Developing and Validating Customer Relationship Management (CRM) Practices Construct

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International Journal of Business and Behavioral Sciences Vol. 2, No.1; January 2012

35

Developing and Validating Customer Relationship Management (CRM) Practices

Construct

Zuliana Zulkifli, *Izah Mohd Tahir

Faculty of Business Management & Accountancy University Sultan Zainal Abidin (UniSZA)

21300 Kuala Terengganu, Terengganu * [email protected]

Abstract

The purpose of the research reported here is to develop and validate the CRM practices instruments used in this study. The original instrument consists of 25 items, under six dimensions: Customer Acquisition; Customer Response; Customer Knowledge; Customer Information System; Customer Value Evaluation; and Customer Information Process. The instruments were then validated after discussion with the marketing expert and bank practitioner, with 48 items were introduced under five dimensions. The final stage of the validation process was done using factor analysis. Data was gathered through a survey using a structured questionnaire to customers’ banks with a total of 78 respondents. Findings obtained from the exploratory factor analysis indicate that 29 items under five dimensions are valid and applicable to this study. The five final dimensions are Customer Acquisition, Customer Response, Customer Knowledge, Customer Information System and Customer Value Evaluation.

Keywords:

Customer Relationship Management, CRM dimensions, exploratory factor analysis

______________________________________________________________________________

1.

Introduction

Today, the key to success in business is focusing on customers’ needs, providing the products and services that suit their needs and managing the relationships with them to make sure they repeat their purchases (Brown, 2000). The only key to success in business is applying Customer Relationship Management (CRM) strategy into organizations. However, not many organizations understand the term of CRM and how to apply it. Most of the organizations believe that CRM can be achieved through investment in new technology like the more expensive hardware and software for greater customer satisfaction, revenue and growth.

Hussain, et. al., (2009) note that the term of CRM can be explained by four words as follows: (i) know: CRM manages the customer relationship by creating a clear understanding;

target: CRM was developing services and products based on the added value for

target groups;

(ii) sell: CRM was enabling the actual sale and delivery of services and products through the selected channels; and

(iii) service: CRM was developing long term profitable relationships with customers after sales services.

CRM has been part in the marketing literature since more than a decade. Interestingly, there is still much debate over what exactly constitute CRM. Customer Relationship Management

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36 (CRM) is neither a concept nor a project. Furthermore, the definition of CRM is debated between researchers until today. According to Brown (2000), CRM as a process of acquiring new customers, retaining the existence customers as given them profitable and at the same time to understands, anticipate, and manages the needs of an organization’s current and potential customers.

Ryals and Payne (2001) stressed CRM is a management approaches that use information technology (IT) to build a long term relationship with customers and at the same time give the profit to the organization. Another researchers like Chen and Ching (2004) highlighted CRM as a long term relationship that use customer database to identify which customer can give more profit to the organizations. Specifically, CRM is commonly conceptualized as a strategy (Parvatiyar and Sheth, 2001); process (Brown, 2000 and Plakoyiannaki and Tzokas, 2002); technology (Ryals and Payne, 2004 and Chen and Ching, 2004); people (Parvatiyar and Sheth, 2001).

The definitions of CRM vary based on what the researchers focused. Moreover, many definitions include multiple dimensions of CRM (Sin, et. al., 2005; Lu and Shang, 2007; Rootman, 2008; Mansor, et. al., 2010; Hussain, et. al., 2009; Das, et. al., 2009; and Kumar, et. al., 2011).

Therefore, the purpose of the research reported here was to validate the conceptualization of CRM practices constructs that consists six CRM dimensions based on Lu and Shang (2007) research.

2.

Review of Past Literatures

Sin etl. al (2005) highlighted to develop a reliable and validate CRM scale by using factor analysis. This research was tested to three different groups of respondents. The first group is 150 business executives who were attending a part-time MBA program used to select items based on factor analysis. The second group is using mail survey distributed in Hong Kong financial firms with 215 respondents used to examine factor structure and the third group about 276 business executives who were attending a seminar on CRM used to test the scale generalizability of CRM dimensions. The findings show four dimensions of CRM namely key customer focus, CRM organization, knowledge management and technology based CRM were used.

Lu and Shang (2007) used six CRM dimensions from a freight forwarders perspectives in Taiwan. The dimensions chose were based on factor analysis namely customer acquisition, customer response, customer knowledge, customer information system, customer value evaluation and customer information process. The result show that the customer knowledge is more important than others dimensions.

Rootman et. al. (2008) on the other hand, investigated the variables that influence the customer relationship management (CRM) of banks from employees’ perspectives. There are three variables influence which CRM: attitude of their employees; knowledgeability; and two-way communication. The findings reveal that the variables of attitude and knowledgeability of bank employees have significant impact on the effectiveness of the CRM strategies of banks. In another study by Hussain et. al. (2009) in selected banks in Pakistan, stressed the implementation of CRM, the benefits and problems as wells as success and failures as to develop a better understanding of CRM practices. These researchers used CMAT (Customer

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37 Management Assessment Tool) model to identify the elements of practical customer relationship management. The findings reveal that CRM is being practiced in the banks which selected in this study. Mansor et. al. (2010) highlighted the understanding of CRM practices among Agrobank’s staff. The researchers identified four variables as marketing, sales, information technology and information system. Service support were found to influence the understanding on the CRM. The result indicated that the variable of marketing has significantly influence the understanding on the CRM.

3.

Methodology

This research attempts to develop and to validate the CRM practices constructs used to examine the CRM practices form the customers’ perspective.. The purposive sampling technique has been used with 94 respondents who have account with their banks. However, only 78 questionnaires were usable for analysis. Researchers used this sampling technique because this research focus on the respondents’ level of understanding about CRM. In addition, this sampling technique is more convenient and meaningful way to investigate (Sekaran, 2003).

3.1

Questionnaire Development

In order to develop a questionnaire comprising the CRM practices, extensive review of literature was done. Based on the review of literature mentioned earlier about 51 statements were developed each representing a CRM practice. A panel of experts was formed to validate and refine the items. The panel consisted of an academic and bank practitioner who has involved in the banking industry for many years. A similar process was adapted by (Sin et. al, 2005; Lu and Shang, 2007; and Rootman, 2008) in their questionnaire development.

The panels were asked to comment on the 51 CRM statements and indicate whether each of them is relevant to CRM practice or not. Further, the list of CRM practice might be repetitive and need to select the most comprehensive statements and reject the others. It was decided that only 48 statements were retained and 3 statements were rejected. Each statement was measured using five-point Likert scale anchored by “strongly disagree (1)”, “disagree (2)”, “neutral (3)”, “agree (4)”, and “strongly agree (5)”. The respondents who were involved in this study are bank customers.

3.2

Validity and Reliability Tests

The CRM practices questionnaire comprises 48 statements/variables judged by the expertise. Factor analysis can be used to determine the broad underlying construct of a scale. The content validity was evaluated by the panel of judges who found it to be a good scale meaning the CRM practices from customers’ view. Further, the questionnaire was pre-tested to those targeted in the research.

About 20 customers’ banks agreed to participate in this research. The result from pilot study indicated that the questionnaire was clearly understood. From the pilot test results, the researchers found that each CRM practices statements are appropriate using a seven-point Likert scale to measure CRM practice anchored by “strongly disagree (1)”, “disagree (2)”, “somewhat disagree (3)”, “neutral (4)”, “somewhat agree (5)”, “agree (6)”, “strongly agree (7)” which more better and more appropriate. Reliability was computed using Cronbach’s coefficient for 48 statements of CRM practices of customers’ view and was found to be 0.96 respectively. Therefore, the scale can be considered to be reliable (Sekaran, 2003).

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4. Findings

4.1 Demographic Profile

Table 1 shows the result of respondents’ profile for this study. Majority respondents involve in this study were female (64.1%), in the aged between 25 to 34 years old (69.2%), and haddegree (34.6%) and master (32.1%) . Majority worked in government sector (66.7%) and 54 respondents (69.2%) used online banking.

From other aspect of how often the respondents go to the bank in a month, results show that majority respondents go to the bank 1 to 3 times only (64.1%). This is not surprised since the percentage of usage online banking is higher. A total of 78.21% of respondents have been with their bank about 1 to 10 years followed by 19.23% have been with their bank about 11 to 20 years and 2.56% have been with their bank about 21 to 30 years. The result on the purpose respondents use the bank’s services are more on personal (80.8%) followed by both (personal and business) (15.4%) and business (3.8%).

4.2 Exploratory Factor Analysis and KMO Results

The result of Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy and Bartlett’s test of sphericity is important in factor analysis. The results in Table 2 show that the KMO statistic varies between 0 and 1. According to Field (2009) the KMO values greater than 0.5 is considered acceptable. Furthermore, the KMO values between 0.5 and 0.7 are mediocre, values between 0.7 and 0.8 are good, values between 0.8 and 0.9 are great and value above 0.9 are super. In this study, the value of KMO is 0.884 which falls into the range of being good and show that the factor analysis is appropriate for this kind of study

Tables 4 to 8 show the result after the exploratory factor analysis for CRM practices construct were done. From 48 statements under six dimensions it has reduced to 29 statements and under five dimensions. Dimension six that is customer information process was dropped for this study.

5.

Conclusion

This paper was aimed at developing and validating the scale for CRM practices construct from the bank customers’ perspective. The original items for CRM practices construct were taken from Lu and Shang (2007). These dimensions are: customer acquisition; customer response; customer knowledge; customer information system; customer value evaluation; and customer information process. The study develops a list of 48 statements with six CRM dimensions / factors. With exploratory factor analysis, 48 statements with cross loadings and results shows only29 statements were valid to be used. These results will be used for future study which incorporates more respondents. This study is without its limitations. Larger sample size and broader scope of study may produce different results. Thus, the results from this study has to be interpreted cautiously bearing in mind the limitations mentioned earlier.

References

Brown, S. A. (2000). Customer Relationship Management: Strategic Imperative in the World of

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39 Chen, J.-S., & Ching, R. K. H. (2004). An empirical study of the relationship of IT intensity and organizational absorptive capacity on CRM performance. Journal of Global Information

management, 12(1), 1-17.

Das, K., Parmar, J., & Sadanand, V. K. (2009). Customer relationship management (CRM) best practices and customer loyalty: A study of Indian banking sector. European Journal of

Social Science, 11(1), 61-85.

Field, A.P. (ED. 3). (2009). Discovering Statistics Using SPSS (Introducing Statistical Methods). India: SAGE Publication

Hussain, I., Hussain, M., Hussain, S., & Sajid, M. A. (2009). Customer relationship management: Strategies and practices in selected banks of Pakistan. International Review of Business

Research Papers, 5(6), 117-132.

Kumar, A., Singh, D., & Acharya, P. (2011). CRM in banking: Perspectives and insights from Indian rural customers. International Journal of Research in Commerce, Economics and

Management, 1(2), 69-75.

Lu, C.-S., & Shang, K.-C. (2007). An evaluation of customer relationship management in Freight

Forwarder services. Paper presented at the 13th Asia Pacific Management Conference,

Melbourne, Australia.

Mansor, N., Abdullah, Z., & Rejab, M.Y.M. (2010). The understanding of customer relationship

management among Agrobank’s staff. Paper presented at the Terengganu International

Business and Economics Conference (TIBEC II).

Parvatiyar, A., & Sheth, J. N. (2001). Customer relationship management: Emerging practice, process and discipline. Journal of Economic and Social Research, 3(2), 1-34.

Plakoyiannaki, E., & Tzokas, N. (2002). Customer relationship management: A capabilities portfolio perspectives. Journal of Database Marketing, 9 (3), 228-237.

Rootman, C., Tait, M., & Bosch, J. (2008). Variables influencing the customer relationship management of banks. Journal of Financial Services Marketing, 13(1), 52-62

Ryals, L., & Payne, A. (2001). Customer relationship management in financial services: towards information-enabled relationship marketing. Journal of Strategic Marketing, 9, 3-27. Sekaran, U. (Ed. 4) . (2003). Research Methods for Business: A Skill Building Approach. United

State: John Wiley & Sons

Sin, Y. M. L., Tse, A. C. B., & Yim, F. H. K. (2005). CRM: Conceptualization and scale development. European Journal of Marketing, 39(11/12), 1264

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Table 1: Demographic Profile of the Respondents Category Frequency (n) Percent (%) Gender: Male 28 35.9 Female 50 64.1 Age: 25 - 34 years 54 69.2 35 - 44 years 16 20.5 45 - 54 years 8 10.3 Education Level: Certificate of education 10 12.8 Diploma 10 12.8 Degree 27 34.6 Master 25 32.1 PhD 6 7.7 Employment: Private sector 9 11.5 Government sector 52 66.7 Self-employment 5 6.4 Student 12 15.4 Online banking: Yes 54 69.2 No 24 30.8

How often you go to the bank in a month?

1 - 3 times 50 64.1

4 - 6 times 18 23.1

7 - 9 times 8 10.3

More than 10 times 2 2.6

How long have you been a customer of your bank?

1 - 10 years 61 78.21

11 - 20 years 15 19.23

21 - 30 years 2 2.56

Purpose you make use of the service at the bank?

Personal 63 80.8

Business 3 3.8

Both (Personal & Business)

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Table 2: KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling

Adequacy. 0.884 Bartlett's Test of Sphericity Approx. Chi-Square 1768.788 df 406 Sig. .000

Table 3: Exploratory Factor Analysis of the CRM Practices Construct

No Items Factors

1 2 3 4 5 6

46 I feel relaxed using my bank services 0.759 0.145 0.202 0.109 0.138 0.332 40 Electronic bank provides me with a security system

to protect my transaction

0.752 0.267 0.306

-0.182 43 I can put my trust on any services provided 0.745 0.242 0.27 0.127 0.145 33 my bank has modern equipments and technologies 0.702 0.325 0.133 0.216 0.169 45 The services at my bank make me want to use

banking services.

0.692 0.107 0.387 0.208 0.218 32 My bank's system allows me to perform my

banking needs.

0.652 0.342 0.147 0.203 -0.104 48 I am confident with the security level of my bank 0.609 0.436 0.264 0.233 47 The services at my bank would help me to give a

good impression towards other people.

0.602 0.112 0.161 0.332 0.454 19 My bank provides me with enough information to

allow me to be well-informed when making choices.

0.408 0.173 0.404 0.397 0.139 0.235

1 My bank uses different measures to meet customers' urgent requirements.

0.171 0.703 0.33 0.235 18 My bank offers me with products that reflect my

earnings and wealth.

0.13 0.627 0.333 0.394 0.181 24 My bank offers me with innovative loan services. 0.322 0.626 0.38 0.285 23 My bank offers me with comprehensive range of

investment products.

0.229 0.62 0.367 0.163 0.222 0.359 15 My bank offers me with convenient services. 0.445 0.608 0.11 0.174 0.31 39 My bank uses technology to automate marketing,

sales, and services function.

0.569 0.584 0.323 0.104

37 My bank uses new technologies to improve communication with me.

0.373 0.583 0.424

9 My bank actively seeks to provide me a total financial solution.

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42 28 My bank has clear objectives and strategies to

meet my needs and the performance of my relationships.

0.207 0.288 0.717 0.235 0.259 -0.181 13 My bank rapidly responds to my problems,

suggestions, and complaints.

0.231 0.251 0.71 0.127 0.375 14 My bank would initiatively understand my service

requirements and expectations.

0.349 0.31 0.68 0.279

8 My bank is able to tailor its products and services to meet my needs.

0.21 0.667 0.399 0.276 26 My bank often encourages me to introduce other

customers to purchase their products and services.

0.292 0.505 0.645 0.199 6 My bank provides services to meet my specific

requirements.

0.277 0.19 0.789 0.226 5 My bank provides a variety of service items and

information.

0.21 0.145 0.782 0.248 0.136 7 My bank fulfills its promises on time. 0.111 0.117 0.405 0.613 4 My bank uses customer information to plan new

products and services.

0.186 0.104 0.112 0.241 0.852 3 My bank uses customer information to attract new

customers.

0.146 0.261 0.172 0.816 2 My bank uses different approaches to attract new

customers.

0.329 0.254 0.491 0.455 21 My bank takes action for my erroneous

transaction.

0.313 0.444 0.256 0.235 0.581

Eigen values 13.84 2.13 1.65 1.32 1.13 1.01

Percentage of Variance 47.71 7.33 5.69 4.56 3.90 3.49 Cumulative Percentage 47.71 55.04 60.73 65.29 69.19 72.68

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Table 4: CRM Practices: Customer Acquisition N

o

Original Dimension from Lu & Shang (2007)

N o

Discussion with Marketing expertise and practitioner

N o

Using Factor Analysis Dimension 1: Customer Acquisition Dimension 1: Customer Acquisition Dimension 1: Customer Acquisition

1 Our company has flexible measures for customers' urgent requirements.

1 My bank uses different measures to meet customers' urgent requirements.

4 6

I feel relaxed using my bank services

2 Our company has a different marketing mix for target customers.

2 My bank uses different approaches for target customers.

4 0

Electronic bank provides me with a security system to protect my transaction

3 Our company would use customer information to develop a new market.

3 My bank uses customer information to attract new customers.

4 3

I can put my trust on any services provided

4 Our company would use customer information to apply marketing planning.

4 My bank uses customer information to plan new products and services.

3 3

My bank has modern

equipments and

technologies 5 Our company provides a

variety of service items and information.

5 My bank provides a variety of service items and information.

4 5

The services at my bank make me want to use banking services

6 Our company provides sales rebates for customers.

6 My bank provides services to meet my specific requirements.

3 2

My bank's system allows me to perform my banking needs

7 Our company provides solitary services to meet customers' requirements.

7 My bank delivers its promises on time.

4 8

I am confident with the security level of my bank 8 My bank is able to tailor its

products and services to meet my needs.

4 7

The services at my bank would help me to give a good impression towards other people

9 My bank actively seeks to provide me a total financial solution.

1 9

My bank provides me with enough information to allow me to be well-informed when making choices

1 0

My bank staffs are

knowledgeable and possess necessary information on requested services.

1 1

My bank staffs show sincere interest in solving my problems.

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Table 5: CRM Practices: Customer Response N

o

N o

Using Factor Analysis Dimension 2: Customer Response Dimension 2: Customer Response Dimension 2: Customer Response

8 Our company uses phone calls, e-mails, and personnel visits to communicate with customers.

1 2

My bank uses phone calls, e-mails, and personnel visits to communicate with me.

1 My bank uses different measures to meet customers' urgent requirements

9 Our company rapidly responds to customers' problems, suggestions, and complaints.

1 3

My bank rapidly responds to my problems, suggestions, and complaints.

1 8

My bank offers me with products that reflect my earnings and wealth 1

0

Our company initiatively provides transportation related information to shippers.

1 4

My bank would initiatively understand my service

requirements and

expectations.

2 4

My bank offers me with innovative loan services.

1 1

Our company would initiatively understand customers' service requirements and expectations. 1 5 My bank offers me convenient service. 2 3

My bank offers me with comprehensive range of investment products

1 2

Our company has a good reputation; therefore shippers would initiatively enquire about our services.

1 6

My bank offers a range of credit facilities that meet my requirements.

1 5

My bank offers me with convenient services.

1

7

My bank offers me useful online products and services.

3 9

My bank uses

technology to

automate marketing, sales, and service function

1

8

My bank offers me products that reflect my earnings and wealth.

3 7

My bank uses new technologies to improve communication with me 1 9

My bank provides me with enough information to allow me to make informed product choices.

9 My bank actively seeks to provide me a total financial solution

2 0

My bank staffs are sufficiently empowered to solve difficult

2 1

My bank takes action for my erroneous

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banking problems. transaction

2 1

My bank takes actions for erroneous transaction.

Table 6: CRM Practices: Customer Knowledge N

o

Original Dimension from Lu & Shang (2007)

N o

Using Factor Analysis Dimension 3: Customer Knowledge Dimension 3: Customer Knowledge Dimension 3: Customer Knowledge 1 3 Our company is

knowledgeable about how to obtain main customers.

2 2

My bank often asks me to introduce other customers to purchase their products and services.

2 8

My bank has clear objectives and strategies to meet my needs and the performance of my relationships.

1 4

Our company understands main customers service requirements.

2 3

My bank often insists me using bank’s services and products.

1 3

My bank rapidly responds

to my problems,

suggestions, and

complaints. 1

5

Our company has fruitful capabilities to obtain new customers.

2 4

My bank’s operating hours are convenient to me.

1 4

My bank would initiatively understand my service

requirements and

expectations. 1

6

Our customers often insist of using our company’s services. 2 5 My bank offers me comprehensive range of investment products.

8 My bank is able to tailor its products and services to meet my needs.

2

6

My bank offers me innovative loan facilities.

2 6

My bank often encourages me to introduce other customers to purchase their products and services.

2

7

My bank understands my individual needs and circumstances.

2

8

My bank has a clear objectives and strategy to meet my need and the

performance of my

relationships.

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46 2

9

My bank does not misuse customer’s knowledge.

3

0

The terms and conditions of my bank are better than others.

3 1

My bank always meets my expectations.

Table 7: CRM Practices: Customer Information System N

o

N o

Using Factor Analysis Dimension 4: Customer Information System Dimension 4: Customer Information System Dimension 4: Customer Information System 1 7

The company is capable of using their computer system to categorize targeted markets.

3 2

My bank’s system allows me to perform my banking needs. 6 My bank provides services to meet my specific requirements. 1 8

The company’s computer system is capable of organizing and classifying interaction between sales representatives and customers.

3 3

My bank has modern

equipments and

technologies.

5 My bank provides a variety of service items and information.

1 9

The company has a computer system sufficient to handle customers’ information.

3 4

My bank provides telebanking and internet banking facility.

7 My bank fulfils its promises on time.

2 0

Our company has a management system to check transaction and customer relationships.

3 5

ATM machines are easily available.

3

6

My bank has a computer system for recording my purchases and services.

3

7

The new technologies improved communication between me and my bank.

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47

3

8

My bank has a system to make it easy for me to do business with the bank.

3 9

My bank uses technology to automate marketing, sales, and service functions.

4 0

Electronic bank provides me a security to protect my transaction.

Table 8: CRM Practices: Customer Value Evaluation N

o

Original Dimension from Lu & Shang (2007) N o Discussion with Marketing expertise and practitioner N o

Using Factor Analysis

Dimension 5: Customer Value Evaluation Dimension 5: Customer Value Evaluation Dimension 5: Customer Value Evaluation 2 1

Our company would analyze individual

customers profit

contribution.

4 1

My bank always delivers superior service.

4 My bank uses customer information to plan new products and services. 2

2

Our company would analyze individual customer types and behaviours to identify customer value.

4 2

My bank offers me a high quality services.

3 My bank uses customer information to attract new customers.

4

3

I feel confidence with the services.

2 My bank uses different approaches to attract new customers. 4 4 I enjoy my bank services. 4 5

The service in my bank makes me want to use banking services.

4

6

I feel relaxed use my bank services.

4

7

The service in my bank would help me make a good impression on

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International Journal of Business and Behavioral Sciences Vol. 2, No.1; January 2012 48 other people. 4 8 I am confidence with security level of my bank.

Table 9: CRM Practices: Customer Information Process N

o

Original Dimension from Lu & Shang (2007) N o Discussion with Marketing expertise and practitioner N o

Using Factor Analysis

Dimension 6: Customer Information Process Dimension 6: Customer Information Process Dimension 6: Customer Information Process 2 3

The company’s computer system is capable of storing, searching, and analyzing customers’ data.

Dropped Dropped

2 4

The company’s computer system is capable of recording customers’ purchases and services.

2 5

Our company has location advantages.