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Unformatted text preview: Return on Marketing / 109 Journal of Marketing Vol. 68 (January 2004), 109–127 Roland T. Rust, Katherine N. Lemon, & Valarie A. Zeithaml Return on Marketing: Using Customer Equity to Focus Marketing Strategy The authors present a unified strategic framework that enables competing marketing strategy options to be traded off on the basis of projected financial return, which is operationalized as the change in a firm’s customer equity rel- ative 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 esti- mated from either longitudinal panel data or cross-sectional survey data, using a logit choice model. Firms can ana- lyze drivers that have the greatest impact, compare the drivers’ performance with that of competitors’ drivers, and project return on investment from improvements in the drivers. To demonstrate how the approach can be imple- mented in a specific corporate setting and to show the methods used to test and validate the model, the authors illustrate a detailed application of the approach by using data from the airline industry. Their framework enables what-if evaluation of marketing return on investment, which can include such criteria as return on quality, return on advertising, return on loyalty programs, and even return on corporate citizenship, given a particular shift in cus- tomer perceptions. This enables the firm to focus marketing efforts on strategic initiatives that generate the great- est return. Roland T. Rust is David Bruce Smith Chair in Marketing, Director of the Center for e-Service, and Chair of the Department of Marketing, Robert H. Smith School of Business, University of Maryland ([email protected] edu). Katherine N. Lemon is Associate Professor, Wallace E. Carroll School of Management, Boston College (e-mail: [email protected]). Valarie A. Zeithaml is Roy and Alice H. Richards Bicentennial Professor and Senior Associate Dean, Kenan-Flagler School of Business, University of North Carolina, Chapel Hill (e-mail: [email protected]). This research was supported by the Marketing Science Institute, University of Maryland’s Center for e-Service, and the Center for Service Marketing at Vanderbilt University. The authors thank Northscott Grounsell, Ricardo Erasso, and Harini Gokul for their help with data analysis, and they thank Nevena Koukova, Samir Pathak, and Srikrishnan Venkatachari for their help with background research.The authors are grateful for comments and suggestions provided by executives from IBM, Sears, DuPont, General Motors, Unilever, Siemens, Eli Lilly, R-Cubed, and Copernicus. They also thank Kevin Clancy, Don Lehmann, Sajeev Varki, Jonathan Lee, Dennis...
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- Spring '12
- Marketing, CLV, customer equity