important to develop powerful tools for the analysis of such data and
mining interesting knowledge from it.
This study aims to examine the implementation of CRM systems in practice with a
focus on its strategic application, i.e. to gain customer knowledge, and to explore the
ways of embracing CRM technology for strategic customer information provision. The Gaining
significance of this investigation is to explore the potential of CRM systems and the customer
ways that organisations can better use the system to unlock the wealth of customer
information and deliver it, enterprise wide, to both internal and external users. knowledge

Literature review
CRM is a process designed to collect data related to customers, to grasp features of
957
customers, and to apply those qualities in specific marketing activities (Swift, 2001).
Choy et al. (2003) suggests that CRM is an information industry term for
methodologies, software, and usually internet capabilities that help an enterprise
manage customer relationships in an organised way. It focuses on leveraging and
exploiting interactions with the customer to maximise customer satisfaction, ensure
return business, and ultimately enhance customer profitability. In practice, however,
managers often perceive CRM from different perspectives, for example, CRM is a part
of marketing efforts, customer service, particular software and technology, or even
process and strategy. Luck and Lancaster (2003) suggest that the term CRM has
become a buzzword, with the concept being used to reflect a number of different
perspectives. In this paper, the term CRM system is used to reflect computer-based
systems that support CRM.

Customer knowledge
Rowley (2002) defines customer knowledge as:
.
knowledge about customers, which includes knowledge about potential
customers, customer segments and individual customers; and
.
knowledge possessed by customers.

Minna and Aino (2005) differentiate customer knowledge from customer data and
customer information, and suggest that customer knowledge can be explicit, the
structured customer information in databases, or in tacit customer knowledge
knowledge in mind of employees and customers. In this paper, the term customer
knowledge means knowledge about customers. There is no doubt about the importance
of gaining customer knowledge. For instance, Zineldin (2000) suggests that IT tools
should be used not only to provide relationship building credibility and opportunities
but also to enable marketers to keep their fingers on the customers pulse and respond
to changing needs. This is emphasised by Roscoe (2003), who argues that marketers
must embrace customer knowledge management (CKM) to really get under the skin of
consumers and deliver a profitable relationship. CKM needs to provide customer
insight, profiles, habits, contact preferences and understanding to improve an
organisations contact with the customer. It can be argued that knowledge gained on
customers will enable organisations to make intelligent decisions as to which customer
to acquire and develop, what channels to use when contacting the customer, what
products/services to sell, acquire and develop, and how to get the business to deliver
excellence using the CRM strategy. The strategic importance of gaining customer
knowledge has been perceived by many managers, as stated by Shaw and Ivens (2002)
that 71 per cent of senior business leaders say that customer experience is the new
competitive battleground and is a source of sustainable differentiation.
IMDS Review of developing analytical CRM systems
105,7 Enhancing the analytical power of CRM systems has been recognised by researchers.
For example, Rowley (2004) suggests that CRM systems include online order, e-mail
and knowledge bases that can be used to generate customer profiles, and to personalise
service. Xu et al. (2002) state that CRM technologies allow the organisation to gain an
insight into the behaviour of individual customers and, in turn to target and customise
958 marketing communication and messages. In addition, these tools generate data that
support the calculation of customer lifetime value for individual customers. The
studies, however, do not specify the key components of the system, nor how such a
system can be developed.
Bose (2002) outlines a CRM development plan based on the typical system
development life-cycle approach, in which he suggests that CRM involves acquisition,
analysis and use of knowledge about customers in order to sell more goods or services
and to do it more efficiently. Developing such a system builds on an enterprise-wide
integration of technologies working together such as data warehouse, web site,
intranet/extranet, phone support systems, accounting, sales, marketing and
production. The analytical function may be fulfilled by separate systems, such as
decision support systems and expert systems. This approach is vague on how
customer knowledge might be created, because it is not clear as to what technology in
practice actually turns customer data into knowledge. A similar approach is suggested
by Lee and Hong (2002) to create an organisation-wide KM infrastructure. In the model,
database, data warehouse, digital library, data mining and online analytical process
(OLAP) are suggested as being the tools to capture and develop knowledge. The model,
however, is general to organisational KM rather than specific to customer knowledge
creation. Ahn et al. (2003) proposes that data mining/analysis tools and a knowledge
base should be the function of a CRM system, but did not go further to illustrate how
such a system can be developed.
Although how to develop an analytical CRM is far from clear, some explorative
research may benefit developing such a system. For example, Choy et al. (2003) reports
to use case-based reasoning to evaluate and select suppliers in order to fulfil the
requirements of the key customers so as to retain a good relationship. Bose (2002)
based on Wells et al.s (1999) argument to suggest that expanding customer data needs
to include non-transactional information, which is equally, if not more, valuable than
the transactional data. Such data may include general inquiries, support calls,
suggestions, employee/management comments, registration cards and complaints.

CRM systems application in practice

The implementation of CRM systems has been widely reported by both CRM software
vendors and academic researchers. The popular CRM systems appear to be: call centre,
contact management, data warehousing, portals, workflow and business process
management for the purposes of retaining existing customers and developing new
customers. Xu et al. (2002) suggest that contact centres have been playing a major role
within the CRM picture. Taylor and Hunter (2002) report that the European customer
support and service market is still largely focused on call centres, particularly in the
UK. Very few practitioners are making optimum use of their client database, because
they are failing to update, quantify and qualify the information collated about the
clients (Dyer, 1998). A few reports even suggest that CRM systems fail to have the
transformational impact widely promised by the software industry and expected by Gaining
the business community. For example, Harvey (2001) cited Gartners report by saying customer
that 65 per cent of CRM implementations result in failure. Most CRM systems are used
to improve customer-facing operations. Rowley (2002) argues in line with Harvey that knowledge
80 per cent of CRM implementations fail, and academics express scepticism about the
viability of interpreting customer data in such a way that it generates useful insights
into customer and user behaviour. Bolton (2004) consents with these arguments by 959
stating that many of the early CRM implementations seem to have failed.
Sweet (2001, 2002, 2003, 2004) reported four survey results related to CRM
applications in UK companies. The surveys were conducted by PMP Research from
2001 to 2004. A range of CRM-related issues are investigated including the success
level of CRM, reasons for implementing CRM applications, degree of customising CRM
solutions, current spending and future investment in CRM, degree of using analytical
tools, and the perception of gaining competitive advantage from CRM. The following is
a revisit of the data that is relevant to this study.
Reasons for implementing CRM. The motivating factors for companies moving
towards CRM technology are presented in Table I.
The data shows that major considerations for companies in using CRM is to
improve customer satisfaction level, to retain existing customers and to improve
customer lifetime value. Providing strategic information from the CRM systems
appears less important than improving satisfaction level and customer lifetime value.
Using CRM systems to attract new customers has been perceived less important in the
four surveys. This shows that most managers accept the view that gaining a new
customer is more costly than retaining an existing customer. Several authors highlight
the strategic advantage of maintaining the customer base as opposed to merely
attracting new customers (Luck and Lancaster, 2003; Rowley, 2004). For example,
Kandampully and Duddy (1999) quote that it costs five times more to attract a new
customer than it does to keep an existing one. Zineldin (1999) argues that getting
customers is important, but keeping and satisfying them is more important. Customer
retention is less costly and, therefore, more profitable than customer attraction.
Retention also contributes to the creation of reputation, which in turn further lowers
customer acquisition costs. Managers no longer see CRM as a quick way to bring new
customers on board.
Using CRM for cost reduction is ranked the last in the four-year survey. This
suggests that most managers do not perceive CRM systems as simply a means of

Mean
Reasons for implementing CRM 2001 2002 2003 2004

Improving customer satisfaction level 4.32 4.00 4.44 4.19

Retaining existing customers 4.46 4.16 3.90 3.95
Improving customer lifetime value 4.38 4.22 4.36 3.48
Providing better strategic information to sales,
marketing, finance, etc. 4.12 3.88 3.82 4.08
Attracting new customers 3.98 3.60 3.48 3.50
Table I.
Cost savings 3.18 3.33 2.98 2.98
Reasons for
Notes: 1 not important; 5 very important implementing CRM
IMDS reducing the costs of customer service. Sweet (2003) reports that specialist software
105,7 supporting CRM operation such as contact management systems are perceived as
important by 66 per cent of the respondents, 52 per cent of the respondents regard the
call centre as important. The percentages are significantly higher than that of the
analytical CRM systems.
Revisiting the data suggests that many CRM systems implemented are aimed at
960 improving operational aspects of CRM. The operational efficiency in dealing with
customer enquiries could result in improved customer satisfaction level and customer
loyalty. However, gaining customer knowledge from CRM systems and providing
strategically important customer information to other departments are not perceived
as important as improving operational efficiency.
The extent of using analytical CRM. Analytical CRM systems incorporate tools that
can process the sheer volume of customer data to support strategic customer
information provision and customer knowledge acquisition. Sweet (2001, 2002, 2003,
2004) reveals that the application of analytical CRM in the UK companies has been low.
Figure 1 shows the application level of using analytical CRM.
As shown by the chart, only a quarter of the UK companies use analytical CRM,
although there is an increase in 2003 (38 per cent). The data supports our contention
that CRM systems are mainly used for operational activities e.g. contact
management, call centre, workflow, and multiple touch points. There is a lack of focus
on gaining customer knowledge for strategic decision making from CRM systems, and
a lack of analytical CRM solutions from vendors.

Methodology
It is believed that evaluating the analytical CRM solutions is useful to explore the
reasons behind the low level application of analytical CRM. Thus, a self-evaluation
approach is adopted to assess the functionality of CRM systems provided by some
leading vendors. To evaluate the analytical function of current CRM software, 20 CRM
systems are selected including companies such as SAP, PeopleSoft, Siebel, Sage,
Microsoft, Saratoga, Intershop, Firstwave, Epicor, etc. The CRM systems are evaluated
based on the demo systems and the additional information available from the
companys brochures, web site, and other literature. The following four categories
suggested by Chaudhury and Kuiboer (2002) and Sap.com (2003) are used to evaluate
the 20 CRM systems.
Operational CRM. Customer data is collected through a whole range of touch points
such as contact centre, contact management system, mail, fax, sales force, web, etc. The

Figure 1.
Usage of analytical CRM
(responses in per cent)
data then are stored and organised in a customer centric database, which is made Gaining
available to all users who interact with the customer. A typical operational CRM is the
contact centre and contact management. A contact management system can provide
customer
complete and comprehensive tracking of information relating to any contact with knowledge
customers. This is known as 100 per cent focus on the customer (Kotorov, 2002). The
benefit of this type of CRM is to personalise the relationship with the customer, and to
broaden the organisational response to the customers needs. 961
Analytical CRM. Data stored in the contact centric database is analysed through a
range of analytical tools in order to generate customer profiles, identify behaviour
patterns, determine satisfaction level, and support customer segmentation. The
information and knowledge acquired from the analytical CRM will help develop
appropriate marketing and promotion strategies. This type of CRM is referred by
Kotorov (2002) as a 3608 view of the customer. Technologies underpinning the
analytical CRM system include CRM portals, data warehouses, predictive and
analytical engines (Eckerson and Watson, 2001); pattern discovery association rules,
sequential patterns; clustering, classification and evaluation of customer value (Ahn
et al., 2003). As a result of the analysis, customers are more effectively segmented and
offered products and services that better fit their buying profiles.
Collaborative CRM. The CRM systems are integrated with enterprise-wide systems
to allow greater responsiveness to customers throughout the supply chain (Kracklauer
and Mills, 2004). For instance, a CRM can be extended to include employees, suppliers,
or partners. A collaborative selling CRM can offer knowledge and tools to everyone in
the extended enterprise, and to help drive sales through every channel from call centre
to the web.
e-CRM. Allows customer information to be available at all touch-points within the
company and among external business partners through the internet and the intranet.
e-CRM can be defined as a web-centric approach to synchronizing customer
relationships across communication channels, business functions, and audiences
(Forrester Research, 2001). e-CRM enables online ordering, e-mail, a knowledge base
that can be used to generate customer profiles, personalised service, the generation of
automatic response to e-mail, and automatic help (Rowley, 2002).

Findings: provision of analytical CRM functions

Table II shows the result of the evaluation of 20 leading CRM software functions
(see Appendix).
The results show that almost all of the CRM systems evaluated have operational
functions with typical systems such as contact management, call centre applications,
field sales and field service support, and panoramic customer view. Some 40 per cent of
the CRM systems offer analytical functions, for example, mySAP CRM provides
customer knowledge and analysis to the entire organization. PeopleSofts analytical

CRM function Frequency Per cent n 20

Operational CRM 20 100

Analytical CRM 8 40 Table II.
Collaborative CRM 4 20 Common functions of
e-CRM (web-based) 9 45 CRM software
IMDS CRM provides real-time information about customers buying patterns, pre-and
105,7 post-sales behaviour and factors for customer retention. Forty-five per cent of the CRM
vendors evaluated provide e-CRM solutions. The e-CRM systems allow internal and
external users to access customer-related information via the internet or intranet, and
also to enable e-commerce functionality. For example, Oracles E-commerce
applications can develop, manage and personalize scalable internet storefronts for
962 B2B and B2C sales. Such applications offer self-service access to critical information
and integrates contact management functionality with online store operations.
Collaborative CRM has been offered by less than a quarter (20 per cent) of the vendors.
This is in line with the survey data that only one in five (20 per cent) of the companies
surveyed (2001) had already extended their CRM systems to include employees,
suppliers, or partners, whilst the survey in 2003 found only 12 per cent.
The findings confirm Boses (2002) argument that currently, standard CRM
packages have only scratched the surface of management support possibilities and
that IT will need to look beyond the current offerings of just one or two vendors. The
findings are in line with Kirchheimers (2003) assertion that there are very few pure
play analytics vendors and even fewer analytical CRM vendors. Analytical CRM in
most cases are made up of a number of discrete pieces of technologies that work
together to provide actionable information about customers. Most analytical CRM
vendors are jostling for position within the market, having come from very different
backgrounds and with very different technologies.
In summary, the main driving force of the current implementation of CRM systems
appears to be improving operational efficiency, rather than acquiring strategic
customer information from the systems. There is great potential for analytical CRM
and e-CRM systems to be developed, as at present, they are provided by less than half
of the software vendors. It is certain that the real challenge does not lie in automating
the front office with call center and contact management systems, but in the way CRM
system is strategically used by organizations, in particular, how the analytical CRM
systems should be developed to provide customer knowledge throughout the
organization. The next section will discuss some of the analytical functions of the CRM
system, and their practical implication to those organizations that wish to become a
true customer centric organisation.

An analytical CRM model

The essential of acquiring customer knowledge is to know not only who they are
(customer profiling and segmentation) but also how they behave and what pattern they
follow. Customer knowledge acquisition should be treated as a dynamic and
continuous process, to collect information about existing customers (internal),
defecting customers (cross organisational boundary) and new customers. Knowledge
about prospective customers and customers that are loyal to competitors (external)
should also be obtained. The findings suggest that in order to gain strategic benefits
from the investment of CRM systems, managers on the one hand need to be aware of
the power of analytical CRM systems and the strategic importance of gaining customer
knowledge; on the other hand, analytical CRM systems that can support customer
knowledge acquisition need to be readily available and affordable. Thus, an analytical
CRM system model that enables customer knowledge provision is developed and
shown in Figure 2. The practical implication of this system is to increase the awareness
 Gaining
customer
knowledge

963

Figure 2.
An analytical CRM for
customer knowledge
acquisition

and the perception of the power of analytical CRM systems within managers and to
provide guidance to CRM vendors to develop more analytical solutions for customer
knowledge acquisition.

Identifying strategically significant customers

Bolton (2004) refers to a banks CRM system by suggesting that maintaining the
processing of cheques, withdrawals, transfers, etc. is well established. However, it is
simply transactional. It has no concept of whether the person is an important and
valued customer. An analytical CRM should provide customer profiling and customer
segmentation functions with the capability to identify strategically significant
customers. Marcus (2001) identified four types of strategically significant customers,
which underpins the suggested system. The first is the high lifetime value customer.
Lifetime value potential is the present-day value of all future margins that might be
earned in a relationship. Some customers have higher value to an organisation than
others. Alexander and Turner (2001) suggest that all customers are not equal in their
future value to an organisation some may even affect a loss. Thus, organisations
need to calculate and predict customer lifetime value. Not all high volume customers
are necessarily high lifetime value, and as such it is the high life value customers that
must be the focus of customer retention efforts. There are many ways to identify high
value customers, for example, the Pareto or 80/20 rule, i.e. 20 per cent of existing
customers may contribute 80 per cent of the profit (or revenue). For a more accurate
prediction of the life long value of a customer, the profit/cost matrix together with
retention/loyalty levels (variables) could be used. Figure 3 shows the profit/cost matrix
for determining customer value.
Customer profitability is the difference between revenue and costs. Calculating the
customer contribution margin requires detailed analysis including factors such as product
costs, costs to acquire, costs to serve and cost to retain. Predicting the lifetime value of a
customer also needs to take into account the retention level and loyalty weighting.
IMDS
105,7

964
Figure 3.
Profit-cost matrix

The second group of strategically significant customers are benchmarks. They may
not necessarily be high value or high volume customers, but they are the early adopters
of new products and the role model that will set the trend. Understanding the profile
and the behaviour of these benchmarks would enable the company to foresee consumer
trends earlier than their competitors.
The third group are customers who inspire changes in the supplying company.
They may be customers who stimulate the suppliers to find new applications, come up
with new product ideas, and find ways of improving quality or reducing cost. Such
customers may be the most demanding, or even frequent complainers, but they offer
potential sources of value.
The final group are customers who absorb a disproportionately high volume of
fixed costs, thus enabling other smaller customers to become profitable. This group of
customers is a valuable source for analysing costs associated with CRM.
Managing strategically significant customers should be the focus of senior
management. It is envisaged that an effective analytical CRM should be able to
continuously identify and track such customers.

Segmenting customers to personalize services

In addition to identifying strategically significant customers, the analytical CRM system
will help profile and segment existing customers. Customer profiling combines multiple
aspects of customers into a coherent evaluation, such as customer details, historical
records and contact details, customer attractiveness, or customer satisfaction. Ferguson
et al. (2004) reported such a system used in a financial service company that can profile
customers and the service representative can promptly assist the customer by pulling up
all the customers relevant information. Even though customer profiling is oriented more
towards the operational function than the analytical function, it does provide a
comprehensive view of each customer. This is the information required to understand
the true value of the customer and gain insights to understand customer behaviour.
Existing customers can be segmented in many ways. This can lead to greater
understanding about which customers and products have the most impact on the
companys operation and strategy. The segmentation enables the company to provide
more personalized and, therefore, more attractive product and service offerings to
individual customer groups. Criteria for segmenting customers include: customer
profitability score, retention score, satisfaction and loyalty score, response to promotion.
PeopleSoft uses a customer scorecard to track key performance measurements and
communicate progress against CRM-related goals. The key performance indicators
(KPIs) delivered with the customer scorecard for an organizations financial goals include Gaining
revenue, margins, and profitability; for customer goals, the KPIs include acquisition, customer
retention, and satisfaction; for process goals, the KPIs include campaigns, sales, and
support; for workforce goals, the measurements include retention and competencies. The knowledge
possible criteria to support customer segmentation are: profitability by customer and
distribution channel; cost to support by product and customer; average order value by
customer; customer acquisition rate; customer defection rate; repeat customer rate; and 965
customer satisfaction.
Although retaining existing customers is perceived more important than acquiring
new customers, turning external, potential prospective customers into the companys
customer is often the battleground between competitors. Attracting external customers
reflects a managers open and forward vision, which is often judged as a strategic
competence of senior managers. Knowing prospective customers and customers loyal
(or defecting) to competitors is an asset to CRM. The analytical CRM system offers the
function of profiling and analysing prospective customers. This requires data to be fed
into the CRM from both internal and external sources. The CRM may also need to be
integrated with a competitive intelligence system in order to profile and analyse
customers that are loyal or have defected to the competitors.

Tracking and modelling customer behaviour patterns

Customer behaviour modelling is a process that includes segmenting target customer
groups, establishing criteria for measuring behaviour, monitoring and tracking
behaviour changes, generating behaviour patterns, and predicting possible future
behaviour. Figure 4 shows the process of behaviour modelling.
Select target customer groups. Different customer segments may have different
behaviour patterns, thus modelling customer behaviour needs to select a particular
customer group. For example, it would be useful to know how strategically significant
customers perceive the company, interact with the company and respond to the
companys offerings and promotions. The target customer group may also be identified
by their particular behaviour, for example, a group of defecting customers, a group of
regular complainers. Based on such segmentation, their perceptions and shopping
patterns can be monitored.
Developing measures to monitor customer behaviour. It is important but often
difficult to know what needs to be known. Effective behaviour modelling needs to
pre-define the types of behaviour to be modelled and how the behaviour is to be
measured. Table III outlines some typical customer behaviour patterns that should be
modelled by an analytical CRM system.

Figure 4.
Customer behaviour
modelling
 966
105,7
IMDS

behaviour
Table III.
Types of customer
Customer behaviour Purpose Measures

Purchasing behaviour
Contact behaviour
Retention behaviour
Respond behaviour
Migration and defection behaviour
To know the type of products and volume/value
To know how a particular customer contacts the
company
Reduces the likelihood to churn among valuable
customers and increase customer retention
Predict customer responses to marketing and sales
campaigns
Tracks the changing behaviour of customers and
monitors the changes in customer segments
Frequency, date, time, volume and value against
product type
Frequency of contact, length of each contact, channel
of contact, and purpose of the contact
Type of retention customers, frequency of retention,
average volume of customer order, factors affecting
customer retention
Per cent ignoring, noticing, taking action; changes in
perception/actions, e.g. frequency of purchasing
Percentage of defection, trends of defection, type of
defecting customers
Tracking and generating emerging patterns. Customer behaviour needs to be Gaining
continuously monitored and tracked in order to identify customer behaviour patterns customer
and trends, and to detect any abnormal behaviour or emerging patterns for managers
attention. Monitoring and tracking should be based on the pre-defined criteria to guide knowledge
what to monitor and how. To fulfil this function, intelligent agent and expert systems
can be included as a part of the analytical CRM system to enhance the detection,
comparison, reasoning and alerting function. 967
Predicting possible actions. Finally, the analytical CRM will predict possible actions
that are likely to be taken by customers based on the behaviour and pattern generated.
PeopleSoft refers to this as predictive analytics. Such analytics will enable managers to
look ahead, and to provide guidance on how best to manage and treat customers. For
example, to predict whether a customer is likely to purchase or defect, and which group
of customers are at risk of attrition. In addition to managerial support, the analytics
can guide staff that have direct contact with customers as to which offers can improve
their satisfaction, and make real-time recommendations on the best offers.

Managerial implications
The implications for management of using analytical CRM lie not so much with
improving operational efficiency as with other CRM systems, but rather with the
empowerment of management in the strategic decision-making process. Such
empowerment is achieved through customer knowledge acquisition and knowledge
sharing, thus enabling the business to become a knowledge driven organisation. To
achieve this, senior management need to raise their awareness of analytical CRM and
the potential benefits, based on which to develop a vision focusing on gaining customer
knowledge, and articulating the vision throughout the organisation, whilst also being
supportive to the development of such systems. The biggest threat to CRM, as
suggested by Bose (2002), is managements focus on short-run profits rather than
long-term vision.
A knowledge-based organisation would require more specialists and may need to
eliminate middle managers (Drucker, 1998). The organisational strategy, structure and
process may need to be transformed due to the application of analytical CRM. The
success will lie not only with successful implementation of the analytical CRM
software, but the synergy of the systems, process and people.
Much of the customer knowledge gained through the analytical CRM can be
codified, thus it can be made explicit for sharing. This falls primarily into the
codification strategy for KM as suggested by Hansen et al. (1999). Codification strategy
for implementing KM requires an information system that stores knowledge and
allows its reuse. This is opposite to personalisation strategy for KM, which calls for a
network system that links employees/expertise for sharing tacit knowledge. It is,
however, envisaged that the analytical CRM will enhance customer knowledge
creation, whilst the KM tools will enable customer knowledge to be communicated,
disseminated and effectively used. Integration between the multiple touch points with
customers (operational CRM), the analytical CRM, and KM tools is required in order to
maximise the full power of the analytical system.
How to implement the analytical CRM system for customer knowledge acquisition
is beyond the scope of this paper, however, some issues tend to be critical to all types of
IMDS CRM success, thus are outlined below and should be taken into account when
105,7 implementing analytical CRM systems.

Misunderstanding the power of CRM

Snyder and Davidson (2003) suggest that up to 80 per cent of CRM projects resulted in
failure. One of the reasons is the lack of CRM understanding. Bolton (2004) suggested
968 that implementation may fail because the organisation fails to adopt a clear strategy
and fails to make appropriate changes to its business process. Too many companies
install a CRM software application in the belief that this will deliver the CRM
capability the company needs. The most common fault was to focus on technology in
setting out to implement CRM, to the exclusion of people, process and organisational
changes required.

Lack of customer focus by senior management

Harvey (2001) reports (based on Qci Consultancys audit of 50 companies) that: only 17
per cent of companies incorporated customer acquisition, retention and development
costs in their marketing plan. He concluded that despite all the talk of customer focus,
there is little evidence that senior executives have their fingers on the pulse. Three
quarters of senior management do not have regular, direct contact with their
customers. Hung et al. (2005) examined the factors critical to adopt KM systems, and
highlighted the leadership and commitment of senior management as one of the key
factors. The perception and support of senior managers for the development of
analytical CRM is critical.

Conclusion
The CRM systems that have been implemented by many companies are dominated by
operational applications contact centres, sales and marketing solutions with limited
customer knowledge gained from the current CRM application. The analytical power of
CRM has not been adequately perceived by many organisations. The provision of
analytical CRM solutions is limited to some large organisations. It is suggested that
CRM systems should enhance not only an organizations ability to interact, attract and
build one-to-one relationships with customers but also the ability to gain customer
knowledge. Such a system should enable functionality for both internal (existing) and
external (prospects) customer knowledge provision. The system will not only provide a
panoramic customer view through profiling but also generate customer behaviour
patterns and predict future actions. The success of implementing such a system relies
on senior managers awareness and support, the solutions provided by the IT industry,
but more importantly, organisational changes required to create a knowledge centric
organisation.
The limitation of this study is noted and that the evaluation of CRM solutions is
subjective. However, there is evidence to support the argument that organisations have
not yet benefited from using analytical CRM to gain customer knowledge. The model
proposed in this paper would shed light on how such a system can be developed.

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Appendix

CRM vendors Operational CRM Analytical CRM Collaborative CRM e-CRM (web-based)
p p p
Applix UK p
Ascent p p
Astea p
Cincom p p
Compaq p
Connergent p p
Epicor p
Noetica p p p p
Onyx p
Oracle p p p p
PeopleSoft p
royalblue p
Sage p p p p
SAP p p
Saratoga p p p
SAS p p p
Siebel p
The Prolog p p p
Tranzline p Table AI.
Update Common function of CRM