Driving Customer Equity : How Customer Lifetime Value is Reshaping Corporate Strategy

In their efforts to become more customer-focused, companies everywhere find themselves entangled in outmoded systems, metrics, and strategies rooted in their product-centered view of the world. Now, to ease this shift to a customer focus, marketing strategy experts Roland T. Rust, Valarie A. Zeithaml, and Katherine N. Lemon have created a dynamic new model they call "Customer Equity," a strategic framework designed to maximize every firm's most important asset, the total lifetime value of its customer base.

The authors' Customer Equity Framework yields powerful insights that will help any business increase the value of its customer base. Rust, Zeithaml, and Lemon introduce the three drivers of customer equity -- Value Equity, Brand Equity, and Retention Equity -- and explain in clear, nontechnical language how managers can base their strategies on one or a combination of these drivers. The authors demonstrate in this breakthrough book how managers can build and employ competitive metrics that reveal their company's Customer Equity relative to their competitors. Based on these metrics, they show how managers can determine which drivers are most important in their industry, how they can make efficient strategic trade-offs between expenditures on these drivers, and how to project a financial return from these expenditures. The final section devotes two chapters to the Customer Pyramid, an approach that segments customers based on their long-term profitability, and an especially important chapter examines the Internet as the ultimate Customer Equity tool. Here the authors show how companies such as Intuit.com, Schwab.com, and Priceline.com have used more than one or all three drivers to increase Customer Equity.

In this age of one-to-one marketing, understanding how to drive Customer Equity is central to the success of any firm. In particular, Driving Customer Equity will be essential reading for any marketing manager and, for that matter, any manager concerned with growing the value of the firm's customer base.

Little clear quanatative methods are expressed, rather we are forced to endure a hodgepodge of graphs that belong in a high school classroom.

Like the graphs, this book was poorly written. The sections are confusing and painful to endure. All of the concepts could be presented in a more condensed fashion, and quantative methods addressed. Better works are out there, so save your money on this one.


Good book   August 30, 2002
Jonathan Gauthier (Montreal, Canada)
2 out of 3 found this review helpful

This book shows you the importance of been a client focus organisation through ''value, brand and retention equity''. Also good for strategy.


Useful guidebook for emerging businesses   August 29, 2002
Douglas A. Hott (Cincinnati, OH United States)
8 out of 10 found this review helpful

Since the beginning of the industrial revolution, companies have built an organization around their products. In the traditional corporate model, finance, marketing, information systems, and operations focus on the profitability of products rather than customers. In recent years, companies have attempted to become more customer focused but often lack the organizational structure and corporate strategy to succeed in this transformation. In Driving Customer Equity, Roland Rust, Valarie Zeithaml, and Katherine Lemon develop a conceptual framework to help companies reshape their corporate strategy to grow the lifetime value of their customer base, or "customer equity". Although the concepts and strategies in this book could, theoretically, grow customer equity, the lack of real world implementations offered in this book leave the reader unsure of the feasibility to existing firms.

Rust, et al., break down the customer equity strategy into four parts: examining the problems with traditional product-oriented strategies, defining the customer equity framework, developing a customer-centered strategy, and managing the customer equity strategy. Each concept within the customer equity strategy is clearly organized and explained. At the end of each chapter the authors provide a table of "key insights" matched to "action steps" for each insight. Throughout the book, these tables provide a high-level roadmap to implementing the customer equity framework.

Beginning with two important concepts, the "profitable product death spiral" and the "lifetime value of the customer", the authors build a good case for changing a company's focus from products to customers. The theory's foundation is that companies who remove unprofitable products from the marketplace may lose customers who purchase bundled products and therefore lose long-term profit potential. Rust, et al., argue that companies who focus on the value of the customer over their lifetime may choose to keep unprofitable products to maintain or grow their customer base and increase long-term customer equity.

The authors build on this basis by breaking down customer equity into three unique but interdependent areas - value equity, brand equity, and retention equity. Value equity of a company is "when what it offers matches what the customer expects and perceives value to be." The concept of value equity is used as the foundation of the customer's relationship with the firm. Brand equity is defined as the "customer's subjective and intangible assessment of the brand, above and beyond its objectively perceived value." Retention equity is defined as the "customer's tendency to stick with the brand, above and beyond objective and subjective assessments of the brand."

While none of these three concepts are new, Rust, et al., redefine these areas in terms of the impact, needs, and perceptions of the individual customer. The action steps at the end of these chapters, such as "Engage in marketing research to understand which definitions of value are relevant to your customers. Tailor offers to focus on different value perception," are mostly common sense. There are no novel gems of wisdom, but instead a woven fabric of simultaneous actions necessary for the customer equity strategy to work.

In subsequent chapters, the authors go on to develop a customer-centered strategy that tries to measure customer equity, evaluate the financial impact of different customer equity strategic decisions, and convince upper management that customer-centered strategy will be more profitable to the company. Each section is well written and again provides action steps. However, these steps, such as "Develop a uniform evaluation procedure for all improvement programs for increasing Customer Equity," are often very high-level or require very large investments in time or money.

The last few chapters investigate ways to manage customer equity through redefining market segmentation based on the profitability of each customer rather than demographic, geographic, or psychographic approaches. As a result of this new segmentation, the authors show that some customers who are actually a drain on the company's resources should be proactively removed from the customer pool, thus lowering costs. It may seem counter-intuitive to decrease customers, but the authors make a good argument and provide ways to remove the customers gracefully.

While the book is well written and clearly explained, there are a few problems with the implementation logistics for existing firms. Examples of successful shifts to customer equity strategy are scare and repetitious. Fed Ex, IBM, and banks are some of few real-world companies that are shown to have implemented parts of the customer equity framework. There is no example of a company who has adopted the entire customer equity strategy. Without at least one leader in this revolution, managers may hesitate to pick up the banner of customer equity.

Another complicating issue is the customer equity strategy must be implemented at all levels of the company simultaneously to be effective. Many of the action steps require a significant amount of time, money, and buy-in from upper management, as well as fundamental shifts in organization and company values. For a start-up company, this strategy could be incrementally implemented as the company grows, but for established organizations it is a daunting and most likely impossible task.

Rust, Zeithaml, and Lemon have described a very thorough strategy that will most likely become the standard of operation for new companies. The ideas expressed in Driving Customer Equity, taken as a whole, could grow value equity, brand equity, and retention equity. However, without a success story to rally interest, successful implementation for existing firms is out of reach unless the fundamental values of and dedication to the customer equity strategy are embraced by senior management, employees, and shareholders.


Customer Equity: Moves the reader fom consepts to numbers   January 8, 2002
Tor W. Andreassen (Norway)
10 out of 10 found this review helpful

I approached this book as a heavy consumer of marketing literature in general and customer lifetime value literature specifically. Based on previous readings my expectations were low. However, the book's basic messages pertaining to customers not products, services not products, identifying the three drivers of customer equity and finally, how to estimate the numbers fascinated me. Through Customer Equity the reader can learn about some of the fundamentals behind what drives a company's profitability. CEOs are not concerned about the 4P's of marketing. Their focus is on the overall recourses allocation in order to secure future revenue from current and future customers. This book recognizes this and provides the reader with a roadmap to the allocation of the marketing budget among three main drivers of customer equity, i.e. brand equity, value equity or retention equity. Customer Equity provides the reader with sophisticated tools to estimate the financial consequences of the alternatives before they are executed. The ability to estimate the impact of improvement in any of the three areas on customer equity, will in my mind regain marketers access to the CEO -an access they lost to finance and strategy in the 1980s. In an era influenced by customer relationship management thinking, Customer Equity is a must reader for enlightened managers.