Customer equity is the total combined
customer lifetime values of all of the company's customers.
[Fripp. G (2014]
Guide to Customer Lifetime Value
/ref> It is calculated by multiplying the number of customers by the average value of each customer. Customer equity is important because it reflects the potential future revenue that a company can generate from its existing customer base.
Overview
In deciding the value of a company, it is important to know of how much value its customer base is in terms of future revenues. The greater the customer equity (CE), the more future revenue
In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business.
Commercial revenue may also be referred to as sales or as turnover. Some companies receive rev ...
in the lifetime of its clients; this means that a company with a higher customer equity can get more money from its customers on average than another company that is identical in all other characteristics. As a result, a company with higher customer equity is more valuable than one without it. It includes customers' goodwill and extrapolates it over the lifetime of the customers.
The term is a misnomer since the term has nothing to do with the traditional meaning of equity.
There are three drivers to customer equity, all of which refer to three sides of the same thing:
#Value equity: What the customer assesses the value of the product or service provided by the company to be;
#Brand
A brand is a name, term, design, symbol or any other feature that distinguishes one seller's good or service from those of other sellers. Brands are used in business, marketing, and advertising for recognition and, importantly, to create a ...
equity: What the customer assesses the value of the brand is, above its objective value;
# Retention equity: The tendency of the customer to stick with the brand even when it is priced higher than an otherwise equal product;
Customer equity strategy
Companies often attempt to gain more customers and increase revenues by improving customer equity. They do this by:
*improving consumer service
*improving the value or desirability of the brand
*improving goodwill
*improving brand popularity such as by advertisements
*improving the trust of the customer towards the brand.
See also
* Net worth
* Ownership equity
* Customer service
* Customer
In sales, commerce, and economics, a customer (sometimes known as a client, buyer, or purchaser) is the recipient of a good, service, product or an idea - obtained from a seller, vendor, or supplier via a financial transaction or exchange f ...
* Customer relationship management
Customer relationship management (CRM) is a process in which a business or other organization administers its interactions with customers, typically using data analysis to study large amounts of information.
CRM systems compile data from a r ...
* Customer value proposition
In marketing, a customer value proposition (CVP) consists of the sum total of benefits which a vendor promises a customer will receive in return for the customer's associated payment (or other value-transfer).
Customer Value Management was sta ...
References
Literature
* Rust, Roland T.; Lemon, Katherine N.; Zeithaml, Valarie A.: ''Return on Marketing: Using Customer Equity to Focus Marketing Strategy'', Journal of Marketing 68(1), 2004, 109-127
External links
Customer equity
Guide to Customer Lifetime Value
Customer equity
Equity
Valuation (finance)