Florian Stahl
Mark Heitmann
Donald R. Lehmann
Scott A. Neslin
UNC Next Generation Conference on Brands and Branding
Chapel Hill, NC
April 12-13
The Impact of Brand Equity on Customer
Acquisition, Retention, and Profit Margin
Brand Equity and Customer Lifetime Value
•
Brand equity and CLV are two key marketing metrics . . .
•
. . . But the relationship between them has received
relatively little attention (Keller and Lehmann 2006; Rust,
Lemon, and Zeithaml 2004)
Customer Mindset • Awareness • Associations Customer Behavior • Acquisition • Retention
Brand Equity Customer Lifetime Value Marketing Actions
Conceptual Framework
Marketing Actions • Advertising • Innovation • Promotions • Market presence • Price Brand Equity • Differentiation • Relevance • Esteem • Knowledge Behavior • Acquisition • Retention • Profit Contribution CLVModeling CLV
Two primary models of CLV (Berger & Nasr 1998; Blattberg, Kim, and Neslin 2008):
• Simple retention model
• Markov migration model
Three components of the Markov migration model:
• Customer retention: probability the focal brand is bought in period t given the customer owns the focal brand in period t-1 and purchases a car in period t.
• Customer acquisition: probability the focal brand is bought in period t given the customer owns a competitive brand in period t-1 and purchases in period t.
Data
Data
Marketing Actions
• Advertising (TNS Media)
• Innovation (Wards Automobile)
• Promotions (Automotive News)
• Market Presence
• Number of dealers (Automotive News)
• Number of models offered (Wards Automobile)
• Retail Price (Power Information Network – PIN) Brand Equity
• Young and Rubicam’s Brand Asset Valuator (BAV)
• Differentiation, Relevance, Esteem, Knowledge Customer Behavior
• Total unit sales (PIN)
• Number of acquired customers (PIN)
• Number of retained customers (PIN)
Conceptual Framework
Marketing Actions • Advertising • Innovation • Promotions • Market presence • Price Brand Equity • Differentiation • Relevance • Esteem • Knowledge Behavior • Acquisition • Retention • Profit Contribution CLVAnalysis of Acquisition and Retention
• Differential Effects Multinomial Attraction Model (Cooper and Nakanishi 1988)
39 1 2 1 j r jrt irt irtA
A
S
4 1 5 1exp
k m irt mt mit mr kt kit kr r r i i irtF
AR
BE
BE
X
X
A
• Sirt = Unconditional probability of acquisition (r=1) or retention (r=2) for brand i
in period t.
• Fi = Dummy coding for fixed effect for brand i.
• ARr = Dummy coding for acquisition (r=1) vs. retention (r=2).
• BEkit = Value of brand equity component k of brand i in period t.
Results: Brand Equity Impact on
Acquisition and Retention
Acquisition Retention
Variable Std. Coef. t-stat Std. Coef. t-stat
Brand Equity Differentiation Relevance Esteem Knowledge -0.058 0.089 -0.035 0.162 -2.16 1.94 -0.72 4.53 -0.127 -0.028 0.101 0.349 5.97 -0.61 2.10 9.76 Marketing Advertising Innovation Promotions Market Presence Price 0.099 0.009 0.042 0.288 -0.058 3.45 0.74 3.62 4.79 -1.50 0.066 -0.012 0.014 0.336 -0.014 2.31 -1.05 1.19 5.59 -0.35 R2 0.95
Conceptual Framework
Marketing Actions • Advertising • Innovation • Promotions • Market presence • Price Brand Equity • Differentiation • Relevance • Esteem • Knowledge Behavior • Acquisition • Retention • Profit Contribution CLVResults: Impact of Brand Equity of
Profit Contribution
Variable Std. Coef. t-stat.
Brand Equity Differentiation Relevance Esteem Knowledge 0.36 0.17 -0.16 0.18 5.97 1.73 -1.52 2.13 Marketing Advertising Innovation Promotions Market presence -0.12 -0.01 0.01 0.32 -1.74 -0.56 0.34 2.69 R2 0.91
Conceptual Framework
Marketing Actions • Advertising • Innovation • Promotions • Market presence • Price Brand Equity • Differentiation • Relevance • Esteem • Knowledge Behavior • Acquisition • Retention • Profit Contribution CLVResults: Marketing’s Impact on Brand
Equity
Differentiation Relevance Esteem Knowledge
Std. Coef. t-stat Std. Coef. t-stat Std. Coef. t-stat Std. Coef. t-stat Advertising Innovation Promotions Market Presence Price 0.28 -0.00 0.00 -0.34 -0.16 4.50 -0.01 0.18 -3.36 -1.61 0.22 0.00 0.01 0.40 0.02 4.79 0.03 0.51 5.30 0.32 0.21 -0.00 -0.01 0.13 -0.02 4.86 -0.10 -0.73 1.82 -0.23 0.03 -0.00 -0.00 0.51 0.04 0.69 -0.30 -0.24 7.07 0.51 R2 0.91 0.95 0.96 0.95
Scenario Analysis: Impact of Increased
Market Presence on Brand Equity and CLV
Variable Base Case Increased Presence
Marketing Advertising Innovation Promotions Market Presence Price 41.2 -0.22 -12,423 0.38 $14,792 41.2 -0.22 -12,423 0.56 $14,792 Brand Equity Differentiation Relevance Esteem Knowledge 2.34 0.03 5.95 0.55 2.24 0.05 5.87 0.58 Components of CLV Acquisition Retention Profit Contribution 1.49% 45.69% $19,643 1.55% 48.61% $19,880 CLV ROI $29,036 $29,846 $0.78
Summary and Implications
Summary
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Brand equity and CLV are inextricably linked.
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Differentiation is a double-edged sword.
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Brand knowledge has strong positive impact on all three elements of CLV.
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Marketing drives equity as well as CLV.
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The impact is managerially meaningful.
Implications
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Brand management and customer management are inter-related and
must be coordinated.
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Linking marketing, brand equity, and CLV helps diagnose as well as
quantify return on marketing.
•
Linking marketing, brand equity, and CLV enhances the brand planning
process.
References
• Berger, Paul D., and Nada I. Nasr (1998), “Customer Lifetime Value: Marketing Models and Applications,” Journal of Interactive Marketing, 12 (1), 17-30.
• Blattberg, Robert C., Byung-Do Kim, and Scott A. Neslin (2008), Database Marketing: Analyzing and Managing Customers, New York: Springer.
• Cooper, Lee G., and Masao Nakanishi (1988), Market Share Analysis: Evaluating Competitive Marketing Effectiveness, Boston: Kluwer Academic Publishers.
• Keller, Kevin L., and Donald R. Lehmann (2006), “Brands and Branding:
Research Findings and Future Priorities,” Marketing Science, 25 (6), 740-759.
• Rust, Roland T., Katherine N. Lemon, and Valerie Zeithaml (2004), “Return on Marketing: Using Customer Equity to Focus Marketing Strategy,” Journal of Marketing, 68 (1), 107-127.