Division of Research Working Paper Abstract

96-017

MANAGING MARKETING BY THE CUSTOMER EQUITY CRITERION

Robert C. Blattberg and John Deighton

Retention marketing is not a universal "Good Thing." This article explains how to set a retention investment levels in relation to acquisition investment. To balance acquisition and retention spending on a brand, the first step is to understand the brand's innate retention potential, which is given by the way the customer uses the product and indicated by best practice in its industry. From managerial judgments about the marginal return to increased spending on acquisition and retention, an optimal allocation of budget can be derived between activities to find customers and activities to keep customers, by seeking to maximize a quantity called customer equity: the lifetime value of the expected contribution steam from each customer. This argument helps to clarify the significance of brand equity. Brands are devices to lower the cost of acquisition and to facilitate retention, but they are means whose end is customer equity and whose managerial utility is revealed in customer equity.

MKT
17 pages