LITERATURE REVIEW AND CUSTOMER
RELATIONSHIP MANAGEMENT PRACTICES
2.1 Introduction
This chapter consists of the theoretical framework, customer relationship management
practices, the link between customer relationship management and performance,
performance concept and the summary of the literature review.
2.2 Theoretical Foundation
This section consists of the theories that guide this study these theories include
Commitment Trust Theory, Customer Relationship Model and Knowledge-based
View. These theories support the study variables which are customer relationship
management and organizational performance.
2.2.1 Commitment Trust Theory
The Commitment-trust theory posits that two important factors, trust and commitment
must prevail for the firm to establish a good relationship with its customers (Cook,
Karen & Richard, 1992). Day (1989) postulates a good relationship between the
customer and the firm builds strong bonds between the customers through satisfying
their needs and honoring their commitments. Unlike concentrating on short-term
profits businesses is more concerned about retaining their customers by providing
quality services that meet their needs. Trust is confidence between two parties in a
relationship. Firms develop trust by building a level of confidence with their
customers. This is based on a number of factors such as reliability, consistence and
satisfaction. Stone, Woodcock & Machtynger (2007) explains that a customer is
confident about a firm from the various interactions and relationships that they have
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had in the past. This assists the firm to attract more customers, increase sales and
enhance organizational performance.
Commitment is a long-term need to maintain a good relationship. This need is
essential in motivating the firm to develop and maintain its relationship with the
customers. This is consistent to Hunt (2009) who argued that better relationships are
defined through continuous provision of services to the consumers. This improves
customer loyalty and confidence. This involves ensuring that the customers are
satisfied with the services or the products offered and an understanding of their needs.
Moorman, Rohit & Gerald (2008) posits that customers should be treated in a manner
that makes them feel valued; this helps in retaining existing customers and attracting
new ones. This can be achieved by being responsive to the needs of the customers
when designing products and services. Trust is enhanced by the partner’s goodwill,
reputation, actions and behaviours, shared values, norms and benevolence. Some
studies have referred to ‘benevolence trust’ as friendship that involves friendship
between two parties and making sacrifices for the other party. Relationship
commitment is part of customer relationship management which is perceived as a
critical component in establishing long-term relationships between parties. Morgan,
Robert & Shelby (2005) posit that affective commitment is a kind of commitment that
is more personal, it involves social interactions among individuals. The attitudinal
aspect of affective commitment is important in developing trust, mutuality, integrity
and solidarity which is essential in sustaining long-term relationships between two
parties. This contributes positively to improved performance. Social interaction
minimizes uncertainty between individuals; this improves the quality of the
relationship between the firm and the customers hence contribute to improved
customer satisfaction and performance (Stone et al., 2007).
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2.2.2 Institutional Theory
This theory holds that institutionalized symbols define a cultural validation; they
include values, meanings and rules among others (DiMaggio & Powell, 1983).
Cognitive firms derive their authority from a shared conception of social reality for
fear of sanctions. Scott (1995) posits that normative roles are rules of facts about a
society, assumptions and natural ways of doing business or activities. Goodstein
(1995) maintains that institutional development is envisaged when rules and beliefs
are accepted but remain unseen to the actors and firms which they influence.
Meyer and Scott (2011) emphasize that firms must comply with pressures from the
environment to survive. Pressures in this case involve the environmental challenges
that inhibit the survival of firms. In line with this study, it is important for a firm to
effectively manage its customers in order to retain them and attract new customers.
Scott (1995) insists that when the organization has not otherwise other than to
conform to institutional pressures, it is forced to adopt and implement institutional
norms and values when carrying out business (DiMaggio & Powell, 1983). This
legitimizes the actions of the firm and integrates these practices into the firm’s
strategic goals and objectives to realize improved performance. The arguments are
consistent to Goodstein (1995) who insists on the importance of the firm to abide with
the societal norms and beliefs that are incorporated into the firm’s strategic goals.
This makes it easier for the firm to execute its business in accordance with the set
rules and regulations and thus save a lot of costs associated with violating institutional
norms. For instance use of customer relationship management practices such as social
media platforms will enable the firm to save huge costs and enhance efficiency and
effectiveness in providing superior products and services to meet customer needs.
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2.2.3 Knowledge-based View
Resource-based view focuses on the economic aspects of the operations in the firm. This
theory maintains that both intangible and the tangible resources of the firm are essential
assets of the firm. The theory emphasizes on the significance of knowledge as an
essential component of enhancing organizational performance. Nickerson & Zenger
(2004) identified two main schools of thought in the development of resource-based
view. These schools of thought are as follows; modern schools of thought and classical
thought of thought. The classical school of thought describes that to achieve a
competitive edge against competitors’ firms must develop core competencies by making
maximum use of the available resources. This can be achieved by developing core
competencies which is realized by making maximum use of available resources.
Information is an essential resource to the organization, it can be used to tailor products
and services that seek to address specific needs of the customers.
Intangible resources are things like trust which is built by establishing relationships
between the organization and its customers. This makes the organization reputable since
it’s able to gain and win trust and confidence from its competitors (Alavi & Leidner,
2009). Tangible resources such as Information Communication Technology (ICT) to
integrate and enhance cost reduction which leads to improved organizational
performance. Use of modern technologies allows the firm to easily access and share
information about customers. This information is helpful in tailoring superior products
and services for improved customer satisfaction. This retains existing customers while
attracting new ones which eventually results into improved market share and
organizational performance (Nickerson et al., 2004).
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