Strategic Customer Relationship Management of Firms under Competition

Abstract

Customer loyalty has been proven to be the most important factor for profit generation of firms. Hence, many firms try to invest in customer relationship development to increase customer loyalty. However, due to firms' limited resources for investing in customer relationships, and due to the fact that not every customer relationship can be equally profitable, firms need to find customers with whom the firm can build more profitable relationships. Thanks to customer relationship management (CRM) systems, firms can be informed about their customers and concentrate their limited resources to customers of more profitable relationships instead of treating every customer equally. However, firms that are practicing this strategy may ignore customers of less profitable relationships. The primary objective of this study is to investigate whether or not it is appropriate for firms to concentrate their customer relationship development resources on the most profitable customer relationships. Our result shows that it may not be optimal for firms to concentrate all resources to those customers. Rather, firms should invest in improving relationships with less profitable customers. This is due to the strategic value of those customers to firms under competition.