CUSTOMER EQUITY： MAKING MARKETING STRATEGY FINANCIALLY ACCOUNTABLE

1. Introduction The long-term value of a firm is largelydetermined by the value of the company’scustomer relationships, which result in thefirm’s ‘customer equity’ (Blattberg andDeighton 1996), defined by Rust, Lemon andZeithaml (2000, p.4…

Customer equity: Making marketing strategy financially accountable

The article presents an overview of the literature on customer equity and how customer equity provides an opportunity for marketers to make marketing strategy financially accountable. Traditionally, Return on Investment (ROI) models have been used to evaluate the financial expenditures required by the strategies as well as the financial returns gained by them. However in addition to requiring lengthy longitudinal data, these models also have the disadvantage of not evaluating the effect of the strategies on a firm’s customer equity. The dominance of customer-centered thinking over product-centered thinking calls for a shift from product-based strategies to customer-based strategies. Hence, it is important to evaluate a firm’s marketing strategies in terms of the drivers of its customer equity. The article summarizes a unified strategic framework that enables competing marketing strategy options to be traded off on the basis of projected financial return, which is operationalized as the change in a firm’s customer equity relative to the incremental expenditure necessary to produce the change. Ashwin Aravindakshan is a Ph.D. candidate at the Robert H. Smith School of Business at the University of Maryland. Roland T. Rust holds the David Bruce Smith Chair in Marketing at the Robert H. Smith School of Business at the University of Maryland, where he is Chair of the Marketing Department and directs the Center for Excellence in Service. His lifetime achievement honors include the American Marketing Association’s Gilbert A. Churchill Award for Lifetime Achievement in Marketing Research, the Outstanding Contributions to Research in Advertising award from the American Academy of Advertising, the AMA’s Career Contributions to the Services Discipline Award, Fellow of the American Statistical Association, and the Henry Latané Distinguished Doctoral Alumnus Award from the University of North Carolina at Chapel Hill. He has won best article awards for articles in Marketing Science, Journal of Marketing Research, Journal of Marketing (twice), Journal of Advertising, and Journal of Retailing, as well as MSI’s Robert D. Buzzell Best Paper Award (twice). His book, Driving Customer Equity (written with Valarie Zeithaml and Katherine Lemon) won the 2002 Berry-AMA Book Prize for the best marketing book of the previous three years. His work has received extensive media coverage, including a Business Week cover story and an appearance on ABC World News Tonight with Peter Jennings. He is the founder and Chair of the AMA Frontiers in Services Conference, and serves as founding Editor of the Journal of Service Research. He is currently the Editor-elect of the Journal of Marketing. Professor Rust also is an Area Editor at Marketing Science and Production and Operations Management, and serves on the editorial review boards of the Journal of Marketing Research, Journal of Marketing, and the Journal of Interactive Marketing. He has consulted with many leading companies worldwide, including such companies as American Airlines, AT&T, Chase Manhattan Bank, Dow Chemical, DuPont, FedEx, IBM, Nortel, Procter & Gamble, Sears, Unilever, and USAA. Katherine N. Lemon, Ph.D., is an associate professor of marketing at the Wallace E. Carroll School of Management, Boston College. She conducts research in the areas of customer equity, customer asset management and marketing strategy. Her research appears in leading marketing journals including the Journal of Marketing, Journal of Marketing Research, Marketing Science, Journal of Service Research, and the Journal of Product Innovation Management. Kay serves on the editorial boards of the Journal of Marketing, Journal of Service Research, Journal of the Academy of Marketing Science, International Journal of Electronic Commerce, and the Journal of Interactive Marketing. She has written three books, including Driving Customer Equity: How Customer Lifetime Value is Reshaping Corporate Strategy (with Rust and Zeithaml) and the forthcoming textbook, Customer Equity Management: Marketing Strategy for Profitable Customer Relationships (Pearson Prentice Hall, with Rust and Narayandas). She teaches courses focusing on dynamic customer relationship management, customer equity, marketing strategy, and marketing ROI. Lemon has consulted with and taught senior executives at many leading global companies and in executive development programs worldwide. She has also been an invited and keynote speaker at numerous industry conferences around the world. Valarie A. Zeithaml is the Roy and Alice H. Richards Bicentennial Professor and Area Chair of Marketing at the Kenan-Flagler Business School of the University of North Carolina, Chapel Hill. She obtained an MBA and doctorate from the University of Maryland and has devoted the last twenty years to researching and teaching the topics of service quality and services management. She is the author of three service books: Delivery Quality Service: Balancing Customer Perceptions and Expectations, Driving Customer Equity, and Services Marketing, a textbook now in its third edition. She has won numerous teaching and research awards including the Ferber Award from the Journal of Consumer Research, the Maynard Award from the Journal of Marketing, the Jagdish Sheth Award from the Journal of the Academy of Marketing Science, and the O’Dell Award from the Journal of Marketing Research. She has consulted with more than forty service and product companies and serves on the Board of Directors of the American Marketing Association.