The optimal level of CRM IT investments

Abstract

In light of the growing relevance of customer-oriented business strategies IT investments in the field of Customer Relationship Management have increased considerably. However, firms often could not realize sufficient returns on these IT investments. One major reason for this failure seems to be the lack of appropriate approaches to determine the economic impact of such investments ex ante. Therefore, we develop an economic model to determine the optimal level of Customer Relationship Management IT investments. Using this approach, firms can evaluate, to what extent investments in Customer Relationship Management IT are reasonable. One major result is that in most cases the “all or nothing strategy” pursued by many firms does not lead to the optimal level of investments. To illustrate the practical utility and applicability of the approach, we provide a real world example of a German financial services provider.