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
Top managers are constantly faced with the problem of
how to trade off competing strategic marketing initiatives.
For example, should the firm increase advertising,
invest in a loyalty program, improve service quality, or
none of the above? Such high-level decisions are typically
left to the judgment of the chief marketing or chief executive
officers, but these executives frequently have little to base
their decisions on other than their own experience and intuition.
A unified, data-driven basis for making broad, strategic
marketing trade-offs has not been available. In this article,
we propose that trade-offs be made on the basis of
projected financial impact, and we provide a framework that
top managers can use to do this.