Edited by V. Kumar and Denish Shah
Chapter 12: Customer-lifetime-value–based resource allocation
The field of customer relationship management (CRM) gained prominence among academics and practitioners with the advent of large customer databases. Technological improvements allowed firms to store and retrieve information on their interactions with individual customers and theoretically provided them with the ability to develop an ongoing and customized relationship with each customer. Driven by the belief that they could improve profits by developing these relationships, organizations made significant investments in CRM systems during the mid-to late 1990s. However, reality differed from expectations, and firms were not able to realize or measure the return on their investments. Development of a resource allocation strategy that fully utilized the individual customer-level information was identified as key factor that would determine the success of CRM investments. Today, CRM activities in several firms are driven by the systematic and differential allocation of resources to individual customers to grow their profits.
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