Article

Customer Equity Marketing:: Touching the Intangible

Authors:
  • Baden-Wuerttemberg Cooperative State University Heilbronn
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Abstract

Research has shown that the market value of stock listed companies is to a large extent attributable to investors’ value estimations of intangible assets. Among these, Customer Equity, the monetary value potential of a company’s current and future customers, is of central importance. It is the key driver of shareholder value from operational business activity. For companies competing for investment resources, this means to consequently achieve and increase this value potential by following an appropriate marketing approach. The article gives guidance on how such an approach and its core methods could look. It aims at redefining the marketing discipline from a shareholder’s perspective by putting Customer Equity at its center.

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... Customer satisfactions may lead to higher level of customer lifetime value (CLV), which is a leading valuebased quantitative measure. According to the literature, there is a significant positive relationship between CLV and shareholder value (Bayón, Gutsche, and Bauer 2002;Payne and Holt 2001). Therefore, CLV can be considered as a new output measure, as this research does. ...
... CLV is defined as the 'net present value (NPV) of the long term cash flow of a customer' (Venkatesan, Kumar, and Bohling 2007, 580). The summation of the lifetime values of all present and potential customers is equal to the cash flow of the firm, which is referred to as CE (Bayón, Gutsche, and Bauer 2002). International Journal of Production Research 3 CLV and customer satisfaction are correlated, and an increase in CLV or CE is a direct result of customer satisfaction (Figure 2(a)) (Bayón, Gutsche, and Bauer 2002;Berger et al. 2006;Ryals 2006). ...
... The summation of the lifetime values of all present and potential customers is equal to the cash flow of the firm, which is referred to as CE (Bayón, Gutsche, and Bauer 2002). International Journal of Production Research 3 CLV and customer satisfaction are correlated, and an increase in CLV or CE is a direct result of customer satisfaction (Figure 2(a)) (Bayón, Gutsche, and Bauer 2002;Berger et al. 2006;Ryals 2006). CLV is considered as a mediatory variable between organisation performance and customer satisfaction (Figure 2 ...
Article
Performance management (PM) and customer management were the subjects of researchers’ attentions for several decades. This research tries to align these two approaches to provide strategic decision-making. The proposed approach suggests an integration of customer relationship management system incorporating PM system considering maximisation of customer lifetime value (CLV) metric. For this, a model is being developed to align PM and customer management. For customer management, we cluster customers based on four dimensions which are product combination, activity level, retention rate and CLV. This combination of attributes has not been used before and can bring more useful information. For example, it can reveal which product combination can pinpoint profitable, loyal and active customers. This helps for the prevention of customer migration. However, the main novelty of this research is proposing the application of CLV as a financial metric in strategic PM in an integrative approach. The research model has been applied in an Iranian commercial retail bank. In the implementation, various techniques and mathematical models including genetic K-means, analytic hierarchical processes and data envelopment analysis have been used.
... One can yield net present value by subtracting the required initial expenditure from present value of projected cash flows [38].Furthermore, several researches consider CLV and customer equity (CE) as being equal: Jain and Singh (2002), Berger & Nasr (1998), Hwang et al. (2004), and Villanueva & Hanssens (2007) included this in the last part of their definition (segment of customers). However, most of researchers consider CE as total summation of CLVs of individual customers [2,4,14,36,51,62]. ...
... The mentioned definitions are a basis for proposing the CLV models. However, various researchers state that there is no single definition of a comprehensive model [3,4,5,22]. CLV Models. ...
... In addition, Bauer & Hammerschmidt (2005) suggested that it depends on the acquisition practice used (direct marketing vs. mass marketing). Acquisition cost is included in proposed models [2,4,21,58]. ...
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Customer Lifetime Value (CLV) is the core concept of relationship marketing and is increasingly addressed in scholarly and business articles. However, there is a big gap in the literature to make CLV thoroughly applicable in business. This paper aims to illuminate the trend of CLV by critical analysis of the literature. For this purpose, after revealing the scoping map of the research area, CLV concepts, the proposed mathematical models besides its techniques and mentioned categorization, its application, and its limitations are investigated. The research exposes the need to a comprehensive model for increasing the applicability of CLV. In addition, the scoping map illuminates the need for more research in the area of implementation and validation.
... By this way, resources and an appropriate business strategy can then be allocated and formulated respectively for business sustainability (Kumar & Reinartz, 2006). In addition, Bayón, Gutsche, and Bauer (2002) recognized that possible investors need to be convinced of the amount and sustainability of a calculated customer value. ...
... Customer value has been studied under the name of lifetime value (LTV), customer lifetime value (CLV), customer equity (CE), and customer profitability (Hwang, Jung, & Suh, 2004). Researchers have tried different methods to calculate the value of individual customer to make rankings of individual clients or segments or even predictions of the value, as can be found in Verhoef and Donkers (2001), Jain and Singh (2002), Bayón et al. (2002), Stahl, Matzler, and Hinterhuber (2003), Hwang et al. (2004), Venkatesan and Kumar (2004), Gupta and Lehmann (2006), Kim, Jung, Suh, and Hwang (2006), Khajvand, Zolfaghar, Ashoori, andAlizadeh (2011), Han, Lu, andLeung (2012) and Verbeke, Dejaeger, Martens, Hur, and Baesens (2012). ...
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Quando se está a decidir em que segmento investir ou como distribuir o orçamento de marketing, os Gestores arriscam ao tomar decisões de uma maneira geral, sem considerar o impacto real que cada cliente ou segmento tem sobre os lucros da organização. Neste artigo, propõe-se uma estrutura de segmentação que considera, em primeiro lugar, o cálculo do valor do cliente ao longo da vida, o valor actual e a fidelidade do cliente, e depois a construção de segmentos de clientes através de mapas auto-organizados. A eficácia do método proposto é demonstrada através de um estudo empírico sobre uma fábrica de cana-de-açúcar, em que um total de 9 segmentos de interesse foram identificados para a tomada de decisões.
... Empower organizational sales force to proactively track and monitor their performance and compensation levels to better motivate them to achieve goals and be successful within their positions and for the organization. (Ibid) Bayon et al. (2002) claim that three factors influence marketing regarding to CRM and that organizations should view objectives for marketing applications offered by CRM as follows: ...
... When it comes to the objectives stated by Burnett (2001) all of the objectives except from the second one are included. Continually, the objectives stated by Wilson et al. (2002) as well as the first objective stated by Bayon et al. (2002) is excluded. Furthermore, we exclude the first, third, fifth, and sixth objective stated by Greenberg (2001) as well as the first, second, and fourth objective stated by Ryals and Knox (2001). ...
... Consequently, "marketing concept", which focuses on a target segment of consumer needs and wants, has evolved to "customer concept", in which the needs and wants of individual customer is emphasized (Hoekstra, Leeflang and Wittink, 1999). With the increased importance of individual customer, his/her individual value to the firm has become a significant research topic (Bayon, Gutsche, and Bauer, 2002;Hansotia, 2004;Kumar, Lemon and Parasuraman, 2006;Rust, et.al, 2004). Consequently, in an environment where importance of the customer has enormously increased, the emphasis on "brand equity" is now replaced by the concept of "customer equity" term. ...
... The Customer Equity (CE) approach to marketing has become a significant research topic during the recent past (Bayon, Gutsche, and Bauer, 2002;Hansotia, 2004;Kumar and Vankatesan, 2005;Rust, Lemon, and Zeithaml, 2004;Wiesel, Skiera, and Villanueva, 2008) In an attempt to test an alternative model for customer equity, two additional latent variables were added to the original model, which had value equity, brand equity and relationship equity as the components of customer equity. To test the alternative model, data was gathered from a survey with 377 respondents, who are selected on the basis of judgment. ...
Article
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... Within brand controlling two concepts, which were long considered as conflictual, were in focus of science and practice for the past years—brand equity management and customer equity management. The concept of customer equity emphasizes that each costumer is unique and respectively he must be observed individually (cf.Bayón et al. 2002). As a result on the side of the company, the most important costumers should be identified and supported as individual as possible. ...
Chapter
This chapter introduces brand controlling within the context of identity-based brand management. It aims to answer the following questions: Which tasks does identity-based brand controlling encompass? Which methods are available within the context of identity-based brand controlling? To what extent are the internal and the external perspective of identity-based brand management connected within brand controlling? Which current challenges does brand controlling face within the context of brand valuation and which problem-solving approaches are available?
... Some IQ research proceeds by examining one of these IQ concepts in isolation, such as believability (Pradhan 2005;Prat and Madnick 2008a;Prat and Madnick 2008b) or timeliness (Ballou and Pazer 1995;Cappiello et al. 2003). Another tack is to take a broader view of the concept of quality and how it relates to information (Batini and Scannapieco 2006;Fox and Redman 1994;Piprani and Ernst 2008;Sarkar 2002;Tayi and Ballou 1998;Welzer et al. 2007). ...
Article
This thesis addresses a widespread, significant and persistent problem in Information Systems practice: under-investment in the quality of customer information. Many organisations require clear financial models in order to undertake investments in their information systems and related processes. However, there are no widely accepted approaches to rigorously articulating the costs and benefits of potential quality improvements to customer information. This can result in poor quality customer information which impacts on wider organisational goals. To address this problem, I develop and evaluate a framework for producing financial models of the costs and benefits of customer information quality interventions. These models can be used to select and prioritise from multiple candidate interventions across various customer processes and information resources, and to build a business case for the organisation to make the investment.
... Finally, CE is defined as a combination of a firm's current customer assets and the value of the firm's potential customer assets (Bayón, Gutsche, & Bauer, 2002; Rust, Ambler, Carpenter, Kumar, & Srivastava, 2004; Villanueva & Hanssens, 2007). CE is the sum of the CLV of all of a firm's existing and potential customers. ...
Research
This paper investigates the crucial role of a firm’s organizational architecture in enabling customer centricity. We first summarize the literature in both marketing and accounting that examined the relationships among different elements of an organizational architecture with regard to customer centricity. We then provide the results of an online survey conducted among a sample of subscription-based companies that builds upon extant gaps in the literature. Our exploratory findings reveal that the availability of innovative customer metrics (such as Customer Lifetime Value) is a necessary but not sufficient condition for a customer-centric strategy to deliver higher levels of performance. The samples firms appear above all to suffer from a weak integration between Marketing and Accounting & Finance functions, also due to a limited adoption of customer metrics in incentive and compensation systems. Our study documents that firms need to pull the right levers of their organizational architectures if they intend to fully exploit customer centricity.
... The last decades seem to be characterized by the increased separation of corporate brands and product brands (Mercer 2010). Indeed, a corporate brand serves as a means to create loyalty (Bayòn, Gutsche, and Bauer 2002) and commitment of customers toward the company, as well as for creating an image and mental association in the customers' mind (Kotler 1991). Thus, the value of a key corporate brand can be the primary intangible asset for many companies (Cravens, Oliver, and Ramamoorti 1997). ...
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The objective of this paper was to investigate the association between branding, captured by the combined use of the number of corporate and product trademarks and marketing expenses, and small- to medium-sized enterprise (SME) sales performance in the fashion industry. The results of the panel regression model indicate that corporate trademarks and marketing expenses do have a positive association with SMEs sales performance, and in particular, marketing expenses show the highest estimates. These results suggest that branding may also play a relevant also in the SME context, thus opening new paths for research within this field.
... They define CRM as "a strategic approach concerned with creating improved shareholder value through the development of appropriate relationships with key customers and customer segments". It has been argued that intangible assets of a company, such as the ability of a company to acquire and retain customers are vital for company success in a competitive market [31]. The goal of CRM is to improve services provided to customers, and to use customer contact information for targeted marketing. ...
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A considerable amount of research has been conducted to explore different issues pertaining to customer knowledge management. The focus of majority of studies lie in the exploration of benefits gained from properly acquiring, managing and integrating customer knowledge for improved efficiency, increased productivity and greater innovation. Comparatively less attention has been paid to understand the knowledge that resides in the customer as opposed to knowledge about the customer. A positivist case study method was employed to further gain better understanding of knowledge about the customer, and to explore the relationship between customer knowledge management and customer acquisition performance, and organizational learning.
... Research on CE has been concentrated on its measurement and optimisation (e.g. Berger & C Nasr 1998;Allenby et al. 1999;Bayon et al. 2002;Gupta et al. 2004;Venkatesan & Kumar 2004;Fader et al. 2005aFader et al. , 2005bWiesel et al. 2008;Tsao 2013). ...
Article
Brand equity and customer equity, respectively, constitute the value provided by brand and customer portfolios to companies. These are metrics of marketing performance in the long term, as well as key factors in firm valuation processes. However, their relation has not been empirically analysed to date. This study explores the connection between brand equity and customer equity We employ a simultaneous equations model in which brand equity and customer equity depend on each other and also on marketing expenditures. We find that these metrics partially overlap, particularly in some industries. Hence, our results highlight the importance of implementing models that consider the interaction between them in order to obtain reliable measurements of the overall productivity of marketing actions. Additionally, our results suggest that the value of brands and customer portfolios should be jointly measured so as to obtain trustworthy assessments of firm value.
... Second, these same technological capabilities, along with other changes in how markets work in today`s turbulent business environment, are making it a requirement to manage marketing to maximize the value of a company`s customer assets. The practical business benefits from the application of the concept are outlined in several directions: First, CE is the basis for management of customer value of the company (Berger (11); Second, CE is the best basis for analyzing customer behavior to customers (Thomas, Gutsche and Bauer (12). United, both directions displayed CE as an expression of expected future behavior of customers of the organization. ...
... The basic concept of customer lifetime value computation is based on the Net Present Value (NPV) received from a customer over his lifetime of transactions with the company (e.g., [12][13][14]). The common formulation of the NPV-based model is as follows: ...
Article
The present study attempts to establish a framework for computing customer lifetime values for a company in the auto repair and maintenance industry. The customer lifetime value defined in this study consists of the current and future values of a customer, which involve an estimation of lifetime length, future purchasing behavior and the profit associated with each behavior of the customer. The proposed framework contains three groups of techniques to obtain these estimates from historical customer transactions. The first group includes a logistic regression model and a decision tree model to estimate the churn probability of a customer and to, further, predict the lifetime length of the customer. The second group comprises a regression analysis to identify the critical variables that affect a customer’s purchasing behavior, and a Markov chain to model the transition probabilities of behavior change. Finally, the third group contains two neural networks to predict the profits contributed by a customer under various purchasing behaviors. The proposed framework is demonstrated with the historical customer transactions of an auto repair and maintenance company in Taiwan.
... There are a lot of researches on calculating customer value. The basic concept of these researches, however, focused on Net Present Value (NPV) obtained from customers over the lifetime of transactions [3,4,19,34]. Dwyer (1997) the customer under consideration. ...
Article
Nowadays companies increasingly derive revenue from the creation and sustenance of long-term relationships with their customers. In such an environment, marketing serves the purpose of maximizing customer lifetime value (CLV) and customer equity, which is the sum of the lifetime values of the company's customers. A frequently-encountered difficulty for companies wishing to measure customer profitability is that management accounting and reporting systems have tended to reflect product profitability rather than customer profitability. But in spite of these difficulties, Companies looking for methods to know how calculate their customers's CLV. In this paper, we used K-Mean clustering approach to determine customers's CLV and segment them based on recency, frequency and monetary (RFM) measures. We also used Discriminant analysis to approve clustering results. Data required applying this method gathered from one branch of an Iranian private bank which is established newly. Finally, in terms of this segmentation, we proposed customer retention strategies for treating with the bank customers.
... Approaches to measuring CE were formalised along concerns to fine the optimal balance between the acquisition of customers and customer retention (Blattberg and Deighton 1996), with the optimal level occurring when CE was at its highest. Crucial to its inception has been the theoretical advances in consumer behaviour as studies (for example Bayon et al 2002) have elaborated the possible conditions through which to better model patterns of cross-buying and the subsequent duration of customer retention. The CE model, however, can chart these for a range of different segments, allowing managers and markets to examine, in more detail than CLV models, the exact impact of any given customer segment or group upon overall firm value-this is achieved by finding the collective CLV of each segment and measuring it against any resulting increases in firm value levels in order to ascertain if particular marketing strategies have resulted in a favourable increase in firm value. ...
Article
Ideas centring on knowing and understanding the customer have been core concerns of business since the 1960s. As a result, several attempts to understand the customer have been devised, leading to the generation of data collection systems and calculative technologies that try to provide numerical understanding of the customer, which now lies at the heart of contemporary customer management schemes. However, these technologies can produce several social consequences. This paper discusses valuation metrics used in customer management systems and outlines the negative issues that can result from widespread usage.
... Complaint management is particularly important in managing customer relationships (Tax, Brown, & Chandrashekaran, 1998). The cost of implementation is measured by the amount of profits customers generate (Bayon, Gutsche, & Bauer, 2002). Companies that try to manage complaints should have higher customer equity. ...
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The fashion products are believed that reinforce the inequities, exploit workers, spur resource use, increase environmental impact, and generate waste. Sustainability has been recognized as a major concern worldwide, and this also increases considerations regarding the challenges to business need to be faced in the fashion industry. How much sustainable value do customers perceived and how much does the evaluation from customer upon the sustainable performance influence their customer equity? For answering this question, the ACSI (American Customer Satisfaction Index) is selected as the theory of this study. Based on ACSI this study applies an index to measure the fashion companies' sustainable performance in retailing and supply chain based on consumer's evaluation. In this model, perceived sustainable quality, perceived sustainable value and sustainable expectation are designed as influencing factors.
... Customer servicing costs are, for example, transaction costs (the cost of providing the customer with the purchased product), contact costs (handling customer inquiries regarding financial products), and other overhead costs (including information technology costs, central service department costs, etc.). Finally, customer value (CV) refers to an individual customer's long-term profitability (Verhoef & Lemon, 2013;Chenhall & Langfield-Smith, 2007;Bayon, Gutsche, & Bauer, 2002;Gupta & Zeithaml, 2006). ...
Article
We investigate the relation between customer satisfaction, customer servicing costs, and customer value in a financial services firm. We find that customer satisfaction is positively associated with future customer servicing costs, as well as with customer value. The relation between customer satisfaction and customer value appears non-linear; higher customer satisfaction appears to have a higher return for the most profitable customer segments. Our findings indicate that customer satisfaction is a value driver; however, customer satisfaction is not cost-free and managers have to consider the costs, as well as the benefits, of increasing customer satisfaction.
... These relationships can be managed through traditional CRM policies, personal selling and through Internet or telecommunication systems. Justifying this approach have stated that the rapid growth of the Internet, Information Systems and other related technologies has created a challenge for marketing and has changed the way of relationships between companies and their customers [1]. Moreover argues that Information Technology can be used to automate all CRM processes [22]. ...
... In order to optimize the efficiency of clustering algorithms, just like the classification algorithms, it is necessary to normalize the datasheet so that no specific variables or any sub-set of variables dominate the analysis. To this end, analysts use the Z-score standardization or Min-max normalization [4]: ...
... However, it is possible to use developed models for calculating customer equity (CE), which is equal to sum of CLV for each segment. In the literature, various models have been developed to calculate CE (Bauer & Hammerschmidt, 2005;Bayon et al., 2002;Blattberg et al., 2001;Villanueva & Hanssens, 2007). After calculating the mean CLV of each segment, we need to know what is the contribution of each branch of the bank to the value generated (mean CLV) for each customer-product segment (step 4). ...
Conference Paper
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This research uses soft system methodology in exploring a real world problem in managing the performance of banks' branches. In the first step, a rich picture is drawn based on the semi-structured interviews with experienced personnel and managers of Iranian commercial banks. Extracting a rich picture about the problem situation and roots of the problem, and based on literature review and well-known theories including resource-based view of the firm and service-profit chain, the paper proposes a conceptual model for customer-centric performance management system (PMS). The proposed model suggests an integration of customer relationship management system and PMS using customer lifetime value metric in managing the bank's performance. The paper also discusses the benefits of this metric. In practice, the model has a potential to provide more strategic use of information system (IS) by increasing the use of managerial knowledge and strategy making being extracted from IS.
... Ryals and Knox (2005) defines customer lifetime value simply as the present value of a customer's future purchases. A similar definition is provided by Bayon, Gutsche et al., (2002) as the sum of the individual customer lifetime value from the firm's point of view. A more detailed definition is given by Berger, et al. (2002), namely a discounted net contribution margin over time of the customer. ...
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This study identifies how the luxury brand marketing mix affects customer equity drivers and suggests intangible equity management strategies so that companies can make long-term profits through luxury brands based on empirical studies of Korean luxury consumers. The results of the study are as follows: First, this study classified the properties that use 8 key factors (product integrity, heritage, exclusivity, premium image, environment and consumption experience, premium price, luxury communication strategy, and brand signature). Second, it shows that product integrity and luxury communication strategy have a positive effect on all customer equity drivers, that brand signature has a positive effect on value equity and brand equity, and that premium price has a negative effect on relation equity. It is important to provide products and services equipped with high quality and luxurious designs based on excellent craftsmanship in order to establish brand equity and value equity. Brand identity needs to be maintained and unique brand signatures need to be developed based on the long history of luxury brands against a traditional backdrop. A diversified communication strategy improves brand recognition while playing a part in facilitating brand association and brand image. In order to improve relationship equity, actions such as a loyalty program to strengthen brand loyalty, need to be taken as well as measures to maintain and enhance customer trust through a reasonable price strategy.
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