
Marketing: What is Customer Equity? Building Customer Equity.
Saturday, August 20, 2022
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The ultimate aim of customer relationship management is to produce high customer equity Customer equity is the total combined customer lifetime values of all of the company's current and potential customers. Clearly, the more loyal the firm's profitable customers, the higher the firm's customer equity. Customer equity may be a better measure of a firm's pers performance than current sales or market share. Whereas rales and market share reflect the past customer equity suggests the future. Consider Cadillac.
In the 1970s and 1980s, Cadillac had some of the most loyal customers in the industry. To an entire generation of car buyers, the name " Cadillac " defined American luxury, Cadillac's share of the luxury car market reached a whopping 51 percent in 1976. Based on market share and sales, the brand's future looked rosy. However, measures of customer equity would have painted a bleaker picture, Cadillac customers were getting older ( average age 60 ) and average customer lifetime value was falling. Many Cadillac buyers were on their last car. Thus, although Cadillac's market share was good, its customer equity was not.
Compare this with BMW. Its more youthful and vigorous image didn't win BMW the early market share war. However, it did win BMW younger customers with higher customer lifetime values. The result: In the years that followed, BMW's market share and prof its soared while Cadillac's fortunes eroded badly. Thus, market share is not the answer. We should care not just about current sales but also about future sales. Customer lifetime value and customer equity are the names of the game. recognizing this, in recent years, Cadillac has attempted to make the Caddy cool again by targeting a younger generation of consumers with new high-performance models and more vibrant advertising. The average consumer aspiring to own a Cadillac is now about 36 years old. "
Building Customer Equity
Building Customer Equity We can now see the importance of not just acquiring customers, but of keeping and growing. ing them as well. One marketing consultant puts it this way: " The only value your company will ever create is the value that comes from customers the ones you have now and the ones you will have in the future Without customers, you don't have a business. " Customer relationship management takes a long-term view, Companies want not only to create profitable customers, but to " own " them for life, earn a greater share of their purchases, and capture their customer lifetime value.
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