Customer Equity

Achieving brand equity should be a top priority for any organization. “Marketing Memo: Twenty-First-Century Branding” offers some wise advice on continued brand success.

Finally, we can relate brand equity to one other important marketing concept: customer equity. The aim of customer relationship management (CRM) is to produce high customer equity.106 Although we can calculate it in different ways, one definition is “the sum of lifetime values of all customers.”107 As Chapter 5 reviewed, customer lifetime value is affected by revenue and by the costs of customer acquisition, retention, and cross-selling.

Acquisition depends on the number of prospects, the acquisition probability of a prospect, and acquisition spending per prospect.

  • Retention is influenced by the retention rate and retention spending level.
  • Add-on spending is a function of the efficiency of add-on selling, the number of add-on selling offers given to existing customers, and the response rate to new offers.

The brand equity and customer equity perspectives certainly share many common themes.109 Both emphasize the importance of customer loyalty and the notion that we create value by having as many customers as possible pay as high a price as possible.

In practice, however, the two perspectives emphasize different things. The customer equity perspective focuses on bottom-line financial value. Its clear benefit is its quantifiable measures of financial performance. But it of­fers limited guidance for go-to-market strategies. It largely ignores some of the important advantages of creating a strong brand, such as the ability to attract higher-quality employees, elicit stronger support from channel and supply chain partners, and create growth opportunities through line and category extensions and licensing. The customer equity approach can overlook the “option value” of brands and their potential to affect future revenues and costs. It does not always fully account for competitive moves and countermoves or for social network effects, word of mouth, and customer-to-customer recommendations.

Brand equity, on the other hand, tends to emphasize strategic issues in managing brands and creating and le­veraging brand awareness and image with customers. It provides much practical guidance for specific marketing activities. With a focus on brands, however, managers don’t always develop detailed customer analyses in terms of the brand equity they achieve or the resulting long-term profitability they create.110 Brand equity approaches could benefit from sharper segmentation schemes afforded by customer-level analyses and more consideration of how to develop personalized, customized marketing programs—whether for individuals or for organizations such as retailers. There are generally fewer financial considerations put into play with brand equity than with customer equity.

Nevertheless, both brand equity and customer equity matter. There are no brands without customers and no customers without brands. Brands serve as the “bait” that retailers and other channel intermediaries use to attract customers from whom they extract value. Customers are the tangible profit engine for brands to monetize their brand value.

MARKETING MEMO Twenty-First-Century Branding

An early pioneer in the study of branding and still active as a brand strategist, David Aaker has much experience with what makes brands successful. Here are his top ten “to do tasks” for marketers—what you need to know to excel at brand building.

  1. Treat brands as assets. Brand strategy needs to be developed in tandem with business strategy.
  2. Show the strategic payoff of brand building. Show how the success of a business strategy depended on brand assets.
  3. Recognize the richness of brands—go beyond the three-word phrase. Although two to four associations are often the most import, understand the full range of associations that are cued by the brand.
  4. Get beyond functional benefits. Emotional and self-expressive benefits and brand personality can provide a basis for sustainable differentiation and a deep customer relationship.
  5. Consider organizational associations—people, programs, values, strategies, and heritage that are unique to the company and meaningful to customers.
  6. Look to role models. What other companies have been successful with similar branding efforts? Are there any people or programs internal to the firm that exemplify desired characteristics for the brand?
  7. Understand the brand relationship spectrum and the right degree of separation for new offerings.
  8. Look for branded differentiators. Even functional benefits, if copied, can remain distinctive if given a strong brand identify initially.
  9. Use branded energizers—a branded person or program you can associate with your brand.
  10. Win the brand relevance battle—make your competitors seem irrelevant.

Source: “David Aaker’s Top 10 Brand Precepts,” white paper, www.prophet.com. For more insights into branding best practices, see Allen Adamson, The Edge: 50 Tips from Brands That Lead (New York: Palgrave Macmillan, 2013).

Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.

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