Page 274 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Unit 11: CRM Measurements

Customer Equity Building Notes

Recently much has been written about the benefits of looking at customers as the key asset,
rather than the brand as the key asset. Companies have historically measured products and
brands and focused on eliminating unprofitable products from their portfolio. This approach,
while seemingly a correct one, fails to account for the multi-product effect on customers and can
actually cause a “profitable product death spiral” in which weeding out unprofitable products
causes initial customer defections, which causes additional products to become unprofitable,
which causes further elimination of unprofitable products and so on (Rust et al., 2001). Rust et al.
argue for changing the focus from unprofitable products to unprofitable customers.
With the customer as the primary unit of analysis, the CRM literature suggests two frameworks:
understanding how customer equity links to business value and understanding how customer
behaviour works and is linked to parts of the overall customer equity.

 The first framework is a management framework for linking various customer-facing
activities in a reasoned way to overall customer equity and business success.
 The second framework is a marketing research framework that seeks to understand how
customer behaviour is influenced by a company’s customer-facing activities.

Customer Value Management

Different approaches exist for measuring customer value. Four approaches are considered here:
customer equity management, customer value analysis, loyalty monitoring, and customer
satisfaction. While customer equity management, as described by Rust et al. in 2001 is perhaps
the most encompassing of the approaches, each of these approaches has a history of research and
literature behind it.
Customer Equity Management: Rust et al. identify three main components to customer equity:

Value The customer’s objective assessment of the utility of the brand, with quality, convenience
equity and price satisfaction as key components.
Brand The customer’s subjective and intangible assessment of the brand beyond its objectively
equity perceived value. Key components include the customer’s awareness of the brand,
customer’s attitude towards the brand and how the customer perceives the brand’s social
ethics.
Retention The customer’s tendency to stick with the brand above and beyond the customer’s objective
equity and subjective assessments of the brand. Key components include loyalty, special
recognition, affinity, community and customer knowledge-building programs.

Each of these areas of customer equity requires measurement and the authors identify some
preliminary drivers of each area of equity that can be measured.
Customer Value Analysis (CVA): Much has been written about Customer Value Analysis (CVA),
which was devised by Bradley Gale and utilized by Ray Kordupleski at AT&T. CVA compares
price and quality (or value) of a product against competitors. The purpose of this analysis is to
determine how changes in price, value or quality can affect market share and as such, this
framework provides a linkage between a company’s customer facing activities with overall
corporate performance. One form of this analysis compares two competitors in a grid with two
axes: relative cost and relative product and service quality.
Since each product or competitor’s scores for price (Relative Competitive Price or RCP) and
quality (Relative Total Quality or RTQ) are expressed as relative percentages (for example,
between 90% and 110%) of each other. If one company changes price or quality in its product, the
position of both companies’products will change on the map. In essence, this map tries to show

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