The future of marketing metrics: Customer equity

I am going to unpack the concept of customer equity and highlight its importance, in regards to avoiding a single focused approach to marketing in an organisation. Customer equity may be defined as the total of the discounted lifetime values of all of firm's customers.

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Importance of brand equity

In simple terms, the more loyal a customer is, the greater the level of customer equity. As a general rule of thumb, the higher organisations customer equity, the more sustainable an organisations competitive advantage.

Many different texts exist, that serve to contrast brand equity and customer equity and in the process underplay the role and importance of brand equity in relation to achieving strong customer equity levels.

The key learning from these articles is the need to expand focus beyond simple brand equity metrics, so as to include the other important elements of customer equity. A CEO may find him/herself fixated on achieving brand equity growth, i.e. to beat the nearest industry rival in the global rankings, but at the end of the day, this short term focus will not be a guarantee of future organisational success. (And if you are an advocate of brand-centricity - this is a very important consideration).

Kinds of customer equity

Customer equity is composed of three elements, namely: value equity, relationship equity and brand equity. Value equity refers to value for money, whilst relationship equity is what makes a customer stay with a preferred brand rather than swap to another. The drivers of brand equity are brand awareness, customer attitude, brand ethics and customer perception. Brand equity is ultimately a measure of a customer's subjective and intangible assessment of the brand, beyond any objectively perceived value.

In unison, these three elements, aid in creating customer equity for an organisation; as a manager, it is important to understand the type of product and sector norms in order to focus attention on the different customer equity elements, so as to avoid losing important ground in the race to achieving a growth in customer equity.

Brand wars are here, but the future will be customer equity wars.

Customer equity wars will require a new focus and an organisational structure to complement the achievement of objectives related to achieving optimal customer equity.

I propose the creation of global customer equity index that rates organisations based on how they have and are going about creating customer equity relative to other organisations, whether these be local or global.