By understanding customer relevancy—what really matters to customers—companies can develop programs for mass marketing programs that are more productive while, at the same time, reserving the funding required for CMR.
It’s not just mass media investments that suggest waste that could be reapplied for CMR projects. Seklemian/Newell studies have shown that most firms, even those who profess to be practicing CRM, are over-mailing and are spending significant telemarketing dollars to contact the wrong customers. Profitable proactive marketing requires understanding the desired customer experience and
There is waste on the reactive side of the communication equation as well. As a company adapts to customers’ needs and requirements, it
In late 2002, after
Companies trying to provide best customer service to all of their customers are misspending on these initiatives. Empowering the customer to manage the relationship allows him to decide the level of service he wants from your firm. Companies exploring this opportunity are finding they can save enough by eliminating
One of the best analyses of the process of learning where to
This concept of customer equity is so central to the accomplishment of CMR goals and objectives I have asked the authors to contribute the following:
If you had an extra $500K in your marketing budget, how would you spend it? Would you:
Run more television advertising?
Invest in your loyalty program?
Bring in exciting new merchandise?
Develop new products or services?
Hire more sales
Sponsor a local community event?
How would you decide? Now it’s
Recently, new research has been done to develop a model and mechanism to figure out which investments (e.g., CRM programs, brand building, price
To understand how this new approach, called the Customer Equity Framework, works, it’s important to understand the critical questions
What do my customers want?
How can I get my customers to come back more often? To buy more? To tell their
How do I convince customers to spend more money with my firm than with my
Most important, how do I do this at a profit?
In answering these questions, you have to understand what truly
Now, just because Customer Equity deals with customer lifetime value (CLV), don’t think we’re talking about customer relationship management. We’re not.
Think about how you might grow the long-term profits from your customers and gain more share of your competitors’ custom- ers—in other words, how you might increase your Customer Equity. You can:
Improve the value your customer receives (we call this Value Equity)
Strengthen the customer perceptions of your brand (we call this Brand Equity)
Deepen the relationship the customer has with you (we call this Relationship Equity)
By breaking up the major drivers of Customer Equity into these three areas, you can then begin to understand what is most important to you customers. Your Customer Equity will grow or shrink based upon (1) how well you understand which of these drivers is most important to your customers, and (2) how well you manage—and invest in—those drivers that are critical to your customers.
A bit more about each driver:
is defined as the customer’s objective assessment of the utility of a brand based on perceptions of what is given up for what is received. In essence, your customer’s objective evaluation of your products and services. Think about this as the customer’s
is defined as the customer’s
Relationship Equity is defined as the customer’s tendency to “stick” with your store, beyond the customer’s objective and subjective assessments of your firm. Think of Relationship Equity as your firm’s social connection or glue with the customer—built up over time through the interactions the customer has with you. The key action steps to strengthen Relationship Equity are: loyalty programs (with both soft and hard benefits), community-building programs, and knowledge- building programs.
Right now, many firms
to do all of these
So, how do you begin to determine where you should invest your marketing efforts for maximum return? The decision support system, Customer Equity Driver , takes you through the following steps to determine the best use of your marketing dollars:
First, you must determine what is the most important driver to your customers in their future purchasing decisions. Brand Equity? Value Equity? Relationship Equity?
you need to understand which actionable subdrivers are most effective in growing the value of your customer base. In other words, what actions will be most effective in getting your current customers to buy more, increase the
evaluate where you are on each driver relative to your competitors. For example, you may find out that your firm is perceived as “average” on a subdriver of Value Equity that customers really care about (e.g., knowledgeable sales staff,
Finally, invest where the payback is highest. You will actually be able to compare the potential returns from very different strategies—a loyalty program versus a price reduction; a community involvement program versus a merchandising initiative.
The Customer Equity framework provides an actionable approach to marketing that is customer centered, yet competitor cognizant. You will finally be able to understand, as the old adage suggests, which half of your marketing efforts are “
In our research on Customer Equity and in the writing of our book, Driving Customer Equity: How Customer Lifetime Value Is Reshaping Corporate Strategy (McGraw-Hill, 2000), we have learned some key lessons about how to grow Customer Equity in a variety of business environments. Here’s what we’ve learned.
It’s not always about price.
It’s not always about having the right brands.
Loyalty programs are not the key driver for all retailers (you may be giving away unnecessary margin).
Soft benefits can be as (or more) important as hard benefits in loyalty programs.
You can’t overlook the importance of assortment and convenience to your customers.
Most important: It’s not just about brand. It’s not just about quality, convenience, and price. It’s not just about CRM. It is about finding out what’s important to your customers —what “drives them” to do business with you—and making sure that you’re the best at what matters most to them! Best in your region. Best in your specialty area. Continue to deliver on what is most important to your customers. It’s not rocket science. But it is hard work. 
 Roland T. Rust, Valarie A. Zeithaml, and Katherine N. Lemon, Driving Customer Equity—How Customer Lifetime Value is Reshaping Corporate Strategy. Copyright 2000 by Roland T. Rust, Valarie A. Zeithaml, and Katherine N. Lemon. Reprinted with permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group.
Katherine Lemon is assistant professor of marketing at the Carroll School of Management, Boston College. She can be reached at firstname.lastname@example.org. Roland Rust is the David Bruce Smith Chair in Marketing and director of the Center for E-Service at the R. H. Smith School of Business at the University of Maryland. Valarie Zeithaml is Roy and Alice H. Richards Bicentennial