The mediating role of customer lifetime value on customer relationship management and business performance

Abstract

Iran is rich in touristic resources but does not collect enough shares of the international tourism revenues. The main concentration of tourism activities is in Tehran, the capital of Iran, while the other cities like Shiraz and Kish are neglected. As a solution to resolve Iran’s tourism issues, improvement in the performance of tourism-related businesses like hotel services could be an effective element in solving Iran’s tourism problems. Customer Relationship Management (CRM) has been proven effective in increasing hotel’s profitability. Therefore, the aim of this study is to examine the relationships between CRM and Business Performance (BP), CRM and Customer Lifetime Value (CLV), and CLV and BP, as most organizations which implement CRM also implement CLV in order to develop relationships with customers. There is a lack of study examines the mediating role of CLV on CRM and BP. This study was conducted among forty hotels in Shiraz and Kish, involving 120 managers of three to five star hotels. This study used Structural Equation Modelling (SEM) together with Partial Least Squares (PLS) approach. The results showed a significant relationship between CRM and BP, CRM and CLV, and CLV and BP. The results also showed a significant mediating role of CLV on the relationship between CRM and BP. The only CRM dimensions that had influence on BP was technology and the only CLV dimensions that had influence on BP was customer development. Theoretically, this study extend our understanding on the influence of process and technology on CRM. This study reinforces CLV’s role as mediator and suggests that CLV could be an important variable between CRM and BP. Practically, the study provides the hotel management with solution to improve performance of tourism-related businesses like hotel services by properly developing the CRM system. Hotels should cross-sell and upsell to customers to develop customer relationship. This study can be repeated by other industries such as telecommunications, pharmaceutical or air travel industry. Comparative studies could also be conducted among hotels and managers at different levels. Future research could also investigate the customers’ point of view as well as compare the phenomena among hotels and managers at different levels.