Customer Equity Management

The basic premise of customer equity is straightforward: Your customer is a financial asset that your company or organization should measure, manage, and maximize, just like any other asset. Customer equity is more directly related to the bottom line in the financial statement than any other business parameter such as brand value and equity, product portfolio and proprietary technologies, etc., and should be maneuvered to maximize the contribution. Meritus considers customer equity management to be the foundation of a truly customer-centric focused organization and strategy.

Customer equity management is a dynamic, integrated marketing system that uses financial valuation techniques and data about customers to optimize acquisition, retention and opportunities to sell additional products and services to a firm’s customers. This in turn maximizes the value to the company of the customer relationship throughout its life cycle. Although many of the concepts that underlay customer equity management, such as customer retention marketing and customer lifetime value measurement, are not new, the way that a true customer equity approach unifies and moves beyond them, is innovative.

In the last two decades, managerial trends have tended to focus on either cost management or revenue growth. Customer equity management balances the two, creating market-based growth while carefully evaluating the profitability and ROI of marketing investment.

But customer equity management is more than just a method for calculating the asset value of customer relationships. It is a total marketing practice and system and requires integrative business strategies. Firms will need to develop strategies that simultaneously manage products and customers throughout the customer life cycle and that reframe brand and product strategies within the context of their efforts toward customer equity. In addition, customer equity framework changes the way a business allocates resources and efforts. Today, most marketing functions allocate resources by product line but with a customer orientation, the customer life cycle determines how managers distribute resources. Companies that adopt customer equity management also need to build organizations, processes, and performance measures that work together to maximize customer asset value.