Customer equity is the total combined customer lifetime value

Customer lifetime value

-Definition of Customer Lifetime Value:In marketing, customer lifetime value , lifetime customer value , or lifetime value is the net present value of the cash flows attributed to the relationship with a customer...

s of all of a company’s customers.

Overview

In deciding the value

Value (economics)

An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...

 of a company, it is important to know of how much value its customer base

Customer base

The customer base is the group of customers and/or consumers that a business serves. In the most situations, a large part of this group is made up of repeat customers with a high ratio of purchase over time. These customers are the main source of consumer spending...

 is in terms of future revenues. The greater the customer equity (CE), the more future revenue in the lifetime of its clients; this means that a company with a higher customer equity can get more money from its customers on average than another company that is identical in all other characteristics. As a result a company with higher customer equity is more valuable than one without it. It includes customers' goodwill

Social capital

Social capital is a sociological concept, which refers to connections within and between social networks. The concept of social capital highlights the value of social relations and the role of cooperation and confidence to get collective or economic results. The term social capital is frequently...

 and extrapolates it over the lifetime of the customers.

The term is a misnomer

Misnomer

A misnomer is a term which suggests an interpretation that is known to be untrue. Such incorrect terms sometimes derive their names because of the form, action, or origin of the subject becoming named popularly or widely referenced—long before their true natures were known.- Sources of misnomers...

 since the term has nothing to do with the traditional meaning of equity

Ownership equity

In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...

.

There are three drivers to customer equity, all of which refer to three sides of the same thing:

1. Value equity: What the customer assesses the value of the product or service provided by the company to be;
2. Brand
   Brand
   The American Marketing Association defines a brand as a "Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers."...
   
    equity: What the customer assesses the value of the brand is, above its objective value;
3. Retention
   Retention
   Retention may refer to:* Retention, in learning, the ability to retain facts and figures in memory ** Selective retention* Cultural retention* Customer retention...
   
    equity: The tendency of the customer to stick with the brand even when it is priced higher than an otherwise equal product;

Customer equity strategy

Companies often attempt to gain more customers and increase revenues by improving customer equity. They do this by:

• improving consumer service
• improving the value or desirability of the brand
• improving goodwill
• improving brand popularity such as by advertisements

Literature

• Rust, Roland T.; Lemon, Katherine N.; Zeithaml, Valarie A.: Return on Marketing: Using Customer Equity to Focus Marketing Strategy, Journal of Marketing 68(1), 2004, 109-127

See also

• CE (disambiguation)
• Equity (disambiguation)
• Net worth
  Net worth
  In business, net worth is the total assets minus total outside liabilities of an individual or a company. For a company, this is called shareholders' preference and may be referred to as book value. Net worth is stated as at a particular year in time...
  
  
• Ownership equity
  Ownership equity
  In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
  
  
• Customer service
  Customer service
  Customer service is the provision of service to customers before, during and after a purchase.According to Turban et al. , “Customer service is a series of activities designed to enhance the level of customer satisfaction – that is, the feeling that a product or service has met the customer...
  
  
• Customer
  Customer
  A customer is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services...
  
  
• Customer relationship management
  Customer relationship management
  Customer relationship management is a widely implemented strategy for managing a company’s interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing,...
  
  
• Customer value proposition
  Customer value proposition
  In marketing, a customer value proposition consists of the sum total of benefits which a vendor promises a customer will receive in return for the customer's associated payment ....
  
  

External links

• Customer equity
• Customer equity
• Customer equity