As noted in this chapter, increasingly the contracting process is moving online. Large and small e-commerce Web sites offer to sell millions of goods and services. The vast amount of data collected from online shoppers has pushed customer relationship management (CRM) to the fore. CRM is a marketing strategy that allows companies to acquire information about customers’ wants, needs, and behaviors. The companies can then use that information to build customer relationships and loyalty. The focus of CRM is understanding customers as individuals rather than simply as a group of consumers. As Exhibit 9.3 shows, CRM is a closed system that uses feedback from customers to build relationships with those customers.

Two Examples—Netflix and Amazon

If you are a customer of Netflix.com, you choose Blu-ray discs and DVDs that are sent to you by mail or streamed online based on your individual tastes and preferences. Netflix asks you to rate movies you have rented (or even seen in theaters) on a scale of one to five stars. Using a computer algorithm, Netflix then creates an individualized rating system that predicts how you will rate thousands of different movies. As you rate more movies, the predictive reliability becomes more accurate. By applying your individual rating system to movies you have not seen, Netflix is able to suggest movies that you might like.

Amazon.com uses similar technology to recommend books and music that you might wish to buy. Amazon sends out numerous “personalized” e-mails to its customers with suggestions based on those customers’ individual buying habits. Thus, CRM allows both Netflix and Amazon to use a focused marketing effort, rather than the typical shotgun approach used in spam advertising on the Internet.

CRM in Online versus Traditional Companies For online companies such as Amazon and Netflix, any customer information obtained has some value because the cost of obtaining it, analyzing it, and utilizing it is so small. In contrast, traditional companies often must use a different process that is much more costly to obtain data to be used for CRM. An automobile company, for example, obtains customer information from a variety of sources, including dealers, customer surveys, online inquiries, and the like. Integrating, storing, and managing such information generally makes CRM much more expensive for traditional companies than for online companies.

Critical Thinking
Online companies such as Amazon not only target individual customers but also utilize each customer’s buying habits to create generalized marketing campaigns. Might any privacy issues arise as an online company creates a database to be used for generalized marketing campaigns?

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Exhibit 9.3 A Customer Relationship Management Cycle Determine how to leverage customer information. Understand interactions with Identify customer current customers. wants and needs. Create a customer database with customer buying habits. Use information technology to store all customer data.