the costs and benefits of customer relationship marketing

Resources → Subject Notes → Business → Lesson Plan

3.1 The Nature of Marketing – Customer Relationship Marketing (CRM)

Learning Objective

To understand the aims, costs, benefits and performance measurement of Customer Relationship Marketing (CRM) and how CRM links to the overall marketing mix and objectives.

What is CRM?

Customer Relationship Marketing (CRM) is a strategic, data‑driven approach that seeks to build long‑term, mutually beneficial relationships with customers rather than focusing solely on single transactions. It uses technology, customer data and personalised communication to increase loyalty, retention and the lifetime value of each customer.

Aims of CRM (Syllabus 3.1.7)

  • Customer loyalty – increase repeat‑purchase rate.
  • Customer Lifetime Value (CLV) growth – maximise the net profit from each customer over the whole relationship.
  • Marketing & service efficiency – reduce the cost of acquiring and serving customers.
  • Accurate customer information – improve decision‑making through reliable data.
  • Brand reputation & word‑of‑mouth – enhance the company’s image and encourage referrals.

Link to the Marketing Mix & Marketing Objectives

CRM data influences every element of the 4 Ps and supports the three growth objectives (penetration, development, diversification).

Marketing Mix Element How CRM Helps
Product Customer feedback → product improvements or new product ideas.
Price Segmentation data → price differentiation (loyalty discounts, premium pricing for high‑value customers).
Promotion Personalised offers & targeted communication increase relevance and response rates.
Place (Distribution) Buying patterns → optimal channel selection and inventory planning.

Marketing objectives

  • Market penetration – CRM identifies existing customers most likely to buy more.
  • Market development – CRM uncovers new segments for existing products.
  • Product development – CRM feedback drives new product features.
  • Diversification – CRM insight reveals opportunities in new markets or product lines.

Costs of Implementing CRM

All three cost categories satisfy the syllabus requirement “costs of implementing CRM”.

  1. Initial Investment (one‑off)
    • Software licences or cloud‑subscription fees.
    • Hardware (servers, tablets, mobile devices) for on‑premise solutions.
    • Consultancy, system integration and customisation.
    • Data migration and cleansing.
  2. Ongoing Operational Costs (recurring)
    • Subscription/maintenance charges.
    • Training and development for staff.
    • Continuous data updating, validation and security management.
    • Technical support.
  3. Opportunity & Hidden Costs
    • Time spent on data entry/analysis that could be used elsewhere.
    • Disruption to existing processes during implementation.
    • Employee resistance if culture is not aligned.
    • Legal & ethical compliance costs (see Extension).

Benefits of CRM

Benefits are presented with a link to the KPI that measures each benefit.

Benefit Category Specific Advantages Related KPI(s)
Revenue Growth Higher repeat‑purchase rates, effective cross‑selling and up‑selling. Average Transaction Value, CLV
Cost Efficiency Reduced cost per acquisition, streamlined service processes, lower call‑centre handling time. CAC, Service Cost per Contact
Customer Retention Personalised communication, loyalty programmes, proactive service alerts. Churn Rate, Retention/Repeat Purchase Rate
Strategic Insight Data‑driven segmentation, predictive analytics, better market targeting. CLV, NPS (for segment satisfaction)
Brand Reputation (Non‑financial) Improved customer satisfaction, positive word‑of‑mouth, stronger market position. NPS, CSAT
Employee Morale (Non‑financial) Clearer customer information reduces frustration and enables staff to add value. Staff Turnover Rate (indirect), Internal Satisfaction Surveys

Measuring CRM Success (Syllabus 3.1.7)

Key performance indicators (KPIs) that directly reflect the aims of CRM.

KPI What It Measures Why It Matters Simple Calculation Example
Customer Lifetime Value (CLV) Net profit attributed to the entire future relationship with a customer. Shows the financial return of retaining customers. CLV = Σ (Revenue – Direct Cost) over the expected lifespan.
e.g., (£120 × 3 years – £30 × 3) = £270
Churn Rate Percentage of customers who stop buying over a period. Helps assess the effectiveness of retention activities. Churn % = (Customers lost ÷ Customers at start of period) × 100.
e.g., (500 ÷ 5 000) × 100 = 10 %
Customer Acquisition Cost (CAC) Total marketing & sales spend divided by number of new customers acquired. Indicates cost efficiency of attracting new business. CAC = Total acquisition spend ÷ New customers.
e.g., £150 000 ÷ 3 000 = £50 per customer
Retention / Repeat Purchase Rate Proportion of existing customers who make another purchase. Directly linked to loyalty aims. Repeat % = (Customers who repurchased ÷ Total customers) × 100.
e.g., (2 200 ÷ 4 000) × 100 = 55 %
Net Promoter Score (NPS) / Customer Satisfaction (CSAT) Customer willingness to recommend (NPS) or rate satisfaction (CSAT). Non‑financial indicator of brand reputation. NPS = %Promoters – %Detractors.
e.g., 60 % – 15 % = 45
Return on Investment (ROI) Financial return compared with total CRM costs. Shows whether the CRM system adds net value. ROI = [(Total Benefits – Total Costs) ÷ Total Costs] × 100.
e.g., [(£500 k – £300 k) ÷ £300 k] × 100 = 66.7 %

Extension – Legal, Ethical & Risk Considerations

  • Compliance with data‑protection legislation (e.g., GDPR, Data Protection Act).
  • Obtaining explicit consent for data collection and marketing communications.
  • Ensuring data security to prevent breaches and loss of customer trust.
  • Transparent handling of customer preferences and opt‑out requests.
  • Reputational risk if data is misused or privacy expectations are breached.

Real‑World Examples (with justification)

  1. Retail – Loyalty Card Programme (Tesco Clubcard)
    • Relevance: Demonstrates how a retail loyalty scheme uses CRM data to boost repeat purchases and CLV.
    • Initial costs: cloud‑based CRM, staff training and data migration – approx. £250 k.
    • Benefits (2 years): 20 % increase in repeat purchases, CLV up 15 %, CAC down 10 %.
    • KPIs used: repeat‑purchase rate, CLV, NPS.
  2. B2B – Account‑Based Marketing (ABM) Platform (Salesforce Pardot for a technology supplier)
    • Relevance: Shows CRM application in a B2B environment where individual accounts are targeted.
    • Initial investment: licences and ERP integration – approx. £180 k.
    • Benefits (12 months): 30 % higher lead‑to‑sale conversion, average deal size up 12 %.
    • KPIs used: CAC, average deal size, churn rate of corporate accounts.

Balancing Costs and Benefits

  1. Identify the specific aims (e.g., reduce churn by 5 %).
  2. Estimate total costs – add Initial Investment, Ongoing Operational and Opportunity/Hidden costs.
  3. Project measurable benefits using the KPI list.
  4. Calculate ROI and compare with the organisation’s required rate of return.
  5. Review results regularly (e.g., quarterly) and adjust the CRM strategy as needed.

Suggested Diagram

Suggested diagram: The CRM Cycle – Data Collection → Segmentation → Personalised Interaction → Feedback → Data Refresh → (repeat)

Key Points to Remember

  • CRM is an investment; most benefits accrue over the medium to long term.
  • Accurate, up‑to‑date data is the foundation of all CRM advantages.
  • Legal compliance and ethical handling of data are essential to avoid hidden costs.
  • Continuous staff training and a customer‑focused culture minimise hidden opportunity costs.
  • Monitor the KPI set (CLV, churn, CAC, repeat‑purchase rate, NPS, ROI) regularly to ensure profitability and alignment with overall marketing objectives.

Create an account or Login to take a Quiz

29 views
0 improvement suggestions

Log in to suggest improvements to this note.