Special Session Summary Putting the Customer Back Into Customer Relationship Management (Crm)

Eric Greenleaf, New York University
Russell S. Winer, University of California at Berkeley
[ to cite ]:
Eric Greenleaf and Russell S. Winer (2002) ,"Special Session Summary Putting the Customer Back Into Customer Relationship Management (Crm)", in NA - Advances in Consumer Research Volume 29, eds. Susan M. Broniarczyk and Kent Nakamoto, Valdosta, GA : Association for Consumer Research, Pages: 357-360.

Advances in Consumer Research Volume 29, 2002     Pages 357-360

SPECIAL SESSION SUMMARY

PUTTING THE CUSTOMER BACK INTO CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

Eric Greenleaf, New York University

Russell S. Winer, University of California at Berkeley

Customer Relationship Management (CRM) is a business strategy to select and manage customers to optimize long-term value. A focus on CRM requires that marketers go beyond striving simply to induce customers into making a particular purchase on a given occasion, but more broadly to build better long-term relationships with customers. The ultimate goal should be to transform these relationships into greater profitability by increasing repeat purchase rates and reducing customer acquisition costs. Importantly, understanding how customers react to customer relationship management tools requires a different set of theories than understanding how customers react to advertising and price promotions. Most of the literature on CRM has focused on what firms need to do to develop and keep long-term relationships with customers. By contrast in this session we will focus on how customers react to firms CRM efforts. Specifically this session examines how firm’s CRM efforts affect customer’s attitudes toward the firm and their purchase behaviors. The papers in the session also focus on customers’ preferences for how firms’ CRM efforts should be deployed.

In this special session, we have three papers that address customers’ views of and reactions to firms’ CRM efforts. The first paper by Lemon examines consumer emotional and behavioral responses to communications customers receive over time (e.g., via e-mail, phone, paper mail or wireless device) from firms as part of their CRM efforts. In an experimental study, Lemon examines how consumers respond differently to firms’ CRM offers depending upon the extent to which the consumer has actively chosen to receive these communications (i.e., given their "permission"). The second paper, by Greenleaf, Morwitz and Winer focuses on consumers’ preferences for how help communications that occur over time as part of a firms’ CRM efforts would ideally be managed. Specifically, it examines how consumer satisfaction differs when customers request help from firms, firms offer help to customers, and firms impose help on customers, and how consumer’s reactions vary in web versus traditional retail environments. Consistent with psychological help seeking research, when shopping in retail environments, customer satisfaction with the retailer is lower when the customer asks for help versus when help is offered or imposed by the firm. In contrast, when customers shop on the web, their satisfaction is lower when help is imposed by the firm versus when help is requested by the customer or offered by the firm. The third paper by Deighton, focuses on one specific firm (i.e., Hilton Hotels) and type of CRM effort (i.e., loyalty programs), and analyzes the benefit it provides to both consumers and to the firm. Superficially, it appears that such loyalty programs pose a prisoner’s dilemmaBif more than one seller offers such a program, the premiums paid to consumers lose differential incentive powr. The analysis suggests that they are properly thought of as giving consumers identity in their relationships with hotels, so that hotels can differentially allocate resources that would otherwise go unsold, to high-potential customers. In this way the loyalty program instantiates a general principle of relationship management.

 

"GAINING CUSTOMER PERMISSION: THE ROLE OF OPT-IN AND OPT-OUT STRATEGIES IN CUSTOMER RELATIONSHIP MANAGEMENT"

Katherine N. Lemon, Boston College

New technologies are making it possible to engage in real-time customer dialog anytime and anywhere. We seek to understand how consumers respond differently to communications from the firm depending upon the extent to which the consumer has actively chosen to receive these communications. We examine differences in consumer behavior between those who "opt-in" (tell the firm they want to receive information), and those who choose "not to opt-out" (choose not to tell the firm they do not want to receive such messages).

We build upon research examining the effects of consumer actions and inactions on consumer response. Prior research suggests that consumers whose actions deviate from the default option may experience greater regret from an undesirable outcome than consumers who choose the default option (Connolly, Ordo┬▒ez and Coughlan 1997, Landman 1987, Kahneman and Miller 1986, Zeelenberg and Beattie 1996). Regarding opt-in and opt-out strategies, this research would suggest that consumers who have actively decided to accept incoming offers from the firm (opt-in) would experience more regret if they received an inappropriate firm communication than a consumer who had merely decided not to opt-out. Alternatively, recent research by van Dijk, van der Pligt and Zeelenberg (1999) suggests that the amount of effort the consumer expends on a task can also influence the amount of regret they experience. Their findings would suggest that consumers who go for the "easy" approachCdeciding not to opt-outCwould experience more regret (if the firm sent an inappropriate offer) than consumers who expended more effort to opt-in.

We propose that the underlying mechanism driving this negative emotion is the consumer’s attribution (Folkes 1984, Weiner 1986) or focus of the emotion itself (Pham 1998, Elliott, Edell and Lemon 2000). Consumers’ negative emotions will be directed at the provider if they chose to opt-in (blaming the firm). This is consistent with Kahneman and Miller’s (1986) norm theory explanation. Consumer negative emotions will be directed toward themselves if they chose not to opt-out (blaming themselves for their lack of effort). This is in line with van Dijk et al.’s (1999) effort explanation.

We also expect the consumer reaction to the firm’s error to differ depending upon the length of the consumer’s relationship with the firm. Building upon research examining an individual’s likelihood to forgive in ongoing relationships (Rusbult, Zembrodt and Gunn 1982), and research regarding the effects of positive and negative experiences on existing customer relationships (e.g., Bolton 1998, Boulding, Kalra, Staelin and Zeithaml 1993, Inman and Zeelenberg 1998), we expect consumers who have prior positive experience with the firm to be more "forgiving," whereas newe customers will be less likely to forgive.

More formally, we hypothesize that consumers will respond differently to appropriate and inappropriate messages from the firm depending upon their opting strategy. We expect that consumers who choose to opt-in will be more likely to attribute the blame for a firm’s indiscretion to the firm than consumers who chose not to opt-out . Alternatively, consumers who choose not to opt-out will be more likely to attribute the blame for the firm’s indiscretion to themselves than consumers who chose to opt-in. These "not opt-out" consumers will react more positively to communications that they find to be valuable than opt-in consumers. Finally, consumers who have had prior positive experiences with the firm will be more likely to forgive a firm’s indiscretion, and will be more likely to be willing to continue the relationship than consumers who have little prior experience with the firm.

In an experiment, we examine consumer behavioral and emotional responses to firm communications and test the hypotheses. The experiment is conducted as a 2(opt-in, not opt-out) X 2 (new, existing customer) X 3(positive, neutral or negative message) between-subjects design. Initial results suggest significant differences in consumer emotional responses to communications received from the firm that consumers perceive as either valuable or as an indiscretion. The strongest differences appear to be between those who have experience with the firm and those who do not.

The results suggest that firms appear to be at greater risk of offending the consumer, losing trust, and losing future patronage when new customers receive messages that appear to utilize information about the customers’ preferences. However, customers with previous experience with the firm appear to value such customized communications. There is no difference between the two groups when the consumer receives an inappropriate message from the firm.

Interestingly, we do not find significant differences in responses to the communications between those consumers who have passively given the firm permission (consumers who have chosen "not to opt-out") and those who have actively given the firm permission (chosen to "opt-in"). There is initial evidence that those consumers who do not give the firm permission, yet receive communications anyway, are less upset if they actively chose to opt-out, than those who merely chose not to opt-in. The results suggest that customers are willing to receive messages that appear to be follow ups on their communications with the firm (e.g., order confirmation), but perceive customized messages based upon their revealed preferences to be a violation of the relationship..

This research has implications for marketing theory, practice and public policy. Theoretically, this research contributes to our understanding of the role of customer permission in ongoing customer relationships. We provide new insights into individual-level consumer emotional and behavioral responses to firm communications, and the differential effects of the default/non-default option on consumer response. Finally, this research provides insight for privacy policies. As governmental agencies work to determine optimal privacy guidelines (Gilbert and Teinowitz 2000), understanding the influence of opt-in and opt-out strategies on consumer response will be critical. Overall, this research suggests that both opt-in and opt-out strategies may be useful for the firm, but that each strategy may lead to different consumer responses.

 

"DOES WHO ASKS WHOM FOR HELP MATTER? FACTORS THAT AFFECT SATISFACTION IN WEB AND RETAIL SHOPPING ENVIRONMENTS"

Eric A. Greenleaf, New York University

Vicki G. Morwitz, New York University

Russell S. Winer, University of California at Berkeley

Often customers need a firm’s help to decide which product best fits their needs. The help-seeking and providing aspects of CRM have received much less attention than other CRM activities. Furthermore, help strategies effective in traditional retail stores may not be effective on the internet, which involves a more anonymous contact, and vice versa. We examine how consumers’ reactions to help depend on how the contact begins (requested by customer, offered by firm, imposed by firm), the shopping context (traditional retail or web), and customers’ perceptions of the helper. Specifically we investigated:

1. Who should initiate help? People often avoid requesting help in face to face contexts because they anticipate feeling indebted to the help provider (Castro 1974; Greenberg and Shapiro 1971), losing self-esteem (Shapiro 1978), feeling unable to restore equity by reciprocating the help (Castro 1974; Greenberg 1980; Hatfield and Sprecher 1983), or feeling that they shouldn’t need help because most people do not. As a result, people often have more positive reactions to face-to-face help, when it is offered versus requested. We expect this to occur for in-store help, which also involves face-to-face contact.

2. Who should initiate internet help? Since internet help encounters are not face-to-face, they should not create the threats of indebtedness, etc., that make requesting help a problem in stores. As internet shopping is newer and more complicated than in-store shopping, consumers are less likely to feel that they should not need help. Thus, we expect that shoppers will react more positively to internet help when they initiate the encounter.

3. How do consumers’ expectations about help affect their reactions? People react more positively to help when they feel it is normal and expected for that context (Morse et al.1977). Most store consumers expect to be offered help by salespeople, and do not consider help an invasion of privacy. However, internet shoppers are less likely to expect to be offered such help and may also feel it is an invasion of their privacy. Thus, we expect that the impact of whether help is offered or requested will be mediated by whether consumers perceive that it is unusual for internet firms to offer help, and their privacy has been invaded.

4. Should firms ask permission before offering help? Studies in other contexts show that reactions to help depend on whether it is requested, offered, or imposed (Greenberg and Saxe 1975). Since store salespeople often offer help without prompting, but web retailers do not, we expect that in web shopping, but not in stores, offering versus imposing help will reduce privacy concerns and increase satisfaction with help.

5. How should help providers frame their motives? If consumers perceive that imposing web help invades their privacy, they may become more positive about such imposed help if they can generate a socially palatable explanation to the alternative view that the helper is "snooping." One such explanation is that the salesperson is on commission. Thus, we expect that web shoppers will react more positively to imposed help if they perceive that the helper is on commission. By contrast, we do not expect this effect in stores, where consumers expect to be observed.

We examined these questions using a simulated shopping experience where 175 respondents were assumed they were choosing between two books as a gift for a friend. The between subjects design was a 2 (whether shopping occurred at either a conventional or internet bookstore) x 3 (whether help was requested, offered or imposed) plus a no-help control condition. The results of the study support our hypotheses.

The results should prove useful to consumer behavior researchers who not only want to better understand the phenomenon of consumer help, but also find ways to make help seeking more effective. They should also prove useful to practitioners who want to include consumer help as part of their overall strategy for customer relationship management.

 

"A CLOSE ANALYSIS OF A LOYALTY PROGRAM"

John Deighton, Harvard University

In brief, the essential features of both LPs (loyalty programs) and CRM programs are:

Sellers identify customers as individuals, not groups or segments,

Sellers invest marketing resources differentially among the individuals,

Sellers favor high-potential buyers with better terms,

These buyers favor the seller with more patronage.

What motivated this investigation is the apparent paradox of the last two points, visible in LPs but possibly a feature of all relationships, namely that both parties to the relationship surrender some autonomy: they agree to contracts in restraint of trade. The consumer who elects to join a loyalty program enters a trap, and apparently does so wittingly, the trap being that in exchange for concentrating transactions with one buyer the member accumulates an asset ('point’ for example) that has no value except in the program. The member is locked in: for example, to accumulate points on American Airlines, the flyer may have to forego better prices on flights of other airlines that were not known at the time the flyer started accumulating American’s points. The simple answer to why the buyer goes into the trap, obviously, is that the terms of the loyalty program are so attractive that they compensate for the likely cost of being locked in. The problem with the simple answer is that terms sweet enough to attract the buyer may be too sweet for the seller to make a profit. The buyer is vulnerable to regret at other transactions foregone, and the seller is vulnerable to regret if customers are acquired on terms that do not pay out. One is tempted to define a relationship as a state of tolerated vulnerability, and the puzzle is why? A close analysis of the loyalty program of the Hilton Hotels chain indicates how mutual gains from relating arise.

TABLE 1

HILTON=S PATRONAGE

Four chain competitors dominate the US business class hotel market: Starwood, Marriott, Hyatt and Hilton. Each offers an LP, on terms that are not really very different. The essential feature is that points are earned at each stay at a hotel in the chain. However a crucial feature of all programs is that management grants additional benefits from among the unutilized and under-utilized resources of the hotels, such as room upgrades subject to availability, at its discretion and more frequently to high than low status members. Another crucial feature is that, because many properties are franchised and managers at a particular property have an interest in only that property’s part in the guest’s total expenditure with the chain, membership in the chain’s program gives the guest a claim on the larger relationship with the chain in the event of dissatisfaction with some aspect of the experience at a particular property. Hilton’s patronage breaks out as detailed in Table 1.

Only non-group stays result from individual consumer choice, influenced by consumer-directed marketing, since group stays arise from business-to-business negotiations. From these numbers, therefore, it is clear that members of the loyalty program are very valuable. Of course some such non-uniform distribution of value is inevitable, not a result of the LP. The distinctive contribution of the program is indicated by something else: a conjoint study that finds that 20% of member stays are due to the LP incentives. As LP stays are 20% of all stays, the LP can be said to induce 4% of all stays. This may seem small, but fixed costs of $4.8 billion are not covered until occupancy of 68% is reached, and in this year the occupancy was 71%, so arguably the ability to induce an extra 4% of stays accounted for the entire $260 million net profit.

The cost of these inducements was effectively zero. Benefits received by guests comprised upgrades to rooms that would otherwise have gone empty, free accommodation during times of low occupancy, and allocation of staff services from low- to high-value customers. Further, the LP program sold access to its base of high-frequency travelers to other travel vendors at prices that covered administrative costs. In this way the seller side of the paradox is resolvedBit is a tool for costlessly marketing to a concentrated customer group whose patronage can make or break the seller’s business. On the buyer side, consumers were trading freedom of choice not merely for free stays (which could be competitively emulated) but for identity in the relationship (which, since it is a function of activity in the relationship, could not.) Thus consumer identity, entailing recognition, customizing of the offering, and entitlements due for concentrating patronage with one provider, compensates the buyer for loss of transaction freedom.

Loyalty programs are subtle marketing tools. Their name does not convey their essence: the typical member belongs to other programs and so is manifestly not loyal. Rather they should be studied as instruments for selectively giving identity (and therefore power) to customers of potentially high value.

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