Page 59 - DMGT308_CUSTOMER_RELATIONSHIP_MANAGEMENT

Customer Relationship Management

Notes future value anticipated from all, or part, of the organisation’s customer base. Rust et al believe
that to improve an organisation’s customer equity requires the building up of three central
drivers i.e., value equity, brand equity, and relationship equity.
1. Value equity is related to a customer’s perception of the price, quality, and convenience of
purchasing products or services. Value equity is most important when:

(a) There are discernable differences between competing products;
(b) Complex decision making with trade-offs between costs and benefits is involved in
purchases;

(c) Options involve long-term business partnerships and high costs;
(d) Innovative products and services are offered leading customers to seek out detailed
information from web sites etc.;

(e) Mature products are being revitalised with the introduction of new benefits and
features.
2. Brand equity is associated with customer awareness and attitudes towards brands. Brand
awareness is particularly influenced through marketing communications. Customers’
attitudes towards brands are related to the close connections, or emotional ties, created by
organisations. The importance of brand equity rises to prominence in the following
situations:

(a) For low-involvement purchases with simple decision processes, including frequently
purchased consumer packaged goods;
(b) When the use of the product is highly visible;

(c) When experience associated with the brand can be passed on between generations
and peers;
(d) When it is difficult to ascertain and evaluate quality prior to consumption.

3. Relationship equity is associated with the things that tie customers into a brand e.g.,
frequent buyer programmes. Specifically, relationship equity may be defined as the
tendency for customers to stick with the brand, above and beyond their objective and
subjective assessments of that brand. Key levers which can enhance relationship equity
are loyalty programs, special recognition and treatment, affinity programs, community-
building programs, and knowledge-building programs.
In essence customers choose to do business with an organisation because (a) it offers better
value, (b) it has a stronger brand, or (c) switching away is too costly. By using this information
organisations can identify key opportunities for growth and improvement.

CLV analysis can assist with forming the right decisions concerning the acquisition and retention
of customers. In the customer classification scheme below (Niraj et al, 2001) the customers in cell
4 are candidates for divestment, those in cell 3 require the most nurturing. Customers in cells 1,
2, and 5 could be lifted to more favourable characteristics with greater profits. Customers in cell
6 are possibly the backbone of the organisation’s profitability but not its growth.
Customer’s High 1 2 3
Future Low 4 5 6
Potential
Poor Marginal High
Current Customer Profitability

Source: Customer classification scheme - Niraj, R., Gupta, M., Narasimhan, C. (2001).

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