Sunday, January 15, 2012

Do All Organisations Recognise the Importance of Customer Equity?

Customer equity places customers at the centre of a firm’s activities, recognises customers as strategic assets and seek to measure the value of a customer (across the many relationships that the consumer has with the company) in order to measure marketing productivity. Thus, understanding how people make the consumption decisions and using that information to better serve the consumer is a central goal of marketing, (Holehonnur, A., Raymond, M.A, Hopkins, C.D and Fine, A.C., 2009, p.166)

In their search to understand their customer’s organisations use various techniques which can include customer surveys, focus groups, customer relationship marketing (CRM) systems, customer platforms for generating feedback and even the relatively recent customer-generated content and social-media networking sites. These techniques and methodologies can be used at the macro level, product level, regional level and/or various forms of demographic levels (age, gender by product by region, etc).

The theory is quite sound and well tested, yet there seems to be a highly-significant correlation between the most recent customer experience and their ‘response’, where a singular bad experience can negate a life-time of good service, in respect of the response, but even then may not necessarily change the customers buying pattern.

This highlights that what customers say at a point in time and what customers actually do, when it’s time to make their next purchase can be significantly different.

Holehonnur et al, highlight how the customer equity framework is composed of value equity (which is driven by quality, price and convenience), brand equity (which is driven by brand awareness, attitude toward the brand and consumers’ perceptions of brand ethics) and retention equity (which is driven by loyalty programmes, affinity programmes, community programmes and knowledge-building programmes). And where Holehonnur et al (along with many others) mention that value equity, brand equity and retention equity have been suggested as drivers of customer equity, (p.168).

But some organisations in the 21st century seem to take a different approach; looking to marginalise the customer, seeing them as a ‘problem’ to their success, rather than a ‘solution.’ These organisations are usually large and have significant market share and seem to adopt  a ‘couldn’t care less’ approach to value, brand and retention and use a less than ‘transparent’ approach to attract the ‘customer’ in the first place. But once ‘hooked’ and signed up, these organisations take little to no interest in providing a service – being big enough to ignore the ‘bleats’ of dissatisfied customers.

Also, cleverly, they ‘hive’ off the customer satisfaction responsibilities to ‘call centres’, where minimum waged staff have to endure the anger and frustrations of dissatisfied customers, on an hourly basis - while those responsible within the organisation enjoy their business lunches and golf days, with business tycoons and celebrities.  Organisations that fit this mould include firms like Vodafone and Orange, who have a clever strategy of wearing the disgruntled customer down through attrition, to the point that the majority of customers just throw in the towel and give up their complaining – towing the company line as planned, like good little sheep.

This seems to be especially true in the more ‘developed’ nations like the US, UK and other European countries (and where I use the word developed loosely). Where these customers feel so much more disenfranchised that they no longer expect ‘good’ service and approach their purchasing decisions with that in mind – it’s just a ‘cold’ purchase, based on price and convenience – with no promise of a repurchase.

It’s worth remembering that in the business theory, value equity is defined as the consumer’s objective assessment of the utility of a brand, which is formed by perceptions of what is given up for what is received. There are three main drivers of value equity, namely, quality, price and convenience. It’s interesting that they mention an objective assessment of a perception which I would have thought didn’t make sense – how can you be objective about a perception? Or at least how you can be truly objective about a perception – if you don’t know how accurate your perception is? But maybe that’s just me. 

At least brand equity is defined as the customer’s subjective and intangible evaluation of the brand (the product or service offered by the firm) and the firm, above and beyond its objectively perceived value. The three key drivers of brand equity are defined as brand awareness, attitude toward the brand, and corporate citizenship and duties, yet I wonder in the real world how much weighting each of these have on the customers ‘real’ brand awareness – and whether the 21st century customer is currently ‘calculating’ the brands corporate citizenship; and especially whether these ‘corporate citizenship’ assessments are based on fact or corporate hype.

In my experience too many large organisations are taking less and less interest in the theory of customer equity and are re-writing the business rules, especially where ‘customer contracts’ are involved in industries like, mobile, Internet etc – where these organisations have two sets of customer rules. First the ‘trap’ where they give all the hype to attract the customer to sign the contract (a bit like the approach to selling time-share or selling second-hand cars); and then once you’ve signed the real reality sets in and you realise that you are nothing more than just a number in their system, rather than an individual human customer – and if you want to leave – leave – but it will cost you.


Holehonnur, A., Raymond, M. A., Hopkins, C. D. and Fine, A. C. (2009). Examining the customer equity framework from a consumer perspective. Journal of Brand Management. Vol. 17, Issue 3, p. 165-180.

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