Return on Marketing: Using Customer Equity to Focus Marketing Strategy
Top Cited Papers
- 1 January 2004
- journal article
- research article
- Published by SAGE Publications in Journal of Marketing
- Vol. 68 (1), 109-127
- https://doi.org/10.1509/jmkg.68.1.109.24030
Abstract
The authors present 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. The change in the firm's customer equity is the change in its current and future customers’ lifetime values, summed across all customers in the industry. Each customer's lifetime value results from the frequency of category purchases, average quantity of purchase, and brand-switching patterns combined with the firm's contribution margin. The brand-switching matrix can be estimated from either longitudinal panel data or cross-sectional survey data, using a logit choice model. Firms can analyze drivers that have the greatest impact, compare the drivers’ performance with that of competitors’ drivers, and project return on investment from improvements in the drivers. To demonstrate how the approach can be implemented in a specific corporate setting and to show the methods used to test and validate the model, the authors illustrate a detailed application of the approach by using data from the airline industry. Their framework enables what-if evaluation of marketing return on investment, which can include such criteria as return on quality, return on advertising, return on loyalty programs, and even return on corporate citizenship, given a particular shift in customer perceptions. This enables the firm to focus marketing efforts on strategic initiatives that generate the greatest return.Keywords
This publication has 48 references indexed in Scilit:
- The Theoretical Underpinnings of Customer Asset Management: A Framework and Propositions for Future ResearchJournal of the Academy of Marketing Science, 2004
- Marketing Actions and the Value of Customer AssetsJournal of Service Research, 2002
- Customer Satisfaction and Word of MouthJournal of Service Research, 1998
- A Dynamic Model of the Duration of the Customer's Relationship with a Continuous Service Provider: The Role of SatisfactionMarketing Science, 1998
- Customer lifetime value: Marketing models and applicationsJournal of Interactive Marketing, 1998
- Estimating a Multinomial Probit Model of Brand Choice Using the Method of Simulated MomentsMarketing Science, 1992
- A Longitudinal Analysis of the Impact of Service Changes on Customer AttitudesJournal of Marketing, 1991
- A Model of Distributor Firm and Manufacturer Firm Working PartnershipsJournal of Marketing, 1990
- Consumer Evaluations of Brand ExtensionsJournal of Marketing, 1990
- The Scree Test For The Number Of FactorsMultivariate Behavioral Research, 1966