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EXECUTIVE SUMMARY

Traditional marketing has evolved through direct marketing paradigm in the center of which
new marketin...
MARKETING- WHEN CUSTOMER EQUITY MATTERS

“Gone are those days when customers satisfaction was crucial, today it is the val...
(surf excel), different product of a product line represent different quality ant target different
segment.

Price represe...
footwear. The corporate ethics includes specific actions that can influence customer perception
of the organization. As ex...
present a solid opportunity for firms to strengthen relationship equity by creating a strong
incentive for the customer to...
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Customer Equity

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Transcript of "Customer Equity"

  1. 1. EXECUTIVE SUMMARY Traditional marketing has evolved through direct marketing paradigm in the center of which new marketing concept is developed. This is the concept of customer, where customer orientation is no longer marketing form but company strategies. The new customer concept concerns the creation and design of superior customer value for company’s selected targets in order to obtain long term profits. New marketing activities such as creation of customer life time value, attraction and retention of customers are developed, thus matching the customer preferences of product and services to prices, facilitated communication, promotion, specified distribution channels. The customer equity paradigm recognizes customers as the primary source of both current and future cash-flow. In this frame work, the firm is interested in maximizing the net present value of both current and future pools of customers, which is considered a good proxy for the value of a firm. There are three drivers of customer equity – value equity, brand equity and relationship equity. These drivers work independently and together. Within each of these drivers are specific, incisive actions, or drivers the firm can take to enhance its overall customer equity. The customer equity paradigm recognizes customers as the primary source of both current and future cash-flow. In this frame work, the firm is interested in maximizing the net present value of both current and future pools of customers, which is considered a good proxy for the value of a firm. In short, customer equity offers a powerful new approach to marketing strategy replacing product based strategy with a competitive strategy approach based on growing the long term value of the firm.
  2. 2. MARKETING- WHEN CUSTOMER EQUITY MATTERS “Gone are those days when customers satisfaction was crucial, today it is the value and delight apart from satisfaction that consumer are looking forward to form a product”. In this new globalize world There are lot of company who offering similar kind of product. It is difficult for any company to retain their present customer as well as to attract new customers. Now the question arises how I do manage the brand? How will my customers react to change in product or services offering? Should I raise price? What is the best way to enhance the relationship with my current customers? Where should I focus my efforts? For all these question there is one answer that is “customer equity”. The customer equity paradigm recognizes customers as the primary source of both current and future cash-flow. In this frame work, the firm is interested in maximizing the net present value of both current and future pools of customers, which is considered a good proxy for the value of a firm. Although it may seem obvious that customer equity is key to long term success, understanding how to grow and manage customer equity is more complex. How to grow it is of utmost importance, and doing it well can create a significant competitive advantage. There are three drivers of customer equity – value equity, brand equity and relationship equity. These drivers work independently and together. Within each of these drivers are specific, incisive actions, or drivers the firm can take to enhance its overall customer equity. Value equity: Value is the key stone of the customer relationship with the firm. If the firm’s products and services do not meet the customer’s needs and expectation, the best plan strategy and the strongest retention and relationship marketing strategies will be insufficient. Value equity 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. There are three key livers influence value equity; quality, price, and convenience. Quality can be thought of as encompassing the objective physical and non physical aspects of the product and service offering under the firm’s control. As example: product line of a HUL
  3. 3. (surf excel), different product of a product line represent different quality ant target different segment. Price represents the aspects of “what is given by the customer”. As example: different firm offers different price for a similar product that make number of choice for customer. Convenience related to action that help reduce the customers time cost, search cost, and efforts to do business with firms. Value equity matters to most customers most of the time but it will be most important under specific circumstances. First, value equity will be most critical when clear difference exist between competing products. As example: new anti-wrinkle cream from Himalaya clearly differentiates from others cream. Value equity will be central for purchases with complex decision process as example: soft drink mountain dew, positioned as energiest soft drink for hard working people. Value equity will be important for most business to business purchases. A firm has the opportunity to grow value equity when it offers innovative product and services. As example: Tata do Como comes with first innovative revolution concept of one paisa per second call charges. Value equity will be key for firms adapting to revitalize mature products. As example: Colgate toothpaste. Brand equity: Brand equity is built through image and meaning. The brand serves three vital roles; it act as a magnet to attract new customers to the firm, it can serve as a reminder to customers about the firm’s product and services, it can become the customers emotional tie to the firm. Brand equity has often been defined very broadly to include an extensive set of attributes that influence customer choice. However, In our effort to separate the specific drivers of customer equity. Brand equity is an intangible assessment of the brand, above and beyond its objectively perceived value. The actionable levers of brand equity are brand awareness, attitude toward the brand, and corporate ethics. As example: brand awareness comes through the channel of advertisement, it’s the important tools that can influence and enhance brand awareness. Attitude towards the brand encompasses the extent to which the firm is able to create close connection or emotional ties with the consumer. As example: Bata
  4. 4. footwear. The corporate ethics includes specific actions that can influence customer perception of the organization. As example: community sponsorship, donation and employee relationship. Brand equity matters most in certain situations like low involvement purchases with simple decision process. As example: frequently purchase customer packaged goods (require little customer attention or involvement, as coca-cola). Brand equity is essential when customer’s use of the product is highly visible to others as example: Adidas and Reebok shoes. Brand equity will be vital when experiences associated with the product can be passed from one generation to another. As example: a father teaching his son for use of Bata footwear. The role of brand will be critical for credence goods, when it’s difficult to evaluate quality prior to consumption. As example: Haldiram bhujiya. Relationship equity: Relationship equity is defined as the tendency of the customer to stick with the brand, above and beyond the customer. The key levers, under the firm’s control that may enhance relationship equity are loyalty programs, special recognition and treatment, affinity programs, community building programs, and knowledge -building programs. Loyalty program include actions that reward customer for specific behaviors with tangible benefit. As example: coca-cola provide bumper prize for loyal customers. Special recognition and treatment refers to actions that recognize customers for specific behavior with intangible benefits. As example: big bazaar offers membership card for special discount. Affinity programs seek to create strong emotional connections with the customers linking the customer’s relationship with the firm to the other important aspect of the customer’s life. As example: Visa master card. Community- buildings programs seek to cement the customer- firm relationship by linking the customer to a larger community of like customers. As example: Amway marketing strategy. Knowledge-building programs increase relationship equity by creating structural bonds between the customers and the firm making the customer less willing to recreate a relationship with an alternative provider. As example: dove soap. Relationship equity will be the most important influence on customer equity. Relationship equity will be critical when the benefits the customer associate with the firm’s loyalty programs are significantly greater than the actual “cash value” of the benefits received. The “aspiration value” of a loyalty programs
  5. 5. present a solid opportunity for firms to strengthen relationship equity by creating a strong incentive for the customer to return to the firm for the future purchases. As example firms offer foreign tours. Relationship equity will be key when the community associated with the product or service is an important as the product or service itself. As example: green power. Relationship equity will be vital when firm have the opportunity to create learning relationship with customers. As example: dell computer. Relationship equity becomes crucial in situation where action is required to discontinue the service as example book clubs, insurance, internet service providers. Conclusion: How it’s possible to gain insight into the key drivers of customers equity for an individual firm within an industry. Once a firm understands the critical drivers of customer equity for its industry and for its key customers, the firms can respond to its customers and the marketplace with strategies that maximize its performance on element that matter. Taken down most fundamental level, customers choose to do business with a firm because(a) it offers better value,(b) it has a strong brand, or(c) switching away from it has too costly. Customer equity provides the diagnostic tool to enable the marketing executive to understand which of these three motivators is most critical to the firm’s customer and will be most effective in getting the customer to stay with the firm, and to buy more. Based on this understanding the firm can identify the key opportunities for growth and illuminate unforeseen vulnerabilities. In short, customer equity offers a powerful new approach to marketing strategy replacing product based strategy with a competitive strategy approach based on growing the long term value of the firm. Author: Dewasish Ghoshal (PGDMA) NAARM, Hyderabad

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