which is operationalized as the change in a firm’s customer equity relative
to the incremental expenditure necessary to produce the change. The change in the firm’s customer equity is
the change in its current and future customers’ lifetime values, summed across all customers in the industry. Each
customer’s lifetime value results from the frequency of category purchases, average quantity of purchase, and
brand-switching patterns combined with the firm’s contribution margin. The brand-switching matrix can be estimated
from either longitudinal panel data or cross-sectional survey data, using a logit choice model. Firms can analyze
drivers that have the greatest impact, compare the drivers’ performance with that of competitors’ drivers, and
project return on investment from improvements in the drivers. To demonstrate how the approach can be implemented
in a specific corporate setting and to show the methods used to test and validate the model, the authors
illustrate a detailed application of the approach by using data from the airline industry. Their framework enables
what-if evaluation of marketing return on investment, which can include such criteria as return on quality, return on
advertising, return on loyalty programs, and even return on corporate citizenship, given a particular shift in customer
perceptions. This enables the firm to focus marketing efforts on strategic initiatives that generate the greatest
return.
which is operationalized as the change in a firm’s customer equity relative
to the incremental expenditure necessary to produce the change. The change in the firm’s customer equity is
the change in its current and future customers’ lifetime values, summed across all customers in the industry. Each
customer’s lifetime value results from the frequency of category purchases, average quantity of purchase, and
brand-switching patterns combined with the firm’s contribution margin. The brand-switching matrix can be estimated
from either longitudinal panel data or cross-sectional survey data, using a logit choice model. Firms can analyze
drivers that have the greatest impact, compare the drivers’ performance with that of competitors’ drivers, and
project return on investment from improvements in the drivers. To demonstrate how the approach can be implemented
in a specific corporate setting and to show the methods used to test and validate the model, the authors
illustrate a detailed application of the approach by using data from the airline industry. Their framework enables
what-if evaluation of marketing return on investment, which can include such criteria as return on quality, return on
advertising, return on loyalty programs, and even return on corporate citizenship, given a particular shift in customer
perceptions. This enables the firm to focus marketing efforts on strategic initiatives that generate the greatest
return.
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