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Part 2  Strategy and applications

     Introduction 

 The application of technology to support  

customer relationship management (CRM)

  is a key 

element of digital business. Building  long-  term relationships with customers is essential for 

any sustainable business. Failure to build relationships largely caused the failures of many  dot- 

 coms following huge expenditure on customer acquisition (as explained in  Chapters   2    and  5 ). 

The importance of customer retention to  long-  term profitability is well known from model-

ling of the type referred to in  Chapter   4   . But research summarised by Reichheld and Schefter 

(2000) showed that acquiring online customers in the retail sector is so expensive ( 20–  30% 

higher than for traditional businesses) that such start-up companies may remain unprofitable 

for at least two to three years. The research also shows that by retaining just 5% more custom-

ers, online companies can boost their profits by 25% to 95%. These authors say:   

  but if you can keep customers loyal, their profitability accelerates much faster than in trad-

itional businesses. It costs you less and less to service them.  

 Note that the relationship between customer loyalty and profitability has been questioned, 

notably by Reinartz and Kumar (2002), who discovered through analysis of four company 

databases that: 

  there was little or no evidence to suggest that customers who purchase steadily from a 

company over time are necessarily cheaper to serve, less price sensitive, or particularly 

effective at bringing in new business.  

 They have suggested that companies that base their marketing focus on the simple assump-

tion that loyal customers are the most profitable will miss opportunities in targeting other 

potentially profitable customers. 

 This chapter evaluates different digital communications techniques such as search and social 

media marketing to reach new audiences and then initiate and build relationships with them as 

customers. The chapter is structured around the different stages of the classic