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Customer Equity

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.45 Although we can calculate it in different ways, one definition is “the sum of lifetime values of all customers.”46 Customer lifetime value is affected by revenue and by the costs of customer acquisition, retention, and cross-selling.47

The brand equity and customer equity perspectives share many common themes.48 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. 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 and ignores some of the important advantages of creating a strong brand. Also, 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, emphasizes strategic issues in managing brands and creating and leveraging brand awareness and image, providing practical guidance for 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.49 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. Nevertheless, both brand equity and customer equity matter. 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.

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