Customer equity

Customer Equity can be defined as the perception that a customer experiences with a company's product or service versus what he or she has to give up to obtain the desired profit. It therefore refers to the value that customers have within an organisation. It is also the connections that are created between the customer and the company during the life cycle of the company.

According to Meier and Stormer, they describe customer equity as "the lifetime value of the consumer or the customer's wealth".

Similarly, Zelkowitz cites customer equity as "the total lifetime value discounted by all the consumers that the company has".,

Customer equity in a company

Nowadays, customers have become increasingly demanding and the market has become more competitive. This means that companies have had to consider new strategies aimed at improving the company's relationship with customers, in other word new ways of approaching them, serving them and building customer loyalty.

Customer equity takes into account three defining factors that will enable a comprehensive analysis and the development of a customer-oriented strategy,

• Value Equity: this refers to customers' evaluation of a business or brand to determine the value of the business or brand and what they give up for what they receive. There are also three crucial factors that influence brand equity; price, convenience and quality. Thus, brand equity will depend on the ratings given by consumers.
• Brand Equity: this is an element related to the branding process, in other word the image and meaning of the brand. Similarly, it is the perception and evaluation that a consumer makes of a product or service. On many occasions, customers resort to certain elements such as advertising, logo, typography, brand colours .... to make their final choice. It should be noted that the three most important elements of brand equity are brand attitude, corporate ethics and brand awareness.
• Relationship Equity: this is defined as the bond or tendency that a customer has with your brand, in other word they prefer it over any other competing brand. It is also the connection of loyalty that is formed between the consumer and a service or product. It should be emphasized that, to enhance this bond, loyalty programmes, affinity programmes, special deals, recognition, community building programmes must be used.....

Having explained the three factors, we will now comment on which of them are most important for customer equity,

The equity of value will be important to the consumer in certain circumstances such as;

1. Where there are significant differences between the products or services offered by competitors. Therefore, companies will need to influence customer perceptions to increase value equity.
2. When purchases involve difficult decision processes for the customer.
3. It will be substantial for most business-to-business (B2B) procurement. Importantly, these are complex processes and involve long-term commitments between the parties.
4. When companies offer innovative services or products to their customers.

Elements affecting customer equity

It should be noted that there are certain aspects that affect customer equity, which can be divided into three sections,

Managed directly by the marketing department:

• Media advertisements
• Sponsorship
• Spend rate
• Direct mailing-customers and prospects-branch salespersons

Indirectly controlled by the marketing department:

• Customer satisfaction
• Brand value
• Reachable information

External:

• Economic factors
• Identified shocks

References

• Coote Martin, G. (2015), The Importance Of Customer Equity And Branding: A Research Note. Journal of Business & Economics Research, Vol. 13, Num 3, pp.153-154.
• Hanssens, D.M., & Thorpe, D., & Finkbeiner, C. (2008), Marketing When Customer Equity Matters. Harvard Business Review, Reprint R0805J, pp.1-9.
• Kumar, V., & Shah, D. (2015), Handbook of Research on Customer Equity in Marketing. Edward Elgar Publishig, pp.21-29.
• Lemon, K.N., & Rust, R.T., & Zeithamal, V.A. (2012), What Drives Customer Equity A company's current customers provide the most reliable source of future revenues and profitsMedia Manager Responsibilities and Duties: A Synopsis. American Marketing Association, Vol. 10, Nº 1, pp. 1-5.

Author: Zaira Bancells Guerrero,Mónica Guijarro Bernabeu,Gabriela Varela Barker

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