Customer equity: Making marketing strategy financially accountable

Abstract

The article presents an overview of the literature on customer equity and how customer equity provides an opportunity for marketers to make marketing strategy financially accountable. Traditionally, Return on Investment (ROI) models have been used to evaluate the financial expenditures required by the strategies as well as the financial returns gained by them. However in addition to requiring lengthy longitudinal data, these models also have the disadvantage of not evaluating the effect of the strategies on a firm’s customer equity. The dominance of customer-centered thinking over product-centered thinking calls for a shift from product-based strategies to customer-based strategies. Hence, it is important to evaluate a firm’s marketing strategies in terms of the drivers of its customer equity. The article summarizes a unified strategic framework that enables competing marketing strategy options to be traded off on the basis of projected financial return, which is operationalized as the change in a firm’s customer equity relative to the incremental expenditure necessary to produce the change.

Keywords

Customer equity / return on marketing / brand equity / customer value / relationship marketing / marketing strategy / customer lifetime value / customer satisfaction measurement

References

[1] Aaker D.A.. Managing Brand Equity, 1991, New York: Free Press

[2] Anderson E., Fornell C., Lehmann D.R.. Customer satisfaction, market share and profitability. Journal of Marketing, 1994, 58: 53-66.

[3] Berger P.D., Bolton R.N., Bowman D., Briggs E., Kumar V., Parasuraman A., Terry C.. Marketing actions and the value of customer assets: a framework for customer asset management. Journal of Service Research, 2002, 5(1): 39-54.

[4] Berger P.D., Nasr N.I.. Customer lifetime value: marketing models and applications. Journal of Interactive Marketing, 1998, 12: 17-30.

[5] Blattberg R., Getz G., Thomas J.S.. Customer Equity: Building and Managing Relationships as Valuable Assets, 2001, Boston: Harvard Business School Press

[6] Blattberg, R., J. Deighton, “Manage marketing by the customer equity”, Harvard Business Review, July–August, pp136–144, 1996.

[7] Bolton, R., K.N. Lemon, P.C. Verhoef, “The theoretical underpinnings of customer assets management: a framework and propositions for future research”, Journal of the Academy of Marketing Science, Vol 32, 2004.

[8] Bolton R.. A dynamic model of the duration of the customer’s relationship with a continuous service provider: the role of satisfaction. Marketing Science, 1998, 17(1): 45-65.

[9] Brodie R.J., Glynn M.S., Durme J.V.. Towards a theory of marketplace equity: integrating branding and relationship thinking with financial thinking. Marketing Theory, 2002, 2(1): 5-28.

[10] Danaher P.J., Rust R.T.. Indirect financial benefits from service quality. Quality Management Journal, 1996, 3(2): 63-75.

[11] Dwyer F. R.. Customer lifetime valuation to support marketing decision making. Journal of Direct Marketing, 1989, 3(4): 8-15.

[12] Erdem T., Swait J.. Brand equity as a signaling phenomenon. Journal of Consumer Psychology, 1998, 7(2): 131-157.

[13] Guadagni P.M., Little J.D.C.. A logit model of brand choice calibrated on scanner data. Marketing Science, 1983, 2: 203-238.

[14] Gummeson E.. Total Relationship Marketing, 1999, Oxford, UK: Butterworth Heineman

[15] Gupta S., Lehmann D.R.. Customers as assets. Journal of Interactive Marketing, 2003, 17(1): 9-24.

[16] Gupta, S., D.R. Lehmann, J.A. Stuart, “Valuing customers,” Marketing Science Institute Report, No. 1-119, 2001.

[17] Hogan J.E., Lemon K.N., Libai B.. Incorporating positive word of mouth into customer profitability models, 2002, Chestnut Hill, M.A.: Boston College, Carroll School of Management

[18] Hogan J.E., Lemon K.N., Rust R.T.. Customer equity management: charting new directions for the future of marketing. Journal of Service Research, 2002, 5(1): 4-12.

[19] Hughes A.M.. Strategic Database Marketing, 2000, New York: McGraw-Hill

[20] Hunt S.D., Morgan R.M.. The comparative advantage theory of competition. Journal of Marketing, 1995, 59: 1-15.

[21] Jackson, B., Winning and Keeping Industrial Customers, Lexington, KY: Lexington Books.

[22] Johnson M.D., Gustafsson A.. Improving Customer Satisfaction, 2000, San Francisco: Jossey-Bass

[23] Kamakura W.A., Mittal V., Rosa F.D., Mazzon J.A.. Assessing the service profit chain. Marketing Science, 2002, 21(3): 294-317.

[24] Kass G.V.. Significance testing in automatic interaction detection. Applied Statistics, 1976, 24(2): 178-189.

[25] Keller K. L.. Strategic Brand Management, 1993, Englewood Cliffs, NJ: Prentice Hall

[26] Keller K. L.. Conceptualizing, measuring and managing customer-based brand equity. Journal of Marketing, 1993, 57(1): 1-22.

[27] Newell F.. The New Rules of Marketing: How to Use One-to-One Relationship Marketing to be the Leader in Your Industry, 1997, New York: McGraw-Hill

[28] Peppers D., Rogers M.. The One-to-One B2B, 2001, New York: Doubleday

[29] Peppers D., Rogers M.. Enterprise one to one: Tools for Competing in the Interactive Age, 1997, New York: Doubleday

[30] Peppers D., Rogers M.. The One-to-One Future, 1993, New York: Doubleday

[31] Pfeifer P.E., Carraway R.L.. Modeling customer relationships as markov chains. Journal of Interactive Marketing, 2000, 14(2): 43-55.

[32] Reinartz W., Kumar V.. On the profitability of long life customers: as empirical investigation and implications for marketing. Journal of Marketing, 2000, 64: 17-35.

[33] Roberts M.L., Berger P.D.. Direct Marketing Management, 1989, Englewood Cliffs, NJ: Prentice-Hall

[34] Rust R.T., Verhoef P.C.. Fully personalized marketing interventions in crm, 2004, MD: University of Maryland-College Park, R.H. Smith School of Business

[35] Rust R.T., Lemon K.N., Zeithaml V.A.. Return on marketing: using customer equity to focus marketing strategy. Journal of Marketing, 2004, 68: 109-127.

[36] Rust R.T., Zeithaml V.A., Lemon K.N.. Driving Customer Equity: How Customer Lifetime Value Is Reshaping Corporate Strategy, 2000, New York: Free Press

[37] Rust R.T., Zeithaml V.A., Lemon K.N.. Customer-centered brand management. Harvard Business Review, 2004, 82(9): 110-118.

[38] Rust R.T., Inman J.J., Jia J., Zahorik A.J.. What you don’t know about customer-perceived quality: the role of customer expectation distributions. Marketing Science, 1999, 18(1): 77-92.

[39] Rust R.T., Zahorik A.J., Kenningham T.L.. Service Marketing, 1996, New York: Harper Collins

[40] Rust R.T., Zahorik A.J., Kenningham T.L.. Return on quality (roq): making service quality financially accountable. Journal of Marketing, 1995, 59: 58-70.

[41] Schultz D.E., Gronstedt A.. Making marcom an investment. Marketing Management, 1997, 6(3): 40-49.

[42] Sevin C.H.. Marketing Productivity Analysis, 1965, St. Louis, MO: McGraw-Hill

[43] Shugan S.M.. Rust R. T., Oliver R. L.. Explanations for growth of services. Service Quality: New Directions in Theory and Practice, 1993, Newbury Park, CA: Publications

[44] Simester D.I., Hauser J.R., Wernerfelt B., Rust R.T.. Implementing quality improvement programs designed to enhance customer satisfaction: quasi-experiments in the united states and spain. Journal of Marketing Research, 2000, 37: 102-112.

[45] Sonquist J.A.. Multivariate model building: the validation of a search strategy, 1970, Ann Arbor, MI: University of Michigan Institute for Social Research

[46] Srivastava R.K., Shervani T.A., Fahey L.. Market-based assets and shareholder value: a framework for analysis. Journal of Marketing, 1998, 62: 2-18.