Customer Decisions

Kelvin L. Nicholas Hawaii Pacific University MKTG6000 Professor Bauman July 14,2011 Businesses have always placed customer equity at the center of most activities and recognizes them as strategic asset which it seeks to measure in order ascertain their value in measuring marketing productivity. Past techniques

of surveys, focus groups, customer relationship marketing systems, customer platforms for generating feedback and even social networking sites have given marketers credible information but decisions are difficult without a systematic framework. As such and to fill in the gaps, a Customer equity

customer equity framework is proposed.

framework would consist of value equity (which is driven by quality, price and convenience), brand equity (driven by brand awareness, attitude toward the brand and consumers' perceptions of brand ethics) and retention equity (driven by loyalty programs, affinity programs, community programs and knowledge-building programs). (Holehonnur, 2009)

Customer Decisions Understanding the Decisions of Customers in Order to Measure Marketing Productivity Marketing productivity has traditionally been viewed purely in terms of efficiency. The early emphasis in

trying to improve marketing efficiency was predominantly to attempt to minimize marketing costs. This was driven by

the recognized difficulty of adequately measuring the output of marketing; it was also due to an implicit belief that marketing did not create value in any tangible sense, and hence was an activity on which the minimum necessary amount of resources should be expended. (Kotler/Keller 2009) Some marketing measures of value for productivity analysis were estimates of various kinds of elasticity's (advertising, price etc.) measured at the market level. While this analysis was certainly useful at the aggregate market level, it still hid a great deal of inefficiency in the system and imposed very low hurdles for marketing spending. Notwithstanding these challenges, much can be

gained from improvements in marketing productivity that even imperfect measurements can be of great value. However, we must measure the right things; otherwise, our attempts at improvement will, by definition, be misdirected.

Customer Decisions Contrary to just measuring efficiency, customer equity framework model enables marketers to determine which of the three driversvalue, brand or retention equityare most critical to driving customer equity in their industry and firm. Using this approach allows marketers to quantify the financial benefit from improving one or more of the drivers. For example, if a regional grocery chain wants to

evaluate whether or not they should spend $2 million on an advertising campaign that will improve ad awareness by 1 percent, the customer equity model translates the percentage improvement in ad awareness into the percentage improvement in brand equity (a component of customer equity).(Holehonnur, 2009) The percentage improvement in customer equity then translates into dollar improvement. Comparing the advertising expenditure to the dollar improvement allows the company to calculate its marketing productivity or return on the advertising investment. Customer equity framework identifies with the theory of marketing metrics, which is a set of measures that helps them quantify, compare, and interpret marketing performance and which also uses the same drivers of value, brand and retention equity to measure marketing productivity. (Kotler/Keller 2009) Both the Customer Equity Framework

Customer Decisions and Marketing metrics use the customer value-based theory to help organizations achieve superior performance by strategic use of information about the customers to cut costs, speed up delivery, improve benefits and, in short, come up with innovative value propositions for customers. (Holehonnur, 2009) The Customer Equity Framework is useful for examining the contribution of value, brand and retention and is imperative to know how much equity a brand commands in the market as building strong brand equity is a very successful strategy for differentiating a product/service from its competitors (Holehonnur, 2009). Although brand equity cannot be built in short term, it can be built in long term through carefully designed marketing activities. Lessons learned are that previous customer equity research fell into two categories: (1) studies that have developed the customer equity concept, defining its conceptual boundaries or examining the potential reach and (2) studies that have taken a corporate perspective and examined the relationship between customer equity and shareholder value or customer equity and return on marketing. (Holehonnur, 2009) None has examined the

Customer Decisions consumer aspect of customer equity or tested framework from a consumer's perspective. Many factors go into understanding how to influence customer decisions and it remains a challenging concept for most companies but examining the customer equity framework can shed light on overlooked drivers impacting customer decisions. Brand, value and retention equity positively

influence customer decisions, business profit margins and measuring of your marketing productivity.

Customer Decisions Works Cited Holehonnur, Abhijith, et al. "Examining the customer equity framework from a consumer perspective." Journal of Brand Management 17.3 (2009): 165+. Academic OneFile. Web. 14 July 2011. Kotler, P. & Keller, K. L. (2009, 2006, 2003, 2000, 1997). Marketing Management (13th ed.). New Jersey: Pearson Education, Inc.